There are different ways to decide what patents are worth.
One way is to get a few people who understand the intellectual property marketplace sitting around a table looking at objective criteria, such as how much comparable patents have been valued by the market in the past, how much time the patents have left before they expire, how easy or hard they would be to design around. One of the challenges of this approach is that most licensing agreements are confidential, so data on the value of comparable patents may not be readily available. However, if the parties engaged in the discussion are both big companies, they no doubt have enough experience licensing their own patents to others and acquiring licenses to other companies’ patents to have a pretty good idea of the market.
Another way is to “lawyer up,” go to court, spends millions of dollars on legal fees and discovery and ask a federal judge and/or a jury to tell you what the patents are worth. The process takes years, is complicated, and the outcome is uncertain.
Needless to say, any rational person should prefer the first approach.
So we’re surprised that Apple and Samsung seem to prefer the second approach.
The Wall Street Journal recently reported that Apple and Samsung have been holding secret negotiations to try and resolve their intercontinental billion-dollar plus smartphone patent war.
The two companies have a complex relationship, which started with Samsung selling Apple parts for iPods. The customer/supplier relationship continues today, with Samsung an important supplier of components for the iPhone. Yet the companies have also become bitter rivals. Samsung’s Android-powered smartphones are now significantly outselling iPhones in the marketplace – 64 million units in the first quarter of this year for Samsung, versus 38 million units for Apple.
That long relationship should help the companies negotiate an agreement. The fact that both are major players in the smartphone business and both have extensive patent portfolios suggests that a cross-licensing deal would make a lot of sense, with some money flowing one way or the other depending on who has the stronger patent portfolio. And according to the Wall Street Journal report, which was in part based on redacted International Trade Commission documents, Samsung has suggested just such an arrangement.
What’s a shame is that the negotiations apparently didn’t get serious until after Apple’s billion-dollar win in court last year – which means after many millions had already been spent on the legal process. And the negotiations have apparently stalled, so Apple and Samsung are back to using the courts to determine the value of the patents.
And that is clearly what this is all about. The Wall Street Journal report says
A court filing last year during its lawsuit indicates that Apple early on offered Samsung a license for its patents at a rate of $30 per handset and $40 per tablet. The iPhone maker offered some discounts if Samsung agreed to cross-license its patents to Apple. Samsung has also offered a license for its patents, but Apple has complained the rate was too high.
The companies clearly know that a licensing arrangement makes sense. But they can’t agree on a price so they are using the most inefficient possible mechanism to establish prices – the court system. A method that not only costs the companies millions of dollars in legal fees, it ties up the overburdened court system and costs taxpayer dollars.
At IPNav we strongly prefer rational patent pricing to using the courts.
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