Ericsson's patent dispute - this time with Apple

[Pawan Fangaria]

This time Ericsson complained in Texas district court to determine its patent fees against Apple.
Apple complained about excessive royalty fees by Ericsson in California federal court.

Ericsson holds essential standards patents for wireless technology that mandates any products
compliant with those standards to have license from Ericsson.

The dispute here is about how much should be the royalty for being compliant to those standards.
In fact, it should be based on wireless chip-set pricing and not on the whole product. Ericsson bases
royalty on the whole product price. Imagine Apple's R&D and other product costs, should they pay
percentage of that to Ericsson?

Similar were the cases with Samsung earlier, they had to reach a settlement in 2013.
And very recently with Xiaomi. A detailed report on Xiaomi dispute and details about that case and those standards
can be seen here - https://www.semiwiki.com/forum/content/4104-chinese-apple-trouble-%96-what-look-forward.html
Ericsson has sued other smartphone makers as well.

How long this type of battle will go between Ericsson and Smartphone makers?
Shouldn't there be a standard on the amount of royalty payments also depending on the type of patents? Can courts decide that?
In my opinion, standard based patents should be promoted with nominal payments. Opinion?

 

[Li Yisuo]

I fully agree with you. But how do you practice it? How do we evaluate IP?

 

[Pawan Fangaria]

There should be an evaluation body with equal representation from the industry. This group can evaluate the value of a patent from various perspectives, for example -
1. The output from the patent to its investment ratio
2. Age of the patent - the royalty should decrease with age and after s certain period it should be free for anyone to use
3. Type of patent - If it is w.r.t. standards to be followed which can do greater good for the society, then it must be promoted with nominal royalty. There can be argument w.r.t. investment on this. Sure, for that the initial investment may also be sourced from the community and royalty be shared later; may be support from govt. can also be looked at. Anyway, that's a future perspective provided something is setup at the first moment to regularize it to avoid disputes.

There may be other points. It is easier said than done, I agree. However a step can always be taken. Imagine how much money, time, energy is lost in litigation afterwards. That resource could be put into productive use in developing patents rather than in litigation. Just my thought...

 

[Daniel Payne]

Apple wins far too many court cases, so I hope that Ericsson gets what they deserve in royalties.

 

[Pawan Fangaria]

yes, Ericsson should get the deserved price. In fact that too will happen in case its spat over Xiaomi. The court granted sales of Xiaomi phones based on Qualcomm chip-sets for which the royalty was paid and there too the actual royalty was to be determined.

The point is - is it wise on the part of Ericsson keep suing every Smartphone maker? If something is unfair, it's valid to sue.
But what I see here, as I understand the case, the royalty should be based on the chip-set and Ericsson should work with the chip-set makers.
Even if it holds ground for royalty on phone makers, can't a standard percentage be determined?

In case of phones, there are variety of phones in the market priced differently based on so many other features than standard patent on which Ericsson is banking. Should a high priced phone pay more to Ericsson? Shouldn't the standards patent royalty be priced equally for all phones?

If that standard royalty is determined, then that will be end of all litigation and expense of money, time, energy. I am told, Ericsson determines royalties differently from case-to-case basis under NDA.

 

[Li Yisuo]

Hi, I suggest you call up a non profit organization. Or maybe our beloved admin could give a hand. An independent entity should help both litigation system and semiconductor industry.

 

[hist78]

"Ericsson holds essential standards patents for wireless technology that mandates any products compliant with those standards to have license from Ericsson."

If this is true then I see several issues.

The international standard setting organization should have set a rule to guide the royalty when they adopt Ericsson's specs or methods as industry "standard". It should be totally free or reasonably low to encourage wide adoption and deployment. If Ericsson didn't agree, then the standard setting organization should not adopt a propriety specs from a company and make it into an industry standard.

A company are not allowed to take advantage on both being accepted as an industry standard and collecting huge royalty. I thought this is a common rule in PC and memory standard selection process. Is there anyone knows more on this?

 

[Pawan Fangaria]

Exactly! Since there is no clarity on royalty of this standard patent, there are so many litigations. I guess, US courts should settle the dispute and guide international standard setting organization to take additional responsibility to determining royalties on patents for standards.

 

[JeffreyHF]

This time Ericsson complained in Texas district court to determine its patent fees against Apple.
Apple complained about excessive royalty fees by Ericsson in California federal court.

Ericsson holds essential standards patents for wireless technology that mandates any products
compliant with those standards to have license from Ericsson.

The dispute here is about how much should be the royalty for being compliant to those standards.
In fact, it should be based on wireless chip-set pricing and not on the whole product. Ericsson bases
royalty on the whole product price. Imagine Apple's R&D and other product costs, should they pay
percentage of that to Ericsson?

Similar were the cases with Samsung earlier, they had to reach a settlement in 2013.
And very recently with Xiaomi. A detailed report on Xiaomi dispute and details about that case and those standards
can be seen here - https://www.semiwiki.com/forum/content/4104-chinese-apple-trouble-%96-what-look-forward.html
Ericsson has sued other smartphone makers as well.

How long this type of battle will go between Ericsson and Smartphone makers?
Shouldn't there be a standard on the amount of royalty payments also depending on the type of patents? Can courts decide that?
In my opinion, standard based patents should be promoted with nominal payments. Opinion?

