Patent Wars

By October 2010, Apple

concluded that Samsung should
pay $24 per smartphone, and $32
per tablet. Based on Samsung's
own estimation of its profits,
Apple's royalty payments would
effectively wipe out more than
half of Samsung's margins on any
phone priced less than $450.

Samsung instead pressed its own

patent claims, including a critical
one relating to how mobile
products send and receive
information over wireless
networks.
Samsung eventually would
request a 2.4 percent royalty on
those patents, or $14.40 per

Apple products
infringe
on twoinfringements
of its patents
Other
Patent
one related to FaceTime over cellular and
another having to do with photo and video
albums whose patents are held by Samsung

Samsung is asking for less than $10 million in

total damages. To arrive at that number, Samsung
did some rather interesting math, of course
involving multiple experts. The first expert used
the 99 cents that Apple charged for FaceTime for
the Mac as an example of what users might pay
for a videoconferencing feature. Other factors
used in the calculation included another experts
calculation of relative demand for the chat feature
and, oddly enough, the 70 percent cut Apple gives
developers in the App Store. Samsungs expert
said that in this case Apple was like the developer
of FaceTime and Samsung deserved, say, a 30
percent cut of the features value if found to
infringe Samsungs patent.

Understanding the Maths: Apples case

Hausers study described certain features, including
ones related to the case as well as unrelated
distraction features and came up with some
shockingly high values for the software features at
issue here. For example, Hauser said his study found
that consumers would be willing to pay $102 more
for a smartphone with automatic word correction or
$44 more for one with a universal search feature

In making its case, Apple relied heavily on a study

fromJohn Hauser, an MIT professor whom Apple
alsoemployed for the first patent case. Hauser did
what is known as a conjoint study to place a
value on features related to the patents in this case
as well as to determine how the features affected a
customers willingness to buy such devices.

Samsung has blasted Hausers

methodology, arguing that the type of
study he did is inappropriate for valuing
minor features and is tantamount to asking
consumers which car they would buy based
on a comparison of cup holders.

The Korean electronics maker trotted out a bunch of

economics experts with entirely different methods
of damage calculation. Its experts used an array of
indirect methods, including eye-tracking studies
and an analysis of product reviews, to justify its
conclusion that each of the accused patents
deserved a value of just 35 cents per phone.

One expert,Yale professor Judith Chevalier, used a

range of different methods to arrive at the 35-centsper-patent figure. She lookedat what Android
consumers typically pay for apps and an analysis of
how often reviews mentioned the features in
question, as well as the fact that Apples accounting
method defers around $10 for OS upgrades, each of
which includes more than 100 features.

FRAND Pricing for Industry Standards

simply an acronym that describes the goal of a certain type of patent license: "fair, reasonable and non-discriminatory"
andards associations assign their own lingo and tweaks to the basic acronym, but the principle is pretty much the same
wide: as a trade-off for investing in technology standards like 3G, companies large and small agree to license their
atents to everyone else in the industry on fair, reasonable, and non-discriminatory terms

Access to Injunctive Relief Encourages Negotiation

Samsungs Royalty Payment

The potential implementer chooses between negotiating license

Royalty under FRAND condition The IP High Court calculated the

royalties now and paying damages later, if found infringing by a

royalty under FRAND condition as follows: First calculate the

court of law.

percentage of the contribution of the UMTS standard among the

The absence of injunctive relief, coupled with an irrevocable

total sales amount of the infringing products, and then calculate

RAND commitment, can imply that infringement is cheaper than

the percentage of the contribution of the patents among the

licensing

contribution of the UMTS standard. When calculating the

The International Trade Commission concluded that, in its

protracted infringement of Samsungs patents, Apple has no
intention of paying Samsung any royalties until after the
conclusion of litigationEven though Samsung negotiated in good
faith.The Commission noted that this unwillingness to negotiate in
good faith forces the innovator to undertake expensive litigation

percentage of the contribution of the patents among the

contribution of the UMTS standard, to restrict the cumulative
royalty be excessive, a calculation method of not exceeding a
certain percentage for all SEPs should be adopted. The Court
found a cumulative royalty rate was 5% and the number of SEPs
indispensable for UMTS standard was 529, and concluded that the