More worrying, according to some experts, the $4.5 billion auction of Nortel Network’s remaining patents demonstrates the growing dysfunction of the country’s patent system, where even the most amorphous ideas can be rubber-stamped by the government and protected for years. Companies are increasingly arming themselves with ever-growing patent portfolios to initiate or shield themselves from costly lawsuits.
The result, these experts say, is tantamount to a nuclear weapons standoff: Companies with formidable patent portfolios can use them as cudgels against rivals, while those with fewer patents risk being eaten alive in court.
For years tech companies did not go after one another in patent lawsuits. But that has changed recently as the battle to dominate the mobile phone space has grown fiercer. Google’s Android operating system has rocketed to the top slot as the most popular in the world, just ahead of Apple’s iPhone and RIM’s BlackBerry.
The battle to beat Android has already turned into a legal bonanza. Apple is suing HTC, Samsung and Motorola, all makers of phones with the Android platform. Oracle is seeking up to $6.1 billion in a patent lawsuit against Google, claiming Android infringes upon Oracle’s Java patents. And Microsoft is suing Motorola over its Android line.
The latest tussle over patents began when the Canadian telecom equipment maker Nortel Networks declared bankruptcy and put up for sale its portfolio of about 6,000 patents covering an array of wireless and Internet technologies. Nortel described the portfolio as touching “nearly every aspect of telecommunications and additional markets as well, including Internet search and social networking.”
Google, which has a relatively small collection of patents compared with some older tech firms, entered a starting bid of $900 million this spring.
At the time, Google explained on its official blog that “one of a company’s best defenses against . . . [patent] litigation is (ironically) to have a formidable patent portfolio, as this helps maintain your freedom to develop new products and services.”
Then an unknown group calling itself Rockstar Bidco stepped forward with a whopping $4.5 billion offer — turning the Nortel sale into possibly the biggest intellectual-property auction of all time. The group, it turned out, was a coalition of Google’s biggest rivals in mobile phones.
The sale immediately raised concern among some antitrust experts. This week, the American Antitrust Institute sent a letter to the Justice Department asking antitrust officials to begin an investigation of the sale ahead of Nortel’s bankruptcy proceedings, set for Monday.
“Why is the portfolio worth five times more to this group collectively than it is to Google?” said Robert Skitol, an antitrust lawyer at the Drinker Biddle firm. “Why are three horizontal competitors being allowed to collaborate and cooperate and join hands together in this, rather than competing against each other?”
Microsoft, Apple and RIM declined to comment beyond prior news releases announcing the patent sale.
Google has cried foul.
“This outcome is disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition,” said Kent Walker, Google senior vice president and general counsel in a statement. “We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers.”
It’s unclear what the companies will do with Nortel’s patents or how they might split them up among them. The firms could sell them to other companies, including those in the sole business of licensing out patents. They could hold on to them purely as a defensive move to discourage potential litigation, or pursue lawsuits against rivals such as Google.
Brian Kahin, a senior fellow at the Computer & Communications Industry Association, said the companies don’t even have to litigate. They could sell the patents to “patent trolls” — firms that don’t invent or make products but acquire patents and then sue or threaten to sue bigger tech companies for infringement.
“The one thing that’s significant here is you have three of the four smartphone platforms ganging up on the fourth,” said Kahin. “You want patents for an economic benefit, not as a legal instrument.”