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Google’s anticompetitive infringement of IP reduces innovation
By Scott Cleland
September 19, 202O
In this week’s IAM Saturday Opinion slot, Scott Cleland identifies what he claims is a series of major Google IP infringements that were designed to strengthen its position in key markets at the expense of competitors who had got there first
Google’s most effective revenue and profit growth engines - online advertising, mobile advertising, the Android operating system, and Android smartphones – have all depended, to an extent at least, on anticompetitive infringement of IP owned by leading competitors. By seizing their hard-earned, first-mover advantages, Google has been able to gain, maintain and extend its internet platform’s market power.
Google denies this, claiming its success has been earned legitimately as “a law abiding company”.
Let me be clear, the invention of the PageRank search algorithm and Googlebot Web crawler by Google co-founders Larry Page and Sergey Brin’s are two of the best innovations in modern world history. However, the evidence indicates a business pattern of Google IP infringement that has enabled the company to secure the essential capabilities necessary for it to dominate in key areas:
- Targeted online advertising (Overture’s ad auction engine trade secrets and patent);
- Open source smartphones (Apple’s iPhone touchscreen command trade secrets and patents);
- Mobile advertising (Skyhook Wireless’ location engine trade secrets and patents); and
- Mobile operating systems (Oracle’s Java API copyright).
Without the advantages of these strategic IP infringements, there is little chance that Google could have produced even half the financial and business success it has today.
Why spotlight Google’s anticompetitive pattern of mass IP infringements now?
The US Department of Justice (DOJ) is expected to file an antitrust monopolisation complaint in federal court soon; and the Supreme Court will hear the Oracle v Google copyright infringement case on 7th October.
A critical 1962 Supreme Court antitrust precedent, Continental Ore v Union Carbide, is particularly relevant here because it requires courts to look at an accused company’s conduct “as a whole.” It spotlights the importance of recognising patterns of anticompetitive and illegal practices that lessen competition, maintain/extend market power and cause consumer harms, such as reduced innovation.
Overture
Overture is the first and oldest example in the pattern because it is the original IP infringement success that seems to have encouraged Google’s co-founders to build their overall ongoing business model around the advantages of eliminating competition by taking their IP and by implementing proven market-leading innovations as Google’s own.
Google’s infringement of Overture’s trade secrets and patent are so important here because they were essential and necessary for Google’s original advertising business model to launch, succeed and enable its 2004 IPO; and since then to generate over a half a trillion dollars of advertising revenues.
Evidently, Google took and used without permission the trade secrets and patented concept of the search advertising business model in 2001 from Bill Gross, founder of a company called Goto.com (renamed Overture).
Gross invented, pioneered and proved all the essential elements of a search advertising business model that Google’s founders knew little about until they came across him - ie, targeted search advertising, keyword ad auction model, performance price-per-click ads and the search syndication business model of paying websites for the right to handle their search requests.
Bill Gross’ inventions remain core to Google’s dominant AdSense advertising business model and its success today.
In 2002, Google started operating a search advertising model based on all of Bill Gross’ trade secrets and patented inventions. As Google’s search ad revenue quickly skyrocketed, Gross’ company,
Overture, sued Google for patent infringement.
In 2003, Bill Gross sold Overture to Yahoo for $1.63 billion.
In 2004, to clear the way for its IPO, Google settled the patent lawsuit with Overture-Yahoo for around $250 million, avoiding a trial on the allegations that Google stole the idea and auction method for keyword advertising, the fount of Google’s future search advertising success and eventual monopoly power.
Google evidently settled because it did not want investors to focus on the fact that its phenomenal revenue growth and business model was not driven by Google’s in-house innovation.
At the time, Scott Kessler, an analyst for Standard & Poor's, said: "It was difficult for Google to acknowledge that they need[ed] another company's technology to enable their primary business to operate.”
Apple
What made Apple's Steve Jobs so angry with Google and Android?
The simple answer is he felt Google's leadership profoundly betrayed the longtime personal trust and friendship of Apple's leadership in taking what Steve Jobs believed were Apple's most prized possessions.
The fuller answer tells of the once close Apple-Google relationship.
Some are familiar with Apple's Steve Jobs' strong views about Google-Android's infringement of Apple.
In Steve Jobs by Walter Isaacson, you find this famous quote: "I will spend every penny of Apple's $40 billion in the bank, to right this wrong. I'm going to destroy Android because it's a stolen product. I'm willing to go thermonuclear war on this."
However, few are familiar with the story of what made Steve Jobs this angry. Moreover, few are familiar with the length and closeness of the Apple-Google relationship that explains the depth of the betrayal Steve Jobs felt.
Concerning the closeness between Apple's and Google's leadership team, Steven Levy wrote: "There was so much overlap that it was almost as if Apple and Google were a single company."
