Litigation for infringement of 3G mobile phones and infrastructure equipment has reduced during the past 18 months. Most major 3G suppliers have settled disagreements and come to terms for broad licensing. Suits brought earlier by NPE, non-practicing entities, or companies supplying ICs have continued. However, fresh litigation has abated.

While the degree of activity among the traditional 3G players has fairly well run its course, the entrance of companies from PC and consumer electronics fields into competition for mobile devices and network infrastructure may heat up in coming months. Our primary interest is to understand the impact on the supply of 3G data products and services, and how this may spill over into IPR licensing for LTE and WiMAX.

A recent lawsuit was entered on October 22 in Delaware District Court: Nokia Corporation vs. Apple Inc., which alleges infringement of 10 patents covering GSM, UMTS, 802.11, audio compression, security and other segments of technology used in Apple’s iPhone subscriber devices. Nokia alleges that Apple has been unwilling to negotiate terms for the licensing of essential patents to the various standards offered according to FRAND licensing terms.

Apple has yet to respond to the complaint, but we think they will mount a rigorous defense motivated by the following:

• IPR held by wireless companies has increasingly become diluted by IPR from converging fields, and Apple may contest the relative value of wireless device IPR due to the growing importance of software, applications and human interface design. The core argument is that as wireless broadband becomes integral to broader fields of data communications the value of a particular network communication is diminished, while the value of elements related to web-enabled computing devices is increased.

• Apple may ask the courts to consider FRAND royalties for mobile devices as having become changed by the PC-IT and consumer device contribution that its iPhone web-enabled device has championed.

• Although Nokia holds patents that Standards Settings Organizations (SSOs) and licensing groups have deemed to be essential to the respective standards, Apple may contest their validity.

• Apple will not consider this complaint as being isolated, as the outcome could result in additional lawsuits. Moreover, the battle sets the tone for valuation of IPR as networks progress to the next generation, introducing a growing number of device types and applications that are increasingly software-centric rather than based on a specific communications network. 

• Apple may bring up an argument made in the past by Nokia vs. Qualcomm: Apple’s use of ICs that use IPR licensed from Nokia and other holders extends to use in their iPhone and other devices. Apple may contend that Nokia attempts to ‘double-dip’ on patent royalties and that this practice is not common for PC and consumer electronics devices. Apple can contend that rate structures and FRAND practices for computing devices rather than mobile devices is appropriate. 

Nokia has a large portfolio of patents, including many that are essential to GSM, UMTS, WiMAX and LTE. Their strongest position remains in 3G/GSM patents. At contest here is more than the norm for lawsuits over mobile handsetz or generations of wireless standards IPR, but the consideration of the role that wireless communication plays as devices connect via multiple modes of wireless and wired connections. Apple is likely to contend that the framework for IPR settlements is only partially applicable to the current and expected future evolution of personal computing and communications devices, and that IPR should be structured for ICTs rather than just for mobile device enterprises. This would mean the prior royalty schemes are no longer entirely valid.

Also in wireless IPR news:

Last week Interdigital was dealt a setback by having their lawsuit against Nokia for infringement of 3G patents ruled invalid. As might be expected, Interdigital said they would appeal the decision.  Since Interdigital bases most of their revenue on patent licensing, this decision strikes a deep blow. Accordingly, the stock price dropped almost 25% for the week.

Outside of the fringe players like Wi-LAN, patent litigation in WiMAX has been rare.  The Open Patent Alliance and the WiMAX Forum have made statements that they would like to see royalties for WiMAX IPR be about US$1 per device. Patent holders sometimes assess royalties at a set price per-unit. More often, parties settle patent royalties as a percentage of the wholesale sales price. That way if the technology is used in a very cost sensitive application, such as embedded into cameras or power meters, the patent holders benefit from large volume markets while the per-unit price remains at a fraction of the overall price. That helps speed adoption into the most price sensitive applications. The mobile industry's IPR rates have been criticized as being a factor that has limited use in consumer electronics and other apps where price must be very low. Our discussions with developers of consumer products that are interested in embedded 3.5G, Wi-Fi, WiMAX and LTE wireless broadband has shown that many consumer devices need wireless module pricing below US$10, a price level said to have held back use of 3G-3.5G. WiMAX advocates say that this price level will be achieved by 2012.

In surrounding industry news on IPR:

The NGMN, Next Generation Mobile Networks industry group, issued a request for Information on LTE Patent Pool Administration.  Sisvel, VIA Licensing and MPEG LA, three leading IPR patent pool agencies, have responded and have each issued calls for LTE patents. These parties have begun holding meetings with essential LTE patent holders to discuss the nature of the IPR and encourage their participation in the patent pools.

The WiMAX Open Patent Alliance President, Yung Hahn, considers the strategy of the NGMN to be divisive: “our concern is that if you end up with three patent pools, not a single pool is going to be able to achieve critical mass because you’ve fragmented that space,” says Hahn. At this point the intent of the NGMN remains unclear: they have received proposals from three leading IPR management firms but have not guided as to the inevitable outcome. The group may well decide, similar to OPA, to use a single or jointly administered group. Until made clear, the way NGMN is going about this is confusing to patent holders and potential licensees alike.

In our continued research into LTE and WiMAX IPR and related developments, we have unearthed new and growth in trends that impact wireless system and device markets. Of particular interest are patents essential to both WiMAX and LTE including the rapid increase in patents that cover MIMO, AAS, smart networking methods, MESH/Relay networking, Self Organized Networks (SONs), and additional segments that comprise SDWN, Smart Distributed WBB Networks.  The impact is a subject of upcoming research.

For more information you can contact the author at robert@maravedis-bwa.com

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