rand – Techdirt (original) (raw)

How Should Standard-Essential Patents Be Licensed?

from the that's-not-fair dept

Patents are intellectual monopolies, designed to give the patent-holder control over an invention by excluding others from using it without permission. That’s a problem when standards include patented elements. Anyone who wants to implement that standard must use the invention, which gives the patent-holder the ability, in theory, to demand and obtain any licensing deal it might propose. To limit that power, holders of these standard-essential patents are often required to agree to offer licensing terms on fair, reasonable and non-discriminatory (FRAND) terms.

Of course, that leaves open the rather important question of what exactly FRAND means in practice, and an interesting case before the Court of Justice of the European Union aims to obtain some guidance on this issue. The court itself has not yet handed down its judgment, but as usual, an Advocate General has offered his own thoughts as preliminary guidance (pdf). Here’s the background to the case:

> Huawei, a Chinese telecommunications company, holds a European patent regarded as ‘essential’ to the ‘Long Term Evolution’ (LTE) standard developed by the European Telecommunications Standards Institute (ETSI). The LTE standard relates to next generation — that is to say, fourth generation — mobile phone communications. Anyone complying with the standard inevitably uses the patent owned by Huawei, which is why that patent is categorised as ‘essential’. Huawei is a member of ETSI and notified the patent to that institute. Huawei also made a commitment to ETSI to grant licences to third parties on fair, reasonable and non-discriminatory (FRAND) terms.

However, when another Chinese company, ZTE, sought a license from Huawei, they were unable to agree on the terms, so Huawei brought an action for infringement against ZTE. According to ZTE, Huawei’s attempt to obtain an injunction against it constituted an abuse of its dominant position, since ZTE was willing to negotiate a license.

Here’s the key part of the Advocate General’s opinion. After making the alleged infringer aware of its infringement, the standard-essential patent-holder must also:

> Present the alleged infringer with a written offer of a licence on FRAND terms and that offer must contain all the terms normally included in a licence in the sector in question, including the precise amount of the royalty and the way in which that amount is calculated. > > The infringer must respond to that offer in a diligent and serious manner. If it does not accept the SEP holder?s offer, it must promptly present the latter with a reasonable counter-offer, in writing, in relation to the clauses with which it disagrees.

The rest of the opinion then goes on to fill out details of what is reasonable and unreasonable as the negotiations continue, and as recourse is made to the courts. In many ways, it’s an attempt to flesh out what that problematic “fair, reasonable and non-discriminatory” means. But a far better solution would be to stipulate that all standard-essential patents must be licensed on an RF — royalty-free, also known as requirement-free — basis. That’s precisely what the leading web standards body, the W3C, specifies in its patent policy:

> In order to promote the widest adoption of Web standards, W3C seeks to issue Recommendations that can be implemented on a Royalty-Free (RF) basis. Subject to the conditions of this policy, W3C will not approve a Recommendation if it is aware that Essential Claims exist which are not available on Royalty-Free terms. > > To this end, Working Group charters will include a reference to this policy and a requirement that specifications produced by the Working Group will be implementable on an RF basis, to the best ability of the Working Group and the Consortium.

It’s quite reasonable to expect holders of standard-essential patents to agree to RF licensing since the inclusion of their invention in a standard is, in itself, an important benefit: it places the patent-holder at the center of the standard, and enhances its influence over the field it refers to. It also helps it avoid the need for costly and pointless lawsuits like the one between Huawei and ZTE.

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Filed Under: etsi, eu court of justice, frand, licenses, lte, patents, rand, royalty free, standards essential
Companies: huawei, zte

WiFi Patent Troll Told That Each License Should Be Less Than 10 Cents

from the that-limits-the-damage dept

We’ve written a few times about patent troll Innovatio, which claims to hold some patents on WiFi, saying that anyone using WiFi (including home users) are infringing, though it has chosen “at this stage” not to sue home users. It is, however, going after tons of coffee shops, hotels, grocery stores and restaurants for offering WiFi, demanding 2,300to2,300 to 2,300to5,000 to settle. A year ago, we wrote about how a bunch of WiFi equipment manufacturers, including Cisco, Motorola and Netgear had teamed up to go after Innovatio. Not only do they contest the validity of the patents in question, but they highlight a ton of really questionable behavior by Innovatio and claim that the troll is involved in a form of racketeering. Among other accusations, the manufacturers note that Innovatio includes expired patents in its list that it threatens people over, and it leaves out that the patents are part of the WiFi standard, and there are commitments related to them that they’ll be licensed on RAND (Reasonable and Non-Discriminatory) terms.

