Standard essential patent

  [Editor’s Note] Although patent standardization can promote innovation, improve efficiency, reduce consumers’ adaptation costs and eliminate international trade barriers, it also greatly enhances the position of standardization organization participants in patent licensing negotiations, leading them to demand unfair, unreasonable and discriminatory patent licensing fees from standard users, namely patent licensees. Therefore, the patent system needs to fully consider the connection with the standard, and further improve the patent system related to the standard, especially the patent licensing fee system. This paper analyzes the system related to the standard-related essential patent in combination with the legal application of the US court and the China court in the cases of Microsoft v. Motorola and Huawei v. American Interactive Digital Company respectively.

  I. Introduction

  There is no unified and clear definition of Standards-Essential Patents, SEP) [1]. We believe that if the implementation of technical standards must be based on infringement of patent rights, even if there are other technologies that can be included in the standards, the patent is a necessary patent for relevant technical standards. Standard refers to a normative document that is formulated by consensus and approved by recognized institutions, used together and reused in order to obtain the best order in a certain range [2]. Although patent standardization can promote innovation, improve efficiency, reduce consumers’ adaptation costs and eliminate international trade barriers, it also greatly enhances the position of standardization organization participants in patent licensing negotiations, leading them to demand unfair, unreasonable and discriminatory patent licensing fees from standard users, namely patent licensees.

  In order to seek a balance between technical standardization for public use and patent protection, ISO in its relevant intellectual property policies not only requires standard participants to disclose the patents they own or actually control to ISO in time, but also requires them to promise to license all standard implementers to use their patents on fair, reasonable and non-discriminatory terms. This is the "FRAND" principle that the patentee of standard essential patent must abide by in the licensing of standard essential patent.

  Take the European Telecommunication Standard Institute (ETSI) as an example, the 4th.1 of its intellectual property policy stipulates: "During the development of the standards or technical regulations in which it participates, every member shall make reasonable efforts to inform ETSI of its necessary intellectual property rights in time. In particular, members who put forward technical suggestions for standards or technical specifications should draw ETSI’s attention in good faith to any intellectual property rights that may become necessary if their suggestions are adopted. " ETSI’s intellectual property policy 6.1 further stipulates: "If the necessary intellectual property rights related to a specific standard or technical specification have attracted ETSI’s attention, ETSI’s director-general shall immediately require the necessary intellectual property owner to make a written commitment within three months, and at least within the following scope, it is ready to grant an irrevocable use license under fair, reasonable and non-discriminatory conditions; Manufacturing, non-manufacturing or OEM are used to manufacture customized components or subsystems that meet the licensee’s own design standards; Sell, lease or otherwise dispose of the equipment manufactured in the above manner; Maintenance, use or operation of the above equipment; How to use it. "

  However, the standardization organization has not made any provisions or expressed any opinions on how to judge the necessary patent license fee of FRAND standard, which leads to difficulties. In April, 2013 and October, 2013, the US court and the China court respectively expressed their opinions on how to judge the FRAND standard essential patent license fee in the cases of Microsoft v. Motorola and Huawei v. American Interactive Digital Company. However, due to the differences in the cultural background and legal accumulation of the judges of the two countries, the judgments of the two countries have their own characteristics and show great differences. [3] Based on the judgments of the above two cases, this paper makes a comparative study on several issues related to the calculation of essential patent royalties of FRAND standard, and draws some possible beneficial conclusions on this basis.

