News from the British patent and trademark office

Rivals gang up on Google

The company was left out in the cold when a consortium of its competitors bought up thousands of patents reports Stephen Foley

Now it's time for the odd one out round. Which of the following technology rock stars is the odd man out: Apple, maker of the iPhone; Microsoft, which recently launched a new version of its Windows mobile operating system; Google, creator of the Android platform; and Research in Motion, maker of the BlackBerry?

The answer, as every patent litigator in the US knows, is Google. It is the only one not in the consortium buying a portfolio of thousands of technology patents from the bankrupt Canadian firm Nortel Networks.

The winning consortium comprised the three big operating systems firms plus Sony and Ericsson, handset makers, and EMC, a data storage firm. It called itself Rockstar Bidco, though it might as well have called itself Everyone But Google Inc.

Android may be winning more ground than any other type of smartphone in the battle for consumer loyalty, but on a parallel legal battleground, Google just found itself surrounded by heavy artillery. The outcome of the auction represents the largest competitive threat to Android since its 2008 launch and threatens to derail its sensational growth.

What is certain is that it presages a flare-up in the vicious patent infringement wars being fought between almost every maker of hardware and software in the telecoms industry.

"These companies are suing each other like it is going out of style," says Alexander Poltorak, chief executive of General Patent Corp, an intellectual property adviser. "If you drew a map of who is suing whom, it would look like a spaghetti plate. The reason is that the telcoms industry is in a process of transition and so many players are vying for a piece of a market that is changing so rapidly.

"A patent is an asset, a limited monopoly on an invention and a legal right to exclude competitors. It is a negative right, a licence to sue, a call option on future litigation."

The portfolio is the largest ever to have gone up for auction, and it fetched the highest price ever: $4.5bn (£2.82bn). It includes more than 6,000 patents and patent applications spanning wireless, wireless 4G, data networking, optical, voice, internet, service provider, semiconductors and other patents, Nortel said. It touches nearly every aspect of telecommunications and additional markets as well, including internet search and social networking.

Google, as the newest entrant to the smartphone market, has the weakest portfolio of its own patents, and had hoped to get the keys to the treasure trove. It had started the bidding process earlier this year with a low-ball $900m offer to Nortel's bankruptcy trustees, but as the auction escalated it could not keep pace. Its competitors really wanted to stop it. RIM alone is contributing $770m to Rockstar.

The sensational $4.5bn price tag means Nortel's bondholders might emerge from the bankruptcy process with all of their money back, at least according to the jump in its bond prices after the deal was announced.

The sale was ratified last night at a joint hearing of Canadian and US bankruptcy courts. But the US Justice department, which is in charge of stamping out competition abuses, is believed to be looking into the deal, and anti-monopoly campaigners are up in arms. Albert Foer, the president of the American Antitrust Institute, a pro-competition think-tank, was so alarmed that he wrote to the Justice Department demanding the sale be put on ice.

"The consortium membership includes three leading mobile device operating system competitors – Apple, Microsoft and Research in Motion," he said. "They are the three main commercial rivals to Android, Google's open-source mobile operating system. Each of them already possesses a large portfolio of wireless technology patents; each is capable of bidding on its own for a significant portion of the Nortel portfolio. Each of them, moreover, appears to possess the ability and incentive to use its patents offensively against open-source as well as commercial competitors; their concerted control over the entire Nortel portfolio... at a minimum creates significant risk of spillover collusion, tacit or otherwise."

Just a fortnight ago, Google triumphantly announced some new statistics showing Android's popularity. There are currently 310 Android devices available, and new activations are growing by 4.4 per cent a week. Android now has a 36 per cent share of the smartphone market from a standing start in 2008, according to Gartner, overtaking Apple, which launched its iPhone in 2007. By May of this year, 100m Android devices had been activated.

