DOJ greenlights bid by Apple, Microsoft and RIM to purchase Nortel patents

DOJ greenlights bid by Apple, Microsoft and RIM to buy Nortel patentsThe US Division of Justice did not simply give the go-forward to Google’s acquisition of Motorola as we speak, it additionally gave the greenlight to a $four.5 billion bid on Nortel’s patents from a consortium of corporations together with Apple, Microsoft and RIM (who’ve dubbed themselves Rockstar Bidco). Nortel’s portfolio consists of some 6,000 patents, and the DOJ says the approval comes after it acquired clear commitments from Apple and Microsoft to license so-referred to as commonplace important patents on “truthful, affordable and non-discriminatory phrases, in addition to their commitments to not search injunctions in disputes involving SEPs.” To spherical issues out for the day, the Justice Division has additionally given its clearance to Apple’s acquisition of sure Novell patents, which have been held by CPTN Holdings pending approval. Its full assertion might be discovered after the break.

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Assertion of the Division of Justice’s Antitrust Division on Its Determination to Shut Its Investigations of Google Inc.’s Acquisition of Motorola Mobility Holdings Inc. and the Acquisitions of Sure Patents by Apple Inc., Microsoft Corp. and Analysis in Movement Ltd.

WASHINGTON – The Division of Justice’s Antitrust Division issued the next assertion at present after saying the closing of its investigations into Google Inc.’s acquisition of Motorola Mobility Holdings Inc., the acquisitions by Apple Inc., Microsoft Corp. and Analysis in Movement Ltd. (RIM) of sure Nortel Networks Company patents, and the acquisition by Apple of sure Novell Inc. patents:

“After a radical assessment of the proposed transactions, the Antitrust Division has decided that every acquisition is unlikely to considerably reduce competitors and has closed these three investigations. In all the transactions, the division carried out an in-depth evaluation into the potential means and incentives of the buying companies to make use of the patents they proposed buying to foreclose rivals. Particularly, the division targeted on commonplace important patents (SEPs) that Motorola Mobility and Nortel had dedicated to license to business individuals by way of their participation in commonplace-setting organizations (SSOs). The division’s investigations targeted on whether or not the buying companies might use these patents to boost rivals’ prices or foreclose competitors.

“The division concluded that the precise transactions at difficulty are usually not more likely to considerably change present market dynamics.

“In the course of the course of the division’s investigation, a number of of the principal rivals, together with Google, Apple and Microsoft, made commitments regarding their SEP licensing insurance policies. The division’s considerations concerning the potential anticompetitive use of SEPs was lessened by the clear commitments by Apple and Microsoft to license SEPs on truthful, affordable and non-discriminatory phrases, in addition to their commitments to not search injunctions in disputes involving SEPs. Google’s commitments have been extra ambiguous and don’t present the identical direct affirmation of its SEP licensing insurance policies.

“In mild of the significance of this business to shoppers and the complicated points raised by the intersection of the mental property rights and antitrust regulation at challenge right here, in addition to uncertainty as to the train of the acquired rights, the division continues to watch using SEPs within the wi-fi system business, notably within the smartphone and pc pill markets. The division won’t hesitate to take applicable enforcement motion to cease any anticompetitive use of SEP rights.”

BACKGROUND

Google/ Motorola Mobility

On Aug. 25, 2011, Google entered into an settlement to accumulate Motorola Mobility, a producer of smartphones and pc tablets and the holder of a portfolio of roughly 17,000 issued patents and 6,800 purposes, together with a whole lot of SEPs related to wi-fi units that Motorola Mobility dedicated to license via its participation in SSOs.

Rockstar Bidco

Rockstar Bidco, a partnership that features, amongst others, RIM, Microsoft and Apple, was shaped to accumulate patents on the June 2011 Nortel chapter public sale, and to license and distribute them to sure companions. Nortel’s portfolio of roughly 6,000 patents and patent purposes consists of many SEPs that Nortel dedicated to license by way of its participation in SSOs and which are related to wi-fi units (the Nortel SEPs).

Apple/Novell

Apple additionally proposes to accumulate patents held by CPTN Holdings LLC, previously owned by Novell, following CPTN’s acquisition in April 2011 of these patents on behalf of Apple, Oracle Company and EMC Company. As a member of the Open Invention Community (OIN), Novell dedicated to cross-license its patents on a royalty-free foundation to be used within the open supply “Linux system,” an outlined time period within the OIN.

Aggressive Panorama

Google, Apple, Microsoft and RIM have every developed cellular working methods for smartphones and tablets. Apple and RIM manufacture and promote the smartphones and tablets that run on their proprietary cellular working techniques. In distinction, Microsoft licenses its proprietary cellular working techniques, Home windows Telephone 7 and Home windows Cellular, to non-affiliated wi-fi handset unique gear producers (OEMs). Google, in flip, sponsors Android, a cellular working system that it distributes to OEMs with out financial cost underneath an open supply license. These working techniques present platforms for quite a lot of services provided by competing handset and pill producers, in addition to, software builders.

