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Googorola's desire for iPhone royalties will upset Apple cart

Moto patents at heart of latest fair licensing row

Analysis Google's outline of how it will use Motorola Mobility's intellectual property – should regulators allow the buyout – has sparked fierce debate as pundits worry about how the smartphone patent wars will pan out.

Originally, Google's letter to the IEEE, a global standards body, was praised by commentators because it promised that the Chocolate Factory would hold to the sector's definition of fair, reasonable and non-discriminatory (FRAND) licensing for essential patents.

Essential patents are those developed by the mobile phone pioneers that usually go into setting industry standards – such as 3G, UTMS, GSM, etc. From the start, the companies involved have agreed to give each access to these sorts of patents, usually in cross-licensing deals where everyone was getting a slice of the pie.

Since smartphones and fondleslabs came on the scene and pumped up the profits considerably, handset and OS firms have taken each other to court over every aspect of the technologies possible, including how you swipe your finger on a touchscreen.

Almost all of these courtroom dramas have focused on design similarities, so company X says: "Your touchscreen smartphone is phone-shaped and has a touchscreen, you copied me!" and company Y says: "I think you'll find there are teeny-tiny differences that I hope to use to escape this lawsuit!" or something similar.

However, lately, companies like Motorola and Samsung have been trying to use 3G patents, which are FRAND-licensed, in their battles with Apple.

In the Motorola v Apple situation, Motorola says it offered Apple a FRAND licence but the fruity firm didn't take it. Apple says the terms of the licence were not fair and reasonable and non-discriminatory – so it didn't accept it.

In the meantime, Google, creator of Apple iOS nemesis Android, has bid to takeover Motorola Mobility; it's a deal that many believe is intended to shore up the company's cache of patents, giving rise to fears that the Chocolate Factory will start throwing its weight around in the courts as well.

Commentators remain discomforted

Google's letter to the IEEE, signed by deputy general counsel Allen Lo, assures the body that the web giant intends to continue to issue FRAND licences:

This letter is intended to assure you and any potential licensees that, following Google's acquisition of MMI [Motorola Mobility], Google will honour MMI's existing commitments to license the acquired MMI Essential Patent Claims on RAND terms, as required by IEEE rules and consistent with MMI's longstanding practice. This letter is irrevocable.

This is the part that got everyone praising El Goog, particularly since similar statements had been given by Apple and Microsoft in recent times.

Apple wrote in a letter to ETSI, the European standards body, that:

Apple is committed to a FRAND licensing framework for cellular standards essential patents based on three basic elements - appropriate royalty rate, common royalty base and no injunction. Apple is committed to this framework, provided that other parties reciprocate.

While Microsoft released a statement that read:

Microsoft will always adhere to the promises it has made to standards organisations to make its standard essential patents available on fair, reasonable and nondiscriminatory terms.

However, following the first flurry of commendations for Google's stance, commentators have now focused on the next part of the letter, which reads:

Google understands that, pursuant to IEEE rules, MMI is prepared to grant licenses for Essential Patent Claims with a maximum per-unit royalty of 2.25 per cent of the net selling price for the relevant end product on a go-forward basis, subject to offsets for the value of any cross-licenses or other consideration received from the licensee.

Patent-spotter Florian Mueller in particular has criticised the letter as "four pages [that] aren't meant to improve anything. Google is basically saying that it will do exactly what Motorola is already doing now".

Mueller asserts that Google intends to require Apple to cough up 2.25 per cent of every iPhone and iPad because a previous court filing in the Motorola v Apple case in the US suggested that was the price tag Motorola offered.

That filing, made on 30 January last year, had an exhibit attached that was a letter from one lot of lawyers to another that said this:

In the upcoming court hearing this Friday, one of the issues considered may be whether the royalty rate of 2.25 per cent demanded by your client Motorola was a FRAND offer.

The number is also one that has been mentioned in court cases between Motorola and Microsoft, but there it was in reference to the an entire portfolio of patents related to 4G/LTE.

The issue with the amount is that it is quite a lot if you consider the hundreds of patents that go into each device, of which many could be standards-related. If each patent was granted 2.25 per cent, it would only take 45 patents to reduce the handset-maker's profits to zero, which is clearly ridiculous.

But the wording of the Google letter could also be read a different way. If Google is going to "grant licenses for Essential Patent Claims with a maximum per-unit royalty of 2.25 per cent", it could also mean that the most a handset-maker will pay regardless of how many patents it is using is 2.25 per cent. The maximum is "per-unit" not per-patent.

Speak clearly, man!

However, the language is ambiguous, which, if Google is attempting to "assure" folk, isn't very helpful. But it does seem to be a feature of these commitments.

Apple carefully says it will play ball on FRAND "provided that other parties reciprocate". And there's no mention at all of percentages in its letter, just that the rate will be "appropriate".

Microsoft doesn't mention any percentages in its statement either, but it seems the clearest.

Mueller's second problem with Google's letter is regarding injunctions, or bans, on products that infringe essential patents.

Here, both Apple and Microsoft are completely clear. Microsoft says it "will not seek an injunction or exclusion order against any firm on the basis of those essential patents", while Apple says that "seeking an injunction would be a violation of the party's commitment to FRAND licensing".

But Google said:

Google will make a final offer of its RAND license terms for products covered by the acquired MMI Essential Patent Claims, without prejudice to any right to recover damages for past unlicensed use. Google will make this offer before seeking injunctive relief for infringement of the acquired… patents.

FRAND issues are becoming more and more of a concern to regulators, who worry that companies will use them to unfairly restrict competition. The European Commission is currently investigating Samsung for its use of 3G patents in court cases on the continent against Apple, which have mostly failed because of their FRAND nature. ®

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