Google could face a large bill if found guilt of infringing Java patents

Against the background of Oracle and Google’s legal ruckus over the latter’s usage of Java, a platform developer has decided to sidestep the whole argument and ported Android to C#.

When Google built Android, the application environment was designed in Java, the language first developed by Sun Microsystems and now owned by Oracle. But in building the virtual machine called Dalvik that actually runs the application inside the host OS, Oracle claims that Google infringed upon some of its Java-related patents.

The court case is grinding on and could get very inconvenient and expensive for Google. But in the meanwhile, a cross platform developer called Xamarin has spent nearly a year porting much of the Android foundations to C#, an alternative object-oriented programming language developed by Microsoft. The big difference is that C# and the .Net runtime are covered by strong patent commitments preventing Microsoft from suing anybody that implements the technology.

As hardened developers of an alternative .Net runtime called Mono, the guys at Xamarin have been replacing Java in Android with C#. The result, which Xamarin has made available this week, is a C# version of the Android OS called XobotOS.

However, the developer said that XobotOS is only a “research project” and it does not intend to maintain it as a standalone project. So the OS is not likely to make it any further than the developer community any time soon. Xamarin however, said its research has yielded many tools necessary to replace some chunks of Java code with C# code where performance is critical and when C# can offer better solutions than Java has. The result is that much of the hard work is done should anyone want to fully develop a Java-free and potentially patent-infringement –free version of the Android OS.

The Patent Box aims to stimulate UK innovation

The last couple of years have seen a rapid escalation in the number of patent disputes in the telecoms sector, prompting many big names to call for changes to software patent law to better allow the industry to break out profits derived from patents.

On Friday, the UK Government will close its consultation on the Patent Box draft legislation due to come into force on April 1 2013. The legislation aims to reduce corporation tax from 26 per cent to ten per cent for profits made on patented technologies. By offering this tax break, the aim is to increase high-tech manufacturing innovation in the UK and to encourage more telecom companies to set up on UK shores and increase investment.

Yet with the implementation of the legislation only a year away, if companies are to benefit from the reduced rates of corporation tax on patent profits, they need to understand which patents are owned – an arduous process that needs to be started now, according to legal experts in the field.

Jeremy Morton, patent lawyer and partner at CMS Cameron McKenna LLP, said the development should mean that some smaller businesses should now take a greater interest in filing patents, while others will want to review their established R&D, patent management and transfer pricing arrangements so as to make best use of available tax regimes internationally.

“What all this means is that patent battles are not just seen in court but also in the auction house. Old-school technology businesses like Kodak are seeking to pay off debt by offloading under-exploited patents that could have strategic value to others as bargaining chips,” Morton said.

Read the opinion piece from Jeremy Morton

“Patent Box will allow companies to apply the reduced tax rate to relevant profits from the sale or licensing of patents, the sale of products that owe value to patents, and compensation won in patent litigation. The regime is generous when it comes to products, because there need only be one European or UK patent underlying the product in order to be able to include the whole of the income from the product as the starting point for the calculations.”

Yet while this is a potentially attractive new regime, it has not been developed with the telecoms sector particularly in mind, so to take best advantage companies will need to review not only their tax and transfer pricing arrangements, but also the terms of joint ventures, licensing arrangements, business disposals and acquisitions, and plans for group reorganisations.

Patent value is now more important and complex than ever

It is impossible to open the business pages without some reminder of the huge importance of patents to the telecoms industry.  This largely reflects the changes in the industry and the transformation of mobile devices so as to challenge the role of the PC, cameras and even books.  The government’s proposal to introduce a ten per cent rate of corporation tax for patent-related profits is designed to encourage investment in innovation in the UK, and further highlights the opportunities for those who get patent value right.  This could mean that some businesses (perhaps SMEs) should now take a greater interest in filing patents, and others will want to review their established R&D, patent management and transfer pricing arrangements so as to make best use of available tax regimes internationally.

Patent value is now more important and complex than ever as giants like Apple and Samsung battle for market share, not least because patents can provide competitive edge by delaying others’ introduction of attractive user features.  Also, the relative strengths of patent portfolios will determine the net royalty burden when competitors enter into cross-licences.  These cross-licences are needed because of technology standardisation and the existence of multiple patents that are essential in order to implement those standards.   This complicates the application of the Patent Box in the telecoms sector, because the contribution to profits from a company’s own patents is not always easy to discern.

