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German court rules Apple's FRAND licensing proposal is fair enough, would be illegal for Motorola to refuse

A German appeals court has handed Apple, Inc. (AAPL) a major victory this week, at the expense of pending Google Inc. (GOOG) acquisition Motorola Mobility.  The Karlsruhe Higher Regional Court ("Oberlandesgericht Karlsruhe") elected to stay a preliminary injunction by the lower Mannheim Court, an injunction which could have -- at least online -- banned sales of iPhones and iPads in Germany.

I. iPad, iPhone Ban Would be Illegal Says Appeals Court

To understand the ruling you have to understand German patent law.  In the European Union, different member states have different patent court systems, despite sharing a single unified intellectual property registrar.

In Germany, lower federal courts launch cases along two separate tracks -- an infringement track, and a validity track.  The infringement track can ban (via preliminary injunction) a product or service, even if there's a modest prospect that a patent is invalid.  The infringement proceedings are typically only stayed by a lower court if there is a "high likelihood" (70-80 percent) of invalidity.

By contrast, German federal appeals courts can stay the infringement proceedings (and potential product bans) if there's a modest (think 50 percent or greater) chance of invalidity.

In this particular case, the infringement track was paused due to a special type of invalidity concern -- invalidity not based on the patent being invalid, but invalidity based on it being illegal to litigate with the patent under current licensing rules.

Apple store in Germany
German authorities have ruled that it would be illegal for Motorola to seek a sales ban on the iPhone and iPad, given Apple's relatively fair licensing proposal. (Pictured: Munich's Apple store) [Image Source: Apple Insider]

The Karlsruhe court ruled that Apple's latest licensing proposal was fair and reasonable enough that Motorola was legally obligated to license the patent to its rival.  The key point in the case was that the patents in the case (which Apple was found to infringe by lacking a license) were 3G standards patents governed by fair, reasonable, and non-discriminatory (FRAND) licensing terms.

Motorola made it clear it had a lot of issues with Apple's licensing proposal, and for a time the appeals court appeared to be on its side.  But via an "iterative approach", Apple crafted a licensing proposal, which was the appeals court felt was fair enough, according to FOSS Patents.  To refuse to license under the terms of that revised offer would be a clear antitrust violation, the German appeals court stated.

A translated ruling is available here.

II. Growing Headaches for Motorola, Google

Some experts (such as FOSS Patents blogger Florian Mueller) are saying that this loss is especially painful for Google/Motorola as the German court system is relatively friendly to FRAND patent holders using the standards patents to litigate against other FRAND standards holders.  

As Apple is also involved in some FRAND patents, the German court was more receptive to Motorola's claims that other international courts might be; a perspective originally praised by Google.

Cell tower
Motorola Mobility's efforts to litigate with 3G FRAND patents aren't working out very well.
[Image Source: Trak]

The loss adds to the cloud floating over Motorola and Google, as a European Union probe into potential FRAND patent abuse continues.  Motorola is fighting a two-front war against Apple and Microsoft Corp. (MSFT).  Last week Microsoft filed an EU complaint against Motorola, claiming it was committing antitrust violations by refusing to license certain FRAND patents.

III. Battle is Far From Over

While Motorola's litigious efforts against Apple are significantly weakened by the ruling, all is not lost for the phonemaker.  Motorola has a non-FRAND ban on the iCloud's push email in Germany, which is likely to be enforced for at least a year until the appeal is heard.  Unlike the iPhone/iPad ban, the appeal is unlikely to be expedited as the case does not share the same compelling FRAND questions.

Motorola's smartphones could be banned by April if it does not adopt a new unlock mechanism, following a German judge's decision that Motorola's lock graphic violated Apple's pair of patents [1][2] on a swipe unlock.  Motorola stands a good chance of getting this overturned at the appeals level, given the amount of prior art.  Such prior art was used to toss out similar claims in the Netherlands, where invalidity and infringement proceedings are lumped together into a single track.

Motorola unlock
Motorola's forbidden swipe to unlock gesture [Image Source: YouTube]

However, like Apple with the iCloud ban, Motorola must likely wait almost a year to get the decision tossed, as it is a non-FRAND issue.  Motorola will likely be forced to implement alternative unlock gestures.  Samsung Electronic Comp., Ltd. (KS:005930) -- threatened with a similar German ban -- has already done this, putting in place a circular slide to unlock motion.  

While the new unlock is clunky, it is likely to prevent Apple from being able to ban the company's products from the market, and may have the added perk of encouraging customers to use Android's more secure built-in Grid Unlock (which was not found to be infringement in Germany to date).

