For the record, other companies have tried to tie standards-essential patents to "whole unit" royalties and it largely hasn't worked, but they'll keep trying because its worth so much more if they can get it.
Royalty based on the whole wholesale price has been usual since decades ago
gatorguy is correct: Apple filed the first lawsuit in the Northern District of California to have a court decide which view of the royalty rate is correct: payment based on the chip the patents are used in (Apple's view, the cheaper option), or payment based on a percentage of the selling price of the entire smartphone (Ericsson's view, which would be much more money for them). Ericsson's response lawsuits were filed in the notorious Eastern District of Texas, which is as good as admitting that they didn't think they'd win in California.
For the record, other companies have tried to tie standards-essential patents to "whole unit" royalties and it largely hasn't worked, but they'll keep trying because its worth so much more if they can get it.
It's always worked until quite recently and still is the prevailing method of determining royalties in wireless standards. I'd expect in Apple's case it will be "ya win some ya lose some" for quite while.
In the meantime if they want to remain consistent in their statements about respecting intellectual property rights they may have to take a couple of licenses they'd prefer for business reasons not to, at least until things have a couple of years to shake out.
He's absolutely correct about the IEEE recently making an effort to change their licensing policies. I've posted that here before.
Unfortunately it's actually had the effect of backfiring somewhat as companies including Nokia, Qualcomm, Ericsson and others, some of the biggest patent owners on the planet, have announced they'll no longer issue licenses under the IEEE standards. That's only makes things much more difficult and unclear instead of simplifying things.
Here's a recent article that explains what's going on:
It's always worked until quite recently and still is the prevailing method of determining royalties in wireless standards. I'd expect in Apple's case it will be "ya win some ya lose some" for quite while.
And it was probably ok back when phones were just phones.
To claim royalties over the whole device is stretching that method way beyond what these devices do now.
IMO - this is like Ford claiming royalties for airplanes just because they've got wheels and a propulsion system :-)
And it was probably ok back when phones were just phones.
To claim royalties over the whole device is stretching that method way beyond what these devices do now.
I don't necessarily disagree. That doesn't mean a whole lot of damage might not be done in the process of change.
Not mentioned is that Ericsson offered to have an independent arbitrator determine the proper rates, but Apple reportedly refused to be bound by whatever the rate he/she decided was fair. To me that sounds like a reasonable offer and one that might have avoided lawsuits.
You can bet Ericsson didn't offer to enter non-binding arbitration, and binding arbitration can be a bitch. Licensors always value their IP too highly and independent negotiators are unlikely to see the big picture of all of the IP that goes into a product, resulting in royalty rates that are disproportionately high. Direct negotiation has a much better likelihood of yielding a lower/reasonable royalty; and if it doesn't, there's the option of an appeal.
You can bet Ericsson didn't offer to enter non-binding arbitration, and binding arbitration can be a bitch. Licensors always value their IP too highly and independent negotiators are unlikely to see the big picture of all of the IP that goes into a product, resulting in royalty rates that are disproportionately high. Direct negotiation has a much better likelihood of yielding a lower/reasonable royalty; and if it doesn't, there's the option of an appeal.
Ericsson clearly stated they offered binding arbitration. Non-binding would be a useless exercise wouldn't it? That's why one of Apple's lawsuits was dismissed before it was even heard as their legal team told the judge in advance they wouldn't accept anything more than a $1 a device from her (name your own ruling?), otherwise drawing it out for years and years with the IP holder getting nothing.
i think Apple actually filed the first lawsuit didn't they?
If Apple's legal team is doing their job, they had better file suit first! If Apple hadn't filed suit first in N. California, Ericsson would get priority on the choice of venue when they filed their own lawsuit.
But of course you knew that and are just trying to make us question our feelings about Apple.
