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We Can Stop Wondering Now - UPDATE
Tuesday, July 19 2011 @ 09:00 AM EDT

Two weeks ago we asked why the Nortel patent sale to Microsoft, Apple, and others wasn't getting Federal Trade Commission and/or Department of Justice Scrutiny (see, Nortel Patent Sale - Why Isn't It Getting FTC/DOJ Scrutiny?). Well, we don't have to ask that question any more. And the government concern is not just in the U.S.; Canada is also looking into the sale.

At about the time we were writing the last article the American Antitrust Institute sent a letter [PDF] to the Department of Justice asking the department to launch an inquiry to the sale. There are indications the U.S. government is taking up the probe.



Why take up the probe? Here is just a little of what the AAI has to say about it:

The consortium membership includes three leading mobile device operating system competitors -- Apple, Microsoft and Research in Motion. They are the three main commercial rivals to Android, Google's open-source mobile operating system. Each of them already possesses a large portfolio of wireless technology patents; each is capable of bidding on its own for a significant portion of the Nortel portfolio. Each of them, moreover, appears to possess the ability and incentive to use its patents offensively against open-source as well as commercial competitors; their concerted control over the entire Nortel portfolio would seem to create a much-enhanced collective ability and incentive to act in that manner, with a decisively exclusionary impact on open-source competition in particular. Why, in this light, should ANY horizontal collaboration among them (joined by three others with strong portfolios of their own as well) be allowed with regard to the Nortel portfolio, particularly in the absence of any transparent safeguards against anticompetitive effects from it? Three close competitors’ shared control over 6,000 patents surely at a minimum creates significant risk of spillover collusion, tacit or otherwise.

The AAI describes itself as:

The American Antitrust Institute is an independent Washington-based non-profit education, research, and advocacy organization. Our mission is to increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy. We have a centrist legal-economic ideology and promote the vigorous use of antitrust as a vital component of national and international competition policy.

A review of its directors and advisory board reveal that this is an organization with substance and independence. We will keep an eye out for further news of this investigation.

In the meantime, Canada is also looking into the sale. But that review is not certain because of the monetary threshold of the transaction (not what was paid, but the value assigned to the patent portfolio by Nortel).

***************

The AAI letter:

aai logo
The American Antitrust Institute

July 6, 2011

The Honorable Christine A. Varney
Assistant Attorney General
Antitrust Division
U.S. Department of Justice
950 Pennsylvania Avenue, N.W.
Washington, DC 20536

Re: Rockstar's Bid for Nortel Patent Portfolio

Dear Ms. Varney:

The American Antitrust Institute urges the Department (a) to commence an in-depth investigation of the proposed purchase of Nortel’s portfolio of more than 6,000 patents and patent applications, many of which may be vital to the future of mobile communications and computing devices, to Rockstar Bidco LP, a consortium consisting of Apple, Microsoft, Research in Motion, EMC, Sony and Ericsson; and (b) to advise the U.S. and Canadian bankruptcy courts presiding over the Nortel estate of the Department’s commencement of that investigation prior to their joint hearing on the Rockstar-Nortel transaction next Monday. We are respectfully troubled by the Department’s Early Termination of the HSR waiting period on this transaction two weeks ago, in sharp contrast to the Department’s announcement this past April of its intervention into the proposed purchase of Novell’s portfolio of approximately 882 patents and patent applications, many relating to mobile communications and computing devices, to CPTN Holding LLC, a consortium consisting of Apple, Microsoft, EMC and Oracle, “to protect competition and innovation in the open source software community.”1

Rockstar’s reported $4.5 billion purchase price is five times the reported stalking horse bid from Google at the outset of the auction process. How could shared ownership of the Nortel portfolio be worth so much more to the Rockstar group than sole ownership of it would be worth to Google? This in itself raises questions about the concerted intentions and objectives of the six consortium members that could not be achieved through independent bidding and eventual individual ownership or licensing of some or all parts of the patent portfolio at stake. The deal is described as the "largest intellectual property auction of all time" involving a portfolio "unprecedented in its scale

_______________________

1 Department of Justice Press Release, “CPTN Holdings LLC and Novell Inc. Change Deal in Order to Address Department of Justice’s Open Source Concerns,” April 20, 2011.



