Apple Inc. v. Samsung Electronics Co. Ltd. et al

Filing 972

Declaration of Cyndi Wheeler in Support of #927 Administrative Motion to File Under Seal Samsung's Motion to Exclude Opinions of Certain of Apple's Experts filed byApple Inc.. (Attachments: #1 Exhibit 1, #2 Exhibit 2, #3 Exhibit 3, #4 Exhibit 4, #5 Declaration Of Mark D. Selwyn In Support Of Samsungs Administrative Motion To File Documents Under Seal Re Samsungs Motion To Exclude Opinions Of Certain Apple Experts, #6 Selwyn Exhibit 1, #7 Proposed Order [Proposed] Order Granting Samsungs Administrative Motion To File Documents Under Seal Re Samsungs Motion To Exclude Opinions Of Certain Apple Experts)(Related document(s) #927 ) (Bartlett, Jason) (Filed on 5/24/2012)

Exhibit 1

EXHIBIT 32
FILED UNDER SEAL

1
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

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3
4

APPLE INC., a California corporation,

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Plaintiff,

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7
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vs.
SAMSUNG ELECTRONICS CO., LTD., a
Korean business entity, SAMSUNG
ELECTRONICS AMERICA, INC., a New
York corporation, and SAMSUNG
TELECOMMUNICATIONS AMERICA,
LLC, a Delaware limited liability company,
Defendants.

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SAMSUNG ELECTRONICS CO., LTD., a
Korean business entity, SAMSUNG
ELECTRONICS AMERICA, INC., a New
York corporation, and SAMSUNG
TELECOMMUNICATIONS AMERICA,
LLC, a Delaware limited liability company,

Civil Action No. 11-CV-01846-LHK

Counterclaim-Plaintiffs,
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v.
APPLE INC., a California corporation,
Counterclaim-Defendant.

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Expert Report of Richard L. Donaldson, Esq.
March 22, 2012

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CONTAINS APPLE AND SAMSUNG ATTORNEYS’ EYES ONLY INFORMATION

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EXPERT REPORT OF RICHARD L. DONALDSON
CASE NO. 11-CV-01846 (LHK)

TABLE OF CONTENTS
1

I.

Page
Introduction and Summary of Report..............................................................1

2

II.

Qualifications...................................................................................................2

3

A.
B.

4
5

Experience in the Industry ....................................................................2
Testifying and Consultant Experience ..................................................3

III.

Materials Considered.......................................................................................4

IV.

Opinion ............................................................................................................5

6
7

A.

FRAND Licensing Obligations Are Necessary To Prevent Patent
Hold-Up.................................................................................................6

C.

9

Telecommunication Standards Are Crucial to Innovation And
Must Be Protected From Abuse ............................................................5

B.

8

The Development Of UMTS And Other Wireless Communication
Standards ...............................................................................................8

10
11
12

D.

13
14
15

E.

16

F.

17

G.

18
19
20

V.

Trial Exhibits .................................................................................................37

VI.

Previous Testimony and Compensation ........................................................38

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22

VII. Supplementation of Opinions........................................................................38

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EXPERT REPORT OF RICHARD L. DONALDSON
CASE NO. 11-CV-01846 (LHK)

CONTAINS APPLE AND SAMSUNG ATTORNEYS’ EYES ONLY INFORMATION

1

I.

Introduction and Summary of Report
1.

2

I have been retained as an expert in this case by Plaintiff and Counterclaim

3

Defendant Apple Inc. (“Apple”). I expect to testify at trial regarding the matters set forth in this

4

report, if asked about them by the Court or the parties’ attorneys.
2.

5

I understand that the Defendants and Counterclaim Plaintiffs in this case,

6

Samsung Electronics Co. Ltd. and Samsung Telecommunications America, LLC (together,

7

“Samsung”), have brought a number of claims against Apple, including asserting twelve U.S.

8

patents against Apple.1 I also understand that Samsung has declared to the European

9

Telecommunications Standard Institute (“ETSI”) seven of the twelve patents it asserted against

10

Apple as essential to the Universal Mobile Telecommunications System (“UMTS”)

11

telecommunications standard, which was developed by the Third Generation Partnership Project

12

(“3GPP”). The seven patents Samsung has declared to ETSI and now asserts against Apple are

13

the ‘516 Patent, ‘941 Patent, ‘001 Patent, ‘410 Patent, ‘604 Patent, ‘792 Patent, and ‘867 Patent

14

(together, “Declared Essential Patents”). As I describe in more detail below, when Samsung

15

notified ETSI of its Declared Essential Patents, it made a commitment to: (i) grant irrevocable

16

licenses to its Declared Essential Patents to all present and future implementers of the UMTS

17

standard; and (ii) to offer such licenses on fair, reasonable, and non-discriminatory (“FRAND”)

18

terms.

