Wired Tours Patent Trolling Company Founded by Microsoft, Apple

In January, Reason Science Correspondent Ronald Bailey wrote about a consortium of tech firms that included Microsoft and Apple paying $4.5 billion for a portfolio of thousands of patents. The purchase followed Google's snapping up of Motorola Mobility's 25,000 patents for $12.5 billion. As Bailey wrote at the time, the patent purchases were part of a complicated, expensive, and counterproductive "nuclear standoff" between various tech firms in a legal game of patent trolling deterrence.

Today Robert McMillan at Wired takes readers inside this patent cold war and the inevitable anti-innovation fallout. Microsoft, Apple, Research in Motion, Sony and Ericsson are putting those patents to use in a specialized company, called Rockstar Consortium:

The 32-person outfit has a single-minded mission: It examines successful products, like routers and smartphones, and it tries to find proof that these products infringe on a portfolio of over 4,000 technology patents once owned by one of the world's largest telecommunications companies.

When a Rockstar engineer uncovers evidence of infringement, the company documents it, contacts the manufacturer, and demands licensing fees for the patents in question. The demand is backed by the implicit threat of a patent lawsuit in federal court. Eight of the company's staff are lawyers. In the last two months, Rockstar has started negotiations with as many as 100 potential licensees. And with control of a patent portfolio covering core wireless communications technologies such as LTE (Long Term Evolution) and 3G, there is literally no end in sight.

Rockstar CEO John Veschi gives Wired the perfect quote to anybody wanting to see patent reform in the United States: "Pretty much anybody out there is infringing, I would think. It would be hard for me to envision that there are high-tech companies out there that don't use some of the patents in our portfolio." Rockstar hasn't filed any lawsuits as yet, but Veschi expects to.

Creating a special company entirely for the purpose of sniffing out any potential violations also helps protect the tech giants from some patent war consequences:

Rockstar is a special kind of company. Because it doesn't actually make anything, it can't be countersued in patent cases. That wouldn't be the case with Apple or Microsoft if they had kept the patents for themselves. And because it's independent, it can antagonize its owners' partners and customers in ways that its owner companies could not. "The principals have plausible deniability," says Thomas Ewing, an attorney and intellectual property consultant. "They can say with a straight face: 'They're an independent company. We don't control them.' And there's some truth to that."

And while these big boys are battling each other for market domination, the threat of patent suits or the possibility of unexpected licensing fees is keeping small, developing innovators from accessing America's consumer base. Julie Samuels of the Electronic Frontier Foundation hears from them regularly:

"The creation of these conglomerations of patents … what this does is create a barrier to entry for the little guy.  It makes it so much harder to break into the market if you are a creator or an innovator."

From our July 2010 issue, Matt Ridley, author of The Rational Optimist, explains how our modern patent system damages enterprise rather than advances it.