Preston Gralla: Patents don’t equal innovation

Anyone looking at the list of companies receiving the most patents in 2013 might think that Microsoft has been releasing some of the world’s most innovative products, that BlackBerry is one of the most innovative companies on the planet, and that Apple and Google are embarking on new innovation agendas. But they’d be wrong, of course, because patents don’t necessarily equal innovation.

In January, IFI Claims Patent Services released its annual list of companies with the most patents issued by the U.S. Patent and Trademark Office, and Microsoft, perennially on the list, was ranked No. 5, up from No. 6 in 2012. (IBM was No. 1, retaining its spot as the top patent-getter for the 21st year in a row.)

Microsoft’s patent portfolio might lead you to believe that it was churning out innovative products. But that’s far from the case. Windows 8 underwhelmed analysts and consumers in 2013. The company had to take a $900 million writedown on unsold inventory of Surface RT tablets, and it continues to lag far behind in the smartphone and tablet markets, where innovation matters most.

As for No. 20 BlackBerry, it broke into the top 20 for the first time in 2013, jumping from No. 29. But no one would argue that 2013 was an innovative year for BlackBerry. Its Z10 and Q10 smartphones did so poorly the company had to take a $960 million inventory writedown, and by the third quarter, its market share had plummeted to a lowly 1.5%, according to ABI Research.

Apple also jumped into the top 20 for the first time, at No. 13, yet 2013 was a year in which the shine was off the company, as it introduced no new major innovations and focused primarily on shoring up existing businesses. Similarly, Google entered the top 20 at No. 11, yet one can’t point to any major, groundbreaking new products the company released.

So where’s the disconnect?

It’s that patents don’t necessarily equal innovation. That’s not even their ultimate purpose for some companies. Today, lawyers at times have as much influence as engineers, if not more, and patents are used to fend off competitors and to force them to pay licensing fees that can run to billions of dollars annually.

Microsoft is a prime example. It has targeted manufacturers of Android devices, claiming that they are violating its patents, in order to get them to sign licensing agreements. Those agreements bring in $2 billion a year in royalties, according to financial analyst Rick Sherlund. In April 2013, Microsoft said that it had royalty agreements “with nearly all companies on the list of the world’s largest Android smartphone vendors and their manufacturers,” and that 80% of all Android smartphones sold in the U.S. were covered by those agreements.

Microsoft isn’t alone. Apple has used patents in a similar manner, notably in its suit against Samsung. And the people who believed that Google purchased Motorola in 2011, not for its manufacturing prowess but for its sizable patent war chest, have been vindicated by the news that Google is selling Motorola but keeping its patents.

That doesn’t mean that companies like Microsoft, Apple and Google should cut back on research and stop pursuing patents. It’s good that U.S. companies are on the list of the biggest patent holders. But it would be better if those patents were put to their best use, developing innovative products, rather than being deployed as a means of bludgeoning competitors.