Patent Wars

Sometimes so confusing that it might well pertain to a Galaxy far, far away, the ongoing complexities of the litigation over smartphone patents leave many at a loss. John D. McGonagle offers a strategic overview of the smartphone ‘patent wars’

The smartphone industry is now estimated to be worth more than $200 billion worldwide.  Patents, which can be a legitimate and eminently sensible part of almost any company's intellectual property strategy, have become weapons in the battle for market share. 

IP & IT lawyers who are not at the forefront of the so-called 'smartphone patent war' (or do not undertake intellectual property litigation) may feel bewildered by the scope and complexity of the disputes. This article does not analyse specific court decisions, but rather seeks to offer clarity from a non-contentious IP lawyer's perspective, providing a strategic overview, summarising the technology, the players, the nature of the patents and the competing jurisdictions. I go on to consider what the future may hold. 

The technology 

An excellent report (www.griffithhack.com.au/Assets/1956/1/GH_Smartphones_final.pdf ) on the most valuable patents in the smartphone marketplace compiled in 2011 by Australian patent attorneys Griffith Hack has identified the top three smartphone technologies that are being litigated: 

1.      mobile data access (a key area in that it accesses and synchronises messages, calendar entries, phone logs and files across separate databases);

2.      touch screens; and

3.      mobile data transmission (the physical transfer of data between mobile devices). 

BlackBerry maker Research In Motion (RIM) appears to be a clear leader in terms of patents for mobile data access technology, Apple holds the majority of valuable touch screen patents, while global telecoms corporation Qualcomm enjoys a similar dominance in respect of mobile data transmission patents. 

Who is fighting who? 

The smartphone patent battleground is often described as Apple vs manufacturers which use Google's Android operating system (particularly Samsung).  Arguably the most eye-catching patents dispute of them all is Apple's main lawsuit against Samsung (for damages and a ban on the import of the Nexus S, Epic 4G, Galaxy S 4G and Galaxy Tab) which is due to be heard in the US District Court for the Northern District of California on 30 July. 

However an 'Apple v Android manufacturers' analysis obscures several key elements of the smartphone patent wars, and is a fairly simplistic representation of what is in reality a tangled web of enmity and informal alliances amongst software developers, mobile handset manufacturers and telecoms operators. 

Google, as the owner of the Android operating system, has found it impossible to avoid litigation.  Last year's highly publicised purchase of Motorola Mobility was primarily to acquire the smartphone business's patent arsenal.  Less well known is the fact that Google has also been steadily acquiring IBM patents (www.bbc.co.uk/news/technology-16409081).

Microsoft wields considerable influence.  Microsoft possesses a large patent portfolio related to mobile software and touchscreen devices, thanks in part to decades of research and development of software for handheld and portable devices.  While Microsoft has asserted its patents in a less confrontational fashion than Apple, it is nevertheless well known that Android manufacturers pay Microsoft royalties (www.bbc.co.uk/news/business-15106889).  At the time of writing, under a ruling by the International Trade Commission, Microsoft has successfully banned the import of Motorola smartphones into the US.

Further, Microsoft has taken HTC (www.digitaltrends.com/mobile/microsoft-doing-nicely-out-of-htc-android-phone-sales/) and Nokia (www.wired.co.uk/magazine/archive/2012/06/features/nokias-last-stand?page=all ) under its wing, which perhaps explains why Nokia is now making a relatively late foray into patent litigation, filing cases relating to 45 patents in the US and Germany against Viewsonic, BlackBerry maker RIM and – perhaps curiously – HTC.  (If you are wondering why Nokia is not suing Apple, it is because Apple agreed to become a Nokia licensee last year. The exact terms of the deal are not known, but it is believed that Apple agreed to a one-off payment plus a few percentage points of future royalties.) 

Organisations are also shielded from litigation by being a vital part of another organisation's supply chain.  Synaptics (which specialises in 'human interaction' and gesture-recognition technology) supplies touch screens to Apple competitors, but has not been sued by Apple - despite Apple's dominance of touch screen patents.  This immunity is thought to stem from the fact that Synaptics supplies vital components to Apple. 

The blizzard of writs obscures strategic alliances.  Microsoft, Apple and RIM are not just refraining from suing each other – they have actually acted in consortium, for example in the purchase of the patents of bankrupt telecoms firm Nortel (www.bbc.co.uk/news/business-13986877). 

Telecoms operators are also choosing sides - T-Mobile has petitioned US courts to state that Apple injunctions against Samsung would harm consumer choice and the economy.  Qualcomm's most valuable patents have been subject to litigation, and BT is suing Google (www.bbc.co.uk/news/technology-16243414).   

Standard-essential patents and FRAND licensing 

A very important factor in smartphone patent disputes is the distinction between standard essential patents and non-standard essential patents. 

Standards (common platforms allowing products to work together) are important in fostering interoperability and are often coordinated and developed by specific SSOs (standard setting organisations).  In the context of smartphones, obvious examples of applicable technology standards are WiFi (being any wireless local area network product based on the Institute of Electrical and Electronics Engineers' requirements) and 4G (the 4th generation of mobile phone standards, as developed by the ITU Radiocommunication Sector). 

