Samsung offers five-year ceasefire on standard patents to avoid EC fine

Samsung has offered a five-year pause in seeking European sales bans against rivals over standards-essential patents (SEPs) as it seeks to evade a huge fine from regulators.

Rivals including Apple, Ericsson and Nokia will now be able to tell the European Commission - whose antitrust unit publicised the proposals on Thursday - whether they agree with it or feel that it is too weak, a process called "market testing". Apple didn't comment on whether it would submit a response.

But Samsung's proposals were described as "full of loopholes" and "sneaky" by analysts and observers of the smartphone patent wars between Apple, Samsung, Nokia and others. Florian Müller, a patents blogger who has consulted for Microsoft and Oracle, said that the proposed deal is worse than that imposed by the US's Federal Trade Commission (FTC) on Google's Motorola subsidiary over the similar use of SEPs to try to impose sales bans.

And Boris Melodiev, senior analyst at Yankee Group, called the proposal "sneaky" and suggested that the EC will reject it.

Joaquin Almunia, the EC antitrust chief, is already considering whether to levy a fine against Samsung for "abuse of dominant position" because it sought injunctions to stop Apple, Ericsson and other companies from selling their products in Europe, on the basis that they hadn't licensed its SEPs on terms it demanded. Rivals said the terms Samsung demanded broke the "fair, reasonable and non-discriminatory" (FRAND) terms on which SEPs must be licensed.

Almunia last year issued a "Statement of Objections" against Samsung as it was attempting to ban sales of the iPhone and iPad in Europe over SEPs. Such a move by the EC often presages a substantial fine, which can be up to 10% of a company's global revenues. In Samsung's case that could be nearly £10bn. Just before the EC's move, Samsung withdrew its European SEP-related court cases against Apple, apparently to avoid further problems with Almunia.

Samsung is also being investigated by the US Department of Justice for its aggressive use of SEPs to seek sales bans against rivals.

Samsung and Apple in particular have tussled over patents and designs of their phones and tablets in courts around the world since 2010. Apple won a key battle in California in summer 2012, being awarded damages of $1.05bn against the South Korean company, which now dominates the smartphone space.

Almunia emphasised that Samsung had abused its position as the holder of SEPs in order to obtain commercial gain: "The Commission considers on a preliminary basis that Apple was willing to enter into a licensing agreement on FRAND terms for Samsung's SEPs. However, Samsung started judicial proceedings seeking injunctions against Apple."

Müller said that Samsung's proposals fell short of what the situation required. "Five years… is ridiculously short because there is no reason for which the abusive pursuit of SEP-based injunctions would be any more legal in five years' time than it is today," he wrote. He suggests that if the EC accepts Samsung's proposal, it would make the Commission "a supporter, not a fighter, of FRAND abuse."

Samsung's 27-page proposal includes the suggestion that there should be a "negotiation period" of up to 12 months and that if no agreement is reached, that a third party - either a court or an arbitrator, as agreed by the two sides - should be used. If the two sides cannot agree on whether to go to court or arbitration, then they would have to go to arbitration.

Melodiev commented: "I in no way anticipated Samsung would try to push through such a sneaky proposal to the EC. First, the SEPs Samsung has been accused of failing to license on a fair, reasonable and non-discriminatory (FRAND) basis have no expiration period, meaning that abusing them will not be any more right or wrong after five years than it is now."

"Second, if Samsung doesn't reach agreement with the company using its SEPs within the proposed 12 months, which seems very likely, it gives Samsung carte blanche to pursue injunction. I fully expect the EC to reject the proposal, which will leave Samsung with very little room to maneuver. Eventually, it must accept that it needs to stop using SEPs as a bargaining chip in its court battles."

Müller criticised this suggestion too: "parties must always have access to a court of law, with or without agreement," he argued. "Anything other than that would be irreconcilable with the rule of law." In the US, court-determined payments have seen demands by Motorola against Microsoft over SEPs relating to Wi-Fi slashed from Motorola's demand of around $4bn per year to $1.8m, determined by a judge. Apple and Microsoft have previously pledged in Europe and the US not to use seek sales bans over SEPs they own.

Standards-essential patents are key to the functioning of phones and computers to implement standards such as the wireless Wi-Fi, 3G, 4G and GSM standards, and the H.264 video coding and decoding standards.

However the rules governing SEPs declare that they must be licensed freely on a "fair, reasonable and non-discriminatory" (FRAND) basis - so all licencees are offered the same terms. The basic value of SEPs has also been the source of dispute. Judges in the US have upheld the idea that SEPs should be valued on the inherent value of their function - which may be nothing more than calculating a mathematical formula for a frequency - rather than the usefulness of the standard which incorporates them. Using the latter can lead to a "hold-up" where a patent owner demands a large amount from a licensee because not implementing a standard could be disastrous to the licensee's business.

Samsung and its lawyers face sanctions in the US after a secret licensing deal between Apple and Nokia was leaked to Samsung executives.

Powered by article was written by Charles Arthur, for on Thursday 17th October 2013 16.39 Europe/London © Guardian News and Media Limited 2010


image: © Sham Hardy