19

3.

I have been asked for my expert opinion on three subjects. First, I have been

20

asked whether the license terms that Samsung offered to Apple for its Declared Essential Patents

21

were fair, reasonable, and non-discriminatory. Second, I have been asked whether Samsung’s

22

conduct in pursuing an injunction against Apple for alleged infringement of Samsung’s Declared

23

Essential Patents is consistent with its obligations under its FRAND undertaking. Third,

24

1

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26
27

I understand that the twelve Samsung patents are U.S. Patent No. 6,928,604 (the “‘604 patent”), U.S. Patent
No. 7,050,410 (the “‘410 patent”), U.S. Patent No. 7,069,055 (the “‘055 patent”), U.S. Patent No. 7,079,871 (the
“‘871 patent”), U.S. Patent No. 7,200,792 (the “‘792 patent”), U.S. Patent No. 7,362,867 (the “‘867 patent”), U.S.
Patent No. 7,386,001 (the “‘001 patent”), U.S. Patent No. 7,447,516 (the “‘516 patent”), U.S. Patent No. 7,456,893
(the “‘893 patent”), U.S. Patent No. 7,577,460 (the “‘460 patent”), U.S. Patent No. 7,675,941 (the “‘941 patent”),
and U.S. Patent No. 7,698,711 (the “‘711 patent”).

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EXPERT REPORT OF RICHARD L. DONALDSON
CASE NO. 11-CV-01846 (LHK)

CONTAINS APPLE AND SAMSUNG ATTORNEYS’ EYES ONLY INFORMATION

1
2
3
4.

4

To summarize my conclusions, it is my opinion that: First,

5
6
7
Second, Samsung’s

8
9

pursuit of an injunction against Apple for alleged infringement of its Declared Essential Patents

10

violates a key component of the FRAND commitment—namely, that all implementers of the

11

relevant standard are entitled to a license on FRAND terms. As Samsung has asserted in other

12

lawsuits, seeking an injunction for declared essential patents violates the patent holder’s FRAND

13

commitment. Third,

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15
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II.

Qualifications

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21

A.
5.

Experience in the Industry

I have spent most of my career in the area of licensing of intellectual property. I

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worked at Texas Instruments (“TI”) for thirty-one years as a patent attorney. When I retired in

23

April 2000, I was Senior Vice President and General Patent Counsel.

24

6.

Throughout my time at TI, my responsibilities included developing patent

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licensing strategies and negotiating patent licenses for TI. I personally negotiated hundreds of

26

patent licenses. The patent licenses varied in size from covering only a few patents to up to

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hundreds or even thousands of patents. I negotiated patent licenses with virtually all of the major

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-2EXPERT REPORT OF RICHARD L. DONALDSON
CASE NO. 11-CV-01846 (LHK)

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computer and semiconductor manufacturers for patents relating to personal computers and other

2

devices.
7.

3

Many of these negotiations involved patents claimed to be essential to practice an

4

industry standard. In these negotiations, a major concern of potential licensees was non-

5

discrimination; none of them wanted to pay a rate or agree to other material terms significantly

6

different from what their competitors had negotiated.
8.

7

While at TI, I developed and implemented licensing strategies for integrated

8

circuits (including baseband controllers, processors, and analog to digital converters), personal

9

computers, telecommunications devices, and other products. As General Patent Counsel, I was

10

responsible for all aspect of protecting and enforcing intellectual property for TI worldwide.

11

This included responsibility for determining whether TI’s interests would be served by

12

participation in various standards-setting organizations (“SSOs”), and if TI decided to participate

13

in the SSO, managing licensing issues associated with that work. Before approving TI’s

14

participation in an SSO, I would assist TI in determining the scope of the commitment TI was

15

willing to make regarding licensing its patents. When TI joined an SSO, TI had duties to

16

disclose intellectual property rights (“IPR”) and would make commitments to license patents on

17

fair, reasonable and non-discriminatory (“FRAND”) terms. I also had some involvement with

18

the European Telecommunications Standards Institute (“ETSI”), although TI’s involvement with

19

ETSI became more extensive after I retired.
9.

