Potency of Industry Patents Key to U.S. Google-Apple Case

Apple Inc. (AAPL)’s bid to limit Google Inc. (GOOG)’s use of certain patents as a tool to block imports of the iPhone and iPad may be getting traction at a U.S. trade agency, possibly altering the global battle over smartphones.

The U.S. International Trade Commission said yesterday it will review whether Apple, which gets about 75 percent of its revenue from the iPhone, iPad and related products, infringed four patents held by Google’s Motorola Mobility unit. A trade judge in April said Apple infringed one of the patents.

The commission also asked lawyers in the case, and the public, for comments on how to proceed when infringed patents cover aspects of technology that are adopted by an entire industry so electronic devices work across platforms.

“There’s some sort of movement to reduce ‘competition through litigation,’” said Will Stofega, a program manager at researcher IDC in Framingham, Massachusetts. “They really want to bring this whole issue to a head. Patent litigation is part of the ordinary due course of business, but this has gone beyond that.”

The U.S. Federal Trade Commission, a half-dozen members of Congress and companies including Intel Corp. and Cisco Systems Inc. have in recent weeks questioned whether companies that helped develop standards should be able to get orders from the ITC to block competitors’ use of the technology.

The ITC will review aspects of all four Motorola Mobility patents in the case against Apple. Of the 13 questions it posed to lawyers yesterday, eight are related to handling standard- essential patents. Should it side with Motorola Mobility, the agency has the power to order U.S. Customs and Border Protection to stop iPhones and iPad computers made in Asia from entering the U.S.

75 Percent

The iPhone generated $22.7 billion in sales in the quarter ended March 31 for Apple, or 58 percent of the company’s total revenue. It was the best-selling smartphone in the U.S., with 29 percent of the market, while Motorola Mobility had 10 percent, researcher NPD Group said May 2.

Apple’s iPad dominates the tablet computer market, with 72 percent of the market, according to researcher DisplaySearch. The iPad and related products brought in $6.6 billion for Apple, almost 17 percent of its revenue, in the second quarter.

A ruling for Apple on the smartphone issue would limit the ammunition that Motorola Mobility has hurled at its rivals. Apple and Microsoft Corp. (MSFT) have said the patents they asserted at the ITC against Motorola Mobility are for features, not industry standards.

3G, Wi-Fi

Two of the patents in Motorola Mobility’s case against Apple relate to the industry standard for 3G generation technology. The 3G patent that was found to be infringed covers a way to eliminate noise so signals are clearer.

“We remain confident in our position and look forward to the further confirmation of Apple’s violation of Motorola Mobility’s intellectual property when the full commission rules in August,” Jennifer Erickson, a spokeswoman for Libertyville, Illinois-based Motorola Mobility, said in a statement.

In a case Motorola Mobility filed against Microsoft over the Xbox video-gaming system, four of five patents relate to standards for Wi-Fi and video compression. A judge said three of the standard-essential patents and another Motorola Mobility patent were infringed. The commission said it needs another week, until July 2, to determine how it will handle the next steps in that case.

Allowing the owner of a standard-essential patent to seek an import ban would undermine the purpose of establishing industry standards, Apple’s lawyers wrote in a June 8 letter to the ITC supporting Microsoft. Any dispute over royalties should be handled in civil court, the company said.

Pre-Emptive Strike

“Enabling hold-up of the industry could undercut the development of industry standards and reverse the gains in productivity that standardization produces, thereby damaging not only companies like Microsoft, but also U.S. consumers and the public in general,” Apple wrote.

Motorola Mobility filed its complaint against Apple in October 2010 as a pre-emptive strike after the iPhone maker made public statements that phones running on Google’s Android operating system were copying features of its products. The dispute is part of a broader global battle for supremacy in the smartphone and tablet computer markets that also pits Apple against Android-device manufacturers Samsung Electronics Co. and HTC Corp. (2498)

Bargaining Power

Android is the most popular platform for smartphones, with 61 percent of the market, NPD said.

Apple is appealing its loss in the patent-infringement complaint it filed at the ITC against Motorola Mobility, and a federal judge in Chicago last week threw out patent claims Apple and Motorola Mobility had filed against each other. Google bought Motorola Mobility in part to gain access to its trove of 17,000 patents, many on phone technology.

In the Chicago case, U.S. Circuit Judge Richard Posner said he wouldn’t ban a product that follows an industry standard unless Apple refused to pay a fair rate.

“Once a patent becomes essential to a standard, the patentee’s bargaining power surges because a prospective licensee has no alternative to licensing the patent; he is at the patentee’s mercy,” Posner wrote.

EU Complaint

Cupertino, California-based Apple also has filed a complaint against Motorola Mobility at the European Union, accusing the handset manufacturer of misusing patents that relate to industry standards. It also filed a lawsuit accusing Motorola Mobility of breaching its contractual obligation to license any standard-essential patents on fair and reasonable terms.

Apple contends Motorola Mobility never made a fair offer, while Motorola Mobility has said that Apple won’t negotiate.

The case against Apple is In the Matter of Wireless Communication Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, 337-745, and Apple’s case against Motorola Mobility is In the Matter of Mobile Devices and Related Software, 337-750, both U.S. International Trade.

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; William McQuillen in Washington at bmcquillen@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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