Friday, January 6, 2017

Could a patent attorney (prosecution or litigation) lend pro bono help to Techdirt's Mike Masnick?

This morning I have just become aware of a Hollywood Reporter article on a defamation lawsuit (complaint, PDF) against the company behind and the principal author (Mike Masnick) of the Techdirt website brought by Dr. Shiva Ayyadurai, whom Techdirt has attacked over his claims to have invented email.

I have not communicated with Mike or anyone close to him in years and don't have any intention to do so. The only instance I remember was in 2012 or 2013: a brief exchange on Twitter regarding the monopoly power conferred by standard-essential patents. I don't remember for sure but it's possible that, whether or not my name was mentioned, I got attacked by him over my pro-copyright positions (Oracle v. Google). Also, far be it from me to endorse the way he wrote about this subject in general and Dr. Ayyadurai in particular. If I had taken an interest in the subject, I'd have done it differently.

The plaintiff is seeking damages of "not less than [$15 million]" plus punitive damages on top, a public retraction, and an injunction.

The attorney representing Dr. Ayyadurai, Charles J. Harder, previously obtained a $140 million verdict for Hulk Hogan against Gawker. While Peter Thiel had a hand in that case, I don't see any indication so far that Mr. Thiel has any involvement with the action against Techdirt. I would caution everyone against baseless speculation, and I'm saying so not only because I'm deeply grateful to Mr. Thiel for his support of Donald Trump's campaign and his service on the Trump transition team. He decided to swim against the Silicon Valley tide. By now, even liberals acknowledge that Silicon Valley has started to like Donald Trump's plans.

There must be enormous pressure on Techdirt to settle, which Dr. Ayyadurai would be able to portray as an indication of his claim of email inventorship being legit. Primarily, Techdirt needs help from a defamation lawyer. However, I believe Techdirt's defense would benefit immeasurably from the early involvement of a patent prosecution attorney or patent litigator. The key legal question will be whether or not the freedom of speech covers Mike's accusations, and that means the question of whether the plaintiff actually "invented email" will be at the heart of the case.

Patent law is the law of inventions. Even though the defamation question here will not come down to a patent validity analysis (there is no patent in play, just a copyright registration and earlier documents), I believe patent professionals are in the best position to perform the inventorship-related analysis that is needed for Techdirt to defend itself or, hypothetically speaking, to realize that there's no reasonable alternative to a settlement. Patent attorneys know how to determine whether the prior art fully anticipated something or whether any delta is (non-)obvious (and to compare this to what is nowadays deemed to constitute email). Even courts would likely be receptive to references to certain principles of patent law in this context.

In the ideal scenario for Techdirt, the case for total anticipation would be so strong that the case might be resolved in their favor even without a jury trial. If there was only partial anticipation, it would come down to whether the delta (if any) justified a claim of having invented email or whether it would only have supported a narrower claim such as (whatever may be the case here) having invented a particular feature or having independently come up with something that existed before.

The complaint cites all sorts of credit that was given to Dr. Ayyadurai, who has every reason to be proud of what those people said, but what is needed--and lacking so far--is a solid, professionally-crafted feature-by-feature analysis of the relevant prior art (see this email for a starting point) and the claimed invention. Also, it's a typical patent law question to determine what a person skilled in the art would have considered essential characteristics of "email" at the relevant point(s) in time.

In case any of you would like to help, please contact Techdirt directly. I wanted to help bring the truth about email inventorship to light by making this call and I'll be interested in the outcome of the case, but I won't play any role in it. If Mike made indefensible accusations, he should retract them and accept the consequences, but if other people, such as potentially Ray Tomlinson, deserve credit for having invented email, then the truth should be told in the further proceedings. And that's a question of facts, not of the color of one inventor or the other. Let's focus on the technical facts.

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Monday, January 2, 2017

Experts to discuss design patent damages (Apple v. Samsung remand) on Wednesday: media briefing conference call

Happy New Year!

Tomorrow the Supreme Court wil formally issue its mandate to the United States Court of Appeals for the Federal Circuit based on last month's landmark decision in Apple v. Samsung. A day later, a panel of experts will discuss the Supreme Court opinion and the next steps in this process, and I'd like to share the invitation below with you here. Below the invitation, you'll also find my high-level take on what may or may not happen next.

