Tuesday, April 15, 2014

After 3 years of patent litigation, Apple and Samsung should settle for $3 and $1 per unit

Three years ago to the day, Apple filed its original California patent infringement complaint against Samsung. On the occasion of this anniversary, here's a scan of the cover sheet with the date stamp (click on the image to enlarge; this post continues below the document):

I've been watching this dispute for three years. I downloaded countless filings from electronic dockets in the U.S. and attended well over a dozen German Apple v. Samsung and Samsung v. Apple trials, plus an injunction hearing in France. And I can't tell you how tired I am of this.

After three years and dozens of filings in at least 10 countries, there is still no endgame in sight. Later today, these two companies will square off again in the San Jose court, where a jury will have to render a verdict that, no matter the outcome, won't have the potential to resolve this global dispute.

A couple of weeks ago I made a call for input concerning the terms on which it would make sense for both parties to settle their global dispute. A large part of the feedback I received was non-numerical and came down to saying that Apple should sue Samsung forever and keep pursuing injunctions. Some of the messages I received specified potential royalty rates, some of which basically fell into the previous category of replies.

In this post I'm now going to lay out and explain my own thinking, not influenced by anyone (in fact, I did not tell or indicate to anyone beforehand what numbers I had in mind, nor did anyone request or suggest that I take a particular position).

At the current juncture (and the ongoing trial is unlikely to have a material effect on this assessment), these are the terms I would propose if I were a mediator:

  • Apple should pay $1 per cellular device to Samsung.

  • Samsung should pay $3 per device to Apple.

  • This is more favorable to Apple than it appears at first sight because Samsung's volumes are higher.

  • These terms should also apply retroactively to the last 36 months.

  • Samsung should additionally make a one-time payment of $750 million to settle any past infringement issues relating to design patents (basically, the first California case). Design patents would not be licensed going forward.

  • There should be an anti-cloning provision (something that most of the readers who gave my input stressed), but it would have to be very reasonable.

  • This proposal is a "package deal", so these two parties might very well make rather different demands in licensing negotiations with third parties.

Obviously, if the parties agreed that these are the right terms, they would already have entered into a settlement on that basis and the current California trial wouldn't have to be held anymore. Still they presumably talk all the time. I will now explain how I would defend this proposal against both parties' likely objections (if I were, in a parallel universe, their mediator), but before I do that, I'll say something about many people's fundamental misconceptions regarding the strategic and financial value of patents in a situation like this.

Jury trials are circus events, but the name of the game is not whether someone's internal benchmarking documents suggest "copying" (a term that makes sense in connection with copyright, not patent law) or whether someone revolutionized a market (there is no intellectual property right that protects market share or rewards a company for persuading consumers to use small portable touchscreen devices). The name of the game is that a patent is worth the difference between the scope of its valid claims and the best non-infringing alternative (i.e., workaround). It's about the impact on someone else's business if they are required to work around the patent.

I have recently highlighted the limited scope of Apple's patents-in-suit (and in retrospect I think I should have talked about this a lot more in the months before, though I still believed until last summer that Apple could still gain some decisive leverage at some point). I had been very patient with Apple's effort to prove the strength of its patents in court. Certain reactions to the conclusions I had to draw have focused on conspiracy theories and on evidence of "copying", all of which is pretty simple stuff, but none of the feedback I received was specific to the strength of the relevant patent claims relative to workarounds. None of those who disagreed with me pointed to Apple's exclusive ownership of particular features. Let's please not forget about the name of the game.

With the foregoing in mind, I will now outline how I as a mediator would explain the rationale behind my proposed terms to the parties.

I would tell both of them that the money they spend on lawyers is little if you compare it to the size of the relevant market, but given that those patents have turned out to be non-nuclear, costs are too high.

Another message to both of them would be that they should consider the value of a business partnership in certain areas (manufacturing of components). Companies can do business while being embroiled in litigation, but that is not the ideal climate. If those patents were much stronger than they have turned out to be, I would recommend to both of them to regard the benefits of a commercial partnership as far less important than what is strategically at stake. But that's not the case.

Either of them would argue that their patents are worth much more than I propose. In fact, my proposal comes down to almost exactly one-tenth of what both have demanded (Samsung wants 2.4% of Apple's sales for a cash-only license to its wireless SEPs (i.e., $12 on a $500 device), and Apple approached Samsung in 2010 with a $30-per-unit licensing proposal. My proposal comes down to slashing their demands by a factor of 10.

I believe Apple would probably not have a problem with the $1-per-unit fee for Samsung's patents. In 2012 Apple told a U.S. court that it would accept a FRAND royalty determination of up to $1 per iPhone to secure a license to Motorola's patents (and it didn't rule out paying more, but in that case it wanted to reserve the right to continue to litigate). I don't think Apple would claim that Samsung's patents are less valuable than Motorola's. And it has turned out that antitrust regulators are not inclined to impose sanctions on Samsung for its SEP assertions against Apple.

Samsung would probably still want a lot more than $1 per device, but I would encourage Samsung to look at this rate in the greater context of a comprehensive cross-license agreement.

I don't know how Samsung would react to the idea of paying $3 per Android device to Apple, nor whether Google would somehow contribute financially to such a settlement. Of course, Samsung could argue that Apple doesn't have any serious leverage and will ultimately get nothing, or next to nothing, out of all of these lawsuits. Conversely, Apple could also argue that it believes it would have more leverage further down the road. But on that basis they would both never settle and keep litigating forever.

By far and away the biggest obstacle to an agreement on these proposed terms would be the reality distortion field surrounding Apple's perspective on the value of its patents. This bullet point from Apple's 2010 proposal to Samsung shows just how unrealistic Apple was at the outset and still might be (click on the image to enlarge or read the text below the image):

"Since Apple's paradigm of an advanced smartphone won -> Apple's portfolio will become the most important and most valuable part of the IP stack for the next decade."

The "Since" part is true, the conclusion from it is not. Apple does not own a market because it created the market: it merely owns any technology it created, and since essentially all of the relevant technology existed before the iPhone, Apple can't claim ownership of an entire category. So far its proven ownership is limited to rubber-banding...

Apple has now been litigating against Android device makers for almost 50 months. It has tried everything. Hardware patents. Software patents. iPhone-era patents. Pre-iPhone Mac patents. And the only complete feature that it has been able to force Android device makers to remove from their devices is the overscroll bounceback.

If litigation drags on and on and on, Apple will over time be granted new patents that it may assert in litigation. But that is also true of Samsung. Both can also make patent acquisitions anytime. On that basis, they would never settle.

If Apple thought $3 was too little, I'd remind them of their own position on an appropriate royalty base (given that most of their patents-in-suit against Samsung are software patents) and tell them that based on the leverage they presently have in litigation, a royalty-free cross-license would make a lot of sense, and if Apple didn't settle now on these proposed terms, a zero-zero deal could easily be the ultimate outcome.

