Friday, April 16, 2021

VLSI Technology v. Intel: patents from a portfolio valued at $7 million allegedly created $3 billion in value--will the jury buy that?

Another post, another dispute involving a non-practicing entity (NPE) financed by Fortress Investment. The previous post was about a couple of additional VoiceAge EVS v. Apple cases I just learned about. While Munich is the world's #1 patent injunction venue, at least for the tech sector, the Western District of Texas is where parties go to seek Texas-size damage awards, such as in the second VLSI Technology v. Intel trial in Waco before Judge Alan Albright. That trial will continue on Monday.

It seems to me that many technology industry and patent professionals have sympathy for Intel because it already suffered so much last month when the first VLSI trial ended in a $2.2 billion damages award. At the same time, hardly anyone expects that first VLSI award to be upheld, simply because appeals courts typically reverse such decisions (sometimes reducing damages to zero by finding no infringement or holding the asserted patents invalid). For example, just yesterday Apple--Intel's ally against Fortress Investment--convinced a Texas judge (Eastern District in that case) to order a retrial, setting aside a $506 million jury verdict. The only thing that is unusual about that decision in Optis Wireless v. Apple is that a judge from a plaintiff-friendly federal district in Texas did so. Most of the time, those decisions are made by the United States Court of Appeals for the Federal Circuit.

On Monday, the parties' lawyers delivered their opening arguments. In the meantime I have occasionally dialed in to listen to the proceedings. What I found very helpful and informative is a series of podcasts by Winston & Strawn's WacoWatch blog.

I learned from the podcast that VLSI and Intel both act similarly to their previous courtroom clash, but obviously a number of facts are specific to this case. Different patents, different issues, and an even larger damages claim: $3 billion.

Jury trials are extremely hard to predict. A lot depends on whom (whose lawyers, whose witnesses) jurors trust. Patent cases are tough for juries though they are fun for some judges. Judge Albright is so eager to attract patent cases to Waco that he makes it very hard for companies like Intel to defend themselves. On Twitter, Mike Masnick (who also comments on tech law) pointed out that Judge Albright brags about the many patent cases he gets to preside over:

Mike Masnick doesn#t mince words. On Tuesday, he published an article about Judge Albright with the following title: Patent Loving Judge Keeps Pissing Off Patent Appeals Court, But Doesn't Seem To Care Very Much (I'm just quoting--not endorsing--that language)

Jury duty is anything but rewarding, and jurors are really out of luck when they are selected for a patent case. Every time Judge Albright has fun, jurors lose precious time, for which they get paid so little it's not even worth mentioning. A waste of time for jurors, whether or not their verdicts get overturned, but Judge Albright thoroughly enjoys those trials...

Intel has non-infringement as well as invalidity arguments, and VLSI can't even count on the inventors of the patents-in-suit. The fact that the claimed inventions were originally made for an entirely different purpose may make jurors skeptical of the allegation that Intel started infringing those patents a decade later.

Not because I would predict it to happen, but because it might, the jury may have to think about the damages figure should it find one or both of these patents to be valid and infringed. VLSI's damages expert arrived at a $3 billion amount. He basically concluded that the infringing products generated $4 billion, and then apportioned less than a quarter of that total value to Intel's own work. Intel has tried--and will continue to try on Monday--to convince the jury that its own engineers created the products in question. If I were on the jury, I definitely wouldn't conclude that almost 80% of the value is in those patents. Intel pointed out that one of the temporary owners of those patents valued that entire Freescale portfolio (which includes the two patents VLSI is asserting now, but also many others) at $7 million.

Just like in the previous VLSI trial, the plaintiff's damages expert arrived at a huge claim based on what is called hedonic regression. Intel's lead counsel, WilmerHale's Bill Lee, asked VLSI's damages expert a number of questions relating to the Georgia-Pacific factors, a framework for reasonable royalty-type patent damages determinations that isn't absolutely mandatory, but it's the safest approach with a view to appeals. It's possible that the jury itself will attach importance to certain Georgia-Pacific factors. If not, the Federal Circuit might hold that Intel's Daubert motion had merit.