**MEDIA ADVISORY**

Samsung v. Apple Post-Supreme Court Decision Expert Discussion

Legal Experts to Discuss Implications, Next Steps as Case Heads Back to Federal Circuit Court

WASHINGTON, DC – On Wednesday, January 4 2017 at 11:00am ET, a panel of distinguished intellectual-property and Supreme Court experts will hold a media briefing conference call on the U.S. Supreme Court's December 6 landmark unanimous decision in the Samsung v. Apple design patent case.

The case has been remanded to the Federal Circuit, which will officially receive the Supreme Court's decision on January 3. Once received, it is anticipated that the Federal Circuit will address the remaining outstanding issues and implications for innovation, consumers, and businesses of all sizes within a wide array of industries.

The panelist participants will discuss the Supreme Court's decision and its broader implications, as well as provide insight into the Court's anticipated next steps; the Federal Circuit's process; the impact on startups, small businesses, consumers, and innovation; and, finally, how the Federal Circuit will formulate a plan and what that plan should entail.

WHO:

  • Carl Cecere (moderator), served as counsel for the National Grange, the Hispanic Leadership Fund, and the National Black Chamber of Commerce, in filing an amicus brief on their behalf in the case before the Supreme Court. Mr. Cecere operates his own law firm, where he focuses on Supreme Court and Appellate advocacy. He began his career in the Supreme Court and Appellate practice at Akin Gump Strauss Hauer & Feld LLP.

  • Sarah Burstein (panelist), American Bar Association (ABA) Intellectual Property Law Design Committee Chair and Associate Professor of Law, The University of Oklahoma

  • Derek F. Dahlgren (panelist), Partner, Rothwell, Figg, Ernst & Manbeck, P.C

  • Evan Engstrom (panelist), Executive Director, Engine Advocacy

  • Joshua D. Wolson (panelist), Partner, Dilworth Paxson LLC

WHAT: Media Briefing Conference Call

WHEN: Wednesday, January 4, 2017 | 11:00am ET

Participant Dial In Number: 888-632-3384

Conference ID: REMAND

RSVP to Carl Cecere: ccecere@cecerepc.com

-----------------------------------------

You'll learn a lot more from those experts than from me, but my perspective may be complementary. So here's how I view the current situation:

The first question is going to be whether the remand proceedings will become (primarily) a rule-setting effort or a record-digging exercise. Apple already tried to turn the Supreme Court hearing into the latter, which was legitimate: it's this old story of "if the facts are not on your side, argue the law; if the law is not on your side, argue policy", and here, if neither policy nor the law nor the facts are on your side, you (Apple) might still prevail on a procedural basis by harping on the record. There's no reason to assume Apple is not going to try this again before the Federal Circuit. The remainder of this post is based on the assumption that, as I hope, the Federal Circuit is not going to waste a first-rate rule-making opportunity.

Is the Federal Circuit likely to come up with a good rule here? It will be hard, not because it's the Federal Circuit (I actually think this panel, even though the Supreme Court just slapped it for the position it had taken the first time around, is not as unbalanced as some other panels might be and really has the potential to do a great job) but because only lawmakers could really fix the problem. The only fair solution would be apportionment, but as the Supreme Court already noted at the hearing, apportionment per se is not allowed by the statute. So instead of a smooth curve in a seamless spectrum, the current situation (absent a legislative amendment) is a step function. There's only a limited number of choices here. If a patent covers the outer shape of a smartphone, there's little more choice than either deeming the entire end product or the casing the relevant article of manufacture. If it's the casing, Apple's designs get undervalued without a doubt--but that's the far lesser evil than overcompensation of an absolutely devastating kind.

I wish the Supreme Court had made it explicitly clear that undercompensation is a lesser concern here than nuclear overcompensation. What will help Samsung here psychologically is that the Supreme Court opinion does point downwards for what should be the ultimate outcome.

