Great theme, but produced from a brick-and-mortar, “face time” perspective. Get with it lawyers!
With reality television all the rage, viewers may wonder why there’s been no reality series about the inbred high-tech ecosystem of Silicon Valley. There should be, because the reality of how our technology bastion really competes today — namely by patent litigation and acquisitions — is astonishing.
Last year Google, Apple, Intel and other leading Silicon Valley companies were targeted by federal antitrust enforcers for tacitly agreeing not to hire each other’s key employees. Such a conspiracy could have landed top executives in jail. This year Apple, Samsung, Google, Nokia and others have all been battling over back-and-forth claims that smartphones and wireless tablets infringe each others’ U.S. patents. Now, just weeks after Google’s general counsel objected that patents are gumming up innovation, the search behemoth has announced its own $12.6 billion acquisition of Motorola Mobility, and with it their own portfolio of wireless patents, just a fortnight after purchasing a relatively few (“only” 1,000 or so ) wireless patents from IBM.
While the executives at Google have nothing to fear personally from these patent wars, others seem to have a lot at risk. That is because, according to the Wall Street Journal, the U.S. Justice Department’s Antitrust Division is investigating another possible conspiracy among Silicon Valley companies. This one arises out of the collective bid in the late spring of nearly every wireless phone operating system manufacturer, except Google, for a portfolio of 6,000 cell phone patents formerly held by bankrupt Canadian company Nortel. Simply put, Google started the bidding at about $1 billion, but the others joined forces to lift the price to an astounding $4.5 billion and win the prize.
That’s the legal background to Google’s just-announced Motorola Mobility acquisition, and it’s one that could have serious anticompetitive consequences. If the curiously named “Rockstar Bidco” consortium — which includes Microsoft, Apple, RIM, EMC, Ericsson and Sony — refuses to license the erstwhile Nortel patents to Google for its Android wireless operating system, they will be agreeing as “horizontal” competitors not to deal with a rival. Classically such group boycotts are treated as a serious antitrust no-no, and a criminal offense. If the group licenses the patents, on the other hand, they could be guilty of price fixing (also a possible criminal offense), since a common royalty price was not essential to the joint bid and would eliminate competition among the members for licensing fees.
If the Rockstar Bidco companies decide to enforce the patents by bringing infringement litigation against Google, things could be even worse. Patent suits themselves, unless totally bogus, are usually protected from antitrust liability so as not to deter legitimate protection of intellectual property assets. (That does not mean they’re competitively good, since patent suits are often just a means of keeping rivals out of the marketplace.) Nonetheless, a multi-plaintiff lawsuit by common owners of patents would have those same horizontal competitors agreeing on lots of joint conduct, well beyond mere license rates. For starters, is the objective of such an initiative to kill Android by impeding its market share expansion? That’s a valid competitive strategy, standing alone, for any one company; it takes on a totally different dimension when firms collectively controlling a dominant share of the market gang up on one specific rival.
Google’s broader complaint that patent litigation in the United States is too expensive, too uncertain and too long may well be right. This bigger issue is being debated in Washington, DC as part of what insiders call “patent reform.” The high-stakes competitive battles being waged today in the wireless space under the guise of esoteric patent law issues like “anticipation” by “prior art” suggest a thoroughly Machiavellian approach to the legal process, just as war is merely diplomacy by other means. They inevitably color the perspective of policy makers, who watch with regret as a system designed to foster innovation gets progressively buried with expensive suits, devious procedural maneuvering and legalized judicial blackmail.
Even the biggest companies, though, would find it hard to compete if their largest rivals were allowed to form a members-only club around essential technologies to which only they had access. Microsoft’s own general counsel countered two weeks ago that Google was invited to join an earlier consortium bid but declined before the Nortel auction. Embarrassing, yes; dispositive, no. If the offer were still open, now that it is clear Google’s principal wireless rivals are all members, things would be different. Indeed, there’s even an opposite problem of antitrust over-inclusiveness where patents and patent pools are concerned. If everyone in an industry shares joint ownership of the same basic inventions, where’s the innovation competition? Google’s defensive purchase of Motorola is a desperate, catch-up move that does not really change this “everyone-but-Android” reality.
Silicon Valley’s patent wars are for good reason not nearly as popular as Bridezillas or So You Think You Can Dance. Yet they are far more important, economically, to Americans addicted today to their smartphones and spending hundreds of dollars monthly on wireless apps and services. Whether the Justice Department will challenge the Rockstar Bidco consortium or give it a free pass remains to be seen. From a legal perspective, it is just a shame the subject is too arcane, and certainly way too dull, to make a reality TV series.
