It's official: DOJ believes in the tooth fairy
The trustbusters approve the sale of a trove of old Nortel patents to companies that love to sue--and then hope for the best.
As Microsoft's Mark Murray was wont to say on another occasion: It's a good day for Microsoft. Today also turned out to be a good day for Google, Apple, and, yes, even RIM.
Earlier today, the U.S. Department of Justice gave the green light to the sale of a trove of old patents once held by Nortel and Novell. The new patent holders are now free to create new and exciting technologies--or they can try to use their patents as legal clubs to batter rivals into submission. It's a free country.
This is all part of a longer-running narrative featuring a handful of deep-pocketed tech rivals who can sue the daylights out of anyone--and don't shy away from exercising that freedom. But the patent award makes this all that much more complicated--and intriguing. Little more than a half year ago, for instance, Google was unhappy, warning against a "hostile, organized campaign against Android." That consortium, composed of Microsoft, Apple, Ericsson, EMC, Sony, and RIM, bested Google for roughly 6,000 Nortel patents. Whatever upset Google may still have was lessened by the other big announcement out of Washington today, that the DOJ had approved its $12.5 billion purchase of Motorola Mobility.
Beyond the jockeying, however, the important question du jour is whether this was a good day for consumers. The DOJ thinks so, offering the hopeful conclusion that the patent acquisitions are not likely to "substantially lessen competition." I'm all for keeping hope alive but given certain companies' propensity to kneecap rivals by using the power of patent litigation, you have to wonder whether the DOJ also believes in the tooth fairy.
Let's take a closer look:
The division's investigations regarding the acquisitions of the Motorola Mobility and Nortel SEPs focused on whether the acquiring firms would have the incentive and ability to exploit ambiguities in the SSOs' F/RAND licensing commitments to hold up rivals, thus preventing or inhibiting innovation and competition (The division's analysis was limited to SEPs encumbered by F/RAND commitments). Such hold up could include raising the costs to rivals by demanding supracompetitive licensing rates, compelling prospective licensees to grant the SEP holder the right to use the licensee's differentiating intellectual property, charging licensees the entire portfolio royalty rate when licensing only a small subset of the patent holder's SEPs in its portfolio, or seeking to prevent or exclude products practicing those SEPs from the market altogether.
A lot of gobbledygook there. For the uninitiated, "SSOs" are standard-setting organizations while "SEPs" refer to standard essential patents. FRAND, shorthand for fair, reasonable, and non-discriminatory terms, is an obligation adopted by standards-setting organizations tied to the idea that fair licensing of intellectual property is needed to foster conditions so that everything will work together properly. (That's a very cursory definition; here's a longer, better explanation.) The DOJ asks the right questions here--especially in light of the tech industry's history.
In this analysis, the critical issue is whether the patent holder has the incentive and ability to hold up its competitors, particularly through the threat of an injunction or exclusion order. The division's analysis focused on how the proposed transactions might change that incentive and ability to do so.
Incentive? Yeah, it's called making your chief rival's life that much more miserable, and oh, how about inflicting a "cashectomy" while we're at it.
The division concluded that each of the transactions was unlikely to substantially lessen competition for wireless devices. With respect to RIM's and Microsoft's acquisition of Nortel patents, their low market shares in mobile platforms would likely make a strategy to harm rivals either through injunctions or supracompetitive royalties based on the acquired Nortel SEPs unprofitable. Because of their low market shares, they are unlikely to attract a sufficient number of new customers to their mobile platforms to compensate for the lost patent royalty revenues. Moreover, Microsoft has cross-license agreements in place with the majority of its Android-based OEM competitors, making such a strategy even less plausible for it.
And you thought Neville Chamberlain was irrationally exuberant after flying back from his visit to sunny Berchtesgaden? Yes, Microsoft and RIM have relatively low shares of the smartphone market but if you believe rankings can't radically change, I point you to Exhibit A: Apple in 1996. Case closed.
Apple's and Google's substantial share of mobile platforms makes it more likely that as the owners of additional SEPs they could hold up rivals, thus harming competition and innovation. For example, Apple would likely benefit significantly through increased sales of its devices if it could exclude Android-based phones from the market or raise the costs of such phones through IP-licenses or patent litigation. Google could similarly benefit by raising the costs of, or excluding, Apple devices because of the revenues it derives from Android-based devices.
Duh.
The specific transactions at issue, however, are not likely to substantially lessen competition. The evidence shows that Motorola Mobility has had a long and aggressive history of seeking to capitalize on its intellectual property and has been engaged in extended disputes with Apple, Microsoft and others. As Google's acquisition of Motorola Mobility is unlikely to materially alter that policy, the division concluded that transferring ownership of the patents would not substantially alter current market dynamics. This conclusion is limited to the transfer of ownership rights and not the exercise of those transferred rights.
Yes, it does have a "long and aggressive history" squabbling with rivals. Maybe the government's privy to insider information but why should anything change under new management?
With respect to Apple/Novell, the division concluded that the acquisition of the patents from CPTN, formerly owned by Novell, is unlikely to harm competition. While the patents Apple would acquire are important to the open source community and to Linux-based software in particular, the OIN, to which Novell belonged, requires its participating patent holders to offer a perpetual, royalty-free license for use in the "Linux-system." The division investigated whether the change in ownership would permit Apple to avoid OIN commitments and seek royalties from Linux users. The division concluded it would not, a conclusion made easier by Apple's commitment to honor Novell's OIN licensing commitments.
Fair point. A change of ownership over the Novell patents won't make any difference.
In its analysis of the transactions, the division took into account the fact that during the pendency of these investigations, Apple, Google and Microsoft each made public statements explaining their respective SEP licensing practices. Both Apple and Microsoft made clear that they will not seek to prevent or exclude rivals' products from the market in exercising their SEP rights.
Public statements are one thing but times change. Let's see where things stand three years from now. And considering the little success it has had prosecuting antitrust violations in the tech industry, there's no reason to assume that the DOJ would suddenly rise up in fury against any evildoers.
Google's commitments have been less clear. In particular, Google has stated to the IEEE and others on Feb. 8, 2012, that its policy is to refrain from seeking injunctive relief for the infringement of SEPs against a counter-party, but apparently only for disputes involving future license revenues, and only if the counterparty: forgoes certain defenses such as challenging the validity of the patent; pays the full disputed amount into escrow; and agrees to a reciprocal process regarding injunctions. Google's statement therefore does not directly provide the same assurance as the other companies' statements concerning the exercise of its newly acquired patent rights. Nonetheless, the division determined that the acquisition of the patents by Google did not substantially lessen competition, but how Google may exercise its patents in the future remains a significant concern.
Translation: Trust in Larry. Trust in Sergey. Just trust.
