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Smartphone Standard Essential Patent: FRAND Disputes 101

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  • 1. ©2013 TechIPm, LLC All Rights Reserved www.techipm.comSmartphoneStandard Essential Patent:FRAND Disputes 1012Q. 2013
  • 2. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 21. Background of Smartphone Patent WarSmartphones, which are the convergence products of computers and mobilecommunication devices, are now revolutionizing our life style, businessactivities, and society as a whole. Current smartphone boom has started sincethe first iPhone was released on June 29, 2007. According to a marketresearch by comScore in January of 2013, 129.4 million people in the UnitedStates owned smartphones, which is about 55 percent of mobile subscribes.Globally, total smartphone sales reached $250 billion in 2012.The heavy competition among smartphone manufactures for establishingcompetitive market position in the newly formed lucrative business has led torecent intensive patent infringement lawsuits, which are the so-called„Smartphone Patent Wars.‟ Smartphone Patent Wars began in 2009 whenNokia sued Apple and Apple countersued Nokia.
  • 3. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 32. Involvement of Standard Essential PatentsWhen Apple accused Motorola and Samsung of infringement of its userinterface software and design patents, Motorola and Samsung counter-attackedutilizing their patents for mobile communication standards, which are theso-called „Standard Essential Patents (SEPs).‟As incumbents in mobile communication industry and holders of strong mobilepatent portfolios, SEPs were a natural choice for Motorola and Samsung tocounter-attack Apple, which is the computer industry incumbent, and thus, lacksin SEPs for mobile communications.SEPs encompass intellectual property rights (IPRs) for an essential aspect ofstandardized technologies. Usually, all the essential aspects of standardizedtechnologies are specified in standard specifications. Thus, SEPs can bedefined as patents that include one or more claims that are infringed by theimplementation of certain standard specifications. To facilitate interoperabilityamong the industry players, participants in the development of standardsestablish specifications for the essential components of the standardizedtechnology.
  • 4. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 42. Involvement of Standard Essential Patents -2Consequently, Apple‟s standard-compatible products that implement thestandard specifications for mobile communications may infringe SEPs ofMotorola and Samsung. Therefore, Motorola and Samsung sought to demanda sales ban of Apple‟s standard-compatible products in addition to monetaryrelief. The outcomes, however, were different than expected in the usual SEPslitigation scenario.
  • 5. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 5*Essentiality Analysis for Standard Essential PatentsA standards essential patent is defined as patent that contain one or moreclaims that are infringed by the implementation of a specification forstandardized technology. Thus, if a product is implemented following thestandard specifications, it should infringe some essential patents.LTE Patent Claim Mapping ExampleClaim Specification1. An apparatus for transmitting a randomaccess signal comprising:a CAZAC root sequence selector coupled to aCAZAC root sequence generator, wherein theCAZAC root sequence generator generates atleast one CAZAC root sequences, andwherein the CAZAC root sequence selectorselects a preamble root sequence from the atleast one CAZAC root sequences.2. The apparatus of claim 1 wherein:the CAZAC root sequence generator is a prime-length Zadoff-Chu sequence generator.3GPP TS 36.211 V8.9.0 (2009-12)5.7.2 Preamble sequence generationThe random access preambles are generatedfrom Zadoff-Chu sequences with zerocorrelation zone, generated from one orseveral root Zadoff-Chu sequences. Thenetwork configures the set of preamblesequences the UE is allowed to use.
  • 6. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 63. FRAND CommitmentsStandards are often developed and set-up through the standardization processby the standard setting organizations (SSOs). To avoid the patent holdupproblem, a majority of the In this article, SSO will be used interchangeably withthe traditional term SDO (Standard Developing Organization).The patent hold up occurs when a patentee of SEPs demands unreasonablyhigher license fees after the standard is widely adopted than could have beenobtained before the standard was implemented. The patentee of SEPs mayhave market power in the relevant technology market because the industry maybe locked-in to using the standard and the value of SEPs becomes significantlyenhanced. Thus, the patentee can demand and obtain unreasonably highroyalty payments – hold up value - due to very high switching cost to alternativetechnology the implementer should pay.Ref.Lemley, M. A., & Shapiro, C., Patent Holdup and Royalty Stacking, Tex. L. Rev, 85, 1991–2050 (2007).