GSM, CDMA, 3G, and 4G standards have all mandated that patents submitted for consideration be offered to all upon fair, reasonable, and non-discriminatory terms (FRAND). The IPR for all of those technologies, have always been licensed based upon the wholesale price of the subscriber unit, as there could be no phone functionality without a competent and robust network connection. Huge amounts of R&D, and cutting edge expertise, are gambled by the inventors whose work product enable the entire ecosystem. The IPR "tax" is minimal compared to the revenues and profits that Apple, for instance, is able to garner from the smartphone market.
I understand why the consumers of that IPR would like to devalue RF IPR, but mobile device growth trajectories prove that such IPR has had no inhibiting effect on the marketplace, nor on consumer demand and access. GSM cumulative royalty rates were greater than those applicable to 3G and 4G, so the free market has already made adjustments. Sophisticated consumers of IPR have always negotiated at arms length with IPR holders, based upon the best advice available from their engineering, legal, and accounting experts. Your suggestion that the rules and norms of the industry should now be altered, to benefit device sellers, smacks of kleptocracy and collectivism. If licensors and licensees cannot agree on FRAND terms, then juries, based upon the specific facts of a given situation, and proper instruction from the court, are empowered to determine FRAND compliance for the parties. Not by patent counting, nor governmental intrusion. That is how due process works in a capitalistic system. Different patents have different degrees of commercial importance.

 

[Pawan Fangaria]

Definitely. The FRAND - Fair, Reasonable and Non-Discriminatory term is violated here as I look at these cases. The royalties seems to be discriminatory, negotiated under NDA. So, naturally, the two parties are at dispute. As you say, the ultimate is for courts to decide and provide fair judgement.

 

[JeffreyHF]

It is impossible to know which party is being unreasonable, without understanding the commercial importance of the IPR at issue, as well as the demand and offer. The history of these cases, such as the Qualcomm/Nokia renewal litigation that those parties resolved on the courthouse steps, is that there will be a settlement without a complete trial.

 

[Pawan Fangaria]

It's valid to assume that courts are the ultimate settlement bodies. However, a general public opinion matters, otherwise people would not be debating on what they feel about particular items. It's perfectly fine for the parties involved in the litigation to remain quite, but public must be free to voice its opinion.

As you say - it's impossible to know which party is unreasonable, yes that's true, but we can draw some inference from the past. We are not party to anyone of them. But what I have seen as an outsider, Ericsson filed similar cases in India against Micromax, Gionee and Intex. And an independent body, CCI (Competition Commission of India), a regulatory body reported investigations involving Standard Essential Patents (SEPs) against Ericsson for violating FRAND commitments by imposing discriminatory and excessive royalty rates under NDAs.

 

[hist78]

The IPR for all of those technologies, have always been licensed based upon the wholesale price of the subscriber unit, as there could be no phone functionality without a competent and robust network connection. Huge amounts of R&D, and cutting edge expertise, are gambled by the inventors whose work product enable the entire ecosystem. The IPR "tax" is minimal compared to the revenues and profits that Apple, for instance, is able to garner from the smartphone market.

"The IPR for all of those technologies, have always been licensed based upon the wholesale price of the subscriber unit". If this is true, I can see the problem coming from and how strange the logic is. As far as I know, PC and memory industry doesn't do this way. I can't imagine hundreds, if not thousand, pattern holders demand license fee from IBM, HP, Apple, Lenovo, Asus, Acer, Toshiba, Samsung based on the final "whole PC price". I don't think the past 30 years of amazing progress in computer hardware and software would be possible at all.

Probably it can partially explain why phone industry's progress is so slow, compare to PC industry.

 

[JeffreyHF]

I think it's disingenuous to call the CCI "independent", just like it would be to refer to the NDRC that way in China. Both are intent on protecting and advantaging local manufacturers, who by their nature lack important SEP's in mobile technologies. Rather, the CCI and NDRC are using government to devalue foreign IP, for protectionist and kleptocratic purposes.
In India, one need only look to the political decisions and disparate treatments surrounding the GSM v CDMA carriers, licensing, the tariffs to be charged, and spectrum auctions, to see that brute political power and influence have trumped fair competition. While the CCI and NDRC can dictate terms domestically, no matter how they conflict with international IP laws and norms, if any domestic manufacturer seeks to export phones, they expose themselves to injunctions and damages.

 

[Pawan Fangaria]

Come on, in this globalized world, it's inappropriate to say any body or court can survive on local interest. F.Y.I. only Micromax is local manufacturer in India and that too with imported chipsets, Xiaomi, Gionee and Intex are foreign companies. It's only because these cases are in Indian court, CCI had to do investigations and report discrimination which is right in my view.

Okay, let's keep CCI apart, take the court's judgements for instance - The Indian court on first instance of case by Ericsson on Xiaomi issued injunction and stopped Xiaomi's phone sales in India, but later after understanding the matter better the same court allowed its phone sales that contained Qualcomm chipsets which is already licensed by Ericsson. What do you have to say on that? Did the court favor Ericsson first and then favored Xiaomi?

Courts are not the bodies who know everything. They also need to understand the matters in order to provide judgement, many times they alter their judgement after knowing the things in detail. We need to hear US courts as well, now that it's with Apple and the matter is in US courts.

 

[Pawan Fangaria]

Finally, the jury is in the court of IEEE. In this week, IEEE will be holding a meeting to determine how to value a technology that is widely used as a standard in the industry.

The new policy framed by IEEE is set to define the basis for royalty and also prevent owners of such standard patents from approaching courts to block these standard patents from usage.

I like it. IEEE is a competent body who can best understand the scenario and provide a fair, consistent policy!

 

[Pawan Fangaria]

Good news - IEEE-SA has finally formed the Bylaws governing the licenses for Essential Patent claims. These are approved and will be effective from Q1 2015. The document can be obtained from the following link at IEEE website -

http://standards.ieee.org/develop/policies/bylaws/approved-changes.pdf

This may not be good news for patent holders, but definitely good for users. My observation is that this will provide consistency and non-discrimination among various users.