Thursday, July 7, 2016

Oracle moves for new copyright trial against Google, renews motion for judgment as a matter of law

Despite the fact that Google's incorporation of more than 10,000 lines of Oracle's Java API declaring code into Android does not merely fall short of fair use criteria but is simply the exact opposite of fair use, a San Francisco jury, misguided by Judge William H. Alsup, misinformed by Google's manipulative attorneys and misled by questionable witnesses, found in favor of Google in May.

Thereafter, Judge Alsup, who could hardly have done a worse job handling this case, entered final judgment. At the same time, he wrote a JMOL ruling (denying the parties' pre-verdict motions for judgment as a matter of law) that, instead of actually addressing the substantive issues raised by Oracle, was a public letter to the appeals court of the "please don't overrule me again" kind, demonstrating his fear that the Federal Circuit will once again clarify that the law is what is and not what Judge Alsup, labeled by a lawyer on Twitter as a "sore loser" (in light of the previous appellate decision in Oracle's favor), wanted the jury to think it is.

While it's very obvious that this case will go back to Washington, DC, Oracle has just filed two motions. The first one is a renewed motion for JMOL (this post continues below the document):

16-07-06 Oracle's Renewed Motion for JMOL Against Google by Florian Mueller on Scribd

There is no question that Judge Alsup will deny it. His aforementioned open letter made that clear. He's now just going to hide behind the jury since he accomplished his objective: a verdict in Google's favor. But he may just have to go through the motions process now, and Oracle has requested that a hearing be held in August.

The JMOL question is extremely important because it's hard to imagine a "fair use" case where JMOL would be more warranted than here. As I've talked about that on a few occasions and will talk about it some more during the appellate proceedings, I'd now like to focus on Oracle's motion for a new trial since it raises a number of serious issues due to which the "final judgment" can't and most probably won't stand. Here's Oracle's motion (this post continues below the document):

16-07-06 Oracle Motion for New Copyright Trial Against Google by Florian Mueller on Scribd

Prior to raising several specific issues, Oracle reserves the right to pursue other bases for a new trial on appeal. Now, the issues raised explicitly in the motion:

The first argument for a new trial is that "the verdict was against the weight of the evidence." This is basically the JMOL argument, just in the context of a Rule 59 motion.

The second argument is that just after Oracled rested its case, Google announced that a full version of Android Marshmallow (one of the Android versions at issue in this case) would be released as part of ChromeOS--including the Google Play Store, i.e., all Android apps. Oracle argues that Google withheld this information (given that it presumably had been working on that project for some time) and failed to make disclosures in discovery requests.

Here's why this is a big problem: ChromeOS is a desktop/notebook/netbook operating system. That's just another huge market in which it's now competing with Java; more specifically, with Java SE. It also shows that any distinction between mobile Java and Java in general makes no sense in the Android-Java context (when it comes to harm, transformative use etc.). It was a Google-Judge Alsup smokescreen in any event, but the smoke lifted with Google's announcement--at a time when Oracle no longer had any chance to inject this issue into the rigged trial.

Oracle rightfully demands a new trial in order to be able to "present its full case, including this newly discovered and improperly withheld evidence."

The third argument relates to how Judge Alsup improperly limited Oracle's evidence of market harm to the mobile phone and tablet computer markets. Oracle recalls how it filed a supplemental complaint last summer to bring up various other Android business areas such as Android Wear. Judge Alsup, however, sided with Google on a motion in limine and told Oracle that it would have "to sue on those new products in a future trial."

The fourth argument is also about how the judge precluded Oracle's lawyers from making their strongest legitimate case. Google made the "Java was free and open" point more than thirty times in that trial, but the court did not allow Oracle to present an April 2007 email from Stefano Mazzocchi (then an Apache Foundation leader), which stated the following:

"This makes us *already* doing illegal things (in fact, Android using Harmony code is illegal as well)."

Judge Alsup required that key sentence to be redacted because it was, in his incorrect opinion, "too inflammatory and without foundation." That email actually had much more of a foundation than most of the key decisions Judge Alsup has made in this litigation so far. But the biggest problem is that Google's lawyers were able to elicit statements from Mr. Mazzochi (during examination) that he thought what Apache was doing was above board.

Those first four points are all very strong, but I personally feel very strongly about the fifth one as well. The fifth argument is that bifurcation prejudiced Oracle and that a new trial should be a single-phase trial on liability and damages.

When I saw Judge Alsup's bifurcation decision last year, I started to doubt that he was going to act fairly. And indeed, he turned out to be the most unfair judge I've ever watched in a high-profile case except in fictional movies, historic documentaries, or reports on some of the totalitarian regimes that still exist today.

Toward the end of that fifth section, Oracle says the following:

"And, bifurcation provided a structural incentive for the jury to return a defense verdict."

That is exactly right. I saw something on Twitter from one of the courtroom tweeters that indicates Judge Alsup told the jury something like "please don't let your desire to go home quickly influence your decision." Should Judge Alsup really have said so (and I wouldn't put it past him), it was a devious way of telling the jury to be smart, to get their lives back and to go back to making more money than (roughly) minimum wage.

The sixth part of Oracle's argument for a new trial is about documents that were excluded on hearsay grounds. Among other things, Oracle argues that the court "incorrectly excluded damning evidence of market harm solely because that evidence was in PowerPoint format."

All in all, the Oracle v. Google retrial was a total disgrace for the American court system, and while there are some well-liked and well-respected people who view this differently, I remain convinced that Judge Alsup will be overruled for good, by judges who are neutral, which he isn't, and smarter than him.

