Balancing intellectual property enforcement with the objective of uninterrupted availability of the Internet -- in other words, drawing the line between freedom and anarchy, or lawlessness and openness -- is one of the most important regulatory challenges of our times. That's why the proposed Stop Online Piracy Act (SOPA) is such a hot topic. Even though Google's anti-SOPA call to action, entitled "Don't censor the web", is somewhat alarmist, I'm sympathetic to the concerns of the "Stop SOPA" movement.
But there is another threat to the Internet from an unreasonable form of IP enforcement that I wanted to discuss. I'm talking about the disruptive impact of injunctions based on standards-essential patents. Everyone knows that the Internet runs on standards. Google, the outspoken critic of SOPA, has been conspicuously silent on that issue. Worse than that, through its proposed $12.5 billion acquisition of Motorola Mobility, Google will gain the means to break the Internet: the deal includes patents on key Internet standards such as IEEE 802.11 (the leading WiFi, or WLAN, standard) and AVC/H.264 (the format in which, according to data reported by GigaOM, four out of five videos are encoded).
The holders of standard-essential patents are entitled to reasonable compensation (unless they elect to contribute to royalty-free standards). The issue facing the information and community technology industry and, more generally, the Internet is that some companies try to use such patents as strategic weapons in various jurisdictions. In order to do so, they seek not only fair compensation but injunctive relief: court orders banning products or requiring that certain services be discontinued.
In the following sections, I'll discuss Motorola Mobility's well-documented track record of seeking injunctions based on allegedly standards-essential patents, the ways in which Google's envisioned acquisition of MMI will exacerbate this problem, and widespread concern in the industry over such injunctions, which contrasts with Google's aforementioned silence.
I am writing this post on the eve of a series of hearings that will take place at the Mannheim Regional Court tomorrow, further to complaints brought by MMI against Microsoft in Germany. I am going to report on those hearings tomorrow.
Motorola Mobility is seeking injunctions based on standards-related patents in the US and the EU
While Samsung's assertions of FRAND-pledged standards-essential patents against Apple have already triggered a preliminary investigation by the European Commission and received a lot of attention, Motorola Mobility's enforcement of FRAND-pledges patents almost gone unnoticed even though it is similarly aggressive.
Both Apple and Microsoft brought lawsuits against Motorola in the United States alleging a breach of FRAND licensing commitments in response to MMI's assertions of standards-related patents. Those two companies are also being sued by Motorola over such patents in Europe.
The first one of the current wave of smartphone patent lawsuits to be adjudicated anywhere in the world (not counting preliminary injunction decisions involving Apple and Samsung) was a lawsuit Motorola started against Apple in Germany over a FRAND patent. Motorola's German counsel devised a clever legal strategy for arguing in favor of injunctive relief despite Apple's willingness to take a FRAND license and pay FRAND-based damages for any past infringement. As smart and successful as that strategy may have been, injunctions based on allegedly standards-essential patents raise serious issues.
Germany may not be the only EU member state in which this is happening. Earlier this month, a lawsuit filed by Microsoft against Motorola in London became known. This could be a response to lawsuits started (or threatened) by Motorola in the same jurisdiction.
In a January 3, 2012 brief filed with the United States District Court for the Western District of Washington (opposing a Microsoft motion for partial summary judgment concerning standards-essential patents and injunctive relief), Motorola said that it's not aware of "any legal authority that stands for the proposition that RAND assurances preclude a patentee from obtaining an injunction". Instead, Motorola advocates that standards-related licensing obligations be considered alongside a variety of other factors, and one of the circumstances Motorola believes may justify injunctions based on standards-essential patents is "the fact that an infringer competes with the patentee". MMI elaborates on that idea and expresses the following view:
"[...] Microsoft and Motorola are competitors, and H.264-related technology is relevant to their competition. As such, denying Motorola its fundamental 'right to exclude' Microsoft from infringing Motorola's patents would cause irreparable harm [that cannot be compensated with monetary damages]."
The above passage essentially says that it's fair game to use an essential Internet standard such as H.264 as a strategic nuclear weapon -- no matter what collateral damage the Internet at large may suffer. In my view, it would be inconsistent for Google to oppose SOPA but engage in this kind of conduct, with all of the potentially harmful consequences it can have.
Shutting down H.264 videos on popular websites or disrupting WLAN access to the Internet, which is very key in many places (especially, but not only, for performance reasons), would have dramatic effects on the user experience of millions, if not billions, of Internet users. Imagine what would happen if other holders of standards-essential patents got away with this behavior.
Why Google's envisioned acquisition of Motorola Mobility will most likely exacerbate the problem
There are at least three reasons for which I believe Google will use Motorola Mobility's FRAND-pledged standards-related patents even more aggressively than an independent MMI would:
Resources: Last week, Google reported that it had, as of the turn of the year, "cash, cash equivalents, and short-term marketable securities [worth] $44.6 billion". With such cash reserves, Google can take the risk of enforcing rulings even if successful appeals resulted in substantial liability (such as in Germany). With this amount of money in the bank, the specter of future fines by antitrust regulators is also much less scary than to the average company.