If Samsung thought $3 was too much to pay to someone who doesn't have serious leverage, I would tell Samsung to consider that as long as there is no settlement, Apple will keep trying to gain leverage, and there is some economic value in eliminating the remaining uncertainty. While I would agree with Samsung that Apple's current non-leverage does not justify $3 per device, there could also be a situation further down the road (not as a result of the ongoing trial, but later on) in which a per-unit royalty of $5 or more (though always below $10 as long as the U.S. is the only jurisdiction in which Apple, which has not scored a single lasting win over Samsung in Europe, can prevail on anything other than rubber-banding) would be the correct outcome.

These are the key messages I would have for them. I would also be able to go into much more detail with them on the results (or absence of results) of three years of litigation, the scope of claims, and the workaround options. But in this post I just wanted to focus on my conclusions from having watched this dispute for three long years and having finally arrived at the conclusion that Apple can basically just score symbolical wins. So far at least. If Apple came up with a "killer patent" and proved it in court, then we could talk again. I doubt it.

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Sunday, April 13, 2014

Apple's damages claim, Windows freebie raise question of patent royalty base for Android

In all the patent cases I watch, the only defendant with which I have sided (and continue to side) against two different right holders (Samsung and Google/Motorola Mobility) is Apple. By comparison, I've sided with others against only one plaintiff each (BlackBerry against Mformation, Marvell against CMU, Micromax against Ericsson, Microsoft against Google's Motorola, and now Samsung against Apple in connection with the ongoing trial).

When I became aware of Apple's $40-per-device damages claim last month, the first reaction is that I was thoroughly disappointed because Apple's positions up to that point had been reasonably consistent (design patent damages have a different legal framework). Not just disappointed but even angry. Angry because I had called for antitrust sanctions against Samsung because of its SEP royalty demand of approximately $12 per device (for a whole portfolio of wireless SEPs), which I still think is way too much but which now looks cheap compared to Apple's demand of $40 for only five Android-related patents. Apple is actually seeking damages for just one patent (the '647 patent) -- more than $12 per unit -- that are at a level with Samsung's total SEP royalty demand. It didn't take me even one second to figure out that I would now have to side on this key issue with Samsung for basically the same reasons for which I still side with Apple in two other disputes -- even more so in light of Samsung's voluntary withdrawal of two standard-essential patents-in-suit from the second California case, as a result of which Samsung went into the retrial with a perfectly consistent position on patent damages.

It's obviously imperative to distinguish between the criteria for reasonable royalty rates (and royalty-type damages) on the one hand and the consequences of excessive demands on the other hand (remedies, antitrust fines etc.). Absent a FRAND commitment and what is called a license of right, it's not impossible but far more difficult to allege violations of competition law. And patents are, in principle, exclusionary rights, so someone who does not have a FRAND licensing obligation due to a FRAND pledge or some other valid reason can elect to withhold a license altogether. But that does not make the sky the limit for non-SEP royalties in the context of Georgia-Pacific royalty-type damages: a damages theory that is all about what royalty rate the parties would have agreed upon at the end of a reasonably-led negotiation. The way to enforce exclusivity is through injunctions.

One key aspect of a reasonable royalty is the appropriate royalty base. It's often the most important question. More than two years ago, I published a letter that Apple had sent to standard-setting organization ETSI with suggestions to ensure that right holders honor their FRAND licensing commitments, and I supported Apple's advocacy of a "common royalty base" for wireless baseband patents: "This common base, as between two negotiating parties, should be no higher than the industry average sales price for a basic communications device that is capable of both voice and data communications."

About a year ago Apple made this argument again in a filing with the ITC (in its efforts to avoid an import ban, which was ultimately vetoed). It argued that the proper royalty base for Samsung's wireless SEPs is the price of a baseband chip, i.e., approximately $10. Apple frequently compares (as do defendants against SEP damages claims and royalty demands all the time) the royalties sought by Samsung and Google to the price of the baseband chip, and on that basis (rightly in my opinion!) finds those royalty demands excessive.

But what's good for the goose is good for the gander.

Apple's patents-in-suit in the ongoing trial are software patents relating to Android. Four of them are just about Android, and the fifth one, slide-to-unlock, is a feature all Android device makers add to "stock Android" (and it involves mostly Google's program code as well). I'm unaware of any explanation by Apple of why the total cost of patent licenses relating to Android should not be limited to a percentage of the contribution that Android makes to the market value of a smartphone or tablet computer.

Only because Judge Koh is much more permissive with respect to damages claims than Judge Alsup (in the same district), Apple apparently didn't have to explain this striking contradiction between its "royalty base" position and its damages claims in the ongoing trial. The apportionment question came up in Oracle v. Google, and in that case it was not about the difference between the operating system and the complete device but just about the part of the Android mobile operating system that Oracle's asserted intellectual property rights represent. (I have said repeatedly that I consider the most likely next step in that case to be a remand to the district court, so there will likely be a damages trial.) Judge Alsup made very clear, however, that a zero royalty -- just because Google gives Android away for free -- was out of the question. Oracle was allowed to base claims on the mobile advertising revenue generated by Google and even the indirect network effects of Android benefitting Google's non-mobile businesses.

It would also be preposterous, of course, to argue (which no one has tried in any of the disputes I watch) that Apple should not be entitled to any royalty-type damages relating to Android because Google gives Android away for free. But Apple can't ignore -- and the court should never ever have allowed Apple to ignore -- the fact that mobile operating systems do not account for sky-high percentages of the entire market value of a smartphone or tablet computer. The fact that Microsoft now grants royalty-free Windows licenses to makers of small devices (anything with a screen smaller than 9") -- a decision by Microsoft that makes a lot of sense to me and is procompetitive -- makes it even clearer that Apple is out of touch with reality as far as reasonable royalties (and damages) relating to Android are concerned.

There's no shortage of right holders asserting patents against Android, so this question is going o continue to be an important one.

Last summer I found out that a replacement screen for the phone I used then (the Note 2, but I then bought the Galaxy Mega 6.3 instead of having it repaired) would cost me almost 300 euros ($400). The replacement would not have been limited to the screen: the spare part contained various other hardware components. Still this is one of various indications of the non-operating-system components of the total cost and market value of a smartphone (or tablet). Apple can't just ignore the value of all the high-end hardware that goes into these devices when making royalty demands over software patents.

On the other hand, the price at which a component lacking key patent licenses (whether it's an operating system or a baseband chip) is sold is not a sufficient royalty base because infringement can't have the effect of devaluing intellectual property. That is another reason why the royalty-free Windows deal for smaller devices is so interesting. Microsoft does secure patent licenses it needs, and shields its customers from patent assertions. The combination of Microsoft and Google's operating system-related pricing decisions is relevant. Apple should not turn a blind eye to such market parameters.

The purpose of this post was to raise a question and to highlight some key facts in this context, not to give a definitive answer on a highly complex issue. I will address this question on more occasions going forward and will, over time, take reasonably firm positions. But that is not necessary to establish the unjustifiability of Apple's damages claim in the Samsung case. On Tuesday I mentioned several experts who agree with me on Apple's damages claim in the ongoing trial. I still haven't become aware of anyone supporting it, but I have Rutgers Law School's Professor Michael Carrier to add to the list based on this interview with Bloomberg Law.

