CyberTech Rambler

October 22, 2012

Apple setting Samsung up for the lawsuit and a surprise beneficiary of the lawsuit

Filed under: Uncategorized — ctrambler @ 6:07 pm

When I saw the monetary figures PJ put up on Groklaw about Apple’s initial licensing offer to Samsung I had two thoughts. First, my brain immediately thought of the trans-continent lawsuit between Microsoft and Motorola Mobility. I can see Motorola Mobility jumping up and down and say Hurrah! coz they finally have proof that their offer to Microsoft was not outrageous. Second, I saw that Apple has no intention of licensing whatever it says it is licensing to Samsung.

Second point first. PJ sees the artificially high  licensing fee as threat against Android. It is very lightly to be true. I, however, see it as Apple setting Samsung  up the now infamous Apple vs Samsung trial. It is a necessary legal maneuver that Apple do to foreclose Samsung from saying Apple is offering it a license. It is designed to ensure  that Samsung will not take a license. Why? As PJ pointed out, it is targeting Android phones that Samsung makes. Apple knows that a large part of Samsung business is about Andriod phones. Samsung will not agree to that price because if it had (stupidly) signed on the dotted line, their Android business would be in the gutter as all Samsung’s Android phone will not be competitively priced at all. The high price Apple demands is beyond what a company interested in license fees will use as a starting point in negotiation. As to all the fancy discount schemes, especially that discount that involve a  very steep discount for involving other operating systems, surely Apple is expecting Samsung to see the real meaning of the discount: A bait to tempt Samsung to dump its proven business of Android Phone for other unproven operating systems, thus remove it as  a competitor. It is equally unacceptable to Samsung as the high Android licensing fee. That discount scheme is another setup to allow Apple to argue that it is not unreasonable in its high licensing fee offer since it also provides a lower cost alternatives. Perhaps most importantly, the jargon “No (presume Apple’s) Proprietary  features” practically give Apple a say on what Samsung produce. Samsung is not stupid enough to do that lousy deal.

Back to first point. Apple was not offering the deal to Samsung on a FRAND basis. It did not have to. It is within its right not to offer  a license, or if it really mean to offer one, set its own price. What it did, is to make Motorola’s starting offer of 2.4 per cent to Microsoft in the case I had mentioned looks reasonable. Instead of saying the cost of building a mobile phone as sophisticated as an Android phone is around USD 300 (bill of material + assembly cost + R&D), let’s do the maths in Microsoft favour and jack it up to USD 400. The license fee Apple is demanding (30/400) is 7.5%. Although I had established that this is a rate that Samsung will not pay and one of the reason is it is too high, it does, however, set the upper limit on what constitute a fair offer on FRAND. FRAND licensing does not and never meant to mean the licensor has to give everyone a discount. The licensor is still entitle to get its full share of what the patent is worth in the licensee’s product. FRAND simply means the licensor must not set an unreasonable price as to exclude competitor from licensing the technology. So, if Apple thinks 7.5% is fair, Motorola starting the negotiation at 2.4% demonstrates two things: It is a reasonable starting point and it is willing to negotiate.

Unfortunately for Motorola, I think this point will fall on deaf ears. That lawsuit history is not favoring Motorola. If any, there are strong suggestion that the deck is stack against it as the courts have declined several opportunities to follow the international norm and ignores common international business practice.

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