Apple's designs on monopoly, or monopoly on designs

IP StrategySubscriber Identity Modules (commonly known as SIMs) for cell phones have been around for a long time, constantly being shrunk to make room for other components in the cramped quarters of a cell phone’s innards – valuable real estate for phone designers to use for larger batteries, for example. The original SIM gave way to the mini-SIM, and then the micro-SIM. The nano-SIM is now going through the standard-definition process with the European Telecommunications Standards Institute (ETSI), creating an opportunity for leveraging a valuable IP strategy. The nano-SIM design by Giesecke & Devrient (G&D, the creators of the original technology in 1991) is a third smaller than the micro-SIM, 60% smaller than the original SIM, and 15% thinner.


The G&D design has been at the heart of a standards war in Europe involving Apple against the alliance of Motorola, Nokia, and RIM. Apple is trying to get the G&D design through ETSI with their own proposal for a protecting drawer similar to those in the iPhone and iPad as part of its IP management. Apple’s competitors are afraid that the standard (available to all manufacturers under license) will eventually be controlled exclusively by Apple design patents, and that it will require significant re-engineering of their handsets to meet Apple’s design specifications.


Nokia claims Apple’s standard design doesn’t meet the ETSI-approved requirements, and isn’t backwards-compatible with micro-SIM slots. They note that with Nokia’s card design a tray or drawer (which would take up additional space and add production cost) is not required. To answer the point on meeting ETSI requirements, Apple has sent G&D back to the design table for some tweaking of the proposed card.


Reports indicate that if Apple’s design were to emerge as the nano-SIM standard, they would be prepared to give royalty-free licenses to nano-SIM patent holders who offer similar licensing terms in a neutralizing IP strategy, something that Nokia has refused to do. Nokia’s director of communications commented, “Apple’s proposal for royalty free licensing seems no more than an attempt to devalue the intellectual property of others.”


Meanwhile, Apple has been shoring up support from European providers, while also registering six European subsidies under its name to strengthen its IP-management influence, attempting to overtake Nokia (currently with 92 votes) as the largest voting member at ETSI with each subsidy having up to 45 member votes. RIM has petitioned ETSI to ensure that proxy voting is not allowed to prevent what they see as Apple trying to manipulate the outcome of the ETSI vote by registering its own personnel as representatives from Bell Mobility, SK Telekom, and KT Corp.


It is no mere coincidence then that Apple’s recently-granted patent, “Ejectable component assemblies in electronic devices,” US Patent No. 8,145,261 filed in 2007, describes a system of “trays that can be loaded with removable modules, inserted through openings in the housings of the devices.” Such a tray-card system would encompass Apple’s nano-SIM design proposal under the so-called “4FF” standard, and thus, seriously limit phone manufacturers to using their patented design specification.


Now that ETSI has approved Apple’s design proposal for the next-generation SIM which meets the 4FF standard, Nokia is clearly upset about the selection of Apple’s design over the Motorola-RIM proposal which included an additional notch for so-called “push-push” designs. However, Nokia has eliminated any OEM fear of an injunction or refusal to license such technology for the new nano-SIM, stating:


Nokia continues to believe that the selected nano-SIM proposal is technically inferior and not suitable for a number of applications, but the ETSI Smart Card Platform Technical Committee has now made its decision. Nokia believes that the existing micro-SIM (3FF) will continue to be a preferred option for many manufacturers and devices and so ultimately the market will decide whether 4FF is widely adopted.


As Nokia believes that ETSI has taken steps to address Nokia’s original concerns over the standardization process, we have advised ETSI that we are prepared to license any Nokia patents which are essential to implement the standard, on FRAND terms.


Herein lies part of Apple’s IP strategy. In so doing, the ETSI 4FF design-standard approval essentially creates an effective barrier-to-entry in which phone manufacturers will find it more difficult, if not impossible due to potential consumer lock-in by the 4FF standard, to create nano-SIM phones with card slots rather than card trays. The 4FF card’s diminutive size and lack of a notch will cause slot-designed phones to be impractical for consumers to fumble with.


Regarding the issue of FRAND, Apple has appealed to ETSI with regard to the licensing of essential patents. Apple’s head of intellectual property writes, “It is apparent that our industry suffers from a lack of consistent adherence to FRAND principles in the cellular standards arena.” Consequently, as Apple sees it, such inconsistency results in high patent royalty-rates (often arbitrarily secured in secretive negotiations) and costly patent litigation. Apple implored ETSI to establish “appropriate” FRAND licensing rates which are limited to an industry-wide standard, and to bar companies from using essential patents to force injunctions as a way of normalizing IP management.


The meaning of what are “fair, reasonable, and non-discriminatory” terms (FRAND) is open to interpretation. In such format wars, whoever wins, the consumer usually loses – footing at least a portion of the bill for new cards, adapters, and carrier issues. But, this is not simply a spectator sport, the stakes up for grabs are high, and the sparring opponents involved are focused on market share, with the consumer just coming along for the ride. After all, design changes generally introduce incremental improvements which could be re-imagined in numerous alternative variations. Does it really matter how many pins your phone’s connector has as long as it works?


Apple is merely following the traditional playbook for such competitive clashes that often result in patent litigation. This is the strategic essence of a hub-monopoly business model. Companies usually depend on each other to share technologies for commercialization, and jockey to increase the value of their technologies by creating industry standards as a basis for their IP strategy. If such standards can be based on proprietary designs, then that’s even better. An inherent challenge with maintaining significant control of device interoperability through IP is the abrupt technology shifts that can capriciously dethrone one player for another.

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