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Thursday, April 10, 2014

Google's 'bargaining chip' argument has traction, but Apple may still get a FRAND determination

As of tomorrow, seven months will have gone by since the Federal Circuit's hearing in the Apple v. Motorola "Posner (cross-)appeal", and there is still no ruling. In two ways, the fact that the same parties have another appeal involving FRAND issues pending before this appeals court may have contributed to the delay. One, at the Tuesday hearing in the "Wisconsin FRAND dismissal" case (official recording), a circuit judge audibly vented her frustration with the scattershot litigation that is going on between these parties. When judges feel that a party, or in this case both parties, could have made things more efficient for the courts, they're less inclined to reward their tactics with swift decisions. Two, there is a certain overlap between the FRAND-related part of the "Posner appeal" and the Wisconsin case (the latter is exclusively about FRAND issues). This also became clear at the Tuesday hearing when the court asked counsel for Motorola about the scenario of a certain hypothetical decision on its '898 standard-essential patent (SEP) in the Posner case. Maybe the appeals court preferred to wait with its decision in the Posner appeal so as to ensure absolute consistency.

In my commentary on the briefing in the Wisconsin case, I had noted that this was the most difficult one for Apple to win of its current and recent Federal Circuit appeals in the cases I watch (which are almost exclusively disputes between two large companies and very rarely NPE cases). I felt, as I wrote at the time (in different words), that Apple might have a stronger case in light of Wisconsin (patent-unrelated) precedent but Motorola had a reasonable policy argument that a FRAND determination Apple didn't commit unconditionally to accept would basically just set a ceiling (a term that a circuit judge indeed mentioned at the hearing) and give Apple a bargaining chip without putting the dispute to rest.

Having listened to the official recording of the hearing, I now know that this "bargaining chip" issue is, in fact, the appeals court's primary policy concern. This term came up again and again. But the court did not indicate a firm position either way. Anything is still possible, including a remand on which Apple will get the FRAND determination it's seeking. It's also still a possibility that the case might be referred to the Seventh Circuit, as Motorola requested.

Apple's lead counsel, Orrick Herrington Sutcliffe's Joshua Rosenkranz, has so far had an amazing track record on Apple's behalf, and the hearing in Oracle v. Google also went perfectly for him. If you listen to the recording of the hearing, you'll notice that it was at times difficult for him to make his points because the appeals court sometimes asked questions that appeared to be related to the antitrust claims in this case (I'd be surprised if Apple prevailed on those) and the more important "specific performance" issue under contract law (Apple's request that the court order Motorola to make an offer on court-determined FRAND terms) and then switched back to antitrust. But in his reply argument (more than 30 minutes into the hearing), he made some very compelling points and demonstrated once again what a fabulous appellate lawyer he is.

One thing Mr. Rosenkranz explained to the court is that while Apple believes Motorola is entitled to a maximum of $1 per device, Motorola is seeking 12 times that amount, and if you multiple the $11 difference by half a billion devices sold, it's a difference amounting to several billion dollars.

Besides harm and injury from Motorola's behavior, Apple also had to explain why it couldn't just file a new case to pursue the claims that were dismissed without prejudice. Mr. Rosenkranz explained that another judge looking at the same claims and an unchanged set of facts would be rather likely to dismiss again. But the appeals court stressed that District Judge Crabb had merely exercised her discretion in dismissing Apple's related claims. The reasonably high hurdle for Apple to overcome here is to show an abuse of discretion.

Usually I would say that if an appeals court does not appear to disagree in one or more rather important respects with the district court, affirmance is most likely. In this case, however, Motorola also faced some critical questions. I don't think there is a sufficiently clear basis for predicting the outcome either way, except that Apple's antitrust claims are probably a long shot. I also think Apple probably won't get the broad ruling from the Federal Circuit that it would like to see: a holding that district courts can set a FRAND rate if an implementer of a standard so requests because of a disagreement with a SEP holder on licensing terms. Should Apple win, then the decision will probably be narrow and based on Wisconsin contract law rather than a general rule.

Google (which owns Motorola Mobility and will keep most of its patents after selling its devices business to Lenovo) is clearly pursuing a more aggressive strategy with respect to SEPs than Samsung, and I actually see an increasing divergence between the two companies' approaches. It's no coincidence that Samsung now appears to be close to settling its FRAND- and Apple-related EU matter while the European Commission is working on a prohibition decision against Google's Motorola Mobility. Also, Google isn't backing off on any SEP assertions, while Samsung unilaterally withdrew its SEPs-in-suit ahead of the California trial, which gives it the benefit of a consistent position on what reasonable patent damages should amount to (by now, Apple is unfortunately the inconsistent one of those two parties).

There are good reasons for Samsung and Google's different approaches to SEP assertions. Google is in a FRAND dispute not only with Apple but also (unlike Samsung) with Microsoft, a patent holder that has proven an ability to have, at least temporarily (in Germany) an impact on Android devices that Apple has not been able to demonstrate in more than four years of Android-related patent infringement litigation. Google wants to use Motorola's patents to protect Android as a whole, while Samsung just needs to take care of its own needs. And while Samsung as the global market leader has an overarching strategic interest in FRAND terms being honored, Google is soon going to be pretty much (with some Nexus devices etc. being an exception to the rule) a non-practicing entity with respect to wireless SEPs.

The fact that Samsung's focus against Apple is more on the defensive side than on SEP-based countersuits is no small part of the reason why I consider Samsung's positions in the ongoing California trial much more reasonable and consistent than I did in previous contexts (such as the first California trial).

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Wednesday, April 9, 2014

Apple wants to show the jury a blog post but redact certain user comments that would help Samsung

On a trial-free day, Apple and Samsung still find a way to keep the court busy. They just filed letters relating to a trial exhibit that Apple would like to show to the jury, which is this TmoNews ("The Unofficial T-Mobile Blog") post on Samsung's reactivation of the universal search feature of the Galaxy Nexus, which apparently happened in late 2012 after the Federal Circuit lifted the injunction.

Samsung would accept the admission of that document per se, but only if Apple showed the complete document including user comments, while Apple wants to redact certain user comments (some in total, some others in part). The redacted comments and passages largely fall into two categories: negative sentiment about Apple's lawsuits and the validity of its asserted patents, and comments that refer to potential workarounds by Samsung and Google for the injunction patent.

Here are the comments Apple has redacted out (Samsung filed the complete article, and it's still on the Internet anyway):

  • atari37: "I thought the universal search patent was invalidated but I'm not too sure. Can't find it anywhere. The Bounce back patent was however invalidated and that might be what I was thinking of. [...]"

  • bumrocky: "[...] They must have bypassed the patent, and found a loophole to do it using a new process."

  • vinterchaos: "[...] Hate this lawsuit garbage."

  • Jamille Browne: "The people that were deprived of such privileges due to crapple's non-sense"

  • gpt2010: "[...] Not sure how Samsung and Google are getting away with this since one of the major reasons for the lawsuit was local search. [...]"