and scope of coverage compared to anything that has come to market before." 2 The assets include patents "related to the wireless technology known as long-term evolution.”3 Networks based on that technology, “considered crucial to the future of telecommunications, are created to carry large amounts of data like streamed video to mobile devices."4

The consortium membership includes three leading mobile device operating system competitors -- Apple, Microsoft and Research in Motion. They are the three main commercial rivals to Android, Google's open-source mobile operating system. Each of them already possesses a large portfolio of wireless technology patents; each is capable of bidding on its own for a significant portion of the Nortel portfolio. Each of them, moreover, appears to possess the ability and incentive to use its patents offensively against open-source as well as commercial competitors; their concerted control over the entire Nortel portfolio would seem to create a much-enhanced collective ability and incentive to act in that manner, with a decisively exclusionary impact on open-source competition in particular. Why, in this light, should ANY horizontal collaboration among them (joined by three others with strong portfolios of their own as well) be allowed with regard to the Nortel portfolio, particularly in the absence of any transparent safeguards against anticompetitive effects from it? Three close competitors’ shared control over 6,000 patents surely at a minimum creates significant risk of spillover collusion, tacit or otherwise.

These concerns are exacerbated by our understanding that a significant number of the patents within the Nortel portfolio cover technologies that are either already incorporated into industry standards or prime candidates to become incorporated into next-generation industry standards.5 Many if not all of the patents covering technologies within existing standards may be subject to largely undefined and thus largely meaningless Nortel "RAND" license commitments that the Rockstar members may or may not honor in the future in some "reasonable" manner. One can only speculate about Rockstar members' royalty demands with regard to technologies destined to become essential to comply with future standards. In short, the transfer of ownership over the whole Nortel portfolio to the Rockstar group, unaccompanied by meaningful commitments to reasonable license terms availability, creates substantial risk of exclusionary patent holdup conduct that can subvert open standards initiatives and thereby suppress competition and innovation opportunities throughout the mobile devices space.

_____________________

2Wall Street Journal, July 2, 2011, at B3.
3New York Times, July 2, 2011, at B3
4 Id.
5 See “Objections of the Institute of Electrical and Electronics Engineers, Inc. to Sale Free and Clear of Debtors’ SSO Commitments,” In re Nortel Networks Inc., Case No. 09-10138 (D. Del. June 27, 2011).

2



For all of these reasons, AAI believes it would be a grave mistake for the Department to permit the bankruptcy court proceeding to approve the Rockstar-Nortel transaction next Monday without appreciation of the serious potential for anticompetitive effects and consequent need for an in depth investigation. The investigation should ascertain whether (a) the Rockstar parties can demonstrate any necessity for their horizontal collaboration to achieve a cognizable efficiency or other legitimate objective and, if they can meet that burden, (b) there are adequate safeguards in place to eliminate or mitigate anticompetitive risks. Most immediately, the Department should enter the proceeding before next Monday with a request that the court defer a decision on the transaction until such time as the Department can report on the results of its investigation.

Sincerely,

/s/Albert Foer

Albert Foer

cc: Katherine Forrest, Esq.
James J. Tierney, Esq.

3

***************

UPDATE

The Canadian government has determined that it will not pursue an investigation of the Nortel patent sale by the U.S. bankruptcy court. The determination was based on the application of Canada's Investment Canada Act which requires the assets in question to have a value "to the country" in excess of CA$312 million. Despite the fact that the Nortel portfolio was sold for an amount in excess of $4 billion, the law only requires the government to look at the value of the portfolio as stated by the investor, Nortel. Nortel was carrying its patent portfolio on its books for less than the CA$312 million threshold amount. It remains to be seen whether the U.S. government is pursuing an investigation.


  


We Can Stop Wondering Now - UPDATE | 289 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
We Can Stop Wondering Now
Authored by: Anonymous on Tuesday, July 19 2011 @ 10:37 AM EDT
Thank God someone with a loud voice was paying
attention. The three losers in market share work
together just long enough to stab the winner in the
back. Lovely.... if you ever needed more reason to
distrust apple and Microsoft, you have it. Rims reason
is just desperation.. but apple and Microsoft are just
evil in outlook.

