Motorola Deal Showing Massive Loss To Innovation Caused By Patents
from the dead-weight-loss dept
In response to Google's deal to buy Motorola mostly for its patents (most people are now saying that the patents represented at least half the value of the deal), we're seeing two responses. The first is that companies with lots of patents are suddenly being re-evaluated for their patent value. Because of the demand, otherwise practicing firms are suddenly being told their patents may be worth more than they are. Such is life in a market where the value of patents is massively inflated due to dangerous thickets, where patents are necessary to play.But at the same time, more people are finally realizing what a massive economic and innovation loss this represents, entirely contrary to the intentions and purpose of the patent system. That last link is to the NY Times, which quotes Harvard economist Josh Lerner (who warned of this problem years ago) highlighting what a ridiculous economic loss it is when patent values are so ridiculously inflated:
“You’d much rather see Apple spend some of that $4 billion on new inventions, and Google invest that $12 billion to generate new knowledge,” said Josh Lerner, an economist at the Harvard Business School. “It’s a transfer of wealth from innovators to bondholders and stockholders who have no motivation to innovate. It’s disturbing.”It's beyond disturbing. It's harmful. It hurts these companies' ability to innovate. It hurts our economy's ability to grow. It costs consumers a massive amount in economic rents, and it acts as a massive shift in wealth from consumers and companies that actually innovate... to those who aren't innovating. It's really dangerous, and will open up more opportunities for foreign competitors to focus on real innovation, while we move money away from innovation to lawyers.
So, we can now add the NY Times to the list of mainstream publications highlighting the problem. Why is Congress still focused on a patent reform bill that does nothing to address this problem?
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Filed Under: dead weight, innovation, loss, patents, rent seeking
Companies: google, motorola
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Anyone who thinks Google bought Motorola to help out their Android partners just doesn't get it.
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What these buyouts really do is transfer funds out of innovative companies and into the bank accounts of shareholders of the selling company. I doubt if we could have designed a system to better cripple innovative companies.
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The problem is that Google doesn't need the patents to build its system. It needs the patents so that if one of the other cell phone vendors sues Google, they can sue back. That is what is going on between Apple and HTC. Apple sues HTC and tries to block HTC imports. HTC retaliates and sues Apple and tries to block Apple imports. If Google simply makes the patents public they loose the "Mutually Assured Destruction" defense.
It might be possible to craft some type of release mechanism that says that anyone may use the patents, but if you sue anyone using other patents they would loose the the right to use the Google patents.
The point of all this is that absolutely none of it has anything to do with innovating in anything except legal maneuvering.
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The money doesn't get burned in a furnace somewhere. It doesn't disappear. You have repeated this over and over again, yet you choose to ignore it when it doesn't support your views?
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Newsflash: grasp of capitalism beginning at Harvard.
This is inherent in the system as the sole goal is to pursue money and power. Capitalism is not at all oriented toward consumers, or producing goods: those are remnants of the brief period when capitalists were kept chained down after their excesses caused the Great Depression. -- When capitalists are restrained, the people prosper; when the people are restrained, capitalists prosper.
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Why should anyone get rewarded for "new ideas?" Individuals and companies should get rewarded for successful implementations of new ideas. Patent law should be radically overhauled. For example, maybe a "new idea" combined with a successful commercialization should get protection.
I know, the counter-argument is that what do you do about the poor genius without any way to fund commercializing, and the big bad corporations rip him off. Still working on that.
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Small suggestion: Look up ripple effects in economics. Then look at what the patent MAD system is doing. Come back when you have a better grasp on your argument.
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Build a product and try to sell it, if it is any good others will buy from you, if you are a decent guy people will look for your products not the other guy, if you get copied that functions as a natural barrier to unlimited growth that could not allow any one company to create a monopoly on anything or become to big to fail.
If you can't master all steps necessary to make it to the market then you should not be the one to do it and let others that can do, make it.
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Cause the members of congress have a reelection to win. Elections cost money, and lobbyists have small fortune of it to give away for just these reasons.
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the system
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Did you actually read the article?