Some advocates of overcompensation tried to troll me on Twitter after I noted that no design patent covers the inner workings of a multifunctional device such as a smartphone. They tried to interpret this as me arguing in favor of apportionment. Obviously, that's not what I meant. What I did mean is that the scope of those design patents should not make it too hard for Samsung and other defendants in the future to persuade courts and, to the extent necessary, juries of which approach (to the relevant article of manufacture) makes more sense and is better for innovation and competition.

The three design patents in the case raise different article-of-manufacture issues. Two of them are about the casing but what is the AoM for a screen layout patent? Should there by any AoM for that? As an app developer I'm obviously going to be even more interested in that question than in the physical stuff, though both issues are of great interest to me as a smartphone patent litigation watcher.

We'll definitely see some very interesting amicus briefs from the usual suspects if the Federal Circuit invites further briefing, which it presumably will. After all, the Supreme Court said it just hadn't received enough input from the parties on what the right rule should be, which is true but one can't blame either party: Apple's path to victory was affirmance and Samsung's only chance was reversal/vacatur. If Apple or Samsung had placed more emphasis on rule-making before the Supreme Court, they might have lost the wider battle simply as a result of poor prioritization. Now, there will be enough space and time for Apple, Samsung, the DoJ, designers, the tech industry, low-tech and non-tech companies, advocacy groups and whoever else to come up with suggestions.

If you're professionally interested in this case as a journalist, I recommend that you join the conference call on Wednesday.

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Thursday, December 29, 2016

U.S. tech companies welcome Korean antitrust ruling against Qualcomm over FRAND abuse

South Korea's competition watchdog, the Korea Fair Trade Commission (KFTC), has just imposed a $853 million fine on Qualcomm for "monpolistic" practices involving its patent dealings. In particular, the antitrust agency stated that Qualcomm "has violated its agreement to license patents on fair, reasonable and non-discriminatory (FRAND) terms."

Qualcomm can and will appeal this decision, but the mobile device industry at large is keeping its fingers crossed that Korea's top court will affirm the KFTC ruling. The fact that Qualcomm filed an action in the U.S. in order to get access to information provided by Apple, Samsung and others to Korea's competition authority is interesting. It's hard to imagine that those companies would have told the KFTC "we're OK with what Qualcomm is doing and we're happy to pay even more going forward."

ACT | The App Association (which I'm not a member of, though I am an app developer), a tech industry group headquartered in Washington, DC, has just sent out the following statement that applauds the Korean competition enforcers:

"The Korea Fair Trade Commission (KFTC) has, after an extensive investigation, decided to significantly fine, and impose a corrective order on, Qualcomm Incorporated for systematically violating the commitments the company made to license its standards essential patents under fair, reasonable and non-discriminatory (FRAND) terms. FRAND abuse is an anticompetitive danger that poses a serious threat to the future of mobile computing and the Internet of Things.

Curbing the abuses the KFTC is addressing is an issue we are passionate about. That is why we launched All Things FRAND, an effort committed to ensuring a balance between patent licensor and licensee that FRAND commitments safeguard. And while FRAND promises are important, they are meaningless – and undermine innovation, particularly for small businesses – when ignored during subsequent licensing negotiations. ACT | The App Association applauds the KFTC's decision in this matter, and looks forward to analyzing the details of its corrective order that will contribute to growing global precedent upholding the purpose and meaning of FRAND obligations."

I wish to point out that ACT is generally very IPR owner-friendly, but when it comes to FRAND licensing of standard-essential patents, its positions are pretty consistent with mine. An organization that takes similar positions on FRAND (and of which Google is a member) is the Brussels-based Fair Standards Alliance. Presumably the reason the FSA hasn't spoken out on the Korean ruling yet is simply that people in Brussels tend to be on vacation this week (to a far greater extent than in the U.S.).

Many years ago, the European Commission was taking a look at Qualcomm's practices but failed to take decisive action. Qualcomm currently does face an EU antitrust issue but with a somewhat different focus than the Korean case. I think the Korean regulator has the right set of priorities; maybe the EU Commission will bring additional charges, as it did against Google (more than once). I would also like to see some antitrust inquiry into Qualcomm's practices by the FTC or DoJ under the incoming Trump Administration. President-elect Trump highlighted the uniqueness of America's top innovators at a recent meeting with tech industry CEOs, and I'm optimistic he and his staff will be more sympathetic to the concerns of the likes of Apple, Google and Amazon than to those seeking to extract undue leverage from standard-essential patents.

