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Google Lawsuit Reveals Patent Monetization Strategies Of BT And Goldman Sachs

Suffolk Technologies, a Delaware LLC, accused AOL and Google of infringing patents–including US Patent 6,081,835–through the use of Google AdWords and AdSense.  A lawsuit filed in June 2012 explained that the patents originated at British Telecom (BT), and a series of simultaneously recorded assignments shows the patents subsequently assigned to IPValue and then Suffolk.  According to an order issued on December 7, 2012 by Judge T.S. Ellis of the Eastern District of Virginia, IPValue was formed in 2001 by “a joint venture of Goldman Sachs, General Atlantic Partners and Boston Consulting Group.” (See also IPValue Investors).

Judge Ellis also detailed the economic terms of the assignment between BT and IPValue.  Specifically, BT is entitled to “50% of the ‘Adjusted Gross Proceeds’ derived from exploitation of the ‘835 Patent, except ‘that, where there is a sale of any [patent] during the first twelve (12) months, [BT] will receive 90% of the Adjusted Gross Proceeds received from such a sale.'” In other words, IPValue had a year to try to sell the patent in exchange for a 10% commission on the sale’s profit, or otherwise exploit the patent through licensing.  By transferring the patent to a wholly-owned subsidiary (Suffolk) and bringing suit against AOL and Google, IPValue’s choice became evident.

However, Suffolk and IPValue’s ownership of the BT patent is not absolute. An additional measure protects the amount of Adjusted Gross Proceeds from which BT collects its share.  Judge Ellis explains that the assignment prohibits IPValue from retaining contingency counsel at rates higher than 20% of recoveries.  Further, under certain circumstances, BT obtains an “exclusive option” to re-acquire the patent for $10.  According to Judge Ellis’s order, “triggering events include: (i) the failure to meet initial performance requirements [and] (ii) the decision to cease exploiting the patents.”  By carefully structuring its contract, BT essentially employed IPValue as a ‘privateer’ to pursue patent enforcement on its own behalf in exchange for half of the profits.  The exclusive option clauses enable BT to recover from an inept enforcement campaign and reclaim the patents, allowing the company the option to pursue other monetization efforts.

AOL and Google challenged the BT-IPValue arrangement, claiming that the level of control BT maintained over the portfolio left Suffolk without “all substantial rights,” undermining its ability to bring a lawsuit.  That challenge failed when Judge Ellis found all of AOL and Google’s legal arguments unpersuasive.  According to Judge Ellis, the agreement left Suffolk with the “core rights” to practice and enforce the patent, as well as “all other substantial rights.” Meanwhile, BT retained only a non-exclusive license, rights to share in revenue, and certain policing mechanisms designed to protect that revenue share, while not amounting to substantial property rights.

The relationship between BT and IPValue apparently dates back to 2001, the same year IPValue was formed, suggesting the execution of a long-term IP monetization strategy.  IPValue’s other partners include Round Rock Research, the company that acquired patents from Micron under a variety of complicated circumstances.  Meanwhile, Goldman Sachs, part of the joint venture that created IPValue, continues to get involved in IP monetization, by financing Alcatel-Lucent based largely on its patents–the same patents RPX already failed to monetize.

In addition, the arrangement between BT, IPValue and Suffolk is precisely the type of business practice currently being discussed by the antitrust division of the Justice Department.  A workshop held on December 10 discussed the potential benefits and harms of specialized patent assertion companies and privateering.  Far more detail on the DOJ’s workshop is warranted, but suffice it to say that if they want to understand how privateers are engaged by large companies to enforce patents, the Suffolk case is one they will likely keep their eyes on.



One thought on “Google Lawsuit Reveals Patent Monetization Strategies Of BT And Goldman Sachs

  1. How can we get a copy of this order?

    Posted by Mike | December 13, 2012, 12:46 pm

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