Ericsson clearly stated they offered binding arbitration. Non-binding would be a useless exercise wouldn't it? That's why one of Apple's lawsuits was dismissed before it was even heard as their legal team told the judge in advance they wouldn't accept anything more than a $1 a device from her (name your own ruling?), otherwise drawing it out for years and years with the IP holder getting nothing.
$1 per device sounds damn good for an unspecified technology! That would naturally translate to at least a $2 increase in MSRP.
If Apple's legal team is doing their job, they had better file suit first! If Apple hadn't filed suit first in N. California, Ericsson would get priority on the choice of venue when they filed their own lawsuit.
But of course you knew that and are just trying to make us question our feelings about Apple.
Better luck next time! :p
Huh? Choice of venue? Wasn't this article noting lawsuits filed in three more venues of Ericsson's choice in addition to the Texas one?
$1 per device sounds damn good for an unspecified technology! That would naturally translate to at least a $2 increase in MSRP.
It could well be fair. Might even be more than what the IP holder deserved to get. That's what the lawsuit was supposed to determine. Apple dictating the settlement to the court ahead of time instead of accepting their judgement is what jettisoned the effort.
FWIW it's estimated that current SEP licensing arrangements with the various parties is adding about $15 to the cost of a handset with a wholesale cost of $400. That's significant and should probably be dealt with. Apple might be the only one that could as they have the money to outlast every IP holder at least here in the US if that's what they wish to do. The European infringement filings might be more problematic for them.
Huh? Choice of venue? Wasn't this article noting lawsuits filed in three more venues of Ericsson's choice in addition to the Texas one?
Brain farct, GG? You were the one who noted Apple filed suit first. And if you know your IP law, which I believe you do, the district of first filing often becomes the district where the case is tried. It's a standard defensive move to file suit in a more favorable district, before the IP holder files suit in a district that will be more favorable to them.
Brain farct, GG? You were the one who noted Apple filed suit first. And if you know your IP law, which I believe you do, the district of first filing often becomes the district where the case is tried. It's a standard defensive move to file suit in a more favorable district, before the IP holder files suit in a district that will be more favorable to them.
The Ericsson filing in Texas is of no matter then? I'll have to do a little reading as I'm not as familiar with that as you may be. I don't recall that as being the issue when Motorola won the race to the courthouse with Apple but maybe it was.
Hold that thought.
EDIT: Found it. While not a rule per-se Federal Courts more often than not give venue preference to the first-to-file if there's competing lawsuits over the same issue. I don't know that would apply in this case as I thought Ericsson and Apple were filing for the court's judgment on different aspects of the infringement. If it does apply then Apple should be requesting the Texas matter be transferred to the 9th Circuit, correct?
Apple doesn't give any indication of what they would do if the basis remains the wholesale cost of the hardware. You've always had an opinion so I'm simply curious what you personally think Apple would do in that event: Use the IP unlicensed anyway or accept it for the time being and take a license just as they had before? If you prefer not to offer your opinion fair enough.
I don't need to have an opinion.
Apple states explicitly that they would pay a "reasonable" royalty rate, and the Court would have say on the basis. The only question would be "reasonable", but then this becomes circular. There isn't an instance that I am aware of where Apple did not ultimately pay per the Court's decision, but they certainly would use legal arguments and an appeals process to move it higher up in the Court System if they weren't satisfied.
You are a bit of a concern troll on Apple paying royalties as per Court requirements, and as far as the Arbitration offer, why would Apple give up the chance to set legal precedents favorable to their position? I'm sure that Apple has analyzed the risks.
IEEE doesn't agree, and as I have mentioned before, the courts in both the U.S. and Europe are trending towards basis as the smallest salable unit.
So, while it might have been fair and reasonable in the past, is it currently? Should Apple's devices that are computers be judged the same as dumb or even feature phones?
Is it communications at the heart of the device or a computer?