  Second, the FRAND standard essential patent related system policy considerations

  In the case of Huawei v. Interactive Digital Corporation of America, in order to evaluate the standard necessary patent license fees in line with the FRAND principle, the courts of first and second instance mainly considered the following three policy factors: total control, anti-patent hijacking and anti-patent license fee stacking. The first is total control, which means that the license fee of standard essential patent cannot exceed a certain proportion of the product profit of standard essential patent users. The courts of first and second instance of Huawei case held that technology, investment, management and labor jointly created product profits, and patented technology only created one factor of product profits. Therefore, the license fee required by the patentee should not exceed the total profit of users’ products in any case, otherwise, the license fee cannot be considered as conforming to the FRAND principle. The second is anti-patent hijacking. Patent hijacking refers to the ability of the patentee to claim more than the value of the patented technology itself and the ability to try to grab the value of the technical standard or regulation itself. In the judgment of Huawei v. American Interactive Digital Company, the courts of first instance and second instance did not explicitly use the concept of "anti-patent hijacking", but both courts held that the patentee of standard necessity should not profit from the standard itself, and its contribution lies in innovative technology rather than the standardization of its patent. That is to say, the two courts actually think that the necessary patent license fee should prevent the occurrence of patent hijacking. The third is Anti-Royalty Stacking.Stacking of patent license fees refers to the phenomenon that the licensee pays many different standard essential patentees over the license fees for one standard. Huawei’s courts of first and second instance both hold that a standard or technical specification contains many standard essential patents, and any standard essential patentee can only get the license fee due to him.

  Different from the judgment of Huawei v. American Interactive Digital Company, the judge of Microsoft v. Motorola clearly used the concepts of anti-patent hijacking and anti-patent license fee stacking in addition to the above three policies, and also considered the following two policy factors. First, the necessary patent licensing fees of FRAND standards should be maintained at a level that can promote the wide adoption of standards, which is also the main purpose of ISO [4]. Second, the method of determining the necessary patent license fee of FRAND standard should ensure that valuable patents can get reasonable royalties in order to establish truly valuable standards, which is also one of the goals of ISO [5].

  Comparatively speaking, the judge in the case of Microsoft v. Motorola has considered the policy factors involved in the calculation of FRAND standard essential patent license fees more comprehensively, which is conducive to better balancing the interests of standard essential patentees, standard users and social public interests. In this regard, as stated in the judgment of Microsoft case, if the standard essential patent license fee is too high, although not using ISO standards may mean huge market entry barriers for market participants, if the standard essential patent license fee is higher than the cost for market participants to overcome market entry barriers, market participants will choose not to adopt ISO standards, which is very unfavorable for the popularization and application of standards. On the other hand, the creation of valuable standards is of great benefit to the whole society, but valuable standards depend on valuable technology. After the valuable technology is included in the standard, the patentee will lose the basic incentive to participate in the standardization organization if he can’t get reasonable and sufficient royalties, or even get less royalties than before being included in the standard. Of course, there are many necessary patents in a standard, but the technical content and contribution rate of each patent cannot be completely consistent. How to ensure that patents with more technical content and greater contribution to the standard get more royalties is also a problem that FRAND principle must consider. It is a great pity that the policy considerations in the first and second judgments of Huawei v. American Interactive Digital Company failed to involve the above two extremely important factors.

  Most importantly, when determining the necessary patent license fee of FRAND standard, the first-instance and second-instance judgments of Huawei v. American Interactive Digital Company considered the above three policy factors, but they were limited to general analysis, and this general analysis was not further applied to the specific analysis of the case. For example, the judgments in the first and second instance of Huawei case did not examine how many standard essential patents existed in WCDMA, CDMA2000, TD-SCDMA and other standards involved, how many of these standard essential patents belonged to China standard essential patents, how many of these standard essential patents belonged to American Interactive Digital Company, and what specific standards were involved in the China standard essential patents of Interactive Digital Company. The judgments in the first and second instance of Huawei case also failed to examine the contribution of China standard essential patents of American Interactive Digital Company to relevant specific standards, which products of Huawei used these China standard essential patents of American Interactive Digital Company, and what contribution these standard essential patents of American Interactive Digital Company made to Huawei products. Although it is difficult to investigate and analyze these factors, the courts of first and second instance of Huawei case have to face them because these factors are closely related to whether the patent license fee demanded by American Interactive Digital Company constitutes patent hijacking and patent royalty stacking.

