Smartphone Standard Essential Patent: FRAND Disputes 101

©2013 TechIPm, LLC All Rights Reserved www.techipm.com
Smartphone
Standard Essential Patent:
FRAND Disputes 101
2Q. 2013

©2013 TechIPm, LLC All Rights Reserved www.techipm.com 2
1. Background of Smartphone Patent War
Smartphones, which are the convergence products of computers and mobile
communication devices, are now revolutionizing our life style, business
activities, and society as a whole. Current smartphone boom has started since
the first iPhone was released on June 29, 2007. According to a market
research by comScore in January of 2013, 129.4 million people in the United
States owned smartphones, which is about 55 percent of mobile subscribes.
Globally, total smartphone sales reached $250 billion in 2012.
The heavy competition among smartphone manufactures for establishing
competitive market position in the newly formed lucrative business has led to
recent intensive patent infringement lawsuits, which are the so-called
„Smartphone Patent Wars.‟ Smartphone Patent Wars began in 2009 when
Nokia sued Apple and Apple countersued Nokia.

2. Involvement of Standard Essential Patents
When Apple accused Motorola and Samsung of infringement of its user
interface software and design patents, Motorola and Samsung counter-attacked
utilizing their patents for mobile communication standards, which are the
so-called „Standard Essential Patents (SEPs).‟
As incumbents in mobile communication industry and holders of strong mobile
patent portfolios, SEPs were a natural choice for Motorola and Samsung to
counter-attack Apple, which is the computer industry incumbent, and thus, lacks
in SEPs for mobile communications.
SEPs encompass intellectual property rights (IPRs) for an essential aspect of
standardized technologies. Usually, all the essential aspects of standardized
technologies are specified in standard specifications. Thus, SEPs can be
defined as patents that include one or more claims that are infringed by the
implementation of certain standard specifications. To facilitate interoperability
among the industry players, participants in the development of standards
establish specifications for the essential components of the standardized
technology.

2. Involvement of Standard Essential Patents -2
Consequently, Apple‟s standard-compatible products that implement the
standard specifications for mobile communications may infringe SEPs of
Motorola and Samsung. Therefore, Motorola and Samsung sought to demand
a sales ban of Apple‟s standard-compatible products in addition to monetary
relief. The outcomes, however, were different than expected in the usual SEPs
litigation scenario.

*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:
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.
2. The apparatus of claim 1 wherein:
the CAZAC root sequence generator is a prime-
length Zadoff-Chu sequence generator.
3GPP TS 36.211 V8.9.0 (2009-12)
5.7.2 Preamble sequence generation
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.

3. FRAND Commitments
Standards are often developed and set-up through the standardization process
by the standard setting organizations (SSOs). To avoid the patent holdup
problem, a majority of the In this article, SSO will be used interchangeably with
the traditional term SDO (Standard Developing Organization).
The patent hold up occurs when a patentee of SEPs demands unreasonably
higher license fees after the standard is widely adopted than could have been
obtained before the standard was implemented. The patentee of SEPs may
have market power in the relevant technology market because the industry may
be locked-in to using the standard and the value of SEPs becomes significantly
enhanced. Thus, the patentee can demand and obtain unreasonably high
royalty payments – hold up value - due to very high switching cost to alternative
technology the implementer should pay.
Ref.
Lemley, M. A., & Shapiro, C., Patent Holdup and Royalty Stacking, Tex. L. Rev
, 85, 1991–2050 (2007).

3. FRAND Commitments -2
SSOs require that the members participating in the standardization process to
agree ex ante to license their SEPs under fair, reasonable, and
nondiscriminatory (FRAND) terms ex post to any implementers of the standard.
The members‟ agreements to license their SEPs under FRAND terms are
usually called FRAND commitments. In this article, FRAND will be used interch
angeably with RAND (reasonable, and nondiscriminatory).
In general, FRAND commitments are Interpreted as enforceable contractual
obligations between a member and an SSO. An implementer of the standard is
a third-party beneficiary to FRAND commitments and therefore entitled to a
license of SEPs.
Ref.
Mark A. Lemley, Intellectual Property Rights and Standard-Setting
Organizations, 90 Cal. L. Rev. 1889 (2002).

