Monday, June 11, 2012

ITC doesn't allow HTC to assert Google's patents against Apple -- Rent-a-Patent model fails

An ITC judge has granted an Apple motion to throw out five of the patents Google gave to HTC last summer. Apple had argued that HTC lacks standing (the right to sue). Administrative Law Judge Thomas Pender apparently concluded that HTC failed to acquire all substantial rights in the relevant patents. The ALJ made the decision on Friday, and it entered the public record today (click on the image to enlarge):

As a result, only three of eight patents remain in HTC's second ITC action against Apple. Last week Apple brought a third ITC complaint against HTC, asking for rapid enforcement against new devices of an import ban ordered in December 2011.

The decision to throw out Google's five patents is appealable, and the identified deficiency is theoretically curable, but it's now fairly probable that Apple won't have to defend itself against those patents in the ongoing ITC action:

  • Appeals against initial determinations that an ALJ makes at this stage of an investigation rarely succeed (though the Commission, the six-member decision-making body at the top of the ITC, frequently modifies the ALJs' final initial determinations).

  • It's theoretically possible that Google could solve the problem by joining the investigation as an additional complainant. In a different ITC investigation involving Apple (and, indirectly, HTC), AMD claimed to be the rightful owner of the patents-in-suit and simultaneously said that it declined to join the investigation as a complainant.

    If Google decided to join the investigation, this could result in further escalation between Apple and Google (though the two companies are already suing each other as a result of Google's acquisition of Motorola Mobility. Also, it's unclear whether Google can satisfy the ITC's domestic industry requirement with respect to the asserted patent claims. HTC argued that it practices those inventions in its own products. Google didn't make mobile devices at the time of the complaint. Its acquisition of Motorola Mobility was just closed last month.

The decision is an embarrassment for Google, which waited almost a year and a half after Apple's first patent lawsuits against HTC before it provided this kind of support to HTC, and then apparently failed to do this the right way. Too little, too late. If Google had assigned all substantial rights to HTC by truly transferring those patents to the Taiwanese company (as opposed to imposing limitations and restrictions), Apple's motion wouldn't have succeeded. But Google's support for the Android ecosystem has clear limits.

The fact that a Rent-a-Patent deal was rejected by a judge has implications beyond this particular ITC investigation. Google isn't the only patent holder that assigns patents to other companies for the purpose of suing third parties. Major patent aggregators such as Intellectual Ventures and publicly-traded RPX also allow their members to "check out" patents in order to bring counterclaims, and their transfer agreements may raise similar issues with respect to standing as the Google-HTC deal.

The Open Invention Network (OIN), a smaller patent aggregator that claims to "protect Linux", gave four patents to in 2010, three of which were immediately asserted against Microsoft. Since Microsoft and settled their dispute a few weeks later, with Salesforce agreeing to take a royalty-bearing license, the question of standing never had to be adjudicated in that particular case. But Judge Pender's decision in the HTC-Apple case exposes the problematic nature and legal vulnerabilities of deals under which a patent is assigned only temporarily for the mere purpose of suing a third party.

Theoretically, all of those aggregators could become co-plaintiffs in order to resolve the standing issue. But patent aggregators like OIN, which doesn't have any licensing business (you either accept its terms and get a free-of-charge license to its patents, or you don't and may get sued), can hardly satisfy the ITC's domestic industry requirement or the four-factor eBay test for a patent injunction.

All those Rent-a-Patent firms have to reconsider their business model. If they transfer all substantial rights, their partners/customers have standing. But in that case they may never get their patents back. And that actually makes sense: the idea of a patent is that one patent holder has an exclusionary right. Intellectual property is all about exclusivity. Multitenancy may work for some cloud computing purposes, but it's not an option for patents.

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