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Mistrial is far for the end for the pair's legal war

A case heard by a jury at the U.S. District Court for the District of Delaware in Wilmington, Delaware pitted a Google Inc. (GOOG) subsidiary against a company some accuse of being the world's biggest patent troll. But after a day of deliberations, the jury announced they were hopelessly divided, leading to a mistrial.
 
I. Patent Assertion Entity Versus Mobile Minority
 
Caught in the crosshairs in the legal battle was Google-owned Motorola Mobility, a phonemaker that uses Google's Android operating system.  On the other side was its accuser, Intellectual Ventures (IV).
 
IV takes issue with those who label it a troll, or insist a so-called patent assertion entity (PAE) -- an entity that only exists to sue or license with no intent to produce product -- is a bad thing.  To IV-- founded by ex-Microsoft Corp. (MSFT) chief technology officer Nathan Myrhvold -- it's an investor and "protector" of those willing to pay for its trove of patents.

Nathan Myhrvold
Nathan Myhrvold, CEO of Intellectual Ventures [Image Source: The New York Times]

IV also claims it helps to reward the work of small inventors and encourages independent innovation.  To do that, it says it must be willing to litigate against those who do not license.  IV has spent $6B USD to amass a large stock U.S. and foreign patents.  To date it has accrued approximately 70,000 patents, and makes about $3B USD annually in licensing commitments from those it convinces to settle or wins against in court.
 
Many giants have already conceded to licensing settlements.  In Nov. 2010 HTC Corp. (TPE:2498) and Samsung Electronics Comp., Ltd. (KRX:005935) (KRX:005930) both agreed to licensing deals [1][2].
IV

Samsung's licensing deal is rumored to be around $300M USD per year.  Most deals with large companies seem to fall in the $10-300M USD per year range.
 
But some have decided to fight. 
 
Google light
[Image Source: Reuters]

To these foes -- companies like Motorola -- the lawsuit-or-licensing threat scheme is not about preserving innovation at all, but rather is a thinly guised extortion racket.  They point to independent reports, such as independent public radio research, which were unable to find any small inventors helped by IV.  In their eyes, IV has more in common with a mobster than an investor.
 
II. Google Borrows FRAND Defense
 
Those arguments -- and the merits of IV' patents -- were put to the test.
 
The legal battle between IV and Google/Motorola has triggered an interesting defense.  Google -- which has faced accusations from Microsoft and Apple, Inc. (AAPL) of breaking licensing obligations of standards essential patents in its countersuit campaigns with Motorola Mobility -- actually used the same tactic Microsoft and Apple used, saying in briefs against the IV lawsuits that patents asserted carried legally binding licensing obligations.

VersiTune
Things like the communications protocols used by base stations and cell phone antennas are patentable, but are only allowed to be licensed at low rates -- so-called "FRAND" terms.
[Image Source: AnandTech]

These licensing obligations are typically referred to as "fair-reasonable and non-discriminatory" (FRAND).  FRAND patents -- awarded to companies who participate in standards development -- traditionally were considered legally prohibited from being used in lawsuits against competitors that show a willingness to license in good faith.  Likewise, licensing rates for such patents tend to be very low compared to patents that carry no guarantee of licensing.
 
FRAND patent obligations recently have become a touchy subject for Microsoft, Apple, and Google, the top platform providers of the mobile market.  Everyone seems consigned that under FRAND the patent-holder must make an offer, which will then play out in federal court.  What they can't seem to agree on is whether the court decision should be binding and whether devices can be banned in the meantime.
 
III. Views on FRAND
 
Microsoft and Google both agreed to some extent that each company should have its say and then a federal court should order a binding verdict.  In the meantime no products would be banned, as both companies were complying with the process.

Microsoft vs. Google
Microsoft and Google largely saw eye to eye on FRAND -- other than licensing rates.  They agreed to a gentleman's duel, of sorts, in court.

The dispute between Microsoft and Google thus boiled down to what was considered a "fair" licensing rate.
 
To Google, which owned numerous FRAND patents (via Motorola Mobility), "fair" constituted an offer it calculated, which typically was very high (up to $22.50 USD per device, in Google's case against Microsoft).  Microsoft countered with an offer that was thousands of times lower -- pennies per device.
 
