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What We Do (and Don’t) Know about the Novell Patent Sale

Intellectual Property Rights

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Ever since the proposed acquisition of Novell by Attachmate Corporation there has been much curiosity, but almost no information, relating to the other major piece of the deal: the acquisition of 882 patents by a consortium led by Microsoft for $450 million. There are three main areas of undisclosed information that are piquing peoples’ interest, and in this bog entry I’ll go through each of them.  
Who are those guys? The first and most obvious question relates to who the other members of CPTN Holdings, LLC (CPTN) the Microsoft syndicate may be.  To my knowledge, there has not yet been a leak of this information.  As I noted in my previous blog entry, the transaction documents that are made public pursuant to public reporting obligations may never reveal the names, unless one of the consortium members is required to disclose it in one of its own public reporting documents.  Presumably that will happen, if it will happen at all, within three to four months, as part of a normal quarterly filing on Form 10-Q.
The second, and far less likely way would be as an indirect result of a filing by CPTN or Attachmate under the Hart-Scott-Rodino Public Improvements Act of 1976 (HSR).  Whether or not a filing is required involves a complex analysis of the facts, as summarized in a 20 page Introductory Guide available at the Web site of the Federal Trade Commission (FTC), the agency which receives HSR filings and determines whether or not to permit a transaction described in an HSR filing to proceed.  
If the patent acquisition were to be made by Microsoft alone, an HSR filing would clearly be necessary.   Whether an acquisition by a consortium with the specific membership of CPTN would be required is a more complex question.
Intriguingly, the 8-K states that one of the conditions for the closing of the patent acquisition will be:
..the expiration or termination of the waiting period (and any extensions thereof) applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and certain other antitrust laws;
Unless this language was careless, it suggests that while the main transaction requires an HSR filing (no surprise there), the patent acquisition would not. Otherwise, there would also be a reference to any HSR filing that, if challenged by the FTC, might prevent the patent sale to go through.
In my last blog entry, I had said that I assumed, but had not had time to look up, whether HSR filings are public; I’ve now had time to take a look, and neither the fact that an HSR filing has been made, nor the text of the filing itself, becomes public. In fact, filings are even exempt from disclosure under the Freedom of Information Act.   
Presumably, that means that the only way that the parties to the consortium would become public via this route would be if the FTC not only successfully challenged the merger transaction, but also entered into a “consent decree” with Attachmate in which, for some reason, it also named the consortium’s members. This scenario is statistically unlikely, in that in 2009, the FTC challenged 19 out of 716 HSR transactions (2009 was a very slow year, due to the global economic recession, and there would likely be significantly more HSR transactions this year).  Of those, eight transactions were abandoned, one is still pending, and the balance were modified under terms memorialized in “consent decrees” between the acquirer and the FTC.  In other words, only about 1% of the HSR filings made last year resulted in a detailed public document.
The bottom line, then, would appear to be whether any of the CPTN members is a public company that is small enough, and has purchased a stake of CPTN that is large enough, to be required to disclose its participation in a public filing.  I do not know for a fact as of this writing whether it would have any obligation to disclose all of the other members of the consortium or not, but I expect that the latter is the right answer.
Patents, Patents, Who’s Got the Patents? The next intriguing question is whether CPTN has purchased all, or almost all, of Novell’s patents, or whether it “cherry picked” the portfolio.  Several bloggers have speculated on this question, with Stephen Walli being the most recent to weigh in, after visiting the U.S. Patent and Trademark Office (PTO) Web site to count what Novell has on file.  Here’s what Stephe found:
Taking a quick look at what the USPTO has to say about patents Novell owns as assignee, we find:
·  Patents with Novell as Assignee Name or Novell as Inventor Name: 467
·  Patent Applications [published] with Novell as Assignee Name or Novell as Inventor Name: 290
So 757 patents and applications.
It’s possible that there are a significant number of unpublished (i.e., confidential) patent applications as well, but that’s less likely, given that Novell would have had to state that it did not intend to file patents abroad on the same inventions.
On the other hand, Matt Asay, a member of Novell’s management until 2005, wrote last Friday at that Novell had “roughly 2,000” patents.
Assuming that Matt’s statement is informed, that’s a pretty wide discrepancy – 467 issued U.S. patents vs. more than four times that number on a global basis.  The most obvious explanation for the discrepancy would be that the difference is made up of foreign patents, although that seems like a very disproportionate explanation, especially since not all of Novell’s software inventions would be eligible for registration in, for example, Europe.
If the number of foreign patents is very high, it could be for one, or more, of several reasons.  First, Novell may have acquired a large number of foreign patents through acquiring foreign companies, like SuSE Linux AG, a German company (although SuSE seems like a bad bet to have yielded many patents, in Europe or otherwise).
The other possibility is that Matt Asay’s total includes many foreign patents of a type that are not issuable in the U.S. (e.g., “Utility Models”).
Whatever the number, we will learn more about the assigned patents once the transaction closes, since assignments of patents will need to be made with the relevant patent offices in the U.S. and abroad, and these filings will be public. If the U.S. assignment includes all, or almost all, of the Novell patents, then it would appear likely that the Novell patent portfolio was scooped rather than cherry-picked.
What is the business plan of the Consortium?  The questions above, of course, are interesting primarily for the clues that they may offer towards resolving this last enigma. We can already see that confidentiality will likely be a hallmark of the consortium’s existence, and it may be possible that it will largely be able to keep its purposes under wraps. This might be the case if the intention is strategic, rather than financial, leading to a series of secret agreements entered into by the consortium, on behalf of its members, with non-members.
Alternatively, of course, the consortium may have a public as well as, or instead of, a private set of goals.  Those goals could include acting as a defensive pool that consortium members could assert against non-members, somewhat similar to the Open Inventions Network.  It could augment this benefit by continuing to act as a purchasing agent to acquire additional patents on behalf of its members.

That’s all that I can offer for now.  Suffice it to say, though, that if you enjoy solving high tech mysteries, this one should provide months, and perhaps years, of intrigue. 


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