If anyone would like to provide me with information on Qualcomm's practices and antitrust complaints or cases anywhere in the world, please get in touch via my contact form. I'm very interested in finding out more about this and I'll try to draw more attention to major SEP issues involving Qualcomm or anyone else.

[Update] A reader has kindly pointed me to an unofficial translation (apparently created by Qualcomm itself) of the KFTC press release, which is a highly informative document that warrants further discussion here at a later stage. [/Update]

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Monday, December 26, 2016

App developers matter: Apple should fight Nokia with all its might but not leverage its App Store against Withings

Before the Christmas weekend, Apple and Nokia went back to legal war against each other, more than five years after a settlement. I agree with Apple that Nokia's industrial-scale privateering is highly abusive, and I wish Apple luck for both its antitrust suit against Nokia and its defense against Nokia's patents. I followed Nokia's last scattershot litigation (against HTC, from 2012 to 2014) and I saw countless Nokia patent assertions fail, mostly in Germany but also in the most difficult U.S. patent litigation venue, the International Trade Commission. I would really be surprised if the patents Nokia is presently asserting against Apple were, on average, better than what they used against HTC. Based on this assumption, I believe Apple can handle this and Nokia will probably end up with a result below (or even far below) its initial expectations.

In my previous post, I already wrote that Nokia's "all-out war and global carpetbombing" would "probably not sit well with Cupertino." When I wrote that, I had no idea that the next Apple-Nokia news was going to be that Apple removed Withings' iOS-compatible eHealth devices from its store. Seven months ago, Nokia completed its acquisition (PDF) of Withings, a French digital health company founded in 2008, for approximately $190 million.

I haven't found an official Apple statement, but it would be quite a coincidence if the delisting of those products had nothing to do with the patent dispute. A coincidence is made even less likely by the fact that this happened during the iTunes Connect Holiday Shutdown (December 23-27), a period when no new app reviews take place, which shows it's the part of the year when Apple doesn't usually want to change its catalog.

When I go to the Apple website and search for certain Withings products, I get the same message as the one reported in the media, basically saying the products are no longer available but they have a list of alternatives. I managed to download Withings' Health Mate app to my iPhone 7 Plus over here in Germany. I opened it once, just to check, and then I deleted it immediately because I don't want to support patent abusers in any way (unless they have products to which I can't find a viable alternative, which is not the case here).

A reader just told me that one can presently download five Withings apps from the U.S. App Store. It appears that Apple just removed Withings' physical products (which it also used to distribute in its stores).

I'm an iOS app developer myself (my first product will be launched soon) and I've checked the terms of Apple's developer agreement for anything that might trigger the removal of Withings' stuff form the App Store. The developer agreement doesn't allow reverse engineering of certain materials, and if Nokia brings infringement assertions against them, there is a possibility that some reverse engineering occurred. Also, Apple has reserved the broadest possible discretion for its decision to unilaterally terminate the agreement.

Nokia's litigation tactics and privateering ways are, without a doubt, vexatious. So I couldn't disagree with Apple if it made the case that it's just not reasonably acceptable for Apple to have to do "business as usual" with a Nokia subsidiary under the present circumstances.

However, if Apple ever went beyond removing Withings' physical products and also delisted its apps, I doubt that the leverage Apple might get from this would be worth the cost. The problem is that app developers like me need to rely on Apple giving all of us fair access to its customer base. Yes, Apple has the right and it always should have the right to reject or delist apps under certain circumstances. Case in point, I have expressed support here for Apple with a view to its disagreement with Spotify. But Apple should always remember: with great power comes great responsibility.

As app developers, we make enormous investments of money, energy, creativity, and time. For example, I started my project almost three years ago and made the first four hirings in 2014. When you make all of this effort and investment, you want to have certainty that Apple will give your products a fair review and won't just shut you down arbitrarily. I'm not saying that a removal of any Withings apps would be arbitrary; it could be an exceptional case and app developers like me usually don't have to worry about this. Also, should Nokia have violated the clause that prohibits reverse engineering, then I'll agree with Apple, but we just don't know. What I do know is that Apple reserves termination in its sole discretion, which is fine as long as we can all rely on Apple not abusing that discretion. A silent removal of apps would be bad because it would be intransparent. Apple should at least provide an explanation that makes all other app developers comfortable in case it delists any Nokia apps.

