Samsung EU Patent Abuse Settlement Talks Highlight Role of SEPs

| Analysis

Samsung in the EUSouth Korean electronics giant Samsung is in talks with European Union regulators to settle patent abuse charges. The EU charged that Samsung violated EU antitrust rules when it tried to win injunctions against Apple using standards-essential patents.

The European Commission launched its complaint against Samsung in December of 2012. Unnamed sources told Reuters that Samsung wants to settle the case, and the company has been involved in settlement discussions at various level for months.

At issue is Apple's patent war with Samsung in the smartphone market. Apple accused Samsung of violating a large number of design and utility patents in courts and regulatory agencies around the world. Samsung had few such patents of its own with which to defend itself, and therefore turned to what it did have, which is a massive portfolio of standards-essential patents (SEPs).

The Role of SEPs

SEPs cover technologies that companies like Samsung, Nokia, Motorola, and a host of others submit to standards organizations when they are developing a new standard. When those technologies are accepted as part of a standard, the company has an obligation to then license that SEP on what's called a fair and reasonable, nondiscriminatory basis.

This means the company is supposed to accept a relatively low fee from any and all comers who wish to license the technology, thus allowing everyone to work together and for maximum interoperability for products or services within that industry.

A technology like "3G" wireless (there are many different flavors of 3G, each governed by a different group of SEPs, but run with us) will have thousands of patents covering all of the technologies involved. Companies who own those patents can derive steady income from FRAND royalties paid by manufacturers like Apple who make devices that use those technologies.

Battle Plans

Many patent between large companies work like this: Company A goes after Company B for infringement. Company B searches its own portfolio for patents that Company A is infringing and counter sues. They eventually settle, and whichever company has the greater number of infringed patents (or the stronger, more valuable infringed patents) eventually gets a settlement or a new royalty stream.

Settlements can also conclude with cross-licensing agreements between the parties to prevent future, expensive litigation.

Unlike just about every other company on the planet, Apple isn't in business to license its patents. Apple uses its patents to differentiate its products. In the battle with Samsung, Apple's primary goal isn't money, but rather to force Samsung to stop infringing.

The Samsung Copy MachineWhat's A Copier to Do?

When Apple came after Samsung for patent infringement, Samsung was in a tricky spot. On the one hand, company executives had determined that if they wanted their Android devices to compete with iPhone, they had to look and behave more like iPhone. On the other hand, they didn't have the kinds of utility and design patents they needed to fight back against Apple's charges.

So, Samsung turned to its SEPs. The company asked for terms from Apple that were many times higher than what other companies paid for the same patents. For those keeping score at home, that is roughly the opposite of "fair, reasonable, and non-discriminatory."

Samsung did so not because it thought Apple would pony up the 2.5 percent of the retail price of an iPhone the company demanded, but rather so that Apple would refuse to pay, and in so refusing, give Samsung the opportunity to countersue. Samsung appears to have then expected to use the counter suits to wring a cross-licensing settlement with Apple that would allow Samsung to continue infringing, and booyah! Money in the bank.

A Funny Thing Happened on the Way to the Patent Court

What happened is that courts and regulatory agencies alike were unwilling to grant Samsung injunctions against Apple based on its SEPs. This has been true around the world, though Korea has been a tad more friendly towards Samsung's efforts than other countries.

Apple, on the other hand, has enjoyed limited success asserting its utility and design patents against Samsung. Most famously, Apple won a $1.05 billion jury award from Samsung in the summer of 2012. Some $450 million of that award will be retried (the conviction of copying remains in place), but it is still a monumental award, regardless of the outcome of the retrial.

On top of that, the European Commission launched its investigation, accusing Samsung of violating antitrust regulations for its suit. That's what Samsung is reportedly in discussions to settle.

Which begs the question of why. According to Reuters, Samsung may well consider the EU's case to be a solid one.

To wit, Mario Mariniello, a former European Commission economist and an analyst at think-tank Bruegel, said: "The Commission could construct a theory of harm based on the concept of a willing licensee, in which Apple was willing to pay but Samsung didn't negotiate. This would make it possible for it to sanction (punish) something that is contrary to competition law."

Questions

My assumption is that Samsung apologists don't understand these issues. It's one thing to believe that software patents, design patents, and utility patents shouldn't exist. There are very valid discussions to be had on those topics.

It's another thing to cheer Samsung on in its efforts to obtain injunctions against Apple based on SEPs, which many Apple haters have done.

Fortunately, courts and regulators think differently on the issue.

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2 Comments

wab95

Very nicely summarised, sir.

This is a somewhat technical discussion, which I know many if not most readers of TMO will appreciate, irrespective of their feelings about Samsung vs Apple, but which one finds often-times wanting in the popular press. Perhaps they should read a bit more TMO.

Bryan Chaffin

You just made my day, wab95. Thanks. smile

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