Joff Wild

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.

So reads the concluding paragraph of a submission made yesterday to the US Department of Justice and Federal Trade Commission by Google, BlackBerry, Earthlink and Red Hat on patent assertion entities, and in particular patent privateers. “So-called “privateering” amplifies the threat to innovation and competition already posed by PAEs … Privateering poses numerous perils to competition, consumers and innovation,” they state.

This is not the first time that Google has gone public with its opposition to PAEs or the privateering model. Last year, it submitted a complaint to the European Commission about the tie-up that Nokia and Microsoft agreed with MOSAID in September 2011. Google has made very clear a number of times that it dislikes software patents and wants to get rid of them. Its business model, of course, does not need them and is hampered by them, so never mind if it may inconvenience or harm others, they have to go. Red Hat is in a similar position. Attacking PAEs and privateering – even if it does involve the use of highly questionable statistics (the old $29 billion worth of damage in 2011 claim makes another appearance in this report) – is a good way to keep momentum going. But BlackBerry is a puzzle.

It would be interesting to know who at the Canadian company was behind the move to get into bed with the other signatories to the submission. I wonder if they have forgotten that less than two years ago, BlackBerry (or RIM as it was then known) was a member of the consortium that paid $4.5 billion for the Nortel patent portfolio, with its contribution being $770 million. Subsequent to that purchase, five of the six members of that group (RIM, Microsoft, Apple, Sony and Ericsson) established Rockstar Consortium, an NPE whose job it is to monetise the patents in that portfolio. In other words, Rockstar is a privateer.

In an interview published last year by Wired, Rockstar’s CEO (and former CIPO at Nortel) John Veschi spoke in uncompromising language. “Pretty much anybody out there is infringing … It would be hard for me to envision that there are high-tech companies out there that don’t use some of the patents in our portfolio,” he said. The implication of those words are pretty clear, especially when you read what Veschi says further down in the piece about Rockstar being bound by promises the NPE’s owners made to the DoJ at the time the auction deal went through: “We are separate … That does not apply to us.”

As the Wired writer observes: “Rockstar is a special kind of company. Because it doesn’t actually make anything, it can’t be countersued in patent cases. That wouldn’t be the case with Apple or Microsoft if they had kept the patents for themselves. And because it’s independent, it can antagonize its owners’ partners and customers in ways that its owner companies could not.”

Veschi, of course, said nothing wrong. He runs Rockstar and it is up to him what he does with it, as long as the owners are kept happy and no laws are broken. It is perfectly reasonable to want to maximise the revenue-generating potential of the NPE, just as it was perfectly reasonable for the purchasers of the IP in the first place to have established an NPE to manage the portfolio. It is BlackBerry’s position that is strange here. Unless the company has secretly sold its stake in Rockstar and renounced all income potential it remains the co-owner of an entity which it believes “poses numerous perils to competition, consumers and innovation”. That just does not make sense.

Given that the lack of transparency around privateering deals is one of the issues that BlackBerry and its co-signatories raise in their submission, it is surely incumbent on the company to be completely clear as soon as possible about its relationship with Rockstar and how much, if anything, it makes from any stake it has in the NPE. And while we are on the subject of transparency in this area, Google might want to consider whether it should practise what it preaches by revealing what, if any, connections it has or has had with Intellectual Ventures.

But more than that, what should Blackberry shareholders make of this statement? Only recently, one of the biggest banks in Canada upped its valuation of the BlackBerry patents by over $1 billion following publication of the US Patent 100 in IAM, in which the company was identified as the owner of one of the 100 biggest active US portfolios and one of just 14 companies in that group with a Stand-Out portfolio. There is clearly major potential for BlackBerry to start to monetise its patents in various ways. But if you reject one established model, as the company seems to be doing (even if, rather confusingly, it has also embraced it), then you are making it much harder to maximise the value you can create. If I were an investor, that might trouble me. At the very least, BlackBerry has some explaining to do.