As the UK Intellectual Property Office has advised, companies that participate in standards can benefit in a number of ways. If they can insert IP related to their patented technology into the standard, they then have the potential to license their technology to others, negotiate cost-effective cross-licences, and simultaneously prevent rivals from controlling or dictating a standard.  

SSOs inserting technology into standards usually require ex ante disclosure of relevant patents and the grant of licences for standard essential patents on (fair) reasonable and non-discriminatory ('FRAND') terms.  In practice, however, the extent or content of FRAND licences (referred to as reasonable and non-discriminatory licences ('RAND') in the United States) can be unclear. 

Indeed, there is no formal agreement as to what a FRAND licence should or should not contain.  The latest edition of the European Telecommunications Standards Institute's Guide to Intellectual Property Rights ( www.etsi.org/WebSite/document/Legal/ETSI%20IPR%20Policy%20November%202011.pdf ) is silent on this point, with the result that an owner of a standard essential patent may still offer a licence on terms which potential licensees consider unfair or onerous.   

Last autumn Apple appealed to the European Telecommunications Standards Institute, asking that it work to enforce a consistent licensing scheme for the many patents required to manufacture mobile devices.  Since then Apple and Microsoft have filed formal competition law complaints with the European Commission objecting to Motorola's (and, by implication, Google's) enforcement of standard essential patents. 

Matters become even more contentious in regard to technologies and patents that are not essential to the implementation of a standard, but are nevertheless essential to the commercial value of a mobile device.  These are referred to as 'non-standard essential patents'.  In the context of smartphones these types of patents typically relate to aspects of user interface and the way that consumers interact with mobile devices.  For example, it is these sorts of patents which Apple is primarily asserting against their Android-based competitors.   

Why Germany? 

Although patent disputes have been waged in a variety of territories under various jurisdictions - the US, the International Trade Commission (ITC), and federal trial courts all over Europe and Asia, observers of the smartphone patent wars may have noticed that a great deal of litigation occurs in Germany.   

A variety of factors makes Germany a uniquely appealing forum, not least its status as the biggest market in Europe. 

Patent litigation in Germany is cost-effective (in comparison to the UK and the US) because there is no lengthy process of fact or document disclosure by parties prior to legal action.  Patent litigation is also relatively predictable, because disputes are decided by specialised judges rather than juries. 

Unusually, Germany bifurcates (separates) the key patent litigation questions of infringement and validity into separate court proceedings.  This means that a party can adopt different claim constructions in each set of proceedings, eliminating the need to perform the often difficult balancing act between the breadth claimed for the patent and the negative effect that has on validity (the wider a patent is claimed to be, the less likely it is to be valid).  At present it takes two to three times as long to get a first-instance decision on invalidity from the Munich-based Federal Patent Court as it takes to win a first-instance ruling on infringement. This provides holders of questionable or weak patents with an opportunity to enforce injunctions, which tend to be granted on a low standard of proof. 

It's important to note however that while decisions by German courts are crucial to asserting control over the European smartphone market, they arguably have little relevance beyond Europe.  Indeed, companies based outside Europe may be actively coerced to ignore German rulings.  For example, earlier this month the German Regional Court granted Motorola Mobility a German patent injunction against Microsoft over patents essential to video codec standards, only for the US District Court for the Western District of Washington to extend a temporary restraining order effectively barring Motorola from enforcing the German ruling.   

The US Court's reasoning was that Microsoft had filed a complaint with it about Motorola's RAND licensing shortcomings prior to Motorola claiming infringement against Microsoft in Germany.  Turf wars of this nature between courts will only intensify as smartphone patent wars become truly global. 

The future

 Given the volatility of the smartphone patent wars to date, it is difficult to make accurate predictions about what will happen next.  There are nevertheless a couple of significant emerging matters. 

The first is the European Commission's increasing concern that smartphone players are establishing barriers to market entry under the guise of FRAND licensing, establishing a de facto cartel (www.readwriteweb.com/enterprise/2012/02/european-vp-suggests-frand-pat.php.)  Since SSOs and the setting of standards involve industry participants making agreements that affect the market, there is a risk they may be regarded as anti-competitive, especially if ex ante agreements on licensing are undertaken.  In January the European Commission announced that it had opened a formal investigation into Samsung to investigate whether it had abused its dominant market position.  Following Apple and Microsoft's FRAND and standard essential patent complaints, a similar investigation into the practices of Motorola Mobility is also underway.

The second significant emerging matter is that the technology and the patents which are currently generating litigation may soon be obsolete.  iRunway, an organisation which specialises in assisting companies monetise their patent portfolios, claims that companies that were at the forefront of previous patent battles may find themselves outmanoeuvred by those that have already invested heavily in the 4G arena (www.i-runway.com/iRunway_4G_LTE_Patent_Analysis.html).  Samsung and Qualcomm are identified as a leading 4G patent holders, whereas Apple is alleged to hold relatively few.  (This analysis does however ignore the fact that some of the patents generating the most litigation in the present day date back to the 1990s.) 

John D. McGonagle is a Senior Solicitor, Technology, Information and Outsourcing Group, Brodies LLP: www.brodies.com/

 

Published: 2012-05-25T10:36:55

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