BY PETER SCHEER—Google’s $12.5 billion purchase of Motorola is a sign of serious problems for the US economy. Motorola’s strategic appeal to Google is its portfolio of thousands of patents covering mobile phone technologies. But the acquisition of these patents creates no real value for Google. They are in the nature of a massive premium payment for insurance against suits by competitors and others for alleged patent infringement.
Google is at risk for such suits because the vagueness of patents, a lack of predictability about their validity in many cases, and ambiguities in American patent law, combine to create massive uncertainty for Google about whether its next big innovation—Google+, voice recognition for the Android OS, Google Voice, video conference-calling, or whatever—will be blocked by a lawsuit claiming infringement of another company’s patent.
To minimize this uncertainty, Google will pay, must pay, billions of dollars to arm itself with patents that it can use to countersue against those who would sue Google. Needless to say, the assets used to buy this weaponry are assets that otherwise could be spent productively on creating new businesses and hiring the thousands of employees needed to staff them.
In all of this, there is nothing unique about Google’s experience (apart from its scale, of course). The uncertainty facing Google about the threat of patent infringement claims is also facing thousands of other America companies, big and small. They must choose, like Google, to buy horribly expensive insurance–the word “protection,” with its intimations of organized crime, may be a more accurate description–or leave themselves exposed to legal claims that can be ruinous even if they meritless.
Multiply this uncertainty throughout the economy, and the potential impact on economic growth and job growth is huge. Politicians and economists, particularly of the Republican variety, have been quick to blame the US economy’s slow pace of recovery on government uncertainty–uncertainty about the impact on businesses of new federal initiatives (particularly, the Obama administration’s healthcare program), tax policy, and environmental regulations. They should be expressing similar alarm about the considerably less speculative costs (like, exactly $12,5 billion for a single corporate transaction) imposed on the economy by the growing threat of patent litigation.
This is a problem created by government. It can also be fixed by government.
Peter Scheer, a lawyer and journalist, is executive director of FAC. The opinions expressed here are his alone and do not necessarily reflect the views of the FAC Board of Directors.