Wednesday, October 11, 2017

Decision by Taiwanese antitrust authority: huge setback for Qualcomm, breakthrough for industry

The Taiwan Fair Trade Commission's decision to impose a record fine of more than $700 million on Qualcomm and to demand a departure from some of Qualcomm's longstanding, problematic practices is really huge. If I didn't believe so, I wouldn't be writing this blog post about two hours after receiving approval from Apple to publish my iOS game, after three years of development. We're initially making the game available in 24 countries now and will do our U.S. launch (after a bit more fine-tuning) next month, at which time I'll be more specific about category, name, features, everything.

Taiwan is such a strategic region in the context of Qualcomm's dual-monopoly strategy involving standard-essential patents as well as chipsets. In Taiwan you have three types of key industry stakeholders suffering under what Qualcomm has been doing for a long time:

With a view to pending lawsuits, the biggest impact will be in the Southern District (contract manufacturers) and the Northern (FTC) District of California.

The Taiwan Fair Trade Commission has now joined the Korea Fair Trade Commission, the FTC, and the European Commission, and who knows what trouble Qualcomm may still face in the People's Republic of China, considering that there is speculation about Huawei having ceased to make royalty payments to Qualcomm.

As one would have expected, Qualcomm is fighting the decision. The Bloomberg story I linked to further above says Qualcomm will seek a stay and appeal. It was recently denied a stay in South Korea, by the way.

This has been a very eventful ten months for Qualcomm in antitrust terms. It's hard to identify the tipping point, but my prediction is Qualcomm will have to fundamentally change its patent licensing and other business practices in the not too distant future, and when that happens, today's Taiwanese decision will be considered to have been among the more important events in that regard.

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Monday, October 9, 2017

Qualcomm forced to offer commitments in order to obtain EU clearance of NXP deal

There have been strong indications that the European Commission's Directorate-General for Competition (DG COMP) has serious concerns about the potentially anti-competitive effects of Qualcomm's proposed acquisition of NXP Semiconductors. By now, there can be no doubt about that: the Commission's website states that Qualcomm submitted commitments four days ago. No one offers commitments if unconditional clearance is achievable.

Typically, companies discuss such proposed commitments with the Commission beforehand. If the Commission believes the commitments might be useful, it puts them to a market test, giving stakeholders an opportunity to comment. Here, there is no official confirmation--just rumors--of an ongoing market test.

As I've said earlier in the process, the only meaningful remedy here would be an obligation for Qualcomm to extend licenses (obviously on fair, reasonable and non-discriminatory terms) to rival chipset makers. That would help Qualcomm's competitors and customers alike. With the licensed product being a chipset, the royalty base alone makes it very hard, if not practically impossible, for Qualcomm to charge anywhere near the license fees it appears to demand from device makers. But it would have been out of character for Qualcomm to propose such a commitment. I guess Qualcomm would rather walk out on the NXP deal, but I wish I turned out to have been wrong on the effectiveness of its proposed commitments, though merger remedies (other than a divestment of certain assets) are rarely helpful--in most cases they just look like they would ensure fair competition while they actually don't, either because they don't go far enough or because they lack specificity.

No matter whether Qualcomm's proposed merger remedies are helpful, the fact that Qualcomm apparently felt forced to offer any commitments in order to obtain clearance is the latest indication that regulators in different parts of the world are concerned about some aspects of Qualcomm's business model and practices.

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Thursday, October 5, 2017

DoJ backs Apple, says Supreme Court should deny Samsung's most recent cert petition

Just this week, the Wall Street Journal reported on the high-volume business Apple is doing with Samsung, a key supplier of components for various products including the new flagship iPhone, the iPhone X, on which Samsung will reportedly make $110 per unit. But as device makers, the two remain fierce competitors--and adversaries in court.

