Back in December, Motorola was successful in imposing a sales ban in Germany on iPhones and iPads (with the exception of the new iPhone 4S and the wifi-only iPads) for infringing a Motorola-owned GPRS patent.

This patent is deemed essential to the standard for GPRS data transmission, and, as with the 3G standard-essential patent Samsung is asserting against Apple, should have been licensed by Motorola under its FRAND obligations (standard-essential patents must be offered under fair, reasonable and non-discriminatory license terms).

But this didn’t happen, and Motorola went on to assert this patent against Apple in court.

Today, however, the German Court overturned the sales ban which it had imposed on Apple’s products in December. This appears to be due to Apple making a new offer to Motorola to accept a licence to the patent, which implies that up until now, the parties had been unable to agree ‘fair and reasonable’ terms, most likely in relation to the price-tag.

This is an interesting development which, if it turns out to be centered on a failure to agree a price, could mean that the same is true of the Samsung case. And if Apple is found to have been too rigid in its negotiations with Samsung and Motorola, or in the language of competition law, ‘unreasonable’, it could face significant penalties.

According to a Bloomberg report, Samsung says that it is confident it has fully complied with competition law and its licensing obligations, and the Motorola decision  could be good news for Samsung in relation to the EU Commission’s anti-competitive investigation, which we reported earlier this week

Perhaps today’s Motorola ruling is indicative of Apple overstepping the mark?

A stay has been granted until Friday, in which time Apple can appeal the decision, although whether or not it will do so remains to be seen.

Samsung is now hoping that this decision will pave the way for other jurisdictions to follow suit, and that the German courts will also lift the injunction it imposed against Samsung.

This case could have significant influence over the way in which standards-essential patents can be used in the future. OK, Samsung’s bans have been in relation to infringement of less fundamental technology, but the battle has highlighted to the world the dangers of patents being used to block competitors in the market where the patents relate to technology essential to the market as a whole.

The ITC and the EU have both started antitrust probes, with the EU Commission issuing RFIs to both companies last month. The investigation appears to be more of a threat to Samsung, as it is only Samsung asserting standards-essential patents in this instance. However, although there are rumours that Samsung refused to negotiate a licence with Apple before this litigious period began, there is a risk that Apple could also be fined for not taking a licence under FRAND.

Having said all of that, so far Samsung has been unsuccessful in stopping Apple, so whether it can really be said that these patents are being asserted with anticompetitive outcomes is questionable.

We will know more further down the line. Antitrust investigations can take several years, and if the RFIs are still being completed, it is very early days and nothing will be made public at this stage.

Rather than keeping an eye on who does and does not get fined, it will be more interesting to watch the impact this litigation and investigation has on the future of standards-essential patents, FRAND, and patent litigation in the telecommunications market in general.

1. What’s Going On?

We all know what this fight is about in terms of IP infringement, but what is it really all about? Can it really be as simple as two massively successful companies bickering and spending millions (potentially billions?) in legal fees, over products that look similar?

I mean, let’s face it, one could argue that all phones and tablets look the same on some level. If you ask people of my grandparents’ (and parents’) generation, I would bet that the vast majority would not be able to tell one from another. (This obviously does not apply to the most tech savvy of that generation, and this comment does not intend to offend or be ageist in any way…)

But the point is this: why would two companies, both of which rely on the other at some point in their respective supply chains, target one another to such a relentless extent?

It has been reported that Samsung had an informal policy not to sue Apple, but abandoned this approach after Apple launched its first infringement suit against Samsung in April 2011. And it is widely believed that Apple generally takes a non-aggressive approach when it comes to suing others for IP infringement.

All of this leads me to the conclusion that there must be something else going on here. Is this about locking a competitor out of the market (if so, the ITC and EU anti-trust probes are likely to put a stop to this – more later) or does this go deeper?

It has been revealed since Steve Jobs passed away last month that he had sworn to “destroy Android”, aiming his onslaught specifically at HTC; however, perhaps this fight with Samsung has been a back-handed way of causing another Android smartphone manufacturer problems. It would certainly make sense as Samsung was said to have overtaken Apple in smartphone sales earlier this year.

