Wednesday, February 8, 2012

Google letter to standards bodies indicates no improvement whatsoever over Motorola's FRAND litigation tactics

I have just obtained a copy of Google's letter to the IEEE, one of the standard-setting organizations to which Google wrote a letter today as it previously announced. You can find it further below. Let me provide some comments beforehand, and then I'll add more detail below the letter.

After the first reports appeared, I was already somewhat concerned that the letter might fall short of what's really needed: an unequivocal commitment to truly reasonable royalty demands and a clear No Injunction policy.

Google's letter spans over four pages but fails to provide satisfactory answers to those burning questions. With sincere intentions, Google could have put on a page -- or a page and a half -- everything that other companies in the industry, and consumers using the ubiquitous standards over which Motorola is suing others, need to be reassured about. Look at Apple's and Microsoft's concise and crystal clear statements. Why can't Google provide clarity like that? Because its four pages aren't meant to improve anything. Google is basically saying that it will do exactly what Motorola is already doing now.

The two parts I mostly care about are royalty demands and injunctions:

  • On royalties, Google explicitly endorses and reinforces Motorola's 2.25% position known from its disputes with Apple and Microsoft, including the idea of charging vendors based on the "net selling price of the relevant end product" even if patents are implemented in only one hardware or software component. In other words, if a BMW car implements H.264 or UMTS, they will want 2.25% of the price of the car, even if it means a per-unit royalty in the thousands of euros.

  • On injunctions, the letter basically says that the only way to avoid them is to accept those out-of-line royalty demands that no responsible company in the industry will be able to accept. I can't imagine that any major player ever acceded to that demand.

    There's a reference to pending litigations, but those won't be withdrawn because one of the countless loopholes in Google's "commitments" is that it reserves the right to pursue injunctions against those who didn't take a license on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.

Seriously, this letter fails to address any concern any regulator may have. I can't see that this paves the way for the deal to go through in the short term. To me it looks like Google is taking an extreme position now so it can easily make concessions going forward.

It would be a terrible precedent if regulators contented themselves with this. For example, Samsung is being investigated by the European Commission over suspicions of FRAND patent abuse. Samsung demands a 2.4% royalty on the relevant end product; Google and Motorola seek 2.25%. Other than that, they behave in essentially the same way. That 0.15% difference can't be where the line is drawn between acceptable conduct and abuse. Samsung could take the language of Google's letter, adapt it to its own situation and sign it any day of the week. There would never have been a need for the EU to open formal investigations if such a non-commitment could solve the problem.

Here's the letter:

12-02-08 Google to IEEE on MMI Patents

I'll now comment on each paragraph of Google's letter:

  1. Just an introductory statement.

  2. The first part is a broad and general FRAND statements that doesn't give FRAND any specific meaning. The last sentence of that paragraph states that "the sale or transfer of MMI patents [...] or change in corporate control" shouldn't be a way to alter or evade existing FRAND obligations. A firm commitment to ensure any subsequent owner's compliance with a set of clear guidelines would be more helpful than this because this statement on the effect of a transfer doesn't mean much on its own.

  3. The third paragraph (out of 13) is totally sufficient to see that Google doesn't want to promise any improvement. It s commitment to be "consistent with MMI's longstanding practice" -- less than a week after MMI just forced Apple to remove various products from its German online store ove a standard-essential patent -- is a threat, not a reassurance.

    In that telling third paragraph, Google proposes for a ceiling the 2.25% royalty MMI is known for. I criticized this position further above. It's a prohibitive royalty rate as long as they want to apply it against the selling price of what they call the "relevant end product". If they asked for 2.25% of the price of a baseband chip, they would at least propose a reasonable royalty base and one could then talk about how many patents go into such a chip and what the relative value of their patents is. But 2.25% of the selling price of the product as a whole is absolutely out of step with the concept of FRAND and with industry practice.

  4. That paragraph relates to a situation in which two companies hold patents essential to the same industry standard and are triyng to work out a deal. If Google subscribed to a simple and desirable No Injunction policy, as well as to truly reasonable royalty demands, this paragraph would be redundant in its entirety.

  5. Here, Google says that it won't insist on a "broader cross-license" of patents beyond certain standard-essential patents. But the "all-cash license option" that it makes available is out of step with FRAND. It's prohibitive, with the sole purpose being to force other companies to let Google user their standards-unrelated patents.

  6. Like paragraph 2, this one addresses the scenario of a transfer. In this one, the focus is on a subsequent sale of such patents by Googlorola to third parties. While Google says those third parties should be "contractually obligate to comply with MMI's licensing commitments", there are no useful commitments on the table so far.

  7. This paragraph covers the period between back-and-forth negotiations and the initiation of legal proceedings, particularly of requests for injunctions. This is one of various paragraphs that wouldn't be necessary if Google took a reasonable position on royalties and, even more importantly, subscribed to a No Injunction policy.

  8. Google, like MMI, clearly loves the German Orange-Book-Standard approach, which is a mess. If you're interested in how Orange-Book-Standard works and what kinds of problems it creates, I recommend this recent post.

  9. Paragraph 9 makes paragraph 8 reciprocal.

  10. This paragraph appears to address the issue of pending MMI litigation. But as a litigation watcher, I can tell you that none of the many MMI lawsuits I am following would be withdrawn as a result of this paragraph. Also, the wording of this paragraph is not even 100% clear as to whether the standard-related injunction that MMI has already won against Apple in Germany would cease to be enforced.

  11. This is about the period between this letter and the closing of the deal. Currently, MMI needs Google's consent for certain legal actions involving its patents, as I explained last month. Google promises not to authorize, during this period, any MMI action that isn't consistent with Google's letter. But since Google's letter is a complete endorsement of everything MMI has been doing so far, this basically means that Google will give MMI green light for anything that's consistent with its past practice and overall strategy -- but if MMI was stupid enough (which it certainly isn't!) to be outspoken about its intentions, then Google might withhold its consent.

  12. Here, Google reserves the right to go in any way against anybody who "refuse[s] a RAND license" or subsequently breaches a contract involving those FRAND patents. The problem here is that what Google calls a "RAND license" is not RAND by any remotely reasonable definition. Therefore, other companies will inevitably refuse it.

  13. Just a courtesy paragraph at the end of the letter.

After reading the above, you may wonder what the point in Google's letter is. Unfortunately, it boils down to saying that Google supports everything MMI has done, and after the acquisition, Google will continue those litigation tactics but obviously with far greater resources and a broader set of strategic objectives, all of which will result in an exacerbation of the problem.

I am particularly disappointed because Google could have, and in my opinion should have, decided to agree with Apple, Cisco, Microsoft and others that it's time to curb FRAND abuse.

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