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Big tech gets legal aid in the patent wars

Verizon, Motorola, Google join wealthy patent-buyers club to stem infringement lawsuits

By Scott Moritz, writer
June 30, 2008: 12:16 PM EDT

New York (Fortune) -- In an effort to stamp out so-called patent trolls, several big tech shops have joined a club that will acquire intellectual property to keep it out of the hands of litigious profiteers.

Verizon (VZ, Fortune 500) and Motorola (MOT, Fortune 500) are two of the 11 partners to join Allied Security Trust, a not-for-profit patent buyer. The big phone shops join outfits like Google (GOOG, Fortune 500), Cisco (CSCO, Fortune 500), Hewlett-Packard (HPQ, Fortune 500) and Ericsson (ERIC) in the group, according to a report in The Wall Street Journal. Members pay less than $500,000 to join Allied Security Trust, which is based in Poughkeepsie, NY. Each member must also deposit a minimum of $5 million into an escrow account to buy patents, according Allied Security Trust CEO Brian Hinman.

Allied says it tries to find patents that would be of interest to its members. Once the members license the technology, Allied then offers the licenses to companies outside the group.

The plan is like patent insurance for large tech companies, aimed at eliminating the infringement lawsuits that have been a bane of the industry for decades. Many of these cases have been brought by patent holders and law firms looking for a settlement in the form of a one-time payment or through licensing agreements. Some patent infringement cases have been quite costly, like Research in Motion's (RIMM) $612.5 million settlement with wireless e-mail patent holder NTP two years ago.

"Large companies have more exposure to lawsuits, they become very large targets," says CEO Hinman.

"The intent is to dry up this whole practice," says a Verizon representative referring to law firms and other patent holders that pursue settlements and fees rather than develop products and services.

Lawyers on the patent litigation side say the formation of the group is an obvious attempt to try and contain legal costs related to patent cases.

"Looks like a way to try and buy all your potential lawsuits," says NTP lawyer Don Stout, with Antonelli, Terry, Stout & Kraus. "And there's nothing wrong with trying," he added.

In the RIM case, former AT&T engineer Tom Campana formed NTP in 1992 to license his mobile e-mail technology. Prior to that, Campana had started a mobile e-mail company but the effort failed. Campana died in 2005, before the RIM settlement.

NTP, however, successfully argued that its technology was at the core of the popular BlackBerry. RIM was unable to develop a viable workaround and was facing a network shutdown until the two parties reached an agreement in March 2006.

But the legal battlefield isn't entirely skewed in the little players' favor. When Net calling shop Vonage started to make a dent in the phone industry, Verizon brought a devastating patent infringement lawsuit that effectively crippled Vonage's growth effort.

The Verizon spokesman added that: "We don't think there's anything wrong with someone who created a technology getting credit for it." To top of page