Qualcomm facing additional preliminary antitrust investigations in the EU over German iPhone lawsuits targeting Intel chips: MLex

MLex, the leading source of insight on regulatory risk (and by now a Bloomberg subsidiary), yesterday reported that the European Commission's Directorate-General for Competition (DG COMP) has asked Qualcomm questions about an antitrust complaint Apple had filed earlier this year and that I believe hasn't previously been reported on by anyone. According to Matthew Newman, one of the best-connected EU reporters (among other things, he was spokesman for a commissioner), the complaint relates to Qualcomm's patent enforcement against Apple in Germany (trials will take place in Mannheim and Munich over the next few months, with one in each city scheduled for next week) targeting iPhones that incorporate Intel baseband chips.

In January, the EU's competition authority slammed Qualcomm with a $1.2 billion fine for its exclusionary conduct in the years 2011-2016 when Apple was contractually precluded from sourcing baseband chipsets from Qualcomm's competitors such as Intel. As Commissioner Vestager explained at the time, Qualcomm had "taken measures to avoid competition on the merits" in its quest for total market dominance.

The way I understand the new MLex report, the Apple complaint that the EU is now investigating on a preliminary basis alleges that Qualcomm is pursuing the same monopolization objective just by different means: in this case, through the enforcement of patents against Intel-based iPhones in Germany. In the EU's largest economy, injunctive relief is available as a legal remedy, i.e., without the kind of equitable analysis U.S. courts perform under eBay, though even German courts can deny injunctive relief, or stay entire cases, over antitrust considerations, under the ancient Roman dolo agit doctrine, according to which no one can claim something he has an obligation to return immediately. For standard-essential patents, German courts must and do follow the Huawei v. ZTE ruling by the Court of Justice of the EU. However, the German Qualcomm v. Apple cases, unlike Huawei v. ZTE, do not involve FRAND-pledged standard-essential patents.

I would put it this way: in order to originally keep, now force Intel out of the wireless baseband chipset market, Qualcomm has first used a carrot--giving Apple a better deal in exchange for exclusive arrangements--and then, after Apple refused the carrot and started buying chips from Intel anyway, a stick: patent infringement lawsuits.

Over the carrot, Qualcomm has already been fined (a decision that it is appealing in court). In July, the Commission sent Qualcomm a supplementary Statement of Objections (SO) on predatory pricing. And now the question is whether the ongoing preliminary investigations relating to the stick will result in formal investigations, which in turn could lead to yet another SO and, potentially, another fine.

Such escalation would not be unprecedented. Google knows what it's like when you start being investigated over one issue (vertical search engines), then over the next one (Android, with a record fine), and when there are stakeholders who are prepared continue to bring new complaints unless certain kinds of behavior come to an end.

It has worked out for me in logistical terms to be able to attend next week's Qualcomm v. Apple trials in Germany. I still have some things to do in Germany and will therefore be able to report on what's going on there. A patent family Qualcomm is asserting in Munich raises a broader concern over the scope of software patents in Germany that sends a shiver down the spine of a former anti-software-patent campaigner, but the antitrust implications of cases specifically targeting Intel-powered iPhones (given that Intel is the only major competitor, thanks to its iPhone deal with Apple, that Qualcomm is facing at the moment) are even more important in the global scheme of things.

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Texas jury verdict exposes Huawei's conflict between inbound and outbound licensing of FRAND-pledged patents

This is a follow-up to my retweet (of three days ago) of a TechRights article:

@glynmoody @FOSSpatents @zoobab The Eastern District of Texas and Patent Courts Elsewhere Are Eating Huawei, But Huawei Also Uses These US Patent Courts to Prey on Its Competitors Outside China https://t.co/LCqF9l15ZP

— Dr. Roy Schestowitz (罗伊) (@schestowitz) September 6, 2018

Huawei is indeed torn between two roles: that of a licensor of standard-essential patents (SEPs), and that of a licensee.

