Operating under the name Rockstar Bidco, a consortium of tech companies including significant financing from Microsoft, Apple and Research In Motion, outbid then patent-deficient Google for the LTE-essential rich patent trove auctioned away by the now bankrupt Nortel’s creditors. While the creditors made off with $4.5 billion, Rockstar staffed up with former Nortel patent attorneys and licensing specialists.
In February, government regulators cleared the Rockstar licensing effort, now dubbed Rockstar Consortium, for takeoff after an investigation by the Antitrust Division of the Department of Justice found the transaction “unlikely to substantially lessen competition for wireless devices.” Noting RIM and Microsoft’s “low market share,” the DOJ concluded that a strategy imposing injunctions or “supracompetitive royalties” would ultimately prove unprofitable. This finding severely undermines the ill-informed, yet common complaint that patent owners raise consumer prices, harm competition or stifle innovation. Indeed, reduction in output of patented articles (whether through higher prices or enjoined production) threatens the patent licensor’s sole revenue stream. The DOJ appears to recognize this in approving Rockstar’s patent acquisition.
Rockstar recently opened its doors to Wired reporter Bob MacMillan, revealing a 32-person operation with 10 full-time reverse engineers. The engineers spend their days studying and disassembling products like routers and smartphones, looking for evidence demonstrating infringement of one or more of Rockstar’s several thousand patents. According to MacMillan, Rockstar claims to have “started negotiations with as many as 100 potential licensees.” Rockstar CEO John Veschi’s comments might as well be summarized into a new patent licensing corporate motto — go big, or go home:
Pretty much anybody out there is infringing. It would be hard for me to envision that there are high-tech companies out there that don’t use some of the patents in our portfolio.
Veschi may very well be correct. Furthermore, with 100 potential licensing candidates already contacted, the company’s first lawsuits are not very far away. Litigation between large patent holders and large enterprises often signals a breakdown in communication and negotiation between the parties. Large companies know that the legal fees become a minuscule component of the overall licensing fees paid. Moreover, an infringer may wear down a cash-poor patent owner into a compromise substantially below what the patent owner might otherwise accept. In this way, the infringer’s attorney fees become a potentially profitable bargaining tool.