Apple and Google disagree over licensing of essential patents

Apple wants to change the way essential patents are licensed and litigated, while Google wants to use current model

Google is at odds with Apple, Microsoft and Cisco over the licensing and litigation of patents. While Google wants to make the most of patents it will receive if its acquisition of Motorola is approved, the others want to change the way so-called essential patents are licensed.

Essential patents are part of a standard and licensed under fair, reasonable, and non-discriminatory (FRAND) terms or reasonable, and non-discriminatory (RAND) terms. When patent-infringement negotiations over what that means fail, Google wants to continue to be able to use injunctions to block the sale of infringing products, while the others want to remove that option.

"Everybody is really taking positions which suit their own particular interest, right now," said Andrew Watson, CEO and founder of ipVA, a European intellectual property consultancy.

Back in November, Apple sent a letter to ETSI (European Telecommunications Standards Institute), which was made public this week, detailing the need for more consistency with the licensing of essential patents.

Apple's suggested terms include the promise to not try to block the sale of products when negotiations have failed. Cisco and Microsoft have both backed that position. Consumers and the entire industry will suffer if firms seek to block others from shipping products on the basis of standard essential patents, Microsoft said in a statement on Wednesday.

That is a sensible idea, according to John Collins, European patent attorney at Marks & Clerk. A court case related to FRAND licensing should only be about money, and not involve the threat of an injunction, he said.

Removing the threat of injunctions would help balance the relationship between licensor and licensee, according to Carlo Piana, general counsel for the Free Software Foundation Europe (FSFE).

The threat of injunction is a very powerful weapon, said Piana. When a company is developing a new product, it can choose not to use a technology depending on licensing costs, but when the product is already finished, that becomes very expensive, and the patent owners can force the vendor "to pay through the nose," he said.

Google, on the other hand, "reserves its rights to use any and all judicial remedies against counterparties that refuse a RAND license," the company wrote in a letter to IEEE on Wednesday.

"All Google is saying is that it's going to take the same position as Motorola would have taken. Google is new to the patent game and is just hedging its bets," said Watson

It was Motorola's patent portfolio that made Google open its wallet. The acquisition of Motorola would increase competition by strengthening Google's patent portfolio, and enable Google to better protect Android from anti-competitive threats from Microsoft, Apple and other companies, CEO Larry Page said when the deal was announced in August.

During the ongoing patent wars, Apple has used patents on user interface and design, which are not essential, to attack the Android camp, while the likes of Motorola and Samsung Electronics have used essential patents to defend themselves.

Last week, Apple had to remove temporarily some of its products from its online store in Germany due to a court injunction in its dispute over essential patents with Motorola. Removing the threat of injunctions would weaken Android's position, and therefore make Google's acquisition of Motorola less valuable, according to Carolina Milanesi, research vice president at Gartner.

The use of essential patents against Apple has been a mixed bag. Motorola may have rattled Apple with its German injunction, but Samsung is being investigated by the European Commission because the way its licenses essential patents may be in breach of European competition law.

Apple also suggests that licensing negotiations should start with a "common base", which should be "no higher than the industry average sales price for a basic communications device that is capable of both voice and data communication."

That would be good for Apple, because its iPhones are more expensive than a "a basic communications device". But Collins questions the effectiveness of such a measure, because the final licensing cost will still come down to negotiations between the two involved parties, he said.

Google, on the other hand, wants 2.25 percent on the net price, which would give it more revenue from Motorola's patents.

"Its old style versus new style. What I like about the Apple approach is that it does what FRAND was always intended to do, if you pick apart the words," said Watson.

FRAND was meant to be open and transparent, and very easy to understand, according to Watson. So vendors are able to budget the licensing costs, which they can't today, he said.

To what extent ETSI will get involved remains to be seen. But, in general, it takes a very hands off approach to how licensing terms are negotiated. ETSI is not in a position to provide guidelines for commercial negotiations, according to its website.

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