Having watched how some other U.S. district courts handle patent infringement cases, I have serious doubt that VLSI would have been cleared by a judge to present its $3 billion claim to a jury in, for example, the Northern District of California.

For Intel, failure is not an option. For VLSI, this here is a gamble where the cost of suing Intel is a tiny fraction of the potential reward. I don't mean to doubt that Fortress is very good at what it does, and my commentary here on VoiceAge EVS's cases shows that I don't generally discount anything Fortress does--one has to look at the issues dispute by dispute, case by case. But the prior owners of the VLSI v. Intel patents-in-suit were also very sophisticated organizations who were prepared to enforce their intellectual property rights through litigation. They didn't sue Intel, much less did they believe Intel owed them billions.

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Two more VoiceAge EVS v. Apple patent infringement cases pending in Munich

On Tuesday I listed a number of standard-essential patent (SEP) infringement cases brought by VoiceAge EVS against Apple, Lenovo, Motorola Mobility, and Nokia trademark licensee HMD in Munich. Two of the patents-in-suit have been asserted against all those parties, but there are also three cases against Apple over different patents. Those three cases will all be decided by the 21st Civil Chamber (Presiding Judge: Tobias Pichlmaier).

I had already mentioned that a first hearing in case no. 21 O 13503/20 would take place on April 28 unless the COVID pandemic necessitates a postponement. I've meanwhile learned from the court that the patent-in-suit in that case is EP2707687 on a "transform-domain codeblock in a CELP coder and decoder." CELP stands for code-excited linear prediction, a linear predictive speech coding algorithm.

Case no. 21 O 13505/20 had an even earlier first-hearing date: April 21. This one may already have been pushed back, but I will try to find out again next week. In that case, VoiceAge EVS is asserting EP2162880 on a "method and device for estimating the tonality of a sound signal."

The fifth patent over which VoiceAge EVS is suing Apple in Munich is EP1509903 on a "method and device for efficient frame erasure concealment in predictive based speech codecs." The case no. is 21 O 13504/20, and the court scheduled a hearing for May 12.

VoiceAge EVS is also enforcing patents in the United States, such as against Xiaomi. According to an RPX Insight report, VoiceAge faces challenges to its standing in its U.S. cases. That's just a non-issue in Munich.

VoiceAge EVS generally appears better and stronger than Uniloc, which is the most infamous patent licensing firm funded by Fortress Investment because it countless complaints.

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DOJ downgrades Delrahim letter to IEEE on standard-essential patents: inter-agency rapprochement with FTC on SEP enforcement?

The language of diplomacy and other governmental communications is very nuanced, like the British Queen's spokespersons saying she's "not amused" when she's actually outraged. The Antitrust Division of the United States Department of Justice ("DOJ-ATR") has taken this concept to a higher level. In what could be described as a digital form of body language, the Biden Administration's DOJ has unequivocally dissociated itself from the Trump Administration's position on standard-essential patent (SEP) enforcement without saying or writing a single word: just by relegating a link to a document (with the PDF remaining in the same place as before) to a long list of links that is, for the most part, merely an archive. Parts of that archive are little more than the dustbin of DOJ-ATR history.

Look at it this way: if a colleague of yours had a picture of her sweetheart on his desk, but all of a sudden decided to put it into a dark storage room, wouldn't that tell you something?

On September 10, 2020, less than two months before the election Donald Trump lost, Qualcomm-aligned Antitrust Assistant Attorney General Makan Delrahim tried to use his remaining time in office--he was going to leave anyway, and he knew what the polls said--tried to deal one final blow to net licensees of SEPs. He supplemented, updated, and appended the DOJ-ATR's 2015 Business Review Letter (BRL) to the Institute of Electrical and Electronics Engineers (IEEE). An IEEE standard all of us use in our everyday lives is WiFi (IEEE 802.11). IEEE has been a strategically important forum at the forefront of how standard-setting organizations could set more specific rules governing SEP enforcement than, for example, ETSI, whose FRAND pledges (which must be interpreted under French law wherever in the world they are enforced) come with a lack of clarity that is fully intended (though some interpretations are still clearly less reasonable than others).

Mr. Delrahim's BRL 2.0 was meant to make the IEEE change course by giving companies like Qualcomm--which in all fairness is a tremendous WiFi innovator--ammunition for IEEE-internal discussions. Qualcomm executives publicly predicted on various occasions that the IEEE was going to make its rules more patentee-friendly under pressure from the federal government. Last month, MLex's Khushita Vasant reported on a recent clash between Qualcomm, Apple, Huawei, and other companies at an IEEE patent policy meeting. It was a clash between the progressives like Apple--who wanted to continue on the path of setting implementer-friendly rules--and those seeking a revision, led by Qualcomm.

What I mentioned at the start of this post obviously doesn't apply to the Trump Administration. Mr. Delrahim's letter to IEEE suggested that the Obama Administration's 2015 BRL to IEEE had been misinterpreted. But Mr. Delrahim also disparaged his predecessor's work by claiming that "[t]he Department's assessment in 2015 of the 'direction' of U.S. law interpreting FRAND commitments on royalty rates and damages assessments was not well-supported and has not proven accurate."

In late March, I was wondering whether the DOJ and the FTC would continue to fundamentally disagree on the application of antitrust law to SEP abuse, given that the FTC didn't seek a Supreme Court review of the Ninth Circuit's FTC v. Qualcomm ruling and mentioned its coordination with the DOJ. But that was just a question, not speculation. Also, the Solicitor General would have had to represent the FTC before the Supreme court, not DOJ-ATR.

Apparently, the Biden Administration is inclined to undo at least some of Mr. Delrahim's SEP policy initiatives. The full extent will become clearer with time. But it's already certain that change has come to DOJ-ATR.

Currently, DOJ-ATR is being run by Acting Assistant Attorney General Richard Powers. Just like we've recently seen quadruple-antisuit injunctions, which I abbreviate as A4SIs and others as AAAASIs, Mr. Powers has a quadruple-A title: he's the Antitrust Acting Assistant Attorney General. What an alphabet soup.

Mr. Powers could have done his own "update" to the 2020 Delrahim letter. That update could simply have stated that the 2020 letter was an aberration, and the 2015 letter was in full force and effect again. But doing so would have required a communication style closer to that of the Trump Administration.

That's where the hierarchical structure of the DOJ-ATR website came in handy. There's one section where one can find the currently valid BRLs. From that one, Mr. Delrahim's letter has been silently removed. His letter to the Avanci patent pool is still there, and it remains to be seen what--if anything--will change in that context. But the 2020 IEEE letter is no longer there. The 2015 BRL to IEEE can still be found on that page. That makes it the one that currently counts.

The original and now-restored BRL tends to strengthen those favoring component-level SEP licensing.

The Delrahim letter to IEEE is now on the page listing "comments to state and other organizations". That page is hidden deep down in the hierarchical structure of the DOJ-ATR website. The dark storage room I mentioned further above.

This move has been clearly interpreted by the tech industry. Cisco's Senior Director, Antitrust and Competition, Gil Ohana, replied to a tweet of mine that this marked the "end of an error":

A nice wordplay. Few people in California would refer to the Trump years as an "era" not only because #45's reelection bid failed but also for substantive reasons.

But let's also be realistic that there'll be a lof of wrangling over SEP issue now. The downgrade of the Delrahim letter to IEEE is a significant first step.

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Thursday, April 15, 2021

Discussion of Apple's alleged need to redesign iPhone to support third-party app stores continued--and expanded into why web apps don't help

This is a follow-up to yesterday's posts on Epic Games v. Apple, especially the third one (Apple expert incorrectly claims Apple would need to "redesign" iPhone hardware and software to allow alternative app stores ), which Apple Insider picked up.

That article drew additional attention to the discussion. A New Zealand-based developer, @hishnash, gave his explanation of what Apple's witness meant by a need to redesign even the iPhone's hardware. Epic Games founder and CEO Tim Sweeney then pointed to the fact that Apple's Enterprise program works on current iPhones:

We then discussed the technical aspects of installing and running apps on iPhones that are not installed via the App Store (but via the Enterprise Program, TestFlight, or Microsoft App Center). @hishnash noted that there are certain feature sets, such as CarPlay, that require special permission. My understanding of everything said up to that point was that it was "all just about Apple lifting lifting restrictions (some contractual, some technical) as opposed to really having to take its architecture to a higher level."

This here hinges on how one would reasonably understand the verb "to redesign" in connection with "software and hardware." There is another key term in this dispute--commission--that Apple clearly redefines in ways that no dictionary supports. In the case of to redesign, they also mislabel something, but one needs to consider the context:

"The duty upon Apple is more than the usual duty to deal; it would include a duty to redesign its hardware and software [...]" (emphases added)

The duty-to-deal case in U.S. antitrust law is Aspen Skiing, which must nowadays be understood in light of the warning in Trinko not to go too far, but Trinko didn't affect the part that is relevant in this redesign context. The Aspen outcome was that a larger ski resort had to (again) offer multi-area tickets together with its smaller competitor, which might otherwise have been forced out of the market.

So when Apple's expert says Epic wants more than the Aspen plaintiff and points to a "redesign" of hardware and software protected by intellectual property rights, the question is: is Epic really asking for (fundamentally) more? If yes, then "redesign" would mean Apple would have to make a huge architectural effort, and that wouldn't be fatal to Epic's case, but certainly involve a higher hurdle. Unlike Apple's witness, I don't see a structural difference. Here's why:

Epic's case, just like Aspen Skiing, is at the core about lifting restrictions, not about creating something new. The ski resorts didn't have to create a new skiing area. They just had to provide a ticket that gave customers access to both companies' existing areas. Apple doesn't have to invent something new: all those arguments about APIs, certificates, credentials etc. don't change the simple fact that Apple artificially put up barriers with a Gods may do what cattle may not attitude.

Apple's expert makes it sound like the Aspen Skiing defendant didn't have any obligation under antitrust law beyond signing a contract. But it definitely took more to implement the court-mandated cooperation. Even if you had a duty to sell someone potatoes, you'd have to do something to make it happen. Aspen Skiing was about issuing (in that case, printing) tickets, and about validating them (manually or electronically). Interestingly, the security architecture that ensures only authorized apps can access, for example, the CarPlay APIs is also about issuing "tickets" (in that case, digital certificates) and about validating them (@hishnash mentioned "root certificate chain validation" in connection with "the Entitlement system"). Also, even those ski resort tickets involved intellectual property (copyrights, trademarks)--plus real property.

It's a different jurisdiction, but when the European Commission obligated Microsoft to give developers of competing network servers (like the Samba open source project) fair access, Microsoft not only argued that it shouldn't have to grant a license but additionally complained about having to provide technical documentation. Then-competition commissioner Neelie Kroes "[found] it difficult to imagine that a company like Microsoft does not understand the principles of how to document protocols in order to achieve interoperability" and fined Microsoft for its (temporary) refusal.

Unlike the question of whether a "commission" is a "rebate" (it's a clear Boolean "false"), this here is one of degree. I stand by my criticism of the verb "to redesign" in this context because lifting unreasonable restrictions just means to fix a problem, not to take some technology to a higher level as "redesign" implies.

In particular, I'm unaware of Epic Games demanding access to Car Play at this stage. The types of apps one finds on the Epic Games Store don't need APIs that are subject to specific restrictions. In light of that, I summarized my understanding as follows:

Of course, even the second part (access to those other systems) could involve duties to deal. But it would be a first step to at least allow games like Fortnite to be installed via third-party app stores.

@hishnash acknowledged that "apps that could be replaced with PWAs (aka apps that do not use any key system apis could be installed through a third party apps store." (PWAs = HTML5-based Progressive Web Apps). In other words, the Epic Games Store could install Fortnite because--performance and other issues apart--Fortnite doesn't need to access APIs like CarPlay and could therefore be a web app (it wouldn't be playable, but again, no API access issue). Thereafter, the discussion was more about whether third-party app stores would be an effective remedy as developers would still need to use some of Apple's SDKs etc., and whether PWAs would be a workable or potentially even superior alternative.