  Different from Huawei’s first-instance and second-instance judgments, Microsoft’s judgment solved the above problems as much as possible despite great difficulties. The Microsoft case first determined that Motorola had the necessary patents in H.264 and 802.11 standards. In order to establish the necessary patent license fee of FRAND standard related to H.264 standard, the Microsoft case first analyzes the development background and technical context of H.264 standard, including the development time of the standard, the technical characteristics and level of the standard itself, patents related to the standard, and Motorola’s contribution in the development and establishment of the standard. Secondly, the contribution of Motorola patent to H.264 standard is analyzed. The Microsoft case first identified six patent families that Motorola is necessary for H.264 standard, and then analyzed the contribution of each patent family to H.264 in detail. Thirdly, the Microsoft case judgment analyzes the contribution of Motorola patents to Microsoft products. The Microsoft case first determines that Microsoft’s products using H.264 include Windows, Xbox, Silverlight, Zune, Lync and Skype, and then reviews the contribution of each patent family of Motorola to each of the above products.

  In order to establish the license fee of FRAND standard essential patents related to the 802.11 standard, the Microsoft case first examines the development history of the standard, and then reviews the relative technical value of different parts of the 802.11 standard, covering the number of all patents of the 802.11 standard, the number of Motorola patents in the 802.11 standard, the number (11) of Microsoft’s use of Motorola 802.11 standard essential patents and products, and the impact of Motorola’s 11 standard essential patents on 8001.

  Third, the economic analysis of FRAND standard essential patent related system

  Next, the specific method of calculating the standard necessary patent license fee is analyzed. In the case of Huawei v. Interactive Digital Corporation of America, neither Huawei as plaintiff nor Interactive Digital Corporation of America as defendant put forward a specific method to calculate the standard and necessary patent license fee in accordance with the FRAND principle. The calculation method adopted in the judgments of first instance and second instance is the comparison method. The so-called comparison method, according to the understanding of the court of second instance of Huawei case, means that the standard essential patent holder should charge the standard essential patent implementer basically the same license fee or adopt basically the same license fee under the condition of basically the same transaction conditions. Under basically the same trading conditions, if the standard essential patentee gives a licensee a lower license fee and gives another licensee a higher license fee, by comparison, the latter has reason to think that it has been discriminated against, so the standard essential patentee violates the promise of non-discriminatory use license. In order to carry out the above comparison method, the first and second judgments of Huawei case selected the standard essential patent license fee granted by American Interactive Digital Company to Apple as the reference object, and therefore determined that the standard essential patent license fee granted by American Interactive Digital Company to Huawei should be roughly the same as that granted to Apple.

  The so-called choice of the standard necessary patent license fee given by Interactive Digital Company to Apple in the first and second judgments of Huawei case is mainly based on the following two aspects of evidence: First, a statistical and analytical report by the world-renowned analysis company STRATEGY ANALYTICS Inc In this report, STRATEGY ANALYTICS Inc counts and analyzes the shipments, market share, net sales and operating income of several famous global mobile phone providers from 2007 to 2012. Nokia, Samsung, Apple, LG Electronics, RIM, Motorola, HTC and Sony are all on its analysis list, but Huawei is not on its analysis list. According to the analysis report and forecast, Apple’s sales from 2007 to 2012 were about $300 billion, and Samsung’s net sales were about $209.751 billion. Second, in the third quarter of 2007, Interactive Digital signed a global, non-transferable, non-exclusive patent licensing agreement with a fixed license fee with a license period of seven years from June 29th, 2007. The licensed patent portfolio covers the then IPHONE and some future mobile phone technologies. In 2009, Interactive Digital signed a patent licensing agreement with Samsung and its subsidiaries.Grant Samsung a non-exclusive fixed patent license fee for terminal equipment and infrastructure under 2G and 3G standards worldwide, with the license period ending in 2012. However, the difference between the licensing agreement signed by American Interactive Digital Company and Samsung Company and the licensing agreement signed with Apple Company is that the former is a voluntary licensing agreement reached through equal consultation, while the latter is a licensing agreement that Samsung Company was forced to sign when American Interactive Digital Company filed a lawsuit. The meaning of the first-instance and second-instance judgments in Huawei case is very obvious. That is to say, the license granted by American Interactive Digital Company to Apple is voluntary, so it conforms to the FRAND principle, while the license granted to Samsung is very likely involuntary, so it does not conform to the FRAND principle. Therefore, the license fee of the former can only be used as a reference for the calculation of the necessary patent license fee of the FRAND standard in this case.

