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Google bid pi billion dollars for Nortel patents (and lost) (reuters.com)
191 points by fromedome on July 2, 2011 | hide | past | web | favorite | 82 comments

As much as this phrase is a cliché on the internet, I believe it is entirely justified in this case: well played.

More seriously, I think the fact that the person high up enough to lay three billion dollars on the table was also the kind of person who knows about Meissel–Mertens constant says a lot about google's structure. Either that or the whole thing was a whimsical piece of obtuse preplanned PR, which still says a lot.

Yea, who do you think Larry Page and Sergey Brin is?

If anything, it's good for the brand (at least with the people that matter).

Who do you feel are "the people that matter" in Google's case?

I assume he means the smart hacker types, because they're about the only people who would appreciate that sort of thing.

Google generates a lot of good will in the developer community: lots of open source projects, Google Summer of Code, free hardware at developer conferences, Google tech talks, hacker "jokes"...

I don't know if this is a deliberate strategy, or if it simply stems from the company's culture and values, but it sure helps them. I personally love them. Winning the hackers and early adopters is a key to winning a market. I'd bet the majority of Google+ early adopters belong to the tech crowd. Similarly, many Android early adopters (from the tech crowd) convinced their friends and family to switch.

It's also good for recruiting :)

I get the feeling that investors might not get the joke when dealing with billions of dollars. If the patents come back to haunt Google, I bet the shareholder meeting will be fun.

The real interesting thing in the article isn't that the nerd number bids, it's how the alliances formed. They weren't set going in, people hit their limit then looked to buy into an alliance. Intel chose to partner with Google instead of Microsoft and Apple. Android vendor Sony-Ericsson went with Apple instead of Google.

I had always thought Apple was very close to Intel, as they work closely together. Peculiar.

Apple's Intel-based products are quickly becoming a hobby compared to ARM-based iOS devices.

Not to mention the famed Microsoft-Intel "Wintel" alliance.

From what I've read, Sony Ericsson was not taking part in the bid. Sony and Ericsson, the two individual companies themselves, were though.

The bidding groups had names like "Rockstar" (Apple and friends) and "Ranger" (Google). Are the actual parties behind the names secret during bidding?

like a bad episode of Survivor

There's good episodebs?

Google should now spend Pi billion dollars lobbying the US government to abolish software patents. ;-)

heh, that would make me gulp if I had spent 4.5bn on some paper 0_0

It wouldn't make me, because you can't just buy changes of the law, not even in the US. Three billion dollars is a lot, but will never match what other big companies stand to lose from software patents becoming less important. This is the worst possible outcome for Google and the open source community. Apple, MS, Sony and others will be able to sue everyone - but not each other. And after laying that amount of cash on the table, they will. Google is right to be pissed off, but they can't do much about it.

Sure, but remember that a lot of these Nortel patents are hardware patents.

Does anyone have a link to a good overview of what kind of things are in the portfolio?

$750,000 per patent--$4.5B divided by 6000 patents--is clearly absurd.

Or is it? I'm thinking that it does make economic sense, but only if you buy in bulk.

The vast majority of patents (not even limited to software patents) make no money, are never enforced, and are completely unused in every sense of the word. Even a patent lawyer has admitted this to me.

But in very rare, unpredictable, and seemingly capricious cases, it's worth a fortune. The best example is the patent purportedly for inventing wireless email that allowed NTP to extort $600 million from Research In Motion a couple years ago.

If you buy patents in bulk, you might even be able to achieve a return despite the randomness in value.

I'm going to make the analogy to owning a gun and deciding how many bullets (patents) to buy:

- A dozen bullets and you can (maybe) protect yourself. This is your defensive patent portfolio; if sued, you can maybe find some way to countersue.

- Thousands of bullets and you can wage war. This is your attack patent portfolio.

- But a single bullet is good only for suicide. Start-ups that spend their time and energy filing one patent application probably kill themselves. I saw one case where it happened.

I think I'm going to call this principle the Patent Portfolio Price Power Law. In a ruthless business sense, a LOT of software patents makes sense.

Tech companies like Google have nearly unlimited pools of money, so they can spend ridiculously large amounts of money for things that make sense to them.

People do the same thing. How many rich guys buy a $500k Ferrari that is never driven?

>How many rich guys buy a $500k Ferrari that is never driven?

