Saturday, May 17, 2014

Apple truce shows Google's Motorola deal was neither substitute nor antidote for Nortel patents

I've already commented on the second-class settlement (dismissal of lawsuits but not a license covering Android) Apple and Google have entered into from a position of mutual weakness. It's only about direct litigation between the two. Apple v. Samsung, another dispute that should also settle sooner rather than later because Apple's patents aren't "thermonuclear", will continue, for the time being. And so will the Rockstar Consortium's lawsuits against Android device makers. In this follow-up post I want to focus on the oddity that the Nortel patents Google originally wanted to buy are still being asserted against Android while Google has given up its original hope of forcing Apple (and others, but let's focus on Apple now and talk about others on different occasions) into cross-license agreements protecting Android on a global basis.

The Nortel patent portfolio went to the Rockstar Consortium -- consisting at the time of Apple, BlackBerry (then called RIM), EMC (which left after the deal), Ericsson, Microsoft and Sony -- for $4.5 billion after Google decided not to raise its last bid of $4.4 billion beyond that price point. That was on June 30, 2011. Google had won the "stalking-horse bid", but that one was not for real. When things were for real, its rivals had won. Interestingly, those rivals included two companies with a vested interest in Android at the time (Sony and Ericsson, through their joint venture, which now belongs to Sony alone).

Google's plan was to use Nortel's patents the way it later tried to leverage Motorola's. Had it won the Nortel auction, it might have tried (though regulators could have obligated it do to this early on) to dispute that it had to honor Nortel's existing license agreements and, especially, FRAND licensing commitments since it would have bought those patents out of a bankruptcy estate as opposed to acquiring a company with contractual and contract-like obligations in force and effect. In that regard, the Nortel portfolio would have had Google's rivals more concerned. That's why they teamed up and cleared the market of this patent arsenal.

At a time when it was not clear that, years later, not a single patent held by anyone on this planet would have proved to be an "Android killer patent", and when OEMs were increasingly concerned that Google wasn't doing enough to defend Android, the lost Nortel bid was an even greater disappointment for Google. It knew there wasn't going to be a Nortel-like opportunity on the market, but it felt an urge to do something.

The way Google's talks with Motorola Mobility went was later documented in certain SEC filings. Not long after the failed Nortel bid, Google approached Motorola Mobility with the plan to buy its patents. It turned out early on that it had to buy the entire company because Motorola Mobility would not have been able to defend itself anymore without its patents. It knew it couldn't be a viable device maker without those patents.

There were two problems with the need for Google to buy the whole enchilada. Price was one problem (though in retrospect the net price of the patents involved was "only" of a Nortel magnitude, given that Motorola had cash in the bank, tax deductions, and that Google sold almost all of Motorola's operating business, firstly the set-top box business and then the handset business, for reasonably good prices). The other problem was that Google would rather have avoided competing with other device makers.

Presumably there was some hesitation on Google's part for those reasons. But Google needed to act, and when Motorola Mobility started to imply in public that it might use its patents against other Android device makers, the $12.5 billion deal materialized a few days later.

Motorola's patents clearly didn't prove thermonuclear. Google was limited in its enforcement of FRAND-pledged standard-essential patents (SEPs) for antitrust and contractual reasons. Motorola's non-SEPs never had any serious impact, except that Motorola was able to enforce a synchronization patent against the email service of Apple's iCloud in Germany for 19 months. Late last year, the patent was invalidated for the most part and upheld only in a much narrower form that wasn't going to be of concern to Apple anymore (though the narrowed version might have been good enough for Google to argue that there weren't any substantial wrongful-enforcement damages). To Google's lawyers' (i.e., Quinn Emanuel's) credit, with only one Motorola patent being challenged in the Federal Patent Court of Germany, they have salvaged in that forum the same number of patents in a narrowed form as Samsung (so far) and Microsoft have with substantially larger numbers of patents-in-suit in Germany. Still, Motorola's portfolio didn't result in global cross-license agreements covering Android as a whole.

While Google has given up on forcing Apple to drop all current Android lawsuits and to preclude it from bringing any new ones, the Nortel patents it originally wanted to buy are still being asserted against several Android OEMs, including the largest one, Samsung. Apple, which contributed more than half of the Rockstar Consortium's funding, is still suing Google and its partners through Rockstar, despite yesterday's deal.

On Thursday, Judge Rodney Gilstrap in the Eastern District of Texas, who in 2013 was assigned 941 patent infringement suits, more than double his nearest colleague, and recently declined to rule on whether Apple's app developers were covered by an Apple license deal with Intellectual Ventures, denied motions by Samsung and other Android OEMs to dismiss Rockstar's Texas lawsuits for lack of standing (and to throw out one patent for alleged invalidity due to patent-ineligible subject matter). Previously, a federal judge in California had denied a Rockstar motion to transfer a declaratory judgment action by Google to Texas. The venue fight isn't over yet, and I wouldn't be surprised to see one or more petitions for writ of mandamus to the Fedreal Circuit.

The California decision was based in part on a finding that Rockstar's scare tactics against Android advanced Apple's interests and that Apple, due to the size of its investment in Rockstar, was also going to benefit from a potential license deal (the decision didn't mention a particular endgame scneario).

But I doubted that Apple was really behind Rockstar's infringement actions against Google, its OEMs, and non-Android parties like cable networks using Cisco products. The structure of the Apple-Google truce now reaffirms my belief that Apple does not control Rockstar and, most probably, does not even have a veto right against litigation by Rockstar if other shareholders want litigation to go ahead.

I'm convinced that Google would have insisted on a withdrawal of Rockstar's lawsuit against Google itself (over search engine-related patents) and on a dismissal of Google from the Rockstar v. Samsung lawsuit in Texas if Apple had the power to stop Rockstar's litigation campaign. But with Apple not being (and probably never having been) able to prevent Rockstar from suing Google and its Android partners, all that Apple can do is drop its own direct lawsuits against Google's Motorola Mobility subsidiary.

So let's not blame Apple for the Rockstar situation unless and until there is ever any hard evidence of Apple having been a "hawkish" Rockstar shareholder. I believe, though I can't prove it, that Apple just wanted to clear the market of those patents and to acquire some SEPs to bolster its own portfolio, but never wanted Rockstar to go out and sue others.

Google's defensive efforst against Rockstar (through the declaratory judgment case in California) and its recent intervention in multiple Nokia v. HTC actions in the U.S. and Germany (that dispute was settled in February) show what Google will now have to increasingly focus on. Mutually assured destruction didn't work out. That's fine because mutually assured non-destruction is an even better outcome for Google, but its device maker partners will increasingly expect Google to pick up legal fees (as it did in connection with the recent Apple v. Samsung II trial), to intervene, to bring declaratory judgment cases, and to file reexamination requests or nullity (invalidation) complaints against patents that others have used, are using or might use against Android. For example, after the Nokia-HTC settlement I believe Google should still make some effort to strike down some Nokia software patents that were asserted against Android (especially in light of the bifurcation problem in Germany, where there is a risk of patents that should never have been granted in the first place being enforced, through injunctions, before an invalidity decision comes down). Motorola's patent portfolio didn't have teeth, but Google can and must do much more than in the past to defang certain rivals' patent portfolios so as to protect the Android ecosystem.

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