Joff Wild

Overnight the smartphone wars went nuclear again when NPE Rockstar filed suits in the Eastern District of Texas against Google and a number of prominent Android manufacturers. Following is a look inside the suits from David Hoff, a US-based writer, investor, and observer of the patent investment market.  From now on he will be providing regular reports for the IAM blog on this issue and additional IP investment developments. Here is what David has to say:   

On 31st October 2013 Rockstar Consortium filed patent infringement lawsuits in East Texas against Samsung, Google, HTC, ZTE, ASUSTeK, Huawei, LG, and ZTE.  These cases will undoubtedly attract a high level of media attention as they have been launched against very high profile competitors to the Rockstar’s owners (Apple, Microsoft, Sony, Blackberry, and Ericsson).  They could potentially produce nine or possibly even 10 figure damages numbers based on the defendants and named products in suit.

I view the new lawsuits as a huge development in the global patent wars and I don’t see the defendants taking a passive stance.  I believe there is a high likelihood that the defendants will pursue acquisitions, targeting portfolios that cover wireless-handset technologies.  Google purchased Motorola Mobility for $12.5 billion in August 2011, partly in response to their failed attempt at the Nortel auction. The Moto purchase yielded Google 14,000+ granted patents. 

This is Rockstar’s second attempt to monetise the Nortel portfolio, which was won at auction for $4.5 billion back in June 2011.  Rockstar transferred seven patents to Spherix (Nasdaq: SPEX) on 17th July 2013. Spherix subsequently filed lawsuits targeting Uniden and V-Tech

Google is being targeted by a family of search patents titled “Associative Search Engine” under Rockstar’s NetStar Technologies LLC subsidiary.   The patents are 6,098,065; 7,236,969; 7,469,245; 7,672,970; 7,895,178; 7,895,183; and 7,933,883.  Rockstar is specifically targeting Google’s Adwords technology with all seven patents and is asking for attorney fees, interest, willful infringement and enhanced damages.  Max Tribble from Susman Godfrey is representing Rockstar against Google.

Samsung is being targeted by seven different patents, by Rockstar’s MobileStar Technologies LLC subsidiary.  The products that Rockstar has accused of infringement are the Galaxy family of smartphones, including the Galaxy S3 and Captivate.  Rockstar has also accused the Galaxy family of tablets including the Galaxy Tab 8.9.  The patents in suit are as follows:

• 5,838,551 - “Electronic Package Carrying an Electronic Component and Assembly of Mother Board and Electronic Package

• 6,037,937 - “Navigation Tool for Graphical User Interface”

• 6,128,298 - “Internet Protocol Filter”

• 6,333,973 - “Integrated Message Center”

• 6,463,131 - “System and Method for Notifying a User of an Incoming Communication Event”

• 6,765,591 - “Managing a Virtual Private Network”

• 6,937,572 - “Call Trace on a Packet Switched Network”

Rockstar is asking for a permanent injunction, willful infringement, attorney’s fees, interest, supplemental damages for any post-verdict infringement, and a compulsory ongoing licensing fee in the absence of a permanent.  McKool Smith is representing Rockstar against Samsung.

LG Electronics is being targeted by the same seven patents as Samsung by Rockstar’s MobileStar Technologies LLC subsidiary, ‘551, ‘937, ‘298, ‘973, ‘131, ‘591, and ‘572.  Rockstar is accusing the following products for infringement: LG’s Optimus family of smart phones, including the Optimus P970h, Optimus L9 P769, and Optimus T, the G2, Elite, Enact, Rumor Reflex S, Lucid2, Spirit 4G, Mach, Venice, Escape, Spectrum 2, Splendor, Intuition, Motion 4G, Viper, Lucid, Nitro, Spectrum, Marquee, and Connect 4G families of smart phones and its G Pad family of tablets

Rockstar is asking for a permanent injunction, willful infringement, attorney’s fees, interest, supplemental damages for any post-verdict infringement, and a compulsory ongoing licensing fee in the absence of a permanent.  McKool Smith is representing Rockstar against LG Electronics.

