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Google and Cisco sign patent deal, blast ‘patent privateering’

This Wednesday, May 9. 2012, file photo, shows an exterior view of Cisco headquarters in Santa Clara, Calif. (Paul Sakuma/AP, File)

In an atmosphere of growing litigation, two major technology companies have smoked a patent peace pipe. On Tuesday, Cisco and Google announced a comprehensive cross-licensing deal that lets each firm use technologies covered by the other's patents. The terms of the agreement were not disclosed.

Google's patent team has been hard at work lately. Last week, the Mountain View firm signed a patent cross-licensing deal with Samsung, whose popular cellphones use Google's Android operating system.

In making Tuesday's announcement, Google and Cisco sought to draw a contrast with other firms that have engaged in "patent privateering." "Companies are selling patents and maintaining some back-end royalty arrangement so they can benefit from the enforcement of the patents," said Allen Lo, Google deputy general counsel for patents. That provides a way for companies to increase revenues from their patents without the kind of backlash they would face if they started threatening competitors directly.

Pressed for details, neither company would say which of their competitors had engaged in "privateering."

Eli Dourado, who writes about patent issues for the Mercatus Center at George Mason University, warned that the practice threatens to accelerate the pace of litigation in the technology sector. While the volume of patent litigation has been growing, it is kept in check by the patent version of mutually-assured destruction. Each technology firm knows that if it launches a litigation campaign against one of its competitors, the competitor will respond in kind, resulting in a patent "nuclear war" that will cost both firms a lot of money. So major technology companies have an incentive to avoid enforcing their patents aggressively.

But enlisting the assistance of nominally independent third parties allows technology companies to engage in proxy wars, reducing the danger of blowback. Because the terms of the agreements tech companies sign with trolls are typically secret, the target of a troll's litigation campaign may not be able to prove that a deep-pocketed competitor is pulling the strings behind the scenes.

Even worse, Dourado said, these proxy wars can allow companies to evade their commitments to license their patents on fair, reasonable, and non-discriminatory terms (FRAND). Standards bodies typically require companies to make such commitments before their technologies can be incorporated into a new technology standard. But third parties are not bound by FRAND commitments. Selling patents to them can be a way to obtain higher licensing fees from standards-based technologies while complying with the letter of the standards body's rules.

Google's deal with Cisco helps to ensure that neither firm will engage in patent privateering against the other. The licenses travel with the patents, so even if Cisco eventually transfers its patents to another company, the new owner still won't be able to use them as a weapon against Google. And the same point applies in reverse.