[ Reply to This | # ]

corrections thread here
Authored by: designerfx on Tuesday, July 19 2011 @ 11:00 AM EDT
correktions go here

[ Reply to This | # ]

newspicks here
Authored by: designerfx on Tuesday, July 19 2011 @ 11:02 AM EDT
newspicks discussion here, please include link in first post

[ Reply to This | # ]

off topic here
Authored by: designerfx on Tuesday, July 19 2011 @ 11:04 AM EDT
off topic comments here, again link in post if it's related to
an article

[ Reply to This | # ]

We Can Stop Wondering Now
Authored by: Anonymous on Tuesday, July 19 2011 @ 11:50 AM EDT
I have never heard of the AAI. As a regular supporter of the EFF I will be
donating to AAI as soon as I figure out how to do it. We need to participate
in these organizations as they are the only ones that are looking out for our
interest. Thanks for this info.

[ Reply to This | # ]

Google's bids were odd
Authored by: Anonymous on Tuesday, July 19 2011 @ 01:05 PM EDT

At the time, Google's billion times some physical constant was either cute, or more likely, they've reviewed Nortel's patents and decided they could invalidate them.

I think they snookered 'Rockstar' into buying a pig in the poke.

[ Reply to This | # ]

Apple vs. Google
Authored by: DannyB on Tuesday, July 19 2011 @ 01:19 PM EDT
Google: Partner with everyone, sue no one.
Apple: Partner with no one, sue everyone.


Microsoft: Stab your partners in the back, sue everyone else.


---
The price of freedom is eternal litigation.

[ Reply to This | # ]

  • Don't forget - Authored by: Anonymous on Tuesday, July 19 2011 @ 04:50 PM EDT
... All we need is Comes, miles and miles of Comes ...
Authored by: Anonymous on Tuesday, July 19 2011 @ 01:22 PM EDT
n/t

[ Reply to This | # ]

Inevitable
Authored by: Anonymous on Tuesday, July 19 2011 @ 05:38 PM EDT
From the AAI letter:
How could shared ownership of the Nortel portfolio be worth so much more to the Rockstar group than sole ownership of it would be worth to Google? This in itself raises questions about the concerted intentions and objectives of the six consortium members that could not be achieved through independent bidding and eventual individual ownership or licensing of some or all parts of the patent portfolio at stake.
The "all or nothing" sale is at the bottom of this. Would the Investment Canada Act require an inquiry even if the estate was parcelled into lots of like technologies, or divided into lots of mixed technology sorted by date? Such a division of the estate would of course require more administration time and effort. Would it have provided more chance for each snout at the trough to get a fair share? Has anybody here at GL seen a complete list of the 6000 patents?

We might assume that Google has little experience or desire for the licensing of major patent portfolios; yet Google has great expertise in the actuarial analysis useful in this field; and at the same time Google has an unenviable record of releasing brilliant new technology and watching it ignored by the mass market. I don't think it's yet time to stop wondering. This puzzle will linger.

[ Reply to This | # ]

Relevant patents?
Authored by: Anonymous on Tuesday, July 19 2011 @ 06:09 PM EDT

I keep hearing that a number of the Nortel patents are related to smartphones, but the exact percentage has varied in news sources from 'some' to 'a majority'. It makes me think these articles are just making up the percentages or parroting what they read elsewhere. Anyone know for sure how many of these patents really are smartphone related? Because I doubt it's a significant amount, and here's why:

Nortel mostly made products on the carrier / backhaul side of the networks. Most of the related patents would not be directly relevant to smartphones. I mean, look at this:
http://en.wikipedia.org /wik i/Nortel#Products
Some articles mentioned that some patents concern wireless demodulation at receivers, specifically for LTE, and that there are a few odd ones related to social networking etc. Still, to me, it seems that the bulk of the patents is not too relevant to Android.

On the other hand, Apple, RIM etc. actually design and make their smartphone hardware, so I see the value of the wireless receiver patents to them. EMC and Ericsson would be interested in the backhaul and network management- related patents. I can't imagine what Microsoft found interesting there, especially since they already had licenses to those patents (probably through cross-licensing). I suspect they are relevant to some future plans. Same for Sony. But I can't see how Nortel's R&D would be relevant to Android and Google.