@tmay : Sure, IEEE is one organization who thinks patent holders "maycharge a reasonable royalty that is based, among other things, on the value that the patented technology contributes to the smallest salable component of the overall product," but it doesn't speak for all SSO's dealing with different kind of patents. And, further, there is absolutely no court rulings affirming such trend toward the smallest salable unit. I think we also reviewed a couple of court cases, which don't affirm such trend - the Apple v Moto case. That was the first and the only case in the US legal history to decide on a FRAND rate and, as I had explained before, the decision was largely based on what is deemed "fair" and "reasonable" by the industry standard. Under the same restricted GP factors used in Apple v Moto, Apple has zero chance of winning in this particular case -- again, unlike Moto, Ericsson is a major and important contributor to various communication standards and their licensing practices based on "entire product" is fair and reasonable by the industry.
If Apple feels that their iPhones are entirely different devices whose market demand is no longer driven by those standards and patents, Apple needs to articulate better why that is so.
As for your last question, smartphones? yes; computers? maybe not.
Most people don't remember when Ericsson was top 1-3 phone vendors in the world. It was Ericsson that revolutionised the size of mobile phones with the 788 phone and had one of the first "smart phones".
I worked for many years at Ericsson Radio systems/Access. Was lead IT architect for the research department ments.
Ericsson laughed at Nokia. "they just do tires for cars". Nokia played the capitalist card and offered anyone at Ericsson Radio/Access 30-50% pay increase to jump over to Nokia. It worked. Within years Nokias base stations and phones were a hit. (This was late 1997-1999).
Ericsson did a huge mistake and hired ex Swedish Microsoft CEO Rolf Skoglund. This changed the whole IT strategy at Ericsson. From using Unix servers and workstations everyone was forced to switch to PC/Ericsson Standard Office Environment. ESOE.
MSFT abused its monopoly in software like they usually do and signed a "select" agreement with Ericsson. This is a standard practice. Ericsson had over 110000 employees. Handling licensing with MSFT is almost impossible since MSFT don't have smart licensing servers like UNIX always have had. The solution for all big companies is "Select agreement". Companies pay a specific fee for MSFT software. The point is: you can't just license Windows or Office. You have to license ALL microsoft software.
So lets dump mail on Unix and use Exchange. Dump Matlab and use Excel to do research. People who knows IT knows how absurd this is.
IT cost at Ericsson sky-rocketed. 10 PCs needed 1 support staff compared to Unix that had 100 workstations to 1 support staff. Email within Ericsson/Exchange took 17 hours before they arrived. Productivity and innovation was halted.
The share price of Ericcson whent from 240+ swedish krona to under 3 krona in just 2 years. MSFT killed Ericsson and almost 100000 jobs.
The funny thing is that Nokia copied Ericsson and did the same thing when they hired MSFT CEO. He managed to destroy Nokia in under 2 years. 1) Announcing Windows phone only a year before they had any windows phones to sell. 2) Closing all Nokia factories and outsource (The unique thing with Nokia was that they could sell a phone for 50 dollar and make a profit. You cant do that with outsourcing). 3) Using Windows phone OS where MSFT payed Nokia 1 billion but Nokia had to pay MSFT 5 dollars per phone (so MSFT would get the money back). And so on/so on/so on. From 120billion on value, Nokia was sold to MSFT for a fraction of it after under 2 years. This was Ballmers masterpiece. Just the patents that Nokia licensed to MSFT makes MSFT billions each year.
The point of all this is how ironic the world is.
Ericsson is unique that they have so many patents that they where one of 3 Android vendors that did not have to pay licensing fees to MSFT. Most Fan-droids seems to miss this: All Android vendors have to pay MSFT 5-15 dollars per Android device.
Somehow all Android vendors beside 3 pay this.
Apple wants to pay Ericsson cents per device, not dollars.
And if history repeat itself: Ericsson will win in court in Europe and Apple will win in court in US. Courts are not for law but nationalism.