20

I graduated from Kansas State University in 1965 with a B.S. in Electrical

21

Engineering. I earned my J.D. from St. Louis University in 1969, graduating cum laude. I

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received an L.L.M. in Patent and Trade Regulation Law from George Washington University in

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1973.

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25
26

B.
10.

Testifying and Consultant Experience

During my career at TI, I testified a number of times in state and federal courts

and before the U.S. International Trade Commission and submitted declarations to courts

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CASE NO. 11-CV-01846 (LHK)

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overseas regarding licensing policies, industry licensing practices, and patent portfolio

2

evaluation.

3

11.

Since retiring from TI, I have consulted regarding patent royalties and damages in

4

patent infringement cases, including litigation involving patents as to which FRAND

5

commitments have been made. I have been qualified as an expert on licensing and royalty issues

6

in dozens of cases over the last decade. Many of the cases on which I have consulted have

7

involved licensing and royalty issues—including with respect to patents to which FRAND

8

commitments have been made—in the telecommunications industry.
12.

9

I have published multiple articles in the licensing area, including “Licensing and

10

Patent Portfolio Management,” “Making Your Intellectual Property Assets Work,” and “IP Audit

11

and Patent Valuation.” I have given speeches on licensing and intellectual property related

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topics, including “Win-Win to Windfall – An Evolution of Licensing Practices,” “Licensing and

13

Technology Transfer,” “Intellectual Property Capital Management” and “Intellectual Property

14

Asset Management.” I have also been a member of the faculty on a number of continuing legal

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education programs related to licensing issues, and have served on panels on topics such as

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“Licensing in the Semiconductor Industry,” “International Patent Strategy,” “High Tech

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Litigation Megacourse 2001,” and “Managing an Intellectual Property Portfolio to Maximize the

18

Value to a Corporation.”
13.

19
20
21

III.

A copy of my resume is curriculum vitae is attached as Appendix A.

Materials Considered
14.

The materials I have considered in forming the opinions in this report are cited

22

throughout. Additionally, I have reviewed certain license agreements produced by Apple and

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Samsung in this case. A list of the documents I have reviewed is attached as Appendix B.

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-4EXPERT REPORT OF RICHARD L. DONALDSON
CASE NO. 11-CV-01846 (LHK)

CONTAINS APPLE AND SAMSUNG ATTORNEYS’ EYES ONLY INFORMATION

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IV.

Opinion

2

A.

3
4

15.

Telecommunication Standards Are Crucial to Innovation And Must Be
Protected From Abuse

Industry standards offer many advantages to industry and the public—they

5

facilitate product interoperability and compatibility, and encourage widespread technology

6

deployment. Industry standards also reduce barriers to entry, encourage economies of scale, and

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create unified platforms for the development and launch of new products. In the

8

telecommunications industry, a large number of companies are engaged in the development and

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manufacture of smart phones and other consumer devices that are compatible with UMTS and

10
11

other telecommunication standards.
16.

Once a technology is standardized, companies making equipment compliant with

12

the relevant standard must use the standardized technology. Patents necessary to practice the

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standardized technology are often referred to as “essential patents.” SSOs must balance the

14

competing goals of unimpeded access to the standard against patent holders’ desire to obtain fair

15

compensation for the use of their intellectual property. Allowing the owner of an essential patent

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to deny licenses or charge unreasonably high or discriminatory royalty rates would frustrate the

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SSOs’ goal of creating efficient and economically viable standards. To reconcile the conflicting

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goals, SSOs often require members to disclose IPR that may be “essential” to the proposed

19

standard before the standard is finalized, and further, to agree to license declared essential

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patents to all interested parties on FRAND terms.

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17.

Once a standard is established, a patentee holding declared essential patents that

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purportedly cover features within a standard could, left unconstrained, be in a position to demand

23

exorbitant royalties or other terms from implementers of the standard, far in excess of what is

24

warranted by the intrinsic value of the technology, because implementers of the standard are

25

“locked-in” to using the standard. That is because, as the patentee knows, it would be less costly

26

for the designer to pay the excessive royalty or capitulate to unreasonable terms than to incur the

27

cost of switching or face a risk of injunction. This dynamic is often referred to as “patent hold-

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-5EXPERT REPORT OF RICHARD L. DONALDSON
CASE NO. 11-CV-01846 (LHK)

CONTAINS APPLE AND SAMSUNG ATTORNEYS’ EYES ONLY INFORMATION

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up.” As Samsung has explained in prior litigation: “The payoff for owners of patents that are

2

incorporated into the standard is substantial because the entire industry will need a license to the

3

patents essential to the standard . . . .” Samsung First Amend. Compl. at 5, Samsung Elec. Co. v.