In the long run it's anybody's guess what could happen in Germany.  An appeal could allow Motorola to (re)enforce its FRAND-based iPad/iPhone ban, if the first appeals court decision is overturned.  Motorola could even invalidate Apple's swipe-to-unlock IP.  Alternatively, Motorola could see its iCloud victory nullified and be forced to maintain painful user interface changes, should things go wholesale in Apple's favor.

Sources: FOSS Patents [1], [2]

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This article is over a month old, voting and posting comments is disabled

By Motoman on 2/27/2012 7:33:09 PM , Rating: 3 much money is Apple paying the German government, anyway?

RE: So...
By quiksilvr on 2/27/2012 7:57:41 PM , Rating: 4
Alot. No joke. This is straight-up bribery.

RE: So...
By dgingerich on 2/27/2012 8:17:49 PM , Rating: 2
Partly what I was thinking, but I was thinking more along the lines of "how much is apple paying these judges behind the scenes?"

RE: So...
By Omega215D on 2/27/2012 11:44:01 PM , Rating: 2
Hmm... it seems florian mueller's position on things is suspect.

RE: So...
By testerguy on 2/28/2012 3:19:18 AM , Rating: 1
quote: much money is Apple paying the German government, anyway?

Motorola trying to seek injunctions based on FRAND patents was never going to be successful. When manufacturers voluntarily sign the FRAND contract - they commit to licensing the technology on fair, reasonable and non-discriminatory terms. Apple offered Motorola this, and Motorola refused, demanding what even they admitted was 'above-frand' rates.

No higher court of law would side with the anti-competitive act of seeking injunctions on products over FRAND disputes in which a reasonable offer has been made.

The bigger question is - why did it even need to go to the higher court. The lower court should have thrown out the FRAND case in the first place.

RE: So...
By AnnihilatorX on 2/28/2012 3:54:48 AM , Rating: 1
So I patent the wheel, and sign this FRAND thing, then I am immune to be sued for bogus patents where prior arts were present and all car makers are obliged to pay me?

RE: So...
By Tony Swash on 2/28/12, Rating: 0
RE: So...
By nafhan on 2/28/2012 8:18:40 AM , Rating: 3
I think what's upsetting people is that trivial stuff like "swipe to unlock" is the basis for potential product embargoes, but patents regarding technology essential for modern communications are swept aside in court. In a reasonable system, both would be thrown out.

While the FRAND thing is "voluntary" in the sense that a company could choose not place their patents under these terms, but those that don't will likely either:
A) Not get their standards adopted (i.e. "standardized") or
B) Get slapped with lawsuits for monopolistic practices.

Long term what matters is that the current system of handling intellectual property is messed up. Stockpiling patents for every possible scenario and combination of software and hardware interface conventions works out great for the small number of extremely large companies that can afford to do that, and it works out rather poorly for everyone else (including the consumer).
Motorola's pathetic use of FRAND patents in this way, doomed to failure, is an indicator of how weak their legal position is and how poorly they are managed. Hence their slow obliteration in the mobile market.
Motorola is not Apple, blah, blah. Your position is already pretty clear in this regard...

RE: So...
By testerguy on 2/28/12, Rating: 0
RE: So...
By JasonMick on 2/28/2012 1:10:13 PM , Rating: 2
As for the patent system in general, I think I agree with your first sentence - the trivial 'swipe to unlock' stuff is distorting yours (and others) perspective on this case which has nothing to do with 'swipe to unlock'. I think you are expressing your grievance over an unrelated case and confusing it as having any relation to this case. In my opinion the court did exactly the right thing here, and Motorola can have no complaints whatsoever.

Testerguy, first let me say we don't usually agree thus far in the comments you've left here. But I do agree with you about FRAND.

FRAND is a good concept in principal. And Germany is right not to let Samsung or Motorola abuse essential standards.

That said, your dismissal of the op's point is not valid, as Apple's gesture/UI driven lawsuits DO impact the court system. Motorola/Samsung/Google would never be trying to sue Apple/Microsoft if it weren't for the hyperlitigious atmosphere where companies either demand a king's ransom (Microsoft) or try to ban your products (Apple).

In reality there should be some element of value added to the patent system. For example, I have no real issue with Apple patenting UI gestures, but clearly their gestures are
a)based on a wealth on prior art
b)represent only a fraction of the combined value eqn. for Apple's products.

Given these factors, Apple should be allowed to sue and demand licensing, but the settlement should be maybe an order of magnitude higher than FRAND.

For example a collection of FRAND patents is oft licensed for $0.02 per device. This is very reasonable.

It would be also reasonable to allow Apple to sue and potentially win a mandatory licensing settlement of $0.20. (10x premium over FRAND)

What I don't see as fair is Apple suing over a relatively minor piece of intellectual property and potentially banning a $200 product.

