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Apple and Microsoft are at it again. Emboldened by their successful purchase (via the consortium Rockstar Bidco) of Nortel’s patent trove in February, the would-be competitors have allegedly teamed up with the notorious patent troll Intellectual Ventures (IV) to bid for Kodak’s patents. With IV serving as the “attack dog,” Apple and Microsoft can go after their competitors in the mobile device market without opening themselves up to countersuits or public backlash. As an antitrust expert, I find this anticompetitive behavior particularly alarming.
We’ve seen this before. In the patent world, the best defense against frivolous patent litigation is a strong portfolio of your own. In the Nortel auction, Google signaled early on that it was interested in buying the patents to help level the playing field. To thwart Google’s defensive maneuver, Apple and Microsoft formed Rockstar Bidco with RIM, Erickson, Sony and EMC to win the auction with a staggeringly high bid of $4.5 billion — five times Google’s initial bid, and well beyond the estimated value of the patents. Microsoft was a strange addition to the bidding partnership, because it already had a licensing deal covering Nortel’s patents. Although the purchase was obviously targeted at suppressing Android, the Department of Justice still cleared it, largely because Google’s subsequent acquisition of Motorola Mobility (and their patents) seemed to even things out.
After the successful Nortel bid, Rockstar Bidco’s members founded and funded a new troll entity, Rockstar Consortium. Apple and Microsoft transferred certain key patents (which Wired called “warheads”) to the consortium, which serves its members by attacking their competitors with frivolous patent infringement lawsuits as a way of bleeding other companies dry. The organization also pays a percentage of its licensing and royalty revenue back to the founding companies.
The Department of Justice’s approval of the Nortel transaction, and its subsequent inaction in light of the transfer, appears to have had the unintended consequence of sanctioning the use of patent trolls. These firms no longer see the need to create shell operations. Instead, Apple and Microsoft have cut to the chase and openly enlisted the most aggressive and troubling of the patent trolls to collect and wield patents against their competitors.
Apple’s participation in this new unholy trinity is especially hypocritical. In litigation before the International Trade Commission earlier this year, the company alleged, and convinced the ITC, that various patents in the Kodak portfolio are invalid. Now, despite its past representations, Apple wants to acquire these patents to attack the Android ecosystem.
Meanwhile, a rival bidding group has formed in the Android ecosystem. Its members include HTC, Samsung, LG Electronics, Google and the patent aggregator RPX Corporation, whose business model is devoted to defensive patent licensing to fend off attacks from trolls.
The decision to pursue the Kodak patents should put to bed any argument that Apple and Microsoft are merely protecting their own innovations. These companies are working together to stockpile patents from other innovators to not only prevent Google and its partners from defending themselves, but also to mount further attacks against Android through transfers to patent trolls.
Ultimately, consumers will suffer if Apple, Microsoft and IV are successful. An even distribution of patents means more cross-licensing deals between competitors with little to no money changing hands, keeping the cost of products down. But when two large competitors team up with patent trolls to buy a dominant share of the patents, they can limit competition to the point where companies struggle to, or can no longer, compete fairly.
If the Apple-Microsoft consortium wins the bid for the Kodak patent portfolio, it will no doubt empower them to continue and expand their strategy of filing predatory patent lawsuits against Android handset makers. It is imperative that we take a stand against collusive intellectual property abuses and the devious use of patent trolls to target competitors. Otherwise, we risk litigating ourselves out of innovations in mobile telecommunications technology, while prices continue to skyrocket.
Hopefully the Department of Justice and Federal Trade Commission are taking notice this time.
David Balto is a former policy director of the Federal Trade Commission, attorney-advisor to Chairman Pitofsky, and antitrust lawyer at the Department of Justice. He currently works as a public interest antitrust lawyer in Washington D.C.