A patent cliff refers to a sudden, massive and potentially catastrophic series of patent expirations that negatively affects pharmaceutical companies. A patent canyon, on the other hand, is something different, albeit similar (in geological terms) to a cliff (don’t bother googling it, I just made up), and it applies to the fabled Nortel portfolio. The Nortel patent canyon promises that if you fill up the canyon with enough cash, you can safely cross to the other side where you’re sure to find invaluable licensing opportunities, freedom to operate, a land flowing with milk and honey, and other valuable riches.
In reality, however, what lies at the bottom of the Nortel patent canyon is most likely a black hole, and when you dump your money in, you’ll never see it again. Ever. So why is Google volunteering to dump $900 Million into this mystery canyon? Good question. For one thing, 6000 is a really big number, and its a number that keeps getting repeated as the number of patents Nortel is offering to sell to the highest bidder. Joff Wild, who may be the most knowledgeable in the media when it comes to patents, pegs a different number: 2000 patents.
Indeed, a little research shows Joff’s number to be considerably more accurate. After doing a little research, in particular by looking only at issued patents that are still in force and currently owned by Nortel, the actual number did turn out to be slightly higher than 2000. In addition, focusing in on patents that have a minimum of 10 years of term or more left in them, the number drops to a mere 1000. While 1000 patents is certainly nothing to sneeze at, it’s a far cry away from the 6000 claimed.
But, whatever the number, the real question is, what value do the patents have? That’s a question that can only be answered if you read the patents, and I’ll be honest with you. I haven’t read them. Sure, I’ve glanced at a few over the years, but I haven’t studied them by a long shot. And that’s exactly what Nortel (and anyone who ends up with the portfolio) is counting on. The sellers are betting that everyone else will be so overwhelmed with the numbers, that they will sacrifice all reason and logic, opting instead to keep tossing their money into the canyon.
Do you know why they’re making that bet? Because, just as your bookie knows which gamblers pour over stat sheets, figuring out that the Yankees batting average is 50 points lower in day games after a night game, the smart money knows that the dumb money falls for the numbers every time. Hell, even Alexander Poltorak apparently relies on the numbers:
“Since Nokia has more than twice as many patents as Apple, it is only logical to expect that if the companies reach a settlement agreement, it might be accompanied by a payment by Apple to Nokia,” [Poltorak] said.
And speaking of smart money, how is it I believe the Nortel portfolio is grossly overpriced? I have a theory on patents that is similar to a theory I heard from a talk-radio host about evaluating college recruits. Instead of ratings and statistics, he only looks at the schools that are making offers. If there are several good schools making offers to a kid, he’s probably a good player. If there aren’t, then there’s something wrong with him. In the same way, all I need to know is who is bidding on this portfolio (and in this case, who isn’t). The reported bidders from earlier in the year included Apple, Google, Ericsson, Nokia and RPX (although RPX’s bid was apparently on behalf of Apple). Last year, Wi-LAN and Mosaid were said to be bidding, but there’s been no mention of them recently. Coller Capital was rumored to be in the hunt, but I’ve been unable to find any confirmation of that, despite the recognition that they, along with Intellectual Ventures, are one of the few who could raise the kind of capital Nortel is seeking.
But where is IV? Where is Rembrandt? We haven’t heard a word from Acacia, Altitude Capital or IPNav. Why is that? I really don’t care. They’re not bidding, so far as I can tell, and that’s all I need to know…
So why is Google falling for the numbers? As its been pointed out on GametimeIP, and elsewhere, Google’s patent situation is abysmal. They’ve spent the better part of 10 years building up an enormously profitable advertising business, tied largely to the popularity of its information retrieval technology. Unsurprisingly, many of the patents it does have are in these areas. But along the way, Google has also run its own R&D department as a way to legitimize itself as a “technology” company (despite the fact that anyone who pays attention could have told you years ago that Google is an advertising company). Of course, Google has taken a strange approach to R&D by evidently failing to secure any IP around even its (arguably) most successful technologies (i.e. Android and Chrome). Thinking about the historically successful R&D ventures (Bell Labs, GE Global Research, Kodak, IBM Research, Xerox PARC …) the one thing they all have in common are troves of patent assets. Of course, those that don’t understand the value of being able to actually capitalize on intellectual capital speak through a logical mirror. Mike Masnick has a particularly strong one:
Amazingly, patent supporters are interpreting this as being Google having to “catch up” on “patent ownership,” as if the company has made a huge mistake in not going patent crazy in its early years. That entire article seems to take the position that not patenting everything was a “mistake” on Google’s part, rather than a recognition that patents aren’t necessary for innovation, and actually may be a hindrance to innovation.
Hmmm… well, why exactly would we interpret Google’s move as playing “catch up”? Because that’s exactly what they’re doing. They can double or triple their IP holdings overnight with this acquisition alone! As far as whether patents are necessary for innovation or not, well if you plan on spending money on innovation just for the hell of it, with no plans to actually use anything you create, then of course you don’t need patents! But as Android developers are finding out, patents are important if you plan to actually commercialize your creations… And Mike’s little quip about patents being a hindrance is disproved by his very next statement:
… Google is being pushed to shell out close to a billion dollars just to get some patents it doesn’t really seem to want or need …
Well, in that case it sounds like not having patents is hindering Google, particularly when you consider that building a portfolio the size of Nortel’s wouldn’t have cost anywhere near a billion dollars. And as if encouraging other companies to build businesses around an entirely vulnerable platform wasn’t irresponsible enough, Google just confirmed the value of IP targeted at Android:
we hope this portfolio will … help us, our partners and the open source community—which is integrally involved in projects like Android and Chrome—continue to innovate.
You might as well forget about Nortel. Patent-savvy investors are already arming themselves with other patents targeted squarely at Android now that Google has publicly stated that 1) Android is vulnerable, and 2) protecting Android from patent threats is worth at least $900 M. (Incidentally, Google, I wouldn’t expect a Christmas card from Motorola, Amazon, HTC, Samsung, or Barnes & Noble this year …)
And what of those Nortel patents and the “protection” they’ll supposedly provide for Android and Chrome? I should have some more statistical info to report shortly, but it should come as no surprise that the biggest two categories of Nortel patents are in multiplex communications and telecommunications, which doesn’t exactly overlap with technology Android’s been hit with so far.
But give them credit, since Google just did Nortel a huge favor by increasing the value of their portfolio. After all, Google has already gone on record as explaining that the only good patents that help promote innovation are the ones it owns. As Michelle Lee said (with a little interpretation by yours truly):
“Once a driver of creativity [when our founder gave us exclusive rights to an invention forming the basis for our entire company], our patent system now poses a hurdle for innovation [because it requires us to actually pay for the dozens of inventions we want to combine into our new products and services].”
- Answering The Bell – Google’s Attempt To Leverage Nortel Patent Acquisition (gametimeip.com)
- Google’s Patent Plan B Revealed (patentcalls.com)
- Google Bids $900M for Nortel Patent Portfolio (tacticalip.com)
- Google Bids for Nortel Patents (online.wsj.com)
- HTC Buys Up Wireless Patents (patentcalls.com)