Just at a time when Huawei is trying to prove Samsung's infringement of some of its SEPs in court (and seeking a whopping 1.5% royalty), a group of three affiliated non-practicing entities (Optis Wireless Technology, Optis Cellular Technology, and Panoptis Patent Management) has prevailed over Huawei in the United States District Court for the Eastern District of Texas on all five patents-in-suit: four FRAND-pledged wireless SEPS and one non-FRAND-pledged (but potentially still essential) H.264 codec patent. And the jury awarded a total of $10.6 million, with each of the four FRAND-committed patents, however, accounting for only an average of approximately $0.7 million. In other words, the non-FRAND patent was deemed roughly ten times more valuable. While it's theoretically possible that the non-FRAND H.264 patent was considered more valuable for technical reasons than the FRAND-pledged wireless SEPs, Judge Rodney Gilstrap, the nation's busiest patent judge in recent history, had instructed the jury that the FRAND promise needed to be kept in mind when determining damages.

This is the damages section of the verdict form (click to enlarge; this post continues below the image):

Most of the Optis/Panoptis patents-in-suit were transferred to that entity by Ericsson--a practice that is called "privateering" and that this blog has frequently criticized over the years. A former Ericsson executive runs Optis/Panoptis, and McKool Smith, the rising-star litigation firm representing Optis/Panoptis, frequently litigates patents on Ericsson's behalf.

Ericsson and Huawei had a dispute years ago. Apparently Ericsson came under serious pressure in China and more or less backed out (a face-saving exit at best). But Ericsson's privateers are still going after Huawei.

Huawei has yet to prevail on the merits in its dispute with Samsung. Same with Qualcomm in its dispute with Apple. Those two companies (who are at loggerheads with each other, yet have somewhat similar patent enforcement strategies) are demanding many billions of dollars before establishing the infringement of a single valid patent.

For all owners of wireless SEPs seeking to enforce them (also including Huawei when the shoe is on the other foot, and Qualcomm), every decision (here, a jury verdict) that awards only a modest amount of damages/royalties is bad news. Huawei has a significant U.S. market share, and if its infringement of four wireless FRAND-pledgedd SEPs just entitles a patent holder to about 700 grand per patent, it's hard to see how Huawei could demand many billions from Samsung.

After this jury trial, there'll be a bench trial at which Judge Gilstrap will have to determine whether Optis/Panoptis had previously made Huawei a licensing offer on FRAND terms, which Huawei denies. This, as well as the usual post-trial motion practice seeking a reduction of damages, will force Huawei to take positions contrary to the ones it's espousing in its dispute with Samsung.

Huawei makes very good devices. I've bought some for my app development company, and it's one of two Android brands that I've repeatedly recommended to others. It would be great if Huawei's priority was its product business, in which case it should be in the FRAND camp. Its dispute with ZTE earlier this decade was more of a statement. To me it looked like Huawei wanted to demonstrate that it takes pride in its contributions to wireless innovation. But the longer its dispute with Samsung takes, the more I fear that Huawei is actually aspiring to become the next Qualcomm...

It will be interesting to watch the further proceedings in the Eastern District of Texas.

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Apple asks court to find that Qualcomm cannot claim billions of dollars for breach of gag order

There's a third summary judgment motion related to Qualcomm's business practices that is worth talking about, though it is admittedly a distant third given the enormous potential of the FTC's motion regarding the licensong of rival chipset makers and Apple's motion targeting Qualcomm's "double-dipping" (chipset sales + patent royalties). In a lower-profile motion that nevertheless highlights a major issue, Apple has asked Judge Gonzalo Curiel of the United States District Court for the Southern District of California to throw out Qualcomm's counterclaims according to which Apple has to repay rebates amounting to billions of dollars because it breached a "Business Cooperation and Patent Agreement" (BCPA) through its efforts to instigate and broaden antitrust investigations into Qualcomm's conduct (this post continues below the document):

18-09-01 Apple Motion Re. R... by on Scribd

In order to understand the context of the motion, one needs to go back to last year's (amended) complaint, in which Apple stated the issue as follows ("Nature of the Action", paragraph 1):

"Qualcomm pursues its illegal practices through a secret web of agreements designed to conceal and obfuscate its conduct. In at least one such agreement, Qualcomm inserted a gag order that prevented an aggrieved party from seeking relief that could curb Qualcomm's illegal conduct, in an effort to keep courts and regulators in the dark and its coerced customers quiet." (emphasis added)

A "gag order" relating to information that stakeholders give to regulators is highly problematic. Allowing this kind of scheme would enable companies with huge leverage to impede the work of competition authorities to the point that antitrust action would be both less likely to happen and far less likely to succeed.

