TechIPm Research

1. Monetization Strategy
for
Standard Essential Patents
4Q. 2013
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2. FRAND Licensing Royalty Evaluation: Method 1
In Microsoft Co., v. Motorola, Inc., No. 2:10-cv-01823-JLR (W.D. WA), the court
provided basic guidelines for assessing FRAND royalty for standard essential p
atents (SEPs). The guidelines are based on the Georgia-Pacific analysis of the
reasonable royalty modified for taking into account SSOs’ primary goals for
adopting FRAND commitments. (Georgia-Pacific Corp. v. U.S. Plywood Corp.
, 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970)).
The court provided five primary goals for adopting FRAND commitments. The
court, then, modified the Georgia-Pacific factors to account for the five primary
goals for adopting FRAND commitments. The key modification to the
Georgia-Pacific factors leads to the reasoning that a royalty in a patent pool for
the specific SEPs at issue or comparable licensing transactions as a candidate
for the royalty established through negotiation under FRAND commitments.
Thus, the royalty rate in the patent pool may provide expected FRAND licensing
revenue.
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3. *LTE Patent FRAND Licensing Revenue
Via licensing’s LTE patent pool set the royalty rate as 3% for end user
producuts (e.g. smartphones), 1% for data terminals (e.g. data cards), and 2%
for Femtocell devices with volume discount up to 30%.
According to GSA (Global mobile Suppliers Association) there were 87
manufacturers for 666 LTE-enabled user devices as of January 2013.
LTE user devices are Modules, Tablets, Notebooks/netbooks, PC Cards,
Smartphones, Routers, Femtocells, and USB dongles.
According to LTE market research by Signals and Systems Telecom, LTE
devices shipment in the world market will reach around 600 million units in
2016. Thus using the royalty about $2 per unit, 4G LTE patents FRAND
licensing revenue is expected to be around $1.2 B per year in 2016 globally.
Because the royalty per unit is not dependent on the number of holders of
SEPs, one may calculate licensing revenue for each holder of SEPs
proportional to its number of SEPs (e.g. http://techipm-innovationfrontline.blogs
pot.com/2013/05/4g-lte-standard-essential-patent.html).
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4. Cf. LTE Royalty Rates for Bilateral Licensing -1
Qualcomm revealed that the company had put royalty rate at 3.25 % for LTE
patent licensing.
Nokia expects Nokia’s rate for devices that deploy LTE as the only wireless
communication standard to be in a range of 1.5 % from the sales price of an
end-user device. To avoid unfavorable effects of royalty stacking, Nokia will not
charge royalties higher than 2.0 % from the sales price of an end-user device
for IPR that is essential to wireless communication standards irrespective of the
number of wireless standards deployed in such a device.
Ericsson said all of its LTE agreements will be made according to Ericsson's
proportional share of the standard IPR that relates to the relevant product
category. Ericsson likewise honors the same industry practice by ensuring a
maximum cumulative rate on LTE technology not exceeding a single-digit rate.
Ericsson´s fair royalty rate for LTE is therefore expected to be around 1.5 % for
handsets.
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5. Cf. LTE Royalty Rates for Bilateral Licensing -2
Huawei believes it will hold 15-20% of all essential patents relate to LTE
standard, therefore, a royalty rate with some flexibility, but not to exceed 1.5 %
, is expected.
ZTE will license its LTE essential patents for mobile communication terminals
with a maximum 1 % from the sales price of an end-user device. However, ZTE
will not be restrained to this amount, if ZTE is involved in any licensing
negotiations. While in multi-mode terminals, ZTE will follow similar principle in
setting the royalty rate for LTE essential patents, which will be determined in
bilateral negotiation.
Motorola expects that its essential patent royalty rate for LTE systems and
equipment (e.g. infrastructure and subscriber handsets) will be approximately
2.25 %.