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Friday, July 1, 2016

Spotify's concerns over Apple Music are obvious but it's just manufacturing an App Store antitrust issue

[UPDATE on July 2] Apple's response has now been leaked. Apple's general counsel says that Spotify's "in-app purchase feature had been removed and replaced with an account sign-up feature clearly intended to circumvent Apple's in-app purchase rules." Thereafter, on June 10, Spotify submitted another version, which in Apple's opinion was part of a "continued attempt to get around [Apple's] guidelines" and "to circumvent in-app purchase rules." [/UPDATE]

I wish to clarify upfront that I've never done any work for Apple or Spotify. A more elaborate disclosure can be found at the end of this post. The perspective from which I am writing this post is that of an app developer who happens to have fought hard for fair, reasonable and non-discriminatory (FRAND) behavior by companies wielding monopoly power. And one of the two iOS apps I'll launch later this year will come with two different types of subscription offerings, which users can even use in combination. So I do have a strong interest in this, but for now I can't see any wrongdoing on Apple's part.

Spotify's general counsel Horacio Gutierrez--who used to be Microsoft's second-highest-ranking in-house lawyer--has reportedly sent a letter to his counterpart at Apple alleging violation of U.S. and EU antitrust laws as Apple has so far rejected an update to Spotify's iOS app. More generally, Spotify complains about a "troubling pattern of behavior by Apple to exclude and diminish the competitiveness of Spotify on iOS and as a rival to Apple Music," referring to "previous anticompetitive conduct aimed at Spotify."

Spotify still has about twice as many subscribers as Apple Music, but the latter still casts a dark shadow over the impending IPO of the former.

Few people could claim to know the U.S. and EU antitrust game better than Mr. Gutierrez, who among other things also was in charge of Microsoft's EU activities. At this stage, Spotify's obvious objective is to instigate formal antitrust investigations of Apple's conduct in the U.S., the EU (Spotify is a Swedish company), and potentially in Asia, where the scope of an ongoing investigation (in South Korea) is unclear. Getting antitrust authorities to investigate a company like Apple requires a mix of demonstrating a genuine competition issue, broadbased support for a formal or informal complaint, and some publicity. Leaking letters is common in this situation.

Apple avoided antitrust scrutiny a few years ago, and I'm convinced that its recent modification of subscription terms--reducing its App Store cut from 30% to 15% after the first year of a subscription--was not a voluntary act of generosity but motivated exclusively by Apple's desire to avert formal investigations. The reduction was announced shortly before last month's developer conference (WWDC) and first reported by Jim "The Beard" Dalrymple on LoopInsight.com (The Loop) and by Lauren Goode on TheVerge.

It's worth noting that Google, which could face similar complaints at some point, matched Apple's move and even went beyond: Google reduces its share of subscription revenue to 15% from the first day, not just starting with the second year. The Loop's Dave Mark wrote he was "[s]till trying to wrap [his] head around the logic of waiting 12 months before the 85/15 split locks in." Rightfully so, but it does make sense against the background of Spotify's antitrust initiative: since Spotify has been around for years, it can no longer complain about the 30% cut--by which it's no longer affected--being too high, but Apple has kept a nice bargaining chip. If that's what it takes to provide a face-saving exit to antitrust authorities, now or later, Apple can hand them a victory by letting the 85-15 split apply to new apps.

So the key question to think about in light of Spotify's letter is this: does Apple have to do more to avoid formal antitrust scrutiny? That question must be looked at from multiple angles:

  1. Are antitrust enforcers likely inclined for political reasons to do Spotify the favor it's asking for?

    I think Apple faces a pretty significant political risk, for various reasons including (but not limited to) its enormous success, its controversial tax minimization strategies, its lack of cooperation in the San Bernardino context, and the fact that Spotify as well as some of the leading game app makers (Supercell, King.com) are based in Europe (though King now belongs to Activision Blizzard and roughly 85% of Supercell's shares are being acquired by China's Tencent).

  2. Does Spotify have a genuine, meritorious antitrust case at this juncture?

    I don't think so. If one focused strictly on the facts, leaving aside political considerations and everything else, then antitrust authorities should either require Apple to expand the 85-15 split or move on.

    If Apple had not made the 15% change and were then undercutting Spotify simply by leveraging the 30% cut, that would be an issue, but the 30% no longer applies to Spotify's long-term users, so Spotify's average percentage will be far below 30%. If Apple were abusing the app review process by raising unfounded objections (of a technical, editorial or commercial nature) for the sake of having a pretext to withhold approval, I'd be on Spotify's side without hesitation. But I don't see that being the case here. Much to the contrary, I think Spotify's current behavior is abusive and the opposite of consumer-friendly.

    Essentially, Spotify wants to charge people more if they subscribe via the App Store than if they do so via Spotify's website. Apple doesn't appear to prohibit external subscriptions, and it doesn't even appear to dictate the prices of external subscriptions. But it's against Spotify charging iOS users more than Web users and promoting that fact aggressively. I understand Apple's position.

    Consumers can benefit indirectly from competition between music delivery services, but Spotify's fight for its right to set higher prices on the App Store is self-interested and, at least in the short term, bad for consumers.

  3. If someone wanted to set up a third-party App Store competitor and if Apple then prevented that third party from doing so, there could be some interesting issues, but there is no indication of Spotify or anyone else trying to do that at this stage.

Having outlined my overall position on this, I'd now like to talk about my own perspective and interests.

Just like any other app developer, I'd obviously like Apple to lower its App Store fee from 30% to 15%, for all transactions, all apps, and from Day One. However, I'm probably much more relaxed about the 70-30 split than most other people because I've been in the consumer software industry for a long time and I still remember the cost of getting your software distributed to end users 10, 20 or 30 years ago. Compared to today's environment, it was a nightmare:

  • We had to grant a discount on the order of 30% (maybe 20% or 25%, but no less than that) to any reseller who simply presented a certificate of registration of his business.

  • Large retail chains received discounts between 40% and 50%. Every year they came back to us and told us they needed more. And several times a year they demanded cooperative advertising allowances, which were (not in whole, but in no small part) a rip-off we hated.

  • Distributors/wholesalers/importers got discounts of about 60%. So instead of Apple's 70-30 or 85-15 split, it was practically a 40-60 split--almost the reverse ratio--unless you decided to hire your own sales force.