Most of Apple's motion focuses on compliance ("we didn't breach the agreement"), not on (un)enforceability, but at least Section A.5 makes a public-policy argument:

"Any interpretation of the BCPA that would prevent Apple from responding to the [regulatory] agencies' requests (whether based on subject matter or the alleged truthfulness thereof) or would allow Qualcomm—the target of agency investigations—to receive repayment of billions of dollars based on Qualcomm's own (incorrect) view of their contents would contravene established public policy. The public policy of California favors full disclosure of concerns about unlawful conduct to governmental investigators." (emphasis in original)

"Apple had a legal duty to comply with all subpoenas and CIDs [Civil Investigate Demands] from the FTC. Moreover, FTC rules of practice state that the FTC 'expects all parties to engage in meaningful discussions with staff.' [...] Inherent in this expectation is freedom from retaliation if the investigation's target dislikes a response. For this reason, responses to CIDs are generally confidential 'to safeguard the rights of individuals under investigation and to protect witnesses from retaliation.'"

"The same is true in Korea. The KFTC has stated that it 'relies heavily on third parties to gain information” relevant to ongoing investigations and to detect anticompetitive activity in Korea. [...] And Korean antitrust law expressly states that an investigative target cannot retaliate against, or give 'any disadvantage' to, another entrepreneur for 'cooperating with investigations' of unfair trade practices."

Apple's legal argument in the summary judgment motion is mostly about evidentiary failure on Qualcomm's part (for an example, Apple says there's no evidence Tim Cook discussed the KFTC investigation with his counterpart, whom Qualcomm didn't even seek to depose), about timing (Apple's first written correspondence with certain regulators occurred in eah case after the regulator had launched an investigation; and the BCPA expired at some point, so Qualcomm can't claim a breach based on what occurred post-expiration), and so forth. If Qualcomm convinces Judge Curiel that there is room for factual dispute, the motion may be denied (though Apple could still prevail on any of this at trial). If Apple's strategy works, the court will hold that nothing Apple did constituted a violation of the BCPA (reasonable interpretation provided). And if my wish was granted, the court would sua sponte place a lot more emphasis on the enforceability part than Apple did.

A few more quotes from Apple's complaint show the importance of the underlying issue:

"Qualcomm's recent effort to cover its tracks—by punishing Apple for providing truthful testimony at the request of government regulators—underscores the lengths to which Qualcomm will go to protect its extortion scheme."

"The BCPA carved out, as it must, an acknowledgment that Apple has a responsibility to respond to enforcement agencies' requests for information. But in restraining Apple from initiating action or bringing concerns to law enforcement, Qualcomm conditioned billions of dollars on Apple's silence before courts and regulators about Qualcomm's business practices. And Qualcomm is now interpreting that agreement to retaliate against Apple for responding to requests for information about Qualcomm's practices from competition agencies, inhibiting law-enforcement review of Qualcomm's anticompetitive practices."

"232. Specifically, Qualcomm offered to pay Apple the nearly $1 billion it owed if Apple would, in Qualcomm's words:

(i) publicly and specifically retract and correct each of Apple's misstatements about Qualcomm to regulatory agencies [...]; (ii) inform the relevant agencies that such statements were and are untrue; (iii) disclose Apple’s correspondence with any agencies relating to any investigation of Qualcomm;10 (iv) provide any and all additional facts to regulators and Qualcomm relating to Apple's dealings with Intel concerning any possible or actual consideration from Intel to Apple relating to Apple's implementation of WiMax or the use of Intel chips; and (v) provide Qualcomm with the requested information about any communications between Apple’s senior executives and Samsung.

233. Thus, in an extraordinary and transparent effort to manipulate regulatory iinvestigations into its anticompetitive behavior, Qualcomm offered to repay Apple nearly $1 billion in withheld BCP Payments if Apple recanted its true and, in many cases, sworn testimony before government agencies and instead gave false testimony favorable to Qualcomm."

