Ex-Nortel staff pick apart gadgets for patent violations
Ottawa-based Rockstar suing Google, Samsung
From his corner office, John Veschi looks out on a golf course in Kanata, Ont. But in his two years at the helm of Rockstar, the avid golfer has played the course only once.
"We've been busy," he said. "There's a lot to do."
Veschi is the CEO of Rockstar, an intellectual property licensing company created by a consortium of hi-tech companies that won the bidding war for Nortel's patents in 2011.
On Oct. 31, the two-year-old company filed lawsuits against global tech giants, including Google, Samsung and Huawei. The suits allege they use technology developed and patented by Canada's one-time tech darling Nortel, but refuse to pay licensing fees.
Rockstar has the rights to Nortel's legacy, as it owns 4,000 patents developed in Nortel labs. Rockstar's main goal is to use those patents to make money for its owners: Apple, Microsoft, Blackberry, Sony and Ericsson.
Veschi is proud of what he does now, but it's not the dream he had when he worked for Nortel.
"My hope was to build a business like this and be part of the turnaround for Nortel," said Veschi, whose job was to make Nortel money by licensing the technology in its patents.
There was a lot to draw from.
' Critics allege this is a real problem.... It's gumming up the innovation system and it frustrates other companies and stifles innovation and productivity as a whole.'- Jeremy DeBeer, University of Ottawa law professor.
Nortel research and development
Year after year, Nortel and its predecessor, Bell Northern Research, spent billions on research and development.
Rockstar's chief technology executive, Gillian McColgan, remembers a company far ahead of the curve, always anticipating where technology would go.
"Having spent 25 years at Nortel, you can look back far enough and see that things you worked at in the very early years as a junior engineer have now gone gangbusters and become where the industry is."
Nortel built a precursor to the iPhone, for instance. The Orbiter, with a touch screen that's now commonplace, was presented in the 1990s but never produced for the market.
Patents auctioned off
By 2009, Nortel was filing for bankruptcy protection. Its business — and its patents — would be divvied up and sold.
A small team within Nortel, led by Veschi, was convinced the patents were valuable, and that the money could only be unlocked if the intellectual property were sold as a package.
They went on the road to convince potential buyers of the patents' worth.
Nortel’s bankruptcy proceedings
- Nortel filed for bankruptcy protection on Jan. 14, 2009.
- Auctions to sell off Nortel’s businesses and patents brought in approximately $7.7 billion US.
- Hearings to allocate money in the estate to creditors are expected to begin in spring 2014.
- Fees to lawyers and others working on the bankruptcy passed the $1-billion US mark in November 2013.
The auction opened June 27, 2011, with Google bidding $900 million. The price soared. The Rockstar consortium of Apple, Microsoft, Blackberry, Sony and Ericsson won, paying $4.5 billion.
Nortel's four business lines had brought in $3.2 billion, combined.
"The fact is there's an extra $4.5 billion in the estate to be divided up," said McColgan, who is proud of what the team did, especially for Nortel's pensions. "Ultimately, when all the squabbling ends, when all the lawsuits end, some of that money will flow down to the people we worked with."
Searching for patents
When the patents moved to the new company, the employees went with them. They knew each patent's story and its inventors.
To figure out if a modern day gadget infringes on an old patent, Rockstar staff pick it apart in a reverse-engineering lab, and then Rockstar builds a case.
It filed a lawsuit in Texas on Oct. 31 alleging Google’s technology for matching relevant advertising to a user's search terms was actually patented by Nortel.
Another claim, against Samsung, centres on technology used in Galaxy smartphones and tablets.
The companies being sued are competitors of Rockstar's owners, but Veschi insists U.S. Department of Justice rules prohibit those owners from having a say in who Rockstar targets.
Company says it's not a 'patent troll'
Rockstar's business model is a contentious one. Critics use the term "patent troll" for a company that produces no products, but exists to make money off licensing patents or winning lawsuits.
In the United States, especially, companies that use weak patents to send patent infringement notices to dozens of small companies in an attempt to extract financial settlements have caused debate.
"Critics allege this is a real problem," explained Jeremy DeBeer, a law professor at the University of Ottawa who specializes in intellectual property. "It's gumming up the innovation system and it frustrates other companies and stifles innovation and productivity as a whole."
But Veschi argues Rockstar is not a patent troll. Rockstar's patents are of a strong pedigree and the company assembles strong proof before claiming patent infringement, he said.
"There's lots of people who have paid substantial amounts of money for licences, and there's other people who haven't. And it's not fair for them to quote-unquote free ride," said Veschi. "They'll use your [intellectual property] as long as they can get away with it."
Canada and the United States have strong innovation, because they have strong systems for protecting inventors and patents, Veschi argued. He sees Rockstar as the next chapter in the Nortel story, one that proves the importance of its intellectual property.
"I don't think a week goes by where they don't find another patent in the portfolio and say, "Holy moly, look at this patent," said Veschi. "At some point, we'll have found the last golden nugget. But it feels like that's a long time away."