4

InterDigital Commc’ns Corp., No. 07-CV-0167 (D. Del. Sept. 14, 2007) (APLNDC-WH-

5

A0000022677). SSOs address this potential problem by requiring participants to disclose patents

6

or other IPR that might be essential to a proposed standard and to agree to license that IPR on

7

FRAND terms to any parties wishing to implement that standard.

8
9

B.
18.

FRAND Licensing Obligations Are Necessary To Prevent Patent Hold-Up

For the reasons described above, both the timely disclosure of essential patents,

10

and compliance with commitments to license on FRAND terms all patents that are declared

11

essential, are necessary to achieve the benefit of standardization, while avoiding abusive

12

practices that harm the industry and consumers. The disclosure requirement is designed to

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ensure that the SSO is able to weigh the costs and benefits of alternative technologies to

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accomplish a particular feature in the standard (or including a particular feature at all) with full

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knowledge of IPR claims that may cover the technology at issue. The FRAND commitment

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imposes a crucial constraint on the power to demand exorbitant royalties and other licensing

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terms that the standardization process confers on holders of claimed essential IPR.

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19.

The requirement to license declared essential patents on FRAND terms is taken

19

seriously among industry participants, and in my experience, is widely understood to require that

20

holders of declared essential patents subject to FRAND commitments be willing to accept much

21

lower royalties and other licensing terms than a holder of patents that are not declared essential

22

to a standard. This is due in substantial part to the telecommunication industry’s understanding

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that the value of declared-essential patents typically comes largely or entirely from the fact that a

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license to those patents is claimed to be necessary to practice an industry standard, and not from

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the intrinsic value of the claimed invention. As I described above, the “lock-in” effect from

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standardization means that declared essential patent holders will have a much larger pool of

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potential licensees than if the same patent had not been included in the standard. It is well

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-6EXPERT REPORT OF RICHARD L. DONALDSON
CASE NO. 11-CV-01846 (LHK)

CONTAINS APPLE AND SAMSUNG ATTORNEYS’ EYES ONLY INFORMATION

1

understood in the telecommunications industry, that the trade-off for inclusion of a patent into a

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standard, is that the holder of a declared-essential patent that has made a FRAND declaration

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must make its technology available on fair, reasonable, and non-discriminatory terms.

4

20.

It is important to note that due to the massive number of essential patent

5

declarations made to most SSOs (thousands of patents have been declared essential to UMTS

6

alone), licensing professionals generally make no attempt to assess whether any given patent, or

7

even a subset of a portfolio, is indeed actually essential to a standard. In the case of most

8

standardized technologies, certainly including the UMTS interface, such an analysis would be

9

impracticable and uneconomical to perform in the context of licensing negotiations.

10

21.

Further, it is well understood among licensing professionals and in the

11

telecommunications industry more generally that a commitment to license on FRAND terms

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extends to all patents that the patentholder claims are essential to the standard, whether or not

13

any particular patent has been found objectively essential to the standard in question. Indeed, the

14

system under which product suppliers are able to rely on FRAND commitments in developing

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and marketing standard-compliant products would break down if FRAND declarants were not

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required to license on FRAND terms all patents they have declared-essential to the standard.

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Among other things, a party seeking to implement a standard would required a definitive

18

determination that any given declared essential patent truly is essential to that standard before it

19

could insist on a FRAND license.

20

22.

In addition to the requirement that declared standard-essential patents be licensed

21

on fair, reasonable, and non-discriminatory terms, a FRAND undertaking also prohibits the

22

declarant from seeking an injunction for declared-essential patents. For industry participants, the

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logic is clear—by making an irrevocable commitment to grant licenses on FRAND terms, the

24

declarant has (i) consented to any implementer of the relevant standard practicing its declared

25

essential patents; and (ii) acknowledged that a FRAND royalty payment—or a damages award

26

amounting to a FRAND royalty—will make it whole for any use of the patented technology.