  • Even the guys with the 60% discount didn't really give us access to a global market. Many of them served only customers in one country, or maybe in a small set of countries such as the German-speaking countries. So you also had to maintain customer relationships with a large number of distributors if you wanted to sell a product around the globe. With Apple or Google, it's a one-stop solution now.

There are obvious reasons for which digital software distribution must be more favorable to software publishers than physical distribution. No warehouses, no trucks, no risk of goods being damaged. Still, access to consumers is access to consumers. Apple provides it, and I can live with those terms, though 85-15 is not only more desirable but also more reasonable from my point of view. Spotify's problem is all about the fact that Apple is competing with it, and that competition from the likes of Apple, Google and Amazon is going to be the primary concern on investors' part when Spotify goes public. As Jordan Crook noted on Techcrunch, "Spotify can only afford to hold siege against Apple for so long."

I'll probably comment on this again, maybe even repeatedly. Having been at the center of baseless conspiracy theories more than once, I'll now make some rather elaborate and forthright disclosures.

Disclosures

I've never done any work for Apple or Spotify. I'm long AAPL. I know the author of Spotify's letter, Horacio Gutierrez, back from his years at Microsoft, but haven't talked to him in a couple of years. What I can say is that Spotify got one of the very, very best corporate lawyers in IT, and probably the best fit one could have imagined for Spotify given Horacio's knowledge of IP licensing, litigation, policy, and antitrust. He and Apple's general counsel will be well-matched combatants. I disagreed with Horacio on the desirability of software patents, I agreed with him on FRAND, and for now I'm unconvinced of his allegations against Apple. I'm not saying they're totally baseless, but I don't think there is a strong case now for formal antitrust investigations. I obviously reverse the right to adjust my opinion if new facts are put on the table at some point.

As loyal readers of this blog know, I have supported Apple on FRAND licensing of standard-essential patents, I have supported it in other contexts, but I oppose attempts to extract unreasonable leverage from "dead patents walking" and share numerous organizations' and individuals' concerns over an unapportioned disgorgement of infringer's profits when design patents cover only minor visual aspects of highly multifaceted and multifunctional products.

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Tuesday, June 21, 2016

Airbus (the COMPANY, not a plane) hijacked by patent extremists, joined trolls' lobbying entity named IP Europe

With respect to standard-essential patent licensing, my preferred European voice of reason(ableness) is the Fair Standards Alliance, an organization Google recently joined and which I'd like to see Apple and Samsung team up with at some point. On the other end of the spectrum, there's a lobbying group named IP Europe. While I personally know and respect two of the individuals working for that one, I fundamentally disagree with its policy positions and object to its false claim of supporting "innovatives SMEs." IP Europe advances the cause of patent trolls and of businesses that failed in the mobile phone business for a lack of innovation and increasingly resort to patent licensing as a revenue source.

Looking at IP Europe's member list, it's generally easy to see why each of those organizations expects to gain something from overpatenting and from an overcompensation of patentees, with a couple of exceptions, however.

Orange (France Telecom) is a carrier. In the U.S., mobile carriers are usually on the reasonable side (and sometimes go too far even for my taste when making public-interest arguments in amicus curiae briefs). Does the former France Teleom plan to engage in patent trolling like its British counterpart? I don't know, but it was most likely a mistake that Orange joined IP Europe.

The other, better-known and even more surprising member is Airbus Group. The only explanation I have for Airbus's decision to join IP Europe is that an IP-incompetent senior management has allowed the patent professionals running Airbus's IP department to hijack the company in order to advance the interests of their profession rather than defend the interests of their current employer.

In the airplane business, Airbus only stands to lose from excessive patent royalties. In the defense and space businesses, patents won't protect Airbus either. In 2012, Elon Musk already explained why SpaceX (which in a few years of existence has already achieved technically more impressive feats than Airbus in its much longer history) generally doesn't file for patents.

I want my Munich area-based startup to be very innovative in its niche, but generally speaking, Europe has a huge innovation gap versus Silicon Valley. California has Elon Musk. Europe has Tom Enders. Tom who? Well, the CEO of Airbus studied politics, started his career in politics, and at a heavily-subsidized intergovernmental joint venture like Airbus, political connections are more important than anything else. Elon Musk, despite all of his amazing talents, would never get a top job at an organization like Airbus. Fortunately, he doesn't need it.

When the CEO of a company that should be technology-driven is absolutely not a technologist (but a political scientist/historian), it just takes a self-serving IP department to make the company sign up with a lobbying group like IP Europe, thereby teaming up with highly litigious patent assertion entities (PAEs)/non-practicing entities (NPEs).

One of IP Europe's key priorities--if not its number one priority--is to fight against the "smallest saleable unit" approach to FRAND license fees. Do the bureaucrats in charge of Airbus even know what that means for their business? Presumably they don't. What if someone made a Motorola-like patent royalty claim and demanded a percentage of the sales price of an entire Airbus plane over a few WiFi, video or whatever patents?

Do those decision-makers realize that the number of potentially patented "inventions" in an Airbus that third parties hold account for a vast majority of all patentable "inventions" in a modern airplane? It has been estimated that 250,000 patents are embodied in a smartphone. In practical terms, the digital entertainment and communications technology installed in today's planes is increasingly like that, and actually much bigger.

To many of you this may seem obvious, but let me explain this for the rest: there is no such thing as a software patent that guarantees stability and security. The reason: no matter what a patent may describe (with or without specificity), it can always be implemented in an unstable and insecure fashion.

Airbus has a software quality problem. Last year Airbus even admitted that a software configuration error caused the crash of a military transporter, and I vaguely remember a crash of a commercial Airbus plane many years ago that some experts attributed to a software issue. In terms of success factors in the airplane business, that is what Airbus should be focusing on. It has nothing to do with patents. Any code that is stable or unstable, secure or insecure, is protected by copyright (and trade secrets). Any configuration that is stable or unstable, secure or insecure, is a matter of quality assurance.