ASUSTeK is being targeted by six patents by Rockstar’s MobileStar Technologies LLC subsidiary, ‘551, ‘937, ‘298, ‘131, ‘591, and ‘572.  Rockstar is accusing the following products for infringement: ASUS family of smart phones, including, but not limited to the ASUS FonePad and PadFone product families, and ASUS family of tablets, including, but not limited to the ASUS Transformer and /or Transformer Pad (including the Transformer TF201), MeMo Pad, and Nexus 7 product families.

Rockstar is asking for a permanent injunction, willful infringement, attorney’s fees, interest, supplemental damages for any post-verdict infringement, and a compulsory ongoing licensing fee in the absence of a permanent.  McKool Smith is representing Rockstar against ASUSTeK

Huawei is being targeted by the same seven patents as Samsung by Rockstar’s MobileStar Technologies LLC subsidiary, ‘551, ‘937, ‘298, ‘973, ‘131, ‘591, and ‘572.  Rockstar is accusing the following products for infringement: Huawei’s family of smart phones, including but not limited to the Huawei M865 MUVE, Huawei Ascend II, and Huawei Premia 4G M931.  Huawei’s family of tablets, including but not limited to the Huawei MediaPad and Huawei IDEOS S7 Slim.

Rockstar is asking for a permanent injunction, willful infringement, attorney’s fees, interest, supplemental damages for any post-verdict infringement, and a compulsory ongoing licensing fee in the absence of a permanent.  McKool Smith is representing Rockstar against Huawei.

Pantech is being targeted by six patents by Rockstar’s MobileStar Technologies LLC subsidiary, ‘937, ‘298, ‘973, ‘131, ‘591, and ‘572.  Rockstar is accusing the following products for infringement: Pantech Mobile Communication Devices, including but not limited to Pantech’s Perception, Discover, Flex, Marauder, Burst, and Pocket family of smart phones, and its Element family of tablets.

Rockstar is asking for a permanent injunction, willful infringement, attorney’s fees, interest, supplemental damages for any post-verdict infringement, and a compulsory ongoing licensing fee in the absence of a permanent.  McKool Smith is representing Rockstar against Pantech.

HTC is being targeted by the same seven patents as Samsung by Rockstar’s MobileStar Technologies LLC subsidiary, ‘551, ‘937, ‘298, ‘973, ‘131, ‘591, and the ‘572.  Rockstar is accusing the following products for infringement: HTC’s family of smart phones, including, but not limited to HTC One, Vivid, Desire, Butterfly, EVO, Rezound, Sensation, Trophy, Rhyme, and Hero families, HTC’s family of tablets, including, but not limited to Jetstream, EVO View, and Flyer families.

Rockstar is asking for a permanent injunction, willful infringement, attorney’s fees, interest, supplemental damages for any post-verdict infringement, and a compulsory ongoing licensing fee in the absence of a permanent.  McKool Smith is representing Rockstar against HTC.

ZTE is being targeted by six patents by Rockstar’s MobileStar Technologies LLC subsidiary, ‘937, ‘298, ‘973, ‘131, ‘591, and ‘572.  Rockstar is accusing the following products for infringement: ZTE’s family of smart phones, including but not limited to the ZTE Score and ZTE Flash, and ZTE’s family of tablets, including but not limited to the ZTE Optik, ZTE’s 4G Mobile Hotspot product.

Rockstar is asking for a permanent injunction, willful infringement, attorney’s fees, interest, supplemental damages for any post-verdict infringement, and a compulsory ongoing licensing fee in the absence of a permanent.  McKool Smith is representing Rockstar against ZTE.

This is a Wow moment, is it not? Earlier this year I interviewed Rockstar CEO John Veschi for an IAM cover story and while he made it clear that litigation was very much on the NPE’s radar screen, there was no clue that it would be such an all-out assault on so many big players.

