Jack Ellis

Spherix has filed its first litigation using patents that formerly belonged to Nortel and Rockstar. It is suing Hong Kong-based VTech, claiming that the company has infringed a number of rights relating to cordless telephone technology. This looks to be the first time that patents sold at the Nortel auction and subsequently held by Rockstar have been litigated.

Back in July, this blog reported on the deal between Rockstar and Spherix which saw the former transfer a suite of patents to the latter, as well as becoming a shareholder of the publicly traded IP company. At the time, a press release from Spherix announcing the deal stated that the company expected to launch its first litigation involving the acquired patents within the following 30 to 60 days. Thus, it appears that this action against VTech has been in the making for quite some time – and was almost certainly being planned quite a while before the patents in question changed hands.

Rockstar is yet to launch a lawsuit in its own name. In an interview in issue 60 of IAM – conducted before the Spherix deal was announced – the NPE’s  CEO (and former Nortel CIPO) John Veschi said that he expected it would have to litigate at some point, and probably sooner rather than later. Veschi also told IAM that Rockstar has made commitments to the US Department of Justice and the Federal Trade Commission that it will operate autonomously from its owners (Apple, BlackBerry, Ericsson, Microsoft and Sony). Furthermore, he stated, those shareholders do not have any veto over licensing targets, asset sales and so on – though Veschi and his team are accountable to them regarding the NPE’s overall performance.

Many of the privateering arrangements that have previously been discussed on this blog involve operating companies that transfer patents to an NPE, which then does all the heavy lifting in terms of assertion and licensing. One of they key advantages for operating companies in pursuing such a strategy is that they are kept at arm’s length from litigation and any negative fallout, which could end up adversely affecting relationships with other operating companies, as well as with customers. Of course, once a privateering alliance is out in the open the benefit of anonymity is removed – something which BT knows all too well after its hook-up with Suffolk Technologies was revealed in court documents; but considering that Rockstar has full operational control over its own activities – and given that its deal with Spherix is fairly widely known – there is no obvious reason to team up with a privateer in order to avoid any potential negative PR from filing lawsuits itself.

The other major advantage in privateering – and one that does not disappear once the relationship becomes public knowledge – is that it allows an owner to hand its patents over to someone else to do the intensive work of reeling in prospective licensees. This spares the original owner from having to invest time, money and manpower of its own, so freeing it up to  invest those resources in activities that are of more immediate importance to the business.

But it is not just operating companies that can gain a strategic advantage by such partnerships. Recently we have seen arrangements  in which  both parties could be classed as NPEs. Rambus transferred two portfolios to Acacia earlier this year, with Rambus receiving upfront payments and, potentially, subsequent payments based on the income Acacia generates (both companies appear on PatentFreedom’s list of the largest NPEs by patent holdings). Qimonda has effectively been a patent holding and licensing company since its bankruptcy and recently teamed up with MOSAID, which may end up handling monetisation strategies for the company’s 7,500-strong portfolio of patents and applications.

Rockstar’s partnership with Spherix is another example of NPE-NPE teamwork. In the interview with IAM, Veschi indicated that Rockstar was focusing on monetising selected areas of the vast patent portfolio it inherited from Nortel. It may be that the patents covering cordless phone technology are peripheral to these core areas of focus, but that they hold significant value nonetheless – especially given that VTech claims to be the world’s largest manufacturer of cordless phones and had a turnover of $1.858 billion last year. By transferring the rights to Spherix – and taking a stake in the publicly funded company – rather than hanging on to them itself, Rockstar significantly reduces its costs and increases the chance that it will get a quicker return from them.