Monday, July 22, 2019

New USPTO trial practice guidelines overshoot as they seek to restrict parallel PTAB IPR petitions challenging the same patent

Since taking office, Undersecretary and United States Patent & Trademark Office (USPTO) Director Andrei Iancu, who previously managed a major patent litigation firm, has been on a crusade against inter partes reviews of issued patents by the Patent Trial and Appeal Board (PTAB). It will take more than one blog post to explain and comment on Director Iancu's various anti-IPR initiatives, all of which share a common goal: to keep as many weak patent claims alive as possible, contrary to the political goal of the economically most important part of the America Invents Act (AIA). Giving leverage to patent holders even though the asserted patents were obtained without an actual contribution to the state of the art is a total misallocation of resources and incentivizes legal gamesmanship while discouraging true innovation.

This month, the USPTO published the latest update to its PTAB Trial Practice Guide (PDF). The section on "Parallel Petitions Challenging the Same Patent" starts on page 26, and its first paragraph is already very telling:

"Based on the Board's prior experience, one petition should be sufficient to challenge the claims of a patent in most situtations [sic]. Two or more petitions filed against the same patent at or about the same time (e.g., before the first preliminary response by the patent owner) may place a substantial and unnecessary burden on the Board and the patent owner and could raise fairness, timing, and efficiency concerns. See 35 U.S.C. § 316(b). In addition, multiple petitions by a petitioner are not necessary in the vast majority of cases. To date, a substantial majority of patents have been challenged with a single petition."

I don't mean to attach too much importance to the typo ("situtation") in the first sentence. I usually have typos in my posts. But in an official document of this kind, typos are unusual, and most often found in sections that underwent edits until shortly prior to publication. That said, the issue here is one of substance.

The "substance" of that paragraph just amounts to vague terms expressing frequencies of occurrence ("most", "vast", "substantial", "rare", "unlikely"). Not even numbers. Just words.

As a matter of policy, that's not the way to provide workable and meaningful instructions to judges. Judges have to make decisions, and they need criteria, possibly examples, that help them do their job. Words like "most" and "unlikely" don't constitute or properly describe criteria, much less a standard, for anything.

What should the PTAB judges do then? Should they keep statistics of the cases before them and strive for a particular distribution of decisions, based on whatever range of percentages a given judge believes to be consistent with guidelines like "unlikely" and "substantial majority?" So after someone grants two petitions challenging the same patent, they'll have to reject at least the next ten?

When outsiders like bloggers or financial investors (especially risk arbitrageurs) try to predict an outcome, it's an inherently probabilistic exercise. But applying the law is different from placing bets on one outcome or the other. It should be all about the merits, not a numbers game.

The section on parallel petitions has many more paragraphs, and some do talk about criteria for whether a petition should be granted, with a particular emphasis on reasons weighing in favor of rejection. But before the reader reaches that point, the new Trial Practice Guide takes the position that two parallel petitions challenging a given patent should be "rare," and three or more should be "unlikely" to be justified--"unlikely" regardless of how many claims a patent has, how complex the relevant technology is, or how many prior art references are presented.

The good news here is that the PTAB judges can still grant parallel petitions if they deem them justified. But Director Iancu will achieve his objective of dissuading many petitioners from even trying to bring parallel petitions now.

I can think of at least four reasons why parallel petitions are sometimes not only justified, but even necessary:

  1. There are maximum word counts for PTAB petitions and related filings. However, some patents have so many claims that parallel petitions are necessary. Qualcomm's envelope tracker patent is a good example: it was challenged by four petitions, each of which targeted different claims. And all four petitions were granted based on a likelihood of having merit.

  2. Petitions are typically brought in response to infringement lawsuits, and such petitions must be filed within a year of the complaint. However, plaintiffs often have more time to decide which claims to ultimately take to trial, so defendants should be able to challenge all claims of an asserted patent.

  3. In light of the Supreme Court's SAS ruling, the USPTO should actually welcome a partitioning of IPR petitions. Under SAS, all challenged claims must be reviewed even if a likelihood of success has been identified with respect to only one of them. Multiple petitions per patent, however, are a means of still giving the PTAB some flexibility.

