The Patent Monopoly – More Than The Right To Exclude

Many entrepreneurs often associate the value of patent rights with the ability to protect the patent owner’s position in a given market by demanding royalties from others in the market or excluding them from the market altogether.  However, the value of a patent can also be found in its prospective ability to open up doors to other markets and facilitate movement within a given market.  This is best exemplified by Google’s recent $900 million acquisition of a family of Nortel patents out of bankruptcy. 

For the last several years, Google has been attempting, with some success, to make in-roads into the mobile telecom market.  However, in highly contested and patent-cluttered markets such as this, companies, even as large and formidable as Google, are often faced with significant barriers to entry.  These barriers include the potential of ending up on the receiving end of a patent infringement lawsuit or paying exorbitant royalties to use a competitor’s patented technology.   As Google has realized, though, while patent rights may act as a barrier to entry, they can also hold the key to entry and, once acquired, offer a certain level of freedom to move within the market.  In a blog post on April 4, 2011 regarding the acquisition of the Nortel patents, Google explained: “one of a company’s best defenses against . . . litigation is (ironically) to have a formidable patent portfolio, as this helps maintain your freedom to develop new products and services.”

The Nortel patents recently purchased by Google cover two important technologies related to Long Term Evolution networking, which underlies the “4G” technology that many mobile telecom operators are deploying.  Holding the patents for this underlying technology provides Google with more than the ability to demand royalties for its use or to exclude competitors from the marketplace.  It will also allow Google to gain broader influence in the mobile telecom market through cross-licensing opportunities. 

A cross-license is simply a license given to another to use a patent or invention in return for a similar license.  Given the importance of the technology covered by the Nortel patents, Google is certain to find some takers willing to license their own patent rights in exchange for the right to use Google’s newly acquired technology.  These cross-licenses will provide Google with substantial freedom to develop new products and services in the patent-cluttered mobile telecom market, which it would otherwise be unable to do without the threat of litigation.

Google’s recent acquisition of the Nortel patents demonstrates that patent rights often have value beyond the ability to protect the patent owner’s position in a given market. It is important for entrepreneurs to keep in mind both the potential offensive and defensive uses of patents and to think about what patents they should file or acquire in both contexts.