Apple is normally very rational. The removal of Withings' physical products from its store is one thing, but delisting Withings' apps would appear emotional if it happened.

Nokia spent much less on its Withings deal than it almost certainly expects to collect from Apple every year in the form of patent royalties every year. This here is not going to make Nokia back down. It will show to Nokia's senior leadership that a pissing contest with Apple is a bad idea, but it doesn't solve the fundamental problem that Nokia doesn't have much of a product business that Apple can attack. Maybe Apple holds some patents (such as the ones it acquired from Nortel) that it can use against Nokia's wireless infrastructure business (the former Nokia Siemens Networks business), unless past license agreements between Nortel and Nokia make that impossible. Maybe there are some new patents Apple could acquire somewhere to countersue Nokia. But there won't be nearly as much of an opportunity for countersuits (if any) as in 2009-2011, when Nokia was still a handset maker.

If Apple really wants to flex its muscles to demonstrate to Nokia that excessive aggression backfires, it should use law firms and strawman litigation firms such as Skepsis Telecom to launch invalidation strikes against many--and by "many" I don't mean 10, 20 or 30, but more like 150, 200 or 300--Nokia patents in different jurisdictions. Apple can afford the prior-art search for this. It can afford all those petitions for reexamination or revocation and the German nullity lawsuits. That would really teach Nokia and any other aggressor of that kind a lesson, and it would devalue their portfolios and make their investors nervous.

Nokia itself and its closest ally in that context, HTC, started about 100 proceedings against different IPCom patents in different jurisdictions, including Italy, where all they wanted was to slow-roll proceedings in other jurisdictions (called the "Italian torpedo"). It hoped that IPcom would run out of cash, but IPCom had received enough money from investors and from other licensees that it was able to handle all of this. And IPCom's founder could handle it, too: it was certainly an annoyance but also generated additional fee income for his own law firm. For Nokia, this would be a different situation. It's publicly-traded, meaning that investors may sell shares on any bad news from the litigation front. And to the best of my knowledge, its management doesn't own the law firms that represent it.

The only risk is that some Nokia patents might emerge stronger if they were reaffirmed by courts and patent offices. But that's where Apple can use its judgment and really focus on those 150 or 200 patents against which it can field extremely strong prior art.

Make Nokia bleed patents!

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Thursday, December 22, 2016

Apple now suing Nokia itself on antitrust grounds; Nokia suing Apple over 40 patents in 11 countries

Yesterday, Apple's antitrust lawsuit in the Northern District of California against certain Nokia privateers (patent assertion entities that Nokia has fed with patents) became known. Then, Nokia announced its new wave of patent infringement suits against Apple. And I have now just found something very interesting in a court filing of the usually rather uninspiring kind: Apple has added Nokia Corporation, Nokia Solutions and Networks Oy (using a Texas address) and Nokia Technologies Oy to the defendants in its antitrust case. Here's the relevant part of the list of defendants (click on the image to enlarge; this post continues below the image):

What has happened procedurally is that the court rejected this proposed summons because it lists defendants not listed in the complaint. But that's just a clerical thing: no doubt Apple will amend the complaint accordingly. Apple's lead counsel, Wilmer Hale's Mark Selwyn, who is also a key player in Apple's protracted dispute with Samsung, has faced greater logistical challenges.

While the original complaint targeted Nokia in practical terms, it does make a difference that Apple decided, apparently in response to Nokia's patent infringement suits, to add three Nokia entities to the list of defendants. I can attribute it only to diplomatic considerations that Apple didn't do this initially. If you sue over an alleged conspiracy (the term itself is in the complaint, it makes sense to go after all conspirators, not just after some.

