This post is by Steven C. Sereboff, partner at SoCal IP Law Group LLP.
Newswires on May 16, 2014 reported that Apple and Google have settled all of their current patent litigation (20 cases worldwide according to news reports). This isn’t really true, and some reporters mistook the settlement as a significant change in the Apple-Google relationship. However, this probably wasn’t Google’s settlement – it was probably Lenovo’s settlement. As often happens with patents and the press, the press seems to have misunderstood what is going on. These companies have not changed their views about patents. No, it was much simpler, and reflected in the adage, “the enemy of my enemy is my friend.”
The first error in reporting: Apple and Google were not in patent litigation. No, it was Google’s subsidiary, Motorola Mobility that was in litigation with Apple. The patent war started when Moto sued Apple for infringing a Moto patent. Google later bought Moto and inherited the Moto patent people and their war with Apple. The rest was just the ordinary outcome of Mutually Assured Destruction – missiles launching from wherever the silos happened to hold the patents. Google didn’t start this fight, and it was Moto patent people, not Google people (who hate patents), that were running the war with Apple. This was never really Google’s fight.
The second error: The reporters failed to appreciate the importance of Lenovo. Lenovo, a huge Chinese company which bought IBM’s laptop business several years ago, is now buying Moto. Lenovo surely was not buying Moto for its patent war with Apple. Just as it did with IBM’s Thinkpad business, Lenovo wants Moto for its brand, its technology and its distribution. Lenovo surely is not buying Moto to take over a bunch of patent litigation with Apple, especially after seeing that several years of litigation didn’t really benefit either side. As is typical in corporate acquisitions, Lenovo probably pressured Google to eliminate the risk, cost and distraction of the ongoing Apple litigation. Google, which clearly wants to get out of the handset business, is settling with Apple, just as it is probably closing out a host of other issues with the Moto business. Normally, when big companies settle patent cases, they cross-license their patents to avoid fighting again for a while. That didn’t happen here. Google and Apple did not cross-license. Instead, they agreed only to dismiss the litigation. This might leave Lenovo somewhat exposed to Apple’s patents, but one would expect that if Apple had good patents to assert against Moto, it would have done so. Thus, Lenovo in effect has an Apple license. Likewise, Apple doesn’t need a Google license. Apple’s real threat remains Samsung. Moto’s phones were never a serious threat to Apple, and Lenovo/Moto is much more of a market threat to Samsung than to Apple. Thus, releasing Moto from the patent wars helps Lenovo which, at least in the short term, will hurt Samsung a lot more than it might hurt Apple. Thus, “the enemy of my enemy is my friend.”
The third error: Nobody reported the Babbage decision, issued May 15, 2014. Babbage is an NPE (some might say patent troll) that sued a bunch of video game companies in September 2013 in the Eastern District of Texas. Judge Gilstrap’s opinion in those consolidated cases demonstrates the change of attitudes in the courts toward NPE litigation. For those of us with a history in the patent business, the AIA and court decisions in the last five years or so have significantly raised the stakes in NPE litigation. This shift has far more importance than the Apple and Moto settlement (except maybe for the litigators in those cases who have lost a great revenue stream).
In short, weaker patent cases have become less valuable. This impacts patent warriors like Apple and Moto, but it’s more significant to single-patent suits than to large portfolio owners who continue to have leverage from the economic burdens of scale. For those of us who have been assessing NPE case values for a long time, a lot of what we see looks more like potential liabilities, especially with the latest case law relating to fee shifting. This has resulted in a considerable shift in the market, albeit one that a lot of people have failed to appreciate.
This takes us back to the Babbage case. About one week before its patent expired, Babbage filed those lawsuits. Four months later, after Babbage had amended its complaint twice (which usually reflects a confused plaintiff), the defendants moved to dismiss. At the end of his analysis at page 4, Judge Gilstrap explained, “Even affording Babbage every possible benefit of the doubt, it has failed to allege more than a de minimis indirect infringement claim, which does not justify or support the use of this Court’s limited resources.” If this weren’t clear enough, the judge concluded at page 5, “Accordingly, Babbage is hereby ORDERED to appear [in two weeks] and show cause why sanctions should not be imposed in light of the above conduct.”
Some might downplay Judge Gilstrap’s holding because Babbage only alleged induced infringement, but that would miss the import of the decision. In the past, we became accustomed to seeing parties smacked in EDTX, but it was almost always defendants getting smacked. Many critics of EDTX argue that the judges welcomed patent suits to help the local economy. Regardless, when you see judges smacking a plaintiff, especially for something that they probably would have tolerated in the past, you need to pay attention. The patent business has never been static, and it is going through some rapid changes.
Look at the last ten years, and you see that the pendulum of patent power has shifted decidedly from patent owners to the accused infringers. As with any pendulum, first it slowed, then it paused, and then it started to move with increasing speed in the other direction. This pendulum is not linear, though. Like the massive pendulum in the Smithsonian Museum of Natural History, this one is sweeping in 3D space. Though it is moving away from where it was, the movement is more circular than linear. In other words, the future is not the exact opposite of the past. A lot of people don’t see this. Thus, a simple count of new patent suits might report that numbers continue to grow. As with most shifts in law and society, it takes time for things to trickle around. It will take time to see more Babbage-like decisions before people see that the pendulum has moved. After a few high profile fee awards, though, the word will spread, especially when the courts make the lawyers and their collaborators pay, and this seems inevitable.
On the other hand, the really strong cases remain valuable, and the lawyers that can win those cases are much, much more valuable. Patents now must survive a more critical court room, and probably several attacks in the USPTO, not to mention a panel of judges at the CAFC that are struggling with the pendulum’s swing. This means a greater investment into these cases, and a longer timeline where more can go wrong. Despite the weakening of the power of patents, the system can still work. Talented attorneys with good patent cases will continue to win, and fee shifting may even make these cases more valuable, as it should.
One can also hope to see companies like Apple and Google direct their resources into real benefits to society, like real innovation and also to giving some credit to the little guys that actually invented the wonderful technology that they later built.