None. No Ferrari costs $500k outside of an auction house, and even then that's a very rare price. The classic collectable ferraris go for far more, and the "average" ferraris go for far less.

Also, patents can function at the very least as patent lawsuit deterrents.

Google has a history of doing things like this. In their IPO filing, they intended to raise $2,718,281,828 [see https://secure.wikimedia.org/wikipedia/en/wiki/E_-_base_of_n...].

Ah, so that's why they didn't use e as one of their bids! I had been wondering.

See. Another case of 2π being more suitable.

The bid was on Thu 6/28 as well (Tau day)

This is entirely too funny for HN.

You've got to hand it to Google. It's a brilliant strategy if the Nortel patents were being auctioned off in radians.

Unfortunately for Google, the patents were auctioned off in reality.

I think Google's plan was to get the other parties to pay more for the group of patents than what the original price was (~$1.5B).

They probably decided that they may as well have some fun with it in the meantime

(although google has a history of using mathematical significant figures in financial dealings, such as in their S1 filing)

Does that happen often in business?

There was a multi-million dollar contract in Japan a few years ago decided by a single hand of Rock Paper Scissors.

That's classic. Any references will be appreciated.

I think it happens a fair amount. Google may have actually wanted the patents at he right price, but may have wanted its competing bidders to overpay if it couldn't win the bid. The aricle said there were about 6,000 patents. I suppose some of them might be ground breaking tech but most are probably worthless or science projects at best. At $4.5 billion, this winning bid sounds like a winner's cure to me. I think Google has some good game theoriests who artificially drove up the price for it's competitors. But who knows, maybe they really wanted to pay up to $4 billion and were genuinely disappointed when they didn't win.

apparently happens a lot during spectrum auctions which is why they refined the auction system

here is a good study on that [pdf] http://www.cramton.umd.edu/papers2000-2004/00jre-collusive-b...

Essentially people try and convey information to the other bidders through the amounts of their bid. Like putting an area code at the end of a large bid to indicate that is the market you want.

I don't understand why the article refers to this as "shenanigans that didn't work". The problem wasn't that they bid pi billion dollars. The problem was that they didn't have enough money to buy the patents.

They certainly had the money, they just didn't bid enough money.

Was that the problem? My understanding was that they could see the other bids, but chose not to bid higher.

Google has 36 billion dollars of cash on hand, so they had the money, they apparently weren't willing to bid more than pi billion though.

A minor point, but they certainly do not have $36B cash on hand, they have it in assets that can be liquidated reasonably quickly, but companies do not keep $36B lying around, or in the bank. It is stashed in short term investments.

what investors refer to as 'cash on hand' doesn't literally mean a room full of bills or a bank account. a 'cash asset' is anything that can be theoretically converted back into cash quickly and with little trouble (tbills, term deposits, bank accounts, any AAA+ funds, etc.)

for eg. if the Greek government owed me $1B, I wouldn't call that cash on hand, but if the US government owed me $1B, it is

Not just any short-term investments: I think they have to be with investment banks, or invested in certain highly liquid, highly rated vehicles such as money market accounts, treasury bills, or short-term AAA-rated government debt.

"Cash – As of December 31, 2010, cash, cash equivalents, and marketable securities were $35.0 billion."


According to the article, they bid up through $4 billion but eventually "tapped out".

If I read correctly, they actually bid up to 4 billion before dropping out.

Should have gone with Tau

Why bid over 6 billion when the current bid is at least below 3.1 billion right ?

Stand by for a new raft of belligerent offensive patent suits...

In my mind (despite the precedent with Google), Google's irreverent bidding suggests that they were simply running up the bid. In which case perhaps the partnership with Intel suggests similar strategies from companies that never intended to win the portfolio. It would be interesting to me to know if Google later secures licensing on some or all of these patents for less than Pi billion, as licensing seems more likely than litigation.

Looks like they ran out of well known constants. I'm sad google lost this round.

They should've gathered the whole OHA alliance around and get them to make a pool. Just getting Apple alone in the bid would've meant a very high chance they lost the bid, because Apple could've outbid them if they really wanted the patents. But of course it got even worse, with all the others joining up with Apple to take them.

They really didn't expect this to happen? I'm a bit disappointed in Google for not thinking this through, if they really wanted to get them to protect the whole Android ecosystem.

