Silicon Valley war a sign of hope in an fragile US economy

Google's biggest ever deal probably catapulted the word patent up the list of the week's most searched for terms. It took $12.5bn (£7.5bn) of the search engine's cash to do it thanks to its agreed acquisition of mobile handset maker Motorola Mobility.

 

Larry Page, Google's co-founder and new chief executive, explained on Monday that the company was prepared to dig so deep because Motorola Mobility owns 17,500 patents and has another 7.500 pending approval.

 

At first glance this won't come as a surprise to economic historians. America's downturns are typically accompanied by a wave of patent litigation as businesses take all the measures they can to squeeze more from the intellectual property they already own, according to Eric Sosenko, a patent lawyer at law firm Brinks Hofer Gilson & Lione.

 

Slowing sales and dwindling profits can even make the legal fees a little more bearable. Kodak, the film developer that brought photography to the masses during the twentieth century, is a recent example of a company that is using its patents as a financial cushion while it tries to reinvent itself in the digital age.

 

Since 2008, Kodak has sought to generate up to $350m a year from licensing patents as it strives to reach its goal of returning to the black in 2012.

 

America is still staggering out of its deepest downturn since the Great Depression of the 1930s, so the eruption of patent warfare in Silicon Valley this year is a simple and desperate battle for survival, right? Well, not quite. It's true there has been a rash of legal letters flying between some of the world's biggest technology companies.

Google's new acqusition, Motorola Mobility, has alleged a patent infringement by Apple. Microsoft's suit against Motorola is scheduled to be heard later this month at the US International Trade Commission. And in June a consortium led by Apple and Microsoft trumped Google to win an auction of patents owned by former Canadian company Nortel Networks with a $4.5bn bid.

But you'd be rightly asked to lie down if you suggested any of these companies was on the brink. Sales at all three companies are rising and Apple, alone, has about $76bn of cash. Rather, their fingers are on speed-dial to their lawyers because they're competing furiously in one of the few hotspots in the US economy.

Despite the fragile recovery, Americans are prepared to pay for the smartphones and tablet devices such as iPads that allow them to do everything they used to do while sitting in front of a desktop computer.

And given wireless technology is evolving so rapidly, making sure you've got your patents protected has become key.

"The number of patents involved in wireless communication and the extremely competitive market place has created a perfect storm," says Alexander Poltorak, the chief executive of General Patent Corporation, which advises companies on their patent strategy.

The money being spent on patents in California won't have gone unnoticed on the other side of the country, either. In a Washington polarised on so much, the reform of the country's patent system is something Republicans and Democrats can just about agree upon.

The Senate and the House of Representatives have each passed slightly different bills aimed at overhauling a system that began in 1790 in Vermont, when Samuel Hopkins was awarded a patent for technology used in the development of potash.

Intellectual property experts seem in broad agreement that the system could benefit from at least two major reforms. Cutting the waiting time between applying for a patent and getting a decision down from its current average of about 36 months is one aim. "The pending time is a real drag on innovation," says Mr Sensoko.

"Right now if you're a smaller company you're not going to invest the money in trying to get a patent." The second, experts say, should be to reduce the volume of suits that allege infringment by making patents tougher to secure in the first place.

The Coalition for Patent Fairness, which counts a host of technology companies as members, says that the right reform of the patent system could create 100,000 new jobs by unleashing innovation. It's something President Barack Obama has fastened on to, with The White House regularly touting the potential benefits of reform.

But even the administration would be forced to agree that any reform is about safeguarding the vigour of the economy over the long-term.

The irony of this week's $12.5bn patent swoop by Google is that it's about preserving the search engine's position in a part of the world's biggest economy that is actually growing now.

By Richard Blackden, US Business Editor

telegraph.co.uk