This represents a 10,000x premium versus the FRAND licensing!!!!

This is clear evidence that the system is indeed broken, as the op stated.

UI gestures/speech inputs, etc. are ubiquitous and critical to the industry progressing. I can see possibly allowing this kind of IP to be filed as non-FRAND patents, but allowing such extreme abuses is just anti-technology.

RE: So...
By adiposity on 2/28/2012 3:24:58 PM , Rating: 2
For example a collection of FRAND patents is oft licensed for $0.02 per device. This is very reasonable. It would be also reasonable to allow Apple to sue and potentially win a mandatory licensing settlement of $0.20. (10x premium over FRAND) What I don't see as fair is Apple suing over a relatively minor piece of intellectual property and potentially banning a $200 product. This represents a 10,000x premium versus the FRAND licensing!!!!

Jason, while you make some good points, I really don't see how you can compare the cost of the licensing to the cost of the product. There is no direct comparison between the license cost and the retail price of a device, and banning a $200 device is not the same as requiring $200 is licensing fees. It is simply banning the device until it is not violating patents.

Now I don't agree with Apple's suing, but you are comparing two totally different numbers and then trying to calculate a ratio which is meaningless. There is no ratio known as "the retail price divided by the license cost of one patent" that can calculate your "10,000x premium."

If anything the cost of a phone vs. the price minus the cost minus the licensing might be compared. Then you could see what the total amount lost might be for getting banned vs. licensing. While it would be interesting, it would not be any kind of "premium," because the money doesn't go to Apple! It's just inability to sell the product.

RE: So...
By Tony Swash on 2/28/2012 11:04:17 AM , Rating: 1
I think that many people seem to be in a state of terminal confusion about FRAND and about why companies offer their IP up to be adopted as a FRAND standard.

In the past product differentiation through the consistent introduction of unique characteristics was not seen as central to the mobile phone business model. What was important was adoption by carriers who would then push your phone model through their channels (that's still important but it used to be the single most important factor in determining whether a particular model of phone was a success) and to a lesser extent old fashioned 'specs' (i.e. more megapixels in the camera, more ticks in the feature list, again such things are still important but much less so).

This meant that the phone companies were less bothered about retaining unique features in their phones but were interested in licensing their IP to other companies in order to supplement, often by substantial amounts, their revenues. The best way to ensure a high take up of your IP by your competitors and the best way to ensure that your IP was widely used and thus that your license income was the highest possible was by offering your IP in the FRAND framework. The reason is obvious, other companies would only adopt and possibly become dependent on another companies IP if they were guaranteed that the owner of the IP couldn't screw them at later date. The great benefit of the FRAND system was that it allowed the adoption of industry wide standards using IP that was owned by a single company.

The iPhone disrupted this set up which was Apple's intention. Apple only enters markets if it thinks it can disrupt them. Apple's approach was to focus great effort on packing their product with as many finely crafted and integrated features as possible all protected by their strong IP portfolio and designed and implemented in such a way as to ensure huge pull demand from consumers and a very strong brand profile. If you stopped a hundred people on the street and asked them to name a handset I am sure that the iPhone would beat all others hands down. It's this consumer pull, the high demand from customers for the iPhone specifically, that gives Apple the mechanism by which it can shape the best possible deal with carriers (no crapware, total control of software and OS updates, hardware and branding, very large carrier subsidies, etc).

Given it's approach Apple has no interest in offering it's IP as a FRAND standard, it is not interested in earning license fee peanuts. What Apple does have is a strong and relevant portfolio of IP, unlike many of the hand set makers that have a weak portfolio of modern, relevant and FRAND free IP. Hence Apple's attritional legal campaign to protect what it sees as it's innovation, and also hence the desperate full back by Samsung and in particular Motorola in to FRAND abuse in a futile attempt to counter Apple.

It's worth bearing mind that Motorola sued Apple first. I bet they wished they hadn't.

RE: So...
By testerguy on 2/28/2012 11:49:57 AM , Rating: 1
It's worth bearing mind that Motorola sued Apple first. I bet they wished they hadn't.

This is very interesting.

A lot of people in previous articles have described Apple as the 'antagonist'. I feel this is an irrelevant argument anyway - the equivalent of the playground 'he started it'. It is, however, good to know that Apple weren't the antagonist so that such an accusation is also factually incorrect.

RE: So...
By nafhan on 2/28/2012 12:16:47 PM , Rating: 2
OK, let's say country A attacks country S and H, which are allied with country M. Country M then attacks country A. Who is the antagonist here, the one who started the war or the one who started the battle?

That's not the important thing anyway, if Googarola was the primary antagonist taking advantage of the current problematic situation with IP law, it could be just as bad. Billions are being wasted on litigation, and consumers are may lose useful services and functions like iCloud.