  • 7. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 73. FRAND Commitments -2SSOs require that the members participating in the standardization process toagree ex ante to license their SEPs under fair, reasonable, andnondiscriminatory (FRAND) terms ex post to any implementers of the standard.The members‟ agreements to license their SEPs under FRAND terms areusually called FRAND commitments. In this article, FRAND will be used interchangeably with RAND (reasonable, and nondiscriminatory).In general, FRAND commitments are Interpreted as enforceable contractualobligations between a member and an SSO. An implementer of the standard isa third-party beneficiary to FRAND commitments and therefore entitled to alicense of SEPs.Ref.Mark A. Lemley, Intellectual Property Rights and Standard-SettingOrganizations, 90 Cal. L. Rev. 1889 (2002).
  • 8. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 84. FRAND DisputesAn implementer of the standard holds entitlements of FRAND commitmentsto SEPs. Consequently, the disputes over SEPs in Smartphone Patent Warslead to FRAND disputes involving directly concerned parties, public policyinitiated interruptions by regulation agencies, and courts‟ interpretations aboutFRAND commitments. These disputes take an increasing importance in theinformation and communications technology (ICT) industry.
  • 9. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 9*Samsung Galaxy S III: Center of FRAND DisputesSamsung Galaxy S III is the bestseller smartphone that was sold more than 40million units worldwide. In the US, Samsung Galaxy S III is now connecting itscustomers through 4G LTE networks. As the market dominance of SamsungGalaxy S III increases, it is also placed on the center of LTE patent war.Ericsson filed patent infringement complaints against Samsung in ITC (USInternational Trade Commission) and the District Court for the Eastern Districtof Texas. The complaints claimed that, among other claims, Samsung Galaxy SIII infringed its LTE patents. TechIPm‟s essentialty analysis confirms that twopatents claimed in the lawsuits are LTE standard essential patent candidates:US6445917 (Mobile station measurements with event-based reporting): thispatent provides a perfect mapping between the claims at issue and the LTEstandard specification. It relates to measurements in the process of handoveroperation as described in TS 36.331 Sec. 5 and TS 36.300 Sec. 10.1.3.
  • 10. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 10*Samsung Galaxy S III: Center of FRAND Disputes -2US8169992 (Uplink scrambling during random access): this patent relates tocontention based random access procedure utilizing CRC scrambling for RNTIas described in TS 36.213 Sec. 6, TS 36.300 Sec. 10.1.5, TS 36.321 Sec. 5.1, and TS 36.212 Sec 5.3.InterDigital filed patent infringement complaints against Samsung in ITC andthe District Court for Delaware. TechIPm‟s essentialty analysis confirms that one patent claimed in the lawsuits is a LTE standard essential patent candidate:US7941151 (Method and system for providing channel assignment informationused to support uplink and downlink channels): this patent relates to providingchannel assignment information to support uplink and downlink transmissionsutilizing the DCI and CRC scrambling for RNTI as described in TS 36.213 Sec.7 & 8, TS 36.300 Sec. 11.1, and TS 36.212 Sec 5.3.3.1.
  • 11. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 115. Main Causes of FRAND DisputesMany SSOs adopt IPR polices to implement their member‟s agreement to theFRAND commitments. However, definition of each FRAND terms is notspecified in SSOs‟ IPR polices. Thus, what is mean by fair, reasonable, andnondiscriminatory is left to the interpretation of parties who are involved in theFRAND commitments. Furthermore, SSOs‟ IPR polices normally do not specifyabout the conditions for contractual agreement under the FRAND commitmentsto form a binding obligations to the parties.Consequently, the absence of definitions about each FRAND terms for bindingobligations in SSOs‟ IPR polices are the main causes of FRAND disputessurrounding SEPs.
  • 12. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 126. Availability of injunctive relief for SEPsIn Apple, Inc. v. Motorola, Inc., No. 1:11-cv-08540 (N.D. Ill.), the courtinterpreted FRAND commitments such that the patentee “implicitlyacknowledged that a royalty is an adequate compensation for a patent license.”Thus the patentee of SEPs is not entitled to an injunctive relief because “theinadequacy of monetary relief” is required for the entitlement of the injunctiverelief and FRAND royalty would provide the adequate remedy.(This case involves SEPs for 3G mobile communications (UMTS) standardizedby ETSI.)In Microsoft, Co., v. Motorola, Inc., No. 2:10-cv-01823-JLR (W.D. WA), the courtalso ruled that FRAND royalty provide an adequate compensation because apatentee “has always been required to grant a license” to an implementer atFRAND royalty for its SEPs and the patentee has never irreparably harmed.