Operating under conditions of strict secrecy, Apple started development of the iPhone in 2004. In August 2005, Google quietly bought the Android start-up, when no-one outside of Apple was supposed to know that Apple was working on the iPhone. Google Chairman Eric Schmidt joined Apple's Board in August 2006.
In May of 2009, the FTC indicated that it viewed that Google and Apple sharing board members was anti-competitive, but Eric Schmidt defiantly publicly represented that Google is not a "primary competitor" to Apple's iPhone.
Under pressure from the FTC, Schmidt resigned from Apple's board in August 2009.
In November 2009, Google outbid Apple to acquire mobile advertising leader AdMob. Then Google launched its first smart phone, the Nexus One, in January 2010, just seven months after Google's Schmidt publicly represented that Google did not compete with Apple's iPhone.
In March 2010, Apple sued Google-Android partner HTC for patent infringement of the iPhone. At that time, Steve Jobs explained: "We can sit by and watch competitors steal our patented inventions, or we can do something about it. We've decided to do something about it. We think competition is healthy, but competitors should create their own original technology, not steal ours.”
Skyhook Wireless
This little-known company is highly significant to the pattern because Google’s evident IP infringement of Skyhook’s trade secrets and patents was critical to its strategy of maintaining and extending its PC search and search advertising market power into the emerging mobile search and search advertising markets.
To spotlight how strategically critical Google viewed Skyhook to be as a competitive threat in mobile, when Google contractually tied Google search as the default search app on handset manufacturers’ and carriers’ smartphone home screens, the only other Google app it contractually required to be installed by default was Google’s location engine, also known as its “network location provider”.
In 2010, when the market for smartphones and mobile advertising was still nascent, Google’s number one location engine competitor, Skyhook Wireless, which was the original inventor and leader in wi-fi location targeting efficiency, charged that Google stole its trade secrets in an unfair business practices lawsuit and its patented technology in another lawsuit.
Skyhook sued Google saying that Google was acting in a predatory, anticompetitive way, in basically preventing it from doing business by forcing its distributor customers -- Motorola and Samsung -- to stop using Skyhook software in their Android phones.
Skyhook Wireless’s business was so damaged by Google predatory behavior that it effectively was forced to settle with Google for a reported $61 million in 2015.
Oracle
On 12th August 2010, Oracle sued Google-Android for billions of dollars because it “knowingly, directly and repeatedly infringed Oracle’s Java-related property”.
The presiding federal judge in the case agreed to include an incriminating Google email that showed that Android officials in Google knew they needed to license the Java intellectual property in dispute.
That most damning evidence showed that Google’s founders wanted Google “to investigate what technical alternatives exist to Java for Android”, but Google employee Tim Lindholm said in an email: “We have been over a bunch of these and they all suck. We conclude we need to negotiate a license for Java.”
The court record has accumulated substantial evidence that Google knew that it needed to license Java but decided against doing so.
The anticompetitive harms of Google’s infringement of Oracle’s copyrighted Java APIs have been severe.
Google decided to build Android upon the foundation of Java’s source code because it was necessary to successfully jumpstart Google’s 2008 launch of both Android as a smartphone operating system and Android Market as the app store predecessor of Google Play. Apple, Microsoft, Blackberry and others had a head start in the mobile space. Google needed to leapfrog them quickly or risk lock-out.
Java provided both a technical and a business solution. Google infringed Oracle’s Java code without any Java licence or payment in order to: speed Android’s time to market by avoiding time consuming internal development; attract device makers and mobile operators that already used and trusted Java technology; credibly call Android “open source” via the Open Handset Alliance; give it away for free to device manufacturers and mobile operators, and drive fastest unit growth; and tap into Java’s existing community of millions of app developers to create an Android app ecosystem that would need an Android app sales channel like Android Market and later Google Play.
Google’s infringement of Java IP is the linchpin anticompetitive catalyst that ignited the viral growth that would lead Google from having no mobile OS and no app store to commanding the dominant Android OS and dominant Google Play app store in the world today.
Then to keep that first-mover-advantage and momentum going, Google anticompetitively leveraged its Google search dominance network effects into mobile search, OS and app distribution, by contractually requiring device manufacturers and mobile network operators that used Android to effectively preinstall Google Search as the default search engine, Chrome as the default browser, and Play as the default app store.
Oracle is in year 10 of its IP infringement lawsuit against Google. It has already included a Supreme Court win and currently involves Google’s latest appeal to the Supreme Court.
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Scott Cleland served as Deputy US Coordinator for International Communications & Information Policy in the George HW Bush Administration. He is President of Precursor® a responsible Internet consultancy. He is the author of “Search & Destroy, Why You Can’t Trust Google Inc” and has testified before the Senate and House antitrust subcommittees on Google, and before Congress, 16 times.
