(Alison Frankel writes the On the Case blog for Thomson Reuters News & Insight newsandinsight.com. The views expressed are her own.)
By Alison Frankel
(Reuters) - Standard-essential patents aren't providing as much leverage in the smart-device wars as Google may have hoped when it paid $12.5 billion to acquire Motorola Mobility.
Apple scored big on Friday in its offensive against Samsung, with a $1.05 billion damages verdict and a finding of willful infringement that could lead to three times as big an award. But that wasn't Apple's only victory.
The company and its lawyers at Morrison & Foerster and Wilmer Cutler Pickering Hale and Dorr also turned back Samsung's counterclaims, including assertions that Apple infringed two patents that Samsung said are essential to standard wireless technology.
The federal jury found that Apple hadn't infringed those supposedly standard-essential patents, which means that they weren't essential after all. That is the latest indication those patents aren't the strong hand Google had sought.
Essential patents are adopted by the bodies that set international standards for developing technology. Everyone has to use them, which is why holders of standard-essential patents must agree to license their intellectual property on fair and non-discriminatory terms.
Last year's conventional wisdom was that after Apple and Microsoft teamed up to lead the coalition that acquired Nortel's wireless tech patents, Google countered effectively with the Motorola deal. Those Motorola patents, as well as Samsung's standard-essential intellectual property, were supposed to give Google and its Android partners leverage against Microsoft and Apple in the patent wars, creating a stalemate.
But for Google and its Android partners, the last year has raised a lot of questions about the power of standard-essential patents in the smart-device litigation.
In April, complaints by Microsoft and Apple prompted the European Union to open an antitrust investigation of Motorola's demands for licensing fees. At the end of June, the Federal Trade Commission joined the fray, issuing subpoenas on Motorola's licensing demands, while Bloomberg reported the Justice Department began investigating Samsung for the same alleged misuse of standard-essential patents.
Meanwhile, standard-essential patents have taken a beating in smart-device litigation in the United States. Judge Richard Posner of the 7th Circuit Court of Appeals demolished Motorola's argument that it was entitled to a licensing fee of 2.5 percent of iPhone sales based on Apple's alleged infringement of a single standard-essential patent.
In federal court in Seattle, U.S. District Judge James Robart sided with Microsoft in holding that Motorola's agreement with standard-setting bodies in the United States and Europe require it to license its standard-essential patents to third parties, including Microsoft.
Earlier this month, U.S. District Judge Barbara Crabb in Madison, Wisconsin, endorsed Robart's ruling, concluding that Apple is a third-party beneficiary of Motorola's agreements with the standard-setting bodies and therefore Motorola must license Apple its intellectual property on reasonable terms.
So far, Android partners have avoided a finding that they breached their contracts or violated antitrust law in asserting standard-essential patents. In the Wisconsin case Crabb threw out Apple's antitrust allegations earlier this month, and neither she nor Robart in Seattle has issued a final judgment on breach of contract claims against Motorola.
In the Samsung trial, Apple responded to Samsung's counterclaims with antitrust assertions, arguing that Samsung had deceived standard-setting bodies and demanded unreasonable licensing fees from Apple. Apple lawyer William Lee of Wilmer made that pitch to jurors in closing arguments.
" said that when their patents became public, they would license the world, all of you, all of us, on FRAND terms -- fair, reasonable and non-discriminatory terms. They promised that," Lee said, according to a transcript of closing arguments. "But they didn't. They made a demand to Apple of 2.4 percent of Apple's entire selling price, but only after they got caught copying. It wasn't fair because it's based upon the entire selling price. It wasn't non-discriminatory because they had never gotten it from anybody else, and it wasn't reasonable because Samsung has never been paid a penny, not one red cent vertically, for any of its declared essential patents."
Samsung counsel Charles Verhoeven of Quinn Emanuel Urquhart & Sullivan responded that Apple hadn't put on a single witness who testified that Samsung breached its agreements with, or otherwise misled, the standard-setting bodies. Samsung, he said, opened licensing negotiations with Apple and Apple chose to ignore the offer and launch its products without a license.
Samsung counsel John Quinn of Quinn Emanuel did not immediately respond to an emailed request for comment on the standard-essential patent issue.
The jury sided with Samsung and voted no on Apple's antitrust and breach of contract claims against Samsung, although it's not clear from the verdict form whether that's because they concluded Apple hadn't infringed Samsung patents anyway.
Nevertheless, it's clear that Samsung's supposedly essential patents -- which Samsung asserted only after Apple accused the South Korean company of copying its design and utility intellectual property -- didn't give Samsung the leverage it needed to force Apple into a cross-licensing deal, nor the jury a reason to side with Samsung and against Apple.
By their nature, standard-essential patents have long-lasting power, since (unlike patents on nifty smart-device utilities) engineers can't design around them. That's why they're essential. It's also why holders of standard-essential patents must pledge to license their intellectual property on reasonable terms.
The ultimate power of standard-essential intellectual property in the smart-device patent wars is yet to be determined, especially because European courts and regulators will also have a say in how those patents are asserted, interpreted and enforced. In the long run, Google and its Android partners may get the leverage and long-term revenue stream they're hoping those patents deliver.
But so far, that doesn't seem to be the case.
(Editing by Phil Berlowitz)