Thursday, December 1, 2011

In IPCom-HTC case, court bases value in dispute on 2.5 to 3.5 percent royalty rate for one 3G-essential patent

As a follow-up to the debate over IPCom's enforcement activities against HTC in Germany and HTC's claim that its business won't be affected, I asked IPCom a follow-up question. For a reply, they sent me a document they called "self-explanatory": a November 28, 2011 order by the Karlsruhe Higher Regional Court setting the value in dispute for purposes of the determination of court fees and the part of IPCom's legal expenses that HTC will have to pick up under the applicable "loser pays" system.

Beyond answering the specific question I asked, that two-page document is extremely informative:

  • It's yet another indication of HTC having misrepresented the scope of the Mannheim Regional Court's February 2009 ruling. The appellate court states explicitly that "the complaint targeted -- as was clarified at least during the appellate proceedings -- the totality of Defendant's UMTS-capable mobile devices offered and distributed in this country".

  • The appellate court's determination of the value in dispute is clearly based on that interpretation and reaches the legal maximum of 30 million euros ($40 million) for either court (Mannheim Regional Court and Karlsruhe Higher Regional Court). It's obvious that a case involving just one device would not have such a value in dispute based on expected royalties.

    The effect of that value in dispute is that HTC will now have to pick up total court fees amounting to approximately $850,000, and north of $1 million of IPCom's legal expenses under the "loser pays" principle.

  • The appellate court explained that the key criterion for determining the value in dispute is IPCom's "[economic] interest" in the enforcement of its rights, which in this case is based on the "expected license fees". The court notes that IPCom argued that in this industry ("electronics or, respectively, telecommunications"), a royalty rate of 2.5 to 3.5 percent for a single patent is reasonable, and that this also applies to standards-essential patents.

    While the court doesn't affirmatively support this particular royalty rate, the court would not have set such a high value in dispute if IPCom's claims had failed to pass a basic plausibility test.

    HTC could try to object to this order, but I can't see how it could realistically convince the court that the value in dispute does not reach (easily, in fact) the legal maximum of 30 million euros.

This is the court order (which I have redacted):

11-11-28 OLG KA IPCom HTC Kostenfestsetzungsbeschluss

As an alternative to agreeing on a fixed royalty rate in the range mentioned above, IPCom would apparently be willing to enter into license agreements with device makers on unspecified FRAND terms, leaving the determination of a FRAND royalty rate to a German court in the event of a disagreement.

Earlier today, Nokia announced new court rulings on the validity of two IPCom patents. IPCom apparently had to amend those patents in order to avoid their complete invalidation, which is what patent holders generally try to do. Such amendments can greatly reduce the commercial value of a patent, but if they are cleverly-drafted, they can result in new claims that are even more useful to the patent holder.

In today's statement, Paul Melin, VP intellectual property at Nokia, also said the following:

"Rather than continuing its aggressive attempts to extract unrealistic licensing terms and mislead the public, it's time for IPCom to come to terms with reality."

The debate over what royalty rates are acceptable under a FRAND framework is not going to end anytime soon.

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