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Not all is fair in smartphone war

The on-going “Smartphone Wars” have been generating news for many months now. Two of the mobile industry’s biggest players, Apple and Samsung, were embroiled in a California jury trial.


One of the key questions answered in the case is how standards-essential patents (SEPs) should be valued.

Patents provide a legal monopoly over an invention of specific scope. This monopoly allows patent owners to block others from making, using or selling a patented invention. If they wish, patent owners can license their patented invention to interested parties on mutually agreeable terms. However, with few exceptions, patent owners are not obligated to provide licenses, and can use their monopoly power to obtain favourable royalties or payments.

SEPs are patents that cover an element or feature, where that element or feature is required to implement a technological standard, such as the “3G” communications standards found in mobile phones. Standards-setting bodies frequently request that participants in the drafting process of a standard identify their SEPs early on, so that these can be worked-around, if possible, or to provide adequate notice that a patent license will be required to use the standard.

In practice, there may be many SEPs and multiple different owners of the SEPs that apply to any given standard. This results in the risk that one or more parties could hold “monopoly” power over the ability to use a standard. To avoid this situation, standards bodies often ask participants to commit to license SEPs on fair, reasonable and non-discriminatory (FRAND) terms. The FRAND concept is not set in stone but at its most basic involves a commitment to offer consistent licenses at a reasonable price to any interested party.

In its patent dispute with Apple, Samsung has asserted several SEPs related to 3G mobile phone standards. Samsung contends that these patents are worth a 2.4% royalty on the entire selling price of Apple’s mobile devices. This works out to about $14 per device. Not surprisingly, Apple considers this rate inconsistent with FRAND terms, and has accused Samsung of anti-competitive behaviour. For its part, Apple suggests that a reasonable royalty for the Samsung patents would be less than half a penny per patent, per unit.

On the other hand, Apple accused Samsung of infringing patents related to the iPhone and iPad user interface. These patents are not part of any standard and are not subject to any FRAND commitments. Apple argues that it is entitled to royalties of $2 to $3 per patent, per infringing device.

The apparent disconnect between Apple’s valuation of its own patents and Samsung’s SEPs may seem self-serving, and it seems the court agrees with Apple’s valuations. But it is not surprising that non-SEPs are valued more highly than SEPs, given that there is no obligation to license non-SEPs at all. This case neatly illustrated how FRAND commitments can significantly affect an owner’s ability to use a standards-essential patent as a bargaining chip.

Paul Horbal (phorbal@bereskinparr.com) is an associate lawyer with Bereskin & Parr LLP and a registered Canadian patent agent. He can be reached at (416) 957-1664. This article is intended to provide general information and should not be considered legal advice. 


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