Lessons from the Smartphone Wars

ARTICLE Lessons from the Smartphone Wars

December 2012 Managing Intellectual Property, Chinese edition By E. Robert Yoches

Authored by E. Robert Yoches

I. Introduction

Apple and HTC have now settled their differences over smartphones, but a large number of patent lawsuits over this technology remain all over the world. For example, Apple, Samsung, Motorola Mobility (now owned by Google) and Microsoft are still fighting over important issues. RIM, Nokia and others also have their fights. The public has shown a keen interest in these lawsuits.

Lawyers are interested in these lawsuits for two reasons. Many have clients who are implicated. In addition, these suits raise new business and legal issues, such as the transfer of large patent portfolios, attempts to loan patents, and problems with patents deemed essential to standards. Indeed, these issues may be the longest lasting legacy of the smartphone wars.

II. Patent Buying

“Smartphone companies are amassing enormous patent portfolios in order to remain competitive against a rival’s patent portfolio.” T. H. Chia, “Fighting the Smartphone Patent War with RAND- Encumbered Patents,” Berkeley Technology Law Journal, Vol. 27:209, p. 213 (2012) (citing C. Chien, A Race to the Bottom, Intellectual Asset Management, Jan.–Feb. 2012, at 13–14). It would be hard to ﬁnd another example where companies paid as much money for as many patents as those in the smartphone market have during the last few years. The bidding war started peaking in June 2011 when Rockstar Bidco (a consortium of Apple, Microsoft, Ericsson, RIM, EMC, and Sony) paid $4.5 billion for Nortel Network’s patent portfolio of more than 6000 patents. The consortium announced it wanted to keep these patents from Google, which had reportedly bid $900M for the patents, presumably to protect its Android platform. The patents became available because Nortel ﬁled for bankruptcy.

Two months later, in August 2011, Google bought Motorola Mobility for $12.5 billion. For that money, Google acquired a handset business plus 17,000 patents. One of Google’s founders, Larry Page, explained that Google’s primary objective in the purchase was to protect itself and Android OS smartphone manufacturers from litigation. Larry Page, Supercharging Android: Google to Acquire Motorola Mobility, Oﬃcial Google Blog (Aug. 15, 2011, 12:52 PM), http://googleblog.blogspot.com/2011/08/ supercharging-android-google-to-acquire.html.

Later that year, Google bought almost 2300 IBM patents, some involving mobile telephony. Not wanting to be left out, HTC acquired control of S3G Graphics from VIA for $300 million in July 2011 giving HTC access to 235 patents. HTC asserted some of these patents against Apple.

Lessons from the Smartphone Wars | Articles | Finnegan | … © 2021 Finnegan, Henderson, Farabow, Garrett & Dunner, LLP 1 The buying spree included other smartphone makers as well. For example, Microsoft bought more than 800 patents from AOL for $1.1 billion in April 2012. It sold some to Facebook. The amount of money that changed hands in all these transactions is unprecedented.

III. Patent Borrowing

Google was in the strange position of wanting to protect its technology without alienating customers/aﬃliates. It wanted to help one ally, HTC, without putting other potential licensees of Android at a disadvantage. Although the method it chose did not work, others may ﬁnd a way to achieve the same result successfully.

IV. FRAND Problems

Some parties tried to enforce some patents in the area of wireless technology that carried obligations to license them under FRAND (fair, reasonable, and non-discriminatory) terms. When a party obtains a patent that covers a standardized technology, the patent is deemed “standards-essential.” If the party with such a patent belongs to the organization setting the standard, that party must usually dedicate the patent to the public or agree to license the patent on FRAND or RAND terms.

This occurred, for example, in lawsuits involving Google (i.e., Motorola). For example, on November 13, 2012, a trial started in the U.S. District Court for the Western District of Washington, and focused on allegations by Microsoft that Motorola Mobility demanded an unreasonable royalty rate for its patented wireless and video-essential technologies. The court decided to conduct a two-part trial. The ﬁrst part will determine the royalty rate, and the second will consider whether Motorola’s 2.25 % royalty rate was unreasonable.

On November 5, 2012, the District Court for the Western District of Wisconsin dismissed a suit by Apple against Motorola Mobility asking for the same relief. One reason for the dismissal may have been that Apple announced it would continue litigating if the court’s ruling was unfavorable.

One problem with FRAND issues is determining what is fair and reasonable. In fact, even the issue of whether terms are discriminatory may be troublesome because different terms and different parties (with different patents of their own and different exposures) may justify different royalty rates.

Another problem involves the ITC, which can only act to exclude infringing article. In several instances, the ITC has considered whether it can hear a case in which the patent owner has FRAND licensing obligations. Such obligations seem to undercut the only relief (injunctive) the Commission can provide. So far, the Commission has not addressed this issue completely.

A ﬁnal facet involves antitrust implications. Apple, for example, has ﬁled suit asserting that by suing on essential patents Motorola violated the United States antitrust laws. This is still an open issue.

V. Conclusion

Although the smartphone wars seem to be winding down, several important trials and decisions are still pending. There are only two outcomes that are assured from these lawsuits. One is that they will keep a large number of lawyers employed. The other is that those lawyers will continue to push the boundaries of the law as they ﬁght bitterly over this technology.

Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the ﬁrm’s clients.

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E. Robert Yoches Partner Washington, D.C. +1 202 408 4039 Email