Plunging into a Safe Harbour from SEP Injunctions

The European Commission’s antitrust agency is striking a cunning compromise between divergent views on whether or not and under what circumstances injunctions may be sought for patent infringements where patentees have agreed to license patents, they have declared as potentially essential to the UMTS (WCDMA) standard, on fair, reasonable and non-discriminatory terms. EC press releases announce competition rule infringement by Motorola and commitments given by Samsung on this matter. The Motorola decision creates a competition rule infringement ‘remedy’ which “provides a ‘safe harbour’ for standard implementers who are willing to take a licence on FRAND terms. If they want to be safe from injunctions based on SEPs by the patent holder, they can demonstrate that they are a willing licensee by agreeing that a court or a mutually agreed arbitrator adjudicates the FRAND terms.”  Commitment decision details for Samsung are a practical illustration of the safe harbour principles in the Motorola decision.

The Commission’s Vice President in charge of competition policy Joaquín Almunia said: "The so-called smartphone patent wars should not occur at the expense of consumers.”  However, the Commission has not presented publicly, through the publication of the Samsung decision (the full Motorola decision is yet to be made available) or its public statements, any evidence or diagnosis of actual abuse or harm versus the countervailing positions of others in the smartphone and tablet markets A Q&A memo accompanying the decision announcements simply states that “the Commission’s aim is to prevent SEP holders from using SEP-based injunctions in an anticompetitive way, in order to extract licensing conditions that may restrict competition and ultimately harm consumers.”

To the contrary, there is abundant published evidence and analysis showing consumers and smartphone markets are doing rather well with vigorous competition despite various theories of abuse and harm. The Commission is well aware of this, but has intervened nevertheless. Mr Almunia's spokesperson Antoine Colombani remarked last year that "[t]he markets for smartphones and tablets are very dynamic, innovative and fast-growing. Samsung's growing market position and the success of Google's Android platform are good reasons to believe that competition is strong on these markets."

FRAND licensing terms negotiated or determined by arbitration or the court in the safe harbour must be on the basis of a packaged approach, according to the Licensing Framework set out in the Samsung decision. Notably, recognising that it would be impossible to assess infringement, validity, essentiality for every patent, even in modest-sized portfolios, and that this is not the way license negotiations work in the real world, the EC's approach is not on these basis of individual assessments of these issues on a patent-by-patent basis or in multiple jurisdictions. In other words, if a licensee wants to enter the safe harbour and protect itself from the threat of injunctions for all Mobile SEPs, it must accept that all such SEPs are within the safe harbour and this requires a timely and efficient approach to determining FRAND terms for all those Mobile SEPs. The quid pro quo with the removal of the threat of injunctions in the safe harbour framework is that licensees cannot pull things apart and challenge many or every patent to delay and fragment the licensing process.

It is quite perverse that the availability of injunctions or even seeking them should be an antitrust issue. My detailed analysis of the Commission's decisions including the safe harbour, Licensing Framework, testing for willingness, dominance and abuse, and inter-jurisdictional conflicts can be found here.

Motorola, Handsets and Branding: A Cliq and a Coda

Almost by telepathy, just about the very moment on Friday that I was publishing my post--"Can Branding Save Motorola's Handset Business"--, CNET News was publishing an article written by Tom Krazit, also dated 11 September, on the same subject. Entitled "Motorola's Comeback Attempt Rests on Software", the article describes the launch of a new smartphone, called the Cliq.

What is special about the Cliq is Motoblur, "a layer of software that sits above the Android operating system and will coordinate incoming messages and news feeds on future Motorola handsets." The article goes on to say that Motoblur is "actually more than just software --Motorola is also essentially hosting an online service that will deliver Facebook updates and RSS feeds to individual phones--but it's emblematic of the shift towards software and the Internet as the main features in a mobile phone."

Motorola's choice of the Android (and Google), which was not explained in the Business Week article, is explained in the CNET report. Paraphrasing the CEO of Motorola, the company "struck up a partnership with Google and Android because it realized that Google could do a much better job of coordinating third-party software develops and application sales than Motorola could do on its own."

As stated further in the report, at the end of the day, Motorblur is the means for "Motorola's social-network marketing strategy with the Cliq." If so, the key to Motorola's plans for the Cliq is to provide a superior user experience that will tie a new generation of users to the Motorola brand and mark. Motorola's competitors will almost certainly be able to develop software that will ultimately attain similar functionality. If so, Motorola's ultimate advantage will be in the value of its brand, as embodied in the Cliq user experience, and Motorola's ability to continue to tweak that experience and thereby support the brand. That is more or less what I was trying to suggest.