RE: So...
By nafhan on 2/28/2012 12:02:04 PM , Rating: 2
I'm coming at this from a totally different perspective than you. It seems like your perspective is basically just using any excuse possible to praise Apple and explain how they can do no wrong. I find that strange, but whatever... My perspective is that current IP law has MAJOR MAJOR issues that is seriously harming the marketplace and the consumer. Anything negative I say about your chosen brand/label/company is from that perspective and not a personal attack on you...

Companies release their IP under FRAND terms because standards will generally not be adopted unless they're licensed in such a way. For complicated technology that underlays national telecomm infrastructures, standards are important. For stuff like UI conventions, standards really don't matter as much. At the same time, stuff that is very obvious (such as a many of Apple's "strong" patents, like swipe to unlock), shouldn't be patentable in the first place. That's where my issue lies.

Apple's does undoubtedly have some strong IP, but the stuff they're litigating over is, more often than not, trivial. This brings things back around to the point of IP law in the first place: to promote innovation. Current IP law is absolutely not doing this. It's largely promoting massive court battles and artificially high valuations of shell companies that have nothing BUT IP.

RE: So...
By Tony Swash on 2/28/2012 2:24:39 PM , Rating: 1
At the same time, stuff that is very obvious (such as a many of Apple's "strong" patents, like swipe to unlock), shouldn't be patentable in the first place. That's where my issue lies.

Stuff always looks obvious once someone has done it and done it successfully. Take the rubber banding animation that is pervasive in iOS to denote you have scrolled to the end of a list. It seems obvious because it is a very good visual metaphor that truly helps people react to and understand what is happening in the touch interface. Without something like that people tend to think a scroll that comes to sudden halt has hit a glitch so they often try to scroll harder by pressing harder. The bounce is clever and very useful. And it belongs to Apple who developed it, patented it and deployed it in their first version of iOS. So why should other companies be allowed to copy it without permission? I can see no justification in that.

As I have said before the mobile patent wars will rumble on for a few more years but they will fade. There is much hysteria and anxiety about stuff that barely impacts the consumer who still has many different offerings to choose from freely in the market place. More innovation and less copying is what is needed.

RE: So...
By nafhan on 2/28/2012 3:56:02 PM , Rating: 2
Stuff always looks obvious once someone has done it and done it successfully
That's not true at all. Here's a link to a Motorola patent regarding QAM (first result googling "patent qam") from 1994: The stuff described in there is not going to be obvious to very many people. I've done a little work with microwave radio in the past, so I understand what's going on in the patent at a very high level, but obvious? Not to most.
blah, blah, So why should other companies be allowed to copy it without permission?
Because this is how everything has worked in software and science and technology for all of history; it's what Apple DOES, and it's how progress happens. The real question is why shouldn't copying be allowed? And the answer to that is simple: that's how the legal system is set up right now. The moral and ethical quandary you're presenting doesn't really exist.
the mobile patent wars will rumble on for a few more years but they will fade
Agreed, but the outcome will have far reaching implications in technology and IP law for decades (essentially all aspects of you and your hypothetical children's lives). So, that outcome is very important, to me, at least.

RE: So...
By Tony Swash on 2/28/12, Rating: 0
RE: So...
By nafhan on 2/29/2012 10:36:27 AM , Rating: 2
Where do you come up with this stuff? The first step in "building on" something is to copy it. Otherwise, you're not building on anything...

RE: So...
By JPForums on 2/28/2012 9:23:57 AM , Rating: 2
So I patent the wheel, and sign this FRAND thing, then I am immune to be sued for bogus patents where prior arts were present and all car makers are obliged to pay me?

I'm not really sure what you are getting at here. To make things clear, Apple has the patent with prior art present. Motorola has the FRAND baseband IP (without prior art).

Standards boards tend to like to create standards incorporating FRAND patents, because it's supposed to guarantee that IP required to be standards compliant is available to everyone in the industry.

Companies may make a patent FRAND because they can license the IP to more companies. Ideally they sell more volume with less margin for an overall higher return on investment.

Note: an invalid patent would still be considered invalid regardless of FRAND status.

RE: So...
By ShieTar on 2/28/2012 7:13:06 AM , Rating: 2
The german government has no control over german courts.

You see, as in most republics, we have a little thing called "separation of powers".

While this is in principle supposed to exist in most democracies, it is more of a reality in germany than it is in many other nations. A lot of government decisions a regularly overturned by the supreme court as the judges think and act completely independant of political considerations.

RE: So...
By hexxthalion on 2/28/2012 9:09:00 AM , Rating: 1
you don't seem to be very bright person - just saying

"Folks that want porn can buy an Android phone." -- Steve Jobs

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