Wednesday, October 17, 2012

Google's second-tier Android-related patent issues: Vringo, TiVo, Lodsys

On this blog I cover almost exclusively topics that are also relevant to my work as a consultant, where my focus is on smartphone/tablet patent disputes in which both the plaintiff and the defendant is a major operating company. I discourage stock traders and PR agents from contacting me about patent matters that are outside this focus: if I don't cover a dispute, it's for a lack of professional interest, and not a matter of awareness. My focus won't change, but this week's start of the Vringo v. Google et al. trial in the Eastern District of Virginia warrants a rare exception: in this post I want to quickly share a very few observations and opinions on some second-tier patent issues relating to Android. (But I won't cover those disputes in detail going forward, and unless there are major verdicts and rulings, I may never look at them again.)

Vringo targets Android's livelihood: advertising on search results pages

Vringo, a small-cap company, has a ring-tone business but its biggest bet for the future is on patent monetization. Google is by far and away the most important one of multiple defendants in an action over former Lycos search engine advertising patents that was filed in the Eastern District of Virginia, the "rocket docket", last year. Vringo is seeking almost $500 million in damages for past infringement, arguing that it's entitled to 3.5% of the incremental Google profits (20%) it attributes to the implementation of its claimed inventions, and it ideally wants an injunction against future infringement, or in the alternative, ongoing royalties for future use.

This is about Google's search advertising in general, but AdSense for Mobile Search, which powers paid advertisements on mobile website search results pages, is explicitly named as an accused technology in the infringement contentions summarized by the final pretrial order (click on the image to enlarge or read the text below the image):

"Google has and is currently infringing the asserted claism of the '420 and '664 patents in the United States, including this judicial district, by its use of its AdWords, AdSense for Search, AdSense for Mobile Search and AOL Search Marketplace systems."

Without AdSense for Mobile Search, Google would lack a viable business model for Android since it doesn't charge royalties for use of the Android program code itself. Android is a lock-in scheme designed to forcibly increase the loyalty of end users to Google's services, and, as the ultimate objective, to ensure their exposure to Google's advertisements. The tight integration between Google's services and the Android platform is also demonstrated by the circumstances in Germany under which Microsoft felt forced to include Google as a defendant in a lawsuit against Motorola Mobility over the Google Maps Android app.

Therefore, a ruling in Vringo's favor would also affect Android. But due to a pre-trial ruling, Vringo won't have the chance to prove willful infringement (at least not prior to an appeal), and it isn't in the search engine business. If the Federal Circuit doesn't believe that Apple is entitled to a preliminary injunction against Samsung over Siri-style unified search (even if it had a sufficient likelihood of success on the merits of its infringement allegations, it would have to prove that consumers buy the Galaxy Nexus, and not just the iPhone, because of its voice assistant), it's not easy to see how Vringo, without a willfulness finding that would at least make it a better story, can satisfy the requirements for injunctive relief. Google is being defended against Vringo by Quinn Emanuel, the firm that also got the Galaxy Nexus injunction reversed.

Even if Vringo won an injunction (which the jury itself could not award, but which would have to be decided by the judge if the jury establishes infringement of a valid patent), it would view this as a means, not an end. An injunction would give it maximum leverage to dictate the terms of a settlement.

In recent years there has been a fairly positive trend in the United States toward more reasonable patent damages. The Apple v. Samsung verdict is an outlier. It's a case of enormous economic magnitude, and it involves design patents, which are much more costly to infringe because design patent holders can seek a disgorgement of an infringer's entire profits generated with the infringing products. If Vringo obtained a huge damages and/or ongoing-royalties award in Virginia, Google will have to settle or keep fighting for a more reasonable amount, possibly all the way up to the Supreme Court. By fighting against an excessive award, Google would advocate the rationality it unfortunately doesn't support in connection with standard-essential patents.

If Google can't avoid a liability finding, it faces a tough choice. On the one hand, it doesn't want to be a soft target. On the other hand, if it overplayed its hand, there could be a point where Vringo wins ongoing royalties, which would affect Google's profitability in general and Android's profitability in particular.

