Wednesday, February 5, 2014

Cisco might have had a greater benefit from joining Rockstar than cross-licensing with Google

Numerous patent cross-license agreements have been struck and continue to be struck in this industry, but other than agreements that settle litigation (such as the recent Ericsson-Samsung deal), they are rarely announced. Still, more than 20 royalty-bearing Android patent license agreements have been made known, and the fewest of those settled litigation.

Obviously, all companies who announce license deals involving their patents like to reinforce key talking points on those occasions. A new trend is that companies with no intention of suing each other anyway make such announcements as part of a political and PR campaign against patent enforcement by other right holders and for far-reaching patent reform. A little over a week after Google and Samsung announced a long-term global patent license agreement, Google entered into a patent agreement with Cisco, and that press release, once again, contains political messages:

"Our agreement with Cisco will reduce the potential for litigation, letting us focus instead on building great new products," said Allen Lo, Google's Deputy General Counsel for Patents. "We're pleased to enter into this cross-license, and we welcome discussions with any company interested in a similar arrangement."

"In today's overly-litigious environment, cross-licensing is an effective way for technology companies to work together and help prevent unnecessary patent lawsuits," said Dan Lang, Cisco's Vice President of Intellectual Property. "This agreement is an important step in promoting innovation and assuring freedom of operation."

I presumed that the Google-Samsung deal involved no balance payment, and this is probably the case here as well. These are deals between companies that weren't going to sue each other anytime soon at any rate.

The relationship between Google and Cisco differs in significant ways from that between Google and Samsung. Google and Samsung are the two leading players in the Android ecosystem, and they have been using and continue to use FRAND-pledged standard-essential patents (SEPs) in similar ways against Apple and (only Google, not Samsung) against Microsoft. Cisco is a long-standing opponent of SEP abuse, though I was a bit disappointed when Cisco's antitrust director Gil Ohana supported the concept of "self-defense" in connection with SEP injunctions on a conference call last year.

But there are two important factors that unite Google and Cisco. First, they stand largely on the same side of the U.S. patent reform debate. Second, they are both being sued by the Rockstar Consortium. I reported and continue to keep an eye on Rockstar's Google and Android lawsuits. Simultaneously with Cisco, Rockstar sued cable operators such as Time Warner Cable. That part of Rockstar's activity is outside my industry focus, however.

The statements I quoted above and a reference in the press release to "actions such as patent privateering -- or the transfer of patents to patent assertion entities -- that harm consumers" suggest to me that this announcement is in no small part about Rockstar, though Rockstar is not a privateer in my opinion because it is owned by a consortium of industry players. That consortium just had to clear the market of those patents because Google was willing to spend billions of dollars (its final bid was $4.4 billion) in hopes of acquiring a nuclear patent arsenal, which could have caused serious problems, especially with respect to 4G LTE standard-essential patents.

The Rockstar Consortium even included two companies making Android devices at the time (Ericsson and Sony, who jointly owned SonyEricsson), one of which is still doing so. This shows that it was an inclusive industry group as opposed to a hostile, anti-Google gang. Presumably Cisco would have been able to join the group as well. For example, EMC was also part of it (it's not a co-owner of Rockstar as we speak, but it was part of the Rockstar bidding group and therefore won't be sued). If that is so, then Cisco made a business decision not to put up money to contribute to this market-clearing effort. And in that case, it's just a logical consequence that Rockstar now seeks patent royalties from Cisco and others.

It's too early to tell how successful the Rockstar Consortium will be in its efforts to recuperate the initial acquisition cost of those patents through royalties. It settled litigation with Huawei last month, which shows that at least one major device maker has already elected to take a license. If more deals of this kind happen, the pressure will grow on Google, Cisco, Samsung and others to follow suit. But things could take time since patent litigation is slow and large companies are increasingly inclined to defend themselves vigorously for years if necessary.

By joining the Rockstar Consortium, Cisco would have been licensed to those ex-Nortel patents and would benefit from licensing income generated from third parties. Again, the jury is still out on this, but when all is said and done, Cisco may find that it would have had a greater benefit from joining Rockstar than from issuing a press release with Google on a deal that neither settles pending litigation nor avoids any litigation that would have been reasonably likely to happen.

I guess we'll see more PR-oriented, politically-motivated patent cross-license announcements this year.

[Update] It took less than 24 hours after this post for that prediction to work out: now Samsung and Cisco also made an announcement of this kind. [/Update]

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents and Google+.

Share with other professionals via LinkedIn: