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Apple's Licensing Offer To Samsung Raises Questions About FRAND Rates and What's Behind the Attacks on Google ~pj
Monday, October 22 2012 @ 08:11 AM EDT

One of the exhibits Samsung has now made public tells an interesting tale. It's the slide presentation [PDF] that Apple showed Samsung when it first tried (and failed) to get Samsung to license Apple's patents prior to the start of litigation. While some of the numbers were earlier reported on when the exhibit was used at trial, the slides themselves provide more data -- specifically on the difference between what Apple wanted Samsung to pay for Windows phones and for Android phones. The slides punch huge holes in Apple's FRAND arguments. Apple and Microsoft complain to regulators about FRAND rates being excessive and oppressive at approximately $6 per unit, or 2.4%; but the Apple offer was not only at a much higher rate, it targeted Android in a way that seems deliberately designed to destroy its ability to compete in the marketplace.

I have some questions after viewing the slides. Is there a difference between licensing standards essential patents and licensing de facto standards patents? I ask that because Apple, if I've understood its slides, seems to believe that it is not possible to make a touch screen device without infringing Apple's patents. If that were true, ought there not to be a limit on the rates for patents that block an entire field like that, if there are to be limits on FRAND license rates? What's the difference? If you can't make a phone without someone's patent, should there not be concern about *any* oppressive rates on *any* unavoidable patents?

Jump To Comments

Here are five of the Apple slides. Notice the discount schedule, and as you look at the slides, think about three things --1) that Apple and Microsoft are both claiming that a 2.4% licensing rate ($6 per phone) on FRAND licenses is excessively high and would destroy their ability to make any money; 2) that Android is singled out in a way that is licensed at a much higher rate, $30 per phone and $40 per tablet, and for touch screens, Apple clearly believes you can't make one without infringing Apple's patents, making them de facto standards-essential in effect; and 3) that the schedule seems designed to favor making Windows phones instead of Android, since that would only cost them $9 per phone instead of $24, making it appear that Android is being targeted for destruction in the marketplace, which indeed matches Steve Jobs' threat to destroy Android:

So that is what Apple portrayed as its standard rates per unit, $30 per phone and $40 per tablet. That is, for starters, a great deal more than $6, a rate Apple, and Microsoft, have both claimed is so high, it would make it impossible for them to make any money selling phones and tablets. But Apple offered some discounts to Samsung, based on its own patent portfolio and other factors:

So Samsung's patents gave it a 20% discount, plus it could get an additional 40% discount if it made Windows phones or tablets, since Windows has an Apple license, according to Apple, and an additional 20% if the phone was QWERTY instead of touch. So, 80% off if Samsung sold that kind of a Windows phone:

What about Android, however? It got only the patent portfolio 20% discount:

How would that work out in real life? Samsung would only pay $9 per Windows phones to Apple (still $3 more than the $6 rate Apple and Microsoft are whining to regulators about FRAND patents) but $24 per unit for Android devices. Does that look even plausibly fair? What does it mean in terms of FRAND rates and fairness? Clearly, the pricing means it was Apple's position that Android had to infringe if Samsung sold any touch screen Android device. What's wrong with this picture?

Why are regulators not looking at the whole picture here, specifically at what appears to be a deliberate attack on Android, and hence Google, one where patents are the weapons of choice just because they are so damaging to any newcomer to the field? Are regulators looking at the right target? And if not, why not?

The Attacks on Google:

I ask that because the FTC has been trying to tell Google what it must or must not include in its search engine results. No. Seriously. Here's how Reuters describes the situation at the FTC:
Four of the FTC commissioners have become convinced after more than a year of investigation that Google illegally used its dominance of the search market to hurt its rivals, while one commissioner is skeptical, the sources said.
Not to be prissy, but US antitrust law is not supposed to be about helping competitors. It's only supposed to be about protecting consumers. And Google Search is free. It's also the best, and that's why we use it.

If you say, fine, but don't let them move into other areas of search, specialized search, because then competitors can't survive, I have to ask, how does that help the public? Do you use Google News? I do. Every day. It's my daily newspaper, you could say. If Google isn't allowed to move into specialized search, there is no Google News. Or Google Maps. Or Google Patents. Or Shopping, etc. That would be a loss to me.

Do you want to drive off a cliff because your maps service is inadequate? I don't. So I don't want the government to tell Google it has to advertise competitive maps services and give them a higher rank in search results, because I don't want to find *less good* maps services. They are dangerous. I want the best.

Reuters tells us what the complaints are about:

A long list of companies has been complaining to the FTC, arguing that the agency should crack down on Google.

Companies rarely talk publicly about their dealings with the FTC, but consumer reviews website Yelp and comparison shopping website Nextag have both complained about Google during open hearings in Congress.

Google rivals specializing in travel, shopping and entertainment have accused Google, the world's No. 1 search engine, of unfairly giving their web sites low quality rankings in search results to steer Internet users away from their websites and toward Google products that provide similar services.

Computer users are overwhelmingly more likely to click on the top results in any search. The low ranking often forces companies to buy more ads on Google to improve their visibility, one source said.

Of course, Google says it's not true:
"May I simply say that I can assure you we've not cooked anything," said Google Executive Chairman Eric Schmidt in last year's congressional hearing.
If users don't like a service, it's going to affect its rank. That's just how it is. Google doesn't have to cook anything to make that happen. It's just how it is. These companies want Google to help them out, but that's not Google's job. That really would be cooking the results. If you go to Google Search and type in "travel agencies", for example, do you want a list of other search engines? Or do you want travel agencies? What if you are looking for a hotel in Hawaii? Do you want a list of other search engines? How about if you are looking for a new phone? Do you want a list of other search engines? It's ridiculous if you really think about it, but that seems to be what the complainers would like. I mean, if I want a list of search engines, Google will give it to me, but if that isn't what I want, why force me to accept it?

Google is about showing you the best results they think you are searching for. It's not Google's job to push any company. Nor is it against the law to be successful or even a monopoly. There has to be harm. Where is it? Where's the harm in a service that is free and that we can simply avoid if we don't like it?

So who's behind the complaints? Microsoft gave money to FairSearch, the group that then went to the FTC complaining about Google. Here's what the New York Times says is the likely outcome, as PC Magazine describes it:

According to the New York Times, a number of antitrust experts indicate that this is the most likely outcome from the antitrust investigation: A settlement that likely involves Google promising to not promote its products over those of its competitors, among other conditions.
Google says it isn't doing that now. So we can assume, I think, that this is not what this is really all about.

No, this is about competitors wishing to crush Google. Look at the patent smartphone wars. All of it is about destroying Android. All of it. It's all aiming at Google, all the legacy businesses that can't compete on a fair and even playing field. Like Microsoft, for instance. And Oracle, who tried to go after Google but failed in the courts and then went and joined FairSearch. Why would Oracle care about search?

This is about the old trying to destroy the new. It's about the Internet, trying to suppress it and all it makes possible. And that's a message that seems to appeal to governments these days, the idea of controlling and regulating the Internet.

A bit more on the complaints:

The one source said the FTC commissioners have given weight to other complaints that Google refuses to share data that would allow advertisers and developers to create software to compare the value they get on Google to advertising spending on Microsoft's Bing or Yahoo.

In a related issue, the FTC is looking at Google's handling of valuable patents, which are determined to be essential to smartphones. The agency is trying to determine if they are licensed fairly and whether patent infringement lawsuits are used to hamper innovation.

FTC Chairman Jon Leibowitz said in mid-September that he expected a decision in the case by the end of the year. European regulators are conducting a similar antitrust probe.

If the claims by FairSearch about search engines are so valid, why is FTC looking at other unrelated claims? Maybe because it knows it can't prevail in a court of law? If it can't, why is it still investigating the FairSearch complaints? What is this really all about?

It isn't hard to see what FairSearch is all about. Forgive me if I say that after tracking the SCO saga for nearly a decade, I get suspicious any time I see Microsoft funding any entity that then goes after Linux, these days meaning Android and Google.

By the way, guess where FTC Commissioner Leibowitz worked before he arrived at the FTC?

In the private sector, Leibowitz served most recently as Vice President for Congressional Affairs for the Motion Picture Association of America ...
That is in his bio on the FTC website. Might that color his views? You think? Hollywood simply hates the Internet and they seem to equate it with Google. They imagine, for one thing, that Google arranged the public outcry over SOPA, which Google didn't do. It arrived late to that battle, in fact, but Hollywood is Hollywood, and it wants to keep its old business model going. How else do you interpret what Harvey Weinstein just said in a speech recently criticizing Google (and Apple, mystifyingly enough):
"I think we are being done a massive disservice by these companies," Weinstein told the crowd. "I think after the [U.S. presidential] election we need to rally filmmakers, content providers and musicians around the world as long as these companies [continue to make content available] under the guise of free Internet."
I gather he's donated to a candidate or both of them and intends to get his money's worth. And he hates the Internet. Doesn't want his movies to be available there, I gather. When was the last time you went to the movies in person? I can't even recall the last time. I'll bet most of you can't either. Or maybe one blockbuster. But mostly we watch entertainment on the Internet and on TV. It's just how it is. And Hollywood has to adjust.