A few months after the Supreme Court of the United States requested the Trump Administration's perspective on Samsung's most recent petition for writ of certiorari, the Solicitor General of the United States, Noel Francisco, has expressed the views of the U.S. federal government (this post continues below the document):

16-1102 Views of the United States by Florian Mueller on Scribd

The short version is this: the DoJ tells the Supreme Court to deny all three parts of Samsung's petition, but it's not a ringing endorsement of the Federal Circuit's controversial en banc decision. Not at all. It's completely based on procedural and standard-of-review considerations.

The following passages show that the DoJ doesn't necessarily agree with the Fed. Cir. majority:

"The sufficiency-of-the-evidence question presented on appeal was a close one, and the court of appeals may have erred in concluding that substantial evidence supported aspects of the jury's verdict."

"If the Federal Circuit continues to develop and enforce rigid rules for demonstrating obviousness, this Court's review may ultimately be warranted. This case, however, would be an unsuitable vehicle for addressing that issue. Because petitioners did not preserve any objection that the jury instructions [...]"

"Although the phrase 'some connection' may be infelicitous, [...]"

In the famous design patents case, the DoJ agreed with Samsung on the key legal question (article of manufacture). It additionally brought up a procedural question that could have enabled Apple to defend the original damages award. Now, with respect to the more recent petition relating to invalidity, injunctive relief, and infringement, the DoJ cautiously distances itself from the en banc opinion and indicates only between the lines that it may disagree, to some extent, from a policy perspective ("rigid rules for demonstrating obviousness" etc.). It would have been nice if the DoJ had been clearer about the implications of this for U.S. tech companies and for the work of the United States Patent and Trademark Office, which is supposed to protect real technological progress, which is hard to do if even weak evidence of non-obviousness gets a lot of weight. The DoJ could have expressed more clearly a concern over what this means for patent quality, but unfortunately it didn't.

So what does this mean for the prospects of Samsung's cert petition?

The George Mason Law Review published an empirical analysis of cert procedures (PDF), according to which the Supreme Court became more likely to grant certiorari in a case where the Solicitor General was invited to file a brief regardless of whether the SG recommended cert or not. It's a fact that the Supreme Court grants more petitions following a Call for Views of the Solicitor General than the SG recommends should be granted.

Of course, it's too early to have statistics on how the Supreme Court views Solicitor General Francisco's recommendations. But it's not like it's over for Samsung. It's a setback for them and, conversely, a significant intermediate victory for Apple, but the Supreme Court can still decide either way.

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Friday, September 29, 2017

Design patents: Apple, Samsung reject each other's proposals for identifying the relevant article of manufacture

Let me start this post with the final two sentences from Matt Levy's IP Watchdog post on the design patent damages issues in the Apple v. Samsung remand proceedings in the Northern District of California:

"It's understandable that Apple wants that $400 million. But let's hope that we don't end up with a mess in design patents as a result."

I'm presumably not alone in getting really tired of that neverending story, but from time to time, such as today, I just have to remind myself of the fact that the question of the base for a disgorgement of design patent infringer's profits is the most important one and it's only now starting to get resolved. The Supreme Court would have liked to define a test for the relevant article of manufacture, but it decided to focus on only the question of whether Judge Koh and the Federal Circuit had interpreted the statute (35 U.S.C. § 289) correctly when they held that Apple was without a doubt entitled to a disgorgement of Samsung's entire profits on cetain smartphones. The top U.S. court held that the relevant article of manufacture could be an entire product or a component, but left it to others (until the issue might return to the Supreme Court later, be it in connection with this dispute or in any other) to do the rule-setting job.

The best way to solve the rule-setting problem for all eternity would be for Congress to amend the statute. There should be apportionment. That would lead to the most reasonable results. But as long as the old statute must be applied (which may be the case for a lot longer since I don't know whether Congress will deal with this issue anytime soon), the courts will simply have to decide whether to adopt a test that is likely to overcompensate design patent holders or an alternative one that may quite often result in undercompensation. Forget about absolute fairness under the existing statute. Apportionment is precise; anything based on the article of manufacture is a step function.

Apple and Samsung have meanwhile responded to each other's proposed tests (Apple brief, Samsung brief). They accuse each other's proposal of being inconsistent with the Supreme Court decision, other case law, and statutory law. Up to a certain degree, I agree with Mr. Levy's criticism of Apple's proposed test: Apple is simply trying to salvage a $400 million award through a test that has rather subjective elements such as "how" a design was used, "how" a product was sold, or "the degree to which the asserted article of manufacture is physically and conceptually distinct from the product as sold." That kind of test would be a recipe for lengthy trials and confused juries, in many cases even hung juries.

Case in point: Apple refers to evidence that Samsung internally acknowledged (after the iPhone came out) that it had a "crisis of design," and Samsung explained in its responsive brief that the word "design" was meant in a more architectural sense, referring to Samsung's choice of a mobile operating system (Samsung later selected Android). That's the kind of hair-splitting Apple's proposed test would inevitably lead to (lots of it, actually). There can't ever be a mathematical formula that identifies the relevant article of manufacture, but legal tests that can be handled in far more predictable ways than what Apple would like to see adopted.

I said before that I agree with Mr. Levy's take on Apple's proposed test "to a certain degree," and the limitation here is that I believe Apple could have taken much more problematic positions. The way I see it, Apple's proposal is the least problematic one of all tests that would make it more likely than not that Apple would end up defending the $400 million award.

Samsung's argument very much focuses on what the asserted design patents claim. Apple argues that this leads to a contradiction: while Samsung says the article of manufacture is a question of fact for the jury to determine, claim construction would be a question of law. That is an inconsistency indeed, but the alternative (massive overcompensation based on simply ignoring claim scope) would be far worse.

A really interesting panel debate--the 90-minute recording is worth watching in its entirety-- took place in Washington D.C. the week before last. A Law360 reporter attended and noted that this design patent damages issue divides the patent world. Professor Rebecca Tushnet (Harvard) published some of the panelists' statements on her blog. I'll probably get back to some of what was said on that panel at the next procedural juncture.

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Thursday, September 21, 2017

Meet the patent trolls of the 2030s: Bosch, Volkswagen, Daimler, BMW

Four days before the 67th International Motor Show (IAA) in Frankfurt will end, I'd like to offer a bold prediction: unless a miracle of the kind I can't imagine happens, Germany's automotive industry (car manufacturers as well as suppliers) will suffer a fate similar to that of the smartphone divisions of the likes of Nokia and Ericsson, ultimately resulting in "trollification" by the 2030s.

As Frankfurter Allgemeine Zeitung noted last month, 52% of all patent filings related to self-driving cars belong to German companies, with Bosch alone (which is number one and followed by Audi and Continental)holding three times as many patents in that field as Google and Apple or Tesla not having any significant patent holdings in that field yet. Besides Bosch, Audi, and Continental, three other German companies are among the top 10 patent holders in this field: BMW, Volkswagen, and Daimler.

Patent filings related to self-driving cars are picking up speed, so the landscape will almost certainly change in some ways in the coming years, but not entirely.

So far, major automotive companies have not used patents aggressively. Much to the contrary, they often find themselves on the receiving end of patent troll lawsuits in the Eastern District of Texas and elsewhere, and they tend to support reasonable royalties (such as through the Fair Standards Alliance) and defensive initiatives (including a fake one--"fake" because it's merely about making a statement and doesn't solve a single patent-related problem ever--called Open Invention Network). I'm not aware of any major dispute between two large car makers. Apparently they work out cross-licensing deals quietly and amicably.

But that's because right now those companies are in the business of selling vehicles (and related services), not in the patent assertion business. While it may seem daring to talk in 2017 about what's going to happen in the 2030s (if not before), I am fairly convinced (not 100%, but way above 50%) that we're less than two decades away from the point at which Germany's automotive industry is going to enforce patents aggressively and try to shake down the future winners in the marketplace.

I believe Germany's leading car makers--and some of their key suppliers--are going to be in only a slightly better position than the smartphone divisions of companies like Nokia and Ericsson were when Apple and the Android ecosystem revolutionized the concept of a mobile communications device. I said "slightly better" because brands like BMW and Mercedes have been very strong for several times longer than Nokia's brand at the time of the iOS/Android revolution. Those brands are associated with certain strengths, some of which will remain important even in the self-driving electric future. But apart from that factor, those companies are practically doomed and will have to resort to patent licensing in less than 20 years' time. They won't disappear into oblivion too quickly, but over time they will, and there will be a long period during which they will still be around and you'll still see Mercedes stars on the roads, but where most of the revenue opportunity will belong to leading U.S. technology companies.

One challenge that those German automotive companies may somehow manage to overcome--though they haven't so far--is the one of creating good user interfaces. I've had an S-Class for a few years and the UI is just simply not well-thought-out. One example is the big button that also serves as a wheel. When using voice control to dial a number from my history of calls, that button means "Yes, this number" in one situation and "No, abort the operation" less than a second later--something that would be completely unthinkable at a company like Apple or Google. Another example is that they waste space on the screen by showing the city of a destination before the street name (which then often doesn't fit on the screen at all, or must be abbreviated beyond recognition). Those are simple things, and while it's astounding that Mercedes would ever have come up with a stupidly-designed user interface in the first place, they--and their competitors--may figure this part out over time.

Maybe someone will explain to their software developers the concept of a race condition because the way the thing intermittently fails to activate functions when starting up--or the way the UI occasionally freezes when dialing--suggests to me they have one or more of those in their code. Maybe they'll even understand that they should keep track of the last cities I navigated to so I don't have to select the same city again and again when entering a destination. And who knows, maybe they'll realize one day that they should provide free firmware updates from time to time to keep customers happy, especially when you have really nasty bugs in your software (as they do). Again, none of that is rocket science.

The bigger issues are of the strategic kind. For decades they have largely relied on a core competence: combustion engines, which involve about 200 times as many parts as electric motors. Daimler once invested in Tesla, then exited. With more foresight, it would have acquired it while it still had the chance. Anyway, those companies will lose their #1 competitive advantage.

Once Silicon Valley companies are the technology leaders (which Tesla in some ways already is) in the automotive industry, Germany's automotive companies will also struggle in the "war for talent." Most of the world's best software developers either already are in the United States or are potentially receptive to offers from such world-class employers as Google, where they can make a lot more money than at BMW, like Daimler or Volkswagen, get perks that are heard of in Germany, and often get to work on more interesting stuff. There will always be some talented developers who will choose to come to or stay in Germany, but a majority of the world's best programmers won't even consider Germany, period. Frankly, the cost-benefit ratio of learning German--a hard language to learn and of very limited use--is inferior, and most programmers already speak a least a little bit of English. In all likelihood, the average Google or Apple programmer will simply be better than his counterparts at German automotive companies, and if Apple or Google wanted to hire a very talented person away from a Volkswagen or BMW, they could in most instances.

Even if those German automotive companies figured out the digital user experience (which is doable) and even if they built better electric cars over time, there is, however, one thing that's simply going to marginalize them. It's that self-driving cars will be mobile communications devices on wheels. Speed and similar success factors of the old times aren't going to matter anymore at all. Instead, it's all going to be about what you can do while the car is doing all the driving.

The most lucrative parts of the car value chain are going to relate to productivity, communications, and entertainment applications. Plus all sorts of e-commerce (including "sharing economy"-style) services.

Those parts of the value chain will, without the slightest doubt, belong to such companies as Apple, Google, Amazon, and Microsoft. Of those companies, Apple is believed to be working on a car of its own and even made a joke about it at a corporate event. The others--especially Google--will be open to partnering (as they're already doing in some areas) with such companies as Daimler. But they're going to have all the leverage because of a force that is far more powerful than the leadership of traditional automotive companies presumably knows: network effects.