  • Chris: "They are getting away with it because it's not doing a 'Siri' like search. That's what the whole lawsuit is about.

    So technically, if you don't do a siri like search, you would then be allowed to go on.

    Like Google said before, they found a work around and that lifted the ban."

  • Josue: "ismell another stupid lawsuit by crapple"

  • Chris: "The ban was already lifted because Google got a workaround a week after the ban was issued. You can find this article/google statement if you google it.

    That's what allowed the GNexus to continue selling."

  • Jamille Browne: "I think they restored it because the verdict was overturned maybe? I'm not 100% sure but that may be the reason."

  • Josue: "hope so i hate when apple sues ppl for BS things"

I distance myself from all of those comments and, in particular, a certain offensive modification of Apple's name. It's a great company. I prefer Android as a platform over theirs, and I disagree with some of their patent-related positions and claims (the damages claim in the ongoing trial, for example), but my quoting those commenters doesn't have anything to do with my own views. I only provided the quotes above to show exactly what Apple doesn't want the jury to see.

According to Samsung's brief, Apple wants to use that blog post and the redacted version of the comments to show "consumer sentiment" in terms of consumers having temporarily missed the universal search feature (which Apple argues shows that the feature is valuable). But Samsung points to a deal between Apple and the court that any reference by Apple to that story would allow Samsung to discuss the appeals court's reversal of the injunction.

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Tuesday, April 8, 2014

Apple demands 20 times more for a patent from Samsung ($12.49) than from Motorola ($.60)

We're approaching the end of Apple's case-in-chief in Apple v. Samsung II. Rutgers law professor Michael Carrier has noted on Twitter that the first week of this trial did not go as well for Apple as in 2012 because it's "not clearly winning on themes" while Samsung manages to show that the patents-in-suit are "not central". Professor Carrier appears to feel that Apple's case gets bogged down in detail: "The more time spent in the minutiae, the less a huge damages award or injunction for Apple seems appropriate." He added: "And minutiae also don't support themes from 1st trial of Apple as revolutionary innovator and Samsung as flagrant copyist."

Based on a list submitted by Apple, its damages experts MIT professor Dr. John Hauser and Dr. Christopher Vellturo will be called today (Tuesday) or, at the latest, on Friday. Therefore, I looked at the complete Daubert (pretrial motions against unreliable expert testimony) record in this case relating to those two experts, including a hearing transcript I uploaded to Scribd last month.

On page 38 of that PDF document you can find a data point that I haven't previously highlighted (but ArsTechnica's Joe Mullin, who thankfully credited me for publishing the transcript, has):

Counsel for Samsung: "Look at the '647 patent. In [Apple v. Motorola in the Northern District of Illinois, the 'Judge Posner case'], Apple says that patent is worth $.60 [per device]. In this case, they're asking for $12.49 for it."

While $.60 is less than one-twentieth of Apple's per-unit damages demand from Samsung, it was still way too high for Judge Posner, who threw this claim out (in a May 2012 Daubert ruling) and described the amount as "senseless" in light of the limited cost of a work-around. It's a very safe assumption that if Judge Posner was presiding over Apple v. Samsung II (I said that it would have been a nice April Fools' Day joke for Judge Koh to enter the courtroom and announce the transfer of the case to Chicago so that Judge Posner could handle it, sitting by designation), Apple would not have had any chance to put a $40-per-unit (or $2 billion in total) damages figure before the jury. I think he would not even have allowed $4 per unit, and rightly so.

Samsung's counsel called the $2 billion claim an insult to jurors' intelligence. I actually think it's even more of an insult to Chief Judge Rader of the Federal Circuit. The appellate hearing in the "Posner case" took place in September 2013. Chief Judge Rader called Motorola's $300 million damages demand from Apple over one wireless patent "crazy" because they were talking about "one patent in a crowded field". In that case, it was good for Apple. But Apple didn't heed the chief judge's clear guidance when the shoe was on the other foot. Apple should have noted that Chief Judge Rader's perspective on the value of one patent in this crowded field was unrelated to the fact that Motorola had made a FRAND licensing commitment and declared the patent essential to a standard. It was a general position on patent damages, not a SEP-specific position in any way, as the official recording of the hearing proves.

On average, Apple is now seeking $400 million per patent per unit from Samsung. If $300 million was "crazy" in the eyes of America's -- and probably the world's -- leading patent judge, what is $400 million? Judge Koh should have stood up to Apple, America's and Silicon Valley's richest corporation, instead of hiding behind a jury. Of course the jury could just give little or no weight to Dr. Hauser's testimony (and Dr. Vellturo's conclusions from it), but that's a gamble that could and should have been avoided. If the appeals court later decides in a manner consistent with Chief Judge Rader's perspective on reasonable per-patent per-unit damages claims in this crowded field, then whatever damages Apple may be awarded at the end of this trial will just be vacated.

I restated (in a slightly softer form) my criticism of this (non-)decision in a pre-trial interview with the Associated Press, and I have seen knowledgeable people share my views. Yankee Group Senior Analyst Boris Metodiev said he had no idea how Apple came up with that figure that is "nothing short of extraordinary" and "raising eyebrows around both the tech and legal industries". The Verge and other media quoted Santa Clara Professor Brian Love, who specializes in patent remedies and found that these patents are "stylistic glosses on top of the underlying technology" rather than breakthrough inventions. According to Professor Love, "it's hard to make the argument that those patents are worth hundreds of thousands of times their value" (which is what Dr. Hauser is nevertheless going to try today or on Friday). Derek Khanna, a Yale Law Fellow, just adopted my extrapolations of Apple's per-patent-per-unit damages claims to the totality of smartphone-related patents. I would have quoted others for the sake of a balance but I am not aware of any recognized expert who would have publicly defended Apple's damages claim in this case...

A Daubert ruling against a damages claim must be based on methodology. The absurd amount shows that something is wrong with the methodology. Judge Koh could have easily thrown out the damages claim on that basis. On this key issue (way more important than the patents video shown at the start of the trial or the question of whether Apple practices its own patent claims), she disagrees not only with Chief Judge Rader but also with Judge William Alsup, a colleague of hers in the same district who tossed an Oracle damages claim against Google because a conjoint analysis (value of particular features of multifunctional product) was used to simulate the impact of infringement on market share (which also appears to be the case in Apple v. Samsung II as the net effect of the Vellturo/Hauser testimony). And, actually, she is less than consistent with herself.

No matter how hard I try, I can't reconcile her permissive Daubert approach to Dr. Hauser's testimony with the low esteem she had for his methodology as well as its implausible results when ruling on Apple's renewed motion for a permanent injunction. What she wrote in that context is closer to Judge Alsup's concerns in Oracle v. Google than her laissez-faire in the Daubert context. In a brief and at the hearing, counsel for Samsung stressed that no judge previously allowed a conjoint analysis to form the basis of a theory regarding how market share would evolve or would have evolved. Everything can happen for the first time, but when a judge can see that the results of a study are so unbelievable that "reality distortion" would be an understatement and furthermore sees that her own concerns are not really addressed properly, she could, and in my view should, send an expert back to the drawing board.

There are two differences here that I want to point out. One, a Daubert decision to let some testimony be presented to a jury is a question of admissibility, not weight (but if something has very little weight, it's normally confusing and flawed and, therefore, inadmissible), while a judge's equitable analysis in connection with an injunction motion is about weighing factors. Two, there is a difference between Dr. Hauser's conjoint analysis in Apple v. Samsung I and the one in Apple v. Samsung II: while he focused in the first case only on what consumers would be willing to pay for certain features, according to a web-based (and misleading, as Judge Koh noted) survey, he has meanwhile allowed participants to choose not only between different (mostly hypothetical) Samsung phones with particular features but also offered an "outside option" -- and he's now trying to show not only a willingness to pay for features but also a willingness (or, conversely, unwillingness in the absence of certain features) to buy particular products.

Those differences are undeniable, but I don't think they address three (partly interrelated) fundamental problems of this kind of analysis when the question is how relevant Apple's asserted patent claims are to multifunctional smartphones and tablets:

  1. It appears to be conventional wisdom in the field of conjoint analysis that you can't conduct a survey with too many distracting features (features that are added to the survey beyond the ones that are the subject of the study). Apparently you have to basically let respondents focus on half a dozen features in total. If that is so, then it may just not be the right methodology for such extremely multifunctional products (a fact that Judge Koh did recognize in the injunction denial decision) as smartphones and tablet computers. The limitations of a methodology are not an excuse for fundamental flaws and gross distortions.

  2. The reality for (not all, but) most patents is that it's not a binay question of having a feature or not. If patents cover less than complete features (so far Apple has proven in court, in 49 months of litigation, only its ownership of rubberbanding), then the alternative to a product that practices a given patent (claim) is one that works around it in the best possible way, preserving as much as possible of the functionality. In this regard, it's unfortunate that Samsung has not provided workarounds for at least three of the patents (unlike in the ITC case, for example, where Apple won an import ban that has meanwhile turned out to be so toothless it can hang it on a wall in Cupertino but won't get any leverage whatsoever out of it). This is probably due to tactical reasons. Samsung thinks it's not infringing anyway, it points to Apple's own products as examples of workarounds for some of the asserted claims, and if it was found to infringe, it would obviously modify its products accordingly. While this is not an excuse for a fundamentally-flawed methodology employed by Apple's expert(s) and the irrational results this methodology was destined to lead to, Samsung would clearly be in a stronger position if it had delivered some evidence that even if Apple prevailed, consumers would still buy Samsung's products in the same quantities as before.

  3. The last point is closely related to the previous one. Those conjoint surveys just let end users choose between products that have certain characteristics described in simple terms. Apple and Judge Koh agree in the Daubert context that it would be too much to ask that a conjoint survey form contain a detailed claim construction guide. However, if patents don't truly cover complete features, then this may just not be the right form of analysis, period. Judge Koh actually knows very well that everything depends on what's in the claims, even in this specific context. At the Daubert hearing she said she was inclined to toss at least the part of Dr. Hauser's report that relates to the '414 synchronization patent because he based his study on the broader claim 11, not the narrower (thus, easier to work around) claim 20.

    In her Daubert ruling Judge Koh then changed mind and allowed Dr. Hauser's testimony anyway because she thought Samsung should have persuaded her that it could, contrary to Apple's representations that it wouldn't be a viable option due to Android's architecture, work around claim 20 (by having no more than two parallel synchronizations running). I don't understand this. If Apple's damages theory is based on the wrong patent claim, then how would that shift the burden of proof to Samsung?

    (By the way, the Daubert hearing transcript shows that Judge Koh considered claim 11 "likely invalid", which is why Apple withdrew it. Meanwhile Apple is lobbying against patent reform that would make it harder to enforce patents that should never have been granted in the first place. Guess why.)

So, as a result, the jury will hear highly confusing and misleading testimony that seemingly supports some out-of-this-world numbers -- numbers that are totally detached from the rates at which Apple and others in the industry license patents, and in the case of the '647 patent, 20 times higher than Apple's own damages claim against Google's Motorola Mobility.

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Sunday, April 6, 2014

'Teaching away' is why Apple's rubber-banding patent has far more merit than slide-to-unlock

Numerous patents are litigated the world over without the public taking notice, and the vast majority of them would be too esoteric for a large audience. But when Apple's patents on touchscreen features everyone knows go to trial in the U.S., where jury trials on patents are in no small part a show business, there is a great deal of interest. And there is public debate. With this post I want to contribute to the quality of the debate by sharing information on what a couple of particularly famous Apple touchscreen patents are about and, even more so, what kinds of ideas patent law does or does not reward with 20-year monopoly rights.

Apple's four most famous touchscreen software patents are rubber-banding (the "overscroll bounce", asserted in the first Apple v. Samsung case in California), slide-to-unlock (at issue in the ongoing Apple v. Samsung II trial in California, pinch-to-zoom (at issue in the first California case), and the "Steve Jobs patent" on touchscreen heuristics. Two of those patents have been asserted (and maybe even granted) only in the U.S.: pinch-to-zoom and the "Steve Jobs patent". That is one reason to focus on rubber-banding and slide-to-unlock now. There are even bigger reasons. Apple is already enforcing, through a U.S. import ban, the "Steve Jobs patent" against Samsung, but in vain: the ITC, a U.S. government agency with quasijudicial competencies, cleared Samsung's workaround and consumers don't even notice a thing. That makes the "Steve Jobs patent" a blunt sword at best. And pinch-to-zoom, which was deemed valid by the first California jury (because the jury didn't even care to evaluate all of the prior art), was rejected in its entirety by the Central Reexamination Division of the USPTO (Apple appealed to the Patent Trial and Appeal Board).

Of the two remaining patents, rubber-banding is the much more defensible and meritorious one in terms of representing an inventive step -- even if not rocket science, it is inventive per se -- relative to the start of the art. It's a useful exercise, or case study, to compare the two patents and, at a high level, their validity challenges. Since Apple has asserted both patents internationally, I will make a clear distinction between general principles of patent law that are not specific to any jurisdiction, U.S.-only parameters, and special European requirements. These patents are easy enough to explain that all of this is doable without making things too complicated.

Noise vs. signal: U.S. jury trials involve evidence that is unrelated to the actual merits of a patent

I won't go into detail here on why it's a fundamentally flawed idea to put the technical aspects of patent cases before juries. I'll just point to what a judge and a software company CEO said. Judge Posner suggested that these could be handled better by USPTO officials for the most part. Red Hat's CEO said: "I have a degree in computer science, and these things are so far over my head, and it takes weeks of Ph.D.s to figure out exactly what this is, and then you're going to adjudicate it in front of a jury that really is not technically savvy. Do you think this patent is valid or not? It's both expensive and just a bizarre way to adjudicate it." But that bizarre way works better for Apple -- and your average Eastern District of Texas troll -- than more rational ways.

