Google, Microsoft and Apple letters aim to keep regulators at bay

In detailing their stances on licensing essential patents, the companies hope to reassure regulators and standards bodies

As patent infringement lawsuits continue to pile up in the mobile industry, Google, Apple and Microsoft appear to be trying individually to reassure regulators and standards bodies that they won't use their patents to build a monopoly, experts said.

On Wednesday, Microsoft issued a short blog post describing its policy around licensing essential patents, Google sent a long letter to the IEEE outlining its intentions around licensing Motorola's patents and Apple laid out its licensing policy in a letter sent to ETSI late last year that just came to light.

The Institute of Electrical and Electronics Engineers and the European Telecommunications Standards Institute are both standards setting bodies. Antitrust authorities look to licensing commitments that companies make to bodies like ETSI when considering antitrust allegations.

"These are efforts on the part of Apple, Google and Microsoft to reassure the standards organizations that they'll play fair," said David Mixon, an attorney with Bradley Arant Boult Cummings who has been following the mobile patent wars.

All of the letters specifically address licensing patents that are considered essential to standards. That's important because if a company were to use the courts to prevent competitors from selling products because of the infringement of a patent that is required in a standard, that company could essentially create a monopoly, said Alexander Poltorak, CEO and chairman of General Patent Corporation, a patent litigation firm.

The letters are aimed are reassuring regulators and standard setting bodies that the companies don't intend to go that far, he said.

"To attempt to assert a standard essential patent and ask for an injunction is to wave a red flag in front of a bull. It's to invite an antitrust inquiry, and nobody wants to do that," he said.

Each of the letters addresses the companies' policy around injunctions. Microsoft's is the most straightforward. It simply says it will not seek an injunction or exclusion order against any company based on an essential patent.

There's a good reason that Microsoft's statement is much clearer than the others. "It's really laughable," Poltorak said. "They can't possibly seek an injunction because they operate under the shadow of the Justice Department." Even though Microsoft is no longer subject to DOJ oversight following its antitrust investigation, the agency continues to closely watch the software giant. Microsoft agreed to DOJ oversight, which ended last year after 10 years, after the agency found the company violated antitrust laws.

A careful read of the Apple letter shows that it suggests a clever arrangement, he said. "They are making these statements on the surface that sound very good but if you start looking closely you see that they leave a lot of room for themselves to play this game the way it works for them," he said.

Apple said when it is negotiating with another party for essential patents, the royalty should be based on the industry average sales price for a basic communications device that does both voice and data. Should Apple's iPhone, one of the most expensive phones on the market, be used to set that average, this policy would require a company that makes very low end phones to pay a higher rate and would allow Apple to pay a lower rate should it license patents from a company that sells cheaper phones, Poltorak said. It's more common for a licensing deal to be based on the price of the device that uses the patent.

In Google's letter, it said it will charge a royalty rate of a maximum of 2.25 percent of the net selling price of the product. But rather than setting that as a set rate, it says it won't charge more than that. "That's not saying very much," Poltorak said.

Florian Mueller, a patent expert who found each of the letters and posted them online, points out a number of "loopholes" in Google's letter.

Essential patents are an issue now because companies like Google and Apple, which are relatively new entrants to the mobile market, weren't involved with setting the standards. However, they each now control relevant patents. When Apple first disclosed its essential patents to some mobile technologies in 2007 when it entered the market, it had 40 or so, Poltorak said. But since it joined a consortium of companies that bought Nortel patents, it has many more patents that are essential to mobile standards.

Similarly, Google is in the process of acquiring Motorola, which as one of the first developers of mobile phones holds many essential patents. In its letter to the IEEE, Google said it planned to uphold Motorola's commitments to license the patents on reasonable terms.

While all of the companies are involved in numerous lawsuits over patents in mobile products, none is likely to overstep when it comes to injunctions related to essential patents, Mixon said. If the companies "try to play hardball," the IEEE or other standards bodies in the future might try to set standards that avoid technologies patented by the companies, he said. That would mean lost revenue for the company.

At the root of the issue are the vague terms that companies agree to when contributing patents to a standard. They agree to license the patents to others on a fair, reasonable and nondiscriminatory terms. "The problem with that is it's indefinite. What's reasonable? It brings uncertainty," Dixon said.

But a definition like that is necessary to allow for flexibility since technology moves so quickly, he said. "As unsatisfying as it is, you have to allow for some flexibility to negotiate some things," he said.

Other companies may yet weigh in. Mueller also discovered that Cisco in late January sent a letter to ETSI saying it supports Apple's policy.

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