During the interview Veschi was at pains to point out that he did not consult with the five Rockstar owners about potential licensees or infringers (“We do not talk to the shareholders about potential licensing partners or any potential infringers that we may have targeted”) and he also explained that Rockstar has a good relationship with US anti-trust authorities (“They know we are not seeking to harm anyone else relative to their peers or competitors. They understand and are comfortable with what we are trying to do. I have been very impressed with the depth of their knowledge of the issues”).

Thus, while yesterday’s events are bound to be seen as an attack by Rockstar’s owners, the NPE itself will no doubt argue that the actions are entirely at arm’s length. Of course, others are bound to retort: well they would say that wouldn’t they? Clearly there are major potential anti-trust issues at play here. Companies such as Apple and Microsoft, as well as Rockstar itself, have made commitments. However, I find it hard to believe that these would just be brazenly abandoned – especially as Rockstar would know that detailed discovery is available to all the defendants in these cases.

As Florian Mueller points out in his analysis of Rockstar’s move, Google did bid well over $4 billion for the Nortel portfolio. There must have been a reason for that. Presumably Google will argue that it was not because of potential infringements, but to keep the patents out of the hands of many of it bitterest rivals. However, given the amounts that Google tabled, should things go badly for the company and the others sued yesterday, the nine and 10 figure sums David mentions above could well be in play.

There is so much to digest about this news that an initial analysis is bound to leave out quite a bit, but right now there are other observations worth making:

The FTC recently defined PAEs as “firms with a business model based primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technologies”. Rockstar is not a PAE under that definition.

Back in April BlackBerry, one of Rockstar’s co-owners, wrote to the FTC and DoJ along with Google, Red Hat and Earthlink decrying PAEs and the privateer model in particular:

PAEs impose tremendous costs on innovative industries.  These costs are exacerbated by the evolving practice of operating companies employing PAE privateers as competitive weapons.  The consequences of this marriage on innovation are alarming.  Operating company transfers to PAEs create incentives that undermine patent peace.  Transfers to PAEs threaten royalty stacking, which can raise rivals’ costs and hinder competition in technology markets.  The secrecy in which PAEs cloak their activities exacerbates all of these concerns and leaves the public without information needed to access the likely competitive effects of patent outsourcing practices. We therefore urge the antitrust agencies to study carefully the issue of operating company patent transfers to PAEs and recommend that a Commission inquiry under Section 6 is an appropriate vehicle for examining this issue of vital importance to the competitive health of this Country’s most important industries.    

Memories of that collaboration may be inspiring a few wry smiles over in Mountain View today. But yesterday’s action also reminds us that it is not just BlackBerry’s own patent portfolio that could be of great value to any purchaser of the company. It also has a share in what might soon become a very lucrative patent licensing business.

• As David says, it is unlikely that the defendants in these cases are going to take things lying down. Whether the five Rockstar owners had any say in the suits being launched or not, they are an obvious target for retaliation. Thus, any business which owns patents that might read on Apple, Microsoft, Sony, Ericsson or BlackBerry products could find itself sitting on something of a goldmine. That may well include a number of publicly-quoted IP companies. Yesterday, we were blogging about investors not getting the business models of the likes of Wi-Lan and Acacia. Over the coming weeks they may find it very advantageous to get more familiar with what such NPEs do, as well as the assets they own. The same may well apply to others such as VirnetX and InterDigital too. There will also be many privately-owned NPEs licking their lips right now, as well as a whole host of brokers and other intermediaries. One thing I think we can say with some certainty is that patent rights covering mobile communications and related areas have just got a whole lot more valuable.

• Finally, having launched such high profile actions in one big move, Rockstar has upped the ante massively. No doubt most of the focus moving forwards will be on what the litigation means for the defendants; but don’t forget Rockstar itself. If it is not seen to come out of this with a series of victories then it’s hard to imagine how the NPE can continue as anything like a serious force. All sides in what began to unfold yesterday are now playing for very big stakes.