Motorola chomps Apple in German patent victory, now what?

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Motorola Mobility has finally managed to strike at the heart of Apple’s wildly successful iOS business. In the first significant ruling in Motorola’s patent counter-suits against Apple, a German judge has granted a preliminary injunction against Apple selling the iPhone in Germany. The grant of a temporary injunction is a follow-up to a default judgement the court entered last month. If the ruling sticks (Apple can try to win a stay) it could prevent Apple from selling iPhones and even the 3G iPad in Germany via its Ireland-based subsidiary, Apple Sales International.

What’s the basis for Motorola’s suit against Apple, and what could it mean for German iPhone buyers? Perhaps more concerning: Could the ruling impact Apple’s iPhone business in other markets, like the United States?

Let’s be FRANDs

News of the preliminary injunction was first reported in Florian Mueller’s FOSS Patents blog, which offers some background on the complicated case. In a nutshell, Motorola’s suit against Apple in Germany concernes European Patent 1010336 (B1), which is an essential patent for the GPRS (General Packet Radio Standard) technology used by a vast number of mobile devices. As an essential patent for GPRS, Motorola has to make the technology available to manufacturers on FRAND terms — Fair, Reasonable, and Non-Discriminatory — a practice that’s applied across many patents included in technology standards. The idea behind FRAND licensing is that patent holder shouldn’t get to pick and choose which companies can use their technologies that happen to be part of a standard: The technology — and patent licenses — are available on the same terms to all.

This is an oversimplification, but Motorola has basically found a way to sue some companies that have requested FRAND licenses for infringement on their technologies. For now, the loophole only seems to apply in a particular court in Mannheim, Germany, but if that court’s interpretation of the law is validated, it could become a more widespread practice.

Under traditional FRAND licensing, a company can offer to license a technology from a patent holder for use in their products while reserving the right to contest the patent later on. Typically, the offer to license the patent on FRAND terms is enough to protect the company from patent infringement suits. The company can basically argue it’s trying to license the patent in question on the same compulsory terms offered to everybody else, even though they don’t think the patent is legitimate. If the patent holder refuses to grant the license, then the company can claim the patent holder is violating anticompetition laws by withholding an FRAND license.

However, the Mannheim court has ruled that it’s not enough for a company to merely offer to license the technology on FRAND terms. The company must also make that offer binding and irrevocable and post a bond for ongoing royalties to the patent. German law doesn’t directly address the issue of whether damages for past infringment are allowed for the time between the deployment of a technology and the granting of an FRAND license.

Pay to get up-to-date, or pay penalties too?

According to Motorola, Apple has been using the GPRS technology in the patent since 2007, when it first introduced the original iPhone. In Motorola’s eyes, Apple has been using Motorola GPRS technology in its wireless devices without a license for over four years, and so ought to pay not only for a FRAND license to the technology going back to 2007, but also infringement damages going back to the release of the original iPhone.

Germany’s competition law requires companies offer compulsory FRAND licenses on technologies going forward, but does not extend the same privilege to past use of the technology. The idea is that, if companies knew they could use a technology and worry about getting a license later, they might be able to negotiate a more-favorable deal months or years down the road than they would have gotten if they had just acted in good faith from the outset. That, in turn, would be a disincentive for companies to allow their technologies to be used in standards licensed under FRAND terms, inhibiting the development of new products and technologies.

For its part, Apple has offered to purchase a FRAND license to the patent and pay royalties retroactive to 2007, but reserved the right to challenge the patent so long as Motorola pursued damages for past infringement. In other words, Apple is happy to pay for its use of the technology to date and going forward, but only under FRAND terms with no additional penalties. In the meantime, Apple is challenging the validity of the GPRS patent at the Federal Patent Court in Munich — and if Apple can get the patent overturned, it wouldn’t have to pay anything for past infringement, since there would have been nothing to infringe.

For now, the Mannheim court has agreed with Motorola, and granted a preliminary injunction that could bar the sales of iPhones and 3G-enabled iPad products in Germany by Apple Sales International. Apple has said it intends to appeal the decision to a higher court and request a temporary stay of the injunction while the appeal is in process. If the stay is granted, Apple will continue to be able to sell iPhone and iPad products in Germany, although it will potentially be on the hook for even more infringement damages if the case eventually goes against them. If the injunction is upheld, Motorola will have to decide whether to request enforcement: After all, if the rule (or the patent) are overturned, enforcing the injunction could put Motorola on the hook to Apple for damages. Motorola would have to put up a bond of €100 million (about US$134 million) against possible damages to get the injunction enforced.

At this point, Apple’s iOS products will likely be available to German consumers throughout the important end-of-year holiday season. Even if the injunction were granted, it likely would only apply to direct sales to consumers by Apple. Mobile operators and third parties would likely still be able to sell iPhones and iPads to consumers in Germany, in much the same way Samsung has been able to work around an injunctive ban on its Galaxy Tab.

A broader context

Apple could try to re-engineer the iPhone and iPad to get around Motorola’s patents, but given that the technology is so deeply interwoven with GPRS technology, that may not be a feasible course of action. Apple has also already invested significant resources in challenging the European patent, and is also challenging the validity of the equivalent patent in the United States.

The GPRS patent at issue here is one of several being contested between Apple and Motorola: The last time we checked, Apple and Motorola’s litigation in the United States comprised more than 20 patents, including Motorola claims on Wi-Fi and WCDMA 3G technology to Apple patents on multitouch display technologies. Now that Google is in the process of Quinn Emanuel Urquhart & Sullivan — the same firm that acted as Samsung’s counsel in defeating Apple’s request for an injunction on sales of the Galaxy smartphones and tablets in the United States. Apple is appealing that decision, but, in Quinn Emmanuel, Apple may have found an adversary that can deliver punches as well as take them.

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