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Indeed, Samsung itself has recognized this principle in its litigation with Ericsson, where

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-7EXPERT REPORT OF RICHARD L. DONALDSON
CASE NO. 11-CV-01846 (LHK)

CONTAINS APPLE AND SAMSUNG ATTORNEYS’ EYES ONLY INFORMATION

1

Samsung argued that “[t]he Claimant, having committed itself to licensing the Patents upon fair,

2

reasonable and non-discriminatory terms, has accepted that it can be compensated in monetary

3

terms for any use of the Patents …. In the premises, should the Claimant be entitled to any relief,

4

which is denied, the appropriate relief is the grant of a damages equivalent to a fair, reasonable

5

and nondiscriminatory royalty.” Re-amended Defence and Counterclaim of Samsung at ¶¶

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108.1, 109, Telefonaktiebolaget LM Ericsson v. Samsung Electronics UK Ltd., No. HC06

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C00618 (High Court of Justice, Chancery Division, Patents Court, Mar. 15, 2007) (APLNDC-

8

WH-A00000-22602). In sum, by declaring a patent to be essential and simultaneously

9

committing to offer FRAND terms for a license to the patent, the licensor forfeits its right to seek

10

injunctive relief.

11

23.

Absent the prohibition against seeking an injunction, a holder of purportedly

12

essential IPR would be able to engage in the type of patent “hold-up” that could ultimately

13

destabilize the standard-setting process. From my experience negotiating numerous licenses to

14

declared standards-essential patents, it is well understood that parties that have participated in

15

standards-setting and make FRAND commitments under the ETSI IPR Policy would be acting

16

antithetically to that Policy and the purposes behind standard-setting if they were to pursue

17

injunctive relief. Indeed, by seeking an injunction, a FRAND declarant impermissibly abuses

18

hold-up power and gains enhanced opportunities to extract exorbitant royalties and licensing

19

terms (precisely what the ETSI IPR Policy was designed to constrain). By seeking injunctions

20

against those practicing the relevant standard, holders of declared-essential patents also threaten

21

to stifle competition by excluding new entrants to the market, either by actually obtaining

22

injunctions to bar new products or by discouraging investment by causing innovators to fear that

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their nascent products will be subject to exclusion through an injunction and their investments in

24

those products wasted.

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26

C.

The Development Of UMTS And Other Wireless Communication
Standards

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-8EXPERT REPORT OF RICHARD L. DONALDSON
CASE NO. 11-CV-01846 (LHK)

CONTAINS APPLE AND SAMSUNG ATTORNEYS’ EYES ONLY INFORMATION

1

24.

Over the last three decades, standards for wireless communications have evolved

2

and become considerably more complex. Mass marketing of cell phones began in the 1980s with

3

phones that operated on analog networks. The second generation of mobile wireless technology,

4

commonly referred to as “2G,” began the transition to digital technology. 2G networks and

5

advanced 2G networks, sometimes referred to as 2.5G networks, also began supporting more

6

data-intensive applications, such as email, web browsing, and sending and receiving pictures by

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phone. The third generation (“3G”) technologies were developed to support even more data-

8

intensive operations commonly associated with smartphones like the iPhone, such as multimedia,

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more sophisticated web browsing, music and video downloading, and global positioning systems

10

(“GPS”). The key word, however, is support—3G does not itself provide the technology for a

11

web browser, music or video downloading, or GPS. Nor must a 3G phone offer those features to

12

comply with a 3G telecommunications standard. As I explain further below, 3G phones vary

13

widely in features and functionality, while all complying with a 3G telecommunications

14

standard.

15

25.

The most widely implemented digital telecommunications standards worldwide

16

are based on the Global System for Mobile Communications (“GSM”) technology, a 2G

17

standard. Development of GSM began in Europe with the formation of the Groupe Special

18

Mobile within the European Conference of Postal and Telecommunications Administrations

19

(“CEPT”). In 1988, at the urging of the European Commission, European national posts and

20

telecommunications ministries formed ETSI, a non-profit standards organization headquartered

21

in France. In 1989, development of GSM was transferred to the auspices of ETSI, where

22

standardization of GSM was completed.

23

26.

The third generation of the GSM family of standards is UMTS, which employs

24

wide-band code division multiple access (“WCDMA”) technology. The UMTS standard was

25

designed to efficiently support significantly increased speeds and capacity over limited spectrum

26

bandwidth, thereby supporting new and enhanced services and applications such as mobile e-

27

commerce, broadcast television, position location, and mobile multimedia web browsing,

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CASE NO. 11-CV-01846 (LHK)

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including music and video downloads. Again, the word is support—UMTS itself does not

2

provide the technology for these features.

3

27.

UMTS has been standardized by the 3rd Generation Partnership Project

4

(“3GPP”). 3GPP is a collaboration of six SSOs from around the world, including the ETSI.