There was a media summit in Dubai recently. Bill Gates gave a speech and Ari Emanuel, the co-CEO of WME, was interviewed in a session called "Hollywood vs Silicon Valley". You can watch it on the Internet, by the way, one of the reasons the Internet is better than Hollywood. Here's Emanuel's speech on YouTube. Yes. YouTube. Thank you, Google's YouTube. And yes, it was the media summit that put it there. Here's their channel.

And you know what Emanuel said? That in his experience Google was doing better at protecting Hollywood's content and that the old movie business is still making money. It's still a good business, he said, but over time, everything is moving to the Internet. In fact, he said this is the greatest time for "content creators" ever, *because* of the Internet, which increases distribution possibilities:

The boom in digital platforms and the continuing strength of traditional media makes this “the greatest time of all” for artists involved in content creation, said Ari Emanuel, co-CEO of WME, at the opening of the third Abu Dhabi Media Summit. “It’s a very dynamic environment we live in now in terms of form and content.”

That, in business terms, means more buyers of content. “I think it’s the greatest time for clients that it’s ever been, because of the proliferation of distribution points. It’s only going to become greater and greater,” he said, noting that WME’s current challenge was to “to stay ahead of it.”

In a conversation with Conor Dignam, Screen International’s Group Editor, Emanuel told the top-level audience that “old media works perfectly well” currently, especially at the high-end level of tentpole studio films and big broadcasters. But he knows the shift in power to include more new media will happen in coming years. “I’m changing every day” he said of adapting to new business models. As an agency executive, he noted: “my job is to understand as much as I can about different opportunities.”

That's Weinstein's job too. There is money to be made in entertainment, but not by killing off the Internet. The solution is right in front of Weinstein's eyes. Stop fighting the change, because nobody wants to go back to the good olde days. By nobody, I mean, us, the public.

For that matter, I don't want to go back to the good olde days of the Internet either. Do you remember what it was like before Google showed up? I do. There's a *reason* why we all switched to Google. There were lots and lots of search engines at the time, but we all switched. Why? Because Google's was better. It still is, and regulators are not supposed to block what the public enjoys and wants to use, just because a lot of us agree that Google is the best search engine.

Google didn't get a leg up by having anybody share anything with them. They were better from day one, for that matter. And it had nothing to do with accumulated data.

Microsoft is who is really upset about Google. Nobody wants its phones. Nobody much likes Bing, and it's not used to being last. And personally, I think it just hates being found guilty of anticompetive behavior unless others join it in the category. It has been found guilty, on two continents. And instead of improving, it finds a new way to go after its competition, which is what got it in trouble in the first place.

Let's look at FairSearch for a minute, the Microsoft proxy that is behind the attacks at the FTC. Here are the members:

Travel Tech Association
Of course, Nokia.

Here's the FairSearch page on "search manipulation" and here's a report on just how fair, or not, FairSearch is:

Fairsearch, a group backed by Microsoft and other Google competitors to lobby that Google isn’t “fair” to them with its search results, has been having a event today to push its view of all that’s wrong with Google. That includes building a myth that Google requires that all Android devices to use Google search. Google doesn’t do that. It never has. But that’s a good story the group still wants to tell.

The FairSearch Event

Today’s mythbuilding came out of a panel called “Tech Executives: Exploring Barriers to Innovation in Mobile and Online Services,” part of the FairSearch “Searching for Innovation and Competition Online” event that was held at the Newseum in Washington DC today.

Susan Athey, a professor of economics with Stanford’s Graduate School of Business was on the panel, making it sound like there was an unbiased academic meant to balance things out against having Skyhook Wireless and TradeComet, both with grievances against Google, also on the panel.

The Microsoft Speaker & The Incorrect Android Search Claim

But Athey isn’t just a professor. She’s also a consultant to Microsoft and has the role of Microsoft’s chief economist. The Microsoft connections weren’t listed next to her name on the agenda, but at least they were made clear in her introduction to those at the event....

“Microsoft tried to make deals to become the default search engine on mobile devices. On Android, that was rendered impossible. They were told, Android makers, and carriers, were told, that you cannot use another default besides Google,” Athey said.

Debunking Time

That’s not true. Not only is it not true, it’s impossible. It’s impossible because Android code is released to anyone to do anything that they want with. But if just being impossible isn’t enough proof, how about proof of Android devices that have dropped Google as the default search engine?...

If Microsoft’s consultant putting out false facts isn’t bad enough, FairSearch makes it worse by reporting the error as being true and not picking up the correction that Athey later makes after a Google spokesperson in the audience calls her out on it.

FairSearch responded here. And here's some rebuttal on the antitrust arguments FairSearch makes, answered point-by-point. Remember Microsoft's bumbling "Get the Facts"? Why is the FTC listening to what is essentially a "Get the Facts" lobbyist for Microsoft that is so unreliable as to the facts?

