There’s been a meme doing the rounds based on the New York Times’ story on “the iEconomy” which claims that in 2011, both Google and Apple spent more on patent protection than R&D. This, on the face of it, looks like a savage indictment of the whole parent system – legal nonsense taking priority over real research.
There was something, though, that didn’t quite add up for me. Call it an old journalist’s nose for something fishy, but… it just didn’t smell right.
The paragraph this claim was made in is this:
In the smartphone industry alone, according to a Stanford University analysis, as much as $20 billion was spent on patent litigation and patent purchases in the last two years — an amount equal to eight Mars rover missions. Last year, for the first time, spending by Apple and Google on patent lawsuits and unusually big-dollar patent purchases exceeded spending on research and development of new products, according to public filings.
Aha. There’s the bit which set off my journo-sense.
As that paragraph notes, there were several unusually large patent portfolio deals in 2011. Apple, for example, contributed $2.6 billion towards the purchase of Nortel’s patent portfolio, in a consortium deal which also included Microsoft, RIM, Sony and EMC. That deal – worth a total of $4.5 billion – was a one-off. Portfolios like that rarely come on the market.
Likewise, Google spent $12.5 billion buying Motorola Mobility, a deal which Larry Page described as being about “strengthening Google’s patent portfolio” (Google actually accounted the patents as $5.5 billion of the purchase). Again, that’s a one-off: there aren’t many Motorola’s around and available for purchase. Likewise, the deal which saw Google buy over 1,000 patents from IBM.
So yes, Google and Apple did spend more on patents in 2011 than R&D. But that’s very likely to be a one-off, simply because 2011 was an unusual year which saw several highly-desirable patent portfolios come on the market. What the NYT didn’t say is that Apple also increased its R&D spending in 2011 by 33%, and that Google’s R&D spending continues to trend upwards massively, with the company spending a whopping 12% of all its revenue in R&D last year.
Read the NYT piece, and you would think that the technology market has shifted from being about research and development of new products to being about acquisition of patents. Given that this is based on a single year, when some very big patent portfolios came on the market in one-off deals that aren’t likely to be repeated in the future, that’s a long way from the truth.