The battle to beat Google’s Android mobile phone OS is quickly turning into a legal bonanza. Apple is suing HTC, Samsung and Motorola, all makers of wireless phones with the Android platform. Oracle is seeking up to $6.1 billion in a patent lawsuit against Google, alleging Android infringes Oracle’s Java patents. And Microsoft is suing Motorola over its Android line.
That’s all perfectly fine from an antitrust and competition standpoint — leaving aside the harder policy question of whether using patent infringement litigation to block competition should be permissible. Enforcing property rights is a legitimate and rational business activity that, absent “sham” lawsuits, is not second-guessed by antitrust enforcement agencies or courts. There can be exclusionary consequences, but they are a result of the patent laws in the first instance, not of themselves anything anticompetitive by the patent holder.
A much more troubling aspect of the increasing IP (or “IPR” as they say across the pond) battles surrounding Android is the recent sale of Nortel’s 6,000 or so wireless patents at a bankruptcy auction in Canada to a collection of bidders including Apple, Microsoft, RIM, EMC, Ericsson and Sony. How Apple Led The High-Stakes Patent Poker Win Against Google, Sealing Ballmer’s Promise | TechCrunch. The winning consortium bid more than $4.5 billion — some five times Google’s opening bid and, according to some pundits, far more than the portfolio was worth — to gain control of the patents.
“Why is the portfolio worth five times more to this group collectively than it is to Google?” said Robert Skitol, an antitrust lawyer at the Drinker Biddle firm. “Why are three horizontal competitors being allowed to collaborate and cooperate and join hands together in this, rather than competing against each other?”
These are good questions. Patent “pools,” which are collections of horizontal competitors sharing patent licenses among themselves, are today generally considered procompetitive under the antitrust laws where they (a) are limited to technologically essential or “blocking” patents, and (b) do not contain ancillary restraints, such as resale price-setting or restrictions on participant use of alternative technologies. (MPEG, WiFi, LTE and other communications technologies are prime examples of patent pools.) The theory is that, with price effects eliminated, the cross-licensing of patents that might otherwise be used to block entry into a market reduces barriers to entry and increases efficiency.
Yet the consortium which won the Nortel wireless portfolio, revealing dubbed “Rockstar Bidco,” includes nearly everyone in the mobile phone and wireless OS businesses except Google. If these players agreed among themselves not to license their own patents to Google, that would be a per se illegal group boycott (also known as a concerted horizontal refusal to deal). Competitors cannot allocate markets or conspire to keep a rival out of the marketplace. It is unclear whether Google was invited to join Rockstar Bidco, but unless Larry, Sergey and Eric turned down such an offer, it seems a fair case can be made that the consortium bid was in effect an implicit horizontal agreement not to include Google. Post-auction, the reality of licenses will clearly tell us whether the joint ownership structure was a pretext to cover a refusal to deal. No one knows what the consortium intends to do with the Nortel patent portfolio; they won’t say. Microsoft, RIM And Partners Mum On Plans For Nortel Patents | Forbes.
This author happens not to be a fan of Android; I’m a very happy iPhone user since day one of the Apple wireless revolution. This does not mean, though, that I can agree with a business strategy in which all of the other players in the mobile phone industry gang up on Google. (It is unclear were Nokia fits into all of this, but given the steadily decreasing share for its Symbian OS, I suspect the inclusion or not of Nokia will not be dispositive.)
The antitrust issue this presents is a thorny one, which frequently comes up in connection with trade associations and technical standards. When competitors collaborate, is under-inclusiveness or over-inclusiveness worse? Which is the bigger threat to competition? That is, if a trade group opens a collective buying consortium, for instance, is it better from an antitrust perspective to require that it be open to all — so that some rivals are not deprived of the scale economies — or that the consortium includes less than all firms in the market — so that competition in purchasing will drive down input prices?
Another concern is that, by excluding Google, the Rockstar consortium allows the other competitors to utilize the patents without paying license fees (since they now own them), leaving Google alone to need licenses for its Android OS. Does Nortel Patent Sale Make Google An Antitrust Victim? | TechFlash. That is a variant of “raising rivals’ costs” (here one rival only), which has over the past three decades become a recognized basis for assessing the anticompetitive nature of unilateral, single-firm conduct. When a group includes horizontal competitors who collectively control a huge share of the market, raising rivals’ costs supplies the anticompetitive “purpose or effect” needed to make out a rule of reason antitrust claim, even if the group boycott concern is misplaced or ameliorated. Here the intent to slow down Android is clear; whether that is anticompetitive, exclusionary or not is more ambiguous. Apple, Microsoft Patent Consortium Trying to Kill Android | eWeek.com.
