Sunday, November 3, 2013

4G LTE Smartphone Standard Essential Patents Licensing Royalty: Samsung v. Apple

Notwithstanding the recent administrative and judicial blocking against exploiting standard essential patents (SEPs) for injunction, several courts ruled that SEPs are still eligible for monetary relief for infringement. In Microsoft Co., v. Motorola, Inc., No. 2:10-cv-01823-JLR (W.D. WA), the court provided basic guidelines for assessing FRAND royalty for standard essential patents (SEPs). The guidelines are based on the Georgia-Pacific analysis of the reasonable royalty (Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970)) modified for taking into account SSOs’ primary goals for adopting FRAND commitments. The key modification to the Georgia-Pacific factors leads to the reasoning that a royalty in a patent pool for the specific SEPs at issue or comparable licensing transactions as a candidate for the royalty established through negotiation under FRAND commitments. Thus, the royalty rate in the recently formed LTE patent pool may provide expected FRAND licensing revenue.

Another court’s guidelines for assessing FRAND royalty for SEPs can be found in In re INNOVATIO IP VENTURES, LLC, No. 1:11-cv-09308 (N.D. Ill. 2013), Dkt. No. 975. The INNOVATIO IP VENTURES court calculated FRAND royalty (cap) of WiFi SEPs as (average profit margin to the contribution of patentee’s SEPs) x (net profit of relating products) x (pro rata share of patentee’s SEPs to the total number of WiFi SEPs providing similar contribution to the profit). Similar calculation can also lead to the FRAND royalty (cap) for 4G LTE smartphone SEPs.

To evaluate Samsung’s and Apple’s 4G LTE smartphone SEPs licensing royalty, their IPR share in 4G LTE SEPs is researched. Recent TechIPm, LLC’s 4G LTE standard essential patent research for the US market reviles that total of 215 issued patents are identified as the potential candidates for 4G LTE SEPs relating to smartphones as of October 25, 2013. Samsung’s and Apple’s 4G LTE smartphone SEPs’ IPR share are 21% and 2% respectively (for details about analysis method, please refer to Then, base on various market research data, the net profits of Samsung and of Apple from smartphone sales per year in the US market are calculated as roughly $4 B and $6B respectively. Finally, if the average profit margin to the contribution of the 4G LTE SEPs of 25% and 10 years of licensing terms are assumed, the licensing royalty of Samsung that can have from Apple and of Apple that can have from Samsung are expected to be around $3.2 B and $0.2 B respectively.

For more information, please contact Alex Lee at .

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