In light of the above, the term "gag order" is actually an understatement. Qualcomm wanted to be exonerated by using Apple, in exchange for a billion-dollar payment, as its mouthpiece. Demanding a retraction of a statement is reminiscent of what certain communist dictatorships used to do during the Cold War. They, too, obligated people to publicly speak against their previous statements.

While it's understandable that Qualcomm will try anything in a multi-billion-dollar dispute to save money and, therefore, claims that Apple breached the agreement, the most important question is why Qualcomm put a "gag order" in place and made a billion-dollar offer for retracting statements Apple had made to regulators. Why would Qualcomm have done all of that in the first place if its business model was as legal as it keeps telling courts and the general public?

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Apple, Foxconn et al. want to end Qualcomm's double-dipping practice (chips and patents) once and for all

The previous post was about a magistrate judge's annoyance at Qualcomm's gamesmanship. But what's sure to cause Qualcomm and its lawyers a lot more headache is the pressure from two important summary judgment motions: the FTC's motion in the Northern District of California seeking to clarify Qualcomm's self-imposed obligation to license rival chipset makers and--which is what this present post is about--a motion by Apple and four contract manufacturers (Foxconn, Compal, Wistron, and Pegatron) in the Southern District of California, leveraging the Supreme Court's 2017 Lexmark ruling against Qualcomm's double-dipping practice (this post continues below the document):

18-08-31 Apple Et Al. Motion for Partial Summary Judgment by Florian Mueller on Scribd

For a recap of something discussed in greater detail last year, Qualcomm's business model is basically like this:

• As Judge Koh recalled in a recent order, "an analysis conducted by Qualcomm in 2015 showed that revenues from Qualcomm's licensing program were 'equivalent in size to the sum of ~12 companies with a form of technology licensing,' including leading cellular SEP licensors such as Ericsson, Nokia, and Interdigital."

• Customers have to accept an out-of-this-world royalty rate in order to be able to buy Qualcomm's chips.

• Those who don't want to buy Qualcomm's chips must still pay patent license fees and will sooner or later be "persuaded" to enter into exclusivity arrangements under which their total cost (the sum of chip supplies and patent royalties) is reduced (but apparently still very high).

The above sounds like a "great" (for Qualcomm, not for the economy at large or for society) deal. However, Apple and its four contract manufacturers say that "Lexmark forbids this double-dipping."

The doctrine of patent exhaustion, which the Supreme Court clarified, upheld and reinforced in Lexmark, is fundamentally irreconcilable with the notion of a company selling chipsets and collecting patent license fees from the customers buying its chips. But Qualcomm appears to have believed for a long time that it would get away with it. One, because no one would dare challenge it. Two, by virtue of three structural elements that the summary judgment motion addresses:

• "Qualcomm divides the chipset sales and software license across two agreements"--one for the purchase of the chipsets and another one, named Master Software Agreement, for the software license.

• Foreign sales (such as to Asia-based contract manufactures) don't help as Lexmark clear stated that "[a]n authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act."

• The motion labels as "corporate shell games" a structure under which different Qualcomm entities sell certain products and technically own certain patents. More than six years ago I already reported and commented on a related restructuring.

The motion invites Judge Gonzalo Curiel to take a Lexmark attitude and focus on a simple commercial question: are we talking about authorized chipset sales or not? If authorized, there's exhaustion; if Qualcomm wants to argue that exhaustion doesn't kick in, it has to show that something was unauthorized about the sale.

The most technical question here ("technical" in a literal sense, not legally technical) is whether, as the motion says, "Qualcomm’s chipsets and software indisputably are a matched pair by design, each intended to be used with, and only with, the other." The moving parties describe this as an undisputed fact. It will be interesting to see whether (and if so, how) Qualcomm will seek to raise doubts about it, but absent a single reasonable use case for that software outside of Qualcomm's chipsets and for Qualcomm's chipsets without the related software license, I guess it just can't deny what matters here.

Exhaustion can only be determined on a patent-by-patent basis (even if certain key questions, particularly anything related to Lexmark, will overlap). It's not a portfolio question.