A federal judge in Microsoft's home state ruled that Microsoft was correct; Google's licensing rates were grossly inflated.  As a result, his binding order looked to punitively punish Google for what he viewed as an abusive request, ordering that Microsoft would not only be entitled to a free license, but damages and court costs.
 
Apple, however, is not satisfied with this path.  It argues that it is willing to go to trial, but that it should not face potential product bans if it rejects Google's offer.  Judges have generally ruled that Google and Microsoft are choosing the proper path, and Apple is in the wrong. 
Motorola Atrix 4G
Apple and Motorola have been ramming heads in court for some time now, but courts have largely thrown out the pair's quibbles. [Image Source: PhoneArena]

At the same time they've acknowledged that Motorola Mobility is probably infringing on some of Apple's patents.  Rather than ban both companies' product lines, frustrated judges have simply suggested the pair solve their quibbles between themselves throwing the case out of court three times.

Judge Richard A. Posner, a Seventh Circuit Court of Appeals judge who moonlighted in the U.S. District Court, Northern District of Illinois (Chicago) chastised the pair's behavior in June 2012, commenting, "Both parties have deep pockets.  And neither has acknowledged that damages for the infringement of its patents could not be estimated with tolerable certainty."

IV. Suit #1

The Delaware case was one of two lawsuits brought by IV against Motorola Mobility.  The first was filed in Delaware back in 2011.  The second -- filed in mid-2013 -- is currently pending in U.S. District Court for the District of Southern Florida.

Bloomberg wrote that the 2011 Motorola lawsuit was the "sixth patent infringement case Intellectual Ventures has filed since 2010, ... all [of which] were filed in federal court in Delaware."

Intellectual Ventures et. al. v. Motorola Mobility by PriorSmart



IV has vigorously defended filing the campaigns in separate jurisdictions, asserting that most of its cases are in the Delaware court, but that the Florida court is closer to offices of both it and Motorola Mobility.

The first case involves six patents (four hardware, two software): All of these patents come second hand; Intellectual Ventures didn't "invent" any of them.  Some of them appear to come from valid innovators.  Others seem to be downright bad patents that cover technology that almost certainly existed at the time when they were filed.
 
V. Supporting Innovation?
 
Some patents support Intellectual Ventures' claim that its money trickles down to true innovators, such as academic institutions.
 
For example the '953 patent -- which appears to cover backlighting in smartphones via lens/LED setups -- was granted to Industrial Technology Research Institute (ITRI), a Taiwanese R&D firm in 2002.  Eight years later, it was sold to a company called Transpacific IP I, Ltd. -- one of thousands of shell companies IV owns to disguise its holdings.
 
Without knowing intimate details of the optics and backlighting of the LCD in Motorola's devices, it's clear this is at least a detailed patent that appears to described novel technical implementations.  That's not to say this is the first backlighting patent (the patent itself cites many other implementations), but it definitely is more explicit and novel than most of IV's patents.
 
The '462 patent comes courtesy of Khyber Technologies Corp., a research house founded in 1991.  Khyber has a close relationship with IV, whom it has sold many patents.  Most of the patents deal with various mobile reader technologies (RFID, etc.) and transformable devices form factors.  Motorola ran awry of the '462 patent -- which describes a phone that plugs into a laptop and acts as its "brains"  -- with the release of the dockable Atrix 4G hanset in 2011.

Khyber Patents laptop
Khyber patents' 2005-era smartphone/laptop hybrid [Image Source: USPTO]

Motorola Atrix 4G
Atrix 4G docking (2011)

Intellectual Ventures II LLC currently holds that patent.
 
The '144 patent describes in vague terms a means to authenticate files from third parties (e.g. which presumably would cover virtually any carrier or OS patches).  It was filed by Hyperspace Communications Inc., and transferred to Intellectual Ventures I LLC.  The '450 patent likewise covers TCP/IP technology developed by Malibu Systems Inc., which went bankrupt and exited the market in 2002.  Four years later, it received the patent that it sold.
 
