Motorola Requested 2.25% Patent Licensing Royalty on iPhone Purchases

[Steve121178]

Maybe they could use some of them to make products that don't suck.

Never mind, I have a better idea. They could give them to Apple and have *them* do it.

Patents are paper. But they need to make money somehow, right?

Think of all the R&D (and millions of $'s) that went into those patents.

It's only right they be rewarded for what others steal. You said the same about Apple many times so I am not sure why you are being so foolish about this.

I am right. You are wrong.

 

[BC2009]

The amount of money generated should be irrelevant. The question is, how fair is 2.25%? What % are other similar FRAND patents typically licensed at? Are there guidelines or limits placed on these?

Yes, that is the right question. But since FRAND patents are very common-place, utilizing 10 of them at these terms would mean 22.5% in royalties. That hardly seems "fair and reasonable". At first glance, it seems that 2.25% is excessive. I would have guessed somewhere in the range of 0.5% or some flat amount per device that could be added to the base cost of the device.

The beauty of a FRAND patent is that it gets very widely used and so you make your money on it. It is assumed that everybody will have to license a FRAND patent in order to compete in a given space. Hence, low royalties, but large volume. You are more the compensated for your work.

 

[kdarling]

Nor do I particularly care at this point that Moto invented the mobile phone technology or whatever the hell they did.

Perhaps Motorola isn't a big name where you are in Canada, but it's been a respected name in the USA for a century, providing chips and radios to consumers and the military (and Apple, of course).

Motorola spent 15 years and 100 million dollars before they brought out the first cell phone in 1983.

Moto is just another dinosaur that deals more in patents than great products.

Motorola is hardly a dinosaur in the telecom area. It was the first to demonstrate a handoff of video streaming back and forth between LTE and 3G in 2008.

The current... not past... fact of the matter is that Motorola can build a smartphone without Apple's patents, but Apple cannot build any kind of phone without Motorola's patents.

At first glance, it seems that 2.25% is excessive. I would have guessed somewhere in the range of 0.5% or some flat amount per device that could be added to the base cost of the device.

As far as rates, it's widely assumed that Nokia got 1% from Apple.

Microsoft gets $3-6 per Android phone, which is also about 1%.

But as some wags have noted, with over 150 companies being part of ETSI, the GSM patent pool, even 1% per company would be 150% of a phone's price

 

[Oletros]

The hilarious thing about Mueller is that he is really concerned about the 2.25% Motorola is asking and when iPcom is asking 2.5-3.5% royalties against HTC he clearly doesn't have any problem with the amount.

http://fosspatents.blogspot.com/2011/12/ipcom-demands-25-to-35-percent-of-htcs.html

So, yes, yet another biased Muellr article

 

[kdarling]

I've done a lot more research on this topic, and found some interesting stuff:

• Up to 20% of the cost (not sales price) of making a simple GSM phone is composed of just GSM license fees. Add up to another 10% for UMTS (3G), with Qualcomm getting the majority of that for the WCDMA.
  
  E.g. the phone part costs $100; add another $30-45 for GSM fees. (Then you also need fees for cameras, visual voice mail, OS, UI features, etc.)
  
  
• Motorola owns 50% of the 132 essential GSM patents for phones and network equipment. The next closest owner is AT&T, with 16%, followed by Philips and Bull with 8% each. It goes down from there.
  
  
• Motorola did not agreed to FRAND in the beginning, unless you bought chips or equipment from them. Otherwise they would not take money for their patents; they would only do cross-licensing, which was worth a lot more to them as a phone maker. Nokia and Ericsson were the first takers of this, and presumably other makers have done the same cross licensing since then.
  
  So it's not clear that there's any FRAND rate history for using Motorola patents without also using Motorola parts or engaging in cross-licensing (which Apple dislikes).
  

 

[mijail]

I've done a lot more research on this topic, and found some interesting stuff: ...

Interesting. Thanks for sharing!

 

[gnasher729]

Yes, that is the right question. But since FRAND patents are very common-place, utilizing 10 of them at these terms would mean 22.5% in royalties. That hardly seems "fair and reasonable". At first glance, it seems that 2.25% is excessive. I would have guessed somewhere in the range of 0.5% or some flat amount per device that could be added to the base cost of the device.

