In the fight against patent trolls, Google seems to be pulling out all the stops with a new strategy – the Patent Purchase Promotion, announced on its Public Policy blog last week. The plan, essentially, is simple: Google creates a “streamlined portal” through which inventors (and pretty much anyone who holds the right to a patent) can submit patents they’re willing to sell, along with a price tag of sorts. Google then evaluates the submissions, buys the patents they want to add to their portfolio, and politely thank everyone else for their time. Further, the inventors get a lifelong non-transferrable license to work their patent. In Google’s view, everybody wins – small inventors get to sell their patents, Google gets to expand its portfolio by cherry-picking among the best available patents in the market, and the possibility of patent trolls purchasing such patents (and increasing the odds of costly litigation) is eliminated from the equation.
However, the experiment (yes, that’s what Google’s legal team is calling it) isn’t entirely free of problems. IPWatchdog’s Renee C. Quinn highlights some of the minor hassles accompanying the programme – these include Google’s ability to reject the transaction at any stage before its completion, the need for inventors to consult with attorneys in order to navigate the terms of the arrangement, and so on. The bigger problem, however, is that the programme doesn’t match Google’s claim of benefitting the industry as a whole, or even benefitting a majority of small inventors – it appears to create a marketplace with thousands (or more, depending on response) of prospective sellers, and just the one buyer.
Google’s measure rests on the premise that patents being sold to trolls leads to the likelihood that these patents are removed from the market altogether, since negotiations with trolls are bound to be at less reasonable terms than negotiations with the original inventors. Let me clarify with an example: inventor A files and obtains a patent on his latest innovation X. Company B comes up with a product that utilises X, and would like to either purchase or license the patent. B’s licensing or acquisition costs now depend on who owns the patent X at the point when they develop their product. If A still happens to be the owner, then it’s likely that B’s costs will be fairly low, since A is likely to take up B’s offer on its terms. However, if A were to have sold the patent to a troll in the intervening period, the troll would be much more likely to demand higher compensation from B. This is for two reasons – first, trolls are backed by bigger financial muscle, so they can afford to throw up “take it or leave it” ultimatums that individual inventors would not be able to; second, trolls are incentivised to demand more from licensees (or purchasers) because the viability of their business model rests on the “profit margin” that they maintain between the compensation they pay out to inventors and the licensing fees they charge for practicing the patent. Further, the most threatening consequence of a patent sale to a troll for the practicing company would be the threat of expensive litigation, another cost that would factor itself into the licensing fee or purchase price of the patent.
Thus, Google has been spot-on with its identification of the problem – trolls represent unnecessary middlemen in the innovation ecosystem, and can be eliminated if the sale or licensing of patents can be streamlined, increasing the surplus value on the transaction that can now be shared between the inventor and the practising entity.
However, the crucial issue here is that Google’s Patent Purchase Promotion doesn’t even come close to achieving this goal, leading one to question the motives behind the experiment in the first place.
Since Google claims to be doing this to avert the harms of non-practicing entities, it follows that Google must streamline not just its acquisition of patents, but also the manner in which those patents it purchases but isn’t practicing (and there are bound to be a large number of these) are made available on the market. In a nutshell, the problem here is that Google has created a one-way street for patents – from inventors to its portfolio.
If the Patent Purchase Promotion was what Google claimed it is – a “marketplace for patents that’s simple, easy to use, and fast”, then it would be more like an eBay for patents than what it’s currently shaping up to be. Interestingly, the “eBay for patents” idea isn’t really novel to begin with – the quest to streamline the purchase and licensing of patents from small inventors has been documented as far back as 2009, and at least one website exists that performs this function to an extent.
Thus, it appears less and less likely that Google has embarked on a grand plan to make the world a better place, and more and more likely that it’s experimenting with a new way to eliminate the harms that patent trolls pose to transactions that it has an interest in. Of course, that’s not to say that this is a bad move – if the Patent Purchase Promotion is successful, and Google is able to acquire a significant number of patents that it values in quick time and without much intervention from non-practicing middlemen, then this would spur other major players to offer similar opportunities to small patent-holders, effectively increasing the number of prospective buyers on the patent market. What the Patent Purchase Promotion wouldn’t do, at least by itself, is create an open marketplace for inventions and “reduce friction in the patent market” for anyone other than Google.