When Google bid pi (3.14159) billion USD in 2011 for the 6000 patents of defunct Canadian telecom giant, Nortel, it probably thought it could afford to be silly. However the competition wasn’t playing around. The winning bid of 4.5 billion USD went further than even Google was prepared to go: more than three times the pre-auction estimate value of the patents. The winner was no ordinary company, but a consortium of Apple, Microsoft, RIM and others, operating under the nom de guerre of “Rockstar bidco”.
Now, after almost two years of relative silence, Rockstar has finally brought out its nunchuks and entered the mobile patent war, filing suits against 8 Android-related companies for the infringement of 7 patents. While mass acquisitions of patents are nothing new in the patent space, a number of peculiar features of Rockstar could signal the birth of a new kind of patent troll - a proxy for practising companies, with the funds and know-how to focus exclusively on high-quality patents, and practical immunity from counter-suit. This is the world of the patent troll 2.0.
The Patent Troll 1.0
The term ‘patent troll’ was coined in the early nineties by Intel’s then legal counsel Peter Detkin to describe a company whose revenue model consisted in the monetisation of patents by threatened or actual law suits. In recent years, the term has fallen out of vogue, due to a number of possible reasons. Firstly, there was the problem of taxonomy: what’s the difference between a ‘patent troll’ and a legitimate IP licensing company like ARM or InterDigital or even a research institute? All these companies make money by monetising patents, and all need recourse to the Courts when companies rip off their IP without a license. Secondly, there was the problem that the companies that were doing the name-calling started dabbling in trolling themselves. ‘Patent stockpiling’- or the mass acquisition of third party patents to assert against competitors (or squeeze out cross-licenses)- became an industry norm. The pot lost its leverage to call the kettle black. However unlike pure patent trolls, practising companies that stockpile patents to use against competitors are vulnerable to patent counter-attack.
Enter, Rockstar- a new breed of non-practising entity that permits practising companies to troll each other without risk of counter suit.
The Patent troll 2.0
Although Rockstar bidco began life as a consortium of major mobile companies assembled for the Nortel bidding war, it is now an independent company (‘Rockstar Consortium’), with its own CEO, John Veschi. According to Veschi, various commitments given by Apple and Microsoft to the US antitrust watchdog when it purchased the patents- namely, not to troll its competitors- do not apply to Rockstar as an independent company. This ability to plausibly deny that it is controlled by its founding companies and to simultaneously function as their agent (by suing their competitors), is a lethal combination. Theoretically, it enables practising companies like Apple and Microsoft to troll by proxy, and with relative impunity.
A different approach
Furthermore, from the few interviews that John Veschi has given to the media, it seems as if Rockstar will adopt a different strategy to that practised by most companies so far in the mobile patent wars. The majority of litigated patents in the mobile patent wars have been so-called Standards-Essential Patents (‘SEPs’). If a patent is ‘essential’ to a standard it means that every company that makes standard-compliant devices requires a license. One advantage of litigating on SEPs is that SEP-owners don’t need to reverse engineer a device to see if it is infringing. If it uses a standard (eg. 3G, or WiFi or BlueTooth), then it necessarily infringes. Rockstar’s approach is different. Instead of focusing on standards, Rockstar employs a team of highly-skilled reverse-engineers to do product break-downs of devices and look for infringing technologies. This probably means Rockstar is not looking for SEPs but instead for ‘differentiation patents’- patents which protect extra features without being part of a standard.
While US and EU antitrust authorities have demonstrated a robust attitude to trolling involving SEPs, their attitude to trolling using differentiation patents is far more laisser-faire. The golden sword of patent law- namely ‘injunctions’- are still available to patent holders in the case of differentiation patents, whereas their use has been severely circumscribed in the context of SEPs. While it is unlikely that Rockstar would ever apply for injunctions as a final remedy against infringers, the fact that this option remains open enables it to bargain in the shadow of that golden sword- and drive up its licensing fees.
When Google lost the Nortel bidding war in 2011, it predicted ominously that Rockstar’s purchase of the patents was part of a ‘concerted effort against Android’. Perhaps in response, Google then went on to spend 12.5 billion USD for the acquisition of Motorola Mobility. But fighting patents with patents is the way things used to be done. Rockstar’s business model is a new entry into the mobile patent war: an independent company which enables its founders to troll by proxy, using high quality differentiation patents- not SEPs- as its weapons. Where things go from here is anyone’s guess, but the strategic battle is surely just heating up.