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March 15, 2012

Apple scores crucial patent victory against Samsung; FRAND patent counter strategy of Google at risk

Photo credit: Wikipedia
As reported by Foss Patents, The dutch court has ruled that Samsung has to offer fair, reasonable and non-discriminatory (FRAND) licensing terms to Apple for patents essential to 3G/UMTS standard. The ruling will also prevent Samsung from seeking injunctions against Apple's products, using these standards.

This is a crucial victory for Apple which could have major impact not just on Samsung, but also on Google and Android as it limits the use of standards essential patents (SEP) as legal tools against competitors.

Netherlands court ruling
The court has ruled that Samsung is obligated to offer FRAND licensing terms to Apple for the standards essential 3G/UMTS patents. The court said that Samsung cannot pursue injunctions against Apple as it appears inclined to discuss licensing terms — Apple has only objected to the royalty rate, terming it high.

The court also said that Samsung cannot assert 3G/UMTS patent on iPhone 4S due to "patent exhaustion". Apple had purchased baseband chips from Qualcomm which already had licenses to 3G/UMTS patents which Samsung is asserting, which logically means that they should be covered by the said patents.

To pursue case against Apple, Samsung wanted to terminate its agreement with Qualcomm, but the court ruled otherwise saying that Samsung cannot do so due to the commitments made to ETSI to grant irrevocable licenses for its 3G/UMTS patents. ETSI is the standards body in charge of 3G.

This means that there will be no extra royalty on iPhone 4S, as it is already paid by Qualcomm.

The only piece of moderately positive news for Samsung was that it can pursue cases against Apple for phones which used Infineon chips until January 2011 as well as Intel baseband chips (Intel acquired Infineon's mobile baseband chip division). Though, Apple has a chance to apply for patent exhaustion till March 28.

Impact on Samsung
The dutch courts decision effectively means that Samsung's, and indeed Google's, main counter strategy against Apple of using SEP's is not working. Samsung has already lost similar cases in France and Italy and had withdrawn a case in Germany, albeit with an option to sue later.
The verdict on patent exhaustion means that Samsung cannot bring out cases against some devices like will iPhone 4S, which use parts already covered by the patents. In our opinion, this was a very aggressive stand taken by Samsung, where chances of victory where anyway small, hence the verdict is not a surprise.

Though, Samsung can negotiate for royalty on devices using Infineon and Intel basebands, the royalty rate will likely be low as they will not only infringe indirectly but will also involve SEPs.
So far Samsung has not won a single offensive claim against Apple anywhere in the world and this latest verdict is in line with the other verdicts, albeit much bigger. Samsung may have to eventually opt to settle with Apple and pay a royalty, just like it is currently paying Microsoft. As earlier reported, Apple had offered licensing deal to Samsung, with some important caveats to maintain product differentiation.

Impact on Google and Android ecosystem
This ruling also increases the pressure on Google. Google's primary strategy against both Apple and Microsoft is to leverage SEPs for cross-licensing without paying additional royalties or ask for a high royalty rate like 2.25% with Microsoft.

This ruling, and all previous ruling, indicates that this is not an effective strategy as the courts are not warming to the idea of suing based on SEPs, effectively removing the biggest weapon in Google's arsenal. Google and its OEMs will also not be able to command a high royalty rate which could be as low as 2 cents (depends on the patent though).

Apple and Microsoft now have the upper hand as a lot of their patents are not SEPs and hence they are free to charge a higher rate. Many Android OEMs are already rumoured to be paying Microsoft between US$5-$15 per device as royalty for patents and may now have to pay Apple a royalty.

Microsoft and Apple will succeed in moving Android from a free OS to one with a high patent risk and hidden costs, reducing its lucrativeness to Android developers. This could move the lower end market from Android to Windows and other proprietary OS'.

But this outcome depends on a lot of other issues and, unless a settlement occurs, we are a long way away from resolution, even though victory in the current round goes to Apple and Microsoft.

Ahh... It seems I have been posting only legal and patent related issues recently. Sigh... I don't expect this to reduce any time soon :(

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