Last month, Apple and Nokia announced that they were settling all pending litigation with each other. In a statement available on Apple’s website, Nokia stated, “This is a meaningful agreement between Nokia and Apple,” Maria Varsellona, Chief Legal Officer, Nokia. It moves our relationship with Apple from being adversaries in court to business partners working for the benefit of our customers.”
Apple filed the first complaint against several entities, all of whom had purchased SEPs from Nokia / or were connected to Nokia in some manner, in December 2016. These were: Acacia Research, Cellular Communications Equipment, Saint Lawrence Communications, Conversant Intellectual Property Management, and CORE Wireless Licensing.
Before Apple filed suit in December, there were several actions brought in by Nokia partners against Apple in the United States and elsewhere in Europe. In some of these litigations, damages were awarded against Apple.
Apple alleged that the action was brought in to “remedy a continuing anticompetitive scheme”, where Acacia, Conversant, etc. colluded with Nokia Corporation, to obtain thousands of patents as part of a plan to extract and extort exorbitant revenues unfairly and in an anti-competitive manner from Apple, and ultimately from the consumers of those products.
Apple further stated that it had paid out excessive royalty payments and the costs and burdens of defending against the barrage of patent litigation unleashed by Acacia and Conversant, along with other Patent Assertion Entities.
What Nokia had done was to divide its patent portfolio and sold the parts to Acacia, Conversant, Core, Vringo, Sisvel, etc. Each of these entities charged their SEP portfolio separately and Nokia got an interest (retained rights) from these entities despite having sold the portfolio.
I am summarizing the contention in a table below. The figures are taken from the respective links as indicated, and if not available, assumed:
|
Company
|
Royalty demand pre-fragmentation
|
Royalty Demands post fragmentation
|
|
|
Nokia(1)
|
2% of end device price
|
2% of end device price
|
2%
|
|
Vringo (2)
|
–
|
$2.50
|
(assuming a $200 phone)
1.25%
|
|
Sisvel (3)
|
–
|
€ 0.99
|
(assuming a $200 phone)
0.5%
|
|
Core Wireless (4)
|
–
|
unavailable |
(assuming a $200 phone)
(assuming 0.5%)
|
|
|
|
|
|
|
Total
|
2% of end device price
|
|
3.75% + of end device price
|
1. Eric Stasik, Royalty Rates And Licensing Strategies For Essential Patents On LTE (4G) Telecommunication Standards, Les Nouvelles, Sept. 2010, at 117 n.23, available at http://www.investorvillage.com/uploads/82827/files/LESI-Royalty-Rates.pdf
2. Press Release, Vringo, Vringo to Acquire Over 500 Patents and Applications from Nokia, Aug. 9, 2012, available at: https://www.sec.gov/Archives/edgar/data/1410428/000114420412043832/v320786_ex99-3.htm
and
Vringo, First Quarter 2014 Investor Presentation, at 12, available at: http://www.vringoip.com/documents/FG/vringo/docs/166402_2014Q1_Investor_Presentation.pdf
3. Sisvel, Introduction and Royalty Rate, http://www.sisvel.com/licensing-programs/wireless-communications/lte-lte-a/license-terms
4. Conversant, Core Wireless Licensing, http://www.conversantip.com/patent-category/core-wireless/.
Several questions arise at this stage:
- What exactly is the innovation in fragmention of a portfolio?
- How does the value of a portfolio increase after a portfolio is sold out?
- On what basis does the buyer of a FRAND encumbered portfolio license its patents
This process of fragmentation of portfolio, and retaining future rights is equivalent to privateering. Florian Mueller had done an excellent piece on patent privateering in 2015.
Side note: Ericsson had sold part of its portfolio to Unwired Planet and in my post on Huawei / Unwired Planet, I had remarked that a blind eye was turned to patent privateering. There is no fact checking to ensure that the amount Unwired Planet demanded was in line what was reduced by Ericsson LM.
Post Apple’s filing, Nokia quickly filed law suits in Germany and in the United States against Apple for infringement of its patents. Only preliminary filings were done by both sides, and they settled on May 23, 2017, i.e. less than six months.
Long story short, it is a good thing for Apple and Nokia to settle – however, it leaves open the issue about patent privateering and whether it is anti-competitive.
In India, the CCI can take cognizance of anti-competitive behaviour: The Competition Commission of India (CCI) not only hears and investigates cases based on the information received by it, but it also takes suo moto action wherever it finds that a prima facie violation of Competition Act has been committed.
In this case, the sale is documented – sale of patents from Nokia and Ericsson to the named entities – Acacia, Vringo, Sisvel, Core, and Unwired Planet respectively. The Commission may take suo moto notice, and determine whether these actions have an appreciable adverse effect on competition.
Although patent privateering does seem to be possibly anti-competitive, but I believe that unless and until there is economic evidence pointing towards unfair pricing or exclusionary behaviour (resulting in harm to competition in the market), regulating an entity’s actions vis-a-vis its patents through anti-trust enforcement (that too through suo-moto action) can have a chilling effect on innovation and competition.