The lawsuit is moving forward, and there was just a ruling on one key part of it. The court decided that before getting into everything else, it would try to determine what the RAND rate should be for the manufacturers (which are separate from the end-users like the coffee shops that Innovatio is going after). The idea is that having the rate set upfront might help the parties settle. Innovatio pushed (of course) to have the rate be calculated based on the price of the final product that was for sale. For example, it claimed that 10% of a laptops value is from WiFi (um, what?!?) and that its patents deserve to get 6% of the value of WiFi. This calculates down to them wanting 4.72perlaptop.Thecompanyhasotherpricesforotheritems:4.72 per laptop. The company has other prices for other items: 4.72perlaptop.Thecompanyhasotherpricesforotheritems:3.39 per WiFi access point, 16.17pertabletand16.17 per tablet and 16.17pertabletand36.90 per “inventory tracking device.”

The manufacturers point out that this is insane. And if there needs to be a base from which to calculate a royalty rate it should be the WiFi chip itself, which these days go for about $3 each. Thankfully, the court agrees with the manufacturers and more or less eviscerates Innovatio’s “expert” who came up with the prices it thought were reasonable, even highlighting a ridiculous exchange showing that the guy, Chris Bergey, was more or less coming up with ways to support these claims based on questionable assumptions, and no connection to how these things are normally priced.

Specifically, Mr. Bergey testified in part as follows:

> Q. I’m saying you are unaware of a single case where this approach has been taken, correct? > A. Correct. I’m not well versed in patent cases. > Q. Well, what do you mean by that? > A. I … couldn’t tell you if this is something that’s widely used or not widely used. > Q. You have no idea whether this approach has ever been used? > A. I do not know. > Q. Or whether it’s an appropriate approach? > A. It seems logical to me, and I know that this is an emerging, you know, area of law where there is a lot of challenges, but … I allow that to the experts and, you know– > Q. And on this issue, you’re not an expert, right? Fair? > A. On which issue? > Q. On the issue of whether this is even the right approach to take. > A. Again, I think it’s logical, but, you know, I think that’s up to others in the case to determine, you know, what they want to use. > Q. Because you don’t have any expertise or training to say yourself whether or not it’s appropriate, right? You’re not a lawyer, for example? > A. I believe my education allows me to say I believe it’s accurate, but if it’s appropriate, no, I don’t believe I’m qualified.

Mr. Bergey’s testimony about the methodology he used to produce the Wi-Fi feature factor confirms that his approach was not based on an established method of analysis, but is instead speculative and subjective.

The ruling is definitely a loss for Innovatio, as it massively limits the royalties it claims it’s entitled to. Of course, Innovatio’s lawyer, Matthew McAndrews, seems to want to turn lemons into obnoxious lemonade to spit all over everyone, arguing that now that a rate is set, he can’t wait to get all that money from all those WiFi chips:

“At a minimum, the court’s determination that the Wi-Fi chip is the appropriate base to which the RAND rate applies opens the door for Innovatio to potentially license hundreds of millions of units sold by numerous Wi-Fi chip suppliers,” Matthew McAndrews, an Innovatio IP attorney, said yesterday in an e-mailed statement.

Meanwhile, Cisco notes that (1) this much lower rate should hopefully limit the threats that Innovatio can send to users and (2) there’s still a long way to go before anyone has to pay anything. Cisco’s general counsel, Mark Chandler, told Bloomberg: “We would be shocked if we had to pay anything” by the time the case is over. Meanwhile, in an emailed statement, Chandler told us:

Now, instead of sending letters to businesses asking for thousands, Innovatio can send letters asking for a dime, and only if Innovatio can prove that the patents are valid and that the accused products use the WiFi features and are not already licensed – none of which they have done yet. I suggest they save the stamp.

Ouch. Of course, that’s not entirely accurate, since the case is clear that it only applies to the manufacturers, and not the WiFi users, which will be discussed separately, apparently. But, given the RAND rate set for the manufacturers as a starting point, it is likely that any rate that might apply to WiFi users would also be greatly diminished from Innovatio’s nutty claims. And, of course, the company still has to show that actual infringement occurred, and that is still likely to be difficult.

Filed Under: patents, rand, wifi
Companies: cisco, innovatio

FTC May Get Involved In Patent Dispute Over Digital TV

from the monopoly-corrupts dept

Back in February we wrote about a patent holding firm called Rembrandt (a nod, I’m sure, to the book “Rembrandts in the Attic,” which many say kicked off this decade’s patent problems) that was suing basically everyone in the TV business, claiming to hold patents on digital television. This was problematic for a few reasons. First, since the FCC is mandating that everyone switch to fully digital TV systems by next year, broadcasters have little choice but to offer digital TV. Second, Rembrandt bought the patent from AT&T who had already promised to license it under RAND (reasonable and non-discriminatory) terms which Rembrandt is ignoring. Since the FTC recently smacked down another patent holder for doing the same thing, an advocacy group is now appealing to the FTC to smack down Rembrandt as well, claiming that the company is “violating antitrust and fair competition laws by abusing the monopoly provided by its patent” in order to collect “a massive tax… on the transition to digital TV.” Indeed.

Filed Under: digital tv, ftc, licensing, patents, rand
Companies: rembrandt