Apple should actually just buy Ericsson instead of burning 50 billion on buying shares and burn the shares. Imagine Apple owning the best base-stations in the world. Apple could quickly built an Apple data network in the world. The network is the future. Controlling the network is something that should be core-Apple since they want to control the users experience.
---
The only thing I dont understand about patents and FRAND is this:
Lets say Apple buys LTE/Baseband chips from Qualcomm. Qualcomm have already payed Ericsson patent fees for these chips. Why should Apple pay licesing fees again for something that is already payed?
---
The main battleground between Apple and Ericsson is this:
Apple wants to pay X amount % of the SoC value. Ericsson think its the value of the product that the X amount should be payed from.
FRAND: 1% of a 25 dollar SoC against 1% of the ASP of iOS device 600 dollars. (and this is one of the main reason why no Apple laptop with 3G/LTE have been released. 1% of ASP Macbook Pro/Air is not fun.
If Apple feels that their iPhones are entirely different devices whose market demand is no longer driven by those standards and patents, Apple needs to articulate better why that is so.
I suspect that is exactly what Apple will attempt to accomplish, and would like a legal precedent established.
Comments
For the record, other companies have tried to tie standards-essential patents to "whole unit" royalties and it largely hasn't worked, but they'll keep trying because its worth so much more if they can get it.
Royalty based on the whole wholesale price has been usual since decades ago
In the meantime if they want to remain consistent in their statements about respecting intellectual property rights they may have to take a couple of licenses they'd prefer for business reasons not to, at least until things have a couple of years to shake out.
He's absolutely correct about the IEEE recently making an effort to change their licensing policies. I've posted that here before.
Unfortunately it's actually had the effect of backfiring somewhat as companies including Nokia, Qualcomm, Ericsson and others, some of the biggest patent owners on the planet, have announced they'll no longer issue licenses under the IEEE standards. That's only makes things much more difficult and unclear instead of simplifying things.
Here's a recent article that explains what's going on:
http://www.iam-media.com/blog/Detail.aspx?g=d07d0bde-ebd6-495a-aa72-4eecb9dac67d
Thanks for the source
And it was probably ok back when phones were just phones.
To claim royalties over the whole device is stretching that method way beyond what these devices do now.
IMO - this is like Ford claiming royalties for airplanes just because they've got wheels and a propulsion system :-)
Agreed.
Not mentioned is that Ericsson offered to have an independent arbitrator determine the proper rates, but Apple reportedly refused to be bound by whatever the rate he/she decided was fair. To me that sounds like a reasonable offer and one that might have avoided lawsuits.
You can bet Ericsson didn't offer to enter non-binding arbitration, and binding arbitration can be a bitch. Licensors always value their IP too highly and independent negotiators are unlikely to see the big picture of all of the IP that goes into a product, resulting in royalty rates that are disproportionately high. Direct negotiation has a much better likelihood of yielding a lower/reasonable royalty; and if it doesn't, there's the option of an appeal.
i think Apple actually filed the first lawsuit didn't they?
If Apple's legal team is doing their job, they had better file suit first! If Apple hadn't filed suit first in N. California, Ericsson would get priority on the choice of venue when they filed their own lawsuit.
But of course you knew that and are just trying to make us question our feelings about Apple.
Better luck next time!
Ericsson clearly stated they offered binding arbitration. Non-binding would be a useless exercise wouldn't it? That's why one of Apple's lawsuits was dismissed before it was even heard as their legal team told the judge in advance they wouldn't accept anything more than a $1 a device from her (name your own ruling?), otherwise drawing it out for years and years with the IP holder getting nothing.
$1 per device sounds damn good for an unspecified technology! That would naturally translate to at least a $2 increase in MSRP.
Perhaps not in your view.
A claim for royalties across the whole device ? It sure looks that way to me.
Huh? Choice of venue? Wasn't this article noting lawsuits filed in three more venues of Ericsson's choice in addition to the Texas one?
