Echoing previous comments voiced by Google Inc.'s (GOOG) ex-CEO Eric Schmidt, the company's General Counsel Kent Walker expressed frustrations at what he views as a broken intellectual property (IP) system impeding innovation. He tells Bloomberg, "[Companies have to] sort through the mess. It's hard to find what’s the best path -- there's so much litigation. We're exploring a variety of different things. The tech industry has a significant problem. Software patents are kind of gumming up the works of innovation."
I. A Broken System?
From Google's perspective, the U.S. patent system is broken. Google points to companies buying much of the intellectual property that they litigate with from small firms. Google itself buys up IP, admittedly, but it says it only uses it in a defensive capacity, not an offensive one.
The company points to the high rate of invalidation of patents when they are put to the legal test. Estimates put the rate of full or partial invalidation during reexamination at around 75 percent.
And Google has a big problem -- or so it says -- with the concept of software patents. It claims that companies should not be allowed to litigate with respect to software mechanisms.
Ron Laurie, managing director of Inflexion Point Strategy LLC, appears to agree. He says that Microsoft Corp. (MSFT) and Oracle Corp. (ORCL) -- both of which are currently locked in licensing struggles  with Google -- used to agree, but in the end fell in love with patents and litigation.
He comments, "Every software company would be happy if patents went away. Patents are irrelevant to YouTube, face it. Software is developed incrementally and patents get in the way of incremental innovation."
Currently, Google's biggest patent foe may be Apple, Inc. (AAPL). Apple has sued all three  of the world's top Android phone makers, claiming they violate its design and technology patents. Android is number one in global smartphone sales, and Apple is a ways behind in second place, so the outcome of these suits is very important.
Apple chief executive and co-founder, Steven P. Jobs, freely admits to stealing ideas, commenting [video], "Picasso had a saying - 'Good artists copy, great artists steal.' And we have always been shameless about stealing great ideas."
But Apple has argued in court that HTC has stolen its ideas -- and this time the theft isn't okay. Mr. Jobs has commented, "Competitors should create their own original technology, not steal ours."
HTC Corp. (SEO:066570) chief financial officer, Winston Yung, shares Google's claim that the only good use of software patents is in a defensive capacity. He also expresses frustration at what he views as a patent arms race.
He remarks, "Each side can blow the other up on some level --everybody can block the other’s products from coming to market. You create this mutually assured destruction scenario, but it’s very expensive to get all those munitions. Buying patents so you can hit the other guy, it's not good form. You hate to unilaterally disarm here, but we haven’t in our history."
HTC did countersue Apple and has already won, in effect, via a separate suit filed by a recently acquired hardware unit.
II. Poor Outlook for Google on the IP Front
Overall the outlook for Android is murky. While two of the three top manufacturers -- Motorola Solutions Inc. (MSI) and Samsung Electronics Comp., Ltd. (SEO:005930) -- have strong IP portfolios, Google's portfolio is quite weak.
Google has 728 U.S. patents, according to the U.S. Patent and Trademark Office. By comparison, Apple has over 4,000 and Microsoft has over 18,000. In short, Google's rivals have a lot more IP than it does -- including in the mobile realm.
Some say Google has been too sluggish at acquiring and filing for intellectual property. Part of this is due to the company's late arrival in the mobile devices market.
Google lost a bid for a portfolio of 6,000 patents from defunct Nortel Networks. That portfolio was scooped up by a coalition of Microsoft, Apple, and others for a cool $4.3B USD -- much more than Google's initial $900M USD bid (Google's bid would eventually reach $πB USD). The portfolio would have been a powerful defensive tool for Google -- now it becomes yet another weapon for Apple and Microsoft to litigate Google's partners with.
Google does have $39.1B USD of cash on hand, so it may seriously consider InterDigital, Inc.'s (IDCC) portfolio of 1,300 patents. InterDigital, a research and development firm, is reportedly cash strapped and may look to sell its IP. As many of the patents pertain to wireless applications -- for example, Wi-Fi -- the portfolio could help Google beat back its litigious rivals.
Another potential IP acquisition target would be Eastman Kodak Comp. (EK), another cash strapped company with a wealth of IP. Kodak holds many key patents on mobile imaging, though the value of that portfolio has declined with a judge ruling that a key mobile imaging patent was invalid for reason of obviousness.
Mr. Walker claims Google will be okay with or without acquired IP. He states, "We’ll be fine. We have the resources to balance the scales here."
One key resource would be to funnel money to U.S. federal politicians -- contingent on them forcing a reexamination of software patents. Federal politicians in the U.S. have shown themselves more than willing to write legislation for companies willing to give them enough money to get elected.
III. Allies, Enemies Accuse Google of Hypocrisy
Google's increasing vigor in attacking the state of the U.S. patent system -- particularly software patents -- is drawing criticism from several fronts.
Will Stofega, a program manager at researcher IDC Research Inc., a market analytics firm, says Google should have known what it was getting into, when it launched Android. He said there was a wide assumption that Google would run into IP trouble.
He states, "It is about innovation and competition. Doing basic research to bring new products to market is something quite distinct from their [patentable] core capabilities. A patent is a patent and you may not agree with it, but it’s the law. It's a weakness for Google and everyone’s acknowledged it. The competition is so fierce and so brutal, any perceived weakness is going to be found out and you’re going to pay for it, in court or wherever."
FOSS Patents' Florian Mueller, a prestigious patent reform player in the open source movement and self-proclaimed critic of software patents, also recently ripped on Google in a blog. He calls Google's efforts to buy patents -- something some have criticized -- a "non-issue". But he does take issue with other parts of Google's stance.
First he says that Google was built on the "PageRank patent”, U.S. Patent No. 6,285,999, a generic internet patent. He admits that Google did a lot of unpatented server farm work to grow huge, also, and that it didn't use the PageRank to litigate. But he accuses, "The broad PageRank patent may also have helped deter competitors from matching Google's quality especially in its critical early years."
He complains that Google has had a "taste of sour grapes" and is only now becoming a fair-weather critic of software patents. Further, he says that some of Google's behavior appears to approach willful infringement -- something he has a disdain for. He says that while software patents generally counter to innovation, opposing intellectual property as a whole is a bad idea.
When I was campaigning against software patents, the kinds of allies I was most uncomfortable about were those who were not only against software patents but had a broader anti-IP agenda. There were some in that movement who hoped that doing away with software patents would be the beginning of the end (or the end of the beginning, if you will) of a wider-ranging effort to weaken intellectual property rights. Not only did they have plans that would put me at loggerheads with them sooner or later (since I'm clearly in favor of copyright, and I'm not against all patents, though against many) but they also adversely affected the whole movement's ability to gather political support. A broad anti-IP agenda works only far left of the center. Center-left and (even more so) center-right politicians abhor it.
He puts Google in that "far left" category, pointing to what he believes to be willful infringement in the case of Google Books.
He also criticizes Google for not defending Android app makers against Lodsys, a firm he labels as a "patent troll". Lodsys has sued seven mobile app makers, the biggest of which is Finnish app maker Rovio, who produces the Angry Birds app.
Surprisingly, Apple has sprung to its app developers' defense, but Google's executives have remained silent, even as its developers are sued. Developers have pleaded with Android chief Andy Rubin to address the issue, to no avail.
It's clear that many aren't impressed with Google's new-found thirst of IP reform on both the reformist and the litigious sides of the spectrum. Ultimately that just makes Google's position that much tougher. At least it has a whole lot of cash.