Today's the first day of the Microsoft v. Motorola Mobility FRAND rate-setting trial in the Western District of Washington. Motorola Mobility is a wholly-owned Google subsidiary. Its patent litigations are micromanaged by Google's legal department.
Any trial at which two companies of the Microsoft and Google kind clash is important in its own right. And when industry standards are at issue, other tech giants are keeping a close eye on developments and on what could set a key precedent for future disputes over standard-essential patents. A similar trial involving Apple was canceled last week, making today's FRAND trial the first one at which a U.S. court will determine a FRAND license fee for SEPs.
I mostly blog about litigation involving major industry players like these, but I also try to take into consideration the transcendental importance of certain issues to the industry at large -- including small companies and even some that haven't been founded yet but will have to deal with this matter once they reach a certain size.
Yesterday another blogger, Lo Min Ming, published an interesting statistic: "A billion dollar software tech company is founded every 3 months in [the] U.S."
Every single one of these companies implements industry standards in some fashion, and most of them could be put out of business by a FRAND abuser who seeks, wins and enforces injunctive relief after making totally outrageous royalty demands that no responsible business can meet. Even if you can accept such demands a couple of times without necessarily going out of business, there's no way that you can have a viable company if every holder of standard-essential patents makes demands of that kind -- this dilemma is known as "royalty stacking".
Companies that are only a few years old will own very few patents given how long examination takes. And if a company is, say, ten years old, it may already own a number of key non-standard-essential patents, but it's unlikely to hold SEPs, which requires a company to be an influential participant in a standard-setting process.
If Google's Motorola Mobility got its way, SEPs could be used as a nuclear weapon to drive out of business any newcomers depending on the implementation of critical standards. Google wants SEPs to have the effect of mutually assured destruction: if two companies hold SEPs and implement standards on which the other party holds essential patents, they'll have to cross-license (without compensation, or only for very little money) all of their patents (including non-standard-essential ones) or everyone's products will be banned.
While there's only a minority of companies in the industry that shares this vision, Google is not the only one. For example, I also criticized a letter that BlackBerry maker Research In Motion sent to the ITC. In that letter, RIM basically argued that SEP injunctions must be allowed as a response to non-SEP assertions. That's exactly what I just described: the notion of SEPs creating a balance of terror between all those who own them.
I can't and won't support this approach. Apple's newly-minted license deal with HTC and 14 other Android-related license deals announced over the last couple of years prove that reasonable people can resolve disputes over non-standard-essential patents through licensing. I don't think SEP abuse is needed as a response to non-SEP infringement problems of the kind that Google's Android operating system faces.
Even if -- just for the sake of the argument -- one wanted to take the position that Google and RIM's proposal of mutually assured destruction based on SEPs would serve competition in the wireless technology industry well, any proposal must also be evaluated from the perspective of the next billion-dollar tech companies. Unlike Google or RIM, those companies won't be members of the club of SEP holders, at least not in the foreseeable future. Further down the road they may also own SEPs, but before they ever get there, an SEP-owning rival could do serious damage to them through hold-up (including the possibiltiy that new entrants can't leverage the non-standard-essential patents they need to protect their innovation) or, in a worst-scenario, force them out of business if the courts leave the door open to FRAND abuse.
There's a lot that the courts can do to ensure that new entrants will always be able to implement standards on FRAND terms. In the United States, the two most important cases that are pending in this regard are Motorola's Federal Circuit appeal of the FRAND part of Judge Posner's Apple v, Motorola ruling and the FRAND contract case starting in Seattle today. I've already seen the first few tweets out of the courtroom, which reporters say is "packed". If Posner's ruling is affirmed, abusers can't win U.S. injunctions over SEPs, and if Microsoft prevails over Motorola Mobility, an important precedent will be set for the ability of implementers of industry standards to enforce in a meaningful way their entitlement to a license on FRAND terms. That's what's at stake in these two landmark FRAND cases.
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