It's no surprise that RPX has gobbled up Rockstar's patents or that the price is so "low" 23 Dec 14
Readers of the IAM blog will not be surprised by today’s news that RPX subsidiary RPX Clearinghouse is to purchase the 4,000 former Nortel patents owned by Rockstar, the NPE formed by Apple, BlackBerry, Ericsson, Microsoft and Sony after they – plus EMC – emerged as the successful bidders in the June 2011 auction of 6,000 of the former Canadian telecom giant’s IP assets. We revealed the defensive aggregator’s potential participation in Rockstar’s winding-up in November, as at least some of the shareholders became wary of being too closely associated with what many have lazily and erroneously described as a patent troll.
That the price being paid by RPX is “just” $900 million should not come as a surprise either. Between them the six bidders handed over $4.5 billion when they bought the 6,000 patents at the auction, but for most (though perhaps not for all) this was never about monetisation. Instead, the aim was to secure freedom to operate and to prevent Google getting its hands on the rights. Going back to those frenetic days, just as thermonuclear war had been declared in the smartphone wars, the six probably felt that the price paid was a bargain. Indeed, at the time, the mystery was not why they had bid so much, but why Google had not pushed them further. What's more, around 2,000 of the most important patents that were originally bought - most relating to 3G and 4G technology - are not part of today's deal and have been retained by the six consortium members, who also hold full licences to use the other 4,000.
Today's deal confirms that the smartphone wars are coming to an end. Apple has agreements with Google and, outside the US, with Samsung; while both Microsoft and Ericsson have always preferred to license rather than to litigate. The need for the kind of big stick that Rockstar represented just does not exist anymore, and for Apple and BlackBerry, at least, the NPE had become something of a millstone, attracting far too many references about profiting from an NPE or, God forbid, a patent troll. Inside IP departments such talk can be shrugged off, but in boardrooms it can be very discomfiting – especially when the revenues likely to be generated by Rockstar were always going to be comparatively low in comparison to other income sources.
In fact, it was the fear of being to seen to be making money from an NPE that is believed to be behind the refusal of some of Rockstar’s shareholders to agree to what is thought to have been a very attractive management buy-out offer, put together by senior executives at the NPE earlier this year and financed by a leading Canadian pension fund. Worth a lot more than $900 million, it would have left the shareholders with a better return on their original investment, but potentially with many difficult questions to answer.
So, instead of leading what might have been a large, independent NPE with the ability to purchase more assets, Rockstar CEO John Veschi and his team are now facing Christmas and the new year not sure of where their futures lie. Some, of course, will celebrate this as the fate that “trolls” deserve, but many others will hopefully remember that almost all were originally employed by Nortel and through no fault of their own were caught up in its bankruptcy and became part of the auction package. The good news for them is that such are their skill-sets, experiences and areas of expertise they are bound to bounce back, and sooner rather than later. What they do next – either collectively or individually - could become one of the stories of 2015.
The RPX purchase rounds off an incredibly successful patent year for Google. It began with the sell-off of Motorola to Lenovo in a deal that left its net spend on the company at perhaps less than $1 billion, with 15,000 patents thrown in; and it ends with the Rockstar sale confirming the Android platform’s future as it continues to dominate the mobile communications ecosphere. Throw in a series of court decisions that have made life for defendants a whole lot easier and which cast doubt on many types of software patent, as well as the potential for major legislative patent reform as soon as next year, and Allen Lo and his team can be forgiven if they party just a little bit harder than usual this Christmas. As an aside, the $900 million RPX is paying for the Rockstar patents is the size of the Nortel stalking horse bid that Google submitted before the auction got underway.
For Apple, which paid $2.6 billion of the $4.5 billion at the Nortel auction, the thermonuclear war strategy now lies in complete ruin. It is clear that the company realised this was the case a while back and today’s news is one of the final pieces of the jigsaw that will bring the unfortunate episode to a close. In the great scheme of things it has not cost Apple a huge amount of money directly, but what it has done is divert attention and time from other, more productive activities. You’d have thought that a few big lessons have been learned, the most important of which is that you should never, ever let emotion get in the way of rational decision-making when it comes to patent litigation. That said, the Rockstar venture was not a disaster for Apple – it did secure freedom to operate, it made life harder for Google and its Android partners, and at least 1,000 of the purchased patents were transferred to the company.
In the press release announcing today’s deal, the one Rockstar shareholder quoted is Microsoft. The company’s head of IP talks about its satisfaction with the transaction. "We joined Rockstar to ensure that both Microsoft and our industry would have broad access to the Nortel patent portfolio, and we're pleased to have accomplished that goal through this sale and our valuable license to the patents being sold," says Erich Andersen. What he does not mention is that by keeping the portfolio out of Google’s hands, Microsoft was able to continue to extract significant licensing revenues from Android users. Not directly through the Nortel patents, but because these could not be used as bargaining chips by companies that Microsoft went after. Thus, for the relatively small sum that Microsoft contributed to the $4.5 billion, the last three years have produced one hell of a return.
No doubt more will emerge about this sale over the coming weeks and months. In fact, it would not be a big surprise if it were timed to make getting into the fine details a little harder than might be the case at other times of the year. But on an immediate think-through of what has been announced, it’s hard to escape the conclusion that this is a deal that suits everyone. For RPX and the companies supporting the move, the benefits are obvious; while for the sellers an increasingly difficult and even embarrassing asset has been put out to pasture having performed its main task. Veschi and co may be left feeling aggrieved, but they have not done badly out of the last three years and have exciting futures to look forward to.
All in all, today’s news has done what Erich Andersen says: “It demonstrates our patent system working to promote innovation.” Because smartphones are far cheaper and many times more technically advanced than they were when the smartphone wars began the ultimate winner is the consumer. Nothing is broken, the system works; Merry Christmas one and all!
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