If Airbus focused on software quality, it wouldn't have to fear copycats. If someone copied great code, copyright (not patent) law would protect Airbus.

Airbus is the craziest example now of a company that builds highly multifunctional products and opposes the "smallest saleable unit" approach to patent license fees. But maybe Airbus is not really a company. It's more of an intergovernmental organization that is detached from economic realities because taxpayers will have to foot the bill if anything goes wrong.

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Sunday, June 12, 2016

Amicus curiae briefs in Samsung v. Apple (design patent damages): all the documents and the key points

There never was any doubt that the question of whether the infringement of a single design patent by a complex, multifunctional product warrants an unapportioned disgorgement of profits would be an extraordinarily important one. Previous rounds of amicus curiae briefs already demonstrated broadbased support. But the level of support the petition has just received at this decisive stage exceeds my expectations.

One major caveat is that Apple might still be able to orchestrate something big as well. I doubt it for two reasons, though. First, the interpretation of the law that Apple is defending in this case is not really in the interest of a lot of companies. I wholeheartedly believe that Apple itself, if it weren't the beneficiary of an outsized damages award in this particular case, would be the most logical amicus curiae supporting Samsung in this context. Second, some potential Apple allies have now declared themselves in support of neither party, stopping short of supporting Apple's position in its entirety. Some companies just want to ensure the Supreme Court won't weaken design patents too much, but they don't say the law of the smartphone should follow from the law of the spoon. And the U.S. government's position is like "we disagree with Apple on the law and on policy, but we don't want to rule out that Samsung might still somehow become the last victim of an incorrect interpretation." That's a major win for Samsung and everyone with a balanced position on the issue.

I'll now point to all of the amicus briefs filed in the first round (I'll do the same when Apple's backers file later this summer) and sum up what I consider to be their key points.

Pro-Samsung brief #1: The Internet Association, The Software & Information Industry Association, Dell, eBay, Facebook, Garmin, Google, HP, Lenovo, Motorola Mobility, Newegg, Pegasystems, Red Hat, SAS Institute, Varian Medical Systems, Vizio

20 years ago I served (for only a short time because I then founded my first startup, which I later sold to Telefónica) on the board of the Software Publishers Association (SPA) Europe. The SPA merged with another body to form the Software & Information Industries Association, which now has more than 700 members, and Ken Wasch is still its president. He's done so much for the software industry over the decades. You can find the SIIA's press release on the amicus brief here, and the amicus curiae brief here.

The brief accurately mentions "the spurious quality of many design patents." This blog hasn't talked about all the ridiculously obvious designs for which the USPTO has granted patents. Even the USPTO now regrets having originally issued Apple's D'677 patent, which covers little more than a round button. Microsoft's tiny-arrow-in-a-corner patent is no better. And that slider design patent is probably not far below the quality of the average design patent.

The brief talks about how design patents have become weaker and weaker over the centuries:

"Whatever the degree of invention in Apple's design, this example amply illustrates that even design patents belonging to major technology companies may involve only minimal, if any, advances over the prior art. Design patents in the modern era are seldom directed to fashionable carpet designs or classic Coca-Cola bottles; they are often sought, and issued, for relatively mundane design features."

On the importance of technical innovation relative to design, I like the following passage from the brief:

"To state the obvious, the investment in research and development for information and communication technologies—currently estimated at $250 billion annually—extends well beyond design to include the hardware, software, and services that are incorporated into the technological products. [...] The reason is simple: technology companies know that consumers want a product that works well, not simply one that looks good."

That's true. For example, the nice design of my iPhone 6S (now my primary phone so I can always test the latest beta version of my app) doesn't help me as much as the shortcomings of Apple's on-screen keyboard and autocomplete algorithms affect me. I use two languages, sometimes in the same message, and always have to switch between keyboards in order to get the right dictionary. And even with the right dictionary, the iPhone's autocomplete won't find the word I want to type if I mistype the first character. None of that is an issue for Android, with or without the right to build devices with round buttons, rounded corners etc.

As for statutory interpretation, I already discussed the term "article of manufacture" in a post shortly before Samsung's opening brief. The Internet Association, SIIA et al. brief contains an interesting explanation of how "article of manufacture" must be interpreted differently from a "machine." A smartphone as a whole would, of course, be a machine.

Being familiar with patent licensing and litigation tactics of always singling out the most lucrative target, I also wish to quote the following passage:

"Finally, the Federal Circuit's interpretation could lead to arbitrary results. That is because it could make the measure of damages in design-patent cases depend on the identity of the infringer. Consider, for example, the market for smartphone components. [...] If Samsung or Apple were to infringe a component manufacturer's design patent and to incorporate it in a smartphone, the component manufacturer could recover profit from sales of the entire smartphone. But if the component manufacturer were to infringe an identical patent held by Samsung or Apple, Samsung or Apple could recover damages based only the manufacturer's sales of the component. In other words, an identical act of infringement would yield two different damages awards simply because the infringers packaged their products in different units."

Pro-Samsung #2: Computer & Communications Industry Association

I have a huge problem with the CCIA's positions on software copyright, but I will always credit the organization (of which Samsung is a member) for its pioneering role in placing the emphasis on how to interpret the term "article of manufacture" in an amicus brief filed with the Federal Circuit two years ago.

The organization's new amicus brief is consistent with previous filings. One subject it discusses in more detail than most other briefs is the problem of patent assertion entities (PAEs).

Pro-Samsung #3: Engine Advocacy

Engine is a startup advocacy organization. Its list of members is really impressive, including lots of Internet household names. I've uploaded its amicus curiae brief to Scribd. In filing this letter, Engine was joined by a 3D printing startup. 3D printing is definitely an area in which excessive design patent damages could have a devastating effect.

