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)

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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: 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), 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.”).

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