Apple is engaged in legal battles in both the UK and the US over 4G patents used in its mobile devices. The company has applied for permission to appeal a UK verdict which would cost it an additional 13 cents per iPhone.
While this might sound crazy, the company says that very much more is at stake, not just for its own business, but for companies of every size …
Three quick pieces of jargon
In order to make any mobile device, you need licenses to use a whole bunch of patents. These patents are known as standards-essential (in other words, you can’t make a mobile device without them). Given that the companies who develop Standards-Essential Patents (SEPs) are also involved in setting the standards which require them, and that consumers ultimately pay the costs, there is an understanding that the terms should be lower than what might be demanded for more general patents.
The result is that SEPs must be licensed on what are called FRAND terms: Fair, Reasonable, And Non-Discriminatory.
The problems start when patent assertion entities, otherwise known as patent trolls, buy these SEPs and start demanding licensing fees which are very much not FRAND.
That 13-cent battle
Apple has been involved in a very long-running battle against one of these, Optis Wireless Technology, which is owned by a New York-based hedge fund. Optis owns just a handful of the total number of 4G SEPs, but the company is demanding large sums of money for licences.
In the US, a court initially awarded Optus $506 million in damages. That was subsequently reduced to $300 million, which both companies appealed. The judge in that case decided that a new damages trial should be held to decide the matter from scratch.
A separate UK case back in 2022 decided the FRAND rate for the patents owned by Optis should be 2 cents per iPhone. An appeal to the Supreme Court saw that amount increased to 15 cents.
What concerns Apple is not the $0.13 difference, but the global precedent that this would set. The cellular modem in an iPhone costs Apple around $20. If you scaled up all of the SEPs required for that modem by the increase awarded in the UK, then the company would be paying a total of around $40 in patent licenses, compared to the $5-6 it pays currently.
What’s even more worrying for Apple is that the UK Supreme Court declared it had the power to set rates that would apply globally, not just within the UK itself. Apple has applied for leave to appeal, and Optus is expected to respond sometime next month. A decision may not be made until next year.
The company told us:
Our teams work tirelessly to create the best products in the world for our customers. And we’ve always been willing to pay a fair price for technology used in our products. In this case Optis, a company that makes no products, and has no business in the UK, is making excessive demands and attempting to extract billions of dollars for technology they did not develop. As a result, Apple and other companies have been taking Optis to court, and we hope the UK Supreme Court will step in to protect innovation and confirm fair and reasonable payments for standard-related patents.
Apple says businesses of all sizes are at risk
Apple claims to be fighting this not just on its own behalf, but for businesses of all sizes. For example, a bicycle rental company might fit its fleet with 4G modems so that they can report their positions. Optis could go after those companies, and they wouldn’t have the legal resources to fight.
9to5Mac’s Take
Whether or not we believe Apple’s claimed altruism, there’s no doubt that patent trolls are a major problem within the industry. The fact that a company with Apple’s legal clout is fighting one of the biggest offenders is at least some good news.
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A previous version of this story had the difference as 12 cents, but Apple has advised it’s actually 13 cents.
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