Ambition: If MMI remained an independent entity, its objective would basically be to achieve favorable settlements with Apple and Microsoft. By contrast, Google has declared its intent to use MMI's patents for the much broader objective of discouraging intellectual property enforcement against any company in the Android ecosystem. Some Android companies, such as HTC, have publicly indicated that they rely on Google's related promises. The more demanding a party to a legal dispute is, the more aggressively is has to act. Based on what Google has vowed to do post-acquisition, "Googlorola" will be much more demanding, and consequently more aggressive, than MMI on its own would have been.
Strategy: the way I see it, MMI would have been willing to accept some collateral damage on Internet-related standards just to achieve, as I said before, the objective of more favorable settlements with Apple and Microsoft. But Google's strategic goals would make a certain degree of disruption part of the plan. Collateral damage would become a fully intended consequence in connection with H.264, a video standard that Google would like to supplant with its own WebM (VP8) codec in its tireless quest for total Internet domination. Simply put, Google hates H.264. It just has to provide YouTube videos in that format (in addition to the format of its choice) to maximize the reach of its service.
Google advocates the inclusion of its WebM (VP8) format in the official HTML 5 standard, claiming that it's "unencumbered" by patent rights. However, 12 companies submitted to MPEG LA (a patent pool firm) patents that they believe read on VP8. Unless all of those are wrong, it's rather likely that VP8 will ultimately be a royalty-bearing video codec as well.
Google would presumably love to kill two birds with one stone by aggressively targeting the market-leading H.264 codec as part of its overall Android-related litigation strategy.
The means and the motives couldn't be much clearer. There's even a fourth -- and no less frightening -- scenario I'd like to discuss. For Google's Android-related business model, it's key to force device makers to comply with certain rules that are designed to lock end users into Google's search engine and other advertising-financed services. Google already uses intellectual property rights (specifically, its trademark rights as well as its copyright in some closed-source components such has the Android Market client) as leverage that has led most device makers to accept Google's set of rules. With standards-essential patents, Google could wield another big stick to force non-compliant device makers, such as Amazon, to take a commercial Android license from Google rather than use the Android code under open source licenses.
Industry leaders and academics agree on the harmful effects of standards-related injunctions -- why doesn't Google speak out?
I have received material concerning the worldwide use of FRAND-pledged standards-essential patents from various companies, law firms, and individuals who take an interest in the related issues. For example, two large, unaffiliated companies pointed me to a recent Federal Trade Commission request for comment on standard-setting issues (project number P11-1204). I have looked at many of the submissions, including a joint response of Cisco, HP, IBM and RIM. Those four companies are major patent holders themselves, but in their filing they express their belief that "giving a RAND commitment should mean that a patentee gives up the right to enjoin or exclude the use, manufacture, sale, or importation of products that implement the standard for which the patentee claims to own essential patents". That's exactly the opposite of the Motorola Mobility position I quoted further above.
While Motorola tries to weasel its way out of its FRAND licensing obligations by presenting all sorts of reasons for which those shouldn't ultimately be enforceable, major industry players like the companies I mentioned advocate a maximum degree of legal certainty for those implementing a standard.
Here's an interesting passage from Broadcom's submission to the FTC:
"The inability to seek an injunction under a RAND regime is a substantive part of RAND, however, not merely a question of what remedy might be available once a negotiation breaks down. From the perspective of the potential adopter of the standard, a portion of the consideration received is the right to negotiate a license without fear of being blocked from using the standard altogether."
Ericsson argues that "[t]he whole purpose of the (F)RAND commitment is that standard adoption should not be blocked (unless a user is unreasonably refusing to take a necessary license)", and Verizon proposes "an elegant solution: using equitable considerations to deny injunctive relief to prevent patent hold-up of collaboratively set standards".
Professor Mark Lemley, a true thought leader in patent law and policy, is generally against any excessive grant of injunctive relief on the grounds of patent infringement. With a view to standards-essential patents, he wrote (in a 2002 article for the California Law Review, entitled "Intellectual Property Rights and Standard-Setting Organizations") that a patent holder who participated in a standard-setting process and is "bound by an SSO [Standard-Setting Organization] IP rule [...] has only a contractual claim for a royalty, not a cause of action for patent infringement that might result in an injunction, treble damages, and attorneys' fees", a difference he describes as "dramatic".
There's clearly a lot of support among industry leaders and academics for denying injunctions based on FRAND-pledged standards-related patents, or at least for setting a very high bar. Only a minority of companies, including Qualcomm (whose conduct was investigated by antitrust regulators), would like to be able to exploit such patents aggressively.
It's time for Google to come clean on this issue and explain what it's going to do with Motorola Mobility's standards-related patents following the consummation of the proposed transaction. Is Google going to act in accordance with what the likes of Cisco and IBM propose as a responsible use of standards-essential patents, or is it going to pursue its strategic objectives to the detriment of the Internet at large?
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