  4. Sometimes defendants identify additional prior art references after an initial petition.

The PTAB's enemies such as former Federal Circuit Chief Judge Randall Rader have used the highly pejorative term "death squad" because of a high invalidation rate (80%). Here again it should be about the merits, not about the numbers. The proper conclusion from a high invalidation rate would be to reject more applications in the first place. Instead of greater legal certainty through higher patent quality, Director Iancu's vision is to have ever more patents (including junk patents), ever more litigation, and ever more leverage for patent holders because defendants will face many roadblocks such as page limits, maximum word counts, the next best thing to a prohibition of parallel petitions, unfavorable claim construction standards, and so forth. While some (such as the firm Mr. Iancu used to run) stand to gain from such policies, it's bad news for legitimate innovators, for the economy at large, and for the general public.

It's very, very hard to convince a jury that a patent should be deemed invalid. Jurors have too much respect for "the Government" in a context like this. PTAB IPRs, however, can solve the problem, unless the process is sabotaged by means of a Trial Practice (Mis)Guide.

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Friday, July 19, 2019

Vestager serves Qualcomm a double whammy for dessert: second EU antitrust fine in as many years

The term of the Juncker Commission is nearing its end, and while I'm far from enthusiastic about his successor, I'm relieved that neither that conservative-in-name-only Weber nor "Poor Man's Bernie" (Timmermans, who's less reasonable than the real Senator Sanders) got the top job. However, my preference among reasonably likely candidates would have been Margrethe Vestager, the EU's competition commissioner, as I made clear on social media, despite disagreeing with some parts of her regulatory activism, such as the "state aid" case against Ireland and certain aspects of the Android case.

Last year I wrote that Qualcomm "won" the "Antitrust Grand Slam" when the European Commission joined the U.S. Federal Trade Commission and a couple of Asian regulators in fining Qualcomm. The Commission imposed a fine of €997 million ($1.2 billion) over exclusionary conduct in the years 2011-2016 when Apple was precluded from sourcing baseband chipsets from Qualcomm's competitors such as Intel. That exclusive dealing is one of the four counts on which the U.S. FTC defeated Qualcomm in court this year (my previous post discussed some support Qualcomm got for its motion for an enforcement stay).

Yesterday's fine, based on a supplemental Statement of Objections that came down in July 2018, amounts to "only" 242 million euros (272 million U.S. dollars), so it now got a "double whammy" from the EU. The latest one is about predatory pricing. At first sight, that's counterintuitive. We all know that the allegations usually brought against Qualcomm, besides exclusive dealing, are all about maximizing revenues even in the very short term, not just for the long haul. However, we have to keep in mind that Qualcomm is not just "a monopoly" (in the sense of U.S. antitrust law; over in the EU, this is called "market dominance"), but a dual monopoly: its SEP portfolio bestows monopolistic rights (not only on Qualcomm but also on any other patent holder, provided at least one patent in a portfolio is truly standard-essential), as does its position in certain segments of the chip market, and those monopolies are mutually-reinforcing as a result of Qualcomm's practices.

So even if Qualcomm (now quoting an EU Commission statement) "sold certain quantities of three of its UMTS chipsets below cost to Huawei and ZTE, two strategically important customers, with the intention of eliminating Icera, its main rival at the time in the market segment offering advanced data rate performance," it doesn't mean that phones became cheaper or that Qualcomm lost money on those devices in the short term. Much to the contrary, we can assume that Qualcomm was able to easily afford price dumping on those low-end chipsets because it would impose its patent tax on those devices anyway (even if those device makers had used non-Qualcomm chips).

Having said that, the second EU antitrust fine imposed on Qualcomm during Mrs. Vestager's first term is perfectly consistent with findings by various antitrust regulators around the globe, and with Judge Koh's landmark ruling.

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Patent enforcement against delivery of non-executable data: Federal Circuit more balanced than Germany's Federal Court of Justice

The Munich-based CIPLITEC (Center for Intellectual Property Law, Information and Technology) is a recently-created forum for an exchange of views between the leading Bavarian law schools and practitioners. Yesterday, Dr. Ralf Uhrich, in-house patent litigation counsel at Google and in charge of all European patent infringement cases to which Google is a party (always as a defendant unless I missed something), gave a talk at Ludwig Maximilian University, as per CIPLITEC's invitation, on the subject of "patent protection for data." I had previously seen Dr. Uhrich at various German patent trials while he was a Quinn Emanuel associate, and at a couple of conferences in the area.

