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Google Goes Shopping for the Next Big Thing, Finds the Cupboard Bare, Thanks to US Patent Law

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Eric Schmidt alluded, perhaps unintentionally, to a second order impact of patent litigation: a shrinking pool of startups for companies like Google to acquire.

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It's been said many times before that software patents stifle innovation by instilling in young companies the fear of being sued by patent trolls, not to mention the cost of licensing key patents from existing intellectual property-holders like Microsoft (NASDAQ:MSFT). But in an interview with the Wall Street Journal, Google (NASDAQ:GOOG) executive chairman and former CEO Eric Schmidt alluded, perhaps unintentionally, to a second order impact of patent litigation: a shrinking pool of startups for companies like Google to acquire.

Let me tell you the loser here. There's a young [Android co-founder] Andy Rubin trying to form a new version of Danger [the smartphone company Mr. Rubin co-founded before Android]. How is he or she going to be able to get the patent coverage necessary to offer version one of their product? That's the real consequence of this.

Schmidt seems to be trying to convey sympathy for young entrepreneurs, but the example he chooses is telling. Andy Rubin didn't just start Danger, a smartphone company that was acquired (and ruined) by Microsoft-years earlier, in 2003, he was one of the founders of Android, which was acquired by Google and has since become the most gigantic smartphone operating system on Earth.

In other words, if the mobile patent landscape had been the same in 2003 as it is in 2012, Schmidt doesn't think that someone like Andy Rubin would even be in the market. (At one point, Rubin's nascent Android effort ran out of money completely, and was rescued only when a close friend of Rubin handed him a no-strings envelope containing $10,000 in cash.)

Without young companies like Android for behemoths like Google to acquire, Google's very existence, in the long run, could be threatened by a dearth of innovation. Companies the size of Google have always relied on acquisitions to bring in fresh talent and new ideas; innovating on the scale of a hungry young startup from within the comfort of a giant corporation seems to be virtually impossible. Imagine, for example, if Instagram, the picture- taking mobile app recently acquired by Facebook (NASDAQ:FB) for $715 million, had been founded in a patent environment as hostile as the one experienced by mobile companies -- it might not have existed at all.

This story by Christopher Mims originally appeared on Quartz.

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