Rockstar’s $188M Settlement with Cisco Revives Patent Licensing

Cisco deal shows reports of patent licensing’s death have been greatly exaggerated.  

Patent licensing may no longer be what it once was in areas of art like smart phones and consumer electronics, where the royalty stack can be as high as an Asian office tower, and courts and lawmakers have rendered legitimate patent enforcement an obstacle course.

But high stakes patent licensing is alive and well, and it does not necessarily require a Markman hearing or impending trial to get a deal done. 

Kudos to Joff Wild and the IAM team for breaking the sparsely reported story on Cisco’s patent settlement with Rockstar for $188M. cisco_2A decade or more ago the numbers may have been even more impressive, but in a sector that has been decimated by patent-adverse legislation and court decisions, things may not be as bad as they appear.

“Cisco has agreed to settle with Rockstar on behalf of both itself and its customers,” writes Wild on the IAM Blog.  “And the price that Rockstar has extracted is the not inconsiderable sum of $188 million; all that before Markman hearings, let alone a full trial. It’s hard to see how that is not a good result for the Ottawa-based NPE run by CEO John Veschi and jointly owned by Apple, BlackBerry, Ericsson, Microsoft and Sony.”

Unanswered Questions

What patent holders should be asking themselves, is why that amount and why now?

One experienced IP adviser and investor I spoke to said that “the deal was likely supported by a comprehensive patent portfolio, which likely mitigated potentially much larger damages exposure.”

In other words, for the right price, and the right licensee, the numbers start to make sense, even in this environment. It also means that good patent portfolios still have significant value, even if it is a fraction of what it was a decade or two ago. In Rockstar’s case, could they have gotten $1B or more in 2002. Who knows? We’re not in Kansas anymore, Toto.

Rumors about Rockstar’s long-term viability have persisted since it was formed with much fanfare in mid-2011. It was then and still is now difficult to justify the $4.5B price tag paid for the bankrupt Nortel’s patents, but the buyers secured the opportunity to minimize potentially damaging exposure, especially from Google, at a time when they felt they had little choice.

The investment return, I am certain, was secondary for at least some of the five investors. Corporate governance issues have been said to be an obstacle to monetizing the Rockstar portfolio, and protecting owners from potential counter-suits difficult.

Apple and Microsoft, the primary investors — reputedly to the tune of $3.5B , certainly have the cash to not worry about the future income from Rockstar, and therein may lie the trouble for the operating company-owned NPE.

Still, what was said by Mark Twain can be said of patent licensing: “Reports of their death have been greatly exaggerated.”

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