Tech firms ally to fight patent suits

The Wall Street Journal Europe

By Amol Sharma

30 June 2008

http://online.wsj.com/article/SB121478271751614435.html.

Several tech-industry heavyweights are banding together to defend themselves against patent-infringement lawsuits. Their plan: to buy up key intellectual property before it falls into the hands of parties that could use it against them, say people familiar with the matter.

Verizon Communications Inc., Google Inc., Cisco Systems Inc., Telefon AB L.M. Ericsson and Hewlett-Packard Co. are among the companies that have joined a group calling itself the Allied Security Trust, these people say.

One high-profile case that sent shivers through the tech industry was BlackBerry maker Research in Motion Ltd.'s $612.5 million settlement in 2006 with a small Virginia company, NTP Inc., which held patents related to wireless email delivery but had never produced a mobile-email device.

Also troubling for tech firms, a number of companies have emerged in recent years with a business model based on acquiring intellectual property and using it as leverage to extract royalties from operating companies. These companies, which critics call "patent trolls," look for patents that come on the market from companies going out of business, universities and individual inventors.

The Coalition for Patent Fairness, a group of technology and financial-services companies that has lobbied for patent legislation in Washington, says the number of patent-related lawsuits rose to nearly 2,500 through October of last year from 921 in 1990. The "trolls" aren't the only ones suing. Many companies, including Qualcomm Inc. and Rambus Inc., have been aggressive about enforcing their patents on their rivals.

The new Allied Security Trust aims to purchase patents that might otherwise be used to bring what they consider frivolous infringement claims against them. Companies will pay roughly $250,000 to join the group and will each put about $5 million into escrow with the organization, to go toward future patent purchases, the people familiar with the initiative said.

Tech companies have tried various maneuvers to protect themselves, including investing in Intellectual Ventures LLC, a patent-holding firm founded by former Microsoft Corp. executive Nathan Myhrvold. The companies provide money to help Mr. Myhrvold purchase patents, and he in turn grants them a license to his portfolio. But some in the tech industry fear that Mr. Myhrvold's venture, which has aggregated thousands of patents in areas such as networking and software, may itself become an aggressive patent enforcer down the road. Myhrvold has said litigation isn't part of his venture's strategy, but hasn't ruled it out.

To head off such concerns, companies in the new group will sell the patents they acquire after they have granted themselves a nonexclusive license to the underlying technology. "It will never be an enforcement vehicle," said the group's chief executive Brian Hinman, a former vice president of intellectual property and licensing at International Business Machines Corp. "It isn't the intent of the companies to make money on the transactions." He declined to confirm who the group's member companies are.

Ron Epstein, chief executive of patent brokerage IPotential LLC, says companies that aggregate intellectual property are a boon to individual inventors who otherwise struggle to make money from their work. Mr. Epstein, formerly director of licensing at Intel Corp., said any company should be free to enforce its patent rights, regardless of whether it produces any products or services. "That seems to me a distinction without a difference," he said.

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Don Clark contributed to this article.