There's quite some escalation going on: a couple of hours ago, Nokia announced the filing of further complaints against Apple. The most notable changes are that Nokia has also filed an ITC complaint, seeking a U.S. import ban over eight patents, and that it's suing in nine more countries. Last time Apple and Nokia met at the ITC, neither made a lot of headway there; it turned out to be a patent graveyard. In addition to the U.S. (Eastern District of Texas, with a total of 18 patents in play, including H.264 video codec patents) and Germany (eight patents in D├╝sseldorf, four in Mannheim, and two in Munich, where the first hearings in this new dispute will likely take place in March or April), Nokia is now also asserting three patents in Helsinki, Finland; three patents in London; four in Turin, Italy; three in Stockholm, Sweden; one in Barcelona, Spain; three in The Hague, Netherlands; one in Paris, France;one in Hong Kong, China; and one in Tokyo, Japan.

According to Nokia's press release, there are 40 patents-in-suit, meaning that some patents are being asserted in more than one jurisdiction.

I watched Nokia's patent assertions against HTC a few years ago. There was significant escalation, but it took longer than one day. After more than a year and a half of litigation, that dispute spanned seven countries on three continents. With Apple, it took one day to go from two countries to eleven.

With HTC, this strategy paid off, and it was necessary since most of Nokia's patent assertions either failed or resulted in symbolic wins without commercial impact. I believe that what carried the day for Nokia in the end was that certain patents covered hardware designs and HTC suppliers Qualcomm and Broadcom couldn't easily have worked around them, at least not without cost implications. HTC did a very good job defending itself, but Apple will probably do an even better one and it will simply get more support from its chipset suppliers if it needs workarounds, simply because no one will want to lose Apple's business.

Nokia may find that it's barking up the wrong tree. This all-out war and global carpetbombing will probably not sit well with Cupertino. Normally Apple is willing to pay royalties and move on. Its dispute with Ericsson is an example. But Apple is ready, willing and able to litigate for years if it feels it has to. Nokia's decision-makers may believe that "brute force" is the way to get Apple to pay up quickly, but this approach may backfire. What if Apple now decides to prove that it can defeat one Nokia patent infringement claim after the other and get one Nokia patent after the other invalidated? Should that happen, Nokia will have to wait for its payday much longer than it might have thought. Its portfolio might be devalued in the end. And the return might be quite a disappointment. On top of all of that, Nokia risks being held to be an antitrust violator. There is considerable risk to the failed Finnish device maker.

Talking about antitrust, the U.S. lawsuit against Nokia's privateering could also, with or without a formal EU complaint by Apple, lead the European Commission to investigate Nokia. Commissioner Vestager will have to take some serious action against European tech companies for the sake of at least appearing to be more balanced than one would think based on her current focus on Apple, Google, and Facebook.

As for Nokia's chances of getting leverage over Apple, injunctions will be way more important than damages, but they'll be hard to come by. In the U.S. it's pretty hard to obtain an injunction over any patent. In Germany and some other European jurisdictions, injunctive relief is a legal remedy for infringement, but if a patent is standard-essential, special rules apply (after the CJEU's Huawei v. ZTE opinion), and if it isn't standard-essential, it can be worked around.

Today's announcement by Nokia shows how much of a troll it has become. Ericsson is not as bad as Nokia, but not fundamentally better. And the European Commission's innovation policy comes down to ridiculous claims, unrealistic plans, and in some cases rather questionable regulatory action.

As for Nokia's transformation into a troll, it's very telling that Nokia used to prefer the District of Delaware as long as it was a mobile device maker itself. Nowadays, it prefers the Eastern District of Texas. Sic transit gloria mundi.

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Wednesday, December 21, 2016

Enough is enough: Apple files antitrust complaint against multiple Nokia privateers

PatentlyApple was first to report on Apple's antitrust case against Acacia and other patent assertion entities (PAEs) that Nokia is using to extract, in the aggregate, excessive license fees from Apple and other companies. As a service to readers, I wanted to publish the complaint here (this post continues below the document):

16-12-20 Apple Complaint v. Acacia Et Al. by Florian Mueller on Scribd

For a long time I had hoped someone would finally do this. Last year I called out Nokia and others on their privateering ways, and it turned out that Nokia had industrialized the concept of privateering to a far greater extent than anyone else. My list of PAEs fed by Nokia contained all of the defendants in Apple's antitrust suit--Acacia and Conversant (technically, Apple is also suing particular subsidiaries of those)--and more. That post prompted attempts by Ericsson and Nokia to explain away their privateering ways.

