Stop me if you've heard this one before. Reuters reports that the Rockstar consortium, a joint effort between Apple, Microsoft, Sony, and Blackberry, has sued Google and Android manufacturers Samsung, HTC, LG, ASUStek, Huawei, ZTE, and Pantech over patents formerly held by the now-defunct Nortel Networks. Rockstar won the patents in an auction in 2011 that topped out at $4.5 billion - Google lost the same auction with a $4.4 billion bid.
East Texas: where tech companies go to bleed money.
The companies were sued in eight separate filings in the eastern district court of Texas, which is now famous for its generally favorable disposition towards plaintiffs in patent suits. Rockstar is suing Google in particular over seven individual patents relating to its search engine software, one of which was filed even before Google was incorporated. The scope of these patents is broad, but they cover core search technologies, including the incorporation of users' profiles and history and serving advertisements based on search results. That's kind of a big deal for Google, which still derives the vast majority of its $50+ billion-a-year revenue from advertising.
The suits against the manufacturers use seven more patents, repeated for each defendant. These are even broader, covering everything from PCB hardware design to network data to graphical user interface elements, but specifically targeting those applications of the patents used in Android. Interestingly, the defendants include some of Microsoft's own licensees for Windows and Windows Phone (Samsung, HTC, Asus) and Apple's business partners in the hardware supply chain (Samsung and LG). The Rockstar consortium and its subsidiaries had previously entered licensing negotiations with the defendants, but could no reach agreements. Rockstar is seeking permanent injunctions in all cases, meaning that potential settlements would probably include huge licensing fees.
To wrap this up: the companies who won a gigantic patent auction wanted a ton of money from every other major player in the search and mobile business. The other companies balked, and now they're going to hit them with a gigantic financial stick provided by the USPTO and the federal court system.
The prognosis for Google and Company isn't good. Most of these patents predate the explosion of the mobile market, and their technical merits are hard to deny. The defendants will likely try to argue to get some or all of the patents invalidated for being too obvious or broad, but it's almost inevitable that at the end of this long, long process of suits and appeals, lots of money will be headed towards the hands of the patent holders. While this case serves as a good example of the problems with the US patent system in general and software patents in particular, it's unlikely that long-awaited patent reform will arrive in time to help the situation.
Further reading: FOSS Patents