Google Inc. v. Rockstar Consortium US LP et al

Filing 51

NOTICE by Google Inc. Notice of Filing of Motion to Stay or, Alternatively, to Transfer to the Northern District of California (Attachments: # 1 Exhibit A, # 2 Exhibit B - Part 1, # 3 Exhibit B - Part 2, # 4 Exhibit B - Part 3, # 5 Exhibit B - Part 4, # 6 Exhibit B - Part 5, # 7 Exhibit B - Part 6, # 8 Exhibit B - Part 7, # 9 Exhibit B - Part 8, # 10 Exhibit B - Part 9, # 11 Exhibit B - Part 10, # 12 Exhibit C)(Warren, Matthew) (Filed on 3/28/2014)

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The rock star

R&D operations, and with a smaller office
in Plano, Texas, Rockstar is home to a mix
of IP attorneys, technologists and engineers,
and transactions specialists. The job of
Veschi and his 40-strong team of largely
ex-Nortel employees is to generate a return
for the NPE’s owners from the 4,000 or
so patents that remain under their control
(approximately 2,000 other rights in the
original portfolio having been transferred
to one or other of the original consortium
members).
Over the course of two detailed
telephone interviews, Veschi explained how
they arrived at their current position, the
challenges that Rockstar faces and how he
views the NPE’s future, as well as the wider
environment within which it is operating.
He is excited by what lies ahead, but is
conscious that a changing regulatory world
could make his task harder – although far
from impossible. Further down the line, do
not be surprised to see Rockstar getting
into acquisitions, or even undertaking
privateering-style work for others. Veschi
is a man with a lot of plans. And having
achieved what he has so far, it would be a
brave person to bet against him bringing
them to fruition.
The technology team
What is remarkable about Rockstar, and
what distinguishes it from almost every
other NPE out there, is that it essentially
remains the IP function of what was a
fully fledged operating company. Indeed,
Veschi refers to the firm as a “former
practising entity” This gives some context,
.
he explains: “Our patents are derived
from a product-driven company that
was a technology pioneer and invested
significantly in R&D.”
Of immense help since the dark
days of the Nortel bankruptcy has been
the presence of a team of engineers and
technologists led by 25-year Nortel veteran
Gillian McColgan, Rockstar’s CTO. That
they are still a part of the operation,
however, is more the result of fortune than
design. “Where we got lucky was that when
Nortel was trying to avoid bankruptcy, the
company decided it had to be reorganised
in order to prepare for the sell-off of one
or more business units. This meant that
people had to be reallocated,” says Veschi.
Nortel’s CTO understood what Veschi was
trying to build – an operation capable of
extracting the maximum value from the
patents that Nortel owned – and shared his
view that this required people who knew the
technologies underpinning those patents
backwards. “That’s how I met Gillian and
64 Intellectual Asset Management July/August 2013

the diverse set of folks who are now on her
team,” Veschi says. That he can call on their
expertise is something that sets Rockstar
apart from many other licensing-based
businesses. “We are staffed by technology
lifers: people who dedicated their careers to
Nortel. As a result, we really know our IP
and the backstory behind each patent. I have
yet to come across a patent in our portfolio
where someone on our team did not know
or work with the original inventor.”
But that is not only a powerful tool today
– it was also vital during the bankruptcy
process itself, as parts of Nortel were sold
off. “Gillian and her team were critical in
the patent discussions,” explains Veschi.
“Usually you find technology expertise in
different business units, but we had it in
the IP team: a group of some of the most
respected and well-regarded technologists
in Nortel. That meant we could make sure
we were not going to get beaten up by the
various business units trying to do a land
grab on the patent portfolio as they moved
on; we knew everything there was to know
about the patents.”
McColgan & Co were also keen to point
out that some people were looking in the
wrong places for the real treasure that
Nortel possessed. “The world thought that
our most valuable assets were LTE and
wireless patents; Gillian and her team were
offended by that,” Veschi continues. They
believed that wireless was not the heart and
soul of the company; instead, it was areas
such as data communications. “We made
sure that everyone knew what was there and
that we were not going to squander it.”
This attachment to Nortel’s intellectual
property speaks to a wider affection

John Veschi, Rockstar’s CEO
“There are a lot of people out there using
former Nortel IP who aren’t licensed yet. In
terms of our progress in getting to them, we
are probably in the third inning of a nineinning game; but we are already generating
returns for our investors”