What all this means is that patent battles are not just seen in court but also in the auction house.  Old-school technology businesses like Kodak are seeking to pay off debt by offloading under-exploited patents that could have strategic value to others as bargaining chips.  Speaking of Kodak, it is worth noting, in present economic circumstances, that the Patent Box regime contemplates the making of profits, albeit particular kinds of profits from prescribed activities calculated by making prescribed deductions.  Where losses arise from these calculations, businesses should carefully analyse how to make use of Patent Box (if at all).

Patent Box will allow companies to apply the reduced tax rate to relevant profits from the sale or licensing of patents, the sale of products that owe value to patents, and compensation won in patent litigation.  The regime is generous when it comes to products, because there need only be one European or UK patent underlying the product in order to be able to include the whole of the income from the product (and, potentially, accessories, although this is not clear) as the starting point for the calculations.  Perhaps controversially for the telecoms sector, however, this contrasts with the approach taken to services businesses: if services income is generated with reference to patent rights, an intra-company royalty arrangement must be established and the reduced tax rate can only be applied to the royalties earned for licensing of the patent to enable the services.

The draft legislation requires companies to have undertaken technical development if they are to enjoy the beneficial regime, even if they are purely licensing businesses.  This should have the effect of excluding those companies that acquire telecoms patents purely for licensing purposes (sometimes known as ‘trolls’).  However, it is open to interpretation whether the development requirement is satisfied for example by acquiring patents and then participating in the development of a relevant standard – if so, patent trolls might still qualify.  Where the tax paying company is part of a group, the development work can be done by another group company as long as the claiming company manages the patent portfolio.  This latter point may have implications for technology businesses that outsource the exploitation of patent portfolios.  The extent of required development, and of the requirement for involvement in patent management, will clearly be open to interpretation and large businesses will also need for example to consider whether to manage all intellectual property in one subsidiary or create a standalone patent holding arrangement.

The distinction between patents and other intellectual property (such as software copyright or trade marks) is another important factor, because relief will be limited to profits from patent rights.  This contrasts with similar regimes in other countries, such as Luxembourg, which do include income from other intellectual property.  Under the UK regime, the calculation of attributable profits involves a deduction of a notional royalty for the use of ‘marketing assets’ that include for example brands.  This could be particularly significant for the telecoms sector, where the contribution made by particular patents is sometimes difficult to gauge.  Unlike the pharmaceutical sector, where one patented compound will often comprise the entire product, the numerous patents for, say, features of a mobile handset, often bring only small incremental gains.

Consumers will often be entirely unaware of the contribution made to the end product by those patents.  So, for companies that do opt in to the UK regime, it will be important to ensure maximum input to the Patent Box in respect of income that could be attributed to patents, as opposed to excluded features that may be more visible to users.

The consultation on the draft legislation closes on 10th February.  This is potentially a highly attractive new regime, but it has not been developed with the telecoms sector particularly in mind.  To take best advantage companies will need to review not only their tax and transfer pricing arrangements, but also the terms of joint ventures, licensing arrangements, business disposals and acquisitions, and plans for group reorganisations.  Savings could be considerable, but planning must begin now in order for arrangements to be in place when the regime comes into operation in 2013.

Jeremy Morton is a Patent lawyer and Partner at CMS Cameron McKenna LLP

Apple and Samsung both fail in getting each others devices banned in Australia and France respectively

Apple has had to admit defeat in its efforts to ban sales of Samsung’s Galaxy Tab 10.1 in Australia, after an Australian High Court has rejected an appeal to keep the device off shelves. Samsung, meanwhile, has also lost out in its attempts to ban sales of Apple’s iPhone 4S device in France, as the patent war between the two manufacturers drags on.

Apple had successfully secured a temporary injunction to ban sales of the Galaxy 10.1 in Australia, which had been in place since August this year. However, this was overturned by the New South Wales Federal Court in Australia at the end of November.

Last week Justice John Dyson Heydon from the High Court, ruled the injunction had to remain in place while the High Court considered whether to accept an application by Apple to appeal the decision.