4. FRAND Disputes
An implementer of the standard holds entitlements of FRAND commitments
to SEPs. Consequently, the disputes over SEPs in Smartphone Patent Wars
lead to FRAND disputes involving directly concerned parties, public policy
initiated interruptions by regulation agencies, and courts‟ interpretations about
FRAND commitments. These disputes take an increasing importance in the
information and communications technology (ICT) industry.

*Samsung Galaxy S III: Center of FRAND Disputes
Samsung Galaxy S III is the bestseller smartphone that was sold more than 40
million units worldwide. In the US, Samsung Galaxy S III is now connecting its
customers through 4G LTE networks. As the market dominance of Samsung
Galaxy S III increases, it is also placed on the center of LTE patent war.
Ericsson filed patent infringement complaints against Samsung in ITC (US
International Trade Commission) and the District Court for the Eastern District
of Texas. The complaints claimed that, among other claims, Samsung Galaxy S
III infringed its LTE patents. TechIPm‟s essentialty analysis confirms that two
patents claimed in the lawsuits are LTE standard essential patent candidates:
US6445917 (Mobile station measurements with event-based reporting): this
patent provides a perfect mapping between the claims at issue and the LTE
standard specification. It relates to measurements in the process of handover
operation as described in TS 36.331 Sec. 5 and TS 36.300 Sec. 10.1.3.

*Samsung Galaxy S III: Center of FRAND Disputes -2
US8169992 (Uplink scrambling during random access): this patent relates to
contention based random access procedure utilizing CRC scrambling for RNTI
as described in TS 36.213 Sec. 6, TS 36.300 Sec. 10.1.5, TS 36.321 Sec. 5.1
, and TS 36.212 Sec 5.3.
InterDigital filed patent infringement complaints against Samsung in ITC and
the District Court for Delaware. TechIPm‟s essentialty analysis confirms that on
e patent claimed in the lawsuits is a LTE standard essential patent candidate:
US7941151 (Method and system for providing channel assignment information
used to support uplink and downlink channels): this patent relates to providing
channel assignment information to support uplink and downlink transmissions
utilizing the DCI and CRC scrambling for RNTI as described in TS 36.213 Sec.
7 & 8, TS 36.300 Sec. 11.1, and TS 36.212 Sec 5.3.3.1.

5. Main Causes of FRAND Disputes
Many SSOs adopt IPR polices to implement their member‟s agreement to the
FRAND commitments. However, definition of each FRAND terms is not
specified in SSOs‟ IPR polices. Thus, what is mean by fair, reasonable, and
nondiscriminatory is left to the interpretation of parties who are involved in the
FRAND commitments. Furthermore, SSOs‟ IPR polices normally do not specify
about the conditions for contractual agreement under the FRAND commitments
to form a binding obligations to the parties.
Consequently, the absence of definitions about each FRAND terms for binding
obligations in SSOs‟ IPR polices are the main causes of FRAND disputes
surrounding SEPs.

6. Availability of injunctive relief for SEPs
In Apple, Inc. v. Motorola, Inc., No. 1:11-cv-08540 (N.D. Ill.), the court
interpreted FRAND commitments such that the patentee “implicitly
acknowledged that a royalty is an adequate compensation for a patent license.”
Thus the patentee of SEPs is not entitled to an injunctive relief because “the
inadequacy of monetary relief” is required for the entitlement of the injunctive
relief and FRAND royalty would provide the adequate remedy.
(This case involves SEPs for 3G mobile communications (UMTS) standardized
by ETSI.)
In Microsoft, Co., v. Motorola, Inc., No. 2:10-cv-01823-JLR (W.D. WA), the court
also ruled that FRAND royalty provide an adequate compensation because a
patentee “has always been required to grant a license” to an implementer at
FRAND royalty for its SEPs and the patentee has never irreparably harmed.