5

3GPP promotes global convergence in the design of mobile phone systems based on GSM by

6

producing globally-applicable specifications for those systems that SSOs can incorporate into

7

their standards.

8

D.

9
10

28.

Samsung’s Patent Disclosures And FRAND Commitments Regarding
UMTS

I have reviewed formal declarations that Samsung has made to ETSI regarding the

11

essentiality of the Declared Essential Patents to the UMTS standard. Samsung’s declaration

12

included an irrevocable, “blanket” commitment to license any of it Declared Essential Patents on

13

FRAND terms. I have also reviewed particularized commitments that Samsung made to license

14

on FRAND terms each of the Declared-Essential Patents at issue in this case. See Samsung

15

Decl. to ETSI SMG2 (Dec. 14, 1998) (APLNDC-WH-A 000009374); Samsung IPR & Info.

16

State. to ETSI (Sept. 19, 2003) (APLNDC-WH-A 0000009375); Samsung IPR & Info. State. to

17

ETSI (May 16, 2006) (APLNDC-WH-A 0000009415); Samsung IPR & Info. State. to ETSI (Jul.

18

8, 2007) (APLNDC-WH-A 0000009442); and Samsung IPR & Info. State. to ETSI (Jul. 24,

19

2008) (APLNDC-WH-A 0000009482).

20

E.

21
22
23
24
25
26
27

30.

I have reached this conclusion based on several factors. First, Samsung has

claimed in prior litigation that the cumulative royalty paid to all holders of UMTS essential

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CASE NO. 11-CV-01846 (LHK)

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patents should be approximately 5%, and allocating to Samsung its proportional share (based on

2

declared-essential patents) of this aggregate royalty for all patents that have been declared

3

essential to the UMTS standard is one (of among several possible ways) to determine a FRAND

4

royalty.

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i)
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31.

Samsung’s Prior Position that the Cumulative Royalty for
UMTS Should be Capped at 5% and Applied to a Base
Limited to the Standardized Technology

In my experience, it is not unusual for many companies to claim to hold patents

essential to the practice of a given standard. For certain standards, especially ones for wireless
communications, hundreds or even thousands of patents may be declared essential. The
existence of multiple declared-essential patents can lead to a problem known as “royalty
stacking,” where multiple companies can claim royalties on a single product.
32.

In other litigation, Samsung has accurately described the problem presented by

royalty stacking as follows: if a proposed royalty “fails to take into account the cumulative
royalty costs required to be paid to patent holders by undertakings wishing to comply” with a
standard and all relevant royalties were similarly sized, “the cumulative cost would be
prohibitive and would therefore prevent, restrict or distort competition in the mobile handset
market.” Re-amended Defense and Counterclaim of Samsung at ¶ 80.4, Telefonaktiebolaget LM
Ericsson (Bates No. APLNDC-WH-A0000022602 at 22631).
33.

Samsung has previously taken the position that the aggregate royalty rate for all

WCDMA declared-essential patents should be “about 5 percent.” See Hearing Transcript at 91,
In re Certain 3G Wideband Code Division Multiple Access (WCDMA) Mobile Handsets and
Components Thereof [InterDigital v. Samsung], No. 337-TA-601 (I.T.C. July 8, 2008) Bates No.
APLNDC-WH-A0000025511; see also Re-amended Defence and Counterclaim of Samsung at ¶
80.4.6, Telefonaktiebolaget LM Ericsson, (Bates No. APLNDC-WH-A0000022602 at 22634)
(Samsung stating that a 5-7 percent cumulative royalty rate for GSM-compliant products
“represents an upper bound to a fair cumulative rate for a licensee with no significant intellectual
property to cross-license.”).
34.

Nokia, among other participants in the development of the WCDMA standard,

has expressed a similar view. See Press Release, Nokia Corp., Nokia Advocates Industry-Wide
Commitment to 5% Cumulative IPR Royalty for WCDMA (May 8, 2002), (Bates No. APLNDC-

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WH-A0000025509) (advocating an industry-wide commitment that royalty rates for WCDMA

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technology not exceed 5% cumulatively because “setting a target for cumulative royalty rates for

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WCDMA patents at 5% will further promote the growth of the mobile industry, support

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sustainable competitive business opportunities, and usher in a new and exciting era of mobile

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services and applications”).

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35.

Samsung’s prior statements are broadly consistent with my experience regarding

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licensing in the telecommunications industry. In particular, I have observed that industry

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participants recognize the need for some regard for the cumulative royalties payable for

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declared-essential patents to ensure that companies seeking to implement ETSI standardized

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technology can economically do so, regardless of whether they own essential patents.
36.

