Copyright | CENGAGE Learning | Ethics in Information Technology | Edition 5 | Ch

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Copyright | CENGAGE Learning | Ethics in Information Technology | Edition 5 | Chapter 6 | Case 2
Rockstar Consortium — Beware the Patent Troll Nortel was a Canadian multinational telecommunications and data network equipmentmanufacturing pioneer. Nortel patented many innovations in the areas of wireless communica-tions, telecommunications switching, Internet routers, modems, personal computers, search, andsocial networking. 78 Many of its patents are in the key areas of Long Term Evolution (LTE) and3G technologies, which are the foundation of modern wireless networks. 79 In 2009, Nortel filed for bankruptcy, and in the process, the company sold its business unitsand assets to various purchasers. 80 Approximately 6,000 of its patents were sold for $4.5 billionto a company formed by a team of information technology companies consisting of Apple, EMC,Ericsson, Microsoft, Research In Motion, and Sony. 81 The partners divided up some 2,000 ofNortel ’ s patents among themselves and then formed a new, independent company calledRockstar Consortium to manage the remaining 4,000 or so patents. 82 Rockstar employs just 32 people, many of them the same people who ran Nortel ’ s patent-licensing program. Among the employees are 10 reverse-engineering specialists whose role isto examine other companies ’ successful telecommunications and networking products to deter-mine if they infringe any of the former Nortel patents. Should evidence of infringement berevealed, it is documented, and the firm contacts the infringing manufacturer seeking licensingfees for the patent(s) in question. Should the manufacturer refuse to pay the licensing fees, theycould be dragged into a costly patent infringement lawsuit. 83 Legal fees and court-awarded damages can run into the millions of dollars whencompanies go to court to battle over patent rights. For example, in 2007, a jury ruledMicrosoft had violated patents for MP3 technology belonging to telecommunicationsequipment manufacturer Alcatel-Lucent. The jury awarded Alcatel-Lucent damages of$1.5 billion. Unlike large companies such as Microsoft, small companies often simplycannot afford to defend themselves against costly patent lawsuits — whether the claim israised for legitimate reasons or as a threat against entering a new market or offering anew product. As a result, the current patent system can stifle small innovators rather thanhelp them. Even large companies may agree to pay licensing fees rather than fight a patentinfringement lawsuit. Legal fees and court-awarded damages can run into the millions of dollars whencompanies go to court to battle over patent rights. For example, in 2007, a jury ruledMicrosoft had violated patents for MP3 technology belonging to telecommunicationsequipment manufacturer Alcatel-Lucent. The jury awarded Alcatel-Lucent damages of$1.5 billion. Unlike large companies such as Microsoft, small companies often simplycannot afford to defend themselves against costly patent lawsuits — whether the claim israised for legitimate reasons or as a threat against entering a new market or offering anew product. As a result, the current patent system can stifle small innovators rather thanhelp them. Even large companies may agree to pay licensing fees rather than fight a patentinfringement lawsuit. 84 A company such as Rockstar that makes no products and whose mission is to sue or coerce manufacturers who infringe on its patents (often referred to as a pure patent operation)can become very aggressive in filing patent infringement lawsuits because it produces noproducts that could form the basis for a patent infringement countersuit. 85 Prior to the sale of the Nortel patents, the Department of Justice ’ s Antitrust Divisionreviewed the potential sale. There were concerns about the potential use of Nortel ’ s standardessential patents (SEPs) as a means to slow the innovation of other companies in the telecom-munications and networking industry. As a result of this review, the Department of Justice statedthat its concerns were “ lessened by the clear commitments by Apple and Microsoft to licenseSEPs on fair, reasonable, and non-discriminatory terms. ” 86 However, John Veschi, chief intel-lectual property officer at Nortel and now the CEO of Rockstar Consortium, states that Rockstar is not bound by the promises that its member companies made. According to Veschi, “ We areseparate. That does not apply to us. ”

1. Clearly state three business reasons to justify why these major IT firms formed Rockstar Consortium.
2. Although Rockstar is set up as an organization independent of its founders, what are thepossible reactions if the firm aggressively pursues an important customer or supplier of oneits founding companies? How might the customer or supplier react? How might the founder react?
3. Do research to determine the current status of the Rockstar Consortium. Has it beensuccessful? Has it stirred up any further controversy?

Copyright | CENGAGE Learning | Ethics in Information Technology | Edition 5

Explanation / Answer

Answer: The three business reasons are:

1. To leverage on the patents already made by the company Nortel.

2. To make a consortium deemed to be acting as a competition killer.

3. To get the new innovation happening at their end only and removing potential threats from the market.

Answer-2 The possible reaction could be:

1. legal course of action against the newly made company.

2. less credibility of the company in the market.

The customers and suppliers would rate the company badly in this context. Possibly they would shun the company and make their connection with some other customer/supplier.

Answer-3 It has not been successful. The reason being its USP has been lost. The company got indulged in making money by unproductive and short term measures that made it suffer the most at time also when it could have been made miles as the competitors made.

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