samsung galaxy s2

This is a crucial victory for Apple which could have major impact not just on Samsung, but also on Google and Android as it limits the use of standards essential patents (SEP) as legal tools against competitors.

The court has ruled that Samsung is obligated to offer FRAND licensing terms to Apple for the standards essential 3G/UMTS patents. The court said that Samsung cannot pursue injunctions against Apple as it appears inclined to discuss licensing terms — Apple has only objected to the royalty rate, terming it high.

The court also said that Samsung cannot assert 3G/UMTS patent on iPhone 4S due to "patent exhaustion". Apple had purchased baseband chips from Qualcomm which already had licenses to 3G/UMTS patents which Samsung is asserting, which logically means that they should be covered by the said patents.

To pursue case against Apple, Samsung wanted to terminate its agreement with Qualcomm, but the court ruled otherwise saying that Samsung cannot do so due to the commitments made to ETSI to grant irrevocable licenses for its 3G/UMTS patents. ETSI is the standards body in charge of 3G.

This means that there will be no extra royalty on iPhone 4S, as it is already paid by Qualcomm.

The only piece of moderately positive news for Samsung was that it can pursue cases against Apple for phones which used Infineon chips until January 2011 as well as Intel baseband chips (Intel acquired Infineon's mobile baseband chip division). Though, Apple has a chance to apply for patent exhaustion till March 28.

The dutch courts decision effectively means that Samsung's, and indeed Google's, main counter strategy against Apple of using SEP's is not working. Samsung has already lost similar cases in France and Italy and had withdrawn a case in Germany, albeit with an option to sue later.

The verdict on patent exhaustion means that Samsung cannot bring out cases against some devices like will iPhone 4S, which use parts already covered by the patents. In our opinion, this was a very aggressive stand taken by Samsung, where chances of victory where anyway small, hence the verdict is not a surprise.

Though, Samsung can negotiate for royalty on devices using Infineon and Intel basebands, the royalty rate will likely be low as they will not only infringe indirectly but will also involve SEPs.

So far Samsung has not won a single offensive claim against Apple anywhere in the world and this latest verdict is in line with the other verdicts, albeit much bigger. Samsung may have to eventually opt to settle with Apple and pay a royalty, just like it is currently paying Microsoft. As earlier reported, Apple had offered licensing deal to Samsung, with some important caveats to maintain product differentiation.

This ruling also increases the pressure on Google. Google's primary strategy against both Apple and Microsoft is to leverage SEPs for cross-licensing without paying additional royalties or ask for a high royalty rate like 2.25% with Microsoft.

This ruling, and all previous ruling, indicates that this is not an effective strategy as the courts are not warming to the idea of suing based on SEPs, effectively removing the biggest weapon in Google's arsenal. Google and its OEMs will also not be able to command a high royalty rate which could be as low as 2 cents (depends on the patent though).

Apple and Microsoft now have the upper hand as a lot of their patents are not SEPs and hence they are free to charge a higher rate. Many Android OEMs are already rumoured to be paying Microsoft between US$5-$15 per device as royalty for patents and may now have to pay Apple a royalty.

Microsoft and Apple will succeed in moving Android from a free OS to one with a high patent risk and hidden costs, reducing its lucrativeness to Android developers. This could move the lower end market from Android to Windows and other proprietary OS'.

But this outcome depends on a lot of other issues and, unless a settlement occurs, we are a long way away from resolution, even though victory in the current round goes to Apple and Microsoft.

Ahh... It seems I have been posting only legal and patent related issues recently. Sigh... I don't expect this to reduce any time soon :(

After threatening Facebook with a lawsuit last month, Yahoo has now acted upon the threat filing a case and accusing Facebook of infringing on 10 of its patents. The alleged infringed patents include those relating to messaging, news feeds, advertising, preventing click frauds and privacy controls. 

Yahoo had contacted Facebook recently asking for royalties, but filed the case after Facebook refused to pay them. 

Yahoo had earlier sued Google in 2004 for patent infringement related to "pay per click advertising method", which Google settled for ~US$230 million.

Yahoo, one off the early Internet giant, has been on the downward trend for some time. It lost its premier search position to Google before surrendering it to Microsoft. 

Yahoo has also been unsuccessful in building up a social networking property and tried to acquire Facebook in 2006, but failed.

Similar to handing search to Microsoft, Yahoo made a blunder by integrating Facebook across its sites from 2008. This significantly increased the reach of Facebook, while the importance of Yahoo diminished. 

Combined, this means that Yahoo is not a major player in its two most important business areas, which is reflected in its continuing declining value post-Microsoft offer to purchase Yahoo was rejected by its board.

Currently majority of Yahoo's value comes from its 35% stake in Yahoo Japan and 40% stake in China's Alibaba. According to a recent note by J.P.Morgan, Yahoo's US assets were valued at an enterprise value of US$6.9bn, stake in Yahoo Japan at US$5.7bn and that in Alibaba at US$9.9bn. Yahoo also has cash of , along with a cash of ~US$2bn. This means that the core operations contribute less than one-third to the total value, a clear sign of a dying company.