One thing that just doesn’t sit right about this theory, however, is why two companies would spend so much time, effort and money on this. Would the funds not be better invested in technological development?

Apple specifically is renowned for being a retailer; it was one of the most popular online retailers in the UK this year, second only to Amazon. Perhaps part of the image Apple has of being consumer-centric is what lies behind Apple’s determination to stop similar looking products being produced by Samsung?

Having said that, if you go to any online store and browse the variety of tablets, one could argue that they all look really quite similar (at least in respects of the European patent described in the last post)…

2. What effect is this having on IP law and policy?

This situation does nothing to temper those arguments that IP prohibits rather than promotes innovation. Especially now that IP is featuring so much more in the mainstream press; it a shame that such negative connotations are being inferred by battles like this.

Although usually I am in the camp that favours IP and believes that it does further innovation, in this case I would argue that innovation is being hampered: not because of IP, but because of the way IP is being enforced. If Samsung and Apple got around a table, hashed out some cross-licensing deal and invested the rest of the cash reserved for legal expenses into R&D, innovation would be furthered.Instead, they are both pouring the cash into legal representation and court fees and at the same time drawing the attention of the worldwide public (who most likely are thinking that their favourite brands are not living up to expectations), and making IP look like the ugly sisters preventing Cinderella from going to the ball.

It has been said that Apple attempted negotiations with Samsung right at the beginning of this debacle, but that Samsung was not willing to play ball. Whether or not this is true I don’t know, but if it is the case it is not going to look good for Samsung in court, under the FRAND licensing rules.

And it is in relation to FRAND that the ITC and EU anti-trust probes have been instigated. The EU probe was started on their “own initiative”, to look at the way standard-essential patents (as owned by Samsung, not Apple) are being used/abused in this battle.

This could be the defining aspect of this litigation: Apple is already succeeding in obtaining injunctions against the sale of Samsung products, whilst Samsung has so far failed to stop iPhones and iPad sales. The fact that the nub of Samsung’s claims lie in 3G-related patents, the most important of which were declared by Samsung as standard-essential, could be Samsung’s downfall in this case.

By definition, Apple has a right to use these patents in its technology. Samsung has an obligation to license the patents. If I had to put my money on one party ‘winning’ this tussle, I would be backing Apple.

I say ‘winning’ – I’m not sure whether it can be said that either party will be a ‘winner’, but litigation eventually has to go in favour of one party…

3. What’s next?

Only time will tell whether there will be more suits filed in more countries, although my suspicions are that having already filed in the major jurisdictions, the focus now will be on seeing the current lawsuits through to some kind of an end. Whether this is going to be a cross-licensing arrangement or not, it is hard to say, although I think it is going to be hard for Samsung to avoid granting any licences at all.

The outcome of the anti-trust probes is going to be an interesting one to watch. It is also feels as if this case/these cases could be pivotal in the telecoms patent litigation story. Whether this is true or not will only be ascertained after it is over, but what is certain is that the world is watching this one like a hawk. Whatever the outcome, it is going to shape the way the mainstream media view and report on IP in the near future.

For Samsung, it seems, rightly or wrongly, that their smartphone and tablets look too similar to Apple products, which is something that is not too difficult to rectify. For Apple, if they are found to be infringing patents which have been declared standards-essential, they will be relieved to be granted compulsory licences by Samsung, even if only on the instruction of the courts.

For me, it would make much more sense to invest at least some of the money which is earmarked for the lawyers into developing their 4G technologies and moving forward from this.

As comfort to Apple, I am not convinced that it matters too much if other products look like Apple products: there is always a loyal following queueing up outside Apple’s stores the night before a new product release. How many others can say that? I know that Samsung can’t. And these people (and others that are perhaps less crazy, but still fans of Apple products) will select Apple again and again, even if there is a product on the market, similar in look and feel, that costs half the price.

And no matter how hard Samsung or others try, that kind of thing just cannot be copied.

That alone generates a familiarity that makes someone like me feel like I knew him well even though I have only heard about him anecdotally. Like he’s a good friend, an influence, a coach or mentor.