The brief does a very good job of looking at the problem from a startup angle. It's worth noting that a Stanford Law School clinic is representing Engine here.

It's disappointing and inexplicable that no major app developer organization filed a brief. But Engine raises pretty much the same issues as app developers face.

Pro-Samsung #4: Hispanic Leadership Fund, National Black Chamber of Commerce, National Grange (rural communities)

Minority advocacy groups Hispanic Leadership Fund and National Black Chamber of Commerce once again teamed up with the National Grange of the Order of the Patrons of Husbandry (advocacy group representing America's farmers and rural communities) to voice their specific concerns over outsized design patent damages. I've also uploaded their joint amicus brief, which contains an interesting reference to historic "design patent sharks" (the predecessors of today's trolls) while pointing out that patent-abusing competitors are the worst threat:

"Indeed, this is not the first time that design patents have spawned abuse. In the late 1860s, the Patent Office experimented with allowing 'design' patents to be issued for minor functional improvements on already existing products. [...] This ill-considered effort spawned the creation of 'design patent sharks,' who took out 'design' patents on basic farm machinery like plows, shovels, and other basic farm tools, and then sued unsuspecting farmers for using the protected technology. Cases like Nordock illustrate that an overly expansive interpretation of the recovery available under Section 289 could lead to a resurgence in this patent-enabled chicanery, by allowing excessive damages to be extracted on the basis of the 'design' of what is, in essence, a purely functional article. There is thus no shortage of abusers that will exploit the availability of entire-profit damages under Section 289. Although larger companies like Apple may be unconcerned about fostering a market for such abusive conduct, because they have the resources to fend off, or buy off, even the most abusive non-practicing entities, these abusers can be expected to exact a heavy toll upon smaller, entrepreneurial companies that lack the means to effectively defend against them.

Moreover, non-practicing entities are only part of the problem. Indeed, the outsized risks associated with entire-profit awards could be even more harmful when asserted in disputes between product-producing competitors."

As for the consumer argument that certain citizens depend on affordable smartphones to a greater extent than others, and that minority businesses on average have a disadvantage in terms of resources to fend off threats, the brief provides statistical facts that lend those claims significant credibility--even in my eyes, though I'm not easily persuaded by minority arguments (for example, I think Apple simply doesn't need a minority quota for its Board of Directors, and if affirmative action ever made sense, I believe we're way past the point where it did).

Pro-Samsung #5: Electronic Frontier Foundation, Public Knowledge, R Street Institute, American Antitrust Institute, IP Justice

The EFF is far too anti-copyright for my taste, and I find its positions on Oracle v. Google misleading and troubling beyond belief. However, its patent policy positions aren't nearly as radical as its views on copyright. On patent policy, the EFF is fairly balanced and reasonable. With respect to design patent damages it has partnered with some other advocacy groups. The EFF's press release can be found here, and it contains a link to the brief.

The EFF habitually bashes the Federal Circuit. Here, however, it does have a point that a patent marketing decision gave rise to a cottage industry of trolls:

"The case thus described was Forest Group, Inc. v. Bon Tool Co. and related to patent marking, but it could be the present design patent damages case in five years' time if history is any guide."

Pro-Samsung #6: Software Freedom Law Center

Despite strong reservations concerning the Software Freedom Law Center, I have uploaded its brief, which uniquely raises a free-speech issue in connection with design patents. I'd be extremely surprised if this argument got traction with the Supreme Court.

Pro-Samsung #7: 50 intellectual Property professors

The list of intellectual property professors supporting Samsung has grown over time: now there are 50 academics who signed the latest brief, including a number of very well-known ones. This is a very persuasive passage (and just an example; there's more of that in the brief):

"Nor does all, or even most, of the value of a product normally come from patented designs. People don't buy iPhones for their appearance alone; they buy them for their functions. Those functions contribute substantially to the phone's value and they are covered by many utility patents.

Indeed, by one estimate, there are 250,000 patents that arguably cover various aspects of a smartphone. To conclude that one design patent drives the purchase of the product, and therefore that the defendant's entire profit is attributable to infringing that patent, is to say that none of those functional features contribute anything to the value of the phone – a ludicrous proposition."

Neutral #1: Bar of the City of New York

The New York City bar association filed a brief in support of neither party. It raises two distinct issues. The first part is just about generating more business for lawyers even if it's against the public interest; they want Section 289 (disgorgement) to be deemed an additional, not alternative remedy to Section 284. The second issue is, of course, also just in the interest of lawyers: they argue that "a design patent holder's monetary recovery under section 289 should be on a sliding scale from $250 up to the extent of the infringer's profits, with the precise value being determined based on the facts of each particular case."

While the motivation is very transparent here (just more business for trial lawyers and for lawyers writing and responding to demand letters), the fact that these New York lawyers think the statute leaves room for different interpretations benefits Samsung.

Neutral #2: BSA | The Software Alliance

The organization formerly known as the Business Software Alliance (originally created by Microsoft, which is currently trying to get leverage out of design patents of questionable quality). I've uploaded its brief, which is vague and weak.

It doesn't address Apple's smartphone case patents (two of the three design patents at issue in the case) and focuses on screen design patents (which one of the patents-in-suit is):

"Design patents provide an essential element of legal protection for software innovations. This Court should ensure that design patents in the software context receive appropriate protection against infringement."

This is like saying "please don't take an extreme position on screen design patents" without clearly advocating affirmance or any particular rule or policy.

One reason (and not the only one) why the Supreme Court shouldn't take that filing seriously is that it's rather unclear to what extent the BSA's members even back that filing. It may just be the lowest common denominator, but it's probably even less than that. Dell and SAS Institute support the Internet Association/SIIA/Google brief. Salesforce and Intuit are not only BSA but also Internet Association members.

Neutral #3: Nike

Nike would have been a first-rate ally for Apple, and the fact it has declared itself neutral with respect to screen design and smartphone case patents is a huge lost opportunity for Cupertino:

"As the owner of more than two thousand active design patents, Nike holds the third largest portfolio of design patents in the United States."