On the finish of 2011, Google’s Android accounted for about forty six % of the U.S. smartphone working system platform subscribers and Apple’s iOS was utilized by about 30 % of subscribers. RIM and Microsoft accounted for about 15 % and 6 % of the share of smartphone subscribers, respectively.

Apple’s iPad is the main pill out there, though the lately launched Android-based mostly tablets are quickly gaining share. So far, tablets operating RIM’s and Microsoft’s working methods have a minimal presence within the market.

The Significance of Normal Setting within the Wi-fi Business

Immediately’s wi-fi system business, which incorporates smartphones and tablets, depends on complicated working methods that permit seamless interplay with wi-fi communications applied sciences whereas offering audio, video and pc functionalities.

To facilitate seamless interoperability, business individuals work by means of SSOs collectively to develop technical requirements that set up exact specs for important elements of the know-how. For instance, wi-fi units sometimes implement a big variety of telecommunication and pc requirements, together with mobile air interface requirements (e.g., 3G and 4G LTE requirements), wi-fi broadband applied sciences (e.g., WiFi and WiMax) and video compression applied sciences (e.g., H.264). As with different industries, these requirements facilitate compatibility amongst merchandise and supply shoppers with a wider vary of merchandise and capabilities than would in any other case be out there.

Typically, many applied sciences adopted by the SSOs fall inside the scope of present patents or patent purposes. As soon as a patent is included in a regular, it turns into important to the implementation of that normal, thus the time period “Normal Important Patent.” After business members make complementary investments, abandoning the usual may be extraordinarily pricey. Thus, after the usual is about, the patent holder might search to extract a better cost than was attributable to the worth of the patented know-how earlier than the usual was set. Such conduct can distort innovation and lift costs to shoppers . A comparable hurt may additionally come up in conditions outdoors of the SSO context the place a patent holder’s prior actions, reminiscent of open supply commitments, lead others to make complementary investments (See U.S. Division of Justice and Federal Commerce Fee, Antitrust Enforcement & Mental Property Rights: Selling Innovation and Competitors, April 17, 2007 at 35-6).

Most SSOs subsequently require the house owners of patents important to the proposed normal which are collaborating within the SSO’s commonplace-setting actions to make disclosure and licensing commitments with respect to their important patents. These commitments are meant to scale back the next inappropriate use of the patent rights at situation, and thus forestall disputes that may inhibit innovation and competitors. One com mon licensing requirement is to require SSO members to decide to license patented applied sciences important to a regular on affordable and nondiscriminatory (RAND) phrases (for SSOs based mostly in america) or on truthful, affordable and nondiscriminatory (FRAND) phrases (for SSOs based mostly outdoors the USA) (collectively F/RAND). In apply, nevertheless, SSO F/RAND necessities haven’t prevented vital disputes from arising in reference to the licensing of SEPs, together with actions by patent holders looking for injunctive or exclusionary aid that would alter aggressive market outcomes.

ANALYSIS

The division’s investigations relating to the acquisitions of the Motorola Mobility and Nortel SEPs targeted on whether or not the buying companies would have the motivation and skill to take advantage of ambiguities within the SSOs’ F/RAND licensing commitments to carry up rivals, thus stopping or inhibiting innovation and competitors (The division’s evaluation was restricted to SEPs encumbered by F/RAND commitments). Such maintain up might embrace elevating the prices to rivals by demanding supracompetitive licensing charges, compelling potential licensees to grant the SEP holder the best to make use of the licensee’s differentiating mental property, charging licensees the whole portfolio royalty fee when licensing solely a small subset of the patent holder’s SEPs in its portfolio, or looking for to stop or exclude merchandise working towards these SEPs from the market altogether. On this evaluation, the crucial challenge is whether or not the patent holder has the motivation and skill to carry up its rivals, notably by way of the specter of an injunction or exclusion order. The division’s evaluation targeted on how the proposed transactions may change that incentive and skill to take action.

The division concluded that every of the transactions was unlikely to considerably reduce competitors for wi-fi units. With respect to RIM’s and Microsoft’s acquisition of Nortel patents, their low market shares in cellular platforms would probably make a technique to hurt rivals both by means of injunctions or supracompetitive royalties based mostly on the acquired Nortel SEPs unprofitable. Due to their low market shares, they’re unlikely to draw a enough variety of new clients to their cellular platforms to compensate for the misplaced patent royalty revenues. Furthermore, Microsoft has cross-license agreements in place with nearly all of its Android-based mostly OEM rivals, making such a technique even much less believable for it.

Apple’s and Google’s substantial share of cellular platforms makes it extra probably that because the house owners of further SEPs they might maintain up rivals, thus harming competitors and innovation. For instance, Apple would possible profit considerably by way of elevated gross sales of its units if it might exclude Android-based mostly telephones from the market or increase the prices of such telephones by means of IP-licenses or patent litigation. Google might equally profit by elevating the prices of, or excluding, Apple units due to the revenues it derives from Android-based mostly units.

