Verizon, Cisco Face $500M Antitrust Claim

MANHATTAN (CN) - "The titans of wireless technology" are conspiring to drive smaller competitors out of business by making their patents worthless, according to a $500 million federal antitrust complaint. Verizon, Cisco Systems, and Ericsson created the Allied Security Trust "to prevent small patent rivals from licensing or selling their patents at fair market value," according to the complaint.

SITI-Sites.com, and MLR, a Virginia-based involuntary plaintiff organized in 1999 to buy SITI patents, say Verizon Communications recruited other telecom giants to join to join the Allied Security Trust.

By "drying up" the smaller companies' patents for third- and fourth-generation wireless technology, SITI, a Delaware corporation that was known as Spectrum Information Technologies until 1999, says the larger companies can exert more control over wireless product development and practices. SITI began a multi-year liquidation in 2006.

According to the complaint, James Moore of Harvard Law School has written that large companies pool together to keep small, emerging companies out of their markets or to force small companies to sell out before they become a threat. In one paper, Moore wrote that Allied Security Trust exists "to crush small companies and individual inventors," according to the complaint

After buying useful patents for its members, SITI claims, the Delaware-based trust disposes of the technology by selling nonexclusive licenses or through trade with an agent of its choosing, with built-in price protections and discriminatory rebates for licensed members.

SITI calls this behavior a "catch and release" plan.

"Defendants want to force these patterns into the open market at low prices, so they can more easily compete against one another, and freely advance the technology as they see fit," according to the complaint.

SITI says it has about 150 global licenses-in-waiting with $260 million in license fees at risk, but Verizon is trying to monopolize wireless patent intellectual property to discourage "game-changing" surprises such as Apple's release of the iPhone.

The trust spent 3 years drying up SITI's patents through sham transactions, price fixing, systematic market manipulation and deceptive buying practices, SITI claims.

Just as the SEC calls it "painting the tape" when a trader depresses a stock's price near the closing bell, the trust lures members by offering them a cheaper sublicensing price if they join, according to the complaint.

SITI says the trust is "creating a Wal-Mart-type chain, but of 'virtual' stores, selling everything, and operating online globally."

"Their patent needs and business strategies are converging into one stream, as handhelds [and] iPad tablet-reader type PCs ... all require easier-cheaper content access," according to the complaint.

Verizon and the trust have made public statements about their desire to put so-called "nonproducing entities" such as SITI out of business, SITI claims.

SITI says its patents are fundamental to 3G and 4G wireless Internet transmissions, which "are a necessity to global carrier networks."

"The motivation of ... the Allied Security Trust ... is to protect the oligopoly positions of their large member firms," the complaint states.

SITI and MLR sued Verizon, Allied Security Trust, Cisco Systems, Ericsson Inc.-Sony Ericsson Mobile Communications, the current CEO of the trust, Daniel McCurdy, and the trust's former CEO, Brian Hinman.

They seek $500 million, an injunction and recovery of ill-gotten gains, alleging collusion and antitrust violations. They are represented by Lawrence Powers of Englewood, N.J.

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