Patent suits involving major smartphone players are announced on an almost daily basis now. This new article in The Guardian talks about "billions at stake in the smartphone patent wars" and contains a couple of quotes from me on the economic impact of all of this.
Two days ago, Spansion sued Samsung over a flash memory patent. Spansion previously lodged an ITC complaint against Samsung (for more detail on the ITC's role in patent enforcement, see this posting), but an ITC judge made an initial determination in Samsung's favor. With its new suit, Spansion takes the battle to the US District Court for the Western District of Wisconsin. Regular courts aren't bound by ITC determinations or decisions, so Spansion might be defeated in one forum and prevail in another.
Yesterday, Microsoft announced another lawsuit against Motorola, filed with the US District Court for the Western District of Washington about six weeks after its complaints lodged with the ITC and the same district court over patent infringement by Motorola's Android-based smartphones.
The new complaint also involves smartphones (besides other technologies) but it doesn't assert infringement. It's about "Motorola's breach of its commitments to" two major standardization bodies "and their members and affiliates -- including Microsoft." Those standard-setting organizations are the Institute of Electrical and Electronics Engineers Standards Association, commonly referred to as "IEEE-SA" (pronounced as "I triple-E S A"), and the International Telecommunications Union (commonly known as "the ITU").
The short and simple version is that this allegation is based on a concept that Apple is already using as a defense against Nokia, insisting that patents that have been committed to standards must be licensed on reasonable and non-discriminatory terms (which among other things prohibits overcharging). Just like Apple wants a court to determine that Nokia owes Apple a patent license on such terms, Microsoft now alleges that Motorola has demanded "royalties that are excessive and discriminatory" (for patents related to such technologies as wireless networking (WLAN) and the AVC/H.264 video codec) and asks the court to ensure that those payments will be reduced to a more appropriate level.
I'll explain this a little bit more -- and then we'll get to what this means, from a strategic point of view, for the patent disputes between those and similar companies.
If patents are essential to an industry standard, the standards-setting (or "standards-developing") organization in charge will typically require that everyone has access to those patents on RAND (reasonable and non-discriminatory) terms. This relates to the license fees that have to be paid but also to other terms and conditions. It also relates to cases in which a company may act unreasonably and/or discriminatorily by withholding a license.
There are also some standards organizations that define other requirements. For example, the World Wide Web Consortium (W3C) has a policy (previously mentioned on this blog in connection with video codecs) that its standards must either be unencumbered by patents or the essential patents must be available on a royalty-free and generally restriction-free basis. I have doubts whether the W3C will be able to uphold that principle forever as web standards increasingly include technologies that are patent thickets. Royalty-free/restriction-free access is certainly the simplest solution as long as it works. But it's only an exception, and RAND is the norm.
In particular, major telecommunications standards such as GSM and 3G are usually RAND-based. Nokia and Motorola were involved with certain standards-setting efforts and made RAND commitments. Apple (in a defensive move it made on 11 December 2009) and Microsoft (in yesterday's proactive move) are now seeking to enforce RAND.
In European competition law, the term commonly used is FRAND. The additional letter (the F) stands for "fair". But the term as a whole is synonymous with what RAND means in the US and many other jurisdictions. A few weeks ago I wrote about "Europe's friend FRAND", meaning that European politicians and regulators frequently praise (F)RAND as a good practice and as a way to fight against overcharging and other problems that could arise in the absence of (F)RAND commitments.
The term "reasonable and non-discriminatory" is meant to work across all industries. In fact, the first time I personally fought for (F)RAND terms was in connection with soccer broadcasting rights. A term that works everywhere must also be applied to the particular parameters of each industry. The right to broadcast a match between Real Madrid and FC Barcelona on pay TV is a different "animal" than the right to play H.264 videos on a Windows Phone 7 device. But (F)RAND as a high-level concept can govern any commercial activity of whatever kind.
The fact that (F)RAND depends on the specific context doesn't make it an empty word. (F)RAND is a framework, and those who make a (F)RAND commitment but overstep (F)RAND's boundaries can be legally required to comply.