That's because it must be shown for each patent that it is practiced by Qualcomm's chipsets. It wouldn't be practical to have one or more courts make this determination for thousands of patents. And a motion for partial summary judgment is subject to rather strict page limits--the whole idea of summary judgment is that you raise an issue that the court can easily decide. Apple and the likes of Foxconn therefore picked three exemplary patents (from the ones Apple and the contract manufacturers tackled before). Footnote 1 says that "[a] favorable ruling on this motion would inform the parties as to the exhaustion issues for the other patents." In other words, the parties need some guidance, but then they should be able to figure out exhaustion for numerous other patents.

Footnote 6 explains, in other words, that the movants are simply in their right to present alternative claims: should they prevail on exhaustion, infringement won't be reached. While the motion doesn't say so, this would even apply in a case where the theories aren't just alternatives but where they would be contradictory. Here, however, it's technically still possible that Qualcomm's chips practice a patent (thereby triggering exhaustion, provided that a sale is authorized and a court is underwhelmed by an attempted end-run based on a separate software license and a nested corporate structure) while, for an example, Intel's chips don't. However, to the extent that a patent is truly standard-essential, it may be practiced by Qualcomm and infringed by everyone else--but who cares if it's exhausted?

The FTC's motion for partial summary judgment in San Jose has the potential to force a settlement of that entire antitrust matter. If the San Diego motion on exhaustion succeeds, there will still be a host of financially and strategically important issues to resolve, but the case would be streamlined in a highly important way and, in a best-case scenario, it's possible that no (alternatively, fewer) patent infringement questions would have to be taken to trial. And above all, either motion would have major impact on the market.

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Magistrate judge rebukes Qualcomm for iPhone patent infringement allegations it originally chose not to bring

It's pretrial season in the Huawei-Samsung and Apple-Qualcomm FRAND disputes, thus a flurry of motion practice. Before I'll get to discuss the strategically extremely important exhaustion issue (in light of the Supreme Court's 2017 Lexmark) in Apple v. Qualcomm, there's also a short but interesting ruling that United States Magistrate Judge Mitchell D. Dembin handed down in the Southern District of California on Tuesday (this post continues below the document):

18-09-04 Order on Motion to Strike Qualcomm Allegations by Florian Mueller on Scribd

The procedural context, which the order summarizes at the start, is that Apple's original complaint involved, among other things, requests for declaratory judgment on invalidity and non-infringement of nine Qualcomm patents. With the first amended complaint, Apple tackled another nine Qualcomm patents. As an Apple filing noted (see the update paragraph at the end of this June 2017 post), Qualcomm--quite surprisingly!--elected not to bring compulsory infringement counterclaims, forever precluding Qualcomm from bringing such charges.

With the trial approaching, Qualcomm may have had second thoughts regarding its choice. Its lawyers apparently preferred to have their experts opine on infringement with a view to everything the jury will have to decide.

Apple didn't accept that change of mind and brought a motion to strike. The motion succeeded with respect to certain passages of multiple expert reports, which Qualcomm (unless it successfully appeals this order to Judge Curiel) won't be allowed to leverage at trial. The motion failed with respect to some others (the judge concluded that those expert opinions focused on standard-essentiality of certain patents and valuation; in a way, essentiality is often tantamount to infringement).

The following harsh words show that Magistrate Judge Dembin was annoyed by the way in which multiple Qualcomm expert reports were inconsistent with Qualcomm's decision not to bring infringement counterclaims with respect to the original set of nine patents:

"Qualcomm's counsel know that in a declaratory judgment action by a licensee against a patentee seeking an order of non-infringement, the patentee, Qualcomm, bears the burden of persuasion of infringement. [...] Qualcomm made the tactical decision not to assert infringement and thus avoid certain discovery obligations as mentioned above. In its expert designations, Qualcomm chose not to disclose that certain experts expressly would opine on infringement and assert that Plaintiffs are infringing patents-in-suit. Qualcomm will be held accountable for the consequences of its tactical decisions." (emphasis added)

"To the extent that Qualcomm claims they have disclosed in discovery their views regarding infringement and, consequently, there is no surprise and no prejudice, is unavailing. Rules are rules and tactical decisions have consequences[.]"

In other words (not in the order): you make your bed and you lie in it.