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We like innovation. It makes cool new things we all want, and it makes stuff more efficient. Efficient stuff makes everyone win! If I'm more efficient, my goods are cheaper, so I sell more on the same profit margin, my customers get cheaper goods, and everyone else experiences nice ripple effects that mean that we all can exchange more wealth using less money.
The money may not be disappearing, but who is it disappearing to? Companies who innovate need patents to protect themselves from other patent owners. Companies who don't innovate can sell patents for a great amount, (Otherwise, they wouldn't, or don't).
In other words, patent sales, such as the one above, move money from companies who innovate, to companies who do not, (In the case of nortel, for example, because it's been bankrupt for a while).
So the money doesn't disappear, but some innovation sure did.
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See the difference? There's loss in "indirect" (as the bond holders need to withdraw profits, and they don't only invest on innovative companies).
I cannot remember since when did companies need to buy a few "patents" from related fields as "entry ticket" to enter a market. If they really want to protect innovative startups, laws need to be made to make startups (or companies entering new fields of market) immune to patent attacks to give time for them to innovate. (Meaningful innovations don't fall from sky and generally needs time to grow from solid grounds)
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Re: B's Opinion Only
I feel the whole "patent" side of it is just Google spreading FUD to try and weasel out of the world of pain they brought on themselves with the Oracle/Java case that is ongoing, whilst somehow trying to justify to themselves that "business conduct" wise it was not evil.
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Because congress has 14% approval...
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Can't find the link right now but I believe Google has already done something like this.
btw it seems that Motorola held some patents that were causing hassle for WebM
From http://fosspatents.blogspot.com/2011/07/googles-webm-vp8-allegedly-infringes.html
Motorola is a top three Android device maker and should be an obvious partner for Google but apparently reserves the right to sue WebM adopters. A Motorola subsidiary named General Instrument Corporation is suing other companies, such as Microsoft and TiVo, over various codec-related patents, including (but not necessarily limited to) U.S. Patent No. 5,949,948, 6,356,708, 7,310,374, 7,310,375, 7,310,376, and 7,529,465.
So there seems to be a strong and specific motivation to take over Motorola.
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The solution is to set up a contract before talking to the big company (usually called a non-disclosure agreement).
It's an awful lot cheaper than a patent!
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If you read carefully you will see that he never claimed it did. What he did say was that the money is (ultimately) diverted to lawyers rather that people who do actual useful work, In the end the result is more human effort spent on legal activity and less on actual technological development - and that is a real loss.
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Re: Newsflash: grasp of capitalism beginning at Harvard.
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Based upon past bubbles, this may take a few more years but it will burst. If I could copyright excuses I could be rich.
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Google IS building smartphones to compete with apple, smartphones by a number of different companies so there's something for everyone...just like the way Microsoft beat out Apple in the PC market. They are already building set-top boxes, or at least putting their software on them, and some Blu-ray players even, without owning Motorola, and since they have already been doing all of that, why the hell would they need a chip foundry?? Please, tell me why a software company would really want a chip foundry??? Even apple outsources the hardware stuff to a third party.
Mike's post points out that some people say the value of the patents was over half the deal, and the purchase price was 63% higher than their stock price would have dictated, so logically that puts the value of the patents at 63-ish% more valuable than the rest of the company, products and chip fabrication included.
Care to rethink who here doesn't get it?? Or you want me to make it easy, and just let you know that it's those who don't think this was about the patents?
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As for the diversion of funds that could otherwise be spent on other worthwhile endeavors, the same can be said of a host of significant expenses incurred annually by a business. Merely by way of one example, does Google really need that commercial jet it maintains on the tarmac at Moffett?
BTW, in the case of an industry with a large number of incumbents maneuvering for market share, the general role of patents is not to shut down competitors for that is an impossible task. Almost invariably they are used to enhance one's bargaining position when it comes times to sit down at the negotiating table and work out business deals serving the business interests of the respective competitors.
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Patents Rule
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Mike has always said that the idea of lost sales in the music industry hurting the economy is crap because they money is just spent elsewhere. Extending that, money not spent on "innovation" and instead returned to people who invested in innovation likely leads to, *gasp* more investments made, and some of it certainly for "innovation".
Mike can't have it both ways (but apparently he wants to). Either money goes away or it does not.