In the rest of the world, patent cases are typically adjudicated by judges who hear such cases all the time and acquire some understanding of technical issues. In some cases there are even technically-trained judges. For example, each five-member panel of a nullity (invalidation) senate of the Federal Patent Court of Germany has three technical judges (a majority). Those judges have degrees in fields like physics and engineering.

The way the process works in the U.S. is, however, separate from the question of whether a patent is valid and infringed under U.S. law. Once a case goes to an appeals court, there won't be any jury. To the extent that trial judges overrule juries, they also have to focus strictly on the actual merits.

Don't be confused by what you see at, or hear about, a trial. Large parts of what juries and reporters get to see at a trial like Apple v. Samsung are absolutely irrelevant to the questions of validity and infringement. The primary purpose is to tell a certain story to the jury. The legal justification for this is not that certain types of evidence, testimony and lawyer argument have any bearing on validity and infringement. Instead, the justification -- or basically, the excuse -- is that a jury also has to determine willfulness and damages.

Apple Insider's Daniel Eran Dilger yesterday published "Copy Cat docs [shown by Apple at the trial] as evidence Samsung pilfered [the] iPhone unlock". But all that those docs show is the perfectly lawful process of benchmarking: Samsung was looking at the way the iPhone did it (you don't need a license from Apple to look at its products), compared them to its own, conducted an analysis of what could enhance customer satisfaction, and then improved its products. This is done countless times each day by some company somewhere on the world. Ford will certainly look at a new Toyota (and vice versa), and if it finds that a competitor has an advantage in one area, it will look for ways to improve its own technology. This has nothing to do with whether Apple met the requirements for a 20-year monopoly in terms of an inventive step relative to the start of the art, nothing to do with how to interpret the asserted claim, and nothing to do with whether Apple's slide-to-unlock patent claims are broad enough to capture Samsung's mechanisms (at least for Samsung's newer mechanisms, such as the circular unlock in the Galaxy Nexus, I believe the patent is not broad enough).

Apple's counsel also asked Greg Christie, named as an inventor on slide-to-unlock, whether he was still married to the same woman. He answered yes. The transparent purpose was to portray him as a reliable, faithful, trusthworthy kind of person and to make female jurors like him. The marital status of an inventor is no less related to the issues of validity and infringement of a patent than documents that merely prove legitimate benchmarking. All of this is meant to influence the jury, hoping that it will base its verdict on likes and dislikes instead of the actually relevant parts. I can perfectly understand that Samsung is not prepared to enter into a global settlement with Apple, which has yet to score any meaningful win outside the U.S. (besides rubber-banding), based on sometimes highly questionable jury verdicts handed down in a jurisdiction in which a patent validity or infringement decision may hinge on someone's marital status...

Unfortunately, the appeal of certain evidence and testimony to juries, reporters (several of whom said on Friday that they were bored by expert testimony on technical issues) and the general public is, as a rule of thumb, reversely proportional to its actual relevance. But that need not stop you and me from focusing on what really matters.

In a U.S. copyright case, actual copying doesn't have to be proven if it's clear that something was not independently created just based on its nature and stature. But if copying is proven, then there's a lower similarity standard. However, Apple alleges copying without asserting copyright. It's asserting patents, and independent invention is not a defense to patent infringement anyway (unfortunately).

Where I attend patent trials in person, the focus is (unless licensing issues, such as related to industry standards, come into play) exclusively on technical validity and infringement questions and no one ever asked anyone about his marital status. That experience helps to filter out meaningless noise from what is presented at a U.S. jury trial.

An invention must be (among other things) novel and non-obvious over the prior art

In this field of technology, innovation is incremental. Everything builds on something else and combines previously-known elements in some way. The first question (apart from whether an invention is made in a patent-eligible field) is then whether a given combination of previously-known elements is novel, i.e., whether this particular combination has not been published or patented before. If it's not, then the patent is invalid for "anticipation"; end of story in that case. If it is, then the next question to answer is whether this combination was obvious at the relevant time (in which case the patent is invalid) or non-obvious, in which case there is an inventive step relative to the prior art (in Europe this is sometimes referred to as an "inventive contribution to the state of the art").

There's a key difference between whether someone technically could combine certain elements and whether someone looking for a solution to a problem likely would. Is there a teaching, suggestion, or motivation that leads to a combination? If someone combines two patented inventions that share more keywords than two patent documents usually do, then we're probably talking about an obvious combination. If, however, someone combines elements from two distinct fields of technology, then someone else who is an expert in only one of those two fields would probably not have done so.

The best case: to come up with something the prior art teaches away from -- such as rubber-banding

What helps a great deal is if an inventor came up with something that, at the time the invention was made, was flying in the face of conventional wisdom. If basically all medical literature, including patents, counsels against giving substance A to influenza patients but someone finds out that a certain limited dose of substance A, if combined with a certain dose of substance B, accelerates recovery, then the prior art "teaches away" from the new invention.

Think of Columbus (a discoverer, not an inventor) who went in a direction in which most people believed he was doomed to fall off the earth.

Conversely, one could also say that the new patent teaches away from the prior art. It works either way. But in patent law you usually hear the former, not the latter.

And now, finally, we get to the specifics of rubber-banding and slide-to-unlock. Rubber-banding is a revolutionary teach-away case while slide-to-unlock is merely evolutionary.

About three years ago I described rubber-banding in detail, with videos, and explained why I considered it a strong patent, even though it's easy for a software developer to implement. You can find a pseudocode example in this article by a non-governmental organization opposing software patents in Europe.

Rubber-banding solves the problem that an abrupt end to a scrolling operation instinctively makes a user press harder because it appears that a device is not responding to a gesture. We'll get to the question of whether this is a technical problem (key in Europe, where the patent is subject to an ongoing opposition proceeding) later. But from an end user's perspective, rubber-banding is a solution to a problem. Having a "glow" at one edge of the screen is better than getting no visual feedback at all, but it's too subtle. (I know that some people find rubber-banding excessive on iOS, but I liked it when Android provided it and I'd like to see it come back as a result of license deals.)

The existence of the problem was obvious. I already identified the problem on some Nokia Symbian phones with traditional scrolling mechanisms. It's not a problem on a large monitor because you have a large slider bar and see easily when you hit the end of the list, and the connection between you and the screen content is less direct if you use a mouse. Even on larger touchscreens it's not a problem if you move the scroll bar with your fingers rather than the content of a window. But on small touchscreens it's a real issue.

The purpose of patent law -- and this is something very important that some of Apple's supporters get wrong in the debate that is raging, not with respect to rubber-banding but in connection with countless other Apple patents -- is not to grant anyone a monopoly on the right to solve a problem but on a particular (novel and inventive) solution.

Apple's overscroll bounce, while trivial at the implementation level, is inventive in my view because the prior art -- all other scrolling techniques -- used to teach the opposite. It was always clear that scrolling ends when you hit the top or bottom of a window. This was abrupt, and everyone considered it logical and appropriate. In fact, just like older medical literature might have counseled against a certain substance in connection with a particular illness, it was considered a bug to overscroll. Apple turned a bug into a great feature. Like Columbus, it went in a direction in which others thought you'd fall off the earth.

