As part of the ongoing legal battle between Motorola and Apple, the Wall St. Journal reported recently that Motorola asked Apple to pay 2.25% in royalties for each iPhone and iPad sold – an exorbitant royalty rate that would easily reach into the billions of dollars.
What makes the request particularly sickening is that the patents Motorola is wielding against Apple are patents that have been deemed essential to technical standards. Consequently, Motorola must offer them to Apple on Fair, Reasonable and Non-Discriminatory terms, otherwise known as FRAND terms.
Florian Mueller, who blogs extensively about patent litigation in the tech sphere writes:
I assume this relates to Apple’s sales and to all of MMI’s standard-essential patents, though the context is only one patent (the one over which Motorola has already forced Apple, temporarily, to remove certain products from its German online store. Assuming in Motorola’s favor that this was a license to all standard-essential wireless patents, the amount still appears excessive to me given how many companies hold patents on such standards and what royalty rate this would lead to in the aggregate.
If every company with essential patents to a standard demanded 2.25%, the end result would be detrimental towards technological progress. Indeed, the whole point of the FRAND system is to allow companies innovate while at the same time compensating patent holders. It’s a nice little exchange, really. Company A gets their patents incorporated into a standard, and in return, they agree to license out said patents on fair and reasonable terms.
So the core issue here is what constitutes a reasonable royalty rate for the patents in question. To this end, some attorneys contacted by the WSJ said that the rate Motorola is asking for is a bit on the price side and “may be designed to either force a settlement or disrupt business.”