Some of the best people I’ve met, those that leave the deepest mark, seem to have that ability to make even a group and anonymous experience feel deeply personal. The amazing Emily Bell, a yoga teacher at Studio 42 in Reading has it. I saw Tony Bennett at the Palladium on Monday. At 85 he can’t quite complete his 360 degree spins any more but his talent and modesty made it intensely personal. He has it.

And Steve had it, in fact has it. His legacy is an organisation that has rewritten the rules so many times, but done it the right way, that every time I walk into an Apple store it feels like Steve’s personality is all over every iPhone, iPad, i everything that I trust to purchase from people who make shopping a semi-erotic experience.

Unlimited respect Steve. Like Emily and Tony, you touched my soul and make me aspire to be better.

http://www.guardian.co.uk/technology/2011/aug/26/apple-wins-ban-samsung-galaxy

Without trying to judge the IP rights and wrongs of this spat, I try to explain it in laymans terms along these lines, remembering that Samsung is a major and important supplier to Apple so this litigation series should only have been taken after a lot of considered thought and senior level approval inside Apple. In fact, imagine the management team level debate between Jobs, the creator, and Cook, the operations and supply chain guru. The chairman opens the discussion.

“so, we have this paper from group legal to start worldwide patent infringement proceedings against Samsung. Steve, your thoughts?”

“for me it’s simple” says Jobs…”the iPad was conceived at the same time as the iPhone in 2003. We were the first since Microsoft with its original tablet to conceive of the tablet being the next big thing. Design put 25000 man days into creating an awesome user experience. We protected what we thought were the original and unique design features. This wasn’t easy with what had come before but we filed two dozen patent applications. This was a new baby we’d created. Samsung and others are jumping on our success. If we don’t enforce our rights, what’s the point in having them? Yes I realise that Samsung is a key supplier but I would have expected more from them. We are a key customer too. If we have a corporate fall out so be it. If we don’t take that risk then every time we change the rules of the game, we will lose respect from the market. So the proposal has my support…”

Chairman..”Tim?”

“this is not as simple to me. I respect Steve’s views but I fear that we will suffer at a corporate level in Samsung. They’re a key A list supplier. They are replaceable but not easily. So although I support it, I want to proceed with caution. I want to call our contacts on the chip supply side to explain our position and to ask for their support. I also think we should be very aware of our end game here. We should get Samsung to take a license and we should be prepared to grant one. Let’s leave lots of room to negotiate. There’s too much at stake otherwise..”

Chair..”I think we have a decision team. It’s a go but with caution…”

I hadn’t thought about it until I started typing but imagine a Tim Cook led discussion. Same outcome? Maybe not.

The Guardian also has an excellent profile of Steve Jobs this morning. I know I can’t hide it but I’m a big admirer. Even moreso when reading about how grizzly and determined he can be to get his way. I’m not sure that this week’s step down as CEO is as big a thing as the markets suggest. Stepping down as CEO doesn’t mean he’s out altogether. Expect him to still be influencing Apple’s direction for a long time and it’s corporate values and principles longer still.

http://www.bbc.co.uk/news/mobile/technology-14682700

Google’s “not our problem” stance is wearing a lot thin. Key question… What is Google’s purpose in promoting Android? Answer, just like everything Google does, to drive ad revenues. Implication, Google makes tons of indirect revenues from Android usage and adoption. Rational and honest response from Google..how can we help. Current response…not our problem, whether you are HTC or a small app developer, not we repeat, not, our problem. Yes maybe we should have told you this might happen, but this is buyer beware territory and we are not getting involved. It’s not our fault, it’s those nasty big corporates and illegitimate trolls using their IP rights to beat up poor innocent Google.

Ultimate end game. Somebody somewhere is going to see through Google’s stance and shout not fair. Google beware, we think you are treading a very fine line.

Ps for those not familiar, there is no such thing as half pregnant. You are or you’re not.

I like the Guardian Online and this piece on Google’s acquisition of Motorola Mobility caught my eye today.

I added a comment as follows, the context being that the poor journalist was getting panned in the comments section for not investigating his story carefully enough.

Maybe there is room for more activity in this sector. Google has made a large move this week in raising the game stakes. It does feel like MSFT’s turn, don’t you think.