Apart from those former Lycos patents, Google itself, or at least its OEMs, may have to work out more license deals with Vringo. Recently, Vringo acquired patents from Nokia, and the first company it has sued over some of them is ZTE, a Chinese company that makes (among other things) Android handsets. Some of the 500 Nokia patents Vringo acquired might read on Android itself.

TiVo wants billions from Motorola Mobility

Yesterday Bloomberg's patent litigation expert Susan Decker quoted from a TiVo filing in a case targeting now-wholly-owned Google subsidiary Motorola Mobility in the Eastern District of Texas the allegation that "Motorola's massive production of infringing DVRs dwarfs the numbers of accused products at issue in TiVo's previous case" and that "TiVo's damages claim is likely to run into the billions of dollars".

Google bought Motorola Mobility because of Android. It wanted the patents and the handset business, but it's known to be interested in divesting the set-top box business. As long as major IP liability issues regarding that business haven't been clarified, a sale at an attractive price is difficult to make work. Some analysts, including one quoted by Bloomberg, even doubt that any sale can happen before this is resolved.

There's actually a much bigger player than TiVo who has patent infringement claims pending against Motorola's set-top box and DVR business: Microsoft. In December 2010, Microsoft brought offensive counterclaims in a lawsuit that Motorola had filed in the Southern District of Florida, including two patent assertions against set-top boxes and DVRs. In August 2011, the case was transferred to the Western District of Washington (Microsoft's home court), where it is currently on hold while the court and the parties are preparing for a FRAND trial.

If Microsoft believes its patents are infringed by Motorola's DVRs, I wouldn't recommend to anyone to buy that set-top box division without clarifying the licensing situation. And if Google wants a deal with Microsoft prior to selling the division, it will have to address Android's infringement of many Microsoft patents.

Lodsys defends key patent claim against Google's invalidation attempt

In the spring and summer of 2011 I blogged about Lodsys's patent assertions against app developers several times. But with further escalation in disputes between major players, I no longer found the time, except that I reported six months ago on the permission Apple received to intervene in a Lodsys lawsuit in the Eastern District of Texas. Apple is trying to help app developers with a patent exhaustion theory that may or may not succeed. Earlier this month Lodsys reported on its official blog on Apple's intervention and blamed it on "[Apple's] insistence that the documents that underlie the [exhaustion] issue remain shrouded in secrecy to prevent application developers and others from determining the scope of Apple's license for themselves". It's possible that Apple doesn't have a choice because of its obligations vis-à-vis Intellectual Ventures, which once owned Lodsys's patents. On the front page of its corporate website, Lodsys claims to have sold more than 150 licenses to its patents, and if Apple and Google had actually promised to hold targeted developers harmless against those claims, I'm sure it would have been less successful. Even the well-known Iconfactory, which temporarily worked with Texas-based lawyers to defend itself against Lodsys, ultimately had to back down because Apple's and Google's efforts were too little, too late.

Anyway, the Lodsys blog post on Apple's intervention also mentions that "[a]s a part of the Inter-Parties Reexamination requested by Google, the USPTO recently issued an Office Action confirming Claim 24 of US Patent 7,222,078", which it claims "is particularly relevant regarding in-app purchases and free-to-paid application upgrades". Not only did Google's reexamination request fall far short of what little app developers really need (blanket coverage) but it also doesn't appear to take all of the relevant patent claims down -- at least for now (this could change over time).

I recently updated my lists of (1) Android-related patent infringement findings by courts and (2) infringement findings in countersuits brought by Android companies. Google has a lot of big patent issues on its plate. But besides the blue-chip Android plaintiffs with a collective market capitalization of more than $1 trillions, Google also has to attend to the "tier 2" players -- who are well-funded and know the patent assertion business. I can afford the luxury of commenting on small-cap and privately-held companies only from time to time. For Google, it's part of the daily routine to deal with them.

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