It wouldn't be realistic to assume that nobody ever oversteps. Some will push the envelope too far. Apple believes that Nokia doesn't honor its FRAND commitments, and Microsoft has arrived at the same conclusion concerning Motorola. That's why those disagreements have now been put before the courts of law. Depending on the outcome, those cases could serve (in addition to others that have already been adjudicated) as a lesson for others in the industry. Every such dispute has the potential to add some more clarity.
After Nokia sued Apple for patent infringement, Apple denied that it infringes any valid Nokia patents and also denies that those patents are truly essential to any standard, and then continues:
"to the extent that they [the patents] are construed by the Court as essential, Apple asserts that Nokia is obligated by commitments it made to Standards Setting Organizations ('SSOs'), but has refused to license those patents on Fair, Reasonable, and Non-Discriminatory ('F/RAND') terms, and [...] to the extent the Nokia Asserted Patents are construed by the Court to be essential to any standard, Apple asserts that it has the irrevocable right to be licensed under those patents on F/RAND terms."
In its prayer for relief (the decisions Apple asks the court to take), Apple accordingly asks for a determination that Nokia fails to honor its FRAND commitments:
"e. On Apple's Fourth claim for relief, enter judgment declaring that the terms offered by Nokia to Apple to license patents it claims are essential to implement the GSM, GPRS, EDGE, UMTS, and WLAN standards, including the patents at issue in the Complaint, are not F/RAND terms;"
I previously quoted from the first paragraph of Microsoft's complaint against Motorola, which already accused Motorola of failure to grant licenses on RAND terms. Its ninth paragraph shows that just like Apple, Microsoft would like the court to determine a failure to comply with RAND terms, but it goes one step further by asking the court to determine what would be a reasonable royalty rate:
"Accordingly, Microsoft seeks: i) [...]; ii) a judicial declaration that Motorola has breached these obligations by demanding excessive and discriminatory royalties from Microsoft; iii) a judicial accounting of what constitutes a royalty rate in all respects consistent with Motorola’s promises for WLAN patents identified as 'essential' by Motorola and for H.264 patents identified by Motorola; [...]"
Paragraph 65 of Microsoft's complaint states that Motorola's alleged conduct relates to a number of Microsoft products, including but not limited to its smartphone technologies:
"65. Instead [of living up to its (F)RAND commitments], Motorola is demanding royalty payments that are wholly disproportionate to the royalty rate that its patents should command under any reasonable calculus. Motorola has discriminatorily chosen Microsoft’s Xbox product line and other multifunction, many-featured products and software, such as Windows 7 and Windows Phone 7 and products incorporating Microsoft software, for the purpose of extracting unreasonable royalties from Microsoft."
So this is yet another patent-related dispute involving (even if not exclusively) smartphones.
When looking at the different patents-in-suit in the smartphone sector, it's important to distinguish between patents that are subject to (F)RAND commitments and patents that are unrelated to any (F)RAND-based standard. If companies own patents of the latter kind, they may not have an obligation to grant a license at all. Such patents give their holders much more leverage.
Apple's answer to Nokia's initial complaint reveals that Nokia tried to use its standards-related patents to get access to certain Apple patents:
"9. Through the present suit, Nokia has asserted unfounded claims of infringement and breached licensing commitments it made to license on F/RAND terms all patents that it claimed were necessary for a party to practice standards. Nokia has also violated those licensing commitments by demanding unjustifiable royalties and reciprocal licenses to Apple's patents covering Apple's pioneering technology -- patents unrelated to any industry standard. [...]"
In other words, while Apple wants to enforce Nokia's (F)RAND commitments to patents on certain standards, Apple itself wants to remain completely free with respect to patents that it holds outside of any (F)RAND-based industry standard.
In an article published by c't, Europe's leading magazine for software developers, this week (and mentioned by me in my previous blog post), I pointed out that patents related to certain technologies, particularly the so-called radio stack, are far more likely to be subject to (F)RAND commitments than patents reading on innovations at other levels of the technology stack, such as on programming languages (Oracle and Gemalto claim some of their patents are infringed by Dalvik, Android's virtual machine) or on user interface elements.
The flurry of litigation surrounding smartphone technologies could have a very positive side effect by demonstrating to all sorts of patent holders that they must meet their (F)RAND commitments and that (F)RAND is a very meaningful term.
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