Establishing the appropriate reporting lines – business or law?
Before anyone takes a high-profile
senior position which involves potentially
company-transforming responsibilities, it
is a good idea to negotiate carefully. When
talking to Nortel about building its proposed
IP licensing business, that’s exactly what
John Veschi did; and one of the areas that
came up for discussion was reporting lines.
“Nortel’s original plan was that I
would be the VP of IP reporting to the
general counsel,” Veschi explains. It was
something to which he could not agree: “I
felt that would mean IP would be viewed
as a cost centre. To do what I wanted to
do, we could not be subordinate to other
business units. We were going to need a
free rein to assert patents against whoever
it was necessary to take on – we could not

have people telling us that we could not
because it might damage such and such a
relationship.”
His plan, Veschi continues, was to make
intellectual property less of a legal function.
“In the end, it was agreed that I would be
appointed as chief IP officer (CIPO), initially
reporting to both the general counsel and
the chief technology officer, and then
reporting directly to the CEO once the
licensing business was established.”
To have been reporting direct to the
CEO in a company the size of Nortel would
have made Veschi one of the world’s
highest-profile CIPOs. Whichever way the
Nortel story was to have unfolded, it seems,
Veschi was always destined to make a
significant impression.

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The rock star

Figure 1. Senior Rockstar management

Gillian McColgan
CTO

David Smith
patent sales
& acquisition

John Garland
VP
patent licensing

John Veschi
CEO

Afzal Dean
VP
patent licensing

Shival Virmani
VP corporate
development

Chad Hilyard
chief IP
counsel

Hinta Chambers
CFO

Mark Wilson
licensing
executive

that these seasoned employees had for
the company itself. “Once you were at a
company like Nortel, you did not tend to
move around, so we have a team of people
who had spent 20 or 30 years there. They
wanted to do the right thing by it,” Veschi
claims. And it soon became apparent to all
those involved in the bankruptcy process
that such loyalty and expertise made the
team itself a significant asset in its own
right. “The buying community got pretty
comfortable with the fact that the portfolio
would have substantially more value if the
team came with it,” he says.
Thus, even before the final deal was
sealed, it was clear that whoever ended up
buying the patents would take the Nortel
IP team too. And that even applies to
Google. “I can’t imagine that they would
not have wanted to keep everyone together,”
Veschi states. “They may not have been
actively licensing the patents, but they
would still have needed to know them, so
it is likely that the team would have been
moved to Mountain View. That could have
been something of a culture clash, given
the average ages of our team and Google
employees.”
Commitments to the DoJ
The sale of the Nortel patents closed on
29th July 2011, which also happens to be
Veschi’s birthday. But it took another few
months – until Spring 2012 – for the
acquisition to receive clearance from the
US Department of Justice (DoJ). Although
this approval may have taken some time to
obtain, the only commitment that Rockstar
itself gave to the DoJ (and the Federal Trade
Commission) was that it would operate
autonomously. This, explains Veschi, was
so that the shareholders “as operating
companies cannot pick and choose who we
will target”. Rockstar made no undertakings
as to how it would license FRANDencumbered patents, as the bankruptcy
court had already dealt with this issue.
www.iam-magazine.com

Michael Dunleavy
Corporate legal
services

In some quarters, much store has been
set by Veschi’s comment in an earlier
interview with another publication that
Rockstar is not bound to promises made to
the regulators by Apple and Microsoft. He
is keen to clarify what he meant by this.
“The commitments that they have given
relate to the patents that they have taken
ownership of from the Nortel portfolio.
Our commitments relate to the patents
we control – so there is absolutely no link
and nothing that ties us to what they have
agreed. We are a separate company,” he says.
Some, Veschi continues, have taken his
original remarks to mean that the NPE is
being used in some way as a vehicle to wash
away commitments made by a predecessor
in title. That is not true, he insists: “I
simply pointed out that the commitments
those companies made about their future
patents have no bearing on Rockstar. We are
a separate company and were never asked
to make any commitment. Interestingly,
the folks who have written about this as if
there was something unseemly going on –
none of them has ever asked me about it.
It’s as if they have the sound bite and the
interpretation that supports their cause, so
why confuse it with facts?”
Rockstar has an ongoing dialogue with
the DoJ, the last time they got together
being in February this year. And Veschi says
that the relationship is a good one: “They
know we are not seeking to harm anyone
else relative to their peers or competitors.
They understand and are comfortable
with what we are trying to do. I have been
very impressed with the depth of their
knowledge of the issues.”
That said, the commitments that
Rockstar has made do mean that Veschi
must be careful about how he interacts
with its owners. “We do not talk to the
shareholders about potential licensing
partners or any potential infringers that
we may have targeted,” he explains. “I have
to show them progress and that real work
Intellectual Asset Management July/August 2013 65