6. Availability of injunctive relief for SEPs -2
In Motorola v. Apple, Inv. No. 337-TA-745 (Int.‟l Trade Comm.), the
Administrative Law Judge (ALJ) ruled that FRAND commitments do not
preclude the exclusion order for SEPs in ITC (International Trade Commission).
ITC reasoned that its investigations to determine exclusion order banning
importation of infringing product for violations of section 337 of the Tariff Act of 1
930 (19 U.S.C. § 1337) have a wider scope because its interests include public
interest in addition to private interest.
In response to ITC‟s ruling of availability of exclusion order for SEPs two US
government agencies- Department of Justice (DOJ) and Patent & Trademark
Office (PTO) -jointly announced that in some instances the remedy of an
exclusion order may be inconsistent with the public interest. The agencies
reasoned that such activity and resulting exclusion order may be
anti-competitive, and thus, harm consumers.

*InterDigital’s SEPs: Dilemmas to US Patent System
Recently, ITC (U.S. International Trade Commission) started investigation for
InterDigital‟s complaint against major foreign smartphone manufactures
including Samsung that the accusers infringed its 3G and 4G standard essential
patents. This is not the first time alleging infringement of standard essential
patents and asking ban for importations of infringed products. However,
considering the current debate that increasing activities of patent trolls and
intensive smartphone patent infringement litigations caused the current patent s
ystem in crisis, InterDigital‟s litigation will be a hard-to-decide case for ITC.

7. Samsung’s Win in ITC Against Apple
ITC finally determined that Apple‟s products (iPhone 4 (AT&T models); iPhone 3
GS; (AT&T models); iPhone 3 (AT&T models); iPad 3G (AT&T models); and
iPad 2 3G (AT&T models)) infringe the asserted claims of the US7706348
(‟348) patent.
Symbolically, this is a victory to Samsung because it was the only win in patent
battles against Apple. This can show to consumers that Samsung is a innovator
in mobile communications and Apple is a copycat. Economically, the gain to
Samsung from this ITC‟s decision will be limited because all the affected
Apple‟s products are old models, and thus, have diminishing market share.
On this other hand it could adversely affect to Samsung because Samsung
itself could be subject to banning importation of its products – in this case its
flagship smartphones, Galaxy S3 and S4: Samsung Galaxy S3 and S4 all
support LTE communications and in other ITC pending cases Ericsson (337-
TA-862) and InterDigital (337-TA-868) claimed that Samsung Galaxy S3
infringed their LTE SEPs. As the market share of Galaxy S4 increases, it also
could be included in the list of infringing products.

*Samsung’s US7706348 patent proves Apple’s infringement
The Commission‟s determination was based on modification of certain claim
terms in previous ALJ‟s claim construction. The key term that was critical in over
turning previous ALJ‟s non-infringement determination was “puncturer.” The ALJ
concluded that the term “puncturer” means “hardware or software for
puncturing.”
Samsung argued that the asserted claims of the ‟348 patent cover the Sections
4.3.3 and 4.3.5 of 3GPP‟s UMTS standard specification TS 25.212, and thus,
Apple‟s standard-compatible smartphones implementing coding method that
was described in Sections 4.3.3 and 4.3.5 should infringe the asserted claims of
the ‟348 patent.
However, Apple argued that the term “puncturer” was excluded in the final speci
fication (Samsung‟s proposal including the term “puncture” was adopted initially
during the standardization procedure), and thus Section 4.3.5 does not require
that hardware or software for puncturing as only means to make final code
word. Apple insisted that Intel‟s baseband chips that were used in its products
did not use “puncturer” in producing the final code word.

*Samsung’s US7706348 patent proves Apple’s infringement -2
In the new claim construction, the Commission might broaden the meaning of
the term “puncture” encompass general function of producing final code word
beyond the plain meaning of puncturing.

8. FRAND Licensing Royalty
In Microsoft Co., v. Motorola, Inc., No. 2:10-cv-01823-JLR (W.D. WA), the court
provided basic guidelines for assessing FRAND royalty. 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 recently formed LTE patent pool may provide
expected FRAND licensing revenue.

*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 billion 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).

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.

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 %.

Thank you!
• If you have any questions
please contact Dr. Alex G. Lee
at alexglee@techipm.com

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.
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• Patent Portfolio Analysis & Development: Design Around Strategy,
Essentiality & Claim Development for Standard Essential Patents
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• Patent Prosecution: U.S. Provisional Filing, U.S. Non-provisional Prosecution,
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References

Smartphone Standard Essential Patent: FRAND Disputes 101

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