It could well be fair. Might even be more than what the IP holder deserved to get. That's what the lawsuit was supposed to determine. Apple dictating the settlement to the court ahead of time instead of accepting their judgement is what jettisoned the effort.
FWIW it's estimated that current SEP licensing arrangements with the various parties is adding about $15 to the cost of a handset with a wholesale cost of $400. That's significant and should probably be dealt with. Apple might be the only one that could as they have the money to outlast every IP holder at least here in the US if that's what they wish to do. The European infringement filings might be more problematic for them.
Huh? Choice of venue? Wasn't this article noting lawsuits filed in three more venues of Ericsson's choice in addition to the Texas one?
Brain farct, GG? You were the one who noted Apple filed suit first. And if you know your IP law, which I believe you do, the district of first filing often becomes the district where the case is tried. It's a standard defensive move to file suit in a more favorable district, before the IP holder files suit in a district that will be more favorable to them.
Hold that thought.
EDIT: Found it. While not a rule per-se Federal Courts more often than not give venue preference to the first-to-file if there's competing lawsuits over the same issue. I don't know that would apply in this case as I thought Ericsson and Apple were filing for the court's judgment on different aspects of the infringement. If it does apply then Apple should be requesting the Texas matter be transferred to the 9th Circuit, correct?
Edit2: Here's a pertinent explanation for those that might not know what Cspro and I are talking about.
https://www.floridabar.org/DIVCOM/JN/JNJournal01.nsf/c0d731e03de9828d852574580042ae7a/98ab7971f660297885256b100073f0b6!OpenDocument&Highlight=0,*
Apple doesn't give any indication of what they would do if the basis remains the wholesale cost of the hardware. You've always had an opinion so I'm simply curious what you personally think Apple would do in that event: Use the IP unlicensed anyway or accept it for the time being and take a license just as they had before? If you prefer not to offer your opinion fair enough.
I don't need to have an opinion.
Apple states explicitly that they would pay a "reasonable" royalty rate, and the Court would have say on the basis. The only question would be "reasonable", but then this becomes circular. There isn't an instance that I am aware of where Apple did not ultimately pay per the Court's decision, but they certainly would use legal arguments and an appeals process to move it higher up in the Court System if they weren't satisfied.
You are a bit of a concern troll on Apple paying royalties as per Court requirements, and as far as the Arbitration offer, why would Apple give up the chance to set legal precedents favorable to their position? I'm sure that Apple has analyzed the risks.
IEEE doesn't agree, and as I have mentioned before, the courts in both the U.S. and Europe are trending towards basis as the smallest salable unit.
So, while it might have been fair and reasonable in the past, is it currently? Should Apple's devices that are computers be judged the same as dumb or even feature phones?
Is it communications at the heart of the device or a computer?
@tmay : Sure, IEEE is one organization who thinks patent holders "may charge a reasonable royalty that is based, among other things, on the value that the patented technology contributes to the smallest salable component of the overall product," but it doesn't speak for all SSO's dealing with different kind of patents. And, further, there is absolutely no court rulings affirming such trend toward the smallest salable unit. I think we also reviewed a couple of court cases, which don't affirm such trend - the Apple v Moto case. That was the first and the only case in the US legal history to decide on a FRAND rate and, as I had explained before, the decision was largely based on what is deemed "fair" and "reasonable" by the industry standard. Under the same restricted GP factors used in Apple v Moto, Apple has zero chance of winning in this particular case -- again, unlike Moto, Ericsson is a major and important contributor to various communication standards and their licensing practices based on "entire product" is fair and reasonable by the industry.
If Apple feels that their iPhones are entirely different devices whose market demand is no longer driven by those standards and patents, Apple needs to articulate better why that is so.
As for your last question, smartphones? yes; computers? maybe not.
Most people don't remember when Ericsson was top 1-3 phone vendors in the world. It was Ericsson that revolutionised the size of mobile phones with the 788 phone and had one of the first "smart phones".
