Our Broken Patent System: Company That Does Nothing May Get Hundreds Of Millions Of Dollars From Google

from the that's-not-innovation dept

The patent system is completely broken. Towards the end of 2012, we wrote about how a patent troll named Vringo, using some patents (6,314,420 and 6,775,664), had won a lawsuit against Google. Vringo was a failed ringtone company that had bought those highly questionable patents from the failed search engine Lycos and then sued basically everyone who ran a search engine. Microsoft agreed to settle (with a bizarre stipulation promising to pay 5% of whatever Google finally had to pay), while Google agreed to indemnify a bunch of the others that were all using Google's search under their own. The jury found that Google's AdWords product infringed, and gave an award much lower than what Vringo had asked for.

However, there was a further dispute about how much Google should have to pay for "ongoing" infringement. Google had argued that it had changed the way AdWords worked to avoid infringement, but Vringo disagreed. A judge not only agreed with Vringo, but has now awarded Vringo effectively 1.36% of all AdWords revenue -- which represents the majority of Google's revenue. No one's exactly sure how much, but it's probably in the range of $250 million per year until the patent expires in 2016.

This is silly. There's nothing in the patent that was key to Google doing what it does. There was nothing in the patent that taught anyone anything. In fact, Vringo flat out concedes that Google didn't "copy" anything. It just built its own product in a manner that best served its users. And Vringo, which did nothing at all, may now cash in for hundreds of millions of dollars. For doing nothing.

In a true capitalist system, when a company fails it goes out of business. Patents like this are a joke on the free market. They allow failed companies to sue those who succeed and get hundreds of millions of dollars out of them. They let companies that failed cash in for doing nothing -- for failing in the market place. It's a tax on companies that build something consumers want, paid to companies that could never correctly figure out what the market wanted. It means the companies that improve the world have to pay off the companies that have done nothing to improve the world. How is that possibly a fair or reasonable result?

I'm honestly curious for the usual crew of patent system defenders to explain how Vringo deserves ~$250 million a year for not doing anything at all to improve search.

Filed Under: adwords, losers, patent trolls, patents, search engines, shakedown, winners
Companies: google, lycos, vringo

How Quickly We Forget: Google's Competitors Falsely Claim Google Dominates Because It Was 'First'

from the history-lesson dept

Well, the second part of the Senate's anti-Google hearings have wrapped up, and like the first part, they seemed pretty misguided. It was a lot of repeating things about how Google is big. There were some reasonable points that do bear more scrutiny, concerning some of Google's business dealings with partners, but, on the whole, people seemed to be making a big deal out of nothing.

For example, one Senator continually quizzed WSGR lawyer Susan Creighton over whether or not Google "scraped" content. Creighton seemed to stumble over the question, but the proper answer is of course it does, because that's how search engines work. Yelp's CEO Jeremy Stoppelman complained about Google taking the same content it indexed for search, and then using it elsewhere. But no one mentioned the basic concept of fair use. If it's a problem for Google to scrape and use content -- as was implied repeatedly in the hearing -- doesn't that make any search engine illegal?

But, the most ridiculous testimony came from Thomas Barnett, a lawyer for Covington & Burling, who was representing a bunch of Google competitors who put together an operation called FairSearch. When asked about whether or not Google was a monopoly player, Barnett flat out lied, claiming that Google is dominant and can't be unseated "because it got there first."

Woah!

I know they say that the history books are written by the winners, but this seems like a case where the history books are being revised by the losers. Anyone who was actually paying attention when Google came on the scene thought Google was a joke. The search engine market was locked up and there was no room for competition. We had Altavista, Lycos, Inktomi, Excite and a few others as well. People thought Google was a crazy idea. Who would possibly enter the search market -- especially since Yahoo really seemed to have the market wrapped up (without its own search engine, but partnering with Altavista and Inktomi, before later partnering with Google)? It was a dead business.

Google wasn't first. It was seriously late to the party.

And that's really the point that's important here. Markets that look locked up in the tech/internet world very rarely stay locked up for long. Five years ago, MySpace absolutely dominated the social networking space. Where are they today? Ten years ago, Yahoo was the dominant destination site. Fifteen years ago AOL was how people got on the internet. Fifteen years ago, Netscape was how you surfed the web. All of these players were dominant with huge market share. How are they all doing today? Which one needed government regulation to break their hold on the market? Things change. Markets change. Rewriting history and bitching about Google because it's big misses the point. If Google does bad things, there are hundreds of entrepreneurs out there just waiting to take parts of the market away from the company.

Filed Under: antitrust, competition, innovation, search
Companies: altavista, excite, fairsearch, google, inktomi, lycos, yahoo