Innovatio IP Ventures, LLC, Patent Litigation

Filing 940

MOTION by Plaintiffs Cisco Systems, Inc., Motorola Solutions Inc., Netgear Inc., Counter Claimants Cisco Systems, Inc., Motorola Solutions Inc., Netgear Inc., Counter Defendants Cisco Systems, Inc., Motorola Solutions Inc., Netgear Inc., Cross Defen dants Cisco Systems, Inc., Motorola Solutions Inc., Netgear Inc. for judgment DEFENDANTS' MOTION FOR JUDGMENT PURSUANT TO RULE 52(C) OF THE FEDERAL RULES OF CIVIL PROCEDURE (REDACTED) (Attachments: # 1 Exhibit 1, # 2 Exhibit 2)(Cutri, Gianni)

EXHIBIT 2

Defendants' Trial Ex.

DTX-246
C.A. No. 1:11-cv-9308

ANTITRUST ENFORCEMENT AND
INTELLECTUAL PROPERTY RIGHTS:
Promoting Innovation and Competition

ISSUED BY THE

U.S. D EPARTMENT OF JUSTICE
AND THE

F EDERAL T RADE C OMMISSION

A PRIL 2007

This Report should be cited as:
U.S. DEP ’T OF JUSTICE & FED . TRADE CO M M ’N , ANTITRUST ENFORCEMENT AND INTELLECTUAL
PROPERTY RIGHTS : PROMOTING INNOVATION AND COMPETITION (2007).

This Report can be accessed electronically at:
www.usdoj.gov/atr/public/hearings/ip/222655.pdf
www.ftc.gov/reports/index.shtm

Cross Licensing and Patent Pools

licenses also can reduce transaction costs
to licensors by allowing firms to license
multiple patents at once.13
A portfolio cross-licensing
arrangement among multiple patent
holders may also mitigate the problem of
stacking royalties.14 Royalty stacking
occurs when access to multiple patents is
required to produce an end product,
forcing the manufacturer’s products “to
bear multiple patent burdens,” usually in
the form of multiple licensing fees.15
Royalty stacking can make production
unprofitable and retard innovation. But
when a rights holder enters into a
portfolio cross-licensing arrangement, it
may acquire access to all the blocking
technologies required for production at a
lower royalty rate than if each input were
independently priced.16
As one
economist has stated, a portfolio license
can alleviate the “drag on innovation and
commercialization of new technologies”

incumbents, they could discourage R&D by entrants
who lack portfolios of patents to license).
13

Grindley Presentation at 10; see also Feb. 26 Tr. at
208-09 (Teece) (“[W]hen you have a portfolio . . . you
don’t necessarily know which patents read on which
products, and that if in fact you force unbundling of a
portfolio . . . you require the owner of the intellectual
property to incur a tremendous amount of transaction
costs.”); Grindley & Teece, Cross-Licensing in
Semiconductors at 9 (“It is simply too cumbersome and
costly to license only the specific patents you need for
specific products. The portfolio approach reduces
transaction costs and allows licensees freedom to
design and manufacture without infringement.”). But
see Grindley Presentation at 9 (noting that negotiating
a portfolio cross license is intense, with negotiations
typically lasting eighteen to twenty-four months).

that royalty stacking creates.17
One panelist questioned whether
patent thickets are much of a problem and
suggested that, if a patent holder will not
license a patent or tries to extract a
royalty that is too high, other firms may
respond by designing around the
technology covered by the patent.18 He
argued that when firms design around
each other’s intellectual property rights,
they avoid royalties, and may be able to
offer newer, less expensive products to
consumers.19 Others were skeptical that
design-around attempts would be
successful.20
B.

Shapiro, Navigating the Patent Thicket at 123-24.

15

Id. at 124.

16

Id. at 123-24.

Competitive Concerns

Portfolio cross licenses with
provisions that may facilitate the

17

Id. at 124. Royalty-free portfolio cross licenses can
reduce production costs, which may allow licensees
to offer lower prices to consumers because they do
not have to account for per-unit royalties in the final
price of the product. See Nov. 6 Tr. at 98 (Shapiro).
Typically, however, these cross-licensing agreements
are not royalty-free. See Grindley Presentation at 6.
The returns on a portfolio cross license vary. Returns
can be based on fixed fees or running royalties. In the
former case, there may be “balancing payments at the
outset to reflect differences in the strength of the two
companies’ patent portfolios.” Shapiro, Navigating the
Patent Thicket at 130; see also Nov. 6 Tr. at 102
(Fromm); Grindley Presentation at 9.
18

Feb. 28 Tr. at 758-60 (Telecky).

19

Fredrick J. Telecky, Jr., Statement (Feb. 28, 2002
Hr’g R.) at 3 (stating that a product created by designaround activity may cost the manufacturer less
because the payment of royalties is avoided),
http://www.ftc.gov/opp/intellect/020228telecky.
pdf [hereinafter Telecky Submission].
20

14

61

E.g., Feb. 28 Tr. at 676 (Barr) (“[D]esign-around is
very expensive . . . [and] is worse in industries where
a large number of patents have potentially read on a
given product because the likelihood of stepping on a
landmine is so great.”).