A long-running war over smartphone patents came to an end this week as a consortium of Google rivals, led by Apple, announced they have a sold key portfolio of patents in a complicated $900 million licensing deal.
The deal, as reported by the Wall Street Journal, involves Apple and its allies selling 4,000 patents to RPX, a patent broker, which in turn will issue licenses to Google, a variety of Android phone manufacturers and a group of other companies, including Cisco.
The details of the arrangement come after news of a settlement in November that appeared to signify the end of Apple’s patent war against Android.
This week’s news also represents a quiet denouement to an era of smartphone patent wars, which peaked in 2011 when Apple, Microsoft, Sony, Blackberry and Ericsson paid $4.5 billion to obtain 6,000 patents held by the bankrupt Canadian telecom firm Nortel.
The companies then assigned most of the patents to a new shell company Rockstar, which served as a roving patent troll to attack Google and its Android allies in court, and also filed lawsuits against communications giants like Time Warner Cable.
That strategy, however, does not appear to have paid off given that the patent fights have not really affected the market for Android smartphones, nor produced any obvious financial gains for Rockstar’s backers.
Indeed, on its face, the $900 million price that Apple and the other companies will receive through the RPX-Rockstar deal suggests that they overpaid for the Nortel patents, especially in light of the high costs associated with patent litigation and licensing. (It should be noted too that the companies only gave 4,000 of the 6,000 patents to Rockstar, and divided the others among themselves).
As the Journal reports:
Whether the Rockstar companies recouped its $4.5 billion investment is an open question. In the minds of some experts, the $4.5 billion figure reflected the high point of a frothy market that developed for patents in the earlier days of the smartphone industry.
The Rockstar companies squeezed more than three years of use out of the 4,000 patents, and will keep licenses going forward. The 2,000 patents they held back from Rockstar—and aren’t part of the sale to RPX—were among some of the most valuable in the Nortel portfolio.
Assessing the deal is also difficult given the role of RPX, which describes itself as a patent clearinghouse that helps companies minimize their exposure to patent litigation. (Critics of the company complain that RPX is more like a protection racket).
According to a source familiar with the deal, the upshot of the transaction is that Google and 30 other companies will pay $900 million, with most of that flowing through to Apple and the other Rockstar owners. More broadly, it will serve to produce a broad-based cross-licensing arrangement that will limit future patent fights.
The source, who did not want to be identified, added that growing government scrutiny of patent trolling operations, like the one run by Rockstar, also made Apple and its allies more inclined to seek a settlement rather than pursue litigation.
Meanwhile, America’s troubled patent system continues to receive attention from the U.S. Supreme Court and from Congress, which is expected to undertake renewed efforts at patent reform early in 2015.