Nike's brief focuses entirely on the relevance of design patents to its business:

"In consumer product markets and in fashion industries, including the highly competitive market for athletic footwear and apparel, product designs are often a key factor driving sales. Consumers largely choose products with designs that appeal to them and reflect their aesthetic sensibilities, their personalities, and the image they wish to convey to those around them."

As to statutory interpretation, Nike appears close to Apple's position (it wants the "total profit" rule to remain in place):

"The reality of facing a´substantial, actual damages award is a deterrent to would-be intentional infringers, making it less likely that intellectual property owners like Nike (as well as law enforcement agencies) will need to expend significant resources addressing knockoff products. Conversely, if the Court were to water down the remedies provided under Section 289, it would embolden potential infringers to treat the risk of an infringement judgment as simply the price of doing business, and one that can be managed by advancing arguments as to the appropriate apportionment of costs."

You'd be hard-pressed to find a bigger supporter of the idea of deterrence than me. For example, I'm part of a small minority of Europeans supporting the death penalty and the "castle doctrine." But even I don't think the end of deterrence always justifies the means. Here, what Nike wants is for my industry to suffer so that Nike enjoy a maximum degree of leverage over infringers. Sorry, but this is not only a sports apparel world.

Here's a couple of particularly unconvincing passages:

"[Reversal of the Fed. Circuit] would also create, for the first time in more than a century, a host of difficult questions of first impression that courts would have to resolve without guidance from Section 289's text."

If that's what it takes for the law of the smartphone to be different from the law of the spoon, then that's just simply necessary. But Nike totally overstates the problem anyway. Courts have to deal with apportionment all the time, such as in connection with standard-essential patents.

"For design patents, the risk of innocent infringement is low."

The average Nike shoe is more intelligent than that sentence. Tiny arrows, round buttons, rounded corners etc. are examples of how ridiculously broad many design patents are, and when patents are overbroad, incidental infringement is more frequent than willful infringement. To Nike's credit, a different passage limits the rarely-innocent-infringement claim to its own industry:

"The scenario that Congress feared is particularly real in markets such as the footwear and apparel market, where products sell at a fast pace and in high volumes, where innocent infringers are rare, and where product lifecycles are short. In such markets, infringers can effectively divert innovators' profits by entering and exiting the market swiftly in hopes that innovators will not detect the infringement in time or find enforcement worth the cost."

Just one last misguided part (of many) of Nike's filing:

"The validity of issued design patents can be challenged in an administrative 'inter partes review' proceeding before the United States Patent and Trademark Office (35 U.S.C. § 311(a)), and in a 'post-grant review' proceeding within nine months after a design patent issues (id. § 321)."

Yeah, it just takes so many years that it doesn't help much if devastasting remedies are imposed in the meantime. Look at this Apple-Samsung case: the D'677 patent is a dead design patent walking, but Apple will exhaust all appeals.

Neutral #4: Department of Justice

The federal government of the United States, represented by the Solicitor General, agrees with Samsung that the Federal Circuit and Judge Koh got the law wrong, but leaves the door open to a finding that Samsung failed to present the evidence necessary to benefit from the correct interpretation. I've also uploaded the DoJ's brief.

The legal argument that the Justice Department supports is the one relating to the term "article of manufacture":

"Although Section 289 entitles the patent holder to recover the infringer's 'total profit' on the 'article of manufacture' to which the design was applied, that 'article of manufacture' will not always be the finished product that is sold in commerce. Rather, the relevant article will sometimes be a component of the ultimate item of sale. In such cases, the patentee is entitled only to the infringer's total profit for that component, not its total profit for the finished item."

"[T]he term 'article of manufacture' literally encompasses all manufactured objects—both complete products and components—and it has historically been understood to include both. When the product whose sale gives rise to in-fringement liability is made up of multiple components, the factfinder must determine whether the 'article of manufacture' to which the defendant has applied the patented design is the entire product as sold, or a component of that product."

"If the product contains other components that embody conceptually distinct innovations, it may be appropriate to conclude that a component is the relevant article."

The DoJ also warns against the practical consequences of affirmance:

"The Federal Circuit's contrary approach, under which the relevant 'article of manufacture' is invariably the entire product as sold, would result in grossly excessive and essentially arbitrary awards."

"From a potential defendant's perspective, the consequences of the Federal Circuit's rule could be draconian."

Nike won't like the following:

"To be sure, even in cases involving unitary (i.e., single-component) items of sale, Section 289's 'total profit' standard may sometimes produce awards that are disproportionate to the commercial significance of the patented design."

Presumably for political reasons, the DoJ didn't want to support Samsung all the way against the most profitable U.S. company:

"Although the district court's jury instructions equated the term 'article of manufacture' with the finished smartphones, it is unclear whether petitioners produced evidence supporting their assertions that components of the phones should be considered the relevant articles of manufacture."

I don't have access to the complete record of the case. As far as I've been able to monitor the proceedings from a distance, Samsung repeatedly argued in favor of apportionment, so I guess there's enough in the record. And let's not forget that Samsung argues Apple failed to present evidence in this regard.

Apple has achieved that the DoJ isn't against the notion of a one-time windfall profit for Apple, but has failed to persuade the DoJ that the legal standard Apple is defending here is in the interest of the U.S. economy at large.

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Tuesday, June 7, 2016

Design patent absurdity on display as Samsung points Supreme Court to Microsoft suit over tiny arrow

Last week I provided an overview of the key issues in Samsung v. Apple, Samsung's appeal to the Supreme Court of Apple's design patent damages win. Thanks to CNET, Samsung's opening brief has meanwhile been published (this post continues below the document):

Samsung opening brief in Apple case at US Supreme Court by CNET News

That opening brief is really very interesting. Recommended reading. I'll talk about the issues it raises and the points it makes over time. The next procedural step is for "friends of the court" supporting Samsung (or supporting neither party) to file their submissions tomorrow.