Epic's proposed findings of fact and conclusions of law list a number of shortcomings that PWAs have. Mr. Sweeney described Apple's pointing to PWAs as "disingenuous" because Apple limits those APIs and doesn't allow third parties to fix the issues though they technically could. In addition, what I know from one of my own projects is that major ad networks don't even support in-app advertising in WebGL apps. So there are usability issues including but not limited to performance, and monetization issues. Mr. Sweeney noted that Apple itself tells developers to build native apps:

And in my favorite @TimSweeneyEpic tweet to date, he explained iOS is "an intermediation trap":

@hishnash thought Epic wanted exposure on the App Store and would therefore not even accept a workable PWA solution. He inferred this from Epic's decision to offer Fortnite via the Google Play Store despite sideloading being possible. Let's focus on Apple here, so I'll just note that sideloading on Android doesn't really work for consumer software in its current form: my own company even experienced problems because beta testers didn't manage to install our stuff via Microsoft App Center. As for Apple, I pointed @hishnash (whom I commend for his thoughtfulness and constructive attitude) to the fact that Epic Games v. Apple is not just a Fortnite case but the central issue is third-party app stores like the Epic Games Store (even though the early stage of the dispute was very much about #FreeFortnite).

The remainder of the remedies discussion basically was about weighing the pros and cons of two remedies--PWAs and third-party app stores. @hishnash thought that if Apple--in what I consider an alternative universe--sincerely made an effort to provide a great user experience for PWAs, developers would then at least be independent, while apps distributed via alternative app stores would still depend on some kind of IP license from Apple:

In other words, we were then talking about two different dependencies:

  • With PWAs, @hishnash assumed there was no licensing issue (and for simplicity's sake, I don't want to digress into the related IP questions here), and if usability issues came up, the solution would be to hold Apple to a hypothetical commitment to comply with a certain technical standard.

  • For apps distributed via third-party app stores, @hishnash assumed there was a need to take a license from Apple (which I again won't discuss from an IP perspective, though I'd be tempted to talk about the recent Android-Java API Supreme Court decision), and the terms might be unreasonable (as he suggested in the above tweet).

It's not that @hishnash would necessarily oppose both better PWAs and competing stores. At least on videogame consoles (which are an important topic, but can't talk about them or this post will never come to an end), he might even like the idea of going down both avenues. And he clarified he didn't mean to say that PWAs "worked well right now."

To make a long story short, the reason I don't believe PWAs could lead to a practicable and reasonably enforceable remedy is because user experience happens in users' minds. What's pretty doable (not trivial, but manageable) is to ensure compliance with a standardized protocol like 5G. What's already a lot harder is to measure purely technical performance: there are different benchmark programs for CPUs, for example. But what's absolutely impossible--except perhaps with 26th-century artificial intelligence--is to objectively quantify the user experience, especially of entertainment products like games. So even if Apple theoretically promised to do a better job on PWAs, or just made an announcement to that effect without a formal legal obligation, developers wouldn't have a reliable--i.e., justiciable--assurance of being able to compete outside Apple's App Store.

By contrast, if Apple clearly had to allow the distribution of apps via third-party stores that use the same APIs as those distributed via the App Store, the remaining area of potential dispute would come down to license fees for SDKs, for developer tools, for documentation etc.--which can be worked out. The EU solved that problem in the Microsoft network server protocol case. I follow standard-essential patent royalty disputes all the time (this blog has written more about them than about any other topic so far). Even if something went wrong, we could all develop, innovate, compete--and seek a refund later. Right now, Apple just says "no" and that's the end of the story (and of this post).

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Wednesday, April 14, 2021

Apple expert incorrectly claims Apple would need to "redesign" iPhone hardware and software to allow alternative app stores

Sooner than I'd have thought, here's my first follow-up to the publication of the summaries of Apple's expert witness reports in the Epic Games v. Apple App Store antitrust case.