The appeal has been refused, the Galaxy Tab 10.1 will be on shelves in Australia by Monday, allowing the Korean firm to capitalise on the lucrative Christmas sales period.

Meanwhile, in France, Samsung had been attempting to block sales of the iPhone 4S handset, but the French court has rejected the claim that the device copies Samsung’s Galaxy smartphones.

The court has ordered Samsung to pay €100,000 in damages to Apple, ruling that the Korean firm’s request had been out of proportion to the issue.

Apple's popular iPhone has not infringed HTC's patents, ruled a US court

The USA’s International Trade Commission (ITC) has ruled that Apple did not violate rival vendor HTC’s patents for technology used in its mobile devices. HTC had filed the complaint with the ITC last year seeking a ban on the import of Apple devices into the USA as part of an ongoing patent dispute between Apple and Android device manufacturers.

The ITC found that Apple’s devices did not violate four of HTC’s patents, which cover technology for looking up and dialing phone numbers and different techniques for managing power consumption on portable electronic devices.

While a final decision has to be approved by the full Commission, it is rare for them to overturn the findings from the Law Judge.

HTC said it is waiting to get a full copy of the ruling before it decides how to proceed, but is expected to ask the ITC to review its decision.

“This is only one step of many in these legal proceedings,” HTC General Counsel Grace Lei said in a statement. “We are confident we have a strong case for the ITC appeals process and are fully prepared to protect our intellectual property.”

The final determination from the Commission is due February 2012.

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Samsung is readying an injunction to block sales of the iPhone 5 in Korea

Samsung is seeking to block the sale of Apple’s iPhone 5 in South Korea, when it launches.

The company recently lost the rights to sell its Galaxy Tab in Germany, after Apple won an injunction to block the sale of the product, alleging that the device infringes patents held by Apple.

According to The Korea Times, Samsung is seeking revenge, and will endeavour to block the sale of the next product Apple will bring to the market, the iPhone 5, in its home nation, South Korea.

The company claims that all Apple’s iPhone models infringe on seven of its South Korean patents.

“Just after the arrival of the iPhone 5 here, Samsung plans to take Apple to court here for its violation of Samsung’s wireless technology related patents,”’ the Korean newspaper cited an unnamed senior executive from Samsung Electronics, as saying.

“For as long as Apple does not drop mobile telecommunications functions, it would be impossible for it to sell its i-branded products without using our patents. We will stick to a strong stance against Apple during the lingering legal fights.”

Samsung has said that it will appeal the decision by a German court to ban the sale of its Galaxy Tab in the country. There are currently at least 23 lawsuits pending between Apple and Samsung globally.

The Galaxy Tab has been pulled from European shelves

Apple has scored a victory in the patent wars this week, convincing a German court to grant a pan-European injunction against Samsung, preventing sales of the Korean firm’s flagship Galaxy Tab 10.1 across Europe, with the exclusion of the Netherlands.

The move marks the latest development in the constant to-ing and fro-ing between device vendors. Apple sued Samsung earlier this year, claiming that its Galaxy Tab “slavishly” copies the iPad and infringes upon ten patents held by Apple. Samsung promptly countersued in its domestic market of South Korea, but not before Apple’s claims had delayed the launch of the Tab device in Australia.

According to reports, tens of thousands of Tabs have been seized following the ruling, which may be extended to the Netherlands via a local hearing.

However, the ruling is only temporary as it is an interim injunction granted ahead of a hearing by greater courts in the EU and US. Samsung, naturally, is appealing the decision.

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The purchase gives HTC cloud services and patents

Taiwanese handset developer HTC has made another acquisition to beef up its patent portfolio as technology companies around the globe prepare to fend off legal disputes. HTC is reported to have spent $18.5m on the purchase of Dashwire, a mobile cloud platform developer.

Dashwire, based in Seattle and backed by Trilogy Equity Partners and Best Buy Capital, was founded in 2006 to develop cloud-based services allowing users to access their mobile content across multiple screens. HTC will integrate Dashwire’s cloud sync and device set up products into the HTCSense.com cloud services it launched last year.

