Apple Asked Standards Body To Set Rules For Essential Patents

Apple Inc. (AAPL) has asked a telecommunications standards body to set basic principles governing how member companies license their patents, an increasingly contentious topic for rivals in the smartphone industry.

In a letter to the European Telecommunications Standards Institute, Apple said the telecommunications industry lacks consistent licensing schemes for the many patents necessary to make mobile devices, and offered suggestions for setting appropriate royalty rates that all members would follow.

Many mobile technology companies, such as Motorola Mobility Holdings Inc. (MMI) and Samsung Electronics Co. Ltd. (005930.SE, SSNHY), hold patents that became part of industry-wide standards. Standards bodies often require the patent holders to offer to license their patents to any company on a basis known as Frand, or fair, reasonable and nondiscriminatory. Questions about such commitments have arisen amid a flurry of patent suits between rivals in the mobile-device market.

Apple said in its letter--which was dated Nov. 11, but not previously disclosed--that the lack of clarity on what is fair, reasonable and nondiscriminatory has led many companies to ask unusually high rates and sue one another claiming they infringed on one another's patents.

"It is apparent that our industry suffers from a lack of consistent adherence to Frand principles in the cellular standards arena," wrote Bruce Watrous, Apple's intellectual property head.

Apple's move to solidify how industry-essential patent holders should act comes at a tumultuous time. The Cupertino, Calif., company has been battling rivals such as Samsung, Motorola and HTC Corp. (HTCXF, 2498.TW) in patent suits spanning courtrooms across the globe.

At the same time, Google Inc. (GOOG), which is acquiring Motorola, is expected to send letters to dozens of different standards organizations in a bid to reassure them that the Internet giant would fairly license Motorola's industry-essential patent portfolio. Google's purchase of Motorola is being reviewed by antitrust regulators in Europe. The European Commission has set a Monday deadline to issue a decision on the matter.

In the letter, Apple asked the European industry standards body to agree upon a way to set "appropriate" royalty rates for technology, relative to the industry-wide patents necessary to make a mobile device. Apple also said that royalties shouldn't be beyond a common base, agreed to under a Frand commitment.

Few companies publicly disclose how much they are charging for royalties, which vary for different kinds of products and industries. In a letter filed in a California court last month, however, a lawyer said Motorola had "demanded" a royalty rate of 2.25% for a license of its patents.

A rate of 2.25% on Apple's iPhone sales, for example, would have amounted to about $1 billion in potential royalties for 2011. Though the court letter did not specify which devices would be affected nor whether it would be retroactive, lawyers said the lack of transparency about royalties across the industry makes it hard to tell if Motorola's rate was reasonable.

Apple also suggested companies shouldn't use Frand-based patents to enforce injunctions, which prevent defendants from selling products that infringe a plaintiff's patents. Both the iPhone maker and its competitors have sought injunctions in patent cases to disrupt one another's sales.

-By Ian Sherr, Dow Jones Newswires; 415-439-6455; ian.sherr@dowjones.com

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