Short of developing something that would have to be several times more revolutionary than the iPhone was ten years ago, there's absolutely no way that BMW, Daimler and Volkswagen--even if they agreed to a three-way merger and secured regulatory approval for it--could ever get sufficient traction among app developers so they could compete effectively with Apple and Google. Even Microsoft with Windows Phone and with all of its money couldn't.

My app is in the final testing stage. We'll launch in a first market (probably New Zealand, where other games have also been launched early) in a couple of weeks and will quickly expand from there before finally launching in the United States. I know what drives platform choices. A few years ago I thought I would start on Android, then wanted to serve both major platforms at the same time, and ultimately decided to do iOS first, Android later. Before I would consider any other platform, we'd most likely do Mac and Apple TV versions of our game. Thereafter? Maybe, maybe, maybe even a Windows version at some point. But a Mercedes/BMW/Volkswagen version? I just don't see that happen.

Using Android on open-source terms won't be a viable option (at least nowhere outside China). Android is open-source in some ways but proprietary in others. It's no secret that most Android device makers aren't really profitable. Automotive companies can still make low-margin hardware in the future. But the biggest revenue streams are going to pass them by.

Also, a high percentage of the people buying premium cars are Apple customers, and their loyalty to Apple is simply stronger. Just this week I was thinking about this when I saw a German car with an Apple sticker on it. I was thinking to myself: Would anyone do it the other way round and put a Mercedes or BMW logo on an iPhone or a MacBook? Or a Volkswagen logo on an iPad? Obviously not.

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Tuesday, September 12, 2017

Apple v. Samsung design patent damages: September 13 panel discussion in Washington DC

About a month and a half ago, Judge Lucy Koh of the United States District Court for the Northern District of California held that Samsung had not waived its "article of manufacture" argument in the first Apple v. Samsung case. That was another step forward for Samsung in its quest to get the damages award reduced. But prior to ordering a new trial on design patent damages, Judge Koh ordered briefing on various questions to be resolved first.

Last week, the parties filed their answers to the court's questions (Apple, Samsung). Samsung argues that Apple has the burden of proof and that the only way the damages question could be resolved without a new trial would be for the court to find an evidentiary failure on Apple's part. Apple refers the court to the Solicitor General's Supreme Court brief. According to Apple, after a prima facie showing regarding the article of manufacture that infringes a design patent, the burden of proof is on the defendant to show that a component of that product is the appropriate basis for a disgorgement of infringer's profits. While I tend to consider Samsung's proposition better policy, I have no idea to what extent Judge Koh may be influenced by the DoJ's Supreme Court brief.

The Computer & Communications Industry Association (CCIA) will host a panel discussion tomorrow at the National Press Club in Washington, DC from 9 AM to 10:30 AM Eastern: "Next Up In Apple/Samsung Smartphone Wars: Design Patent Remedies Following The SCOTUS Decision"

Speakers include, among others,

  • Carl Cecere, who has filed really good amicus curiae briefs, at different stages of this dispute, on behalf of the Hispanic Leadership Fund and the National Grange,

  • Gibson Dunn's Howard Hogan, whose firm is counsel for Apple in the second Samsung case (not the one involving design patents), and

  • Rebecca Tushnet, First Amendment professor at Harvard Law School.

I will try to obtain a transcript or key quotes from the event and, if interesting things are said (which is very likely given the topic and the panelists), blog about it.

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Friday, September 8, 2017

Judge denies Qualcomm motions for preliminary injunctions against Apple, contract manufacturers

It's not like Qualcomm didn't already have plenty of legal problems. But Judge Gonzalo P. Curiel of the United States District Court for the Southern District of California has just (this morning by Pacific Time) handed down two decisions denying a couple of Qualcomm motions for preliminary injunctions. Qualcomm has failed to obtain a preliminary injunction requiring four Apple contract manufacturers to make royalty payments before the matter is adjudicated. I had predicted that one. What isn't really surprising either, but was much less clear based on how a recent hearing went, is that Judge Curiel also declined to bar Apple from pursuing antitrust cases in other jurisdictions (such as China, Japan, Taiwan, and the United Kingdom).