The precise transactions at situation, nevertheless, will not be more likely to considerably reduce competitors. The proof exhibits that Motorola Mobility has had an extended and aggressive historical past of looking for to capitalize on its mental property and has been engaged in prolonged disputes with Apple, Microsoft and others. As Google’s acquisition of Motorola Mobility is unlikely to materially alter that coverage, the division concluded that transferring possession of the patents wouldn’t considerably alter present market dynamics. This conclusion is restricted to the switch of possession rights and never the train of these transferred rights.

With respect to Apple/Novell, the division concluded that the acquisition of the patents from CPTN, previously owned by Novell, is unlikely to hurt competitors. Whereas the patents Apple would purchase are necessary to the open supply group and to Linux-based mostly software program particularly, the OIN, to which Novell belonged, requires its collaborating patent holders to supply a perpetual, royalty-free license to be used within the “Linux-system.” The division investigated whether or not the change in possession would allow Apple to keep away from OIN commitments and search royalties from Linux customers. The division concluded it might not, a conclusion made simpler by Apple’s dedication to honor Novell’s OIN licensing commitments.

In its evaluation of the transactions, the division took under consideration the truth that in the course of the pendency of those investigations, Apple, Google and Microsoft every made public statements explaining their respective SEP licensing practices. Each Apple and Microsoft made clear that they won’t search to stop or exclude rivals’ merchandise from the market in exercising their SEP rights.

Apple outlined its view of F/RAND in a letter to the European Telecommunications Requirements Institute (ETSI) on Nov. eleven, 2011, stating amongst different issues:

“A celebration who made a FRAND dedication to license its mobile requirements important patents or in any other case acquired belongings/rights from a celebration who made the FRAND dedication should not search injunctive aid on such patents. In search of an injunction can be a violation of the get together’s dedication to FRAND licensing.” (emphasis provided)

Microsoft said publicly on Feb. eight, 2012, amongst different issues:

“Because of this Microsoft won’t search an injunction or exclusion order towards any agency on the idea of these important patents.”

If adhered to in apply, these positions might considerably scale back the potential of a maintain up or use of an injunction as a menace to inhibit or preclude innovation and competitors.

Google’s commitments have been much less clear. Particularly, Google has said to the IEEE and others on Feb. eight, 2012, that its coverage is to chorus from in search of injunctive aid for the infringement of SEPs towards a counter-celebration, however apparently just for disputes involving future license revenues, and provided that the counterparty: forgoes sure defenses akin to difficult the validity of the patent; pays the complete disputed quantity into escrow; and agrees to a reciprocal course of relating to injunctions. Google’s assertion subsequently doesn’t instantly present the identical assurance as the opposite corporations’ statements in regards to the train of its newly acquired patent rights. Nonetheless, the division decided that the acquisition of the patents by Google didn’t considerably reduce competitors, however how Google might train its patents sooner or later stays a big concern.

For these causes the division continues to have considerations concerning the potential inappropriate use of SEPs to disrupt competitors and can proceed to watch using SEPs within the wi-fi gadget business, notably as they relate to smartphones and pc tablets. The division’s continued monitoring of how rivals are exercising their patent rights will be sure that competitors and innovation are unfettered on this essential business.

All three of the transactions spotlight the complicated intersection of mental property rights and antitrust regulation and the necessity to decide the right stability between the rightful train of patent rights and a patent holder’s incentive and skill to hurt competitors by way of the anticompetitive use of these rights.

Company Cooperation

In the course of the course of its investigation of the Google/Motorola Mobility transaction, the Division of Justice cooperated intently with the European Fee. As well as, the Division of Justice had discussions with the Australian Competitors and Shopper Fee, Canadian Competitors Bureau, Israeli Antitrust Authority and the Korean Truthful Commerce Fee. In reference to the investigations referring to the Nortel patent belongings, the division labored intently with states of New York and California and with the Canadian Competitors Bureau.

The Antitrust Division’s Closing Assertion Coverage

The division supplies this assertion underneath its coverage of issuing statements in regards to the closing of investigations in applicable instances. This assertion is restricted by the division’s obligation to guard the confidentiality of sure info obtained in its investigations. As in most of its investigations, the division’s analysis has been extremely reality-particular, and most of the related underlying information will not be public. Consequently, readers shouldn’t draw overly broad conclusions relating to how the division is probably going sooner or later to research different collaborations or actions, or transactions involving specific companies. Enforcement selections are made on a case-by-case foundation, and the evaluation and conclusions mentioned on this assertion don’t bind the division in any future enforcement actions. Steerage on the division’s coverage relating to closing statements is on the market at: www.usdoj.gov/atr/public/tips/201888.htm.

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