Now I don't track all of Google's businesses and ways. I don't speak to their perfection, and I don't follow all the details. But I get the big picture clear as a bell. Microsoft is spending money to fund groups that attack Google. It isn't just FairSearch. Here's a report by Rick Falkvinge, "How Microsoft Pays Big Money to Smear Google in European Parliament," about another conference allegedly on privacy, sponsored by an entity called ICOMP:

I spent this week in the European Parliament in Brussels. One of the seminars I attended was advertised as being a seminar on privacy, big data, profiling, and online identities. As interesting as it sounded, it was anything but....

The next ten minutes were nothing like I had ever experienced. It was the most shameless bashing of a single company with hints and allegations that I had ever seen. In practically every sentence of the keynote, which was exclusively about how bad Google was as a company, words were snuck into the overall flow that were designed to plant ungrounded ideas in the audience’s mind.

“…in Google’s latest privacy scandal…”

“…Google made the headlines again…”

“…allegations that Google has downranked relevant search results…” (as if Microsoft gets to determine what is relevant?)

It went on and on. This was not a seminar on privacy at all. This was Microsoft-funded Google-smearing, plain and simple, and I felt my blood starting to boil. No free lunch was worth sitting down and taking this kind of language designed to smear a competitor for profit. I would not be a part of this.
The Economist covered that same ICOMP event, and notice the FTC tie-in:
On February 29th, a day before Google's new privacy policy kicked in, the Initiative for a Competitive Online Marketplace (ICOMP), a lobby group, held a seminar at the London offices of Burson-Marsteller, a public-relations firm. The title, “Protecting the Consumer: Data Privacy in the Digital Age”, suggested an evening of arcane wonkery. But the organisation and location hosting the seminar hinted that participants were in for a bout of Google-bashing. ...

The bland-sounding ICOMP is openly funded by Microsoft (among others), whose search engine, Bing, competes with Google's. ICOMP's homepage is littered with attacks on the search giant...

A few months ago, the Telegraph published a scathing review of ICOMP's antics. The organisation was unruffled.

The latest seminar was a textbook example of how not to lobby. ICOMP invited Christopher Graham, Britain's information commissioner, and Georgina Nelson, a lawyer with Which?, a consumer-rights group, to give the event a veneer of respectability. But the aim of the evening seemed to be to give Pamela Jones Harbour, a former commissioner at the Federal Trade Commission, a platform from which to attack Google. Ms Harbour, who left America's consumer-protection agency to become a partner at an American law firm that represents Microsoft, began by telling the gathered activists and digerati that Google's new privacy policy hurts consumers. She then quickly turned to Google's dominance in the online ad industry with slides and flowcharts illustrating the company's anti-competitive behaviour, a topic not immediately related to privacy concerns.

So Harbour went from the FTC to a job at a law firm that represents Microsoft. Here's another report on the conference where Harbour spoke, with more details as to her suggested goal, namely government regulation of the Internet:
While the program started with a decent enough summary of the legal landscape the FTC is looking at by Bert Foer of the American Antitrust Institute (who clarified his organization has no stance on the current FTC investigation), the program quickly descended into shocking calls for government power grabs, international destruction of an American company, and the typical complaints we’ve discussed on this blog before.

Two incredibly disturbing points stood out: First, that a long-term government “management” role/entity is a real possibility (and more or less likely, depending on the speaker) and second, that there should be an International coordinated “solution” to the Google “problem.”...

Perhaps most new and shocking were the calls for an international assault on Google and adoption of European laws on antitrust.

Former FTC Commissioner Pamela Jones was most gung-ho on this front: “Maybe you get together a global task force and have regulators from all around the world … and come up with a comprehensive global solution for global consumers of the Internet.”
That's not a solution I would ever want. Nor are we "consumers of the Internet" here. I help write the content on the Internet. The Internet is not a product to be passively consumed. Which is why I'd prefer that the government stay out of it and refrain from regulating it, particularly when they so obviously don't even understand how it works.

And may I say I don't even allow Google or any search engine to scoop up most of Groklaw's content, and we've done just fine in terms of gaining and holding a loyal audience? There is life without Google.

I want the government to leave the Internet alone. In the US, we are fortunate to have a Constitution that does not allow the government to pass laws regulating speech. It's a very precious thing that benefits us deeply and profoundly. Let China control the Internet for its citizens, if it is so inclined. But to get together and globally control the Internet? Is Harbour out of her mind? Or is it Microsoft? What in the world is it suggesting? What good can come of having any government dictate what must or must not be in search engine results, under penalty of law? Nothing Google has ever done or ever could do could be as damaging as that.

If that isn't what you want for your Internet, you might want to let the FTC know how you feel before it's too late. I don't pretend I know they will listen. But if all they are listening to is Microsoft paid lobbyists, I'm positive no good can come of it.

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