The Prior Art

With $4.5 Billion Bid, Group Led by Apple and Microsoft Claims Nortel Patents

In a patent auction unprecedented in size and scope, a consortium of high-tech heavyweights banded together to buy Nortel Networks Corporation's trove of more than 6,000 remaining patent assets for a record-shattering $4.5 billion.

The winning bidder, a team of six tech companies that called itself Rockstar Bidco LP, consists of Apple Inc., Microsoft Corp., Research in Motion Ltd., Sony Corp., Ericsson AB, and EMC Corp. The consortium will take control of the patents, which cover everything from online search and tablet computers to social networking and 4G LTE mobile technology, pending approval from U.S. and Canadian bankruptcy courts.

Google, the only contender whose identity was known when the auction kicked off on Monday, came away empty-handed. The search behemoth, eager to ward off would-be patent infringement plaintiffs and bulk up its relatively modest patent portfolio, had entered into a “stalking horse” agreement with Nortel to supply the minimum auction bid at $900 million.

Google was advised on the bidding process by lawyers at Wachtell, Lipton, Rosen & Katz, including lead counsel Philip Mindlin, corporate partners Adam Emmerich and Benjamin Roth, antitrust partner Ilene Gotts, and restructuring and finance partner Gregory Pessin.

"This outcome is disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition," said Kent Walker, Google's senior vice president and general counsel, in a statement. "We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers."

Cleary Gottlieb Steen & Hamilton managed the auction for Nortel, which took place at the firm's New York office from June 27 through June 30. Leading the Cleary team on the bankruptcy aspects were partners Lisa Schweitzer and James Bromley. Partners Paul Shim and Paul Marquardt provided M&A advice, partner Craig Brod assisted on corporate matters, and counsel Daniel Ilan helped on IP matters. Partner Jeremy Calsyn provided antitrust advice. (All are in New York except Marquardt and Calsyn, who are in Washington, D.C.)

David Berten, whose Chicago-based Global IP Law Group was selected by Nortel to advise it on monetizing its patents, noted that the $4.5 billion selling price was unprecedented. "I don't know of any other stand-alone patent sale that's been higher than a billion dollars," he says.

Ericsson, which contributed $340 million to the transaction, was represented by Paul, Weiss, Rifkind, Wharton & Garrison partners Marilyn Sobel, Stephen Shimshak, Peter Rothenberg, Joseph Simons, Charles Googe Jr., and Lawrence Witdorchic, according to the firm.

Apple was advised on the auction by lawyers at Weil, Gotshal & Manges, including partners Marcia Goldstein, Kyle Krpata, and Ronit Berkovich, according to a person connected to one of the other firms involved in the auction.

No further information on which firms advised the other members of the winning consortium was available as of Friday afternoon.

Many observers expected Microsoft to stay on the sidelines given its position that existing licensing agreemens with Nortel already gave it access to the patents on the block. Along with several other companies, including Hewlett-Packard Co. and Nokia Corp., the software giant had filed objections to the auction before the U.S. Bankruptcy Court in Delaware earlier this month. Those objections have yet to be resolved.

But Berten says that it's not unusual for licensees to become buyers--an opportunity that Microsoft apparently didn't want to pass up. "Lots of times there are advantages to owning patents that a licensee doesn't have," he says. "They can do their own licensing, for example."

A hearing on the auction results is scheduled for July 11 in Delware bankruptcy court. Should the court bless the outcome, the deal is expected to close in the third quarter of this year.

 

 

Supreme Court Rules Against Microsoft in i4i Case

By Andrew Goldberg

In a unanimous decision that won't be well-received by tech industry heavyweights, the U.S. Supreme Court ruled this morning against Microsoft in the closely watched Microsoft v. i4i case, rejecting the software giant's argument to lower the evidentiary requirement to invalidate a patent.

The decision, which upholds the $290 million verdict against Microsoft won by the small Toronto-based i4i software company in the Eastern District of Texas, solidifies existing precedent and leaves intact the 28-year-old standard applied by the Federal Circuit in patent infringement cases.