I note that when Samsung and others in the telecommunications industry were

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advocating for a 5% cumulative royalty for all declared standards-essential patents, a much

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greater proportion of the total value of a handset was attributable to the cellular interface than is

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the case now with respect to sophisticated smartphones. When standards like UMTS were

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developed in the 1990s, and licenses were negotiated in that period, this was even more true. In

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the early days of the standards, it might have been reasonable to treat the sales price of a handset

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as a royalty base (and then to apply a reasonable royalty rate to that base), because there was a

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much tighter correspondence between phones and standardized technology. That

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correspondence no longer exists for most mobile devices, and especially for high-end

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smartphones.

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37.

As early as 2007, Samsung itself recognized that the value of handsets were

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“increasingly” comprised of functions unrelated to the cellular interface and the correspondence

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between phones and standardized technology was eroding. See Re-amended Defence and

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Counterclaim of Samsung at ¶ 80B-80C, Telefonaktiebolaget LM Ericsson, (Bates No.

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APLNDC-WH-A0000022602 at 22637) (Samsung stating that the sales price of handsets will

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“increasingly [be] determined by extraneous features that do not relate to the [UMTS] licensed

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telecommunications technology, such as photo and video cameras, games, colour screens, mp3

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players, and radio.”).
38.

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Now that the cellular interface comprises only a very limited proportion of the

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total value of a smartphone (given that smartphones now include computing, gaming, email,

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camera, calendar, media player, apps warehouse, etc.), it is no longer sensible or consistent with

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FRAND to use as a royalty based on the ASP of a smartphone. As discussed in detail in Section

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E(e), in my opinion, the royalties should be based on the component that provides the claimed

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feature or other reasonable measure of the technology claimed—not the entire device.
39.

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For UMTS functionality, the smallest saleable unit that embodies that technology

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is the UMTS baseband chipset. As discussed in detail in Section E(e), below, the UMTS chipset

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is an appropriate royalty base because, among other reasons, it provides a consistent valuation

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for UMTS functionality regardless of what additional features have been integrated into the

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device and the level of the production chain at which royalties are assessed.
40.

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An alternative would be to use a basic communication device lacking the

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advanced features that are characteristic of a smartphone. If the chipset were used as the base—

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and, in my opinion it is the optimal base—then the appropriate and reasonable royalty rate might

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increase somewhat as compared to a royalty applied to a basic communication device.

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ii)

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41.

The Fairfield Report

One approach, among others, to computing Samsung’s appropriate share of a 5%

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aggregate royalty rate, is to determine the proportion of the total number of declared-essential

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patents or declared essential patent families that are owned by Samsung.

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42.

Several studies have been published that assess the number of patents that have

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been declared essential to the UMTS standard. One recent, well-respected study was published

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by Fairfield Resources International in 2009 (“Fairfield Report”).2 That study examined patents

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2

Fairfield Resources International, Review of Patents Declared as Essential to WCDMA Through

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declared essential to UMTS through December 2008. The Fairfield Report determined that as of

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December 31, 2008, more than fifty different companies3 had declared approximately 1,889

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patent families to WCDMA and related standards.4

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43.

Also according to the Fairfield Report, Samsung owns 103 of these 1,889 patent

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families.5 In other words, the Fairfield Report found that Samsung owns 5.45% of the patent

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families that have been declared essential to WCDMA.

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44.

Generally, when calculating the FRAND rates for declared essential patents, a

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simplifying assumption can be made that, absent other evidence, all patents hold an equal value.

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This represents a pragmatic way to calculate a fair and reasonable royalty rate for each patent at

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issue. Under this assumption, a fair and reasonable royalty rate can be arrived at without

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analyzing the individual patents for novelty or value outside of their status as a claimed essential

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patent. This approach is consistent with my experience and industry practice.

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December, 2008 (Jan. 6, 2009) (Bates No. S-ITC-003360437).

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Id. at S-ITC-003360444, at S-ITC-003360459-60.

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Id. at S-ITC-003360444-45.

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Id. at S-ITC-003360463.

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46.

The seven patents asserted by Samsung in this case represent only a portion of

Samsung’s portfolio of declared-essential patents.

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48.

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Moreover, I understand from further analysis of the Fairfield Report that Samsung

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and other participants in UMTS standardization may have declared patents to 3GPP and ETSI

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that are not actually essential to practice the standard. According to the Fairfield Report, of the

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1,889 patent families declared essential to UMTS, only 529 families are actually essential to the

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standard; of those 529 families just 15 are owned by Samsung.8

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49.

