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Smartphone Patent Battles Hurting Consumers

Aaron Pressman
The Exchange
U.S. Supreme Court

The Rockstar Consortium, a limited partnership formed by Microsoft (MSFT), Apple (AAPL) and other technology companies to hold the rights to thousands of patents, filed lawsuits against Android phone makers this week, marking the latest anti-consumer conflagration ignited by a broken U.S. intellectual property system.

In lawsuits filed against Samsung Electronics (005930.KS), HTC (2498.TW) and five other Android phone manufacturers, Rockstar is seeking monetary damages and injunctions to stop alleged violations of seven patents, Reuters reported. If granted, an injunction typically results in a ban on sales of offending phones and tablets. A separate lawsuit against Google (GOOG) seeking only monetary damages claims the company's search engine violates seven other Rockstar patents.

The rights at issue were part of a 6,000-patent portfolio purchased at a bankruptcy auction of Nortel assets by the Rockstar group for $4.5 billion.

The number of legal battles in the lucrative smartphone market has exploded in recent years, thanks to an excess of broadly written software patents. By some estimates, as many as 250,000 U.S. patents apply to smartphones.

"Too many patents"

“The problem is really that too many patents with broad and vague claims are floating around in the marketplace,” says American University law professor Jorge Contreras.

Consumers end up getting hurt in two ways, explains Julie Samuels, a senior staff attorney at the non-profit Electronic Frontier Foundation. The costs of expensive litigation will be passed on to consumers in the form of higher prices or reduced services, she notes. And companies are wasting time and resources fighting in court instead of innovating and making even better products.

“This is just a big proxy for competition,” Samuels says. “It should be happening in the marketplace, not in the courts.”

The legal battles have also led to limits on sales of certain models around the world or the removal of useful features. Apple was barred from sending customers in Germany notifications of arriving emails and HTC had to remove features from its phones due to patent lawsuits.

The U.S. Department of Justice approved the Nortel patent deal in February 2012. The buying companies committed to seek licensing agreements, not lawsuits, for patents considered essential to the industry, the DOJ said at the time.

But Rockstar may not be bound by those promises. “When these companies transferred their patents to Rockstar, Rockstar said that it was not bound by such promises,” Rutgers School of Law professor Michael Carrier says. “We're now seeing the results of what happens when such crucial promises can so easily be avoided.”

Microsoft and Apple did not respond to requests for comment about the lawsuits. Google declined to comment.

Google was the losing bidder for the Nortel portfolio, a fact Rockstar cites in its lawsuit to bolster the validity of its claims. “Despite losing in its attempt to acquire the patents-in-suit at auction, Google has infringed and continues to infringe the patents-in-suit,” the lawsuit says.

Still, some believe that Nortel would have asserted the patents in the same way if it had not gone bankrupt. “It's not realistic to think that everything would have been friendly if Rockstar hadn't bought the portfolio,” says American professor Contreras. “Nortel was pretty ruthless when it needed to be.”

The current battles will likely take years, and many millions of dollars to play out. This is money and attention that likely could be much better spent improving the technology instead.

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