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Huawei is allegedly adamant about receiving 1.5% of Samsung's smartphone sales as a patent royalty

As I mentioned a month ago, Samsung had a deadline last week for its response to Huawei's Ninth Circuit appeal lodged with the Federal Circuit against the antisuit (actually, just anti-enforcement) injunction Judge William H. Orrick upheld in the Northern District of California in late June. The U.S. district court will hold a trial in December, and the purpose of the injunction is to bar Huawei from leveraging two Chinese patent injunctions (granted by the Shenzhen Intermediate People's Court) before Judge Orrick has the chance to adjudicate a related claim.

Like in the court below, Quinn Emanuel, as counsel for Samsung, is defending the Microsoft v. Motorola it once sought to prevent as Motorola's counsel, while Sidley, then counsel for Microsoft, is trying hard (but not convincingly so far) to distinguish one case from the other.

With either party having filed one brief (Huawei will file a reply at its earliest opportunity since it would like the Federal Circuit to decide sooner rather than later), it all looks like a total rehash of the district court proceedings. The one and only Yogi Berra would have said: "It's déjà vu all over again."

However, Samsung's responsive brief is still interesting from two angles. One, it sheds some additional light on the history of licensing negotiations between the parties. Two, it's interesting to watch how Samsung's lawyers position the anti-enforcement injunction as merely thwarting Huawei's plans to frustrate the forthcoming San Francisco trial (as opposed to putting U.S. law about Chinese law).

Here's the filing first (this post continues below the document):

18-08-27 Samsung Appellate Brief by Florian Mueller on Scribd

Samsung alleges that Huawei has made only token concessions and engaged in some structural maneuvering, but never went down (at least not to any meaningful degree) from its initial 1.5% royalty demand:

"Although Samsung considered different license structures and made significant concessions on royalty terms, Huawei inexplicably ping-ponged back and forth between different types of licenses, while woodenly clinging to its demand that Samsung pay its so-called 'standard' royalty rate of 1.5% of the sales price of smartphones and other devices that employ the standards in question. As discovery has shown, even with the modest concessions Huawei has offered, its demands are unreasonable and discriminatory because they exceed any valuation that is recognized as appropriate in the industry as well as terms Huawei extended to others, [...]

Huawei's original 1.5% demand was previously mentioned in the Chinese court ruling. It's also what I remember from Huawei's dispute with ZTE. Samsung's appellate brief explains why it's an excessive royalty rate:

"In August 2011, Huawei approached Samsung seeking a cross-license to the parties' respective 3G and 4G SEP portfolios. [...] By that time, Huawei had announced to the industry that it would demand a 'standard' one-way royalty of 1.5% of the sale price of devices like smartphones and tablets for its LTE/4G SEPs. [...] The industry consensus, however, was that the aggregate royalty burden for all such SEPs should be a single-digit percentage, approximately 6-8%. [...] Huawei's demand thus amounted to 18-25% of the aggregate rate for all SEPs owned by every firm. Huawei has never justified that demand; in particular it does not contend that it holds a corresponding proportionate share of total industry SEPs, and it does not contend that any other smartphone manufacturer has accepted that rate in a negotiated license."

Apparently, the discrepancy between Huawei's share of wireless SEPs and the aggregate royalty burden deemed reasonable in the industry didn't dissuade the Chinese court from granting Huawei injunctive relief--but the appeals court in Guangdong may still reach a different conclusion.

Interestingly, Samsung's position changed a lot. Initially it expected Huawei to be a net payer under the deal; later it proposed a royalty-free cross-license, and about three years ago Samsung even signaled a willingness to be the net payer:

"During the course of negotiations Samsung made reasonable offers to Huawei in the hopes of reaching a resolution. Samsung originally proposed that Huawei make a balancing payment due to Samsung's larger and stronger patent portfolio [...], then later proposed a royalty-free cross license [...], and then compromised further in July 2015 by offering to pay Huawei a net royalty fee [...]. That offer was based on an existing royalty rate set by the Guangdong High Court of China at Huawei's request in a case involving a portfolio of Chinese SEPs owned by InterDigital. [...] Huawei refused these offers."