It was absolutely brilliant for Apple to depart -- to teach away -- from conventional wisdom. They figured out that you actually do want to overscroll on a touchscreen because a finger movement that goes significantly (can't be too much anyway on a small screen) beyond the end of a document is much less frustrating than instinctively pressing harder because the device appears to be unresponsive. You then need a bounce-back, which is fun to look at. So, from a user experience point of view, it's a superior solution on the bottom line.

I've drawn up a simple graphic to show the fundamental departure from conventional window scrolling techniques that rubber-banding constituted (click on the image to enlarge; this post continues below the image):

It's another question whether it was necessary for the world to grant Apple a 20-year monopoly on rubber-banding. If Apple had not come up with rubber-banding, it would probably have taken some more time before someone else would have. Traditional phone companies like Nokia were simply not unconventional enough. Their approach to product development appeared very bureaucratic and conservative at the time. But even though there is always the risk of underestimating the merits of an invention with the benefit of 20/20 hindsight, I guess that there's at least a significant probability that rubber-banding would have been created by someone else in the meantime -- and almost certainly ahead of the end of the 20-year term.

Even for rubber-banding there is prior art that comes relatively close in terms of navigation through items that involves a bounceback. Obviously Apple didn't invent the bounceback. It's all about the application of the bounceback effect to document scrolling. And other document scrolling that has a bounceback (which was discussed at some hearings and trials I attended as well as in U.S. court and USPTO documents) does not specifically teach the post-bounceback alignment of the edge of the document with the edge of the window that is key to rubber-banding. Other mechanisms have different purposes, such as centering around a given document, than an alignment of edges. Even if other bounceback mechanisms may in some scenarios have a similar visual effect as rubberbanding, they aren't really identical.

There is still some risk to Apple that rubberbanding might be invalidated in Europe. But so far it's Apple's only truly successful patent in more than four years of litigation against Android device makers. It's the only patent so far that can't be worked around without losing the entire benefit of the invention. In that post from 2011 I linked to further above I described it as Apple's "favorite make-Android-awkward patent". And now, almost three years and hundreds of millions of dollars in legal fees later, it has turned out to be the only touchscreen-related feature Apple has proven it "owns".

Slide-to-unlock: there's a difference between a breakthrough invention and a particularly great execution

For slide-to-unlock it would be impossible to draw up a graphic like the one further above that shows how rubber-banding was a total departure from conventional wisdom. That's because sliders have always (even prior to touchscreen phones) been the usual way to unlock mobile devices. Another traditional way is to press a button, but this entails the risk of "butt dialing" (unintended operations as a result of inadvertently pressing a button). Avoiding "butt dialing" was key, and it again shows how companies like Nokia lacked inspiration for a long time (they were destined, and deserved, to fail). If someone had asked me back then as part of a patent damages survey how much I'd have been willing to pay to solve that problem, I'd have have given an answer in the $10 range. But Apple-style slide-to-unlock is just one of various ways to avoid butt dialing. I've seen a diversity of unlocking mechanisms on my six different Samsung Android phones over the years and none of them ever had a "butt dialing" problem, regardless of its degree of similarity (which was never really high) to Apple's slide-to-unlock mechanism.

If you use a slider to lock or unlock something, you have to move the movable part of the slider along the slider bar from one end to the other. It's always been like that. Even on relatively old phones it was possible to avoid butt dialing with a (physical) slider.

The idea of interpreting a sliding gesture on a touchscreen as an "unlock" command by the user was very obvious. The Neonode N1m offered this before the iPhone:

In Europe, ten (of ten) judges deemed Apple's patent invalid because it was obvious over the Neonode. The eligibility of a Swedish phone as prior art in the U.S. under applicable rules (it apparently wouldn't be a problem with respect to the most recently-filed patents) is in dispute. But regardless of the purely legal question of eligibility, this shows that it was, unlike rubber-banding, not a stroke of genius to implement on a touchscreen something similar to a physical slider.

Apple's '721 patent covers certain ways of unlocking a device by moving an unlock image across the screen. It's a slide-to-unlock image, not general slide-to-unlock, patent. That, of course, limits its scope and its commercial value. But it didn't help Apple defend the validity of this patent wherever it came to judgment because it's just too simple an idea to move an image on a touchscreen.

There's another piece of prior art worth showing here, and it was also discussed in Europe but the Neonode made the invalidity findings here so easy that Plaisant didn't have to be reached. This is a 1991 video and paper on "Touchscreen Toggle design" by (then Microsoft-employed) researchers Catherine Plaisant and Daniel Wallace. The video is available on YouTube, and starting at around 3:00 (thanks to Twitter user Greg Forrest, @gg4rest) you can see touchscreen-based on/off switches:

At one or more of the German trials, Apple's counsel argued that Plaisant is different because an on/off switch is not identical to the process of unlocking. There is, but it says something that Apple needs to resort to arguments of that kind to defend the patent. If the prior art contains a solution for an on/off switch, it's not really inventive to apply it to an unlocking process.

A patent holder doesn't own an end user's mind, eyes, or fingers

In my post on the very limited impact that Apple's patent assertions against Android have had so far, I explained that "[i]f you want to obtain a patent on an aspect of a user interface, you are limited by the fact that you can't monopolize end users' body parts". The same applies to a user's mind, of course. What I explained there is that in the user interface context you can patent techniques that display something and ways to interpret or respond to a user action, but you must show an inventive step in one or more of those areas and can't claim a two-finger pinching gesture per se, much less the mental processes of a user.

The fact that a user instinctively presses harder if a touchscreen scrolling operation ends abruptly also relates to the user's mind. That's why it's not in the patent claims. But as a simple graphic showed further above, rubber-banding was at least a fundamental departure from decades of conventional window scrolling operations.

At the Federal Patent Court of Germany, where a trial resulting in the invalidation of the European slide-to-unlock patent took place exactly one year before the testimony by Greg Christie in San Jose related to the U.S. '721 slide-to-unlock patent, Apple's counsel (from an absolutely top-notch firm, Bardehle Pagenberg, which I mentioned in a recent post) faced an uphill battle that he just couldn't win. The court made clear at the outset of the nullity trial that it considered the patent invalid, as it had previously communicated to the parties in the form of a preliminary ruling. After a few hours the court said that it thought the patent failed to meet both the European technicity requirement and the non-obviousness requirement. It was clear that the position on technicity wouldn't change, but since the appeals court might disagree, the court and the parties (Apple, Samsung, Google/Motorola) still discussed the non-obviousness part in order to have a complete record.

In the technicity context, the court said that user interfaces can have patent-eligible elements, but if it all just comes down to saying that it's easier for a user to figure out how a slider works than how other unlocking mechanisms do, that doesn't make it a technical invention. In that regard, Apple's counsel argued, for example, that a slider is so intuitive that it involves only a user's cerebellum, not their cerebrum. That one drew laughter from Google's counsel, not because it was wrong or stupid (it wasn't) but because you usually don't hear this kind of mental argument in a discussion of whether a patent covers a technical invention.