Nokia or RIM? I might buy stock in both. Nokia has a great IP history, as a product company it my be suffering but as an IP play, if MM is worth $12.5bn, what price the Nokia portfolio, and people? RIM did buy the Philips 3G eIPR and related patents. Another good target surely. The world is changing fast, and for all the right reasons.

I’ll come back to the financial reporting of this when back from my break. For now I wanted to focus on one item that should be expected to be part of Google’s thinking in making the acquisition, but if you’re reading this Mr Page, make sure you double check.

The FT and many other articles state that around $6bn of the purchase price is attributable to patents. The figures are arrived at, it sems, be trying to calculate the value of Motorola’s loss making MM business and then using the premium to justify the positive impact on Google’s patent assets. Seems sensible so far.

But one glitch that Google should be factoring in, and if you’re a shareholder of Google, you should feel justified to ask, is the extent to which the MM patent assets are already subject to cross licenses, that is very private and never publicied licenses that bite on the patents and will continue to do so in Google’s ownership. Licenses to and with third parties (for example MSFT) that will or at least could limit the portfolio’s ability to renegotiate and initiate negotiations of licenses that Google will anticipate are possible as a key assumption in making the acquisition.

The sheer size of this purchase, with the price representing over 35% of Google’s cash reserves (WOW!!) shows the stakes of the high poker game are being raised and re-raised between the smartphone players. Google quite clearly needs the heavily ad-friendly Android to be at least a good size of the market to meet its strategic aims. In MM it seems that they’ve seen something worth a large gamble.

Do your diligence very carefully Google. That is a very large chip you’ve laid down and to make it worthwhile you’ll need to review all of the cross licenses to which the portfolio is subject. Don’t miss those quirky clauses that allow fellow cross licensees to select a to be specified and identified 5-10 other patents that can be nominated as part of the license. And also make sure you understand FRAND principles really well.

All in all I’m not convinced for now that this will 100% go ahead. Diligence may just throw up one negative assumption too many.

In all the melee, very few comments so far on Google’s transition in part to being a hardware player. From search to hardware, there is a story there in and of itself.  Expect, and I stronglypredict, that Nokia will be the next to fall, to MSFT. Expect the announcement very soon.

In this series of posts we wanted to give the ipVA perspective of what is an effective IP strategy?

To back up these posts we are going to post a white paper on the ipVA main site at the end of the series. This explains in fuller terms the ipVA viewpoint of key questions in this area, including one fundamental that we really should begin with—what exactly or even roughly is IP?

A community apart

In and of itself the IP community cannot seem to agree on this quite simple question. Some call IP terms that seem sensible when understood but by being proprietary, lack universal appeal and therefore adoption. Suffice to say, Intellectual Assets (IA), IP assets, intellectual capital (IC) and other such terms are designed to mean some or a part of the mix. But this small community does itself a disservice by failing to adopt a common definition.  

The compelling Craig Opperman (yes he does look like my older brother) has, to my mind, given the best explanation of why this is the case in one of my favourite expressions. I’m not sure whether this emanates from Craig’s native South Africa but this does seem to fit:

“If all you have is a hammer, all your problems look like nails”.  

So when your patent attorney says he is an IP strategist, he probably isn’t. He may be a very good patent attorney, maybe even a patent strategist if you’re really lucky, but that doesn’t mean he is an IP strategist. Surely that’s obvious isn’t it? Equally your IP lawyer (sorry USA, in Europe we have split professions between patent attorneys and commercial lawyers) are likely to be very good, if not excellent, at contractual IP law but won’t cover patents, at least not in Europe. Do I need to go on—trade mark attorneys cover trade mark filings and maybe trade mark strategy (but not somewhat confusingly brand strategy, though brand strategists will pretend to be able to manage trade mark strategies), knowledge management experts cover…I’ll stop should I? You get the general idea.