I remember that a Chinese court had held that InterDigital was entitled to SEP royalties far below what InterDigital was seeking then and Huawei is seeking now. But that's the problem when a company is licensor in some cases and licensee in others: once the shoe is on the other foot, the positions one used to take and sometimes even the victories one scored in a different context backfire. Just like Huawei's U.S. counsel from the Sidley firm is now struggling to distinguish Huawei v. Samsung from what may have been by far the most important triumph of the firm in connection with patent enforcement.

Meanwhile, Samsung's counsel is making a lot of effort to describe the anti-enforcement injunction as no big deal. That's necessary because of the international comity considerations involved: it's about a U.S. court having enjoined a Chinese company (that elected to file a case in San Francisco), not about a U.S. court putting itself above a Chinese court, or putting U.S. law above Chinese law. As Samsung's brief puts it, the U.S. district court merely sought to "protect its own jurisdiction to decide the controversy now before it" and to "ensur[e] that the U.S. case can also proceed unimpeded."

I'd be surprised if comity considerations played out in Huawei's favor.

If Ninth Circuit didn't control this case, the question of whether all of the Supreme Court's Winter preliminary injunction factors must be analyzed would be more interesting, but only slightly so since Judge Orrick addressed them in his denial of Huawei's motion to alter judgment. Given that the Ninth Circuit has consistently (apart from maybe one clause in one sentence of a long ruling) and repeatedly held that the traditional preliminary injunction factors are replaced by the Gallo test, it's probably going to be hard for Huawei to persuade the Federal Circuit judges to depart from established Ninth Circuit law--especially since such departure probably wouldn't even make a difference.

The Federal Circuit encouraged Huawei not to exhaust the deadline for its reply brief. The appeals court did so when Huawei wanted the case to be put on a faster track. I guess we'll see a reply in the coming days, and then the Federal Circuit will hold a hearing pretty soon, but as Samsung's brief notes, "this appeal could be argued and decided before any injunction in China becomes enforceable." That's because Huawei will be able to enforce the Shenzhen injunctions only if the Guangdong appeals court rules in its favor, too.

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Federal Trade Commission may open up the wireless chipset market even prior to Qualcomm trial: motion for partial summary judgment

Four months prior to the FTC v. Qualcomm antitrust bench trial in the Northern District of California, the U.S. Federal Trade Commission has brought a motion for partial summary judgment that has the potential to make a far greater contribution to fair competition in the wireless baseband chipset market than the procedural context (a pretrial motion) suggests. The FTC is asking Judge Lucy Koh to hold that, under certain (F)RAND licensing obligations it entered into when it participated in wireless standard-setting, Qualcomm must license its CDMA, UMTS and 4G/LTE standard-essential patents (SEPs) to rival chipset makers (such as Intel).

This is an unusual situation in which a summary judgment motion is legally extremely simple, yet has the potential for truly transformative impact on the marketplace. In most situations where a party is seeking a game changer, reasonably tricky question of law and/or fact are involved. Here, the FTC is just seeking clarification that Qualcomm's FRAND licensing commitments say what they say. But if Judge Koh agreed with the FTC and reminded Qualcomm of its obligations,

• Intel (and likely others, such as MediaTek and Samsung's Exynos division) would immediately ask for a license to Qualcomm's wireless standard-essential patents on FRAND terms,

• Qualcomm would have to content itself with royalties representing a FRAND percentage of baseband chipset prices (as opposed to a percentage of the price of an entire mobile device),

• Qualcomm's leverage would be reduced because (as the FTC notes) Qualcomm couldn't threaten with a chipset supply disruption while negotiating with competitors,

• due to patent exhaustion, Qualcomm wouldn't be able to "double-dip" by collecting license fees from its licensees' customers (the device makers), and

• those who would still buy Qualcomm's baseband processors could decline to pay royalties in excess of what baseband chipset makers are required to pay (anything else would be discriminatory).

A number of problems would be solved, and prices would come down. Consumers would benefit. Competitors would benefit. Device makers (especially in the premium segment) would benefit. But Qualcomm would have to get used to doing business on FRAND terms, at long last. It could still make a ton of money, but obviously less than before.