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The rock star

Doing the deal
Once a potential infringer of Rockstar
intellectual property has been identified,
it is a matter of sitting down with them
in order to hammer out a licensing deal.
In many instances, ‘fair, reasonable and
non-discriminatory’ (FRAND) obligations
loom large – even if, strictly speaking,
that did not have to be the case. Although
around 90% of Rockstar patents in areas
such as wireless and data networking have
some standard or other associated with
them, under Canadian law any FRAND
commitments given by Nortel to standards
bodies could have been repudiated during
the bankruptcy. But, says John Veschi,
it was decided not to do this. Instead,
the company chose to make sticking to
previously made FRAND commitments a
condition of sale.
Even where FRAND is not involved,
Veschi is keen to emphasise that Rockstar
deal makers want to be seen to be treating

licensees fairly. “We will ask the other
party what it is they want to license and
strive to negotiate a licence that is fair and
reasonable for them,” he states. The offer
gets a mixed response: “Some appreciate
our approach; others would prefer to simply
call us a troll!”
The reaction often comes down to
who is on the other side of the negotiating
table. “Every company we engage with
is different; some are more sophisticated
than others, for example. In some cases
we talk to the businesspeople; other times
it might be the in-house IP team,” Veschi
says. “Sometimes we end up with outside
litigation counsel. They usually come with
the wrong perspective because they are
already thinking about juries. But we believe
we should get credit for not initially suing
the company in question, as we prefer to
sort things out in the boardroom rather than
in the courtroom.”

is being done, but we tend not to go into
details.” Veschi schedules periodic calls
and meetings with the owners – mainly
with their respective heads of intellectual
property – and, he says, they work well
together. “But all of these guys have day
jobs; how Rockstar performs is probably
largely irrelevant to how most of them are
judged,” he acknowledges.
The sensitivities of this relationship
also affect the way that Veschi interacts
with senior staff inside the NPE. “I rely on
my leadership team more than the typical
CEO might. There are things that I cannot
share with the board in the way that other
CEOs might, so I probably spend more time
speaking with my colleagues at Rockstar to
get the appropriate amount of diversity of
thought.” Likewise, he continues, some of
the other activities that another CEO would
typically undertake, such as cultivating
potential investors, are not matters that
he needs to spend time on: “As a result, I
probably spend more time as both a COO
and a CEO.”

companies like Nortel, which did ‘find a
better mousetrap’-type R&D, have been
less successful over recent years than those
companies whose R&D was much more
consumer facing,” Veschi says. “But Nortel
made mobile phones before many of the
companies that make them now did; and it
was similarly investing significantly early on
into looking at what could be done on the
Internet. It was grappling with problems and
finding solutions a long time ago – what
is natural today just wasn’t back then. The
patents that we own are a representation of
the investments that were made.”
Although Veschi will not talk
specifically about the technology areas he
has chosen to prioritise, he does point to a
diagram that has been distributed internally
(see Figure 2), which provides certain clues.
It is composed of a series of concentric
circles. “The smallest circle contains the
three classical scientific disciplines –
biology, chemistry and physics – and the
explosion out to the right is basically a
description of the high-tech world,” he
explains. “The further out you get, the
closer you get to the consumer. Right now,
we are very active in about a half dozen of
the areas named in the chart, while we are
doing serious preparatory work for six to 10
more. Though I am not comfortable saying
which ones precisely, I can say that most of
them are in the upper-right quadrant.”
The monetisation game, he continues,
is still in its early stages: “There are a lot
of people out there using former Nortel

Mining and money
It may be an arm’s-length relationship, but
Rockstar’s shareholders still want to see
their investment realised to the maximum
possible extent; and Veschi knows that he
will be judged on the success or otherwise
of his strategies to monetise the portfolio.
First of all, though, he has to decide
which parts of it to mine; and there are
plenty of choices. “It turned out that those
66 Intellectual Asset Management July/August 2013

Rockstar CTO Gillian McColgan leads
a meeting
Starting with the man in the red shirt
and working clockwise – David Smith,
director, patent sales and acquisitions;
Bruce Schofield, technical expert; Chris
Briggs, senior programme manager; Hamid
Ould-Brahim, internet technology expert,
distinguished member of technical staff;
Derek de Laat, senior financial analyst; Ron
Steeves, patent licensing adviser; Gillian
McColgan, CTO; Liam Casey, IP technology
consultant

