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Patent Deals Bring Antitrust Attorneys to the Table
With patent portfolios fetching millions of dollars these days, a new player has arrived on the patent acquisition scene: the antitrust attorney.
No stranger to the pains of fighting drawn-out antitrust battles, Microsoft Corp. hired competition lawyers from two law firms when it sold a chunk of AOL's patent portfolio to Facebook Inc. this past week for just over half a billion dollars.
Mega patent deals like this may be helping companies like Facebook build their defenses against a barrage of infringement suits from competitors and patent trolls alike. But they're also subjecting big tech companies already in antitrust regulators' crosshairs to even more scrutiny. And that means patent and antitrust lawyers in Silicon Valley are working together in ways few imagined just a few years ago.
"Antitrust issues have focused regulators' attention on the tech industry in a way they never have before, and patents are a big reason for that," said Mark Lemley, director of Stanford's Program in Law, Science and Technology, and a patent attorney at Durie Tangri.
Lawyers in the patent world now have to grapple with antitrust issues much like M&A attorneys, Lemley said. There were the usual IP and corporate lawyers advising both sides on Microsoft's patent sale to Facebook.
But Microsoft also hired Covington & Burling's Miranda Cole in Brussels to advise on antitrust issues, along with a team from Cadwalader, Wickersham & Taft in Washington, D.C., led by Charles "Rick" Rule, head of the firm's antitrust group. Facebook declined to comment on whether it received antitrust advice, too.
Tech companies are not only hiring outside counsel to vet potential acquisitions and persuade regulators that their multimillion-dollar patent deals won't stifle competition. They're beefing up their competition expertise in house, too.
Google Inc. has hired several in-house competition lawyers with IP experience, including senior patent counsel Suzanne Michel, a former chief IP counsel at the Federal Trade Commission, after paying $12.5 billion in August for Motorola Mobility Inc. and its portfolio of 17,000 patents.
One of the biggest challenges is reconciling the inherent tension between the patent and antitrust legal worlds, lawyers and patent experts said. While patent law confers what many consider monopoly rights on inventors, antitrust law makes it clear that patents can't be used to put competitors out of business.
"The relationship has always been strained," said Ronald Laurie, who owns the IP consulting firm Inflexion Point Strategy in Palo Alto. "And the line when patent misuse crosses over into the antitrust realm has always been fuzzy."
So when a company forks over millions of dollars for a huge patent portfolio, it's treated like a merger by antitrust regulators and has to go through the same approval process as any other big acquisition.
That hasn't stopped the antitrust allegations from flying. Tech companies have asked the U.S. Department of Justice as well as European regulators to investigate competitors for using patents in ways that violate antitrust law.
Though they've launched some investigations, so far European and U.S. antitrust regulators haven't done anything to stop or halt the acquisitions. After investigating Google's acquisition of Motorola Mobility and the purchases, by two different consortia of tech companies, of Nortel Networks Inc. patents for $4.5 billion and Novell patents for $450 million the Justice Department concluded in February that the deals were "not likely to significantly change existing market dynamics."
But the department also warned that it would continue to monitor how patents are used in the wireless device industry, particularly in the smartphone markets. Of particular interest are standards-essential patents. These are patents that any company in the same industry would have to infringe, or license, to carry out a basic function, such as a patent that covers how smartphones connect to a wireless network.
A company could take down rivals just by refusing to license such patents. To win the Justice Department's approval, Google, Apple Inc. and Microsoft all had to agree to license their standard-essential patents, not use them to knock out the competition.
"Because you have to get permission in advance, these patent deals really give law enforcement a big leg up in trying to make antitrust problems go away," said patent litigator David Healey, a partner at Fish & Richardson in Houston.
But there are still many unanswered questions about what is appropriate behavior when it comes to enforcing these particularly valuable patents, said Jorge Contreras, an associate law professor at American University and former IP partner at Wilmer Cutler Pickering Hale and Dorr. For example, can companies seek to block sales of products they claim are infringing standard-essential patents?
The courts have yet to definitively weigh in on such matters, and to make things more confusing, courts can often come to different conclusions than regulators.
"It's unclear just what level of commitment you have to make when you're got one of these patents," Contreras said. "The contours remain to be seen."
Several antitrust suits related to standard-essential patents are making their way through the courts, which could provide some clarity. In February, for example, Apple took the unusual step of suing Motorola Mobility in federal court in San Diego, claiming that Motorola's assertion of standard-setting patents against Apple in Germany violates a licensing agreement..
Lawyers said they expect more antitrust lawsuits related to these recent mega patent buys will be filed in the coming months. They may not be resolved, however, until the technology at issue is long out of date.
"We're just at the beginning," said Charles Crompton, a litigation partner at Latham & Watkins in San Francisco. "It's hard to believe there won't be a fair amount of litigation. We're talking about big competitors, and obviously very valuable technology."
This article originally appeared in The Recorder.