"Congress specified the applicable standard of proof in 1952 when it codified the common-law presumption of patent validity," Justice Sonia Sotomayor wrote for the Court. "Since then, it has allowed the Federal Circuit's correct interpretation of §282 to stand. Any recalibration of the standard of proof remains in its hands." [ Download Microsoft v. i4i Supreme Court Decision]

Thomas  G. Hungar, a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher, argued the case for Microsoft.  Seth Waxman, a partner in the Washington, D.C. office of Wilmer Cutler Pickering Hale and Dorr represented i4i, which was represented at trial by McKool Smith and before the U.S. Court of Appeals for the Federal Circuit by Finnegan, Henderson, Farabow, Garrett & Dunner. Microsoft was represented at trial and before the Federal Circuit by Weil, Gotshal & Manges.

Microsoft, along with such heavy-hitting amici as Google, Apple, Verizon, and HP, had advocated for the adoption of the lower preponderance standard in patent cases, arguing that the heightened standard insulated "bad patents" from invalidity challenges and stifled innovation. The Obama administration backed i4i, which warned that a lower standard would too easily allow juries to overturn the wisdom of the experts at the PTO. Lower the standard for invalidating a patent, Microsoft and its allies argued, would level the playing field to give patent infringement defendants a fairer shake in litigation.

But the Supreme Court said it was up to Congress to weigh such considerations. "We find ourselves in no position to judge the comparative force of these policy arguments," wrote Sotomayor, adding, "Congress has amended the patent laws to account for concerns about 'bad' patents, including by expanding the reexamination process to provide for inter partes proceedings. Through it all the evidentiary standard adopted in §282 has gone untouched."

The legal battle between the world's largest software maker and i4i (which stands for "infrastructures for information") began in 2007 when i4i sued Microsoft for infringing its patented XML editing feature in Microsoft Word. Microsoft, the jury found, willfully infringed i4i's patent when it installed its own XML editing features in Word 2003. The six-day trial in Tyler, Texas resulted in a $290 million verdict for i4i, which, like the company's patent, was later upheld by the Federal Circuit.

Microsoft, which was also permanently enjoined by the district court from selling versions of Word that infringed i4i's patent, has since removed the disputed features from its software. Now, the software giant will have pay the damages.

 

 

 

 

 

 

Patent Litigation Weekly: So What Do E.D. Texas Jurors Really Think?

This week: The Prior Art returns after its winter blogging break. As Microsoft gets set to scrap software found to infringe a Canadian company's software, The Prior Art discusses the case with three of the eight jurors whose verdict helped put the software giant in this predicament.

As of Monday—thanks to a permanent injunction issued in August by Judge Leonard Davis of the Eastern District of Texas and upheld last month by the Federal Circuit Court of Appeals—Microsoft Inc. must stop selling any version of Microsoft Word 2007 or Microsoft Office 2007 that includes a custom XML editor found to infringe a patent held by a small Canadian software company called i4i, Inc.

It’s not every day that such a well-known product has to be modified—or possibly removed from store shelves—because of a patent dispute. Indeed, the U.S. Supreme Court made getting such an injunction in a patent case extremely difficult with its landmark eBay v. MercExchange ruling in 2006.

Microsoft isn’t giving up the court fight over the patent at issue just yet. On Friday, the company’s legal team, led by Matthew Powers of Weil, Gotshal & Manges, filed a petition with the Federal Circuit asking for a rehearing en banc. Powers didn't return calls for this story. Earlier coverage on i4i's trial win, post-trial action, and Federal Circuit win is available from the AmLaw Litigation Daily.

Patent Litigation Weekly (April 6-10)

This week: The empire strikes back--Cisco Systems and Citibank file counter-suits against the patent holders making claims on videoconferencing and check-imaging, respectively; a defunct company with a less than stellar track record in the patent lawsuit business keeps filing; and a familiar player with a new name in E.D. Texas.

• Cisco Systems, Inc. v. Teleconference Systems, Llc Et Al. 09-cv-01550, N.D. California.

Teleconference Systems is a shell company set up by Acacia Research Corp., the Orange County-based patent-holding company that has, by one estimation, filed more patent suits than any other. Teleconference Systems was set up to enforce the 6,980,526 patent, which is related to videoconferencing; the patent is owned by Margalla Communications, a consulting company in Woodside, California, which presumably will share in any licensing booty Acacia wins.