Privateering-related issues have been raised in other litigations, including a case involving Samsung and an Ericsson privateer in London, but this is now the major anti-privateering lawsuit. Without a doubt, all other major industry players focused on making products (as opposed to those who increasingly rely on patent licensing income) will join me in wishing Apple luck. This is not just about Apple, or about smartphones and tablet computers. It's a huge issue for automotive and other IoT (Internet of things) companies as well.

I just hope Apple will see this one through. There is a risk that Apple may settle (as it did with Ericsson, though I had hoped the case would provide clarity on the "smallest salable unit" approach to FRAND royalties). In a FOSS Patents guest post I published last month, top-notch analysts from Arete noted that "a critical [for Nokia] renewal at Apple [is] forthcoming." It could be that Apple will drop this antitrust suit as part of an overall agreement with Nokia on an extension of the license agreement originally agreed upon in 2011.

The story Apple tells the court is that Nokia, after failing as a mobile device maker, changed its positions on FRAND licensing of standard-essential patents and conspired with various PAEs in order to bring numerous royalty demands and infringement lawsuits against Apple and other industry players and with the objective of circumventing its original FRAND licensing commitments:

"21. With its cell phone business dying, Nokia began to seek out willing conspirators and to commence its illegal patent transfer scheme in full force; that scheme has continued in full effect to the present. The driving force behind Nokia's strategy was to diffuse its patent portfolio and place it in the hands of PAEs. Acacia and Conversant were its chief conspirators."

"24. [...] According to an expert report that Nokia submitted in a prior proceeding: '[T]he relationship between the number of patents and the total royalty rate is not linear. For example, a license to a single [SEP] may be 2.5% ... while a license to ten or more [SEPs] rarely exceeds 5%.' Thus, by creating a network of conspiring PAEs to hold slices of its former portfolio and sharing in the proceeds of the PAEs' assertions, Nokia seeks to work with PAE collaborators like Acacia and Conversant to extract royalty rents and tax product innovators in yet another way that would not have been possible had it kept its portfolio intact."

On the remedies side, it's worth noting that Apple, besides damages, wants those patent transfers to be declared illegal and to be undone. Also, one of Apple's prayers for relief relates to injunctions: it asks the United States District Court for the Northern District of California to order an anti-suit injunction against Acacia and Conversant. The most prominent case in which an anti-suit injunction actually issued was Motorola Mobility v. Microsoft (Western District of Washington); it got upheld by the Ninth Circuit, and that's the circuit court for this case, too.

In terms of positive effects on innovation, an Apple win over Acacia and Conversant would eclipse Microsoft's win over Motorola Mobility, and that one was also very significant and positive.

I plan on talking about this some more after the defendants have filed their answer to the complaint. Also, while it's a different field of law and a different jurisdiction, I've meanwhile read the 130-page European Commission decision on what the EU says is "state aid" Ireland gave to Apple, and I'll comment on it soon. Suffice it to say for now that it's far-fetched to say the least; the EU Commission may lose the case just simply because the arm's length principle for inter-company charges is not part of Irish tax law; and there is not even the slightest indication of any wrongdoing by Apple in that whole document (wrongdoing by the recipient of alleged subsidies is, of course, not a legal requirement, but I wanted to mention it anyway).

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Monday, December 19, 2016

Apple CFO: "What the [EU] Commission is doing here is a disgrace for European citizens, it should be ashamed"

When I described the European Commission as a "premier source of fake news" in yesterday's post, I knew from a Bloomberg tweet that the Commission's €13B "state aid" decision on Apple's Irish taxes was going to be published before the Holiday Season but didn't know that today was going to be the day. [Update] Here it is (PDF). [/Update] In order to counterbalance Commissioner Vestager's claims, the Irish government and Apple have just launched pre-emptive strikes:

  • Ireland has published a summary of its key arguments against the Commission ruling (PDF). In a nutshell, Ireland says the Commission misunderstands Irish tax laws, views as a preferential treatment what was available to any other international company, wants Ireland to collect taxes on what Apple should pay taxes on in the U.S., and accuses the Commission of improper procedures. It's clear that Ireland ideally aims for the Commission ruling to be overturned in its entirety but, as a Plan B, would at least like to limit its impact.