EDIT: I also think Microsoft is focusing too much on making money on patents, rather than from their own product. Are they going to buy as many patents as possible that later they can use to act as a leech on Android ecosystem? That's a pretty perverse business model, and it doesn't make them look any better than Righthaven.

I'm a bit disappointed in Google for not thinking this through

Presumably they ran the numbers and figured that the expected costs of defending against lawsuits based on these patents was around $4 billion, in which case they're better off not bidding higher.

Google thinks this is real funny until Samsung android phones are banned from the us

See how this is great for people in finance and law - they get big firms into bidding wars, end up paying a large number and eventually end up filing infringement suits to get back the $$$$ spent.

Am I the only one who thinks Google didn't really plan on winning anything? I think they were just making a statement about the ridiculousness of patenting an algorithm. But, I'm probably wrong.

You can't patent innovation, although you can attempt to stifle it with patents. If you're going to sue me on the grounds of patent infringement, I can go work on something else, but you're just going to be left holding your bag of patents. Like a bully on the playground, sure you've got the ball now, but nobody wants to play with you.

When bidding with imperfect information (that is, each party does not know the other bids, only if his is the highest,) it makes sense to bid in non-even numbers.

I think the bidding here wasn't such, so it probably not the reason here.

How irrational.

I would also be interested to know exactly the order of bids, because if Google and Intel never bid directly after one another, it might suggest they had an allied strategy going in.

Things like this make it hard to ever really abolish patents, either a lot of companies would be out a lot of money or the government would have to reimburse they a lot of money.

I don't see it that way. Abolishing software patents would only apply to new patents. Currently-in-force patents would just be allowed to expire at the normal timeline, which I think is around 20 years.

That's what makes sense, but it's not like the laws passed ever make sense. See retro-active copyright extensions for a good example.

They are a granted monopoly, you pay the filing fee whether it is accepted or not hence the gov't has no liability. Look at making gold illegal for examples of how the gov't can drastically devalue your assets with no recourse.

The government can indeed devalue or even confiscate your assets if it wants to. The problem is that legislators have no interest in pissing off well-heeled companies that can contribute billions to their opponents when the only people opposed to software patents are a few programmers and policy wonks with a whole lot less money than the companies that own the patents.

Also, keep in mind that lawyers tend to be much more politically connected than programmers.

The government can indeed devalue or even confiscate your assets if it wants to. The problem is that legislators have no interest in pissing off well-heeled companies that can contribute billions to their opponents when the only people opposed to software patents are a few programmers and policy wonks with a whole lot less money than the companies that own the patents.

The government is immune to lawsuit, hence it never has liability.

Am I the only one who wants to know what the numbers that were not even numbers were? What does that mean?

That's an awful lot of money to spend on patents unless they plan on aggressively pursuing violators of it.

It will be really interesting to see what Google's next move will be. Since the competitors had to stretch themselves for this one, will this continue as a game of attrition (through various legal and acquisition costs)?

And I suspect that this was a really bad move in this context on the side of Google's competitors. Oh and I am well aware that these companies got loads of cash on hand. But it can't last forever.

  > Since the competitors had to stretch themselves for
  > this one
What do you have in mind? Apple has about $66 billion in cash.

  > Oh and I am well aware that these companies got loads of cash
  > on hand. But it can't last forever.
They are still making money as crazy.

They should have bid Planck's constant and would have won?

I'm sorry, we only accept bids in dollars, not joule-dollar-seconds, which is what $h would be.

I think you have Planck's constant (about 6 * 10^-34) confused with something else. It would be about $0, which is still less than $4.5 billion.

pi is also less than $4.5billion. It's the multiplier that matters.

Ah, I was thinking 6.6 Billion to mimic the prefix.

Looks like their strategy was to just push the bids up, so as to force their competitors (who are competitors to each other) to bond together in a giant bid: divide and conquer.

Either that, or they didn't like the Feigenbaum constant.

It might turn out to be closer to unite and submit than divide and conquer if they find themselves on the business of a buch of new IP lawsuits. I doubt the winners plan to sit on these.

should have bid 2.71828 and 0.42331 bil.

Would be funny if in the future Google's ordered to pay $3.14159 Billion for violating the same Nortel patents in Android.

Google was Trying hard to be cute it backfired.

Typical childish behavior from Larry Page.

I like it.

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