  Although the comparison method is a simple and easy method, it is very necessary to list all the elements of the compared object as much as possible in order to obtain a more reliable comparison conclusion. It is a great pity that although the judgments of the first and second instance of Huawei case put forward the premise of "roughly the same trading conditions", they did not tell people what the "trading conditions" referred to here are and what the "trading conditions are the same" referred to here from the perspectives of evidence and legal reasons. By comparison, the court finally determined that American Interactive Digital Company should pay Huawei the China standard necessary patent license fee. The only possible evidence is that from 2007 to 2012, Apple’s net sales exceeded Huawei’s net sales of mobile phones. However, even so, the standard necessary patent license fee that American Interactive Digital Company hopes to obtain from Huawei in its last offer is calculated according to the sales of Huawei’s final mobile phone products, and the term is from 2009 to 2016. In this way, in order to make a scientific comparison, the courts of first and second instance of Huawei case should at least investigate and estimate Huawei’s net sales from 2009 to 2016, or the net sales from 2007 to 2012 in the same period as Apple. Regrettably, the judgments in the first and second instance of Huawei case did not touch on this issue. Under the condition that the minor premise of comparison and reasoning has not been solved, it is debatable whether the comparison conclusion is scientific or not. Besides,When the courts of first and second instance of Huawei case used the standard necessary patent license fee given to Apple by American Interactive Digital Company as a reference, they did not examine whether the license fee was in line with the core value pursued by FRAND, that is, to promote the entry of valuable technologies and the standard itself was widely adopted. If the answer is no, whether the judgment conclusion obtained by comparison can stand is also a question worthy of further consideration.

  In the case of Microsoft v Motorola, Microsoft, as plaintiff, and Motorola, as defendant, respectively put forward their own methods to calculate the necessary patent license fee of FRAND standard. The method proposed by Microsoft is "Incremental value approach". This method pays attention to the situation before the standard is adopted and implemented. The specific operation method is: in order to calculate the economic value of the patented technology included in the standard, we can compare other alternative technologies that can be included in the standard and calculate the specific value of the alternative technology, so as to obtain the value of the patented technology necessary for the standard. The Microsoft case court did not adopt this method proposed by Microsoft. The reason of the court is that this method is not practical. Even so, the Microsoft case court still held that the FRAND royalty must evaluate the value of the patented technology itself, which needs to consider the importance and contribution of the patent to the standard, so comparing the value of the patented technology with the alternative technology that can be included in the standard by the standardization organization can be used as a reference when determining the FRAND royalty. The method proposed by Motorola is a hypothetical bilateral negotiation method. Motorola claims that the authorization conditions of FRAND can be determined by simulating hypothetical bilateral negotiation under the obligation of FRAND authorization.

  In principle, the Microsoft case adopts the hypothetical bilateral negotiation method, but it has been revised. The reason why the judgment in Microsoft case supports this method is mainly based on the following reasons: the hypothetical negotiation method is supported by authorized negotiation in the real world, and previous courts have made judgments by using this method. In the case of Georgia-Pacific Corp. V. United States Plywood Corp., (318 F. Supp. 1116 (1970)), the court simulated hypothetical bilateral negotiations to determine reasonable royalties through 15 analytical factors, and gained rich experience. When the court simulates a hypothetical bilateral agreement under the obligation of FRAND authorization, it should logically come to the standard necessary patent royalties that both parties consider to be FRAND.