Can Branding Save Motorola's Handset Business?

The handset, and more particularly, the smartphone industry, is particularly interesting from the IP point of view. I can think of no consumer hi tech industry in recent times where there is such a variety of competitors, and such an interdependency with third parties, all wrapped-up in a melange of various IP rights. "That all sounds nebulous to me", you might say. So let's try to give some focus to my thoughts, centering on a piece that appeared in the 3 August edition of Business Week entitled "Motorola Has One Bullet Left in Its Gun."

The Business Week article describes Motorola's almost desperate strategy to reinvigorate its mobile phone business. It is difficult to believe, but it was not that many years ago that the Motorola RAZR was all the rage, particularly due to the success of its slim, distinctive design. That seems to be the problem; the product was longer on design than on functionality. As the Mobile Gazette wrote on May 16, 2007 here,

"although the RAZR looked high-tech on the outside, the handset's specification was a straight copy of [models] ... which had been around since 2003. So it wasn't a very new phone underneath, even though it was still quite competitive. However other features proved to be a disappointment, such as the pretty-but-difficult keypad and the poor user interface. The RAZR also lacked an MP3 player, expandable memory or a decent camera which became more marked as the competition evolved ... and the RAZR did not."

Roughly speaking, when the design no longer conferred a market premium for the market, and with no discernible advantage in its product functionality, Motorola entered in an inexorable decline for that market.

Fast forward to 2009, and to the intensified efforts of Motorola to recapture its glory, in particular with respect to smartphones. Ah, but what a crowded field we find-- iPhones, Blackberrry, Palm Pre, HTC, Samsung, LG (have I listed them all?). These are not fungible products at the moment (although there seems to be greater convergence); so the iPhone has materially different features, and different types of users, from the Blackberry. And how will Motorola play this? According to Business Week, it has reached a strategic decision to develop a new generation of products that rely on the Google-supported Android operating system.

Remember that Android is an open source system, supported by Google, and was developed as an alternative to the proprietary operating systems available on the market. When launched, the rationale was that Android would increase search and other on-line usage on handsets for which Google could profit, while at the same time preventing anyone else from gaining proprietary control of the handset operating system. For whatever reason, perhaps cost, perhaps something else (the article does not specify), Motorola is prepared to adopt, indeed to be dependent upon Android, upon the development of a critical mass of Android-based applications (to compete with AppStore, the RIM equivalent and so on) even though the Android is itself a work in progress, and even though Android serves Google's broader business strategy, which might include direct involvement in the handset business at some future time. The harsh truth is that, while Motorola apparently has decided that it needs Google, Google scarcely needs Motorola, except as another cog in the Android network.


So what does Motorola bring to the table? It is not clear. The article states that the analysts, "briefed on Motorola's phones", are of the view that the phones are

"impressive. ... sleek touchscreen phone with qwerty keyboards that slide out of the body of the device for easier typing."

Those seem like nice features. Still, for Motorola's sake, I hope that there is meaningful protectable IP in these features. The article does not mention patents or even any indication that patent protection is part of the company's strategy with these products. As Motorola has learned, design itself won't do it and, unless Motorola obtains an exclusive IP position with respect to at least some of these features, any advantage in this direction would seem to be short-lived.

There is one ray of IP hope however--branding. Perhaps, just perhaps, Motorola might be able to successfully roll its new products out in a way that will capture the fancy of at least a commercially viable critical mass of handset users who will come to prefer the Motorola-branded products. This will then allow Motorola to be able to roll out new features on an incremental basis, rely on its burnished brand image (assuming that it can be reestablished) and thereby not have to seek some likely unattainable holy grail of IP exclusivity.

Something like that was suggested by the Apple presentation about the iPod product that took place several days ago. None of the features that Apple introduced for its iPod product seems to be a blockbuster. Indeed, some features, at least with respect to the Nano iPod, were described as common fare on many MP3 devices. No matter. The idea is that Apple is Apple, and it is enough that it continues to roll out incremental improvements for its flagship products.

Duplicating that dynamic will be ever so difficult for Motorola. The RAZR models were top of the class less than five years ago, but Motorola could not leverage that goodwill more generally, and the Motorola brand is light-years behind Apple in brand strength. But with the operating system in the hands of an open source developer community, behind which lies an 800-pound business gorilla with its own business agenda, with no apparent patents to rely on, with the awareness that designs are fleeting at best, brand development may be the last best IP hope for the company in the handset industry.