As the U.S.’ debt problems peaked last month, the media also harped on one striking fact — that Apple, Inc. had more money to spend than the American government. Indeed, Apple’s reserves of $76.4 billion versus the federal government’s operating cash balance of $73.7 billion underscored America’s predicament as much as it highlighted the technology giant’s enormous cash balance.
For a company as deep-pocketed as Apple, it is interesting to know what it does with its cash pile. Apparently, the maker of the iconic iPhone spends a good part of its cache on buying patents in bulk. Recently, Apple formed a consortium with competitor Microsoft and others such as Research in Motion, Ericsson, Sony, and EMC to buy a batch of more than 6,000 patents from bankrupt Canadian telecommunications equipment maker Nortel.
The consortium paid $4.6 billion for the patents, but neither the amount nor the unusual collaboration between archrivals Apple and Microsoft raised eyebrows in the technology community. After all, this was only the latest in a series of such large-scale, group patent purchases the global technology industry has witnessed in recent times. Just last year, Apple had teamed up with Microsoft, Oracle, and EMC, among others, to buy 882 patents from Novell for $450 million. And, having lost the bidding war for the Nortel patents to Apple and its consortium partners, Google bought around 1,000 patents from IBM in late July. Moreover, companies such as InterDigital, Motorola, and Eastman Kodak are reportedly contemplating the sale of their patents to generate cash.
If the frequency and scale of these patent purchases is baffling, the mystery surrounding the reasons behind such purchases is more so. Given how guarded technology product makers are about their R&D and market-sensitive data, very little is known about how efficiently firms use the patents they buy and if they make money on the patent purchases. There also seems to be a nagging worry in the technology community over the possibility of product makers passing on their rising patent-purchase costs to customers in the future, according to the Intellectual Property Magazine. What’s more, the question about whether archrivals that buy patents together actually manage to collaborate with each other for product innovation is an equally curious one. Nonetheless, it is widely believed, but never substantiated, that firms hoard patents not just to protect their innovations, but also to seal their right over as many technology segments as they can. It is also speculated that in some cases, technology companies depend on their patent stockpiles to file patent-related lawsuits against rivals and legally lock them out of product segments.
Whatever be the motives behind these expensive, group patent purchases, the trend is but a sign of the times. If the technology sector has always been competitive, it appears to be bordering on being cutthroat now. And since this rivalry has only produced better and cheaper technology products, nobody is complaining. The unwritten code in the sector these days seems to be that a manufacturer should have a rapidly moving assembly line of new product releases just to survive, let alone make profits.
The recent churn in the market for new-age gadgets such as smartphones and tablets reflects the pressures technology companies face these days. During the second quarter, Apple vaulted over Nokia to become the leader in the smartphone market. Despite its marketing and distribution muscle as well as its popular hardware technology, Nokia likely lost the race because of falling demand for products that run on its relatively older operating system, according to technology research firm IDC. Tellingly, though, Apple probably cannot afford to be complacent, if the experience of Research in Motion is any indication. The maker of the ever-popular Blackberry has fallen behind in the smartphone market presumably for releasing fewer products than competitors so far this year.
Clearly, in this dynamic and demanding environment, technology product manufacturers likely feel compelled to use patents as both a shield and a sword in their never-ending duels with competitors. Indeed, if a patent is meant to be used to protect innovation, who’s to say that it must not be used in innovative ways as well.
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