  However, the Microsoft case judgment did not simply copy the 15-factor analysis method proposed by Georgia-Pacifico judgment. The reasons include: First, the standard necessary patentee must grant the patent under the FRAND authorization conditions, while the patentee who has not assumed the same obligation has complete exclusive rights and can choose not to grant the patent. Second, hypothetical negotiation will hardly take place in a vacuum, and standard users will inevitably realize that there are many different essential patentees and their standard essential patents in the standard. Just because they are authorized by a single standard essential patentee does not mean that the standard can be implemented. On the basis of criticizing and absorbing the above two methods put forward by the original defendant, and on the basis of Georgia-Pacific15 analysis factors, the Microsoft case judgment puts forward a revised hypothetical negotiation method. At the same time, on the issue of patent hijacking, the negotiating parties will investigate the reasonable royalty ratio of FRAND authorization commitment according to the contribution of patent technology to standard technical capability and the contribution of standard technical capability to standard users and products using standards. In this way, an essential patent that is extremely important and key to the standard can reasonably require a higher royalty ratio than a less important essential patent. As for the stack of patent fees, the negotiating parties will consider the existence of other standard essential patentees, and each standard essential patentee will claim the patent fee according to the importance of its patent to the standard and the product of the standard implementer, and reach the royalty ratio on this basis. Finally,Under the condition of FRAND commitment, the rational negotiation parties seeking a reasonable royalty ratio will consider the fact that in order to promote the creation of valuable standards, FRAND authorization commitment must ensure that the owner of valuable intellectual property rights obtains a reasonable royalty for the intellectual property rights. Comparatively speaking, Huawei’s judgment basically failed to consider the above analysis factors because it used a relatively simple comparison method, and the rationality of its judgment should be said to have room for further improvement.

  Four, the FRAND standard necessary patent license fee calculation.

  So, how exactly to calculate the necessary patent license fee of FRAND standard? As mentioned above, the judgment of Huawei case simply obtained the necessary patent license fee of FRAND China standard that American Interactive Digital Company can claim from Huawei by comparison method, and did not see the specific calculation process and the logical process in the calculation process, so there is not much to be discussed in depth. Based on the judgment of Microsoft case, this part analyzes the specific calculation of the necessary patent license fee of FRAND standard.

  During the trial of Microsoft case, both Microsoft and Motorola put forward their own calculation methods that can be used as the ratio comparison of FRAND royalties. The calculation method put forward by Motorola is that 2.25% of the net sales price of Microsoft’s products with Motorola’s standard essential patents, Windows and Xbox, should be used as the royalty ratio of Microsoft’s authorization to use the patent portfolio with H.264 and 802.11 standards. In order to support its claim, Motorola cited one of the above analysis factors in Georgia-Pacific case, and put forward three sets of existing patent licensing agreements as established royalties for reference. However, the judgment of Microsoft case did not adopt the comparison method proposed by Motorola, and thought that the authorization agreement proposed by Motorola had no reference value for the FRAND royalty ratio of this case. The reason is that the license agreement proposed by Motorola is a litigation settlement agreement, and the actual royalty paid in some license agreements is far less than the amount requested in this case. The value proportion of standard essential patents in some license agreements cannot be distinguished, and the standard essential patents involved in some license agreements have passed the protection period. At the same time, the Microsoft judgment holds that even if Motorola’s above-mentioned royalty ratio for calculating its standard essential patents is correct, Motorola’s royalty required for its 802.11 standard essential patent portfolio will obviously cause concern about royalty stacking. Accordingly, the Microsoft case decided that,Motorola’s 2.25% royalty rate related to H.264 and 802.11 standards does not conform to the FRAND principle.

