Why the mobile patent wars are bad for everyone

Why the mobile patent wars are bad for everyone

When I heard that Google had bought Motorola my first thought was of my friend Sharona. This is odd because I have a lot of friends who worked with me at Motorola, and Sharona is not one of them. She is the wife of a childhood friend called Foo. Sharona is an LA-based intellectual property (IP) laywer.

The kind of people I used to hang out with thought IP stood for Internet Protocol, and that anyone buying Motorola would do so for engineering brilliance. You’d do it because it had great IP stacks.

Today Motorola’s value is that it has great stacks of IP. The company has always valued patents. Everyone has a blue name badge but if you amass 30 patents in your name, then like the good burgers of McDonalds, you get a gold badge.

Signs around the building encourage people to submit patent ideas, listing what areas are of particular interest. The canteen walls are decorated with patent awards, some of them fundamental parts of the GSM standard.

Royalties

For Motorola, patents are a big deal. Indeed, collecting royalties on licensed patents was the part of the company that produced the most income with the lowest headcount.

And yet you rarely heard of Motorola seeking injunctions on rival products. This is because there was a fundamental understanding that growing the industry was better for everyone.

At one time there was a significant disagreement with Qualcomm over the rate at which CDMA costs were dropped. While Motorola and its fellow licensees pushed down the cost of licensing GSM technologies, Qualcomm was a lot slower to do the same with its intellectual property.

Motorola, then number two in the mobile market, could see that lower royalties would grow the market, particularly in India and China, which had both GSM and CDMA.

Speaking at a Cambridge Wireless event in September, Charles Bergan, VP of engineering at Qualcomm Corporate R&D, told the Cambridge elite that Qualcomm looked to promote WCDMA over LTE. He said that Qualcomm had much more significant IP in 3G technology.

Bergen added that Qualcomm would not cut prices to win business from rival vendors, but would selectively price match and leverage the breadth of the Qualcomm portfolio to maintain loyalty from device manufacturers.

What Motorola didn’t do was crawl through Nokia and Samsung phones looking for patent infringements. We’d be sure to find them; every time a new engineering problem pops up – like how to package an antenna with a new type of keypad – there is some novel ‘invention’.

This may or may not be patented. If engineers at both Motorola and Samsung were faced with the same problem they may well come up with the same solution. If neither thinks it is worth patenting, there is no problem. If only one does patent the idea, the rival won’t know unless it does a search, and why would it look for something it didn’t think was patent worthy?

Only if both attempt to patent the idea does the second person know that it’s protected. Even this might be a grey area; they might think their idea is sufficiently different to not infringe the existing patent.

These circumstances meant that while we knew we would find infringements in rival phones, they would strike back and find them in ours. The result would be injunctions on devices and that was too high a price to pay.

Economies of scale

It’s made worse by the way phones are sold. Operators buy on a price curve. There is a premium for a new phone with guaranteed price drops over time. The manufacturer has to get the volumes up to generate the economies of scale, pay off the engineering cost and implement the cost reduction before the sales prices drop. 

If you execute that process well, you’ll sell phones that are cheap to make at a high margin. If something goes wrong early on, all the fixed costs have to be clawed back from low margin phones and it can lead to a massive loss.

The mismatch between prices dropping over time and costs falling over volume makes an injunction fantastically dangerous. So, in the days when Nokia, Samsung, Motorola and Ericsson ruled the mobile world, no-one risked it.

One of the key things to note here is that only one of those companies is American, while the others are from nations that are less predisposed to being litigious.

What’s going wrong now is that Google will be searching through all the patents it’s getting from Motorola to generate a stop-ship of Apple and Microsoft products. Apple and Microsoft will be pulling apart Google products in return.

The result will be weakened products that are worse for the consumer, less innovative designs in future and even richer IP lawyers. Beyond the home front, there is an even more dangerous place Google might choose to go: China.

Every GSM phone contains IP that belongs to the pioneers of the technology, among them Motorola. If someone makes a phone in Shenzhen they should be sending regular cheques to Libertyville. In practice, they don’t. If you question the small, and not so small, factories, they will say the situation is ‘unclear’, or that they pay an amount into an escrow account in case they have to pay.

They are lying on both counts. When Motorola bought the engineering division of Sendo, a major part of the transaction value was Motorola writing off IP royalty debt. Sendo had never paid a penny.

I’d venture as far as to say that a third of the phones sold every year owe an unpaid debt to Motorola, Qualcomm, Ericsson and Nokia. Yet it is not pursued. I sat in the reception of a hotel in Beijing with the corporate lawyer of a top five handset manufacturer and asked him why he didn’t pursue the IP issue.