The first part of Samsung's opening brief that I wish to comment on underscores the need for a Supreme Court ruling that will, hopefully, restore sanity. Otherwise, a company might have to disgorge its total, unapportioned profits from the sale of a product only because it uses a tiny arrow like this one (this post continues below the image):

This is one of the patents Microsoft is presently asserting against Corel. Last summer I reported on Corel drawing first blood by suing Microsoft over a bunch of preview-related patents. A few months later, Microsoft retaliated with the assertion of six utility patents and four design patents. The Electronic Frontier Foundation named one of Microsoft's design patents-in-suit the "stupid patent of the month" of December 2015 because it merely covered the design of a slider. But that patent isn't nearly as bad as U.S. Design PAtent No. D550,237, which practically just covers a tiny arrow positioned in the lower right corner of a rectangle. If you look at the drawings, particularly this one, note that the dotted lines mark the parts that aren't claimed. What's really claimed is just a rectangle with another rectangle inside and that tiny graphical arrow in the bottom right corner.

If the EFF considered the slider patent the stupid patent of a given month, it might as well consider labeling the tiny-arrow-in-a-corner patent the stupid patent of the century.

This is not about Microsoft-bashing. It's all about a systemic problem.

If the world's largest software maker, with an annual R&D budget on the order of $10 billion, countersues a smaller software company and 40% of its assertions are design patents, one of which covers a tiny arrow in a corner, it's clear that the legal uncertainty currently surrounding design patent damages due to the decisions made in Apple v. Samsung by the Federal Circuit and the district court makes design patents disproportionately "valuable" since litigation is all about getting leverage.

As Samsung's lawyers put it in their opening brief, "the entire-profits rule for design-patent infringement makes the value of any single design patent, no matter how minor or trivial, greater than the value of all the utility patents in a smartphone or other technological device combined. The rule thus encourages companies to focus research and development on design patents rather than technologies. As one commentator [Prof. David Opderbeck, Seton Hall University] put it, ''the Federal Circuit's ruling could allow design patent law to swallow utility patent law, making the ornamental design more important than the underlying technology.'""

The following section of Samsung's brief discusses the "disastrous practical consequences" of the Federal Circuit ruling (if it was affirmed):

"The rule would create extreme asymmetry between design patents and utility patents, which are governed by ordinary rules of causation and proportionality. By making the most trivial design patent worth exponentially more than the most innovative utility patent, the rule would distort the patent system and harm innovation and competition. The rule would encourage companies to divert research and development from useful technologies to ornamental designs. It would encourage design-patent holders to litigate even weak infringement claims in a quest for outsized awards. And it would encourage non-practicing entities to use design patents as the next big thing for extracting holdup value from targeted businesses, with such extortionate demands posing especially grave threats to small businesses for whom a single design misstep could be an existential threat. Congress could not have intended any of these results."

Apple and Microsoft, two highly profitable technology companies, may see short-term value in design patents. They may hope that design patents just give them the leverage they need to obtain favorable settlements/license deals. But in the long run, nobody except for patent trolls and failed businesses will really want any of those disastrous things to happen.

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Tuesday, May 31, 2016

Filing deadline tomorrow: Samsung to make its case against total-profit disgorgement over design patent infringement

More than two months ago, the Supreme Court of the United States granted Samsung's petition for writ of certiorari (request for top-court review) regarding design patent damages, which was supported by Google, Facebook and other tech giants. Tomorrow, Samsung has to file its opening brief. At this level of proceeding the parties' positions, theories and arguments are largely known, but it will be very interesting to see what priorities they set, what case law they can find in support of their positions, and which amici curiae ("friends of the court") will support them.

In terms of potential impact on the economy, this case is about a lot more than the roughly $500 million (just for an order of magnitude) in play between the two parties. Based on Apple's position that a disgorgement of infringer's profits over a design patent shouldn't be apportioned, it would be theoretically possible that the owner of a design patent covering the shape of an icon or a screen layout could claim infringement by a single pre-installed iPhone app and sue Apple for (if the alleged infringement has been ongoing for many years) an amount like $100 billion. And under Apple's standard, the court would have to instruct the jury that the $100 billion amount is, at a minimum, the proper starting point. Yes, no company in the world potentially stands to lose nearly as much from affirmance as the very party that is pushing for it: Apple. That fact is no less an absurdity than an inflexible interpretation of the statute in question.

But in two respects, Apple has already won. No matter what the damages award will ultimately be, Apple's design patent enforcement, which began about five years ago, has presumably contributed to Samsung now making its products more distinguishable from Apple's products. It may also have influenced others. The second respect in which Apple has won is that the Supreme Court granted only one of the two parts of Samsung's petition, but that didn't come as a huge surprise since the part on design patent damages had way more momentum (also in terms of amicus briefs) than the part on claim construction. Theoretically, claim construction could have had a devastating impact on Apple's design patent case (because it could have resulted in findings of invalidity and/or non-infringement). But let's stay focused on what actually is before the Supreme Court now.

Unless Samsung's legal strategy surprisingly changes with tomorrow's filing, it's foreseeable that the key parts to analyze will be two meta-level arguments and two key terms in the relevant statute:

Background principles of causation and equity

If the Federal Circuit's interpretation of the statute was affirmed, design patent damages would be a total outlier in the context of remedies for intellectual property infringement. An unapportioned disgorgement of infringer's profits is not available for utility (i.e., technical) patent or copyright infringement, to name but two examples. And that is so because a strong causal nexus between an infringement and a related monetary award is really a cornerstone of U.S. intellectual property law (and even of tort law in general).

In its cert petition Samsung already told the Supreme Court that "Congress could not have intended design-patent damages, alone among all forms of intellectual-property remedies, to be exempt from ordinary principles of causation and proportionality."

