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INNOVATION ECONOMY

Skyhook battles Google in court

Fight is over control of smartphone location technology

James Duncan Davidson/O’Reilly Media

Skyhook cofounder Ted Morgan received bad news from Apple chief executive Steve Jobs in April 2010. Jobs said after two years, Apple no longer needed Skyhook’s services, Morgan said.

In April of last year, Ted Morgan had two tough brushes with giants of the tech world: Apple and Google. The story of what happened to Morgan’s start-up, Boston-based Skyhook Inc., illustrates just how valuable information about your whereabouts has become.

Morgan’s bad month began on a Tuesday morning in April 2010, when he answered his phone and Steve Jobs was on the line. The Apple CEO was calling to break up.

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The two companies had been working together for just over two years, with Skyhook providing technology that allowed iPhones to determine their locations, similar to GPS, by searching for nearby Wi-Fi networks. Jobs had announced the partnership at one of his famed Macworld keynotes.

But the information about where all those iPhone users were going had become too important to hand over to Skyhook, Apple felt. “The conversation was very polite,’’ Morgan recalls. “Steve said they felt they’d built something themselves that they could use to do the same thing.’’

Later that April, Skyhook announced it would provide similar positioning services to Motorola phones that use Google’s Android operating system. Almost immediately, according to Morgan, Google executives “flipped out,’’ and persuaded Motorola to drop Skyhook in favor of a location service that Google developed. That dust-up led to two lawsuits, which Google wouldn’t comment on. The next hearing in Skyhook’s patent infringement suit against Google happens in a Boston courthouse on Wednesday.

Almost as soon as it was founded in 2003, Skyhook stumbled into a problem that would turn out to be crucial to the fast-growing world of mobile devices. And that led to a quandary for Skyhook that could be likened to casting one’s fishing net for the very first time and ensnaring a nuclear sub.

Skyhook’s technology can be used instead of, or in addition to, a device’s internal GPS chip that communicates with satellites orbiting the earth. GPS doesn’t work when you are indoors, and it can work poorly or not at all in dense urban areas, where satellite signals ricochet off tall buildings. Skyhook thought Wi-Fi networks might be a good complement.

Rather than searching for four satellites in the sky, Skyhook’s software scans for signals from three Wi-Fi networks, and consults an almanac of Wi-Fi locations, supplementing that with information about which cell tower your phone is communicating with, and any GPS satellites it can see.

The company began building its almanac of Wi-Fi locations by driving around Boston in an old Ford Explorer, using a laptop and a $50 external antenna to tune in Wi-Fi networks at coffee shops, offices, and apartments, plotting each one on a map. Right now, there are about 250 cars driving the streets of Japan, Eastern Europe, and China, building comprehensive Skyhook maps of those countries.

The company started out in the early days of smartphones (remember the Palm Treo?), but before mobile phones had the ability to communicate with Wi-Fi networks. Initially, Morgan and cofounder Michael Shean thought that if a laptop knew where it was, then search engines could deliver better results, showing the pharmacies closest to your Chicago hotel, for instance.

“The company made three bets on the future,’’ says Shikhar Ghosh, Skyhook’s chairman. “First, that Wi-Fi was going to be built into every phone. Second, that GPS would never get better indoors and in big cities. And third, that thousands of applications would get spawned once you had easy-to-access location information.’’

Today, of course, many of us assume that when we’re in an unfamiliar neighborhood, we can turn on our phone and ask for reviews of every burger joint within walking distance.

Skyhook’s brightest moment of glory came on Jan. 15, 2008, when Steve Jobs splashed the company’s logo on the screen during his Macworld keynote, explaining how the company’s technology works - “It’s really cool,’’ he gushed

Morgan and Shean were in the audience that day, and so were top Google executives Eric Schmidt and Sergey Brin. While Google had evaluated Skyhook’s system, the search giant eventually decided to build its own. So did Microsoft and RIM, two other major players in the mobile industry. (Companies like Sony and Samsung have decided to license Skyhook’s service.)

Skyhook is now suing Google alleging patent infringement and restraint of trade. (Google provides its Wi-Fi location service gratis, as an add-on to its free Android operating system. In September, Schmidt defended the company’s actions with regard to Skyhook in front of a Senate antitrust committee.) Skyhook believes its collection of 25 patents covers key elements of collecting information about Wi-Fi networks and using that information to pinpoint a device on a map.

That suggests that more litigation against other companies is possible. But Morgan won’t discuss that, saying only, “Our efforts are all about licensing the technology because it’s better.’’

Despite the company’s legal bills, Morgan says Skyhook has been profitable since last year. The company gets paid between 50 cents and $1 for every device that relies on its location service, which can either supplement GPS or operate on its own.

In addition, information about your location is becoming increasingly valuable to businesses, who want to show you ads based on where you are standing, or use information about your daily commute to figure out where to plant the next McDonald’s. “That data is a treasure trove,’’ says Ghosh, Skyhook’s chairman. “It’s core to the next decade of competition among the tech titans.’’

If Skyhook prevails in court, that could turn the company into a powerful and hugely profitable toll collector in the mobile device business. If it loses, it will become just one more technology peddler trying to persuade customers that what it sells will perform better than what any company could build on its own.

“Skyhook is in a very high stakes game, and there’s a big prize at the end,’’ says Ghosh. “You can debate the odds of winning, but these guys are playing for all the marbles.’’

Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.
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