I worked for many years at Ericsson Radio systems/Access. Was lead IT architect for the research department ments.
Ericsson laughed at Nokia. "they just do tires for cars". Nokia played the capitalist card and offered anyone at Ericsson Radio/Access 30-50% pay increase to jump over to Nokia. It worked. Within years Nokias base stations and phones were a hit. (This was late 1997-1999).
Ericsson did a huge mistake and hired ex Swedish Microsoft CEO Rolf Skoglund. This changed the whole IT strategy at Ericsson. From using Unix servers and workstations everyone was forced to switch to PC/Ericsson Standard Office Environment. ESOE.
MSFT abused its monopoly in software like they usually do and signed a "select" agreement with Ericsson. This is a standard practice. Ericsson had over 110000 employees. Handling licensing with MSFT is almost impossible since MSFT don't have smart licensing servers like UNIX always have had. The solution for all big companies is "Select agreement". Companies pay a specific fee for MSFT software. The point is: you can't just license Windows or Office. You have to license ALL microsoft software.
So lets dump mail on Unix and use Exchange. Dump Matlab and use Excel to do research. People who knows IT knows how absurd this is.
IT cost at Ericsson sky-rocketed. 10 PCs needed 1 support staff compared to Unix that had 100 workstations to 1 support staff. Email within Ericsson/Exchange took 17 hours before they arrived. Productivity and innovation was halted.
The share price of Ericcson whent from 240+ swedish krona to under 3 krona in just 2 years. MSFT killed Ericsson and almost 100000 jobs.
The funny thing is that Nokia copied Ericsson and did the same thing when they hired MSFT CEO. He managed to destroy Nokia in under 2 years. 1) Announcing Windows phone only a year before they had any windows phones to sell. 2) Closing all Nokia factories and outsource (The unique thing with Nokia was that they could sell a phone for 50 dollar and make a profit. You cant do that with outsourcing). 3) Using Windows phone OS where MSFT payed Nokia 1 billion but Nokia had to pay MSFT 5 dollars per phone (so MSFT would get the money back). And so on/so on/so on. From 120billion on value, Nokia was sold to MSFT for a fraction of it after under 2 years. This was Ballmers masterpiece. Just the patents that Nokia licensed to MSFT makes MSFT billions each year.
The point of all this is how ironic the world is.
Ericsson is unique that they have so many patents that they where one of 3 Android vendors that did not have to pay licensing fees to MSFT. Most Fan-droids seems to miss this: All Android vendors have to pay MSFT 5-15 dollars per Android device.
Somehow all Android vendors beside 3 pay this.
Apple wants to pay Ericsson cents per device, not dollars.
And if history repeat itself: Ericsson will win in court in Europe and Apple will win in court in US. Courts are not for law but nationalism.
Apple should actually just buy Ericsson instead of burning 50 billion on buying shares and burn the shares. Imagine Apple owning the best base-stations in the world. Apple could quickly built an Apple data network in the world. The network is the future. Controlling the network is something that should be core-Apple since they want to control the users experience.
---
The only thing I dont understand about patents and FRAND is this:
Lets say Apple buys LTE/Baseband chips from Qualcomm. Qualcomm have already payed Ericsson patent fees for these chips. Why should Apple pay licesing fees again for something that is already payed?
---
The main battleground between Apple and Ericsson is this:
Apple wants to pay X amount % of the SoC value. Ericsson think its the value of the product that the X amount should be payed from.
FRAND: 1% of a 25 dollar SoC against 1% of the ASP of iOS device 600 dollars. (and this is one of the main reason why no Apple laptop with 3G/LTE have been released. 1% of ASP Macbook Pro/Air is not fun.
If Apple feels that their iPhones are entirely different devices whose market demand is no longer driven by those standards and patents, Apple needs to articulate better why that is so.
I suspect that is exactly what Apple will attempt to accomplish, and would like a legal precedent established.