As a result of CIPLITEC's inclusive approach, there were 200 or 300 people in the audience as per my estimate; most of them were students, but I also spotted a number of law professors, patent attorneys, and patent litigators. In response to strong demand, this event had to be moved to a larger room than the one they had originally reserved. I attribute this to the topic, to many people's interest in Google's views (though one of the organizers stressed that Dr. Uhrich was expressing his personal views as opposed to engaging in advocacy on his company's behalf), and to Dr. Uhrich's great personal reputation in the German legal community. By the way, if you didn't know who he is, you might be led to believe he's the younger and smarter brother of Liverpool FC manager (and this year's UEFA Champions League-winning coach) Juergen Klopp.

The starting point for the presentation was the European legal framework for patent-eligible subject matter: Article 52 of the European Patent Convention (EPC). As Dr. Uhrich explained, the exclusions set forth there appear broader than they are applied when it comes to entire patents: a token reference to a computer or even just a storage medium salvages a claim, but non-technical claim limitations (though a more efficient use of computing resources is considered technical) are irrelevant to a novelty or inventiveness analysis. Having campaigned against software patents in the EU, my personal view is that the European Patent Office as well as national courts act as if Art. 52 EPC didn't exist as far as entire patent claims are concerned, and while the situation is indeed substantially better with respect to what counts in a novelty or inventiveness context, the statutory exclusions have simply been gutted. A 1969 decision by the Federal Court of Justice of Germany, Rote Taube ("Red Dove"), defined technicity as the planned use of controllable forces of nature for the purpose of achieving a specific result, and on that basis it would be possible to distinguish a software-controlled braking mechanism or other advanced in an applied natural science from pure advances in software such as more efficient memory (or bandwidth) usage through data compression.

The good news in the early part of Dr. Uhrich's presentation was that even the EPO doesn't grant patents that claim a data structure per se. So the issue here is not one of patentable subject matter in the strictest sense, but of the scope given to patent claims at the enforcement stage. To share the bad news upfront, the effect of an overreaching infringement theory can be just as bad as straightforward patent claims on data formats. But, at least for now, the related case law in the United States is fundamentally better than in Germany, though this may be attributable in no small part to the historic happenstance of what cases were put before the courts in what sequence--and what questions for review the parties raised.

Just so there is no misunderstanding: Dr. Uhrich's academic talk was nonjudgmental, so when you find words like "good news" and "bad news" here, rest assured they're just my opinion. He may or may not agree depending on context.

The enforcement-related main part of Dr. Uhrich's talk started with a 19th-century holding by the German Reichsgericht (Imperial Court), Methylenblau, involving a patent covering a chemical manufacturing process that was employed outside of Germany, but the resulting product entered the German market. The key doctrine there was that the scope of protection of a manufacturing patent potentially extends to the output if the substance so produced is an integral part of the patented process. On that basis, the Reichsgericht remanded the matter to the trial court.

The legal tradition that started with Methylenblau wouldn't have had to inevitably lead to a high-court decision, more than a century later, that data sequences generated by a patented data processing operation are afforded the same degree of protection (potentially, as it's always subject to the specific facts of a case). Not only is there a fundamental difference between physical goods and non-physical data but what makes this doubly unreasonable is the blatant inconsistency of such an outcome with the statutory exclusion of patents on "computer programs as such." Unfortunately, it nevertheless happened.

In 2012, the Bundesgerichtshof (Federal Court of Justice of Germany) handed down a decision on whether data storage media manufactured outside of, but imported into, Germany might infringe a video encoding patent, EP0630157 on "systems and methods for coding alternate fields of interlaced video sequences," a patent declared essential to the MPEG 2 video standard. While the patent holder lost the case due to a combination of other reasons, particularly patent exhaustion (the video data was generated with a licensed tool), the decision held that the case could not be dismissed on the grounds of the accused products containing data sequences as opposed to an encoder (be it a physical device or a piece of software).

I have read the MPEG-2-Videosignalcodierung (MPEG 2 video signal encoding) decision, and there is no reference in it to the statutory exclusion of patentable subject matter under the EPC, suggesting very strongly that counsel for defendant didn't raise this point with the top court. German patent litigators rarely recur to the Article 52 exclusions as they have been rendered as meaningless as I explained above when it comes to entire patent claims. Many of my allies in the movement opposing software patents suspect that patent litigators wouldn't even want Article 52 to be given meaning since it would discourage the filing of many patent applications and infringement cases in the first place. Whatever the reason may be, I had a conversation in 2014 with a Federal Court of Justice patent judge (who was on the panel of five judges who made the MPEG 2 decision, though one never knows where a member of a German panel actually stood since there is no such thing in Germany as a dissenting opinion), and I mentioned my opposition to software patents. He noted that their decisions are often misunderstood as being exceedingly permissive in this regard just because the questions put before them--which may just be about novelty or inventiveness, for instance--don't even enable them to address subject matter. I'm still grateful for a very interesting conversation on a train ride from Bayreuth to Nuremberg after a conference, so I don't want to criticize the Federal Court of Justice for a decision that I regard as inconsistent with the letter and the spirit of Article 52 EPC. However, I would strongly encourage other litigants (knowing how many litigators read this blog) to raise the Article 52 question when the opportunity arises in connection with patent enforcement against pure byte sequences.