When I read those summaries for the first time, I tweeted about some of the statements I found in them. This is my tweet about the claim that Apple couldn't support alternative app stores without not only software but even hardware changes:

The quote was from the following paragraph of Dr. Rubinfeld's rebuttal report:

"19. The duty upon Apple is more than the usual duty to deal; it would include a duty to redesign its hardware and software—both of which are covered by Apple’s intellectual property—to make the iPhone interoperable with alternative app stores and with apps that would not qualify under Apple’s app-review guidelines for distribution through the App Store."

My tweet prompted a strong reaction from Tim Sweeney, the founder and CEO of Epic Games:

(The term "baloney" relates to what that expert said, and fortunately not to my own comments.)

The people who have already liked Mr. Sweeney's tweet include many developers, among them the father of JavaScript.

I added another alternative way of installing apps on iOS devices that clearly works--without requiring new hardware--and is just made unnecessarily cumbersome by Apple:

UDIDs are unique device IDs. In order to find out one's UDID, one has to connect an iPhone or iPad to a MacBook with a USB cable and open the iTunes app; copy the UDID; paste it into a message to the developer; and the developer then has to actually integrate it into the app package. That's obviously not an option for large-scale distribution. Also, some functionality cannot be tested that way: one needs to build a "store app" and distribute it via Apple's TestFlight system. TestFlight comes with other limitations.

I have my doubts that the court will buy Apple's spurious argument about "a duty to redesign its hardware and software."

Similarly underwhelming is the following statement I found in another Apple expert report (authored by Ocean Tomo's Mr. Malackowski):

"The App Store itself is referenced in more than 250 U.S. patents and applications."

That is just meaningless. The fact that the App Store is "referenced" doesn't indicate that the App Store itself is protected by any patents. Apple has to deal with standard-essential patent (SEP) portfolio valuation all the time, where the question of essentiality (i.e., whether a patent covers a technique one needs to implement in order to comply with the specification of the standard) comes up. No one would seriously argue that a patent in which 5G is "referenced" is necessarily a 5G patent, much less that it is a 5G SEP.

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Apple submits summaries of expert reports seeking to rebut Epic Games' expert reports

A few weeks ago, Epic Games filed (in a publicly accessible form) summaries of its expert witnesses' reports in the App Store antitrust case against Apple. I wrote two blog posts discussing what I learned from those documents:

This morning Apple has also filed summaries of its expert witness reports. I need a bit of time to digest them, and fully intend to share observations on them as well. But for those who'd like to read those summaries now, I'm providing the documents below.

Dr. Aviel D. Rubin:

450-1 Rubin Rebuttal by Florian Mueller on Scribd

Dr. Daniel L. Rubinfeld:

450-3 Rubinfeld Rebuttal by Florian Mueller on Scribd

Dr. Dominique Hanssens:

450-5 Hanssens Rebuttal by Florian Mueller on Scribd

Dr. Francine Lafontaine:

450-7 Lafontaine Rebuttal by Florian Mueller on Scribd

Dr. Lorin Hitt:

450-9 Hitt Rebuttal by Florian Mueller on Scribd

Dr. Richard Schmalensee:

450-11 Schmalensee Rebuttal by Florian Mueller on Scribd

James Malackowski (Ocean Tomo):

450-13 Malackowski Rebuttal by Florian Mueller on Scribd

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Epic Games and Apple submit exhibit lists to U.S. court in preparation of May antitrust trial

Epic Games and Apple just submitted to the United States District Court for the Northern District of California their exhibit lists for next month's App Store antitrust trial. There are two lists per party: an exhibit list (text documents, such as emails), and an audiovisual exhibit list.

At the moment I don't have any particular comment, but with so many people being interested in the case, I just wanted to publish those lists here.

Epic's (non-audiovisual) exhibit list:

21-04-14 Epic Exhibit List by Florian Mueller

Epic's audiovisual exhibit list:

21-04-14 Epic Audio Visual ... by Florian Mueller

Apple's (non-audiovisual) exhibit list:

21-04-14 Apple Exhibit List by Florian Mueller

Apple's audiovisual exhibit list:

21-04-14 Apple Audio Visual... by Florian Mueller

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