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6. FRAND Licensing Royalty Evaluation: Method 2
Another court’s guidelines for assessing FRAND royalty for SEPs can be found
in In re INNOVATIO IP VENTURES, LLC, No. 1:11-cv-09308 (N.D. Ill. 2013),
Dkt. No. 975. The INNOVATIO IP VENTURES court calculated FRAND royalty
(cap) of WiFi SEPs as (average profit margin to the contribution of patentee’s
SEPs) x (net profit of relating products) x (pro rata share of patentee’s SEPs to
the total number of WiFi SEPs providing similar contribution to the profit).
Similar calculation can also lead to the FRAND royalty (cap) for 3G and 4G LTE
smartphone SEPs.
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7. *Samsung’s SEP Strategy against Apple
Samsung recently appealed to CAFC for ITC’s ruling of non-infringement
regarding its HSUPA standard essential patent (SEP) – US7486644.
US7486644 and US7706348 are the two SEPs that Samsung alleged that
Apple’s products infringed them. Even if ITC finally determined that Apple’s
products (iPhone 4 (AT&T models); iPhone 3GS; (AT&T models);
iPhone 3 (AT&T models); iPad 3G (AT&T models); and iPad 2 3G
(AT&T models)) infringe the asserted claims (claims 75-76 and 82-84) of
the US7706348 (’348) patent “Apparatus and Method for Encoding/Decoding
Transport Format indicator in CDMA Mobile Communication System,” the UST
R (U.S. Trade Representative) vetoed against the ITC’s ruling.
Notwithstanding the recent administrative and judicial blocking against
exploiting SEPs for injunction, Samsung decided to appeal for its SEPs. Why?
Considering the huge net profit from Apple’s 3G UMTS products sale in the US
market and the pro rata share of Samsung’s SEPs to the total number of 3G
UMTS SEPs, the amount of licensing royalty generated by Samsung’s share of
3G UMTs SEPs will be significant in amount. Thus, Samsung’s SEPs can play
an important role in the potential settlement negotiation with Apple.
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8. *NPE’s LTE Patent FRAND Licensing Revenue
TechIPm, LLC’s 4G LTE standard essential patent research for the US market
reviles that NPEs’ IPR share accounts for 21% of 4G LTE Standard Essential P
atents (SEPs) issued in the USPTO as of October 25, 2013. To evaluate the
essentiality of a LTE patent, patent disclosures in claims and detail description
for each 4G LTE patent are compared to the final versions of the 3GPP Release
10 technical specifications (LTE-Advanced). Total of 215 issued patents are
identified as the potential candidates for 4G LTE SEPs relating to UE (cellular
phones, smart phones, PDAs, mobile PCs, etc.) and base station (eNB)
products.
Considering the huge profit margin of 4G LTE UE and base station products in
the US market, the amount of licensing royalty earnings generated by NPEs’ 21
% IPR share of 4G LTE SEPs will reach billion dollar per year level.
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9. *Samsung v. Apple LTE Patent FRAND Licensing
Revenue
Samsung’s and Apple’s 4G LTE smartphone SEPs’ IPR share are 21% and 2%
respectively (for details about analysis method, please refer to http://www.slides
hare.net/alexglee/4g-lte-standard-essential-patent-candidates-data-2q-2013).
Then, base on various market research data, the net profits of Samsung and of
Apple from smartphone sales per year in the US market are calculated as
roughly $4 B and $6B respectively. Finally, if the average profit margin to the
contribution of the 4G LTE SEPs of 25% and 10 years of licensing terms are
assumed, the licensing royalty of Samsung that can have from Apple and of
Apple that can have from Samsung are expected to be around $3.2 B and
$0.2 B respectively.
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10. Monetization Strategy for SEPs
Courts guidelines for calculating FRAND royalty provides three key factors that
should be considered in setting a monetization strategy for SEPs.
1. Quality of SEPs: must check whether licensing patents are truly SEPs
through essentiality evaluation and form a patent portfolios regarding core
Technologies of the standard.
2. Quantity of SEPs: try to increase the IPR share through the alliance in
standardization and IP creation processes, patent engineering for SEP
development and/or acquisition.
3. Potential licensee: do market research for potential licensee to find market
information (production quantities, profits, market share etc.)