Another problem with the cerebrum-cerebellum argument is that Apple actually uses its slide-to-unlock patent (in the U.S. as well as in Europe) against all sorts of Android unlocking mechanisms that don't sport an iOS-style slider bar but require the user to think a little more.

This contrasts nicely with rubber-banding. For rubber-banding, one can also make an argument relating to subconscious user benefits and it's valid -- but at the level at which patentability must be determined, one can argue that everyone did scrolling differently, even on small touchscreens, until Apple came up with a teach-away idea.

Samsung's internal benchmarking documents still don't render slide-to-unlock inventive over the prior art, while rubber-banding was a brilliant idea in and of itself. Again, at the policy level one can debate whether a 20-year monopoly is justified even for rubber-banding (and whether Apple and its rivals should have had to spend hundreds of millions of dollars in legal fees when the only touchscreen feature Apple has proven to own is this one), but for slide-to-unlock, ten European judges have already found that Apple did not deserve a monopoly on it for even one day. In the U.S., an inventor's marital status may tip the scales, however. And that would not be the right outcome.

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Saturday, April 5, 2014

Steve Jobs said in 2010 'Holy War' email that iOS was behind Android in several technical respects

I've just seen a Verge article that links to a PDF containing the full text of a Steve Jobs email dated October 24, 2010 to Apple's executive stafff, which is one of the exhibits at the ongoing Apple v. Samsung II trial. The call for a "Holy War with Google" was widely reported before, and while it's a catchy term, it's not explicitly patent-related, unlike "thermonuclear war", "destroy Android", "spend every penny", and "spend my last dying breath". Now that I've seen the complete email I actually think something else is much more meaningful, from a strategic as well as an intellectual property point of view (click on the image to enlarge or read the text below the image):

5. iOS - Scott, Joz

Strategy: catch up to Android where we are behind (notifications, tethering, speech, ...) and leapfrog them (Siri, ...)

I remember that time very well because this was when I bought my first Android device after a decade of using Nokia phones. Tethering (of the WiFi hotspot kind) -- one of the features Steve Jobs mentioned in which Android was ahead of iOS at the time -- was the first important mobile device feature I heard of that Google delivered before Apple. I remember seeing a video of Google's presentation of WiFi tethering, where software developers cheered. I didn't have an immediate need for it, so in my particular case it wasn't a direct driver for demand, but the mere fact that something so fundamental (which I used a lot in the following years, especially on all those trips to Mannheim for countless patent trials) became available on Android first gave me confidence that there was serious R&D going on.

I didn't doubt Google's ability to innovate; the question was just whether my choice of Android would mean to always be a year or two behind iOS. Tethering suggested to me that Google with its geeky product development culture (which based on various announcements at this week's Build developer conference may be pretty strong again at Microsoft) had the potential to turn Android into another Gmail. Gmail was late to the web email game, far later than Android was to the touchscreen mobile OS game, but I regard it as the most innovative email service ever -- the only one that constituted a paradigm shift (from "sort" to "search") -- and every other email service I know is still behind in terms of features that heavy-duty, cross-platform email users like me need.

I focused on the importance of competition to pricing in a recent post on the concept of ownership of product categories. That was a narrow focus, but you can't talk about everything in one post. What's no less important about competition is, of course, the pressure on companies to continue to innovate. In that regard, patents are a double-edged sword. On the one hand, they can protect investments in innovation by giving a pioneer a certain breathing space. That's why I'm seeking patent protection for something, too. On the other hand, with a 20-year span in a fast-moving area like information and communications technology, there's always the risk that excessive protection means the first one to come up with an idea won't be under enough pressure to implement it well and to build incremental innovation on top of it. If Steve Jobs had indeed held thermonuclear weapons against Google in his hands, which Apple has not established in more than four years of Android lawsuits, there wouldn't have been a memo like this one. The alternative to "catch up to Android where we are behind" would have been to "destroy Android using patents, spending the last penny of Apple's (then) $40 billion in the bank". (Actually, Apple would never have had $40 billion to spend on this if the likes of Motorola, Ericsson, Nokia, Sony and Samsung had used their patents to keep or force Apple out of the market.)

That would have been a scenario of IP as a cheaper substitute to innovation, not a means of protecting innovation. The net effect of this would have hurt Apple's customers and its most loyal fans, too. I recommend to the people I know in the Apple fan community who would like to see draconian remedies imposed on Samsung for Apple's competitive gain beyond what is warranted by its inventive contributions to the state of the art (I just borrowed language from a Federal Circuit ruling recently quoted by Judge Koh in Apple v. Samsung I) that they consider what this would mean. At the end of the day, it's not even in their best interest. What is in the Apple community's interest is to keep up the pressure on Apple, Google and Microsoft so that these companies' CEOs will write more memos of the kind Steve Jobs wrote in 2010 and that each company will work hard to catch up to others where it is behind at some point.

As long as Apple can afford to refuse to meet the strong demand for phablets just because it's more profitable to have fewer shelf-keeping units and because some customers might buy only a phablet instead of a phone and a tablet (and because it's easier for app developers to develop for only two resolutions, a problem that Google solved years ago with so-called fragments), there's a need for even more competitive pressure. While Apple's worldwide market share has already eroded to an enormous extent, the company is still growing and has a loyal customer base.

There's something else in that iOS-related "Strategy" bullet point that is directly related to the question of innovative capacity and competition. Steve Jobs's plan to "leapfrog [Google's Android]" at the time was primarily about Siri -- the only thing he names in that context, and the iPhone 4S feature that Apple emphasized about a year later. I remember that, too. Just like tethering gave me confidence in Google and Android, the fact that Apple's primary innovation (even if only for an incremental "S" update without a new version number) was something it had merely acquired had me concerned. I told people at the time that I thought Apple had peaked. Its stock price still continued to go up for a while (it more than doubled from that point, and it's still far above the fall 2011 level). There's nothing wrong with companies acquiring innovative technologies -- but core product innovation should still be "homegrown" for the most part, even at an enterprise software company like SAP and even more so at a company with Apple's innovative track record.

Google acquired Android, but a mobile operating system is not a core product for a search company, at least not at the time when it makes the acquisition.

The patent application relating to the '959 "unified search" patent Apple is asserting against Samsung in the ongoing trial was filed on January 5, 2000. (You can find this information on this page in the last line, "Filed", of the five-line bold-face section below the abstract.) Apple acquired Siri, Inc. on April 28, 2010. So the patent was homegrown, the actual software was not. But if the patent had been that incredible breakthrough, Apple would not have been sitting on it for more than ten years without building a Siri itself and would never have acquired an app development startup in an effort to "leapfrog" Android which had already overtaken iOS in some ways by the fall of 2010. And since there is such a clear disconnect between the patent and the product, Apple faces certain limits when pursuing injunctions and seeking exorbitant damages.

Again, Steve Jobs's recognition of Google's ability to outinnovate Apple in some areas is, in my mind, by far the most interesting revelation we owe to a trial that is, so far, only a sequel lacking some of the elements of the original movie.

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