It's worse than that. Let's say you have a device that would sell for $100 if there were no patent licenses. And you need to pay 22.5% in patent licenses. Increasing the price to $122.50 doesn't cut it, because you now need to pay 22.5% of $122.50 instead of 22.5% of $100. You need to increase the price to $129.03, because 22.5% of $129.03 is $29.03, leaving exactly $100. So the customer would pay 29.03% more, not 22.5%. Plus the sales tax on the price increase. Plus the stores will want to make more profit from a device that sells for $129 than from a $100 device.

But the iPhone is a device doing multiple things. It is a phone, a music player, a portable computer, a portable games console. Probably more things. Let's say there are 10 patents that are essential for building a phone, 10 patents essential for building a music player, 10 patents essential for building a portable computer, and 10 patents essential for building a portable games console. Now you have 40 patent owners asking for 90% of the total device cost. Which means if it costs $100 to build, you need to sell it for $1000 and still just get the cost of building it in return. Motorola is asking for 2.25% of the phone, but also for 2.25% of the music player, portable computer, and portable games console.

The hilarious thing about Mueller is that he is really concerned about the 2.25% Motorola is asking and when iPcom is asking 2.5-3.5% royalties against HTC he clearly doesn't have any problem with the amount.

http://fosspatents.blogspot.com/2011/12/ipcom-demands-25-to-35-percent-of-htcs.html

So, yes, yet another biased Muellr article

Well, I thought everyone knew that. He seems to have an interesting ordering: Microsoft comes first. If it is possible to put a spin that favours Microsoft, he'll do that. Google comes last. Any possibility to spin it against Google, he'll do that. Apple is in between, so in Motorola (soon to be owned by Google) vs. Apple, he'll take side against Google and for Apple, while in a case of anybody against HTC (Google Android licensee), he'll take sides against HTC. It seems there hasn't been anything between Microsoft and Apple for a while, but when it happens, you can bet he will side with Microsoft.

 

[BC2009]

It's worse than that. Let's say you have a device that would sell for $100 if there were no patent licenses. And you need to pay 22.5% in patent licenses. Increasing the price to $122.50 doesn't cut it, because you now need to pay 22.5% of $122.50 instead of 22.5% of $100. You need to increase the price to $129.03, because 22.5% of $129.03 is $29.03, leaving exactly $100. So the customer would pay 29.03% more, not 22.5%. Plus the sales tax on the price increase. Plus the stores will want to make more profit from a device that sells for $129 than from a $100 device.

But the iPhone is a device doing multiple things. It is a phone, a music player, a portable computer, a portable games console. Probably more things. Let's say there are 10 patents that are essential for building a phone, 10 patents essential for building a music player, 10 patents essential for building a portable computer, and 10 patents essential for building a portable games console. Now you have 40 patent owners asking for 90% of the total device cost. Which means if it costs $100 to build, you need to sell it for $1000 and still just get the cost of building it in return. Motorola is asking for 2.25% of the phone, but also for 2.25% of the music player, portable computer, and portable games console.

I saw something on FOSS patents where he points out that if the stereo in a BMW used a patent and that patent required 2.25% of the end product price, that it would 2.25% if the entire vehicle sale price, rather than the price of the stereo. I see his point. Licensing terms on the final sale price are ridiculous. Patent licenses need to be about a fixed price per unit sold.

 

[kdarling]

Motorola is asking for 2.25% of the phone, but also for 2.25% of the music player, portable computer, and portable games console.

While you and I might think it's unreasonable to charge by device price, every phone maker has been legally paying patent holders like that since 1990 or so.

That's important, because it means there are twenty years of legal precedents where charging that way is considered part of the standard's FRAND terms.

Of course, to get around that, most bigger companies cross license their patents as part payment. Note that companies are NOT forced to cross license. (Edit: I'm wrong! See post below) There have always been cash terms available, but almost nobody pays those. Instead they all cross-license patents and avoid huge fees.

Now here Apple is asking to not pay what everyone else does, which is very understandable, but from the sheer FRAND side of things I don't think they can overcome all that history of how everyone else has paid for decades. At most, they'll probably be able to clarify what the cash percentage should be.

 

[chrmjenkins]

It seems a case could be made that Apple is more on the antitrust side if they are refusing to cross-license and that is common practice in the industry.

 

[kdarling]

Note that companies are NOT forced to cross license.

Immediately after writing that, I thought I might be wrong, and I was. As it turns out, a prohibition against forced cross-licensing did pass with ETSI back in 1993, but it was repealed a year later. In 2003, another attempt was made:

"Proposals included prohibitions on licences that require a royalty-free cross licence, prohibitions on requiring ‘grantbacks’ of rights to improvements, and prohibitions on licencing for certain regions of the globe at rates different from those charged for other regions. But none of these restrictions ever were agreed to, whether by the AHG or by the ETSI General Assembly."