He said he’d had discussions with others in the top five about a joint action and decided it was too difficult to sue Chinese companies in China, particularly when it was a target market.

Google’s attitude to China is a little different and there might well be the will to pursue this. Injunctions on cheap Chinese phones could be fantastic for Nokia, which will see the costs rise for all its significant rivals in the developing markets.

So, the developed world will get worse smartphones, the emerging markets will see the price of basic phones rise and IP lawyers will get richer. Foo was one of those whizz-kid programmers who wrote games for the BBC Micro and Commodore 64. If the patent wars proliferate, it seems that his wife, the IP lawyer, and not him, will be the one to make the big decisions about the technology we use in the future.

• Simon Rockman was the creative experience director at Motorola looking at how new technologies met consumer requirements. As part of the discovery team looking five years into the future, he was responsible for the corporate ideas box where any Motorola devices employee could submit an idea for inclusion in future products and fed into the Motorola patent process.

Recent mobile phone and tablet patent disputes

19 April 2011 – Apple sues Samsung for allegedly copying the design of its iPad and iPhone in the Samsung Galaxy tablet and smartphone range. Samsung delays the Australian and US launch of its Galaxy tablet because of the patent dispute.

22 April 2011 – Samsung sues Apple, claiming its rival violated its patent rights. Lawsuits are filed in South Korea, Japan and Germany.

14 June 2011 – Nokia and Apple sign a technology licensing agreement ending two years of patent disputes between the two companies.

12 July 2011 – Apple files a suit against HTC over patent infringement in the US. The US International Trade Commission finds HTC guilty, but HTC vows to appeal. A final decision is due on 6 December.

10 August 2011 – Apple obtains a temporary injunction in a German court preventing Samsung Electronics from selling the Galaxy Tab 10.1 in the European Union, except the Netherlands. In a separate case, Apple seeks an injunction against the sale of Samsung smartphones in the Netherlands.

On 17 August, Samsung succeeded in getting the ban on the Galaxy Tab 10.1 lifted in the rest of Europe while the court looked at whether the original ruling was appropriate, but it remains banned from sale in Germany.

On 25 August, the German court upheld the ban on the Galaxy Tab 10.1 in Germany. On 5 September, Samsung had to pull the Galaxy Tab 7.7 out of the IFA electronics fair in Berlin after it came under the same ban as the Galaxy Tab 10.1. On 9 September, Samsung failed to get the ban on the Galaxy 10.1 lifted after the German court ruled in favour of Apple.

17 August 2011 – HTC files a new US lawsuit against Apple, accusing it of infringing its patents and trying to stop US imports of iPhones, iPads, iPods and Mac computers. It followed this by using patents it bought from Google to lodge fresh complaints. On 18 october, The US ITC ruled that Apple did not violate patents. A full commission of the ITC is expected to decide in February whether to uphold or reject the judge’s decision.

24 August 2011 – A Dutch court rules in favour of a sales ban on the Samsung Galaxy S, Galaxy S II and Ace smartphones in the Netherlands and possibly another 29 European countries.

8 September – Apple files a suit against Samsung in Japan calling for a ban on the Samsung Galaxy S, S II and Galaxy Tab 7.7. The move is in retaliation to Samsung’s filing of a suit against Apple in Japan in April.

13 September 2011 – Samsung files a new patent complaint against Apple in France. The first hearing is due in December. In the Hague, Netherlands, Samsung launched a counter attack, seeking an embargo on iPads and iPhones over 3G patents. It later sought an injunction to get the new iPhone 4S banned from sale in France, Italy, Australia and Japan.

7 October 2011 – Intellectual Ventures accuses Motorola Mobility of using its technology to perform file transfers, updates and remote data management and other functions on some of its smartphones.

13 October – Apple succeeds in getting a temporary ban on sales of the Samsung Galaxy Tab 10.1 in Australia after a Sydney court rules in its favour.

18 October – HTC fails in its bid to get imports of Apple products in the US banned after the US International Trade Commission (ITC) dismissed the case. HTC is set to appeal the decision.

Other ongoing patent disputes

• In 2010, Microsoft and Apple both claimed that Motorola had infringed several of its patents and are chasing it for payment. Motorola has filed countersuits ahead of the completion of its acquisition by Google.

• Sony has filed a patent infringement complaint seeking to block LG from shipping smartphones such as its Rumor 2 model to the US.

Written by Mobile Today
Mobile Today

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