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11. *Essentiality Analysis for Standard Essential Patents
A standards essential patent is defined as patent that contain one or more
claims that are infringed by the implementation of a specification for
standardized technology. Thus, if a product is implemented following the
standard specifications, it should infringe some essential patents.
LTE Patent Claim Mapping Example
Claim
Specification
1. An apparatus for transmitting a random
access signal comprising:
3GPP TS 36.211 V8.9.0 (2009-12)
5.7.2 Preamble sequence generation
a CAZAC root sequence selector coupled to a
CAZAC root sequence generator, wherein the
CAZAC root sequence generator generates at
least one CAZAC root sequences, and
wherein the CAZAC root sequence selector
selects a preamble root sequence from the at
least one CAZAC root sequences.
The random access preambles are generated
from Zadoff-Chu sequences with zero
correlation zone, generated from one or
several root Zadoff-Chu sequences. The
network configures the set of preamble
sequences the UE is allowed to use.
2. The apparatus of claim 1 wherein:
the CAZAC root sequence generator is a primelength Zadoff-Chu sequence generator.
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12. *Patent Engineering for SEP Development
Sometimes, developing SEPs without participating in a SSO is possible
because some of key aspects of the technologies adopted during the
standardization can already be developed by a third party who is not the
participating member of the SSO. Thus, if the third party filed a patent covering
the technologies adopted as the standard, he or she can further develop it
though claim development and patent prosecution process to be a SEP.
In an actual case, when Adaptix, a subsidiary of a patent troll Acacia Research
, sued Ericsson at the ITC for infringement of its 4G LTE SEP, Adaptix claimed
that it has no obligations to FRAND commitments because it did not participate
in ETSI’s LTE standardization procedures.
(Adaptix, Inc. v. Ericsson, Inc., Certain Wireless Communications Base Station
s and Components Thereof, ITC Inv. No. 337-TA-871.)
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13. Thank you!
• If you have any questions
please contact Dr. Alex G. Lee
at alexglee@techipm.com
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14. Company Overview
TechIPm, LLC is a professional research and consulting company specializing in
technology and intellectual property mining and management.
Technology Expertise
• Mobile Computing & Wireless Communications Technology: LTE, UMTS,
WLAN, WPAN, RFID, NFC, WSN, Cognitive Radio/SDR, M2M, Mobile TV etc.
• Smartphone Applications: Location Base Services/Indoor Navigations, Mobile
Payments, Augmented Reality, Wireless/Mobile UI/UX etc.
IP Expertise
• Strategic Patent Evaluation & Valuation: M&A Patent Due Diligence,
Acquisition Feasibility Analysis, Investment Valuation
• Patent Portfolio Analysis & Development: Design Around Strategy,
Essentiality & Claim Development for Standard Essential Patents
• Patent Litigation Strategy: Evidence of Use, Claim Construction Strategy
• Patent Prosecution: U.S. Provisional Filing, U.S. Non-provisional Prosecution,
International Prosecution (PCT and Foreign Offices)
• Patent Business Strategy: Licensing/Monetization Strategy, IP Intelligence
• Patent Analysis: Patentability, Freedom-to-Operate, Infringement, Validity
Analysis, Patent Mining for Strategic Planning
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15. Major Clients
Technology management professionals planning, developing, and
investing in new technologies/products/services.
In-house IP counsels developing patent strategy.
Licensing professionals looking for a new licensing opportunities.
High-tech investment management firms/banks.
IP monetization/management consulting firms.
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16. 4G LTE Standard Essential Patent Candidates
Data 2Q 2013
LTE Standard Essential Patent Candidates Data 2Q 2013 is a product based on
LTE patents research for US market leader among LTE UE (cellular phones,
smart phones, PDAs, mobile PCs, etc.) and base station (eNB) product
manufactures. LTE Essential Patent Candidates Data provides MS excel file for
assignee, patent (publication) number, prosecution status for published
applications, related 3GPP TS36 Release 10 specifications, and the key
technology components for an implementation of the products.
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17. References
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