That is from a very pertinent paper on "The Meaning of Voluntary Commitment to FRAND", found here, which uses ETSI (the GSM patents standard overseer) as an example. Anyone who wants to debate cellular FRAND terms should read it.

Several things of note jump out:

• Commitment to FRAND is voluntary, not mandatory, and ETSI does not set the terms. Each company does.
  
  
• It's okay to require royalty-free cross-licensing (which must drive Apple crazy).
  
  
• What is ‘fair and reasonable’ after a legal infringement challenge, can be higher than it was before that challenge.
  
  
• Courts do not determine what FRAND terms are, but only whether the offered terms for a specific circumstance fall outside of a reasonable range.

PS. As far as the last point, something that I've noted here before, that Apple lawyers do a lot in their court cases, is brag about how much money Apple is making... then turn around and claim that their payments to others are too much. I think this backfires on them. If they were a OLPC group and wanted to avoid high terms, a judge could look favorably. Bragging about making huge profits is just going to make it easier for a judge to allow higher rates.

 

[vrDrew]

Commitment to FRAND is voluntary, not mandatory, and ETSI does not set the terms. Each company does.

I think you are misinterpreting that.

Nobody can force a company to declare any of their IP "Standards Essential." Company XYZ could come up with a way of quadrupling the amount of data you could send over a 3G or 802.11 connection, and ETSI couldn't force them to to make that technology part of the next standard specification.

However, a company that did declare it Standard Essential would gain a tremendous commercial advantage. To begin with, they would have a pretty-much guaranteed royalty revenue stream, albeit at a "less-than-bank robbery" rate. But more importantly, thanks to "Network Effects" their newly developed technology becomes much more valuable because it is considered Standards Essential: Its not much good designing a chip that can send or receive data very quickly if there are only a few devices it can communicate with.

Its not mandatory to make FRAND commitments. But once you do, you have to live up to the commitments you made. Samsung's failure to live up to its FRAND commitments is believed to be the reason they are being investigated by the EU; and why its extremely likely Motorola and Samsung will find themselves facing Anti-Trust action from the US Justice Department.

Also, the "Requirement for Royalty-Free Cross Licensing" refers only to other FRAND-encumbered patents that are part of the same standard. Motorola can't force Cisco to cross-license its patents on IP-switching technology (which aren't part of the ETSI Standard-Essential pool).

This, by the way, is the heart of what Motorola (and by default Google) and Samsung are trying to do. For all their protestations to the contrary, they aren't really looking to get licensing money from Apple. What they really want is to try and force Apple to cross-license its non-Frand smartphone IP (ie. scroll and bounce back, multitouch, touch-to-e-mail, etc.) patents.

 

[kdarling]

I think you are misinterpreting that.

I understood it, but was trying to get people interested in reading the paper to understand the details.

Also, the "Requirement for Royalty-Free Cross Licensing" refers only to other FRAND-encumbered patents that are part of the same standard. Motorola can't force Cisco to cross-license its patents on IP-switching technology (which aren't part of the ETSI Standard-Essential pool).

Do you know of some court case that decided that? Because there's nothing in the ETSI policy that specifies the patents be related. It only states that irrevocable licenses "may be made subject to the condition that those who seek licences agree to reciprocate."

In fact, the 2001 book, Mobile telecommunications standards: GSM, UMTS, TETRA, and ERMES, that I've been quoting took pains to mention that smaller companies without any valuable GSM IP to exchange, would often cross license unrelated patents instead: "But one has to keep in mind that cross-licenses can exchange essential IPR for nonessential IPR, or even for IPR that is not relevant to GSM."

This, by the way, is the heart of what Motorola (and by default Google) and Samsung are trying to do. For all their protestations to the contrary, they aren't really looking to get licensing money from Apple. What they really want is to try and force Apple to cross-license its non-Frand smartphone IP (ie. scroll and bounce back, multitouch, touch-to-e-mail, etc.) patents.

I tend to agree, but if that's their target, then the offered rate we heard about (2.25%) won't do it. That's not unreasonable, and it doesn't seem high enough to force Apple to give up any patents. Still, rumors said that Apple gave Nokia some touch patents along with 1% of the iPhone price.

I think we'll know more if/when we find out the rates charged to other companies _without_ cross licensing... if there are any!

Regards.