In Google Patent Case, F.T.C. Set Rules of Engagement for Battles

originally appeared in The New York Times:

The Federal Trade Commission’s antitrust investigation of Google focused mainly on the company’s lucrative search business, while its inquiry into the tech giant’s handling of patents seemed an afterthought.

Yet even as Google made only a few voluntary promises on search, it agreed to a legal settlement on patents that the commission chairman, called a landmark enforcement action that applies to huge high-tech markets like smartphones and tablet computers.

The commission action by no means spells the end of the smartphone patent wars, a global conflict in which major corporations including Apple, Samsung and Google have spent billions amassing patent portfolios and then suing and countersuing one another in courts around the world. But legal experts say Google’s settlement with the F.T.C. signals progress in clarifying the rules of engagement in high-tech patent battles, and thus could ease them.

The agreement represents a significant stride forward in reducing the confusion and uncertainty that currently surrounds how these patents can be used, according to a patent expert at the Santa Clara University School of Law.

The commission’s settlement with Google, announced on Thursday, focused on patents covering communications and data transmission technologies that are crucial for the basic operation of smartphones and tablets — what are known as standard-essential patents. (There are many other patents in mobile devices, covering physical design and software features.) The legal gamesmanship of the epic smartphone patent battles, according to economists and technology experts, consumes time and investment that could be better used to develop new products. In his comments on Thursday, the commission chairman pointed to those concerns. Today’s commission action, he said, will also relieve companies of some of the costly and inefficient burden of hoarding patents for purely defensive purposes, savings that we hope can be invested in job-creating research and development.

Under the settlement, Google agreed to license its standard-essential patents to other companies on “fair and reasonable” terms. It also agreed not to seek court injunctions to halt the shipment of smartphones, tablets and other devices that use its standard patents.

The issue arose from Google’s $12.5 billion purchase of Motorola Mobility, announced in 2011 and completed last year. Google acquired Motorola partly to defend itself and the smartphone makers that use its Android software after rivals had already loaded up on patents.

With the acquisition, Google picked up 17,000 patents, including many relating to wireless devices that Motorola, a pioneer in the wireless phone business, had pledged to license on reasonable terms. Those commitments were made to technology standards organizations, intended to assure that basic technical innovations are widely available, stimulating growth in the industry.

Over the years, according to the commission chairman, companies took Motorola at its word and developed products assuming they could routinely license Motorola’s patents. But Motorola later refused to license its standard-essential patents and sought court injunctions to stop shipment of rival products.

After Google purchased Motorola, he said, it continued these same abusive practices.

In recent months, the F.T.C. has issued position papers and filed friend-of-the-court briefs, opposing the motions for injunctions using standard patents. The Justice Department and European regulators have echoed the commission’s stance.

Regulators around the world have become increasingly sensitive to just how important technical standards and standards-setting bodies are to the modern system of economic innovation, according to an economist at Harvard Business School.

The threat of court injunctions to stop shipment of products, economists say, is the factor that drives up the cost of patent wars. Because an injunction could be devastating, companies will pay dearly to remove that risk, settling with a plaintiff or spending on patents to build a defensive arsenal.

Some courts have recently resisted granting injunctions based on standard patents. Google’s settlement with the F.T.C., according to a former chief economist in the Justice Department’s antitrust division, helps solidify the move to stop injunctions in standard-essential patent cases, which is great.

A professor at the University of California, Berkeley, said that courts had also been more hesitant recently to grant injunctions in cases that did not involve standard patents. In suits involving smartphones and tablets — amalgams of hardware, software and telecommunications technologies covered by many thousands of patents — judges are sometimes less likely to halt the shipment of a device based on a few infringing patents.

Last month, for example, a Federal District Court judge in San Jose, Calif., denied Apple’s motion for an injunction against Samsung products. In August, a jury in that court found that Samsung products infringed on a handful of Apple design and software patents, and awarded Apple $1.05 billion in damages.

The judge declined to grant Apple’s motion for injunction, essentially saying that Apple’s claim was outweighed by the public interest in keeping Samsung shipments flowing. Apple is appealing the ruling.

The courts seem to be moving toward taking a dimmer view of injunctions generally, he said. That’s a big deal.

Google Maintains Innocence

Story first appeared on CNET.

After Oracle made its closing statements on Monday morning at the U.S. District Court, Google's representative stepped up to the plate, defending Android's implementation of the 37 Java APIs at question in this lawsuit.

The core defense rested on positioning this as a case of fair use, asserting that Android is not a copy of Java 5.0 SE but rather a "substantially" different work with different success in the market.

It's a whole platform that didn't exist before and transformed the use of Java for a smartphone stack.