  The comparison objects proposed by Microsoft include the practical operation methods of two patent pools, one is MPEG LA H.264 patent pool, and the other is Via Licensing 802.11 patent pool, as well as an authorization agreement and a patent authorization evaluation suggestion. Regarding whether the patent pool of MPEG LA H.264 can be used as a reference for the necessary patent royalty ratio of the FRAND standard in this case, the Microsoft judgment gave a positive answer. The reason for the decision in Microsoft case is that FRAND royalties should be in line with the purpose of promoting the widespread adoption of SSOs standards and attracting a wide range of patentees to put their patents into the patent pool, and MPEG LA H.264 patent pool can just achieve the purpose of SSOs. The evidence in this case shows that, on the one hand, when Microsoft, Motorola and other enterprises created the patent pool of MPEG LA H.264, the royalty ratio set was high enough to attract a considerable number of patentees to put their patents into the patent pool; on the other hand, the royalty ratio set was low enough to ensure that enough standard users were willing to use the patented technology in the H.264 standard instead of alternative technology. This approach coincides with the basic principles of FRAND’s authorization commitment. In addition, the patent pool of MPEG LA H.264 also echoes another basic principle of FRAND’s authorization commitment, that is, to create valuable standard technologies.

  Then, how did the Microsoft case judge calculate the necessary patent fees of FRAND standard related to H.264 standard that Motorola should obtain? According to the Microsoft case, Motorola’s royalty from the patent pool of MPEG LA H.264 includes two parts. Part of it is the appropriate royalty that should be allocated according to the number of patents from the royalties obtained from the patent pool as a member of the patent pool. The other part is the value of Motorola’s unrestricted access to a large number of technologies contained in the patent pool, that is, the royalties that should be obtained from the unrestricted internal cross-licensing of patent pool members, or the identity value of Motorola as a member of the patent pool. Regarding the former part of the royalties, the Microsoft case decided that according to the total amount of royalties obtained from the external license of the MPEG LA H.264 patent pool and the number of standard necessary patents of Motorola in the patent pool, the royalties that Motorola should receive were 0.185 cents for each product of Microsoft. Regarding the latter part of the royalties, that is, the identity value of Motorola as a member of the patent pool of MPEG LA H.264, the only relevant evidence in this case is that after Microsoft joined the patent pool of MPEG LA H.264, the fees paid to the patent pool were twice as much as the royalties obtained from the patent pool, which shows that the reason why Microsoft joined the patent pool is that it pays more attention to its identity as a member of the patent pool than the royalties that can be obtained from the patent pool. Because of this identity,Microsoft can clear all the obstacles of rights and use the patented technology in the patent pool without restriction. In other words, Microsoft believes that the membership of the patent pool of MPEG LA H.264 is at least equivalent to twice the value of its royalties. On this basis, the judgment in the Microsoft case presumes that, in the absence of other obvious evidence, like Microsoft, Google, the parent company of Motorola, also thinks that its membership in the MPEG LA H.264 patent pool is equivalent to providing it with twice the value of the royalties it should get as a licensor. The judgment in the Microsoft case further infers that the sum of the two royalties (0.185+2×0.185) is 0.555 cents, which is the FRAND royalty that Motorola should get from Microsoft for every product that uses Motorola’s standard essential patent. However, this is only the lower limit of FRAND royalty ratio of Motorola’s H.264 standard essential patent portfolio. According to the Microsoft case, in order to prevent the stack of royalties, the upper limit of FRAND royalties must also be calculated. On the basis of comprehensive analysis of all kinds of evidence, the upper limit of Motorola H.264 standard essential patent portfolio rights calculated by Microsoft case is $0.16389 per single product, which is applicable to Microsoft’s Windows and Xbox products.

  With regard to the patent pool of Via Licensing 802.11, although the judgment in Microsoft case noted that it, like the patent pool of MPEG LA H.264, did not distinguish the technical value of patents in the patent pool, but distributed the royalties equally, which led to its failure to attract patentees and standard implementers, and failed to encourage the wide adoption of the standard of Via Licensing 802.11, because of its certain characteristics, the judgment in Microsoft case held that it could still be used as a reference for FRAND royalty ratio. For example, the patent pool of Via Licensing 802.11 mainly focuses on specific standards and covers the same products with the same end use as the disputed products in this case. In addition, the evidence shows that although the actual operation of the patent pool failed to achieve the purpose of promoting the wide adoption of standards, its establishment still followed this purpose, so the royalty ratio it established can still be used to show what kind of royalty ratio is in line with the FRAND principle in specific industrial activities. On this basis, the Microsoft case decided that the patent pool of Via Licensing 802.11 can be used as a reference for the FRAND royalties of Motorola’s 802.11 standard essential patent portfolio. Based on the same reasoning as the H.264 patent pool, the Microsoft case decided that if Motorola participates in the Via Licensing 802.11 patent pool, it can obtain other value equivalent to twice the royalties collected through the patent pool.

