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What Motorola wants: 2.25% of Apple’s iPhone sales revenue

By
Philip Elmer-DeWitt
Philip Elmer-DeWitt
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By
Philip Elmer-DeWitt
Philip Elmer-DeWitt
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February 4, 2012, 11:25 AM ET
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A blogger uncovers the $2 billion dispute behind Friday’s bizarre back and forth 



Source: FOSS Patents

Apple (AAPL) watchers were shocked Friday when the company, in response to a court-ordered injunction, removed the iPhone 4 and 3GS from its online Apple Store in Germany.

The injunction was suspended before the end of the day — and the products restored — but the bizarre incident left analysts and investors wondering what the hell was going on.

FOSS Patents‘ Florian Mueller thinks he’s found the answer in an obscure legal brief filed in late January by Apple in the Southern District of California. The brief reveals — perhaps inadvertently — something that is usually a closely guarded industry secret: the terms of a royalty agreement to license a key piece of patented technology.

Apple needed the technology. Motorola (MOT) owned it. And it was asking, according to the document Mueller discovered, 2.25% of Apple’s iPhone sales up to and including the iPhone 4.

According to Apple’s SEC filings for fiscal years 2007 through 2011, revenue from those iPhone sales totaled $92.64 billion, of which Motorola seemed to be demanding a $2.08 billion cut.

It’s unclear, says Mueller, whether this covered just one patent or all of Motorola’s so-called standards-essential intellectual property but, he writes, “the amount still seems excessive to me.”

Apple apparently agrees, and it has filed a series of discovery motions aimed at finding out how much Motorola charged Nokia, HTC, LG and Ericsson for the same technology.

If Motorola was trying to squeeze more out of Apple than its competitors, it could be in trouble. The patent in question is covered by the so-called FRAND rules. These require that technology that has become part of an industry standard be licensed under terms that are “fair, reasonable and non-discriminatory.” Samsung is currently being investigated by the EU for just such an alleged FRAND violation.

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By Philip Elmer-DeWitt
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