The true definition-in our bold but humble view

In ipVA we have gone as wide as we dared in defining IP. To us, IP is a colloquial term that means all of the business assets that are not tangible. Below I’ll explain why without I hope giving away too much of our own IP in the process. Why we adopted this came from looking at over 200 companies from our project experience. We came to realise that without the widest perspective, very important bits were missed out of the equation and from the responsibilities of what needs to be managed by a smartly managed IP company with a Chief IP Officer or Head of IP. At least if we pitch into a company on a project to build an IP strategy, the average CEO or fund client will put us into a box believing that we want to manage one of three things, Intellectual Property, Insolvency Practitioners or Internet Protocol. Ask for a meeting to help him/her to manage the business Intangible Assets or IC and I’ll guarantee from experience that the meeting, if obtained, will be very short.

In our perspective therefore IP means all of a business’ intangibles. To repeat it means all of a business’ intangibles.

I can’t remember where I was when I heard Jon Dudas, at that time Under Secretary of Commerce for IP and Director of the USPTO (and somewhat similar in looks to a pre body building Arnie) come out with this belter:

“IP represents 75% of the value of the S&P500”.

At the time having heard Ocean Tomo spin that self-serving line for a couple of years I thought to myself, that can’t be right can it? And after reflection I thought it might be better expressed so:

“Of the total value of the S&P 500, and indeed of any company or index nowadays, most of the value is represented by assets which are not tangible”.

A bit less sexy and reduced marketing spin (well this was I’m sure an Ocean Tomo event and those boys knew how to serve up very good champagne) but more accurate I’m sure.

The wider definition of IP

585 words into this post I hope that you’re still with me. All of the above is meant to explain that IP really means all of a business intangibles.

Which then begs the question of what are intangibles.  Now that is a good question. In our view, there are three parts to intangibles:

• Humans—individually and collectively. These things are the creative spirit in a company.
• Intellectual assets—the five formal IPRs which in and of themselves allow choice as to what to protect and how, formally, sometimes by registration and sometimes only by agreeing with each other not to tell somebody something.
• Relationships—the external manifestation of intellectual assets, in the form of corporate and consumer relationships both individually and in groups.

You’ll have to wait for the white paper to see the detail. This has taken us several years to perfect so it doesn’t come free of charge.

Why is this important as a distinction, and why you should avoid the hammer-only sellers?

On a strategy assignment in 2010, the head of R&D of a client which has been a major patent filer asked an excellent question, posing this scenario—I quote:

“I’d like to run a scenario where the business has no patents—what difference would it make?”

That question took a good 24 hours to think through. It is a very good question isn’t it? After all, patents done well take an awful lot of management and people time and effort, and no small amount of cost. And, the smartphone and other inter-galactic wars aside, do they really make that much difference?

The answer we came out with was something along these lines:

“ intangibles are a soupy mix of a lot of fuzzy assets*, all of which together make up a measure of competitive advantage or sustainability. At some point in the future someone may be able to formulate the relative value of each category for each company, but for now removing one probably important ingredient has an unknown impact on the overall taste of the soup. Better express it the other way round, if patent processes and patents are perfected, are there ways in which these  can be used to add to competitive advantage?”

*soupy mix and fuzzy assets are words and word combinations all of my own, I did sense Rob squirming at the hearing of them but, language difference aside, I think they convey the right message.

So beware your average hammer seller. He may well only have one tool whereas your machine may need someone with many more tools to build you a perfect IP machine. Somewhat cynically, watch in particular for the patent hammer seller—this is a very honourable profession but by definition the patent hammer seller only makes money if you file patents, and then take those patents to remote geographies. You may need one of these, and very good ones are hard to come by, but our advice is to be well informed yourself. Know what you want and what you need, as with all professional advisers, including IP strategists like us.

But I digress. Can’t help myself. I could and do regularly bore poor housewives at dinner parties about this.

To finish therefore on question 1, let’s summarise:

• IP is best treated as a colloquial term,
• In its true definition, it should be viewed as meaning all of a business’ intangible assets,
• All of these assets can be managed, and should be managed, indeed they are secretly managed by all of the best companies,
• If managed for competitive advantage, that is heading towards the direction of strategy.
• For which you will need an advanced hammer supplier, preferably with a multi-tooled toolbox.
• And these I’ll assure you are in very short supply worldwide.

And the quicker the business world moves to understanding this, the better for all of us.

In part 2 we will move on to defining the second question—what is strategy and what are the components of IP strategy and tactics that should be considered in your strategy discussion.