  • Apple's General Counsel Bruce Sewell and Chief Financial Officer Luca Maestri gave Reuters' Brussels competition expert Foo Yun Chee (a reporter I've been in contact with for many years and whom I regard as very thorough and objective) an interview in Cupertino. Apple's executives pointed out, among many other things, that their Irish operation "doesn't do any engineering, doesn't generate any intellectual property."

  • In parallel to the Reuters interview, Apple's CFO also gave an interview in Cupertino to Die Welt, a well-respected German newspaper that belongs to Europe's largest newspaper publisher, the Axel Springer group. That interview has only been published in German, so let me translate Mr. Maestri's strongest statement here:

    Maestri accuses EU competition commissioner Margrethe Vestager of pursuing a political agenda. "What the Commission is doing here is a disgrace for European citizens, it should be ashamed."

    Mr. Maestri, an Italian, is a European citizen himself. This statement is similarly tough as Apple CEO Tim Cook's initial reaction to the decision, calling it "total political crap."

    In the Die Welt article, Mr. Maestri then argues that Europe's economy will suffer massive harm at the end of the day, given that many companies must make decision on where to set up research and development. And in light of how the Commission is dealing with Apple, they may prefer such places as Singpore or Hong Kong.

Legal certainty is probably the most basic prerequisite for business and innovation. The same concern was raised three months ago by the Business Roundtable in a letter sent to political leaders of the EU's 28 member states. The Business Roundtable is an association of CEOs whose companies, according to the organization's website, have "more than $6 trillion in annual revenues and nearly 15 million employees."

I have been interested in the intersection of IP (which also plays a role in the Apple tax case) and competition policy/regulation for a long time, and my main concern has always been innovation. As a European (albeit a somewhat Americanized one and Donald Trump supporter) and as a startup founder (I founded an online gaming network in 1996 and sold it to Telef├│nica in early 2000, and in 2014 I started my current app development company), I care about this. And when it comes to Irish corporate taxes and corporate decisions on where to set up subsidiaries, I also have a personal connection to the subject: in 1995, I persuaded Davidson & Associates, then the parent company of Blizzard Entertainment (which later became the world's most successful computer games company on a per-title basis), to manufacture the German version of Warcraft II - Tides of Darkness in Ireland. Without my strong recommendation, the same activities would have taken place outside of Europe.

The EU's innovation policy has been a failure and a laughing stock. There was that thing called "Lisbon Agenda": they wanted to make the EU the world's most competitive and dynamic knowledge-based economy by 2010. By now, no one is even talking about it because, quite obviously, it didn't materialize to any noteworthy degree. Or, as my favorite political commentator, the insightful Rush Limbaugh, said in late August:

"The way the European Union is looking at Apple -- the European Union is nothing but a bunch of takers. The European Union wouldn't know how to produce diddly-squat."

This is sad but true. The Apple tax case won't make Europe more competitive, but it threatens to discourage investment in Europe. Ireland could have said: "Let's just collect an amount that corresponds to 26% of our national budget." Instead, Ireland's minister of finance said he didn't want to eat the seed potatoes: the longer-term implications of this are too bad, so any short-term windfall would be unwise to take.

It's not just a disgrace what the EU is doing in this "state aid" case (it's not "state aid" by any stretch of the imagination since it has nothing to do with giving one company an advantage over others). The EU's innovation policy as a whole is a disgrace, as are EU policies in some other areas (common currency, migration, cross-border crime).

I'm afraid that too many people in Europe will be misled by politicians who will portray Apple as a greedy large corporation that doesn't want to meet its obligations to society. It looks like redistribution if you tax the most profitable company in the world, but that's just populism. Before you have anything to redistribute, it must be created, and in order for something to be created, you need far better policies than the ones the EU has adopted and implemented so far.

A populist campaign against Silicon Valley isn't going to result in the creation of a European Silicon Valley. Instead, it will benefit other economies. In Asia, for example.

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