Wednesday, August 29, 2012

Alison Frankel on standard essential patents of Motorola

In a post titled Analysis: Apple's win dents Android's standard-essential patent hopes, Alison Frankel writes on "Standard-essential patents."

Within the post:

Meanwhile, standard-essential patents have taken a beating in smart-device litigation in the United States. Judge Richard Posner of the 7th Circuit Court of Appeals demolished Motorola's argument that it was entitled to a licensing fee of 2.5 percent of iPhone sales based on Apple's alleged infringement of a single standard-essential patent.

Although it is true Judge Posner sits on CA7, the decision in question was rendered by Judge Posner sitting by designation at the district court level in ND Ill. No judge sitting in a regional appellate circuit is going to see a case turning on patent law. And the licensing fee in question was 2.25%, not 2.5%.

Forbes described the "heart of the Posner ruling" as

Posner complained that Apple’s attempt to get an injunction restricting the sale of Motorola phones would have “catastrophic effects” on the mobile device market and consumers. He further criticized Motorola for trying to use a standards-essential patent to get an injunction against Apple.

As to Motorola's patent, page 15 of the Posner opinion notes:

My summary judgment order of June 5, finding that Apple had not infringed Motorola’s ‘559 patent, may seem inconsistent with the proposition that Apple’s 3G (“third generation”) mobile devices, which are governed by the Universal Mobile Telecommunications Standard (UMTS), must therefore use patents declared essential to that standard, such as the ‘559. But there is no inconsistency. Motorola’s standards-essential patents (including the ‘898 still at issue in this case) are merely claimed to be standards-essential.

As to the '898 patent, Posner wrote:

“Going for broke” is the inescapable characterization of Motorola’s damages claim. Motorola claims to be entitled to aminimum royalty of 2.25 percent for a license for the patents in the portfolio that contains the ‘898. Though it’s the only patent in the portfolio that remains in this suit, Motorola claims to be entitled to damages equal to (or “up to,” or “at least”—it seemsnot to have made up its mind) 40 to 50 percent of 2.25 percent, which would be 0.9 to 1.125 percent of sales of Apple devices that infringe the ‘898.


If Apple said no to 2.25 percent, it ran the risk of being ordered by a court to pay an equal or even higher roy-alty rate, but that is not the same thing as Motorola’s being excused from no longer having to comply with its FRAND obligations. Motorola agreed to license its standards-essential patentson FRAND terms as a
quid pro quo for their being declared essential to the standard. FTC Statement on the Public Interest, supra , at 2. It does not claim to have conditioned agreement on prospective licensees’ making counteroffers in license negotiations.

The last sentence of the Posner decision:

It would be ridiculous to dismiss a suit for failure to prove damages and allow the plaintiff to refile the suit so that hecould have a second chance to prove damages. This case is therefore dismissed with prejudice; a separate order to that effect is being entered today.

IPBiz has discussed Alison Frankel previously. See

"Patent quality index"?

Mike Masnick (TechDirt) takes on Gary Odom (PatentHawk)


Blogger Unknown said...

Lawrence, thank you for posting some of the inconsistencies in Ms. Frankel's article.

A few other points she gets wrong are the following:

"Essential patents are adopted by the bodies that set international standards for developing technology. Everyone has to use them, which is why holders of standard-essential patents must agree to license their intellectual property on fair and non-discriminatory terms."

As to the first sentence, technically the standards bodies adopt technology, and the contributors declare patents that are essential to those adoptions. The SDO's don't check whether the patents ARE essential, they take the contributors at their word... a sort of strange honor system.

As to the second sentence, holders of standard-essential patent do not have to license them on FRAND terms, they can opt to NOT license them on FRAND terms. Further, there is the issue of what is mandatory to the standard and what is optional.

Next, "By their nature, standard-essential patents have long-lasting power, since (unlike patents on nifty smart-device utilities) engineers can't design around them. That's why they're essential. It's also why holders of standard-essential patents must pledge to license their intellectual property on reasonable terms."

Now, engineers can certainly design around the technology, but the issue with standards is interoperability of the technology so that an Android-powered LTE smartphone is able to use the same network as an IPhone LTE device, inter alia. And again, holders of standard-essential patents can choose to NOT license on FRAND terms, so then you are left with the participants determining how to proceed to design around and cut out the non-FRAND licensed essential patents in the next revision.

9:32 AM  

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