Google Inc. (GOOG), joined by BlackBerry, today urged U.S. regulators to investigate whether some competitors violate antitrust laws by hiring companies to file patent-infringement suits for them.
There’s been a rise of so-called privateers, which obtain patents from technology companies and then file infringement lawsuits against the sellers’ competitors, Google and BlackBerry said in a filing with the U.S. Federal Trade Commission and Department of Justice. Internet service provider EarthLink Inc. (ELNK) and Red Hat Inc. (RHT), the largest seller of Linux operating-system software, also joined the submission.
The filing was part of broader comments by the companies on so-called patent assertion entities, which obtain patents for the sole purpose of extracting royalties. Such companies “impose an ever-rising tax on innovative industries,” Google, owner of the most widely used search engine, said in the filing.
“We are also concerned with, and suggest that the agencies should seriously examine, the outsourcing of patent enforcement by operating companies - companies that develop technology and sell products - to PAEs and the competitive implications of such activities,” Google and BlackBerry (BBRY) wrote. “So-called ‘privateering’ amplifies the threat to innovation and competition already posed by PAEs.”
Nokia Oyj (NOK), Microsoft Corp. (MSFT), BT Group Plc (BT/A)’s British Telecom and Alcatel-Lucent are among companies connected with these licensing firms. Companies that would, in the past, assert their patents in lawsuits to protect their property now say they work with privateers to make money from past research.
In a typical lawsuit, competing companies accuse each other of infringing patents and then reach a cross-licensing agreement, which lowers the amount of money that has to change hands. That type of resolution isn’t possible when one side doesn’t make any products, and therefore doesn’t have to fear a retaliatory lawsuit.
By transferring patents to such a firm, for a cut of any revenue from a settlement or fees, a manufacturer can get a financial reward while insulating itself and its products from infringement claims and limiting its legal costs, Google and BlackBerry said.
Google said assertion entities can increase the cost of licensing because a portfolio can be split among multiple privateers, each demanding a royalty. That’s especially true when the larger company has patents that relate to technology used across the industry.
“These arrangements (and others) between operating companies and PAEs can, depending on the facts, transgress the antitrust laws,” Google and BlackBerry wrote.
Mountain View, California-based Google has been the target of an FTC investigation over the patent-licensing practices of its Motorola Mobility unit, which was accused of demanding unfairly high royalties for patents on industry standards. Google reached a settlement with the FTC on the issue in January.
In the filing, Google and BlackBerry singled out a pledge Nokia made to license all of its patents for mobile-phone standards at a 2 percent royalty. Were a company like Nokia to split some of its standard patents among three different entities, it would increase the total cost to 8 percent, Google said.
An investigation into the privateering model “would provide a foundation for the antitrust agencies to assess whether the solutions to the competitive concerns patent outsourcing arrangements pose lie in antitrust enforcement, in changes in the patent laws (where the antitrust enforcement agencies might play an important advocacy role), or elsewhere.”
In a Dec. 10 hearing held by the FTC and DOJ, Espoo, Finland-based Nokia defended the practice.
“Often we do not have the resources or otherwise are not best positioned ourselves to exploit those inventions, either through our own products or through our own licensing activities,” Paul Melin, Nokia’s chief intellectual property officer, said on a panel. “Divestments of patents have become a very important channel for us to monetize and realize the value of our research and development.”
Waterloo, Ontario-based BlackBerry and Nokia signed a patent-licensing deal in December to resolve disputes between the two companies. That agreement didn’t end a suit against BlackBerry by MobileMedia Ideas LLC, a licensing company that holds former Nokia and Sony Corp. patents. MobileMedia also won a December trial against Apple Inc. (AAPL), which has a patent agreement with Nokia, too.
It can be difficult to identify who is profiting from a patent suit. One lawsuit against Google is by Suffolk Technologies, whose owners include Goldman Sachs Group Inc., General Atlantic Partners LP and Boston Consulting Group Inc., according to a Dec. 7 court ruling on the ownership question.
The patents originated with BT’s British Telecom, which transferred them with an agreement it would get at least half the proceeds from the patent, the judge said.
Google retaliated by suing British Telecom in February, accusing it of infringing four patents. Google had bought three of the patents from International Business Machines Corp. and the fourth from Fujitsu Ltd. It marked the first time Google had sued any company for patent-infringement.
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