Yesterday's news of Apple having offered to make, on a reciprocal basis, any of its intellectual property essential to nano-SIM available on a royalty-free basis has already drawn a lot of interest around the globe. One of the reactions was a response from Nokia consisting of two paragraphs. I'l quote and comment below each quoted paragraph:
"For Nokia, the principal issues remain the technical superiority of our proposal and that Apple's proposal does not meet the pre-agreed ETSI requirements."
I'm not going to take position on "technical superiority" per se. In yesterday's post I linked to a Financial Times article that mentioned concerns over Apple's intellectual property as well as the fact that Apple's opponents object on technical grounds. For those interested in further detail, I recommend this article by The Verge's Chris Ziegler. It compares the technical characteristics of the different proposals, and concludes that "Apple's design is in many ways the least controversial — it rocks the micro-SIM boat as little as possible, whereas Nokia is looking for a more thorough reboot of the now 20-year-old Subscriber Identity Module". (Obviously, "least controversial" is nonjudgmental on quality.)
Like in any situation in which royalty-bearing standards compete with royalty-free proposals, patent encumbrance must be justified with tangible benefits. I have consistently advocated a level playing field between royalty-bearing and royalty-free standards, letting them compete on the merits rather than exclude one business model categorically, but in any economic context, a premium cost must correspond to an appropriate level of premium quality or it's not worth it. That's one the hurdles that Nokia, Motorola and RIM face at this week's ETSI meeting. As a consumer, I wouldn't want to pay (indirectly) Nokia or anyone else patent royalties unless the cost I (indirectly) bear buys me a real benefit. Another success factor for Apple is the broadbased support it has among European mobile network operators.
This leads us to the second paragraph:
"With regard to intellectual property, we are not aware of any Apple IP which it considers essential to its nano-SIM proposal. In light of this, Apple's proposal for royalty free licensing seems no more than an attempt to devalue the intellectual property of others."
I trust Nokia that if they say they were "not aware of any Apple IP which it considers essential to [nano-SIM]", they really weren't, but a simple look-up of the ETSI IPR database, which Nokia is undoubtedly very well aware of because it's one of the biggest contributors, would have answered the question. In fact, several hours before I firstly saw Nokia's statement, a Dow Jones Newswires article on Apple's royalty-free offer had already referred to a document posted on ETSI's website. An updated version of the Dow Jones article can be found on the Wall Street Journal website -- the original one, however, appeared several hours prior to that version and already mentioned the ETSI document. And this link points to the relevant declaration by Apple. If you click on the "IPR information statement annex" tab, you get some additional information, including the number of Apple's U.S. provisional patent application that the declaration relates to: 61481114.
The problem with provisional patent applications is that they are never published. Within 12 months of filing, they must be converted into a "regular" patent application or else they just expire. Patent applications are in stealth mode for 18 months, so provisional applications never make it to the point of publication (except that "regular" patent applications later reference them because they are relevant to the priority date). Therefore, we can't see what's in that particular patent application (other than the title, "Compact Form Factor Integrated Circuit Card", which Apple's statement to ETSI contains), but frankly, the content of that application is not even the most important thing here. What really matters is that Apple's proposal is generous and in the public interest in this particular context.
The FT article showed that there was concern about Apple's patent-based control over the proposed standard. I don't know whether Nokia previously expressed that concern, contrary to its denial of awareness of essential Apple IPRs in the field, but somebody certainly must have told the press about it -- if not Nokia, then some of Apple's other rivals. The key thing is that Apple has not only alleviated but totally eliminated that concern now. The declaration published on the ETSI website relates to only one patent application, and it clearly shows that licenses are available on a reciprocal, royalty-free basis, but the most important thing is that the letter I saw makes the same commitment with respect to any Apple IPR essential to nano-SIM. No trap. No backdoor.
As long as Nokia adheres to FRAND licensing obligations, the Finnish company's position that it wants to cash in on its SIM card-related patents is just as legitimate, from a shareholder value point of view, as Apple's proposal that everyone adopt a royalty-free standard. But Nokia's desire to monetize standard-essential patents is not in the public interest unless its proposal offers major advantages that offset the cost of licensing and the higher transaction cost (which in connection with FRAND patents sometimes involves litigation as I see all the time now).
There are situations in which royalty-free is the way to go. For example, I wouldn't even want to think about what would have happened if Tim Berners-Lee had patented the World Wide Web and collected FRAND royalties on any technologies implementing it. SIM cards aren't comparable to the WWW, but they are such a basic component of wireless devices that a royalty-free standard would clearly be desirable unless it has major shortcomings.
Nokia owns many standard-essential patents, and it's understandable that it's concerned about anything that might "devalue" SEPs. However, since I monitor many litigations in this industry, I'm far more concerned about SEP holders that try to impose excessive license fees and other anti-competitive and anti-innovative terms and conditions than I am about devaluation. It appears that antitrust regulators have a similar perspective at this point.
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