The loss of the Nortel portfolio casts a pall over its growth prospects, because it runs the risk of changing the financial and legal dynamics of the operating system market. The potency of the patent wars was revealed last month when Apple agreed to pay Nokia an estimated €800m (£705m) plus a further €8 per iPhone sold, in a cross-licensing deal to end litigation between the two companies.

The Nokia-Apple deal, whose terms were not publicly disclosed, emboldened other firms. Samsung immediately demanded Apple be banned from selling iPhones in the US until its claims of patent infringement have been resolved. Apple is also suing Samsung.

The spaghetti plate is as messy as it is because so many companies have been pushing the technological boundaries of telecoms for so many years. A single smartphone might contain 2,000 patented innovations, Mr Poltorak said, and such is the rush to get new inventions out to consumers, companies always opt to ship now and litigate later.

For Google, the disappointment on losing out on the Nortel patent is particularly acute. Android is the only open-source operating system. It gives it away to the phone manufacturers – one of the reasons adoption has been so swift. Google expects to make money instead from the services, such as internet search, that Android users then adopt.

But Android phone manufacturers are already the subject of at least a dozen major US lawsuits, alleging their use of the software infringes other people's patents, and if they end up having to pay royalties, then Android may no longer look free or even all that cheap to them.

Google was left to sound a bitter note. The outcome of the auction, and the ganging up of its competitors against it, was "disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition", it said.

Ebay and marketplace sites may be liable for trademark abuse

European court says online marketplaces can be held responsible for the infringement of trademarks on counterfeit goods they promote, following a series of cases brought by L'Oreal to defend its brand

L'Oreal brought cases against eBay over the sale of 'parallel imports' and trademark infringements. Photograph: Paul Sakuma/AP

Online shopping sites such as eBay may be liable for trademark infringements if they play an "active role" in promoting counterfeit goods, Europe's top court ruled today.

In an eagerly awaited ruling with huge implications for e-commerce, the European court of justice in Luxembourg said national courts could order online retailers to stop such infringements and prevent similar incidents in the future.

The verdict followed a series of cases brought by cosmetics and beauty giant L'Oreal across the EU to defend its brand name.

The company is challenging eBay – the world's largest online auctioneer – to clarify the obligations of internet marketplaces under EU law. L'Oreal claims eBay is liable for the sale on its website of counterfeit goods and of "parallel imports" – L'Oreal-branded products not intended for the European market.

The judgment said L'Oreal's complaint against eBay included claims that, by buying keywords from paid internet referencing services (such as Google's AdWords) corresponding to L'Oreal trademarks, eBay "directs its users towards goods that infringe trademark law, which are offered for sale on its website".

Last December, the EU court's advocate-general said eBay should not be liable unless it had been notified by a trademark holder such as L'Oreal of an infringement and if the online offence continued.

In today's final verdict, the full panel of EU judges said it was the right of national courts to order companies such as eBay "to take measures intended not only to bring to an end infringements of intellectual property rights, but also to prevent further infringements of that kind".

The court said in a statement: "When the operator has played an 'active role' … it cannot rely on the exemption from liability which EU law confers, under certain conditions, on online service providers such as operators of internet marketplaces."

The court said action taken by member states must be "effective, proportionate and dissuasive, and must not create barriers to legitimate trade".

The judges said that even in cases where the operator had not played an "active role", it could still be liable for trademark infringement "if it was aware of facts or circumstances on the basis of which a diligent economic operator should have realised that the online offers for sale were unlawful and, in the event of it being so aware, failed to act promptly to remove the data concerned from its website or to disable access to them".

Stefan Krawczyk, senior director and counsel government relations, eBay Europe, said: "The judgment provides some clarity on certain issues, and ensures that all brands can be traded online in Europe."

A spokesman for L'Oreal described the ruling as "a step towards effectively combating the sale of counterfeiting brands and products via the internet". He added: "This decision is in line with the position L'Oréal has taken for several years and is applicable in courts throughout the European Union."