Patent '054 is by far the most ambiguous and humorous of the patents describe a "user station" which could be almost anything you wanted it to be on any given night given the vague language.  The patent was invalidated almost entirely in a review in 2013 due to its ridiculous nature.  After exhausting its appeals at the USPTO, IV is currently dragging the invalidation out as long as it can, appealing it at a federal court level.  It has filed a lawsuit [PDF] against Under Secretary Teresa Stanek Rea of the U.S. Patent and Trademark Office (USPTO) in U.S. District Court for the Easter District of Virginia.
 
That's right -- IV is suing the USPTO because it didn't like the decision it made.
 
The '464 comes to Intellectual Ventures via the same lot bought with the '054 patent.  It's also being looked at for invalidation, although we couldn't find anything indicating that path had gone forward.
 
The original owners of the '464 and '054 patents were also suing Apple, Inc. (AAPL) and Microsoft Corp. (MSFT) back in 2006, but when the patents were purchased by Twintech EU LLP -- a Delaware area patent holding firm that may be a shell company for IV -- those lawsuits were dropped, and a new suit against Motorola Mobility was filed.
 
Google Play

The case is critical because the software patents -- '054, '464, '144, '450 -- Intellectual Ventures says are violated by the Google Play Store, the store Google uses to distribute apps, music, video, eBooks, and other content.  If Intellectual Ventures wins this case, it would have firepower to go after any Android OEM that is not currently a licensee (e.g. Huawei Technology Comp., Ltd. (SHE:002502) and ZTE Corp. (SHE:000063)).
 
In that regard, Motorola Mobility may be in the crosshairs, but in many ways the case is Google versus Intellectual ventures.
 
VI.  First Case Ends in Mistrial
 
The battle between IV and Google (+Motorola Mobility) in Delaware federal court was waged in January after numerous filings of briefs and hearings.  The case was presided over by U.S. District Judge Sue Robinson.
 
Both Google and IV were each represented by two law firms.  Google was represented by Kilpatrick Townsend & Stockton LLP, a Tier 1-ranked law firm (according to Chambers USA's 2013 rankings) and Morris, Nichols, Arsht, & Tunnell, LLP, which scored a Band 1 ranking (Chambers USA) for Delaware law firms.
 
IV was represented by Farnan LLP, which like Morris is a Delaware-area law firm.  It only ranked Band 3, according to Chambers & Partners.  It was also represented by Feinberg Day Alberti & Thompson LLP, which is ranked Tier 3 in intellectual property law (by USA Today).
 
Notably, Feinberg Day was the firm that assist Apple in trolling HTC Corp. (TPE:2498) with requests for device bans before the U.S. International Trade Commission (ITC).  The campaign yielded a 1-month ban on imports of HTC's flagship devices into the U.S., which helped to knock down HTC's device sales and -- among other factors -- trigger HTC's current downhill slide.
 
The schedule for the trial was set in mid-2013.  On Jan. 21 -- three weeks ago -- it kicked off.  On Feb. 4 the trial wrapped up and the jury was instructed to rule on the three patents IV had narrowed its claims to -- the '462 patent, the '464 patent, and the '054 patent [source].

The jury couldn't agree on whether Motorola infringed and thus Judge Robinson declared a mistrial after a day of deliberation.  IV spokeswoman Melissa Finocchio commented:

Mistrials are an occasional fact of life, and it is disappointing.  We are looking ahead to the retrial on these patents and also to our two other upcoming trials with Motorola Mobility Inc. later this year.

Motorola Mobility seemed happy enough with the outcome, with spokesman William Moss stating:

We continue to believe this lawsuit was based on overbroad patent claims meant to tax innovation.

The case, however, is not over.  A retrial will be scheduled, likely for sometime next year.  And on April 7 a jury will hear a second case between Motorola Mobility, on the '144 and '953 patents, which were not considered in the Jan.-Feb. trial.
 
