Industry joint defense efforts against NPEs

By Borja Varela

Charter Communications Inc. v. Rockstar Consortium US LP, 14-cv-00055, U.S. District Court, District of Delaware (Wilmington)

On 17 January 2014 Charter Communications, Inc., (“Charter”), the fourth-largest cable operator in the United States, together with WideOpenWest Finance, LLC offering services under the name WOW! Internet, Cable & Phone, Knology, Inc., Cequel Communications, LLC doing business as  Suddenlink Communications, and Cable One, Inc. (collectively “Plaintiffs”) initiated legal actions against Rockstar Consortium US LP (“Rockstar”), Bockstar Technologies LLC (“Bockstar”), Constellation Technologies LLC (“Constellation”) and Spherix Incorporated (“Spherix”) (collectively “Defendants”) for breach of contract as a result of the Defendants’ refusal to honor their FRAND licensing obligations. The Plaintiffs sought various declaratory judgments by the Court, and damages for tortious interference and civil conspiracy (the “Complaint”).

Rockstar claims to hold the rights to over 4,000 patents acquired from the bankruptcy of Nortel Networks Corporation, Nortel Networks Inc., and various of their subsidiaries (collectively, “Nortel”) in Canada and the United States. Based on the information available on Rockstar’s website the portfolio was transferred for $4.5B to Nortel’s creditors, and established an initial set of founding licensees to the Rockstar portfolio. Except for EMC, the other five bidders for the portfolio are currently the main shareholders of Rockstar: i.e. Apple, BlackBerry (Research In Motion as was), Ericsson, Microsoft and Sony. The initial bidder, Rockstar Bidco, transferred part of the portfolio to Rockstar Consortium US LP, and this to Bockstar, Constellation and Spherix.

Rockstar directly, and also through Bockstar and Constellation, have initiated litigation against communications companies in the US to enforce various patents from the portfolio acquired from Nortel  (e.g. On December 11, 2013, Constellation filed a patent infringement lawsuit against Time Warner Cable Inc. in the Eastern District of Texas, Case No. 2:13-cv-1079).

The Plaintiffs are a group of leading broadband communications companies in the United States, with which, according to the Plaintiffs, the Defendants have refused to enter into good faith negotiations to license certain patents to them on a fair, reasonable and non-discriminatory basis (“FRAND”) according to the Complaint).

Further, the Plaintiffs argue that the Defendants have not identified all the patents in the portfolio that are subject to a potential license on FRAND terms or infringement and that part of those patents which have been identified are under royalty-free based agreements with Standard Setting Organizations (“SSOs”). The Plaintiffs state that some of their vendors have entered into these royalty-free agreements with SSOs and therefore Plaintiffs are implied licensees of these technologies.

In the Complaint it is held that Nortel has committed to license standard essential patents under FRAND terms as stated in Letters of Assurance, one of which is attached to the Complaint. Furthermore, the Complaint also asserted that Nortel participated actively in standards promulgated by SSOs including the Institute of Electrical and Electronics Engineers (“IEEE”), the International Telecommunications Union (“ITU”), the Internet Engineering Task Force (“IETF”), and the 3rd Generation Partnership Project (“3GPP”).

Pursuant to the allegations in the Complaint, Nortel also joined in the DOCSIS (i.e. Data Over Cable Service Interface Specification) patent pool under which participants to that pool grant to CableLabs and its members/sub-licensees (mainly cable operators), on a royalty-free basis, rights to any intellectual property owned by the participant to the pool to the extent that the practice of any DOCSIS specifications would infringe or otherwise utilize that property. DOCSIS specifications are intended for providing high-speed data service over cable networks, and were created by Cable Television Laboratories, Inc. (“CableLabs”), a non-profit consortium focused on the development of cable communications technologies.

The Plaintiffs allege that Rockstar has “misused and attempted to obtain exorbitant royalties from licensing the patents it purchased from Nortel” by means of avoiding the identification of all the relevant patents, “and instead broadly accusing companies of infringing the portfolio as a whole” (providing only an “exemplary” list of patents for evaluation); requiring the companies to sign non-disclosure agreements as a precondition to negotiating licensing agreements for the purpose of obtaining royalties in excess of its FRAND obligations; refusing to identify patents already licensed to vendors; and transferring essential patents to third parties in an attempt to obtain increased royalties and avoid its obligations to license the patents in the Defendants’ portfolio that are essential to standards on fair, reasonable and non-discriminatory (FRAND or “RAND”) terms.

In view of the foregoing arguments, the Plaintiffs request the Court to enter judgment against Rockstar by:

(i)    Finding that Rockstar is liable to the Plaintiffs for breach of contract in connection with the commitments entered into by Nortel with the SSOs;

(ii)   Declaring Rockstar’s licensing obligations with respect to its FRAND encumbered communications patents and the corresponding unenforceability of those patents if not offered for license on FRAND terms;

(iii)  Declaring the parties’ respective rights regarding the asserted communications technology portfolio;

(iv) Providing a declaratory judgment of license and exhaustion of patent rights whether implied in the royalty-free license under the DOCSIS patent pool or and/or exhausted with respect to Plaintiffs’ use of vendor products or services;

(v)  Declaring non-infringement by Plaintiffs of Rockstar patents whether these have been identified or not;

(vi) Finding that Rockstar, Bockstar, Constellation and Spherix have misused their patents and are liable to the Plaintiffs for entering into an illegal conspiracy (i.e. by Rockstar selling off standard essential patents to other entities with an active plan to seek royalty rates in excess of FRAND principles), and that Bockstar and Constellation are liable to the Plaintiffs for tortiously interfering with one or more contracts to which Plaintiffs are third-party beneficiaries, in all these cases assessing corresponding damages.

Allegations and actions against non-practising entities (NPEs) and defenses to potential patent infringement claims based on FRAND principles are also not new in Europe. Its use will probably increase when the unitary patent and the unified patent court are in place (Regulation (EU) No 1257/2012; Council regulation (EU) No 1260/2012). When this happens, there may be potential risks of legal injunctions which are enforced across a much wider territory.

However, the question remains as to whether competing industry players in Europe, specifically those in the telecommunications market, will in their common interest, as in this case, form joint defense alliances or their alternatives. There are also questions as to whether those companies will set up their own patent licensing entities for defensive (and even monetization) purposes, or rely on the support of existing defensive patent aggregators (which are created in response to NPEs or “patent trolls” solely focused on defending against patent litigation and the enforcement of patent rights).