The Patent War

The tech industry is at an interesting crossroads right now. While many of the largest companies have a plethora of cash at their disposal, rather than spending it on acquisitions, research and development, or stock buy backs, these companies are buying up patents to sure up their standing.

This patent purchases have been happening for some time but Google's recent purchase of Motorola has heightened the patent debate:

The costs of our broken patent system are often abstract, but this month Google put a price tag on the problem: $12.5 billion. That's what Google paid for Motorola's U.S. smartphone business and its 17,000 patents. This is $12.5 billion that one of America's most creative companies will not use to innovate, fund research or hire anyone beside patent lawyers.

Rather than using these patents to develop new products, these companies are using them to sure up their market position against their competitors and to start lawsuits. The war is taking place not in the sleek high tech buildings of Silicon Valley, but in the courtrooms.

The Google deal is the biggest in a line of purchases that has seen the biggest companies look to secure a competitive advantage:

Lacking its own trove of patents to vie with Apple, Microsoft and other companies, Google and its hardware partners were targeted by suits aimed at slowing the adoption of Android smartphones. Adding the 17,000 patents of Motorola Mobility, which has been inventing mobile-phone technology since the industry began, may help Google stanch the onslaught.

Google's Android technology has been under attack, so these purchases sure up their position against Apple and other competitors:

Apple stepped up the patent feud by suing Android manufacturers, claiming Google-powered devices copy the iPhone and iPad. Microsoft has sued Motorola Mobility and Barnes & Noble Inc., whose Nook reader runs Android software.

Already, there's a potential lawsuit from Microsoft:

“We have a responsibility to our employees, customers, partners and shareholders to safeguard our intellectual property,” David Howard, Microsoft’s corporate vice president and deputy general counsel for litigation, said in an e-mail. “Motorola is infringing our patents and we are confident that the ITC will rule in our favor.”

Besides the lawsuits, the purchase of Motorola Mobility puts a price on patents:

"There is clearly an upward sloping trend in patent value and patent value being recognized," said James Malackowski, chief executive of Ocean Tomo, an intellectual property advisory firm which values patent portfolios as part of its services. "As with any trend, it's never perfectly smooth, you see volatility in outlier transactions."

I think this best describes the situation:

"There are three textbook ways to value intellectual property, just as you would real estate -- the income approach, the cost approach, and the market approach," he said.

"If you are looking at an apartment building, the market approach says how much do other apartment buildings sell for? For the cost approach, you would ask what it would cost to build a like unit. The income approach says look at the present value of the rents -- or for patents, the present value of the expected earnings associated with owning the technology."

The question is: should these companies be spending their cash on patents? The answer isn't so simple:

Many venture capitalists and software entrepreneurs have warned that software is fundamentally different from other areas of innovation and that patents should be granted much more rarely than they are today. Software almost always builds on previous work, so patents rarely reflect the kind of original work that patent law is supposed to protect.

Part of the problem is that the law no longer distinguishes between how ideas become products and services differently in different industries. A good contrast to software is how advances are made in the pharmaceutical industry, which is made up of largely independent areas of research.

While these companies do deserve protection for their intellectual property, it is not good for the companies nor the technology sector for these companies to just duel over these patents. The cash that these companies have on their books would be better used for new innovation through R&D and to create new jobs. The posturing of these companies suggests more about patent law than anything else. There needs to be changes:

The U.S. Court of Appeals for the Federal Circuit is the exclusive forum for patent appeals, created in 1982 to keep the law consistent. But with consistency has come decisions upholding patents so broadly it’s hard to tell exactly what they cover.

The solution would be to have stricter standards:

A more reasonable approach would be stricter approval standards. The U.S. Supreme Court seemed to agree last year when it affirmed the rejection of a proposed business-method patent. The decision comes too late for companies that have shelled out for infringement fights. But it bodes well for those that would rather use patents to promote innovation than squelch it.

You cannot change what has already happened, but you can make the future more clear. The purchases of these patents have been made because of uncertainty over these patent laws. They don't know where they are protected and where they are vulnerable.