“Cloud services are key to delivering the promise of connected services to our customers,” said Fred Liu, president of engineering and operations at HTC.”People want access to all of their important content wherever they are on any device. The addition of Dashwire’s cutting-edge sync services and deep mobile cloud experience strengthens our ability to deliver these services in a more powerful way.”

In July, HTC snapped up long term partner S3 Graphics from Taiwanese chip maker Via Technologies for $300m, giving the handset firm 235 patents, mostly related to graphics technology, to bolster its portfolio.

HTC is currently at legal loggerheads with Apple, as the big industry dust up over who’s copying who drags on.

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HTC has scored a patent power up

The race to bolster patent portfolios continued apace in Taiwan this week as burgeoning device vendor HTC snapped up a graphics processor firm and long term partner.

HTC acquired S3 Graphics from Taiwanese chip maker Via Technologies for $300m and is probably glad to get rid of it. VIA acquired S3 in 2001 with the intention to accelerate integration of graphics capabilities with its processor and chipset products, but the new purchase became undercapitalised in 2005 and VIA introduced WTI Investment International as a new investor to bail S3 out.

Eyebrows are being raised over HTC’s move this week however, as Cher Wang is not only chairman of VIA, but is also a significant shareholder in WTI and co-founder of HTC.

Under the terms of the agreement, VIA will receive $147m and WTI will receive $153m of the purchase price, while VIA will recognise a capital gain of $37m for getting shot if S3.

In terms of IP, HTC will acquire 235 patents, mostly related to graphics technology, to bolster its portfolio. HTC is currently at legal loggerheads with Apple, as the big industry dust up over who’s copying who drags on.

With the current craze for nostalgia ripping around the world, it was only a matter of time before the mobile industry got in on the act. But any fool can churn out Keep Calm and Carry on mugs or recipes featuring five ways with dried egg; real talent, as St. Steve of Cupertino once said, ships. And in this instance, the talent is going large and shipping us a redux of the nuclear arms race, only this time using the slightly less toxic weaponry of patents and legal suits, as seemingly everyone who is anyone in the industry has a legal axe to grind with their competition.

In the absence of a SALT 1-type non-proliferation agreement, the Informer is finding it increasingly difficult to keep up with all the handbag slinging. This week it was Research in Motion’s turn. Already under pressure from declining sales and a pending class action suit from disgruntled shareholders, RIM can now add a patent infringement suit from audio bigwig Dolby to its ever-lengthening list of woes.

The lawsuit, which was filed jointly in America and Germany this week, centres around patents for audio compression technology that allows for high quality sound using limited wireless bandwidth and storage space. In addition to financial damages, Dolby is looking to halt sales of RIM devices alleged to be using the technology. If only Dolby had heard that O2 and, indeed, RIM itself were pulling dodgy/undesirable Blackberry PlayBooks off the shelves, it could have saved itself a few quid on the legal fees.

On the very day it was due to launch the PlayBook in the UK, O2 announced that it wouldn’t be selling the device after all because “unfortunately there are some issues with the end to end customer experience.” Following mixed reviews and less-than-stellar sales, RIM received a further kick where it hurts with the news that some of the devices were shipped with an unstable OS that prevented the proper loading of software on the initial set-up of the tablet. At time of writing, RIM had announced the recall of 1,000 of the devices but claimed that most of the faulty ones were still sitting in distribution channels and hadn’t even been sold yet.

Staying on the patents front, fading giant Nortel has become the tech-industry’s answer to a crack house in a dodgy neighbourhood as some of the industry’s biggest guns line up outside to score a little candy from its massive patent supply. Google, at the top of the queue holding $900m in its hot little hand, has said it needs the 6,000 patents in order to be able to fight off legal suits from a growing number of competitors claiming that Android infringes on their intellectual property rights. As if to prove the search big wig’s point, Microsoft, HP, Motorola Mobility and Nokia are ganging up to oppose the pending sale. According to Microsoft, a deal struck between Nortel and it in 2006 gives it a “worldwide, perpetual, royalty-free licence to all of Nortel’s patents” and this agreement is binding, regardless of who buys the IP.

