Apple 2.0

Covering the business that Steve Jobs built

Chutzpah: Google also wants 2.25% of every iPhone sale

February 9, 2012: 6:02 AM ET

It's not enough that Google borrowed the phone's look and feel to make Android?

From Google's IEEE letter. Source: FOSS Patents. Click to enlarge.

It took a Techmeme news cycle for the import of Google's (GOOG) letter to the IEEE -- the nonprofit organization that sets technical standards for everything from AC/DC converters to Wi-Fi networks -- to sink in.

Early reports praised the company for joining Apple (AAPL) and Microsoft (MSFT) in their calls for adherence to the "fair, reasonable and non-discriminatory" licensing terms that IEEE members promise to honor when they submit their patented technology for consideration as an industry standard.

It wasn't until FOSS Patents' Florian Mueller got his hands on the text and spotted the telling third paragraph that the tone of the news coverage changed. The paragraph states, in language it describes as "irrevocable," that when Google is through buying Motorola (MOT) and its 17,000 patents, it is prepared to ask for the same "maximum per-unit royalty of 2.25%" that Motorola is demanding of Apple for every iPhone sale

Apple has complained in European courts that Motorola's demand is unfair, unreasonable and totally discriminatory.

Mueller agrees. "2.25% of the selling price of the product as a whole," he wrote, "is absolutely out of step with the concept of FRAND and with industry practice."

To outsiders, 2.25% may not seem like a lot, but consider this: The online database maintained by the European Telecommunications Standards Institute lists 4,956 standards covering 117,964 patents filed by 175 companies. If each of them demanded 2.25% every time a competitor tried to build a compatible device, the industry would grind to a halt.

One can only imagine what Steve Jobs would say to Google's latest gambit. The proprietary technology he felt Google had "stolen" (his word) from Apple to build Android was original work, and not something Apple had asked to be made an industry standard. To try to create an equivalence with so-called essential patents -- at least one of which dates back to the age of the pager -- that Motorola promised at the time to share fairly with all comers may be the modern definition of chutzpah.

UPDATE: Pando Daily's MG Siegler reminds us what David Drummond, Google's chief legal counsel, wrote last August, before the Motorola acquisition plan was announced. In a blog post entitled "When patents attack Android," he took a firm, principled stance against per-unit royalty fees:

A smartphone might involve as many as 250,000 (largely questionable) patent claims, and our competitors want to impose a "tax" for these dubious patents that makes Android devices more expensive for consumers. They want to make it harder for manufacturers to sell Android devices. Instead of competing by building new features or devices, they are fighting through litigation.

Hmmm.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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