Sell a business with IP assets: problems
Motorola’s patent for synchronising mobile devices is invalid. The Court of Appeal recently upheld the High Court’s decision. This case highlights important issues if you acquire a business with extensive intellectual property assets or wish to sell a business with IP assets.
Microsoft challenged Motorola’s patent arguing it was general knowledge and prior art. In addition, Google and Microsoft had negotiated a licence agreement. Thus, under the licence agreement, Microsoft argued it had a licence to use the patent, because Google acquired Motorola in 2012. The Court of Appeal agreed, and dismissed Motorola’s claim against Microsoft for patent infringement
Events leading up to the patent dispute
In 1995, Motorola filed for a patent that described synchronizing messaging across pagers. In those days, mobile employees used pagers to send & receive short messages. Often employees had two pagers: one for the workplace and one for out of hours.
Employees with two pagers had a problem: if they read a message on one pager, the message appeared unread on their second pager. On their second pager, employees had to open, download, read, and perhaps delete the message. Motorola’s solution was to “have status changes to a pager’s configuration made on one pager automatically made on the other one or ones of the user’s pagers”, i.e. syncronise each message’s status across pagers.
The desire was to reduce the time users spent updating their pagers and synchronising messages. Pager messages were sent bi-directionally to the same registered device, so both pagers automatically updated when users read, edited, or deleted a message.
Microsoft claimed the patent was invalid, as Microsoft was developing products that synchronized messages across devices. Microsoft challenged on two grounds:
It’s general knowledge
Microsoft argued the two-way messaging platform, although was not introduced in 1995, was common general knowledge to the person “skilled in the art”. So the dispute focused on who was “skilled in the art”.
- Motorola stated: an individual with wireless communications experience;
- Microsoft stated: a skilled engineer with paging and transceiver device experience, i.e. more relevant experience.
It’s prior art
Microsoft’s second challenge was on the grounds of prior art. A 1993 patent proposed the same syncronisation idea for the joint bank account. If one account holder withdrew funds, a message was sent to the bank to update the account. If both account holders each held a device to check their account, both devices would update to reflect the withdrawal.
Microsoft argued Motorola’s underlying inventive step was based on 1993 prior art. Therefore Motorola’s patent was invalid.
High Court’s decision
The High Court was not satisfied in 1995, the use of two-way pager messaging was common general knowledge to the person “skilled in the art”.
The High Court accepted Microsoft’s prior art challenge. The Court concluded that Motorola’s patent was based on the 1993 patent, and therefore obvious. Accordingly, the High Court revoked the Motorola patent.
Court of Appeal’s interpretation
Motorola appealed to the Court of Appeal. Motorola argued the High Court was wrong to interpret its patent as similar to the 1993 banking platform patent.
The Court of Appeal rejected Motorola’s appeal, and upheld the High Court’s decision. The Court held that the 1993 banking platform patent was indeed prior art. The Court of Appeal stated:
“the patent does not identify any problem with synchronisation methods which involve polling or a manual request by the user. Indeed, it does not refer to such methods at all”.
Patent dispute: licence agreement
In addition, Motorola alleged that Microsoft had infringed its patent. In 2011, Motorola split into two parts. In 2012, Google acquired the part that owned the 1995 patent.
Microsoft had a licence in place with Google prior to Google’s acquisition of 2012. Although the licence terms were complex, Google agreed to licence all future intellectual property rights to Microsoft. In return, Microsoft granted Google a cross-licence to use certain Microsoft products.
Microsoft alleged the licence included the 1995 patent that Google acquired, and any derivatives of the 1995 patent. Thus Microsoft could not infringe the 1995 Motorola patent, as the future right to claim belonged to Google, and Google licensed the patent to Microsoft. The Court of Appeal agreed.
The Court of Appeal asked: what would the person, having specific knowledge of the background, interpret the licence to mean? The Court would not interfere with the licence. Hence the court concluded that Microsoft had a licence to use the 1995 patent.
The Court of Appeal would not deprive Google Inc of its cross-licence, as a consequence of a successful infringement claim from Motorola.
Competitors seek to invalidate patents to protect market share. Here the principles apply to all tech businesses. Effective due diligence helps prevent patent invalidation.
Motorola’s 2012 spin off proved fatal. Patents, often owned by smaller companies within a group, are licensed to the holding company. Motorola’s IP sale triggered Google’s licence agreement with Microsoft. This gave Microsoft a defence.
If Motorola had understood Google’s licence agreement with Microsoft, no doubt Motorola would have negotiated a different deal, e.g. Google gains an exclusive licence but cannot grant intellectual property rights to a third party. Possibly, Motorola might have sold its patents to a different company, at a lower price.
Note: Courts do not save parties from bad bargains. If possible, courts seek to uphold contracts. Here the Court of Appeal upheld business certainty, by adopting a strict interpretation.