Thanks to Monday's joint announcement of Microsoft's $300 million investment in a new Barnes & Noble's digital and college
textbook subsidiary, we will never know who actually won the
patent showdown between the software and bookselling giants. An
administrative law judge at the U.S. International Trade
Commission last week put off an initial determination in
Microsoft's patent infringement case against B&N, which was
tried in February. Now that the two are partners in the e-book
business, the patent litigation will end without a ruling on the
merits from the ITC or from the U.S. district judge overseeing
Microsoft's parallel infringement suit in Seattle federal court.
But that doesn't mean we can't talk about which side won the
case.
It's easier to argue that Barnes & Noble (and its vast army
of lawyers from Cravath, Swaine & Moore, Kenyon & Kenyon, Quinn
Emanuel Urquhart & Sullivan, and Boies, Schiller & Flexner) came
out ahead. The dispute began, you're recall, when Microsoft
tried to get Barnes & Noble to license its IP for use in the
bookseller's Android-powered e-reader, the Nook. After Barnes &
Noble balked at Microsoft's fee demands, Microsoft sued B&N in
Seattle and at the ITC. Barnes & Noble countered with a defense
that Microsoft was misusing its patent portfolio to demand
unconscionable fees from Android users, even taking its
antitrust allegation to the Justice Department. But B&N's patent
misuse defense was knocked out in the ITC case -- making it all
the more (apparently) remarkable that in Monday's deal,
Microsoft paid B&N, the patent defendant, a sum of money that
exceeded the marketplace value of its investment. How often does
a patent plaintiff pay the defendant in a settlement? Especially
when that defendant is on the ropes and urgently searching for a
strategic investor?
Barnes & Noble's shareholders clearly regarded the deal as a
huge victory for the company. B&N stock nearly doubled before
settling back in a down market. So if you're another Android
user thinking about saying no to Microsoft when it comes around
with a licensing demand, you have to be emboldened by the B&N
story: After enduring a year under scrutiny as a defendant,
Barnes & Noble ends up with $300 million and drastically
improved business prospects. That's not the scorched-earth
result you might fear from taking on Microsoft and its lawyers.
(In this case, Sidley Austin; Orrick, Herrington & Sutcliffe;
Woodcock Washburn; and Adduci, Mastriani and Schaumberg.)
But there's a line in Microsoft and Barnes & Noble's joint announcement of the deal that might give Microsoft challengers
pause -- and makes it unclear which side will come out on top in
the long run. Both Barnes & Noble and Microsoft publicly
emphasized the synergies of their new partnership, which gives
Microsoft an entry point into a market it believes will be
shaped by advanced software add-ons to simple e-books and gives
Barnes & Noble a presence on Microsoft's soon-to-be-released
tablets, as well as a much-needed investor. The announcement
also included a note that Barnes & Noble and the new digital and
textbook subsidiary "will have a royalty-bearing license under
Microsoft's patents for its NOOK eReader and tablet products."
So Barnes & Noble is licensing Microsoft IP after all. If
you're wondering about the terms, keep wondering. Microsoft has
jealously guarded any disclosure of its licensing arrangements
in the Barnes & Noble litigation, to the extent that the company
demanded that B&N patent misuse filings be removed from the ITC record. There are no available specifics on what B&N and the new
subsidiary have agreed to pay, so for all we know, Microsoft is
getting all it originally wanted in Nook royalties.
It's a cliche for settling parties to claim they're both
better off for resolving their differences. Maybe this time it's
actually true.
(Reporting by Alison Frankel)
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