This Lawsuit Is Make-or-Break Time for a $4.5 Billion Investment

An unlikely collection of tech veterans banded together in 2010 to buy bankrupt Nortel's patents for $4.5 billion. Three years later, we're about to find out if it was worth the money. The so-called Rockstar Consortium has filed patent infringement lawsuits against Android guru Google (NASDAQ: GOOGL  ) and seven of the largest Android handset designers.

The patent assault is no surprise to Google. Big G would probably not have spent $12.5 billion on Motorola Mobility if that deal hadn't come with its own weighty portfolio of mobile patents. For Google, the Motorola acquisition was only partly about playing an active role in the Android hardware market, and more focused on a defensive patent batch to use when Rockstar (and others) finally filed suit.

All of this becomes obvious when you consider who's behind the Rockstar vehicle. The outfit, run by former Nortel chief intellectual property officer John Veschi, is jointly owned by Microsoft (NASDAQ: MSFT  ) , Apple (NASDAQ: AAPL  ) , BlackBerry (NASDAQ: BBRY  ) , LM Ericsson, and Sony (NYSE: SNE  ) . That's three of Android's largest head-to-head competitors in the handset market plus two oddball outsiders.

The lawsuit markedly doesn't target Sony, because what's the point in essentially suing yourself? But companies that thought signing a license agreement with Microsoft might shield them from a Rockstar attack were sadly mistaken. Microsoft skims royalties from every sale of Samsung, ZTE, HTC, and LG handsets. All four of them sit in Rockstar's targets here. So I guess there's nothing wrong with double-dipping, right?

The old Nortel patents being weaponized here aren't strictly mobile technologies. The Google suit focuses on various details involved in returning search results and advertisements based on user input into a search engine. Suits against hardware specialists range from the sophisticated (call tracing techniques for Internet-based phone calls) to the bleeding obvious (notifying the user of incoming messages).

Apple has been pretty open about its desire to destroy Android and perhaps claiming its market-leading handset and tablet sales for itself. Microsoft loves anything that gives it a serious in on the mobile market, where Redmond's products haven't impressed. For BlackBerry, it's a struggle for survival where every penny counts. BlackBerry probably won't be a public company anymore by the time these lawsuits play out, going private or maybe even chopped up and sold in parts, just like Nortel. And of course, Sony seems to have bought itself some insurance against Rockstar suits by owning a chunk of the patent troll.

And a troll it is. Rockstar's operations consist of finding licensees and/or lawsuit targets for Nortel's patent portfolio. Patent lawsuit targets often strike back with countersuits, but Rockstar doesn't make or design anything so that defense doesn't look useful. Google's lawyers will have to get supremely creative to get any use out of their Motorola assets here. Microsoft, Apple, and friends get to fight this war by proxy, giving Google and its allies very few options for fighting back.

So settle down in a comfy chair with a bathtub of popcorn. This will take a while.

I smell a multi-year, knock-down, drag-out, fight-for-your-life battle that might go all the way to the Supreme Court or Congressional interventions before all is said and done. What happens here might change the legal framework around patents and their enforcement.

Add Google to your Foolish watchlist to keep an eye on the proceedings. We'll keep you posted for years to come.

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Read/Post Comments (5) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 02, 2013, at 7:11 PM, GaryDMN wrote:

    Troll? Not, even close, these companies are in the industry, not just any group holding patents. Patent violations are patent violations and open source violates too many patents to count.

  • Report this Comment On November 02, 2013, at 8:12 PM, kellenbmiller wrote:

    Google is the Evil they professed against. They should come clean. Not evil in my opinion. But definitely playing for themselves. At all expense just to get there own search more dominant.

  • Report this Comment On November 02, 2013, at 8:48 PM, nealdoughty wrote:

    "Android is stolen property"

    - Steve Jobs

  • Report this Comment On November 03, 2013, at 12:46 AM, HelpIsHere wrote:

    Fun with fiction!!!

  • Report this Comment On November 03, 2013, at 9:13 AM, TMFZahrim wrote:

    @GaryDMN, you'd be right if Microsoft, Apple et al took active part in this lawsuit. But they don't. If Google or any of the handset makers tries to countersue BlackBerry for example, you can bet that Rockstar will claim to be totally separate and focused on IP management, and Waterloo will totally back that claim up. Keep 'em separated so that the lawsuit targets don't have any way to fight back. And that, my friend, makes Rockstar a pure troll guarding the bridge to its backing companies.

    Anders

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