  The judgment of Microsoft case holds that the parties to hypothetical negotiation will regard the patent pool of Via Licensing 802.11 as a reference for the necessary patent royalties of the 802.11 standard, and determine the FRAND royalties on this basis. In the Microsoft case, Motorola’s 802.11 standard essential patent has only a small technical value to the 802.11 standard, so in their hypothetical negotiation, Microsoft and Motorola will think that the royalty ratio of 6.114 cents per single product estimated according to the patent pool practice will be higher than the FRAND royalty ratio that Motorola’s 802.11 standard essential patent portfolio should receive.

  During the trial, Microsoft proposed that the royalty rate paid by Marvell Semiconductor,Inc, a third-party company, for its patents in Wi-Fi chip products could be used as a reference for the FRAND royalty rate of the 802.11 standard essential patents in this case. The judgment of Microsoft case holds that the royalty ratio of the third-party company provides "the usual royalty ratio that can be obtained in a specific commercial field" for this case. Therefore, it is held that 1% of the price of each single chip implementing the 802.11 standard, that is, 3 to 4 cents per single chip, can be used as a reference for the royalty ratio of Motorola’s 802.11 standard essential patent portfolio.

  The third reference to the FRAND royalty ratio of Motorola’s 802.11 standard essential patent portfolio determined by the Microsoft case judgment is a patent authorization evaluation model developed by Intercap, Inc. in 2003. The Microsoft case decided that the evaluation method of InterCap,Inc conforms to the basic principle of FRAND authorization commitment, because it considers the value of 802.11 standard technical function to the overall product function and the stacking of royalties, so it can be used as a reference for the appropriate FRAND royalty ratio of 802.11 standard essential patent portfolio. However, the judgment of Microsoft case also holds that the evaluation method of InterCap,Inc exaggerates the importance of Motorola’s standard essential patents to the 802.11 standard, so its appropriateness is impaired. In the hypothetical negotiation between Microsoft and Motorola, although the royalty assessed by InterCap,Inc will be used as a reference for FRAND royalty, the royalty ratio will be adjusted to 0.8 to 1.6 cents per single product.

  According to the above analysis, the judgment of Microsoft case holds that in order to estimate the FRAND royalty ratio, it is reasonable for both parties to hypothetical negotiation to take the average of the above three reference values as the royalty ratio. The specific algorithm is to average the lowest value evaluated by InterCap,Inc at 0.8, and the royalty ratio authorized by Marvel Wi-Fi chips is averaged at the average value within its range of ((3+4)/2)3.5. On this basis, the average value of the three references is calculated to be 3.471 cents ((0.8+3.5+6.114)/3), which is the FRAND royalty ratio reached by Microsoft and Motorola through hypothetical negotiation.

  Considering the stacking of royalties, the Microsoft case decided to adjust the royalty ratio to 19.5 cents per single product based on the high royalty ratio estimated by Microsoft expert witnesses based on the structure of patent pool Via Licensing 802.11, and take it as the upper limit of the FRAND grant range of Motorola 802.11 standard essential patent portfolio. As for the lower limit of the scope of FRAND grant for Motorola’s 802.11 standard essential patent portfolio, the Microsoft case further holds that the lower limit should be the lowest value of standard essential patent that the standard essential patentee will agree to accept after considering the importance of its related patents to the 802.11 standard and standard user products. Considering the limited evidence in this case, the court found that 0.8 US dollars per single product is the lower limit of FRAND royalty.