  • 13. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 136. Availability of injunctive relief for SEPs -2In Motorola v. Apple, Inv. No. 337-TA-745 (Int.‟l Trade Comm.), theAdministrative Law Judge (ALJ) ruled that FRAND commitments do notpreclude the exclusion order for SEPs in ITC (International Trade Commission).ITC reasoned that its investigations to determine exclusion order banningimportation of infringing product for violations of section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337) have a wider scope because its interests include publicinterest in addition to private interest.In response to ITC‟s ruling of availability of exclusion order for SEPs two USgovernment agencies- Department of Justice (DOJ) and Patent & TrademarkOffice (PTO) -jointly announced that in some instances the remedy of anexclusion order may be inconsistent with the public interest. The agenciesreasoned that such activity and resulting exclusion order may beanti-competitive, and thus, harm consumers.
  • 14. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 14*InterDigital’s SEPs: Dilemmas to US Patent SystemRecently, ITC (U.S. International Trade Commission) started investigation forInterDigital‟s complaint against major foreign smartphone manufacturesincluding Samsung that the accusers infringed its 3G and 4G standard essentialpatents. This is not the first time alleging infringement of standard essentialpatents and asking ban for importations of infringed products. However,considering the current debate that increasing activities of patent trolls andintensive smartphone patent infringement litigations caused the current patent system in crisis, InterDigital‟s litigation will be a hard-to-decide case for ITC.
  • 15. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 157. Samsung’s Win in ITC Against AppleITC finally determined that Apple‟s products (iPhone 4 (AT&T models); iPhone 3GS; (AT&T models); iPhone 3 (AT&T models); iPad 3G (AT&T models); andiPad 2 3G (AT&T models)) infringe the asserted claims of the US7706348(‟348) patent.Symbolically, this is a victory to Samsung because it was the only win in patentbattles against Apple. This can show to consumers that Samsung is a innovatorin mobile communications and Apple is a copycat. Economically, the gain toSamsung from this ITC‟s decision will be limited because all the affectedApple‟s products are old models, and thus, have diminishing market share.On this other hand it could adversely affect to Samsung because Samsungitself could be subject to banning importation of its products – in this case itsflagship smartphones, Galaxy S3 and S4: Samsung Galaxy S3 and S4 allsupport LTE communications and in other ITC pending cases Ericsson (337-TA-862) and InterDigital (337-TA-868) claimed that Samsung Galaxy S3infringed their LTE SEPs. As the market share of Galaxy S4 increases, it alsocould be included in the list of infringing products.
  • 16. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 16*Samsung’s US7706348 patent proves Apple’s infringementThe Commission‟s determination was based on modification of certain claimterms in previous ALJ‟s claim construction. The key term that was critical in overturning previous ALJ‟s non-infringement determination was “puncturer.” The ALJconcluded that the term “puncturer” means “hardware or software forpuncturing.”Samsung argued that the asserted claims of the ‟348 patent cover the Sections4.3.3 and 4.3.5 of 3GPP‟s UMTS standard specification TS 25.212, and thus,Apple‟s standard-compatible smartphones implementing coding method thatwas described in Sections 4.3.3 and 4.3.5 should infringe the asserted claims ofthe ‟348 patent.However, Apple argued that the term “puncturer” was excluded in the final specification (Samsung‟s proposal including the term “puncture” was adopted initiallyduring the standardization procedure), and thus Section 4.3.5 does not requirethat hardware or software for puncturing as only means to make final codeword. Apple insisted that Intel‟s baseband chips that were used in its productsdid not use “puncturer” in producing the final code word.
  • 17. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 17*Samsung’s US7706348 patent proves Apple’s infringement -2In the new claim construction, the Commission might broaden the meaning ofthe term “puncture” encompass general function of producing final code wordbeyond the plain meaning of puncturing.
  • 18. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 188. FRAND Licensing RoyaltyIn Microsoft Co., v. Motorola, Inc., No. 2:10-cv-01823-JLR (W.D. WA), the courtprovided basic guidelines for assessing FRAND royalty. The guidelines arebased on the Georgia-Pacific analysis of the reasonable royalty modified fortaking into account SSOs‟ primary goals for adopting FRAND commitments.(Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120(S.D.N.Y. 1970)).The court provided five primary goals for adopting FRAND commitments. Thecourt, then, modified the Georgia-Pacific factors to account for the five primarygoals for adopting FRAND commitments. The key modification to theGeorgia-Pacific factors leads to the reasoning that a royalty in a patent pool forthe specific SEPs at issue or comparable licensing transactions as a candidatefor the royalty established through negotiation under FRAND commitments.Thus, the royalty rate in the recently formed LTE patent pool may provideexpected FRAND licensing revenue.