Google’s bid was approved by the courts overseeing Nortel’s bankruptcy proceedings in Canada and the US early in May, but the saga didn’t end there. With Apple, RIM, Nokia and Mircosoft all rumoured to be sniffing around the sale room, the proposed of June auction has been postponed due to “significant levels of interest.” Whatever happens, Google stands to turn a profit: its bid comes with a $25m “break-up fee” that will see it walk away with at least some cash should another bidder prove successful.

If Google’s feeling like it’s on the verge of a sweet deal, Telcordia must be grinning like the proverbial Cheshire Cat, following its $1.15bn, all-cash sale to Ericsson. The deal, which will take full effect in the first quarter of 2012, will see approximately 2,600 employees move to the Swedish kit maker. Ericsson CEO Hans Vestberg said the deal reflected the growing importance of operations and business support systems in an environment where “more and more devices are connected, services become mobile and new business models for mobile broadband are introduced.”

Vestberg also pointed to Telcordia’s established position in North American and other markets as well as its “good multi-vendor product portfolio” as key elements of the deal. “We have global presence and scale, global service capabilities and superior knowledge about networks and network performance, as well as an already established position in the OSS/BSS space,” he said. “It is a perfect fit.” Telcordia CEO Mark Greenquist said that the deal would drive the joint expansion of offerings to “manage the world’s most dynamic networks.”

According to Ericsson, OSS and BSS are critical to the success of operators seeking to handle data traffic growth and device proliferation whilst simplifying the processes that support business. Ericsson said that the market for software and systems integration in 2010 was worth about $35bn and expected to show a compound annual growth rate of 6-8 per cent through 2013. The company added that “there is an attractive market” for outsourced and hosted managed services, growing in the same range.

Also growing is the m-wallet phenomenon. This week, the UK’s three biggest operators – O2, Vodafone and T-Mobile / Orange parent Everything Everywhere – launched a standalone m-commerce joint venture designed to provide a single contact for advertisers, marketing partners, retailers and banks to create m-commerce products and services. Cashing in on the m-wallet craze, the JV will target companies and organisations that provide anything from credit, debit and loyalty cards to membership cards and transport tickets, allowing them to create secure mobile versions of their products.

Consumers will be able to use their phones to pay for goods, services and travel using NFC contactless technology, or online via mobile or PC. Offers and coupons will be delivered directly to consumers’ phones while companies will have a single touch point to book advertising space and create campaigns as well as provide these offers. The operators will maintain their place in the value chain by making sure the secure element is SIM-based, so it can be used regardless of which NFC-enabled device or mobile network they are using.

It was some fury that greeted the International Multimedia Telecommunications Consortium’s (IMTC) announcement that it had completed a “first ever” on the VoLTE front at its SuperOp testing event in Huawei. Within about a nanosecond of the story appearing on telecoms.com, Verizon, Ericsson and Hong Kong-based Telstra subsidiary CSL were all in like Flynn to let us know that they’d conducted the first VoLTE calls.

Verizon pointed to calls made at its Basking Ridge HQ on February the 8^th this year as the true “milestone” for successful voice over LTE. CSL, meanwhile, was very keen to establish its credentials by sending the Informer a video clip of its “first” VoLTE call, made at the GSMA Mobile Congress Asia event in November last year. But even that was eclipsed by Nokia Siemens Networks and Samsung, who did the VoLTE business at the CTIA Wireless event in March 2010.

As with so much in life, the devil’s in the detail. Unlike life, however, everyone gets to be a winner, as the GSMA’s Dan Warren told us that each claim is correct in its own right. Samsung-NSN demo’d VoLTE voice calling on laptop clients; CSL achieved the first call on an operator-hosted IMS implementation, plus video, while Verizon Wireless, ALU and LG demo’d VoLTE and video on handsets over a live network. The IMTC, meanwhile will be allowed to retain their particular first-past-the-post claim because they demonstrated multiple handset interoperability using VoLTE.

Warren said that “we all need these milestones, past and future to get to a point where we can start to see an ecosystem” begin to develop,” but also pointed out that the real fun will start “when the voice calls become part of something bigger, and that is ultimately what VoLTE is going to be all about.”

And speaking of fun, it has not escaped The Informer’s attention that it is, in fact, Friday. As thoughts of libation drift towards front of mind, a little something to take the chill out of the air won’t go amiss, so that’s about it for the week.

Take care,

The Informer