$6 Billion Patently deal might create more IP lawsuits

Last August, the Canadian enterprise technology giant OpenText announced its plans to acquire the U.K.-based IT software vendor and consultancy Micro Focus for $6 billion. The deal was successfully closed on January 31, attracting attention from industry experts and sparking discussions about the implications for both companies’ customers and the underlying motivations driving the acquisition.

One significant aspect that caught the attention of observers was Micro Focus’s extensive patent portfolio, which it had amassed over nearly five decades through internal research and development. The patents covered diverse ranges of technologies, including machine learning-based network device profiling and blockchain-based transaction methods.

The LOT Network’s Protection Against Patent Trolls

Over nearly five decades, Micro Focus accumulated an extensive catalog of thousands of patents through its internal research and development efforts, starting as an early pioneer in  COBOL, as well as through acquisitions of various legacy software companies like Borland, Novell, Serena Software, and certain software assets of HPE. As recently as the months surrounding OpenText’s approach in August 2022, Micro Focus continued to receive dozens of patents, covering a wide range of technologies from machine learning-based network device profiling to blockchain-based transaction methods.

In 2021, Micro Focus became a member of the LOT Network, a non-profit organization that aims to protect its members from patent assertion entities (PAEs), commonly known as “patent trolls.” The LOT Network’s approach involves cross-licensing patents among its members, preventing them from falling into the hands of PAEs. When a company joins the LOT Network, it commits to ensuring that its patents do not end up in the hands of PAEs. If, however, such a scenario occurs, all LOT members are automatically granted a license to the patents, safeguarding them from future litigation as long as they remain part of the network, even if the patent holder leaves the LOT Network.

It’s essential to note that the LOT Network’s intention is not to discourage legitimate patent enforcement or assertion scenarios between member companies.

OpenText’s Patent Advantage and LOT Network Resignation

OpenText’s acquisition of Micro Focus has resulted in the conglomerate owning several granted and pending patents, combining its existing portfolio with those acquired from Micro Focus.

Micro Focus officially submitted its resignation notice to the LOT Network in March. However, the significance of this resignation is somewhat limited, as the LOT Network’s terms dictate that when a member company is acquired, the acquiring company must join the organization to maintain coverage. In this case, OpenText, which was not a member of the LOT Network, is not obliged to join. Consequently, six months after the acquisition date, July 31 in this instance, Micro Focus’s membership, and thus its patents, will no longer be subject to the LOT Network agreement.

OpenText’s Patents and Potential Risks

Sam Wiley, VP of partnerships and thought leadership at LOT Network, expressed concern in an interview that OpenText, a legitimate operating company entitled to use the patents for its purposes, might consider selling to a patent assertion entity (PAE) in the future.

IP attorney Patrick McBride, formerly leading IP programs at Red Hat, also echoed this apprehension. He speculated that OpenText likely has specific plans for the patents, as indicated by its decision to withdraw Micro Focus’s assets from the LOT Network. The withdrawal implies that OpenText may have intentions beyond simply using the patents for its operating company purposes.

Patent Litigation and OpenText’s Acquisition Strategy

The acquisition of Micro Focus has significantly expanded OpenText’s patent portfolio. LOT Network estimates that Micro Focus effectively doubles OpenText’s patent assets. Managing such a vast trove of patents incurs significant costs, with Micro Focus reportedly spending up to $3 million annually on its patent portfolio management. OpenText might consider selling patents to third parties, including PAEs, to offset these expenses and generate revenue.

If OpenText decides to pursue patent litigation, it must be aware of the potential drawbacks associated with such actions. Engaging in legal battles over patents can be costly and unpredictable and may tarnish the company’s reputation as a technology provider.