In order to comment on these latest developments quickly, I focused on the key parts of the rationale underlying the two decisions. First, the expected denial of a preliminary injunction requiring the likes of Foxconn to make immediate royalty payments (this post continues below the document):

17-09-07 Denial of Qualcomm's Requested Preliminary Injunction by Florian Mueller on Scribd

It From the beginning, Qualcomm's motion for a preliminary injunction related to royalty payments was a total long shot, given that the most critical preliminary-injunction factor is irreparable harm as opposed to monetary harm. And indeed, that's why the motion failed. Judge Curiel wrote (among other things):

"The scales of equity, however, do not bend for dollar amounts alone no matter how great."

"This irreparable harm argument, however, is flawed because it is untethered to any discussion of the adequacy of legal remedies."

The second quote above means Qualcomm failed to expain why any problems resulting from the contract manufacturers having discontinued their royalty payments (related to Apple products) couldn't simply be solved, if one assumed purely for the sake of the argument that Qualcomm is entitled to those particular payments, by the court later ordering payments (with interest on top).

Let's turn to the decision denying Qualcomm's motion for an anti-suit injunction against Apple, which would have required Apple to abandon its international antitrust cases against Qualcomm (this post continues below the document):

17-09-07 Denial of Qualcomm's Requested Anti-suit Injunction by Florian Mueller on Scribd

Here, Qualcomm largely relied on a Ninth Circuit decision upholding Judge Robart's 2012 anti-enforcement injunction against then-Google-owned Motorola Mobility. Back then, however, it was the implementer of a standard--Microsoft--seeking an injunction preventing the patent holder--Motorola--from enforcing a couple of German patent injunctions. That is, as Judge Curiel explains in his order denying Qualcomm's motion for an anti-suit injunction against Apple, just the opposite situation. Judge Curiel points out that Motorola had an obligation to extend a FRAND license to Motorola. So does Qualcomm--but Apple doesn't. Even if Qualcomm made a FRAND licensing offer to Apple, Apple could (for whatever reason or no reason) reject it.

Qualcomm wants the San Diego court to determine a worldwide FRAND royalty rate covering Qualcomm's wireless standard-essential patents. But Apple wants a patent-by-patent determination, insisting that Qualcomm firstly prove its entitlement to royalties by establishing infringement and defeating any defenses (such as invalidity). In footnote 5, Judge Curiel explains the difference between the parties' positions and holds that he "need not decide this question [of whether a worldwide FRAND determination should be made in the Southern District of California] to resolve the instant motion [for an anti-suit injunction that would have prevented Apple from proceeding with its overseas antitrust cases against Qualcomm]."

While the judge didn't have to reach that question immediately, I doubt Qualcomm will get a worldwide FRAND determination in its San Diego backyard. Only one outlier judge in the UK has so far tried to usurp jurisdiction on a global scale (in Unwired Planet v. Huawei), and even that judge realized his decision was going to give rise to disagreement and therefore explicitly authorized an appeal, which will hopefully (and more likely than not) succeed. Three lawyers from the Orrick firm have recently published an article (PDF) on why the Unwired Planet decision is flawed and problematic. Highly recommended reading.

Qualcomm's litigation strategy against Apple and the contract manufacturers Qualcomm decided to draw into the case can be summed up with two expressions: "leave no stone unturned" and "throw in the kitchen sink." That includes long-shot motions of all kinds. So far that strategy isn't working out at all. If Qualcomm hadn't brought various motions, we'd know a lot less at this stage about where Judge Curiel in the Southern District of California and Judge Lucy Koh in the Northern District of California stand on the key legal issues. Now we do know. And what we know doesn't bode well for Qualcomm.

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