These companies can't move forward without ensuring that their present is stable. It is time to reconsider how patent law applies to technology. The US government must make a stronger push to ease these companies' worries and get them back to focusing on innovating the future.

Google TV

I love Google:

SAN FRANCISCO — Google recruited a solid lineup of high-tech companies on Thursday to help it introduce Google TV, a new service that merges the predictable world of television programming with the more chaotic expanse of the Web.
Related

Now it has to persuade the TV audience to turn the living room television into the newest on-ramp to the Internet.

Looking forward to what this is going to be like.

Google Moves China Operations

Moving to Hong Kong will allow for more freedom, but the government will continue to censor certain sensitive issues. It should be a positive step, but China's government policies will have to change before there is more freedom in the far eastern power.

More Info on The Nexus

Here's some new information:

The Google Nexus One will be sold directly through Google's website unlocked for $529.99 or $179.99 with a 2 two-year service plan on T-Mobile. It will also be available on Verizon Wireless in the spring, though pricing was not yet announced.

And some information about the manufacturing costs:

Hardware and components for the Nexus One costs $174.15 – a total that does not include expenses like manufacturing, software, box contents, accessories, or royalties.

This phone will undoubtedly be a hit. The reviews have been very positive. This will set the benchmark for Droid phones.

Smart Phone Showdown: Follow Up

PC World published an article stating why the Nexus is better than all other smart phones:

With such major differences in hardware between the Nexus One and older generations of Android phones, it's likely that the 2.1 update will take a while to filter down to the other Android phones, some of which were not speedy even with the initial release of the OS. To back this up, Android phones manufacturers are still using inexact timeframes for the arrival of 2.1 on older devices.

It also goes onto praise the iPhone and its users' ability to download the latest software:

Take in comparison Apple - even on the original iPhone (2007), you can still run the latest software update (3.1.2), albeit not as fast as on the iPhone 3GS and without certain features such as GPS or video recording. However, iPhone users, old or new, have always had the choice to freely upgrade to the latest software version, usually within days of the launch of the new version.

It should be interesting how effective Google's software updates are in comparison to Mac. We already know that Mac has a very effective way of offering updates.

Smart Phone Showdown: iPhone vs Google's Nexus

A showdown between two of the largest players in the high-tech industry appears to be on the horizon. Google appears to be ready to take on Apple with the introduction of their Nexus smart phone. The ongoing theme in the industry recently has been to compare the two in order to forecast a prediction about the Nexus' success. While the iPhone has been a huge hit and is probably the most popular phone in the industry, it is very likely for the search engine supernova's Nexus to receive a huge reception as well.

I have a Mac, but I use Google a lot and I'm intrigued by both phones. I have a friend who was a PC guy, but worked on Macs all summer programming iPhone applications. He bought a Mac computer as a result and has been itching to get an iPhone. However, since news of the Nexus came out, he has changed his wishlist to include the Nexus. Brand loyalty will certainly be a factor. Unfortunately, the iPhone is not offered on my network (Verizon), and the Nexus looks like it will be offered to T-Mobile and AT&T customers:

Virtually all the information on the Google Nexus One that come out so far indicates that it will fully support only T-Mobile's network, including its 3G network. The version that was approved by the FCC has support for only T-Mobile's version of HSPA, so AT&T customers using this device will limited to voice and the 2.5G standard EDGE.

However, an unconfirmed report says that Google is not going to put all its eggs in one basket, and will offer a second version of this Android OS smartphone with support for AT&T's 3G service.

Color me as one of the people that is kind of disappointed by this revelation. However, I'm glad that I will be able to see the kind of reception that the phones will get. I currently have a Blackberry, and I can't say that I'm at all disappointed with it. When I first saw the iPhone, I noticed that people were always on their phone to check everything. It's cool to have that tool at hand, but you just look so self-involved when you have it. I thought the same of Blackberry users.