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But mostly in investors' luxury items.
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Not only should there be a requirement to produce what you have patented, but there should be a requirement that the original inovator(s) should not be able to transfer thier patent unless they sell the production capability with it (not seperable). Companies would have to license any creation of thier employees (no more work for hire garbage). The company gets the license, the creator gets a royalty, and retains patent ownership.
I think also there should be some time limitations. One year to get commercial, and 7 years to patent expiration (changes to public domain), unless they stop production, then the patent also becomes public domain.
This may seem extreme, but is serves a number of important purposes. First, time to market is greatly reduced. If you aren't within a year of Alpha product release, don't file the patent.
Second, with patents expiring after 7 years, you must continue to inovate in order to participate in ongoing 'temporary monopolies'.
Third, by leaving the patent with the inovator(s), companies will have to formulate a different perspective to patents. Rather than using them for leverage, they can use them to give incentives to creative folks in thier organization by, A) funding the creative process in exchange for the license, and B) rewarding creativity with royalties for the inovation. The company still wins as thier new product lines should increase, and they have 7 years to profit and recoup investment. Nothing says they have to stop producing the product at 7 years, if it is a good one there may still be demand, though at this point competition will for products to get even better.
Fourth, by limiting patents to 7 years, it will open up a whole landslide of inovation that has be heretofore blocked. Would these things become available if nothing is changed? Yes. But, in today's world the rate of change is a lot different than even a decade ago, and this would be enhanced by opening up the rate of change by eliminating long 'temporary monolopolies'.
Want to kickstart the economy?
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Did you know that Canon and other printer companies sell printers that can print labels onto CD's in other countries, but because a competitor (I think it's Lexmark, not that I blame them for having the patent for defensive purposes, though they've never sued for it to the best of my knowledge) has a patent on it, they don't sell it in the U.S.. They sell the printer but, in the U.S., you must buy a separate attachment from elsewhere to enable it to print labels on CD's. What kinda bogus patent is that? It's not like a patent is needed for this and it's not like this technology was even developed in the U.S. to begin with. It was likely developed elsewhere and someone simply got a defensive patent on it in the U.S., scaring big competitors into not selling printers that can print on CD's.
Patents are hindering innovation in the U.S. like there is no tomorrow, and innovation is happening everywhere else, but the U.S. is being denied so much competition and innovation thanks to patents. People in other countries innovate, and U.S. companies simply obtain patents on the innovation that happens elsewhere. The U.S. is not innovative thanks to patents.
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Re: Newsflash: grasp of capitalism beginning at Harvard.
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Patents aren't free you know
Unfortunately many companies do not invent strategically and they end up with portfolios that don't map to their products. Leveraging the IP is the only way to get an ROI. That's part of the story for Nortel, Motorola, Kodak.
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When the hell was the last time Motorola innovated anything?
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bias
"patent reform"
Just because they call it “reform” doesn’t mean it is.
The patent bill is nothing less than another monumental federal giveaway for banks, huge multinationals, and China and an off shoring job killing nightmare for America. Even the leading patent expert in China has stated the bill will help them steal our inventions. Who are the supporters of this bill working for??
Patent reform is a fraud on America. This bill will not do what they claim it will. What it will do is help large multinational corporations maintain their monopolies by robbing and killing their small entity and startup competitors (so it will do exactly what the large multinationals paid for) and with them the jobs they would have created. The bill will make it harder and more expensive for small firms to get and enforce their patents. Without patents we cant get funded. Yet small entities create the lion's share of new jobs. According to recent studies by the Kauffman Foundation and economists at the U.S. Census Bureau, “startups aren’t everything when it comes to job growth. They’re the only thing.” This bill is a wholesale slaughter of US jobs. Those wishing to help in the fight to defeat this bill should contact us as below.
Small entities and inventors have been given far too little voice on this bill when one considers that they rely far more heavily on the patent system than do large firms who can control their markets by their size alone. The smaller the firm, the more they rely on patents -especially startups and individual inventors.
Please see http://truereform.piausa.org/ for a different/opposing view on patent reform.
http://docs.piausa.org/
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patent reform
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