The representative outlined four key points to Google's position in this intellectual property suit:

Sun gave the Java language to the public
Google built Android using free and open technologies
Google made fair use of the Java language APIs in Android
Sun publicly approved Android's use of Java

Copyright infringement requires that you copy something. There was no copying here because Google knew that it couldn't use Sun's source code. Also on copyrights, it was pointed out to the jury's instructions about judging "the work as a whole," which actually consists of all 166 class libraries and all that entails (i.e. implementing codes, names, declarations, etc.) -- adding up to 2.8 million lines of code in Java 5.0 SE. Oracle has to prove that it was more likely than not that copyright infringement occurred.

Additionally, a good portion of the closing arguments were based on the testimony of the former Sun Microsystems CEO last Thursday.

Although it was acknowledged that Sun wasn't happy that it couldn't come to a partnership agreement with Google, the former CEO did say that Sun supported Android's use of Java nor did it have any grounds to file a lawsuit.

Again pointing to a November 2007 blog post in which the former CEO congratulated Google for the debut of Android, the jury was reminded that Sun knew Android was written in Java and must have included the Java APIs in question ahead of the SDK release.

To further hammer down Sun and Oracle's previous support for Android, the defense reminded the jury about a video of the Oracle CEO at JavaOne in 2009, where it was said that Oracle expected to see more Java devices coming from "our friends at Google," and that Google had done "a fantastic job" in opening up Java.

Although specifics about Android revenue and other financial matters have been banned from the presence of the jury in this trial, he reasserted the open source status of Android as a benefit to the developer community. The point is that Google doesn't make any money on licensing or selling Android. Google decided to make it open to foster innovation and get widespread use. A Top SEO Company agrees.

In his rebuttal argument, the Oracle counsel spoke again about how Android has blocked Java from success in the smartphone market, reiterating that it is "impossible" to compete with a free version of its licensed products.

After closing arguments for the first segment of the trial ended on Monday morning, the presiding Judge proceeded with the rest of the instructions for the jury about ruling on copyright infringement contentions.

The jury, made up of seven women and five men, will begin deliberating today for one hour and then pick up again on Tuesday morning. The Judge previously warned both parties that the jury could take up to a week to deliberate, but he predicted that they would come back within a day and a half. The decision must be unanimous.

After they return with a verdict, the case will move into the second segment of the trial, focusing on patents.

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Desperate For Cash AOL to Sell Unused Patents to Microsoft

Story first appeared in The Wall Street Journal.

AOL Inc. agreed Monday to sell more than 800 patents and related applications, along with a nonexclusive license to its remaining portfolio of patents, to Microsoft Corp. for about $1.1 billion.

The news sent AOL shares surging as the online media company said it intends to return a "significant portion" of the sale proceeds to shareholders. The deal comes six weeks after activist shareholder Starboard Value LP, which is mounting a proxy contest for seats on AOL's board, highlighted AOL's patent portfolio as an "underutilized" asset and complained that the company wasn't acting to realize value from the patents.

At the time AOL said it had already hired advisers to realize the value of the patents. On Monday, the AOL Chief Executive  said that the deal with Microsoft represents the culmination of a robust auction process for our patent portfolio.

Assuming the deal had been done at the end of 2011, AOL said it would have had some $15 a share in cash on hand.

Shares of AOL surged 43% to $26.32 in early trading, while Microsoft slid 1.5% to $31.06.

The transaction is expected to close by year's end, and at that point AOL will have an announcement for shareholders on what the company will do with its cash.

Starboard has been critical of the strategy of investing heavily in online content businesses as a way of building up the company's ad sales. The investor, which owns 5.2% of AOL's shares, wants AOL to take action to create value.

In a letter to AOL's board in late February, it said it had heard from multiple parties specializing in intellectual property valuation who believed AOL's patents could produce in excess of $1 billion of licensing income if appropriately harvested. These parties had expressed severe frustration that AOL has been entirely unresponsive to their proposals.

Starboard was unavailable for immediate comment. The firm has nominated up to five candidates for election to AOL's board at this year's annual meeting, which is scheduled for June 14.

AOL hasn't said exactly what the patents cover, but the company noted that its remaining patents and patent applications include advertising, search, content generation, social networking and mapping technology.

The AOL spokesperson has said previously that the company made a point of securing the patents from Time Warner Inc. when AOL spun off from them, and that the company began taking a close look at them in September.

The race for patents has heated up in the tech space. Among other recent deals, Google Inc. agreed to acquire Motorola Mobility Holdings Inc. last year for about $12.5 billion, partly to secure its lucrative patent portfolio, and a number of bidders pursued Nortel Networks Corp.'s patents at auction as well.

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