  To sum up, the FRAND royalty rate set in the Microsoft case judgment is: the FRAND royalty rate of Motorola’s H.264 standard essential patent is 0.555 cents per single product, and the upper limit of the FRAND royalty rate range is 16.389 cents per single product, and the lower limit is 0.555 cents. This royalty ratio and scope apply to Microsoft’s Window and Xbox products, and other Microsoft products using H.264 standard apply to the lower royalty ratio of 0.555 cents. The FRAND royalty rate of Motorola’s 802.11 standard essential patent is 3.471 cents per single product, and the upper limit of the FRAND royalty rate range is 19.5 cents per single product, and the lower limit is 0.8 cents per single product. The royalty rate and scope are applicable to Microsoft’s Xbox products, and other Microsoft products using the 802.11 standard are subject to the lower royalty rate of 0.8 cents. (Peking University International Intellectual Property Research Center Li Yang Liu Ying)

 This article only represents the opinions of experts in the research base and may not be reproduced without permission.

 

  [Notes]

  [1] The International Telecommunication Union (ITU) defines it as "any patent or patent application that may completely or partially cover the draft standard". The American Institute of Electrical and Electronics Engineers (IEEE) interprets it as the so-called "necessary patent requirements" refers to the patent claims that will be used when implementing the standard clauses (whether mandatory or optional) of a draft standard.

  [2] Electronic Intellectual Property Editorial Department. 2012 Electronic Intellectual Property Annual News Inventory International Articles [J]. Electronic Intellectual Property. 2013 (issue 1.2).

  [3] The approximate case of Microsoft case is as follows: On October 21 and 29, 2010, Motorola informed Microsoft in writing that the licensing conditions of its 802.11 standard essential patent and H.264 standard essential patent were 2.25% of the final product price of Microsoft. In November, 2010, Microsoft took the initiative to file a lawsuit with the Federal District Court for the Western District of Washington on the grounds that Motorola’s licensing offer violated its RAND authorization commitment to standardization organizations IEEE and ITU.

  The general case of Huawei is as follows: Huawei and American IDC are both members of the European Telecommunications Standardization Organization (ETSI). American IDC claims that it has many standard essential patents in the fields of 2G, 3G, 4G and IEEE802. Huawei acknowledges that these necessary patents of IDC have been incorporated into China wireless communication standards, and its products must meet these standards. From September 2008 to August 2012, IDC sent four written authorization offers to Huawei. In the first and second written offers, IDC hopes to obtain royalties from Huawei from 2009 to 2016, which is equivalent to 100 times that of Apple in the United States and 10 times that of Samsung in South Korea in the same period. In the third written offer, IDC hopes to get 35 times as much royalties from Huawei as IDC gave to Apple in the same period. In the fourth written offer, IDC hopes to get royalties from Huawei, which is equivalent to 19 times that of IDC to Apple in the same period. In these four offers, IDC did not make any distinction between standard essential patents and non-standard essential patents. In the fourth offer, IDC made it clear that rejecting any specific terms of the offer meant rejecting the whole offer. In order to force Huawei to accept its offer authorization conditions, in July and September 2011, IDC filed a complaint and prosecution with the US International Trade Commission and the US District Court Delaware respectively, accusing Huawei’s communication products of infringing its patent rights and demanding a ban.It is forbidden to import and sell Huawei products into the United States. In addition, the analysis report provided by Huawei by STRATEGY ANALYTICS, a famous American data survey and analysis company, shows that the company has analyzed the shipments, market share and net sales of the world’s top mobile phone companies from 2007 to 2012. Nokia, Samsung, Apple, LG, RIM, Motorola, HTC and Sony are on its analysis list, but Huawei has not been able to enter the analysis list. Accordingly, Huawei filed a lawsuit in the Shenzhen Intermediate People’s Court in December 2011, accusing IDC of violating the FRAND principle in its four offers, and demanding that IDC grant it the necessary patent license in accordance with the FRAND principle.

  [4] See Microsoft Corp. V Motorola Inc,No.C10-1823JLR.ORDER-20.

  [5] See Microsoft Corp. V Motorola Inc,No.C10-1823JLR.ORDER-24.