There are precious few judicial decisions in this area and the IP licensing guidelines from DOJ/FTC do not really speak to the question. For that reason alone, the Rockstar Bidco venture, in my view, merits a very close look by the U.S. competition agencies. Allowing Google’s mobile phone competitors to do indirectly, with joint patent ownership, what they could not do indirectly, by agreeing not to license to Google, would be an incongruous result. On the other hand, a remedy may be worse than the harm. In standards, for example, it is often the case that antitrust risks are mitigated by requiring the holder of an essential patent to agree to so-called FRAND licensing (fair, reasonable and non-discriminatory terms and conditions). That’s an appropriate remedy where under-inclusiveness is the problem, so long as there’s a market measure for a “fair” license (royalty) price. Where the licensor, as in this instance, is everyone except the licensee, I for one fear there would be no objective way to assess whether license rates were reasonable.
The lack of an effective remedy for a competition problem does not, of course, require that the transaction involved be blocked. At the same time, where a problem cannot be fixed, that is a good enforcement policy reason not to allow the structural market conditions giving rise to the issue in the first place. Put another way — a slight modification of an old aphorism — if there’s no remedy, maybe there should be no right. Whether the viability of the Rockstar consortium is decided by outgoing Assistant Attorney General Christine Varney or her September successor, the forthcoming answer should be interesting.
This is the opening paragraph of an article by this author appearing today in the Fall 2010 issue of Icarus, the newsletter of the ABA’s Communications & Digital Technology Industries Committee, Section of Antitrust Law. “If the issue of broadband reclassification is not addressed with sensitivity to the history and traditions of FCC common carrier regulation, one can all too easily arrive at conclusions that simply cannot be squared with the legal framework applied to telecommunications for more than 30 years.”
The highly polarized debate over so-called net neutrality at the Federal Communications Commission (FCC) exposes serious philosophical differences about the appropriate role of government in managing technological change. Neither side is unfortunately free either from hyperbole or fear-mongering. And neither side is completely right.
Read the whole essay. It’s provocative.
Note: I have not appeared as counsel for any party to the FCC’s current net neutrality NOI proceeding and was not paid to write this essay (despite what my colleagues and clients in the public interest community may claim). I represented Google in the past but now am ethically precluded from doing so because my law firm has a conflict of interest, being adverse to Google in an employment age discrimination case before the California Supreme Court. The article nonetheless does not reflect the views or opinions of my firm or any of my clients, past or present.
I’m not sure I agree entirely with the political motivations, but the legal analysis here seems right.
If Chairman Genachowski announces, as expected, his intention to reclassify the Internet as a telephone system, he will be reversing 30 years of precedent starting with the Carter administration FCC’s “Computer II” decision and definitively settled with respect to broadband Internet access by the Clinton FCC in 1998. Turning sharply left from Carter and Clinton indicates a pretty extreme shift beyond the mainstream of American politics.
Such a shift is unjustified, because free-market Internet policy has been a tremendous success. The Internet — in the absence of regulation — has flourished into a remarkable engine of economic growth, innovation, competition, and free expression. Such triumph argues in favor of continuing existing successful policies, but with today’s announcement the FCC shows it is more interested in satisfying a left-wing political constituency than continuing sound policy.
It’s true. The left wing of the Decocratic party is afraid the president may actually nominate a moderate or centrist to the Supreme Court. Horrors! ;-)
Folks, that’s the only kind of people who EVER get to the Supremes! Liberals are made, not born, on the Court Earl Warren, William Brennan, John Paul Stevens and William Douglas were hardly died-in-the-wool liberals when they were nominated. They moved steadily to the left as they matured. So give judicial liberalism a chance!!
A J.D. degree is not worth what it once was as the legal industry wrestles with unprecedented business changes.
I was honored this week to become the 50th lawyer interviewed via Twitter by Lance Godard of 22 Tweets. Here’s the transcript…
Today we’re tweeting with @glennm, biglaw antitrust / telecom / technology litigator turned Web 2.0 legal guru.
- @glennm thank you for joining us today on Twitter. Tell us: who is @glennm?
Good morning. Thanks for inviting me.
A tech atty. focused on comp. policy, IP & complex litigation. I help to shape the rules for new technologies, like social media.
- Tell us about your law practice.
My practice has broadened over the years as technology developed, from telecom to software and Internet to mobility and content….
It all started at DOJ during the US v. AT&T divestiture case, where I 1st combined antitrust with telecom regulation.
- That’s quite a resume! What type of clients do you represent?
Clients who can pay their bills. ;-) Seriously, my clients range from start-ups to Fortune 100 companies. Hard 2 generalize.
- I can imagine…. What would you say is the single most important legal issue affecting your clients?
“What am I?” Meaning, how will legislators, courts and regulators classify and treat our products and services. That affects…
…business Qs like CRM, IP protection/licensing and relations with both partners and competitors.
- Sounds like fascinating work. What do you tell every new client before you start working for them?
“It’s better 2 be the windshield than the bug.” Be proactive in managing the development of law & policy affecting ur space.