VI. Suit #2
 
Additionally, Motorola Mobility faces a second lawsuit filed by IV in 2013.  The second suit was filed in Florida.  The second suit covers:
The '793 patent was filed by Colorado-based NETdelivery Corp. -- which was acquired in 2005 by Patron Systems, Inc. and today focuses on online marketing.  The '392 patent was filed by Intersil Corp. (ISIL) and traded hands 11 times before reaching Intellectual Ventures I LLC in 2011.
 
The '960 patent comes courtesy of semiconductor firm VIA Technologies Inc. (TPE:2388) which -- ironically -- had sold other patents to HTC to defend itself against Apple in 2011.

touchscreen patent
IV's '960 patent comes courtesy of VIA and covers touchscreen keyboards overlaid on mobile devices.

The '771 was filed by InMotion Technologies Inc. -- a communications firm.
 
The '784 and '073 patents were owned by Nokia Oyj. (HEX:NOK1V) or its subsidiaries, and appear to be among the trove of patents sold in 2011 and 2012.  An additional patent -- the '353 communications patent -- comes from a Northrop Grumman Corp. (NOC) subsidiary.
 
Google's FRAND defense comes primarily in this case.  (In the mistrial it largely argued obviousness).  The second trial is set for November 2014, with Judge Robin S. Rosenbaum -- an Obama administration recent appointee -- presiding.
 
VII. Is Google Suing Itself?
 
The final and perhaps most fascinating storyline in the legal war between Motorola (and Google) and Intellectual Ventures is Google's relationship with Intellectual Ventures, which is far more complicated that you might suspect.
 
In 2011 it was revealed that Google is actually an investor in one of several IV funds, paying into the "Defendant Invention Investment Fund I, L.P.", according to court documents in a legal battle between IV and FPGA maker Xilinx, Inc. (XLNX).
Xilinx lawsuit
So is Google suing itself?
 
That's not an easy question to answer.  Because IV itself is hard to describe.
 
Founded in 1999, the first Intellectual Ventures fund was led by Mr. Myrhvold.  It tried to convince tech leaders that they weren't interested in suing people, but were rather looking to create a pool of common IP to protect companies and funnel useful IP from small inventors (in a fair fashion) to large companies.  The goal sounded noble enough, and lured many legitimate investors. 
 
Others regarded IV's growing patent pile with a wary eye.  Among those was Xilinx.  In February 2010, Xilinx filed suit against IV in a probing case, basically asking IV whether it needed to license and for what.  IV responded by name Xilinx a defendant and suing claiming various infringed patents.
 
Given Google and IV's recent adversarial turn, a number of question about IV are raised.
 
Some believe that companies -- including perhaps Google -- and universities were forced to become "investors" under legal threat of lawsuits.  Others believe that Google was fooled by a bait and switch: that it believed in Intellectual Ventures' initial claims that it was a supporter of patent defense, not offense.  Either way, Google -- whether wittingly or unwittingly; willing or unwilling -- helped to create the beast that IV is today.

Google sign
Google was among numerous early IV investors. [Image Source: Triple Helix Online]

Google, Microsoft, Apple, and others have poured money into IV for untold reasons.  But as the lawsuit campaign has picked up in the last few years, the pressing question has become who is at the helm of litigious firm.
 
Some targets of the lawsuits -- e.g. Motorola -- would suggest market rivals Apple, Microsoft, and/or Nokia might be driving IV. Indeed, Microsoft does have close ties via its former CTO who runs the firm.
 
But it's also possible that IV has escaped the control of its investors and become a rogue entity of sorts.
 
Google is not alone in funding IV then being sued or forced into licensing agreements.  One of IV's largest licensing agreements is with Comcast Corp. (CMCSA), which was forced to pay $250M USD per year for a license under legal threat sometime around 2009-2010.  Comcast had invested $150M USD in IV previously -- yet like Google, that investment offered no promise of protection.
 
Here comes another twist -- Xilinx itself invested a small amount (<$50M USD) in IV sometime between 2005-2009 [source].  So Google might profit by proxy of Xilinx's misfortune, but the pair have far more in common than one might think.  Xilinx likely would profit off Google/Motorola's misfortune.

