On Saturday, two days before an Apple v. Motorola Mobility may or may not commence, Apple brought a couple of motions to prevent the wholly-owned Google subsidiary from making certain arguments should the trial take place. At the very beginning of one of the motions, Apple formally "recognizes that the Court has not yet ruled on whether a trial will be held on its claims".
The most interesting revelation is that Motorola apparently took in its sealed trial brief a new position on what should be the FRAND royalty rate for its celullar standard-essential patents (SEPs). According to Apple, "Motorola's first new theory is that 2.25% should be applied to the difference in price between an iPod Touch and the unsubsidized iPhone (without a carrier contract)". The filing says that this would mean a royalty base between $400 and $450. As a result, Google's Motorola Mobility would charge Apple between $9 and $10.13 per iPhone for its wireless SEPs.
Apple rejects the notion that it "receives $400 to $450 in value from cellular functionality" and claims it's inconsistent with what one of Motorola's own experts said in a related case.
Google's (Motorola's) "iPhone minus iPod" theory is clearly an attempt to create the appearance of compliance with the Entire Market Value Rule (EMVR), a patent damages theory according to which a patent holder is entitled to a reasonable royalty only with respect to the smallest saleable unit the relevant patents read on (unless the patentee can prove that the related functionality is the primary basis for customer demand). What Google is doing here reverses the concept of the smallest saleable unit: instead of applying 2.25% to the relevant chipsets (baseband and WiFi), which are the smallest saleable units implementing the wireless standards in question, it deducts the price of a separate saleable unit from the same vendor (Apple) that does not come with cellular functionality. Given that the iPod touch supports WiFi, Motorola presumably applies 2.25% to the iPod touch price for WiFi, and then, for cellular functionality, the same 2.25% rate additionally to the differential between the price of an unsubsidized iPhone and that of an iPod touch.
The difference in functionality between an iPod and an iPhone is huge. While cellular connectivity is certainly an enabling technology without which a smartphone wouldn't work, most of that value is simply not created by cellular standards -- which is why an iPhone costs a multiple of a basic feature phone.
Irrespectively of whether Motorola's new theory makes sense, it is the kind of apportionment that it has so far refused to make in the parallel FRAND contract case brought by Microsoft in the Western District of Washington. The judge presiding over the Microsoft v. Motorola Mobility case, which will go to trial on November 13, didn't toss Motorola's FRAND theories only because of a refusal to apply the EMVR, but he did declare himself "skeptical" of Motorola's position.
Another theory that Motorola presented in its Wisconsin trial brief and that Apple says is prejudicial because it was disclosed too late is based on "comparable licenses", but specifics aren't known, other than that Motorola somehow presented comparisons between other license agreements it concluded in the past and the demand it makes from Apple. According to Apple's motion, "Motorola cherry picked license terms from these cherry-picked agreements, relying on some terms while ignoring others". It appears that Motorola is somehow trying to navigate around the fundamental problem that its only royalty expert's testimony on an appropriate FRAND rate was excluded by the court. Maybe Motorola presented these theories even if it thought they were likely to be stricken as untimely, just in order to provide input to the judge that may influence the potential determination of a royalty rate.
If I were Apple, I would really want a FRAND rate-setting trial to take place when the other party's only expert cannot testify on what the appropriate rate should be, and I would make every effort to address the judge's concerns about the remedies sought.
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