This is a continuation of my previous post where I had briefly referred to charging for expired patents. This post goes in greater detail in the issue.
If I were to summarize this post, it would be: Portfolio licensing and FRAND commitments do not go together. This post also highlights why it is important to keep the historical context in mind while dealing with 20 year monopolies as those of us who forget history are condemned to repeat it.
A patent portfolio by definition is a variable entity. It cannot remain constant. The argument made by the patent owners goes thus: “The patent license is for a term during which patents are being added constantly to the portfolio, and the license will not be offered with new terms every time a new patent is added.”
There is a major flaw in this argument: While it is true that patents are being added, it is also true that patents are being deleted from the portfolio. The question being how does value of the portfolio remain the same if the patents being added are of less value and patents being deleted (read expired) are of greater value? Or vice versa? Or how about the case where the standard has moved on and adopted a new / different technology solution?
Interestingly, this issue was opined by the Chinese NDRC while discussing the case of Qualcomm and the NDRC had asked that prospective licensees be provided a complete list of patents under the portfolio. Note that patent applications cannot be a part of the portfolio as the right has not fructified into a patent.
In addition, portfolio licensing is essentially bundling and hence needs more scrutiny under the competition lens. Bundling patents that are not related to the standard, or patents that have expired in a portfolio is serious cause for concern under any jurisdiction. Whether one looks at it under the per se rule or under the rule of reason (pro competitive effects of a portfolio license), there is no escaping the fact that what is not required has been included in the portfolio. Any pro competitive effects are outweighed by the serious appreciable adverse effects on competition of bundling.
Coming to the part related to history / expiry of patents. Here one can clearly see the problem caused by portfolio licensing. I am extracting parts of the first order issued by the Delhi High Court as relates to portfolio licensing. The orders relate to payment of royalty define payment in terms of portfolio of patents as relates to a particular technology.
Here is the problem: GSM as defined was introduced in 1995 and all patents pertaining to GSM are from before 1995.
History of GSM: Global System for Mobile – or Group Special Mobile standard was developed in stages. However, the most stable version was released in 1995. As the website: https://www.electronics-notes.com/articles/history/cellphone-history/gsm-history-groupe-special-mobile.php explains,
Work continued and a launch date for the new GSM system of 1991 was set for an initial launch of a service using the new cellular technology with limited coverage and capability to be followed by a complete roll out of the service in major European cities by 1993 and linking of the areas by 1995.
This means that all patents, whether essential or not pertaining to GSM expired in 2015 having completed their 20 year term.
Similarly, technologies GPRS (General Packet Radio Service) was released in 1997 and EDGE (Enhanced Data rates for Global Evolution) was released in 1998. Hence patents pertaining to GPRS will expire in 2017 and patents relating to EDGE will expire in 2018. See http://www.3gpp.org/technologies/keywords-acronyms/102-gprs-edge
To be clear, the assumption here is that if a complete standard is introduced in year X, all patents that relate to it have to be before X. This is also borne out from the principles of patent law: if the standard is published before the patent’s priority date then it is prior art and the patent cannot be granted.
Consider the impact on royalty payments – whereas no payment should be made out as the patents have expired, unfortunate defendants are bound to deposit into court the percentage based amounts as indicated in the order!
Even though I have discussed the “net selling price” earlier, it is important to highlight the problems: Any percentage is applied to the selling price less 3% discount. In industry parlance, this is a capped discount.
Here the net selling price includes duties, taxes, freight, shipping, insurance, accessories, printing, packaging, etc. These items can never have any relation with a patent. Hence royalty base cannot be the net selling price of an end product.
Disclaimer: I advise several clients as relates to licensing of patents. I am also a member of the Fair Standards Alliance (FSA), a not-for-profit body that advocates fairness in patent licensing.