This may explain why most of the others dropped out of the bidding until Apple asked them if they wanted to join in: the whole portfolio was way too expensive for any one party, but some subsets were valuable to individual members. Hence each member probably ponied up to pay for the portion of patents most valuable to them. This may explain Google's almost flippant bids; there simply weren't enough relevant patents to really interest them, so they just made bids to increase the cost to their competitors. For this same reason, I doubt there'll be much for an antitrust investigation to work with.

[ Reply to This | # ]

Could a probe reflect badly on the Judge?
Authored by: Anonymous on Tuesday, July 19 2011 @ 06:32 PM EDT
Could a DoJ probe reflect badly on the Judge?

[ Reply to This | # ]

Defensive publishing
Authored by: Anonymous on Wednesday, July 20 2011 @ 12:59 AM EDT

Here's something related to prior art that I don't recall being mentioned on Groklaw before. One source of prior art that the USPTO and patent offices around the world are very likely to consult are available databases of prior art publications that were deliberately submitted for defensive purposes by various corporations and individuals.

One such source is the IBM Technical Disclosure Bulletin. The following article provides some explanation of the IBM TDB and the role such databases of publications can play in a defensive publication strategy.

IBM Technical Disclosures Prior Art Database

A search of the US Patent database from 1996 to 2001 reveals almost 10,000 patents that cite the IBM Technical Disclosure Bulletin as prior art. The Bulletin is a mechanism for defensive publishing. Citation of a publication, such as the Bulletin, in a patent application indicates that the publication contributes to the state of the art against which the application is judged. IBM uses the Bulletin to advance the state of the art, thereby raising the bar for its competitors' patent applications. In other words, Bulletin publications force IBM's competitors to narrow their patent claims, helping IBM to reduce the possibility that its competitors' patent claims will encompass IBM inventions.
The purpose of a defensive publication is to destroy the balance of the deal by disclosing an invention to the public. If the defensive publication predates the filing of the inventor's patent application, the patent deal for that application is out of balance: the patent applicant has nothing new to disclose to the public, because the invention has already been disclosed and is thus already possessed by the public. Technically speaking, the successful defensive publication renders the competitor's invention obvious or lacking in novelty.

Since 1998, rather than publishing their own Technical Disclosure Bulletin, IBM has instead joined with other organizations in contributing defensive publications to Research Disclosure, a service that describes itself like so:

Research Disclosure establishes an invention as prior art preventing others from patenting the idea
  • Patent examiners are required to search Research Disclosure by PCT statute
  • Research Disclosures are abstracted into major databases including DWPI
  • Research Disclosure is frequently cited in patent applications

Defensive publication can be a cost-effective way for organizations to reveal technology and potentially keep it out of the domain of patentable material that could be used by competitors. There are services out there such as Research Disclosure that offer defensive publication services that make publication relatively easy (even anonymous), well documented, and accessible to patent examination bodies around the world.

Research Disclosure and the original IBM Technical Disclosure Bulletin are resources that the USPTO actively uses to search for non-patent prior art during the patent examination process. For example, an examination of the file wrapper for the Apple patent on heuristics for rotating displays between portrait and landscape views showed that the patent examiner explicitly searched for non-patent prior art using those resources.

--bystander1313

[ Reply to This | # ]

We Can Stop Wondering Now - UPDATE
Authored by: Anonymous on Thursday, July 21 2011 @ 10:53 AM EDT
Two new numbers have come out from Nokia and Apple financial reports:
Nokia
received about $600 million from Apple in license fees for 110 million
iPhone sales, and Apple paid $2600 million for its share of the Nortel
patents. At that rate, Apple is going to save an awful lot of money in license
fees over the next ten or twenty years.

[ Reply to This | # ]

UPDATE - 4.5 < 0.3
Authored by: Anonymous on Thursday, July 21 2011 @ 11:36 AM EDT
My company often ships merchandise internationally and when filling out customs
forms, it is made very clear that I must accurately portray the value of the
item being sold. I've apparently been quite naive in assuming that this value
was de facto the amount tendered for the merchandise.

[ Reply to This | # ]

We Can Stop Wondering Now - UPDATE
Authored by: jsusanka on Friday, July 22 2011 @ 11:29 AM EDT
what is funny is those are the same company that are part of
the holding company that chewed up Novell.

seems like there an effort out there for companies to get
patents that hate open source.

[ Reply to This | # ]

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