The Wall Street Journal reports (subscribers only) that Apple contacted the European Telecommunications Standards Institute (ETSI) last November in an attempt to redefine how member companies license their mobile patents. According to Apple, the telecoms industry “lacks consistent licensing schemes for the many patents necessary to make mobile devices, and offered suggestions for setting appropriate royalty rates that all members would follow”.
Considering that ETSI was the first organisation to arrange the pooling of so-called ‘essential IPR’ – those patents considered to be necessary in order to create compatible mobile devices and therefore all subject to uniform and pre-agreed low royalty rates – the organisation must have raised a quizzical eyebrow over Apple’s letter. It certainly kept it quiet for almost three months…
Apple asked for transparency in patent royalty rates, which it says are currently being arbitrarily negotiated behind closed doors, making it difficult to determine if licensing terms are actually fair, reasonable and non-discriminatory – certainly for those companies, like Apple, who are on the wrong side of the closed doors (despite ownership of essential patents).
The essential patents are also known as FRAND patents – an acronym of fair, reasonable and non-discriminatory, which are the terms under which the essential patents are offered. Essential patents do not cover areas such as the user interface, which could be built in various different ways – they only cover absolutely essential areas of technology. Here’s the official definition of “essential” by standards organisations (deep breath, legalise coming up…):
“‘Essential’ as applied to IPR means that it is not possible on technical (but not commercial) grounds, taking into account normal technical practice and the state of the art generally available at the time of standardization, to make, sell, lease, otherwise dispose of, repair, use or operate equipment or methods which comply with a standard without infringing that IPR.”
Translations to plain English would be welcomed! As for how many patents are deemed essential, that’s a tricky question to answer, and one that is changing all the time.
A report by Fairfield Resources International in January 2009 cited 380 families of patents issued or declared to ETSI or ARIB (Association of Radio Industries and Businesses) as being essential to WCDMA Release 7 – i.e. 3G networks and devices. Of these, 150 (39 per cent) were judged essential or “probably essential”. These results were then combined with those of three previous reports concerning WCDMA essential patents, resulting in a total of 1,889 families studied of which 529 (28 per cent) were judged essential.
A follow-up report on LTE and the core network by Fairfield Resources in 2010 found 1,115 patents and applications across 210 families. Of these, 105 families (50 per cent) have at least one patent judged essential or probably essential (I've long since lostthe links to these pdf documents, but drop me an email if you would like to see them).
The letter from Apple to ETSI Director General Luis Romero Saro has been leaked to Florian Mueller at the Foss Patents website. The two-page letter can be read on Scribd here. In the letter, Bruce Watrous, Apple VP and Chief IP Counsel for Intellectual Property and Licensing, says that ever since it made its patent declaration to ETSI in 2007 with the launch of the iPhone, the company has adopted FRAND principles that it now wants others to follow:
“Apple is committed to a FRAND licensing framework for cellular standards essential patents based on three basic elements – appropriate royalty rates, common royalty base and no injunction. Apple is committed to this framework, provided that other parties reciprocate.”
Let’s first look at appropriate royalty rate. Here’s what Apple attests:
“An appropriate rate as one that is reflective of the party’s portfolio of cellular standards essential patents and patent applications as compared to the total, industry-wide pool of such patents and applications.”
So what’s that? According to Mueller, what it isn’t, is Motorola’s recent demand for 2.25 per cent and Samsung’s 2.4 per cent royalties. Next, the common royalty base Here’s Apple’s take:
“The common base, as between two negotiating parties, should be no higher than the industry average sales price for a basic communications device that is capable of both voice and data communication.”
Fair enough, you can only ask for a fair price against the overall value of the actual item using the patents.
So is that the component price or the price of the finished item (which would be obviously considerably higher)? Common sense suggests the former, although many patent holders demand the latter. Finally, the fairly self-explanatory no injunction:
“A party who made a FRAND commitment to license its cellular standards essential patents… must not seek injunctive relief on such patents.”
Apple’s letter also reveals that it believes it has 140 essential patents and patent applications relating to LTE, UMTS, EDGE, GPRS, and GSM.
We’re not the only ones to be taken by surprise by the letter. Cisco, which also owns essential patents, was unaware for a couple of months. In a letter to the ETSI Director General dated 31 January, Dane Lang, Cisco’s VP for Intellectual Property and Deputy General Counsel, writes:
“Cisco Systems has learned of the letter sent by Apple to ETSI on 11 November 2011. Like Apple, Cisco owns patents that are essential to certain wireless air interface standards created within ETI or the 3GPP. Cisco shares Apple’s view that the telecommunications industry would benefit from a more consistent and transparent application of FRAND. Cisco encourages discussion of the issues raised in Apple’s letter within the ETSI IPR Special Committee.”
It’s interesting that Cisco is being proactive on this issue, considering it is not currently involved in any of the multiple alleged patent infringement cases. There’s also been support from Microsoft, which issued a public statement and a blog post about FRAND licensing, including the promise that:
“Microsoft will not seek an injunction or exclusion order against any firm on the basis of those essential patents.”
Dave Heiner, VP & Deputy General Counsel of the Corporate Standards Group and Antitrust Group at Microsoft, added that:
“Any patent holder that promises to make its standard essential patents available on reasonable and nondiscriminatory terms should do just that. That means that such patent holders should not seek to block shipments of competing products just because they implement an industry standard— a license on reasonable terms is always available.”
And so to Google, which apparently has not been as accommodating as Apple, Cisco or Microsoft. A report on Bloomberg suggests that Google plans to send a letter to standards organisations – including ETSI – reassuring them it will license Motorola Mobility’s patents on a fair, reasonable and non-discriminatory basis (i.e. FRAND), when it completes the acquisition of the phone manufacturer. Niki Fenwick, a spokeswoman for Google, told Bloomberg:
“Since we announced our agreement to acquire Motorola Mobility last August, we’ve heard questions about whether Motorola Mobility’s standard-essential patents will continue to be licensed on FRAND terms once we’ve closed this transaction. The answer is simple: They will.”
Florian Mueller has seen a letter from Google to the IEEE, which presumably is similar to the one Google is believed to have sent to ETSI. According to Mueller’s analysis, it fails to provide “an unequivocal commitment to truly reasonable royalty demands and a clear No Injunction policy”. He also adds:
“There's a reference to pending litigations, but those won't be withdrawn because one of the countless loopholes in Google's "commitments" is that it reserves the right to pursue injunctions against those who didn't take a license on such terms in the past.”
European regulators are expected to rule on the Google-Motorola deal next week, and an in-depth investigation into a possible monopoly situation could delay the process by up to four months. The letter to ETSI and others is being considered as a strong defensive action on Google’s part. But does it go far enough to end the patent lawsuits?
So, will Apple once again take a leadership position in the mobile industry and be the company to end the current widely perceived abuse of FRAND? If so, it’s a shameful indictment of the industry ‘establishment’. Let’s hope ETSI receives further support from patent holders (and that also means you, Google/Motorola, you need to up your game here) and can indeed bring an end to the crippling and unnecessary legal cases involving essential wireless patents.
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