Thursday, April 25, 2019

LG offered Nokia privateer Conversant less than 1% of the standard-essential patent license fees it demands--and even that turns out unwarranted

Privateering--the practice of large patent holders formally transferring patents to non-practicing entities that will assert them on their behalf (practically, those deals amount to agency-like arrangements in many cases)--is an issue that has been facing the mobile device industy for a number of years. Nokia and Ericsson are particularly active in that way.

A couple of particularly aggressive privateers--Unwired Planet (mostly fed by Ericsson) and Conversant (a Nokia patent assertion partner)--are parties to a UK Supreme Court proceeding I blogged about earlier this week. One of them, Conversant, was dealt a real blow last week by the Cour d'Appel de Paris--the appeals court for the Paris region, to which all patent rulings by the Tribunal de Grande Instance (TGI) de Paris are appealed. A panel of three appellate judges under Presiding Judge David Peyron ruled against Conversant's appeal of a TGI ruling on several standard-essential patent (SEP) assertions by Conversant (formerly known as Core Wireless) against LG Electronics (this post continues below the document):

19-04-16 French Appellate R... by on Scribd

Conversant's appeal related to a handful of patents. But for three of them, the appeals court held that Conversant failed to provide the information required to make an essentiality determination. While the appeals court declined to declare the French parts of the remaining three patents invalid, it also determined that EP0978210 on "connecting a multimode terminal to the network in a mobile communication system" nor EP0950330 on a "user terminal for mobile communications" are not standard-essential. With respect to EP'210, the court's claim construction is so narrow that the patent can be worked around by performing a measurement of signals periodically as opposed to only in situations of poor network coverage. In any event, the 3G/4G standard specifications say that such measurement should be performed, but also state that devices may simply not do so. EP'330 was found non-essential on two different grounds, either one of which would be sufficient on its own. There choice of high-level protocols (IPv4 and IPv6) is not explicitly required by the specifications of the telecommunications standard, and it's debatable whether IPv4 and IPv6 constitute alternative protocols as opposed to simply different versions of one protocol (the Internet Protocol = IP).

This French appeals court took the position that FRAND licensing obligations apply only to actually essential patents, not merely declared-essential ones. Courts in some other jurisdictions have taken a similar position, but there's an alternative approach according to which a patent holder's FRAND declaration applies to non-essential patents as well.

As a result of its holdings of non-essentiality, the French court declined to make a FRAND rate determination. What's interesting, however, is the enormous discrepancy between the parties' positions. Conversant was seeking a royalty based on the net sales price of an entire handset (the typical royalty base issue) amounting to 0.149% for 4G devices sold in the "principal markets" and 0.170% for 3G devices sold in such markets, with lower pecentages for China. Conversant claimed that this was consistent with Justice Birss's decision in the UK case Unwired Planet v. Huawei.

By contrast, LG offered (depending on markets and whether only 2G, the combination of 2G and 3G, or the whole package of 2G+3G+4G was implemented in a device) between 1.62 and 5.73 thousandths of a U.S. cent per device and per patent family. In order to make those numbers easier to understand, LG also calculated a dollar amount per one million devices from $16.2 to $57.3. Based on Conversant's own claim of owning 22 SEP families, this would in the most optimistic of all scenarios have amounted to 22 times $57.3 = $1,260.60 per one million devices.

Even if one assumed an average net sales price of only $100 per LG phone (which is a very low number), Conversant's own claim would amount to $0.149 per device, or $149K per one million devices--more than one hundred times the $1,260.60 per one million devices that LG offered.

Such discrepancies are not unheard of in the context of FRAND rate disputes. In April 2013, Judge James L. Robart of the United States District Court for the Western District of Washington awarded Motorola Mobility, in a FRAND case brought by Microsoft, less than one-twentieth of a percent of its original demand. Later that year, in the Northern District of Illinois, Judge James F. Holderman held that 19 WiFi patents belonging to a patent assertion entity named Innovatio IP Ventures were worth less than 10 U.S. cents per unit.

While Innovatio had hoped for a lot more than 10 cents per unit, the question is whether Conversant is ultimately going to get anything from the likes of Huawei and LG. Conversant's pathetic results in France are not going to impress the Supreme Court of the UK.

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