Absurd results must be avoided

Samsung's cert petition mentioned the "absurd" result of an unapportioned disgorgement of infringer's profits several times, such as in the following passage:

"As noted, the Federal Circuit's contrary interpretation of Section 289 produces absurd and anomalous results. The Federal Circuit's holding would require awarding Apple all of Samsung's profits for sales of a smartphone containing any Apple design patent, even a trivial one. And under this holding, profits on an entire car--or even an eighteen-wheel tractor trailer--must be awarded based on an undetachable infringing cup holder."

Neither the Federal Circuit nor Judge Koh ever said that the result was not absurd. Those courts basically just said: "Whether it's absurd doesn't matter, it's the law of the land." Apple just tries to distinguish examples of absurd results (like the cup holder mentioned above) from its Samsung case, but it doesn't explain how absurd outcomes could be avoided if its proposed interpretation was affirmed.

At this stage I guess the question of lawmakers' intent is going to be very important. Samsung's cert petition already quoted from Congressional deliberations. In a dispute over statutory interpretation, it can tip the scales in favor of a common-sense interpretation if there is an indication that today's common sense and the common sense at the time the law was made are consistent. Apple's message is going to be: "Even if you philosophically agree with Samsung, you have to legislate from the bench to reverse the Federal Circuit." Samsung will then benefit from being able to say: "You would simply interpret the law the way Congress intended."

Lawmakers have always been aware of the potential use of their statements in statutory-interpretation disputes and sometimes make certain statements on the record with a view to this. In fact, Eva Lichtenberger, a Member of the European Parliament, told me in 2005 about a carefully-crafted statement she made in the final Legal Affairs Committee debate on software patents because it might help in the event of an ambiguous outcome.

Article of manufacture

Two years ago I agreed with the Computer & Communications Industry Association (CCIA), an industry body I don't always agree with, on the term "article of manufacture" being potentially key to a reasonable interpretation of 35 U.S.C. § 289, the design patents disgorgement paragraph. Here's the first sentence from that paragraph (emphasis added):

Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties.

Apple says, and the Federal Circuit and Judge Koh said, that the relevant "articles of manufacture" in this case were various Samsung phones. But the whole problem would go away if "article of manufacture" was interpreted more narrowly, given that two of the design patents in question relate to only the outer cases of smartphones.

This argument reminds me of the "smallest salable unit" argument in the FRAND (fair, reasonable and non-discriminatory) licensing context. Oddly, Apple and Samsung/Google were standing on just the other foot at the time. Samsung and Google's Motorola demanded percentages of the entire price of an iPhone, but Apple (and with respect to the Xbox, Windows and other products, Microsoft) disagreed. I was on Apple's side then, I'm on Samsung's side this time around, but that's because I'm consistent, which those guys aren't (large corporations just have too many disputes to be consistent).

In connection with standard-essential patents, Motorola demanded 2.25% of the "price of the end product" and specifically clarified that this meant "e.g., each Xbox 360 product, each PC/laptop, each smartphone, etc." as opposed to "component software (e.g., Xbox 360 system software, Windows 7 software, Windows Phone 7 software, etc.)." It was outrageous, but at least it was clear. If Motorola could have just said "article of manufacture" to send out the same message, it would have done so. But "article of manufacture" doesn't mean the maximum royalty base imaginable. It doesn't mean "end product from consumer point of view" or anything like that.

Profits made from the infringement

The second part of the statute also contains a term that can be interpreted in a certain way to achieve a reasonable result (emphasis added):

Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement.

While this is just the passage on double recovery, the highlighted term can nevertheless be understood to be a description of the recovery the first sentence allows. (How could it not be?)

A "profit made from [an] infringement" is a narrower definition than "profit indirectly related in part to an infringement." It also suggests that the question of causation cannot simply be kept out of the design patent damages analysis the way the Federal Circuit and Judge Koh did.

In summary, there are ways in which the Supreme Court can restore sanity if it wants to, and that's the case Samsung is going to have to make in its opening brief tomorrow, in its reply brief a few months later, and at the Supreme Court hearing in the fall or winter. Apple's first-rate lawyers are going to give Samsung a run for the money, of course.

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Thursday, May 26, 2016

Oracle v. Google: jury finds in favor of "fair use," as no reasonable, properly-instructed jury could have

Courtroom tweeters in San Francisco have just reported that the Oracle v. Google retrial jury has found in favor of Google, i.e., has determined that Android's use of the declaring code and structure, sequence and organization of 37 Java APIs is "fair use."

This is the outcome of a rigged (for emotional, not financial reasons) retrial. It's absolutely wrong. This here is a far cry from anything any appeals court ever deemed to constitute fair use.

At the outset of the trial, I had already predicted that the jury was more likely than not to find for Google. I said 55%-60%. That was based on the fact that pretrial decisions by Judge Alsup had already favored Google, and his jury instructions on the "fair use" rules were unbelievably unfair and biased. They made it sound like the hurdle for "fair use" was rather low, while it's actually just meant to be an EXCEPTION (and copyright protection is the norm).

Also, while Google was able to present all of the "evidence" and testimony that helped its defense, Oracle had been precluded from presenting the entirety of its willful-infringement evidence.

Presumably, Judge Alsup will deny Oracle's motion for judgment as a matter of law (JMOL), if his jury instructions are any indication. Then Oracle will appeal again. I predict Oracle is very likely to succeed once again on appeal.

Judge Alsup has already said he knows there will be appeals. Last time, Oracle's appeal didn't end well for him. What the circuit judges said at the appellate hearing was anything but flattering for him.

I almost forgot to mention, before going to bed (and I'll sleep well because all's well that ends well), that a jury verdict obviously has no precedential relevance of any kind. As I wrote before the trial even started: this trial wasn't going to resolve the question of unlicensed, incompatible API reimplementations either way. Several hours before the verdict I said on Twitter that trial courts are the WRONG forum to resolve overarching, big issues--and especially in this case.

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