Then I got the Blackberry, and I started doing the same thing. Then my Blackberry broke, so I was without a phone for a little while. It taught me to get back to who I was. Once I got my replacement phone, I started using it less than I had with my previous phone. Yeah, it's still a great tool to have. However, while I may still check my phone more than I should, I definitely check it less than before. The benefit of the Nexus not being on my network is that I won't buy it any time soon and that I won't be checking it all the time because of how proud I am to own one.

Early reports of the Google Nexus have come out from some Google employees who received them to try out. Reviews and reports have made it to media outlets, and Attack of the Show has this interview with engadget.com's Joshua Topolsky:

This was about a month ago, and as more information about the Nexus has come out, more comparisons, predictions, and analysis have been made about its impact on the cell phone industry and in particular its competition with the iPhone. A Gerson Lehrman Group analysis had this to say:

Existing iPhone users may find it hard to come up with any serious complaints on the new Google phone. However, the minimal differences are not likely to be enough for users to switch and go through the trouble of learning the new system. Still, if a new buyer that has not used either system compared them side-by-side, there may be a higher probability this time in choosing Google’s new version.

In fact, we anticipate that users will find it to be very iPhone-like. They are both about the same size, with perhaps the Nexus One, being a little thinner. They both will have a full soft keyboard touchscreen.

Of course, the Nexus One will not have nearly as many applications, but almost all of them are free. It has also been developed to be exactly opposite the iPhone, which is very locked down and in which so many people control the particular apps that can be put on the device.

While the Nexus appears to offer a high speed processor along with a better screen, camera, and two speakers, I think what will determine its success will be how it performs. What's more important than sales success for me as a consumer of a phone is my ability to get the most out of my phone. The iPhone offers so much, but with its exclusive contract with AT&T, AT&T's network has struggled to provide the support necessary for the phone. The iPhone signified a huge boost in the amount of data that AT&T's network had to handle. It has not been up to the challenge and its competitors have benefited as a result.

Why is it that people continue to buy Blackberry's when the iPhone is a better phone? The Network and ability to use a phone is paramount. Verizon is annihilating AT&T about its 3G network, and the reason why Verizon's 3G network is better is because of the iPhone. Whether Google's Nexus is tied down to a single carrier or whether it is unlocked for the world will have a significant effect on how it is viewed. Google could set a new trend by foregoing exclusivity. The idea of having a contract is that the carrier will subsidize the cost of the phone. It's a deal that works out well for both the carrier and the phone producer. However, the consumers suffer because they can't get the most out of their phone. If the Nexus is unlocked, users can be free to join whatever network they want without a strict long-term contract.

As far as news about the iPhone, it appears that Apple will try to get not renew its exclusive contract with AT&T and look to be available on other providers as well. It looks like Verizon could be in the future of the iPhone, according to CNET:

Gene Munster, senior research analyst for investment bank Piper Jaffray, said in a research note to clients 0Wednesday that he believes there is a 70 percent chance that Apple will launch a new iPhone with Verizon in 2010. Munster puts the timing of such a move around the middle of the year.

That makes sense, since Apple has used June and July to launch all three of its iPhone models. The company also used the summer months to debut the App Store in 2008. It seems reasonable to speculate that Apple would continue with its schedule of introducing a new iPhone in mid-2010.

Munster said a move to Verizon would more than double Apple's current potential market by 89 million subscribers, adding to the already 82 million available on AT&T.

Of course, at this point the big problem is Apple's arrangement with AT&T as its exclusive carrier in the U.S. That deal is widely thought to end in 2010, although talks between the two companies are said to be ongoing, according to The Wall Street Journal.

Here's the Wall Street Journal article, for reference. While the iPhone may still be locked into contracts with carriers, a move away from exclusivity would make a great deal of sense as it would open the phone up to many more potential customers. I don't know if I personally would buy a iPhone immediately, but it would be a welcome addition to the Verizon line up. Regardless, with the increased competition in the market for phones, the consumer is the one that should benefit. 2010 should introduce a Cold War type arms race to put the best phone with the best services on the market.

Get your popcorn out, it's a smart phone showdown.