I also understand that the Mannheim Regional Court in Germany recently found

19

that all three of the declared essential patents that Samsung had asserted against Apple there

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were not infringed by Apple (and therefore not actually essential to the UMTS standard).10

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Fairfield Report at S-ITC-003360464.

Id. at S-ITC-003360463-64 (showing that of Samsung’s 103 declared essential patent families, 15 were
judged essential).

See, e.g., Samsung Elecs. GmbH v. Apple Inc., Judgment by Mannheim Regional Ct. (Mar. 2, 2010), Bates
No. APLNDC-WH-A0000024992 at APLNDC-WH-A0000024982 (“The admissible statement of claim had to be
dismissed because the Plaintiff has not conclusively set forth an infringement of Claim 1 asserted by the opposed
embodiments.”).

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67.

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96.

Indeed, in its litigation against Ericsson, Samsung itself advocated for a royalty on

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less then the full sales price of its products because sales prices of Samsung’s mobile

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telecommunications products “are in significant part, and increasingly, determined by extraneous

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features that do not relate to the licensed telecommunications technology, such as photo and

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video cameras, games, color screens, mp3 players, and radio.” Re-amended Defence and

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Counterclaim of Samsung at ¶ 80C, Telefonaktiebolaget LM Ericsson (APLNDC-WH-

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A0000022602 at APLNDC-WH-A0000022637-38.

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97.

As Samsung asserted in its UK litigation with Ericsson, the determination of a

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FRAND rate for patents that have been declared essential to the UMTS standard must take such

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factors into account. Limiting the royalty base to the portion of the product that embodies the

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declared-essential patents (if at all)—the baseband chipset—is the best way to do so. Based

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upon my experience as a licensing expert, do so is consistent with industry practice.

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a)

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100.

Samsung’s Decision to Seek an Injunction on Its Declared
Essential Patents Violates Its FRAND Undertaking

I understand that in prior lawsuits, Samsung has taken the position that by making

7

a FRAND declaration to ETSI or 3GPP, a licensor gives up its right to seek an injunction for the

8

alleged infringement of the declared patents. This prior position of Samsung’s reflects my

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experience in the industry—participants in SSOs like ETSI and 3GPP understand that by

10

declaring IPR and making a FRAND declaration, they must license to all implementers of the

11

standard. Pursuing an injunction is antithetical to this commitment. And if injunctions were

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granted, it would undermine the ETSI standard-setting process and IPR Policy by giving

13

holders of declared-essential patents extraordinary power to hold up and extract exorbitant

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licensing terms from implementers that are locked-in to the UMTS standard.

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101.

In my experience negotiating standards-essential licenses, market participants

16

understand that a FRAND commitment enables parties to bargain over license terms without the

17

threat of an injunction giving the declared-essential patent holder power to hold-up the potential

18

licensee for exorbitant royalties or other license terms. Further, it is my opinion that innovators

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will be discouraged from bringing new, innovative devices to market if they are forced to

20

negotiate with entrenched market players that wield the threat of seeking an injunction for

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alleged infringement of declared standard-essential patents.

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102.

While I led TI’s licensing program, TI never sought an injunction for declared-

23

essential patents, nor was it ever sued for injunctive relief with respect to declared-essential

24

patent. Moreover, during my tenure with TI, I do not recall that TI was even threatened with an

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injunction for the alleged infringement of declared-essential patents. It is widely recognized in

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the telecommunications industry and other industries in which standards play a significant role

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that by making a FRAND commitment, the patent holder has represented that a FRAND

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royalty—whether settled on by the parties during arms-length negotiations or determined by a

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court—will make it whole in the event of infringement and that it would be a breach the FRAND

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commitment to seek an injunction against a standard implementer. During my career at TI, I

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encountered no licensing negotiation counterparty that held a contrary view.

5

G.

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V.

Trial Exhibits

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112.

If called as a witness at trial, I may rely on visual aids and demonstrative exhibits

21
that demonstrate the bases of my opinions. Examples of these visual aids and demonstrative
22
exhibits may include, for example, interrogatory responses, deposition testimony and deposition
23
exhibits, as well as charts, or diagrams.
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113.

Other than as referred to in this report, I have not yet prepared any exhibits for use

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at trial as a summary or support for the opinions expressed in this report, but I expect to do so in
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accordance with the Court’s scheduling orders.
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