Hypothetically speaking, if the FTC achieved the above with its motion for partial summary judgment (which I believe it will), but subsequently failed to make further headway at the January 2019 bench trial (which is not a prediction), it would have accomplished a great deal. In that hypothetical scenario, it would actually have achieved far more than with the average consent decree. The trial might not even take place: after such a strategic breakthrough for the FTC, Qualcomm would be under significant pressure to settle.

After assessing the potential impact of this motion, let's take a look at the basis on which the FTC is trying to make such tremendous headway (this post continues below the document):

18-08-30 FTC Motion for Partial Summary Judgment Against Qualcomm by Florian Mueller on Scribd

In a legal sense, the motion is as narrowly tailored as it could be. The FTC's broader case against Qualcomm's policies, including the "no-license-no-chips" approach, targets a host of issues and their anticompetitive effects. The above motion for partial summary judgment, however, does not even raise a single antitrust issue in a strict sense: it's exclusive about Qualcomm's contractual obligations to license rival chipset makers. And it's not about the entirety of Qualcomm's contractual licensing commitments: it's just about Qualcomm's obligations and third-party beneficiaries' rights emanating from Qualcomm's FRAND licensing promises to two U.S. standard-setting organizations, the Telecommunications Industry Association (TIA) and the Alliance for Telecommunications Industry Solutions (ATIS).

In other wireless SEP cases, the commitments that patent holders made to the European Telecommunications Standards Institute (ETSI) are front and center. Here, the FTC is trying to eliminate the need to make a determination in San Jose under French law. Qualcomm presented expert reports according to which it allegedly, under French law, doesn't have to extend SEP licenses to other wireless chipset makers. The FTC completely disagrees, but if Qualcomm's commitments to U.S. standards bodies cover the standards at issue in the case (CDMA, UMTS, 4G/LTE), Judge Koh won't even have to dig into a foreign country's law under Rule 44.1.

A duty to deal, under antitrust law, would also require Qualcomm to extend SEP licenses to rival chipset makers. Here, too, the FTC believes it has a stronge case: but the motion for partial summary judgment does not involve an antitrust-based duty to deal; at this point, it's just about Qualcomm's existing contractual obligations. By contrast, it involves a lot more on a court's part to determine that a duty to deal exists on antitrust grounds.

Technically, if Qualcomm has an obligation on one legal basis (its commitments to TIA and ATIS), and if the court confirms that this is the case, that's all it takes for good things (more competition in the baseband chip set market) to happen. The FTC's motion has the potential to streamline and simplify a very critical part of the case. As the motion explains, Qualcomm's commitments to TIA and ATIS can be interpreted under California contract law (which is particularly clear here, given Qualcomm's legal domicile in San Diego). That's much easier for Judge Koh than to form an opinion based on expert reports on what a certain term may or may not mean in French in light of a wealth of contract law rulings made by courts in that country over the last decades. Why do so if there are U.S. standard-setting organizations that adopted the standards in questions (no matter how important ETSI was in the creation of certain standards)?

Qualcomm's commitment to both TIA and ATIS undoubtedly require it to license all comers. The official guidelines to TIA's IPR policy even explicitly state that "[a]n example of conduct that would constitute discrimination is a willingness to license all applicants except for competitors of the licensor" (which is obvious, but it helps that the obvious has been stated this unambiguously).

The name of the game is contract interpretation. The motion per se doesn't even require the court to find Qualcomm in breach of those commitments (which would involve factual questions relating to Qualcomm's interactions with the likes of Intel).

Long passages of the motion have been redacted out, which is why the context of the following isn't clear, but it's interesting nonetheless: in 2014, Judge Koh herself held in GPNE Corp. v. Apple "as a matter of law that in [that] case, the baseband processor [was] the proper smallest salable patent-practicing unit." It will be hard for Qualcomm to distinguish the FTC's case from that one should the royalty base have to be determined in the further proceedings (certainly not necessary for deciding this motion).

The FTC has made a smart tactical choice by requesting a ruling on this pivotal question. Things aren't looking good for Qualcomm anyway (also considering what Judge Koh stated in her dismissal without prejudice of a motion brought by consumers), but if the FTC prevails on this motion (which I believe it very probably will; at a mimimum, it would score this strategic victory at trial), Qualcomm will have to admit that the noose is tightening around the most problematic aspects of its business model.

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