Xilinx Spartan 3
Google may profit off Xilinx's misfortune, but Xilinx is also an investor in IV and may face similar gains if Google loses in the current lawsuits. [Image Source: Pic to Pin]

Complicating the issue of who's in charge is IV's own complex nature.  The company is composed of two primary "funds" -- the Intellectual Ventures I LLC and Intellectual Ventures II LLC.  Together these companies are managed by Intellectual Ventures Management LLC.  The first fund (IV I) was founded in 1999 and IV Management was founded in 2000.  Both firms are registered as LLCs in Delaware, but maintain numerous subsidiaries in Florida and Delaware.
 
In fact, the total number of subsidiaries of IV is estimated at over 1,275, according to CNET.  Even more confusing, IV I and IV II regularly transfer patents between subsidiaries and between each other.  All of this makes the structure of IV and how investments are spent stunningly hard to discern.
 
Reportedly half of the Fortune 500 have invested in IV -- ranging from tech firms to banks and more.  And many of those -- like Comcast, Google, and Xilinx -- have subsequently been sued or threatened by their investment.

Picard borg
IV is sort of like a Borg -- it turns you against your own partners and friends.
[Image Source: Paramount]

In many regards IV could be likened to the Borg of the Star Trek universe -- assimilating unwitting tech firms, which then unwittingly help to attack their own industry.
 
VIII. Is Microsoft in Charge?
 
It's possible that Microsoft -- which struggled in the mobile market -- may be steering the strange mass of companies that is Intellectual Ventures.

Bill Gates -- The Simpsons
Is Microsoft in charge of IV? [Image Source: Matt Groening/Fox]

If Microsoft is in charge of IV, though, there are some oddities.  First, aside from whatever anticompetitive gains against Motorola and others have been had, IV has not actually made any money.  Its first fund (completed in 2003) was estimated to be at just over 16.2 percent in terms of return on investment.  The second fund (completed in 2008) did even worse, at 2.5 percent.  As mentioned, IV has spent $6B USD on patents and management payouts to Mr. Myrhvold and others -- but has only made $3B USD in licensing fees/lawsuit damages.
 
IV has reportedly suspended patent buying as of late last year, given its fiscal problems.
 
Second, if Microsoft is in charge it's hurting its own primary business courtesy of IV's campaign to squeeze licensing payments out of PC OEMs like Dell Inc. and Hewlett-Packard Comp. (HPQ).
 
Lastly, while it successfully pushed through serious changes that protected its own direct patent litigation attempts, Microsoft is in support of upcoming patent reform legislation in Congress.  That legislation -- even in its current altered form -- is staunchly opposed by IV, as it would make its legal campaigns much more difficult.  If Microsoft is at the helm of IV, why would it support an effort that endangers its partner?
 
The industry and the media will continue to look for these answers on these questions and IV continues to try to stay solvent and squeeze payouts out of more tech firms in years to come.
 
As for Motorola, it is unclear how the recent $2.91B USD sale of the phonemaker to Hong Kong, China-based Lenovo Group, Ltd. (HKG: 0992) will affect the lawsuit.  It's possible Google may continue to assist Lenovo in defending its former subsidiary, as many of Intellectual Ventures' claims attack not just Motorola, in particular, but core components of Android.

Lenovo
Lenovo recently purchased Motorola Mobility in a pending $2.91B USD deal.

The recent sale reportedly gives Lenovo roughly 8,000 of Motorola's 17,000 some patents (earlier estimates stated it had 12,500 patents, which proved low) and leaves around 9,000 of them with Google.
 
Pending regulatory approval, the deal may wrap up before the end of 2014, but likely will not conclude before the second component of the first trial.  It's possible the deal may be closed before the second trial in Florida in November.

Sources: Reuters, Bloomberg Businessweek



Comments     Threshold


This article is over a month old, voting and posting comments is disabled

Why will this crap never end?
By FITCamaro on 2/11/2014 8:18:40 AM , Rating: 3
Because politicians and other people in power don't want it to. Many of them come from trial lawyer backgrounds these days and get huge donations from their fellow ambulance chasers.




RE: Why will this crap never end?
By Zak on 2/11/2014 12:58:24 PM , Rating: 2
Yeah, Intelectual Vultures more like it.


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