Google On The Nortel Loss, Patents As Government-Granted Monopolies, And Plates Of Spaghetti

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Back in early April, Kent Walker, Google’s Senior Vice President & General Counsel, wrote a post on the Google blog titled “Patents and innovation“. The reason behind the post was clear: Google was feeling the pressure in the patent space after multiple attacks against them and their partners. And now they were going to do something about it.

In his post, Walker noted that Google had laid down the initial “stalking-horse” bid for over 6,000 patents that were up for sale due to the Nortel bankruptcy. “If successful, we hope this portfolio will not only create a disincentive for others to sue Google, but also help us, our partners and the open source community—which is integrally involved in projects like Android and Chrome—continue to innovate,” Walker wrote.

The only problem was that Google wasn’t successful in the bidding. In fact, you could argue that the worst-case scenario happened to them. Instead of Google winning the patents, most of their chief rivals did, including Apple, Microsoft, RIM, and others. Ouch.

The following day, Walker issued a formal statement on the matter, calling the outcome “disappointing“. It obviously was, but as I noted in my post on the matter, I would have liked to hear more on the matter from Google. They wanted the press to know they were upset, but they didn’t want to speak on-the-record about it. Well, now they are.

I spoke with Walker earlier today about the Nortel case, as well as the patent situation in general.

Walker kicked things off by noting how vital it was that sites like ours cover the patent issues, because startups, entrepreneurs, and venture capitals all stand to lose if things don’t change. “We have the resources to fight,” Walker says of Google, but says that innovation itself is in danger.

“It looks like plates of spaghetti,” Walker says of the current patent situation, noting the everyone is suing everyone else. “This is new in the Valley. This has happened in the past 15 years or so. Now it’s a mess,” he says.

“A patent isn’t innovation. It’s the right to block someone else from innovating,” he continues. This is something Walker brings up again and again in our talk. Clearly, he thinks that patents, at least the way they’re being enforced right now, are a bit of a joke.

Speaking of jokes, I asked Walker about the reports that Google had bid mathematical constants (like “Pi”, for example) during some of the earlier rounds of the Nortel bidding. This led some, including myself, to wonder if Google was actually taking the auction seriously?

“No one bids that kind of money without taking things seriously,” Walker says. “We think of this situation as a very serious one. There have been questions about our bidding strategy. We did have one,” he continues.

“That said, the numbers being talked about were dwarfed by the amount finally bid. It’s all kind of moot,” he says.

“Of all the prior Nortel auctions [there were a few before the patents Google bid on], never had any of those gone for more than twice the stalking-horse bid. This went for five times as much,” Walker says. “It was the biggest patents sale in the history of the world.”

Along those lines, I asked if Google made a strategic blunder when they put down the initial $900 million bid, since many assumed the entire portfolio wouldn’t garner more than $800 million when all was said and done?Perhaps this big bid emboldened Google’s rivals?

“No, I don’t think so,” Walker responds, noting that the rivals likely had their strategies set as well. While he wouldn’t give specific numbers, he said Google had a number in their head for how high they were willing to go to get these patents. This is something that Google CEO Larry Page implied during their earnings call a couple weeks ago as well.

“We buy companies all the time — for both people and interesting technologies. This would have been north of $4 billion for none of those things. We were bidding on the right to stop people from innovating,” Walker says.

“You have to have the discipline not to overbid,” Walker continues. “Are there other opportunities out there? Of course,” he says, noting that Google is looking at all of them, but refusing to name specific opportunities. Rumors have pegged InterDigital as the next Google/Apple patent fight.

Or perhaps even Motorola patents will be on the table, as other reports have suggested. Following the massive Nortel result, unsurprisingly, a lot of opportunities are being put on the market now, Walker notes.

When I ask about the reports that Apple teamed up with Rockstar Bidco in the Nortel auction, effectively staking them, and leading to the win, Walker declines to talk about specifics of the auction itself, citing the NDA all parties had to sign. But at a high level, he says that Google knew there would be opportunities and risks for partnerships as a part of this auction (it has also been reported that Google teamed up with Intel for the final run).

I then ask Walker about the court situation. After the loss, Google seemed to imply that the courts may get involved to change the outcome by adding terms to it. Instead, the deal was approved by the Canadian and a joint U.S./Canadian court in just 10 days.

Walker says that there’s an important difference between court approvals and something like the Department of Justice getting involved. The court approvals essentially just said that the terms were beneficial for Nortel — and at $4 billion+, how could they not rule that, Walker jokes. (The Canadian courts also did more generally approve the deal, saying that it wouldn’t stifle competition.)

“The separate question is whether regulators from an antitrust perspective will engage,” Walker says. He declined to go any further than that, but it seems like a fair assumption that this is still very much a possibility. The deal is not fully closed yet.

“The great news is that there’s lots of interesting options out there. Lots of people with lots of patents out there,” Walker says, moving the conversation beyond the Nortel situation, to the broader issue.

Walker says that several times in history, even in the tech space, we’ve seen patent issues flare up and then settle down. In the microprocessor industry and the OEM industry, for example. “They settle into mutual assured destruction,” he says. “These fights are an arduous and expensive way to do it,” he says, implying that eventually, they’ll get there too.

“Patents are government-granted monopolies,” Walker then says quite matter-of-factly. “We have them to reward innovation, but that’s not happening here,” he says.

When I ask about Microsoft’s pressuring of Android OEM partners to sign licensing agreements, and the notion that Android really isn’t free, you have to pay Microsoft to use their patents, Walker declines to talk about Microsoft specifically.

But generally, he says that “it’s one thing to claim to have patents, it’s another for them to actually be valid patents.” “We have a number of partners. Samsung has 30,000 patents, I believe. Motorola has thousands more,” Walker notes, implying that they can fend for themselves even without Google having a ton of patents to help them.

We then turn to Intellectual Ventures, which has been in the news a lot in recent days as perhaps the best example of patent “trolling”.  Again, Walker doesn’t want to talk about them specifically, but says that generally, “it’s a sign of the challenges with the patent system.”

“When you see a lot of VC money flowing into the acquisition and holding of patents, it’s a problem. These are not companies doing new things, they’re buying them. You see hundreds of millions and billions of dollars flowing in to exploit others,” he says.

“An average patent examiner gets 15 to 20 hours per patent to see if it’s valid. It can take years to go back and correct mistakes,” Walker says more broadly. “It has become a kind of lottery.”

All of the above situations show the problem with the entire system, in Walker’s view. At the highest level, “patents are not encouraging innovation,” he says.

Still, Walker still realizes this is the battle Google must fight right now. So the hunt continues for some nuclear warheads to build towards mutual assured destruction, and eventually détente.

[image: flickr/sikachu]