On March 27, Teleconference filed its first patent lawsuit in Delaware, alleging that several companies in disparate industries have infringed the '526 patent. Teleconference is represented by Anthony Simon of The Simon Law Firm in St. Louis (formerly Simon Passante).

eBay: punished in Paris, exonerated in Manhattan

The long-awaited Tiffany v. eBay decision came down today—a big defense win for eBay. Judge Richard Sullivan's opinion makes clear that the onus for finding counterfeit goods is on the mark-holder, not the market-maker. His opinion comes just two weeks after a French court made the opposite finding, holding eBay responsible and ordering the company to pay more than $60 million.

In the New York case, the court ruled that eBay's use of the Tiffany marks is "nominative fair use."

An oft-overlooked aspect of both of these cases: they aren't only about fake goods. Both Louis Vuitton and Tiffany exercise tight control over all of their sales; not only do they fight counterfeiters, they also take action to control legitimate markets for new and used goods. The French decision against eBay, which some called a "hometown verdict," wasn't just about fakes; it was about control of the marketplace for the real goods. MarketWatch columnist Therese Poletti notes that eBay was found guilty of "unauthorized sales of certain authentic LVMH perfumes" including Kenzo, Guerlain, Dior and Givenchy, which were sold outside the "approved" channels—and that, she writes, "reeks of protectionism."

In his decision, Judge Sullivan makes it clear that doesn't fly stateside. When it comes to secondary markets, luxury goods makers can't have total control. He writes:

While rights holders such as Tiffany may have obvious economic incentives to curtail the sale of both counterfeit and authentic goods on the Internet — after all, every sale of Tiffany jewelry on eBay potentially represents a lost sales opportunity via Tiffany’s own authorized distribution channels — the law provides protection only from the former, not the latter.  Clearly, eBay and other online market websites may properly promote and facilitate the growth of legitimate secondary markets in brand-name goods.

Selected early responses: Legal Pad quotes Stanford's Mark Lemley, who writes that "the U.S. has a legal system that respects and encourages the development of the Internet, and France, so far, does not.” Santa Clara's cyberlaw expert, Eric Goldman, calls the case "a nice clean win" for online service providers who haven't known what to do about trademark takedown notices; and adds that "the battleground might just shift to the Second Circuit or Congress." More coverage: Law.com, WSJ, NYT, CNET, AP.

Tiffany Inc. v. eBay Inc., 04-cv-04607, S.D. New York, was filed in 2004 and went to a week-long bench trial (no jury) on November 13, 2007. Tiffany was represented by Arnold & Porter; eBay by Weil, Gotshal & Manges. 

Photo: Flickr/liewcf
 

Patent-holders' next target: medical device makers?

I reported a few weeks ago that following two big verdicts against Boston Scientific, patent-holding company Acacia Research Corporation filed a lawsuit in the medical-device area. Acacia subsidiary Cardio Access LLC filed a patent infringement lawsuit in East Texas against Boston Scientific, Medtronic, and Johnson & Johnson. Those three companies have fought patent battles in U.S. courts with regularity over cardiac stent technology.

(For more on that read "Keeping Arteries Cleared and the Courts Clogged," NYT Oct. 2007.)

Yesterday, Cardio Access dropped that lawsuit and re-filed in the same district, adding a fourth defendant, California-based Edwards Lifescience Corp. Same technology at issue, U.S. Patent No. 5,254,097, which relates to certain kinds of catheters and cannulae used in heart surgery. 

Cardio Access is represented by Texas-based Nelson Bumgardner Casto PC. Johnson & Johnson was represented by Sidley Austin in the first Cardio Access lawsuit; other defendants have not yet named counsel. I put calls in to both Acacia and Nelson Bumgardner but haven't heard back yet.

Acacia, based in Newport Beach, Calif., mostly acquires patents in the high-tech area, but it has bought in to a few medical areas, purchasing patents related to purifying plasmid DNA products (pdf), heated surgical blades (pdf), and recently some patents alleged they say to read on latharoscopic surgery (pdf). According to another press release, the company appears to have acquired what sounds like the Cardio Access technology (pdf) in January—one month before Boston Scientific started its $750 million losing streak.

For Acacia, that has to look like good timing. But it's worth noting that even after the big losses, BoSci's stock price has held steady. Acacia, meanwhile, has had its stock price tumble by nearly 75 percent since November, when it lost its first jury trial to a team led by Weil, Gotshal litigator Matt Powers.