What Happens in a Patent Arms Race?

An Interview With Nathan Myhrvold

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Susan Hassler: Hello. I’m Susan Hassler, editor in chief of IEEE Spectrum magazine. I recently interviewed Nathan Myhrvold, former chief technology officer of Microsoft and current CEO of Intellectual Ventures. We discussed his ground-breaking compendium of science-inspired techniques for preparing food, called modernist cuisine. But we also talked about patents and patenting. The pending Google/Motorola deal had just been announced, and Myhrvold’s company had recently come under fire for its patent business practices. What follows are excerpts from that conversation. First, I asked him about the Google/Motorola deal.

Nathan Myhrvold: Patents have been part of America’s invention economy for over 200 years—George Washington, Thomas Jefferson signed the first patent. In the 19th-century, America became the world’s inventor, and inventions from the cotton gin to the steam engine, the steam boat, of course the telegraph, the telephone, all of Edison’s fantastic inventions. And the patent system was set up for that purpose, to nourish and support invention-based economy, and I think it’s done that pretty well. There’s always quibbles people have at the margin, but I think the patent system generally works. Now in the software and Silicon Valley culture, patents were strangely absent for many years. The early days when I was at Microsoft—and I came to Microsoft in 1986—Microsoft had no patents and had made only two patent applications. Patents at that time were not considered important for high-tech; what was important was to get your product out there and most of all to gain market share. Most technology markets are what I call a “winner take most market,” and at various points Microsoft, or Apple, or Cisco, or Intel, or Google have all been the winners who took most. If you named 10 other household-name technology companies, they, too, would be winners who took most, and they could take most without patents; patents weren’t a critical part of that—it was about taking them to market. But as part of that process they also generated some patent liabilities; they tend to copy each other, and there were a variety of lawsuits that have occurred over the years, either for copying on a copyright basis—you copied my code, you copied my look and feel—or on a patent basis. The latest round of patents in the technology industry has come about in large part because the cellphone industry brings out cellphones which are patent-centric and patent oriented from the get-go. Qualcomm, of course, is a company that has a 60 some billion-dollar market cap that’s based fundamentally on its inventions, and those inventions are protected by its patents, and almost every company in the cellphone business has lots of patents.

Well, when Google and Apple and others moved into the cellphone business—and have done so very dramatically with obviously the iPhone and the Android offering—they entered a world that was very patent-centric without having that many patents of their own. And Google particularly had fewer patents than Apple. So patents, which had not been important to being the winner who took most, now seem like they’re critical to being the winner who takes most in the smartphone business. As a result, we’ve seen a tremendous amount of activity in the last month or so about patents for smartphones.

Susan Hassler: So if Google acquires Motorola, and Microsoft acquires Nokia and so on, and you end up with a small group of companies controlling a large number of patents, what happens? What happens in a patent arms race?

Nathan Myhrvold: You know, I’m not sure that an arms race is a good analogy, but certainly there’s an ongoing, very vigorous competition for who’s going to lead in smartphones, and probably beyond smartphones to all kinds of other digital devices tablets, computers, and so forth. You have companies like Motorola and Nokia—they both at various points were on top of the world for cellphones, but Nokia managed to displace Motorola as the No. 1 cellphone company. More recently, these phones got smarter and more capable, Apple with a very compelling product which had a very high software-computing content to it—the iPhone. It’s a funny name for it; it’s mostly a computer, and that’s why Apple was able to do such a good job with it. So they’ve displaced Nokia; Nokia used to be the No. 1 cellphone company. No longer—in fact, Apple’s become the most valuable company in the world recently on the basis of its success in that market. But Google is there, too; so is Microsoft, and I have no idea how this is all going to play out, but it’s certain that these companies are going to be engaged in a very fierce competition. Mostly that’s great for the consumer, by the way; it means they’re going to be offering all kinds of new features and great prices and great everything else as they all battle to be the winner who took most, which will make at least one of them a very valuable company, maybe more than one. Maybe there’s room to have more than one winner who took most. We’ll see.

Susan Hassler: Do you think there will be more smartphone consolidation, convergence? Consolidation in other areas?

Nathan Myhrvold: You know, it’s hard to speculate as to who would buy whom and who would do this, but if you looked at—let’s use Apple as a good example. If you looked 15 years ago, Apple was not a consumer electronics company; it wasn’t a cellphone company or a music company. It’s all those things today. And for the last 25 years, I and other people have been talking about a convergence of the world of media, the world of communications, the world of consumer electronics, and that of computing. And what we’re seeing here is exactly that. We’re seeing a confluence of these industries, a convergence. As it converges we’ll see the companies that used to think they were in totally separate businesses suddenly compete. As a result of that competition some of them go away, some of them pair up or are purchased by others, and some brand-new entrants come. If we were talking 15 years ago, we wouldn’t be talking about Google at all in this conversation, would we?

But at the same time these companies are expanding into this convergence at one level. You’d say the company that’s done the most to change the way people communicate is probably Facebook, or maybe Skype, that Microsoft acquired recently. Facebook and Skype are very different visions of different parts of how the world communicates. That’s a valid part also. So it’s not just about the smartphone, although that’s what the headlines are about, last few weeks. We’re going to see a tremendous amount of convergence, because computing technology gives you a power to manipulate, control, and disseminate information unlike anything else we’ve seen before. When I grew up, all of the phones were made by Western Electric, which was a subsidiary of the Bell system. If you were talking on the phone in the United States, it was made by them, and when they made their Princess phone it was a big deal, because previously there was only one kind of phone they made. Today, I’m talking to you right now on an office phone made by Cisco, a computer networking company, and what are we talking about? We’re talking about phones that are going to be made by an Internet company, Google, or a computer company, Apple. It’s a crazy world that has brought those things together, and I think there’s no reason to believe that this is the end of it. I think we’re going to see even more convergence going forward.

Susan Hassler: We’ve been talking with Nathan Myhrvold, former chief technology officer of Microsoft and current CEO of Intellectual Ventures. For IEEE Spectrum, I’m Susan Hassler.