According to Yahoo, nearly all the technology that Facebook uses is based upon its patents. Yahoo states that before Facebook incorporated its social networking technology, it was one of the worst performing advertising sites on the Internet.

Yahoo has not attached any value to its patents but has instead left to the courts or a future settlement with Facebook to decide. 

In the filing, Yahoo also say "Even if Facebook were to subsequently pay past due royalties, it would still enjoy a market share it has developed during its period of 'free riding' on Yahoo!'s intellectual property. Yahoo! would likewise lose its portion of the market share for this period. Due to the difficulty in predicting whether, if at all, such market share can be recovered, Yahoo!'s harm cannot be compensated by payment of past due royalties alone." Clearly Yahoo is trying to attack Facebook before its IPO.

It should be noted that according to USPTO Yahoo has 1,029 patents while Facebook has only 21. Though this does not include the patents bought by both of them have including the important patent #6,269,361 Yahoo bought from Overture, which so far has not been included in the case against Facebook, but could be added later.

Before filing the case against Facebook, Yahoo had file a patent lawsuit only once, in 2004 against Google. At that time Yahoo had settled for 2.7 million shares of Google indicating a value of US$230 million (at IPO price of US$85/share), but the case was only limited to one Overture patent #6,269,361. 

At that time, it appeared that Yahoo settled for a very low amount as it had purchased Overture for US$1.6bn, whose only asset was the said patent.

While Yahoo may appear to be a 'patent troll' to some and most of the blogosphere is certainly against it, Yahoo has a rich treasure trove of patents.

It had earlier sued and forced Google into a settlement, though it can be argued that Yahoo didn't gain much as compared to its investment.

IEEE had earlier given Yahoo the highest score in its 2011 Patent Power Scorecard in the Communication/Internet services category. While that itself is not an indication of the merits of this particular case, it does indicate that Yahoo has a high quality patent portfolio which it has not utilised, aggressively, so far.

Like other big software/Internet companies, Yahoo had not sued companies for patent infringement and it was more interested in improving its operations rather than generating revenues through litigation's.

This time the situation with Yahoo is different. Yahoo is on a decline and is looking to sell off its once crown jewels, Yahoo Japan and Alibaba, after which it will be left only with the under performing assets. 

The big danger of Yahoo winning a swift or significant judgment against Facebook is that it might become a patent troll either directly after selling of its other assets or selling the patents to a third part who will carry out its dirty work.

This will open a Pandora's box, and may drag the entire software industry harming all the players and what was once a (relatively) safer segment in terms of litigation's might turn a minefield.

Additional sources: Ars Technica

At the same time, Google also claimed that “it does not control Android and therefore Android's market share should not be attributed to Google but to each of the various OEMs building Android based phones.”

Recently Apple had convinced the court to direct Motorola to ask Google to hand over documents related to Android development, which was opposed by Motorola on grounds that both the companies are different. But if they can jointly negotiate cross licensing, I think the documents can also be handed over.

Licensing of Apple's patents
The other major, and more important piece of information, was that Motorola and Google wanted all the Apple's patents to come under cross licensing, so that any future litigation could be avoided. As the EC document says,

"For instance, according to Apple, Motorola Mobility has insisted that Apple cross-licenses its full non-SEP portfolio in exchange for Motorola Mobility's SEPs. Apple also argues that its refusal to accede to this demand led Motorola Mobility to sue Apple in an attempt to exclude Apple's products from the market. On the terms of Apple's own argument, Motorola Mobility's allegedly anti-competitive behavior in this regard well precedes the merger at issue in the present decision."

This was not acceptable to Apple as it wanted "carve outs" which would exclude some of the patents from the licensing as well as limit use restrictions, to keep Android and Google under control. Apple has preferred to  use patents as strategic tools rather than as revenue generator and this strategy is in line with that.

On the other hand, Google and Motorola tried to use their standards essential patents to bypass all the licensing problems for all the Android devices and OEMs.

This approach was not acceptable to Apple and something we don't think will be acceptable to Microsoft.


Google and Motorola equally responsible as Apple

This interesting piece of news highlights that while Apple and Microsoft may be considered as "patent trolls" by many wanting to either see Android dead (Apple) or make it as an important source of revenue (Microsoft), Google and Motorola are also to blame for the escalation of the patent wars.

The fate of the patent cases would likely be decided on the approach the regulators and courts take to licensing FRAND patents. If the regulators/courts allow Google to earn a high royalty fee, then it will have a huge impact, on both current licensing costs as well as future standards.

Current licensing cost will increase significantly as the other standards patent holders also increase the royalty rate. For ex. Google wants 2.25% royalty for 2% of patents as part of a standard where Microsoft currently pays currently 2 cents for the other 98% patents.

It will also massively increase the value of the future standards essentially patents, as they can be use to cripple competitions, something which will not be appreciated by the regulators.

While I am not a patent expert, I expect the essential patents to be eventually licensed at far lower terms than what Google wants. Apple has an excellent chance of enforcing carve outs and may extract significant royalty fee from the Android OEMs. This combined with Microsoft’s current royalty, will make Android infinitely less attractive than other options like Windows mobile.

Further reading:

Foss Patents