Reference no: EM132116037
Case : Rockstar Consortium-Beware the Patent Troll
Nortel was a Canadian multinational telecommunications and data network equipment manufacturing pioneer. Nortel patented many innovations in the areas of wireless communications, telecommunications switching, Internet routers, modems, personal computers, search, and social networking.78 Many of its patents are in the key areas of Long Term Evolution (LTE) and 3G technologies, which are the foundation of modern wireless networks.79
In 2009, Nortel filed for bankruptcy, and in the process, the company sold its business units and assets to various purchasers.80Approximately 6,000 of its patents were sold for $4.5 billion to a company formed by a team of information technology companies consisting of Apple, EMC, Ericsson, Microsoft, Research In Motion, and Sony.81 The partners divided up some 2,000 of Nortel's patents among themselves and then formed a new, independent company called Rockstar Consortium to manage the remaining 4,000 or so patents.82
Rockstar employs just 32 people, many of them the same people who ran Nortel's patent-licensing program. Among the employees are 10 reverse-engineering specialists whose role is to examine other companies' successful telecommunications and networking products to determine if they infringe any of the former Nortel patents.
Should evidence of infringement be revealed, it is documented, and the firm contacts the infringing manufacturer seeking licensing fees for the patent(s) in question. Should the manufacturer refuse to pay the licensing fees, they could be dragged into a costly patent infringement lawsuit.83
Legal fees and court-awarded damages can run into the millions of dollars when companies go to court to battle over patent rights. For example, in 2007, a jury ruled Microsoft had violated patents for MP3 technology belonging to telecommunications equipment manufacturer Alcatel-Lucent. The jury awarded Alcatel-Lucent damages of $1.5 billion.
Unlike large companies such as Microsoft, small companies often simply cannot afford to defend themselves against costly patent lawsuits-whether the claim is raised for legitimate reasons or as a threat against entering a new market or offering a new product. As a result, the current patent system can stifle small innovators rather than help them. Even large companies may agree to pay licensing fees rather than fight a patent infringement lawsuit.84
A company such as Rockstar that makes no products and whose mission is to sue or coerce manufacturers who infringe on its patents (often referred to as a pure patent operation) can become very aggressive in filing patent infringement lawsuits because it produces no products that could form the basis for a patent infringement countersuit.85
Prior to the sale of the Nortel patents, the Department of Justice's Antitrust Division reviewed the potential sale. There were concerns about the potential use of Nortel's standard essential patents (SEPs) as a means to slow the innovation of other companies in the telecommunications and networking industry.
As a result of this review, the Department of Justice stated that its concerns were "lessened by the clear commitments by Apple and Microsoft to license SEPs on fair, reasonable, and non-discriminatory terms." 85 However, John Veschi, chief intellectual property officer at Nortel and now the CEO of Rockstar Consortium, states that Rockstar is not bound by the promises that its member companies made. According to Veschi, "We are separate. That does not apply to us." 86
Discussion Questions
1. Clearly state three business reasons to justify why these major IT firms formed Rockstar Consortium.
2. Although Rockstar is set up as an organization independent of its founders, what are the possible reactions if the firm aggressively pursues an important customer or supplier of one its founding companies? How might the customer or supplier react? How might the founder react?
3. Do research to determine the current status of the RockstarConsortium. Has it been successful? Has it stirred up any further controversy?