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The rock star

assets and do not need them all.” What it all
boils down to, he says, is for him to be put
“in a place where I have to make a difficult
decision about whether we should let
something go or not”
.
Given its ownership, though, is there
a possibility that while Rockstar may be
willing to sell off parts of its portfolio, there
may be certain parties that it is not willing
to do business with – especially as sales
are not covered by any commitments that
have been made to regulators? Veschi says
absolutely not: “We work the deals within
our charter. Just like in the context of
licensing, the shareholders do not influence
the decisions on who we deal with.”
The wider world
Rockstar does not operate in a vacuum
and it has not escaped Veschi’s notice that
the environment in the United States has
become more hostile towards NPEs recently.
What he would like to see, he explains, is
a little more contextualised thinking about
the issues.
“I don’t want to defend all NPEs. What
some of them do is troublesome and very
litigation-centric, but they are part of the
evolution of the corporate world in general,”
he says. The issue is by no means as clearcut as ‘operating company good, NPE bad’,
he claims: “When you go back to the good
old days, you find companies that did
everything in North America – from R&D
through to manufacturing. Now a lot of this
activity has been moved offshore. Why is
a company that moves its factories to Asia
considered more of a good guy than one
which does not manufacture at all, but does
much of its R&D work locally?”
And it’s not as if big operating
companies have a faultless record when it
comes to intellectual property: “The classic
NPE is the little guy working in his garage
who comes up with an idea and gets a
patent. If he then discusses his idea with a
product company, which says, ‘Thank you
very much, now go away,’ the only thing he
has to protect himself is his patent.”
Rockstar’s own experiences have made
Veschi – who has never previously worked
inside an NPE – sympathetic to what many
NPEs are up against when trying to deal
with operating companies. “When we are
negotiating deals, we find that companies
which look similar from the outside behave
very differently when we sit down with
them,” he states. “For the most part, we get
respect, but some people get very emotional
and quickly resort to name calling – that
indicates to me they do not understand
the situation they are in. You’d think that
68 Intellectual Asset Management July/August 2013

A US-centric organisation thanks to Nortel’s money men
Although many US-based NPEs believe there
may be significant potential in developing
business abroad, for Rockstar the focus
will have to remain the United States,
John Veschi explains: “We are more of a
US-centric organisation. We cannot fix the
fact that in the past, Nortel decided not file
abroad as much as it did in North America.”
In general, Veschi says, a lot of the
decision makers at the company saw the
US market as the one to concentrate on. “It
was like a Picasso painting in some ways
– things were out of proportion,” he says.
Although there was very strong R&D, there
was not an equal commitment to protecting

it: “The finance people and accountants
seemed to have led the decision making.”
Given the circumstances, he continues,
the IP department can only be praised
for creating what it did: “The IP people –
battling against a lot of headwind – did a
great job and we have got the benefit from
that. When you look at the portfolio you
see cases where the patent committee
likely had, say, 25 really good inventions,
but budget to only file 10 patents; even so,
if you look at the way those patents were
prepared and prosecuted they got a lot into
them. In the end, though, there was only so
much they could do.”

people would realise they need to pay
for the IP they use, but some are almost
hysterical when we point out they cannot
have our stuff for free. If that is the way
they treat us, you can only wonder what it
is like for a typical small NPE.” The truth
is, he says, some potential licensees just
do not want to be fair and reasonable: “It
is important to know that just because a
company is a practising entity, that fact
does not make the company a good guy.
There are some unscrupulous characters out
there on all sides of these issues.”
However, Veschi is not set against all
reform. He opposes the proposed Saving
High-tech Innovators from Egregious
Legal Disputes (SHIELD) legislation in
the United States, which would introduce
a loser-pays regime specifically aimed at
what its authors describe as “patent trolls”,
but he is not opposed to loser pays per se.
In fact, the opposite is true: “I have always
been a fan of loser pays, but in a way that
treats everybody the same. What you see
with SHIELD is an attempt to discriminate
against certain types of businesses. That is
misguided. There are plenty of practising
entities that are very comfortable with
infringing and not paying royalties; loser
pays across the board would encourage
everyone to act a little more like a good guy.”
Likewise, Veschi supports recent
moves spearheaded by the US Patent
and Trademark Office (USPTO), as well
as certain companies such as Microsoft,
to introduce greater transparency into
patent ownership. “Those with good
portfolios should be very comfortable with
transparency and more of it makes a lot
of sense,” he says. “We are not trying to
play hide the ball with our portfolio, and if
the law changed to make it a requirement
to register every licensing deal I would be

Reading the runes
From left to right – Peter Lorenz, senior
business analyst; John Veschi, CEO; and
Ross Morgan, CFO
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