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IP, IP Asset, Patent

Google-IBM Patent Deal: Business As Usual?

Google’s been on an IP shopping spree lately, snatching up large swaths of patents at a time.  One of the more notable transactions is an apparent deal with IBM that was at least partially inked back in March, and continues to make headlines almost a year later.  (FOSS Patents blogger Florian Mueller indicated that the majority of the license agreements were signed in May, but I found a handful signed as early as March 2011).  The blog SEO by the Sea recently kicked off the latest round of headlines by noting a 217 IP asset transfer from Big Blue to the infinite pun.  Neither IBM nor Google announced the deal, suggesting the blogger learned about the patent transfer from the USPTO’s weekly assignment data feed (or from someone who did).

All told, the article notes that a combination of over 2300 patents and patent applications changed hands between IBM and Google in 2011.  A brief search on Patent Tools for patents originally assigned to IBM, and now currently assigned to Google identifies more than 3400 patents and applications.  However, when SEO broke news of the first major transaction, 1000 IP assets in July 2011, Google responded to mainstream media outlets with a remarkably weak public response: “Like many tech companies, at times we’ll acquire patents that are relevant to our business.”

Google’s silence on the IBM purchase is, in itself, an interesting phenomenon. Consider General Counsel Kent Walker’s public statements in April of last year that, despite the plethora of “low-quality software patents” that “threaten[] to stifle innovation,” the company planned to aggressively pursue ownership of Nortel’s patent portfolio.  Notably, at least some of the IBM/Google patent assignment agreements indicate an execution date of March.  In any event, when the attempt to secure Nortel’s patents failed, Chief Legal Officer David Drummond issued a public diatribe, ranting about “a hostile, organized campaign against Android” this past August.  During this whole time, documentation on the IBM purchases were being signed and filed with the USPTO.

For anyone who follows the IP sector, IBM’s eagerness to sell parts of its portfolio likely come as no surprise, as does the silence.  IP licensing is a billion dollar annual business in itself, so the fact that Google’s transaction doesn’t reach the “materiality” threshold is unsurprising.  And while a normal person might think losing 3400+ assets impacts the long-term health of its IP licensing program, IBM will probably add as many patents to its roster in the first two quarters.

Getting back to Google, however, the silence raises my suspicion that the IBM negotiations were a hint more “hostile” than mainstream media is suggesting.  Consider the fact that CEO Larry Page openly announced the Motorola acquisition, offering flowery praise on the former handset giant, and providing assurances on the benefits of the combination.  If Google felt similarly that the IBM patent purchases would strengthen Android’s market position, one would expect similar statements to flow freely from the likes of Page, Drummond or Walker.  What’s more, Google was more than eager to explain how (and why) it was targeting other patent portfolios, seeking to add depth and strength to its weak, organically grown arsenal.  Instead, we’re left with a deafening silence, while members of the tech community speculate with little insight.

For IBM’s part, you don’t build a multi-billion dollar licensing business without aggressively pouncing on opportunities. For Google’s part, news of new patent acquisitions to support its own, famously weak patent portfolio, is likely to be far more well received than merely taking a license.  I wouldn’t be surprised if IBM’s first instinct was to approach Google about licensing.  However, knowing Google’s reputation of perceiving every licensing opportunity as a “hostile” act, IBM would probably need to fight (i.e. litigate) for any serious licensing revenue.

In the IP space, IBM has a lot of “bark.” So much so that it hasn’t had to “bite” anyone in a long time to get its point across. Their IP portfolio is not only the biggest, it’s the fastest growing. It’s not a matter of if a target company is infringing one of IBM’s patents, it’s only a matter of when … or so the sales pitch goes.  But Google’s counter IP-licensing strategy sets up more of a “chicken” game scenario, where Google threatens to stay the course until either its opponent veers away or the pair cause a head-on collision with spectacular collateral damage.  (Exhibit A: Oracle v Google).  While an IBM v Google showdown might have been spectacularly entertaining, the IP purchase might actually suggest the previously unknown “third” option to the chicken game, where both parties bring their cars to a complete stop, and one of the participants sells his car to the other.

In this respect, the secrecy and silence makes a lot more sense.  Bottom line is that while Google may have ended up owning a significant chunk of patents, IBM ended up with cash (or something else of value).  In other words, IBM’s “monetization” of its patents was successful, and Google “responded” to an IP scenario by negotiating, rather than with hostile litigation.  If you’re playing chicken on a daily basis, you want as few people to know when you swerve.  From the previous patent owner’s perspective, Google’s response may have forced IBM to change monetization strategies rather than fight.  IBM loves to tout its license agreements, since licensing is more or less the definition of outright victory in patent monetization.  The fact that IBM may have compromised what it had been seeking to reach the ultimate monetization goal could lead others to question the effectiveness of Google’ strategy when battling a patent Goliath.  Before long, those strategies could be improved and refined to the point that the mighty Goliath is toppled, which is something IBM would want to delay as long as possible.

In the end, however, the sun will still rise in the East, and Google will continue its fight with Oracle (and likely many others).  Likewise, everything is probably “business as usual” at IBM too.  Until we get more transparency and accountability into patent deals, the effects of any one deal on an overall licensing business are likely to be extremely small.

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Discussion

2 thoughts on “Google-IBM Patent Deal: Business As Usual?

  1. This just goes to show that the Patent System has become a toy for large players. Imagine if a small company had a stake in this game with Google. Google is quite willing to destroy the whole Patent System for its short-term negotiating advantage. “Consider General Counsel Kent Walker’s public statements in April of last year that, despite the plethora of “low-quality software patents” that “threaten[] to stifle innovation,”’ This is like someone complaining in an adverse real estate negotiation, that private property threatens the economy. Both IBM and Google’s support of AIA shows that they are more concerned with their own short term business interests than the health of this country.

    Posted by dbhalling | January 5, 2012, 9:15 am
  2. Great article and insights Patrick. For IP deal negotiators and advisors it is a well known and practiced tactic as part of many licensing negotiations for the licensee to pay up in cash, and for the licensor to grant the license and reassign patents to the licensee. The reassignment of patents can serve multiple purposes to the licensee including accounting on the balance sheet, getting a net increase in patents, and saving face when the patents are part of a settlement derived from a public lawsuit.

    Posted by Ray Fifo | January 6, 2012, 7:30 am

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