I felt downright nostalgic when I saw that Apple and Ericsson have sued each other over licensing fees for Ericsson’s standard-essential patents for wireless technology. It feels so long since the days when smart device patent filings were a daily occurrence!
The smartphone patent litigation, as I’ve said before, proved, if nothing else, the futility of relying on courts to destroy your competitors in the fast-changing market for tech products with hundreds of features based on who-knows-how-many patents. It seems almost quaint to remember Steve Jobs’ declaration of “thermonuclear war” against Android devices he considered Apple copycats. That war turned out to be one of attrition, not annihilation.
Its most obvious casualty was negotiating leverage from standard-essential patents. As recently as a few years ago, portfolios of patents adopted by the international bodies that set wireless standards were worth billions of dollars to Apple and Microsoft, which teamed up in 2011 to buy Nortel’s patents, and Google, which acquired Motorola Mobility a few months later. Owners of standard-essential patents are obligated to charge fair and reasonable licensing fees, but in those days, they boosted their negotiating demands with the threat of “patent hold-up” – an injunction based on infringement of their fundamental IP. Now those injunctions are much, much harder to come by, and essential patents have been deemed (by one court, at least) to be worth mere pennies per smart device.
That leverage shift makes it interesting to read the dueling Ericsson and Apple suits. (Apple’s complaint, dated Jan. 12, was filed by Wilmer Cutler Pickering Hale and Dorr in federal district court in San Francisco; Ericsson is represented by McKool Smith in its Jan. 14 complaint, filed in federal court in Marshall, Texas.)
Both are framed as declaratory judgment actions, a standard tactic for patent defendants but an oddity for patent holders, which typically sue for infringement, not a declaration that they’ve complied with licensing obligations. Ericsson’s lead lawyer, Douglas Cawley of McKool, didn’t respond to my email, but I have to believe that the structure of the company’s suit – which doesn’t even claim Apple is infringing any specific Ericsson patent – is a reflection of the diminished value of standard-essential IP in the post-smartphone-war era.
Apple’s complaint suggests that Ericsson refuses to accept that reality. It portrays Ericsson as a litigious patent hold-up artist, quick to sue for injunctions based on its standard-essential IP. (One of Ericsson’s chief victims, in Apple’s account, was Apple’s erstwhile mortal enemy Samsung.) And Ericsson’s negotiating posture, according to Apple, remains similarly mired in the past. Apple asserts that Ericsson has never publicly retreated from its position that it is entitled to 25 percent of royalties based on the entire price of devices employing standard-essential technology. “Ericsson has refused to change its longstanding licensing practices to adapt to the current technological and legal environment,” Apple said. (It also argues that seven patents Ericsson has declared to be essential to wireless communications are actually not essential and not infringed by Apple.)
Ericsson’s complaint, meanwhile, focuses on its long-running and fruitless attempts to renegotiate a licensing fee with Apple. Their previous agreement expired in 2008, and, according to Ericsson, it has spent the past two years making offers to Apple, even suggesting that the two sides go to arbitration. Apple has refused to pay the same rates as its smartphone competitors do for Ericsson’s IP, according to the complaint, instead accusing Ericsson of breaching its obligation to license essential patents at reasonable rates. “In reality,” Ericsson said, “Apple seeks to parlay its commercial success into licensing rates that are much more favorable than those its competitors pay.”
Apple wants a declaration that they do not infringe Ericsson patents and that those patents are not essential. If the court does deem the patents essential, Apple wants the court to set a reasonable royalty rate.
Ericsson seeks a declaration that it has not breached its obligation to license its standard-essential portfolio on reasonable terms and that the terms it has offered Apple are reasonable.
Apple lawyers Joseph Mueller and Mark Selwyn of Wilmer referred my email to Apple representative Kristin Huguet, who provided a statement to Reuters: “We’ve always been willing to pay a fair price to secure the rights to standard essential patents covering technology in our products. Unfortunately, we have not been able to agree with Ericsson on a fair rate for their patents so, as a last resort, we are asking the courts for help.”