  • 19. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 19*LTE Patent FRAND Licensing RevenueVia licensing‟s LTE patent pool set the royalty rate as 3% for end userproducuts (e.g. smartphones), 1% for data terminals (e.g. data cards), and 2%for Femtocell devices with volume discount up to 30%.According to GSA (Global mobile Suppliers Association) there were 87manufacturers for 666 LTE-enabled user devices as of January 2013.LTE user devices are Modules, Tablets, Notebooks/netbooks, PC Cards,Smartphones, Routers, Femtocells, and USB dongles.According to LTE market research by Signals and Systems Telecom, LTEdevices shipment in the world market will reach around 600 million units in2016. Thus using the royalty about $2 per unit, 4G LTE patents FRANDlicensing revenue is expected to be around $1.2 billion in 2016 globally.Because the royalty per unit is not dependent on the number of holders ofSEPs, one may calculate licensing revenue for each holder of SEPsproportional to its number of SEPs (e.g. http://techipm-innovationfrontline.blogspot.com/2013/05/4g-lte-standard-essential-patent.html).
  • 20. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 20Cf. LTE Royalty Rates for Bilateral Licensing -1Qualcomm revealed that the company had put royalty rate at 3.25 % for LTEpatent licensing.Nokia expects Nokia‟s rate for devices that deploy LTE as the only wirelesscommunication standard to be in a range of 1.5 % from the sales price of anend-user device. To avoid unfavorable effects of royalty stacking, Nokia will notcharge royalties higher than 2.0 % from the sales price of an end-user devicefor IPR that is essential to wireless communication standards irrespective of thenumber of wireless standards deployed in such a device.Ericsson said all of its LTE agreements will be made according to Ericssonsproportional share of the standard IPR that relates to the relevant productcategory. Ericsson likewise honors the same industry practice by ensuring amaximum cumulative rate on LTE technology not exceeding a single-digit rate.Ericsson´s fair royalty rate for LTE is therefore expected to be around 1.5 % forhandsets.
  • 21. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 21Cf. LTE Royalty Rates for Bilateral Licensing -2Huawei believes it will hold 15-20% of all essential patents relate to LTEstandard, therefore, a royalty rate with some flexibility, but not to exceed 1.5 %, is expected.ZTE will license its LTE essential patents for mobile communication terminalswith a maximum 1 % from the sales price of an end-user device. However, ZTEwill not be restrained to this amount, if ZTE is involved in any licensingnegotiations. While in multi-mode terminals, ZTE will follow similar principle insetting the royalty rate for LTE essential patents, which will be determined inbilateral negotiation.Motorola expects that its essential patent royalty rate for LTE systems andequipment (e.g. infrastructure and subscriber handsets) will be approximately2.25 %.
  • 22. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 22Thank you!• If you have any questionsplease contact Dr. Alex G. Leeat alexglee@techipm.com
  • 23. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 23TechIPm, LLC is a professional research and consulting company specializing intechnology and intellectual property mining and management.Technology Expertise• Mobile Computing & Wireless Communications Technology: LTE, UMTS,WLAN, WPAN, RFID, NFC, WSN, Cognitive Radio/SDR, M2M, Mobile TV etc.• Smartphone Applications: Location Base Services/Indoor Navigations, MobilePayments, Augmented Reality, Wireless/Mobile UI/UX etc.IP Expertise• Patent Analysis: Patentability, Freedom-to-Operate, Infringement, ValidityAnalysis, Patent Mining for Strategic Planning• Strategic Patent Evaluation & Valuation: M&A Patent Due Diligence,Acquisition Feasibility Analysis, Investment Valuation• Patent Portfolio Analysis & Development: Design Around Strategy,Essentiality & Claim Development for Standard Essential Patents• Patent Litigation Strategy: Evidence of Use, Claim Construction Strategy• Patent Prosecution: U.S. Provisional Filing, U.S. Non-provisional Prosecution,International Prosecution (PCT and Foreign Offices)• Patent Business Strategy: Licensing/Monetization Strategy, IP IntelligenceCompany Overview
  • 24. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 24Major ClientsTechnology management professionals planning, developing, andinvesting in new technologies/products/services.In-house IP counsels developing patent strategy.Licensing professionals looking for a new licensing opportunities.High-tech investment management firms.IP management consulting firms.
  • 25. ©2013 TechIPm, LLC All Rights Reserved www.techipm.com 25References