- Am sure you’ve got some great success stories: tell us about one of the more significant client representations you’ve had.
My fave is representing Netscape in 1995-96, when the FCC faced the Q of what was this new animal of the Net…
…Netscape WAS the Internet and we inaugurated a federal policy of minimal regulation that survives (in large part) today.
- Wow. And we all thank you for that…. Why do your clients hire you?
I’m smart, fast and strategic. I would rather solve a problem with a conf. call than write a research memo. And I try to craft…
…legal strategies for clients that further their long-term bus. plan rather than just dispose of “one off” disputes.
- What’s the most active area of your practice at the current time? Is that typical?
Over the past 2-3 years it’s been litigation. But the law moves in cycles, sometimes regulatory agencies r where the action is….
…and at other times firms must act to resolve issues by taking them to the courts. We’re in the latter phase in tech now.
- What have been the biggest changes in your practice over the past few years? Clients? Technology? The Law?
A move away from private antitrust litigation to intellectual property, as competition issues have become dominated by disputes…
…over ownership of the underlying tech methods and assets. Take VoIP (voice over Internet protocol) for one example.
- What will be the next great legal battle of Web 2.0? Why should we pay attention to it?
Who owns user-generated content is the big unsettled Q. It will impact users, social network providers and content creators…
…If most or all digital content can b “shared,” how do older rules re proprietary rights apply in the new environment.
- You’re at an AmLaw 100 firm. How does your firm’s leadership view your active Web 2.0 presence?
Mgmt. is supportive & has tasked me several times w/teaching our lawyers how to utilize and interact w/social media.
- That’s great. What do you say to lawyers who thumb their noses at social media and social networking?
Hope they don’t thumb noses. But lawyers are conservative creatures and thus tend not to embrace change quickly…
…I’d say that if attys. do not “get it,” they probably won’t get as many clients and work as new modes of communication develop.
- Your Web 2.0 presence is a mash-up of personal & professional. What are your SocMed objectives? Are you achieving them?
I’m more concerned with satisfying a passion for early adoption than forming concrete objectives from social media. My philosophy…
…has always been to find industries, partners and clients that excite me, so work is satisfying instead of a burden. The rest..
…typically follows, namely success, profit and (we hope) happiness.
- Nice. What specific impact on referrals and/or client engagements have you realized from Web 2.0 activities?
I’ve been approached and retained by about 1/2 dozen clients in the past 12-18 months from social media contacts. The familiarity…
…created by a user’s “social stream” tends 2 build closer relationships from the start than cold calls either way.
- Indeed. Can be a significant competitive advantage. How much time do you spend each day developing / enhancing your brand?
Discipline is key, else social media addiction can consume one’s life. I dedicate 30 mins, in the morning and then periodically…
…review/post stories re current events (emphasizing law/policy, of course) of interest. Content is the best promotion.
- Seems to be working well…. Let’s switch gears. What is the most significant issue currently facing the legal profession?
It’s clear that Big Law is facing its most challenging bus. environment in decades. Pressures to reduce and make fees predictable…
…r sending shock waves of RIFs throughout the field. What will the bus. model be 4 legal servs. in the 21st century?
- What will the legal landscape look like in 10 years?
Ah, if I could predict that, I’d be able to retire now. ;-) 20 yrs. ago I never imagined 3000+ lawyer firms, so I don’t…
..pretend to have a crystal ball on the legal landscape. Change can b both exhilarating and frightening, however.
- What would you do if you weren’t a lawyer?
Photographer or ski bum. Maybe there’s still time left? I could take a bluetooth headset 2 the slopes & do bus. in powder. .
- How do you want to be remembered?
Unless a person becomes historically famous, legacy is all about the memories one leaves with family, colleagues and friends….
…So while I am not especially religious, I believe in “from dust to dust.”
- What do you do when you’re not working?
Law is a jealous mistress as the old saying goes. Time is a precious commodity in short supply. So on off hours I recharge my…
…batteries, enjoy time with wife/friends and try to beat my freshman-year son in fantasy football (he’s going down!).
- What advice can you pass along to the increasing # of lawyers currently under- or unemployed due to the economic crisis?
Quoting Jim Carville, it’s the economy, stupid. Do not equate self-worth with job prospects. Keep faith in urself & ur innate value.
- And our final question for you: What advice do you have for people going to law school today?
Enjoy being an atty., but remember most of lawyering is in small details. Master craft first before trying 2b creative.
Relevant advice Indeed. Thanks so much for tweeting with me today; I really enjoyed learning more about you & your practice.
And thanks much 4 the Twitterview, Lance. I’m honored to be your guest. Very early here (Calif.), so hope I was coherent.
This is a video clip from the panel on Law and Policy for Social Media which I moderated at last week’s 140 Characters Conference in Los Angeles.