One of the reasons for which I believe it would be worth trying is that, as Google's Dr. Uhrich explained yesterday, the Federal Court of Justice seized the opportunity afforded to it by a non-digital patent case, Rezeptortyrosinkinase II, to clarify (well, there's a floating border in case law between clarifications and corrections) that the MPEG 2 doctrine doesn't cover just any information resulting from a patented process. In that case decided in 2016, the Federal Court of Justice did not see a patent infringement in the mere communication of the result of a medical analysis from the country in which the analysis is performed to the country in which the process is protected by a patent. In that case, the result was basically just a binary yes-or-no piece of information on whether a certain medical condition was present.

The relevant line-drawing is centered around the question of whether the transmitted data bears actual and technical characteristics engraved by the patented process. In the case of MPEG 2 video data, that was deemed to be potentially the case as the encoding process results in a particular data structure. Apart from the general concerns I raised above, I do have an MPEG-2-specific concern, which is that the key characteristic of MPEG 2 is "lossy" compression, so at least to the extent that data is removed (so as to allow for more efficient compression), it's hard to see how it can simultaneously be "engraved." However, despite disagreeing with the MPEG 2 doctrine, I certainly see the difference between a specific data format on the one hand and some abstract information on the other hand.

However, it will take more decisions to get a better idea of where exactly the line is drawn (and ideally one of the cases would eliminate the problem on the basis of Article 52 EPC). In the Q&A part, I brought up a case I had watched in Mannheim earlier this decade. A cellular standard-essential patent covered an algorithm for calculating a number sequence used as a key (like a cryptographic key) for mathematical operations that transformed data (the data to be sent over the wireless network) in a way that minimized undesirable physical effects at the radio frequency level. The key was clearly standard-essential, just like a cryptographic key prescribed by a security standard would be; but the asserted patent claim, in the preliminary opinion of the panel of judges, probably wasn't because the accused baseband chipsets simply had the number sequence hardwired instead of performing the patented process to derive them. That case was somewhere in the middle between MPEG 2 and Rezeptortyrosinkinase II, but never reached the higher courts due to a settlement.

Thankfully, Dr. Uhrich also drew a comparison between German and U.S. case law on patent enforcement against data sequences. In Bayer v. Housey Pharmaceuticals (2003), the United States Court of Appeals for the Federal Circuit affirmed the dismissal of an infringement claim because "infringement under 35 U.S.C. § 271(g) is limited to physical goods that were manufactured and does not include information generated by a patented process, and because the physical goods here (drug products) were not 'manufactured' by a process claimed in the asserted patents." The opinion was authored by Circuit Judge Timothy Dyk, joined by then-Chief Judge Mayer and now-Chief Judge Prost.

The term "manufacture" plays a key role in U.S. patent law. As some of you may remember, it was key to the Samsung v. Apple Supreme Court appeal related to the "article of manufacture" based on which a design patent holder would be entitled to an unapportioned disgorgement of an infringer's profits. The term "manufacture" alone, coupled with an almost-originalist interpretative standard that takes into account what lawmakers really meant way back when, enabled the Federal Circuit to decide against what would have been a similarly expansive school of thought as the one of the Federal Court of Justice of Germany.

Here comes Judge Sharon Prost again, who in most contexts (with exceptions like design patent damages proving the rule) takes very balanced positions. Meanwhile she had become Chief Judge, and she authored the Federal Circuit opinion in ClearCorrect v. ITC, a decision that Google's Dr. Uhrich also explained yesterday. In that case, the ITC had ordered an import ban on data generated outside the U.S. but sent to the U.S. for the purpose of 3D printing. It's not unheard of for the ITC to have an expansive view of its jurisdiction, even including digital data transfers, but the appeals court made clear that it disagreed with what the ITC had already held prior to ClearCorrect, which was that the statutory term "articles" "should be construed to include electronic transmission of digital data [...]."

The way things work, there's no doubt that some patent-asserting plaintiffs are still going to try to push the envelope of data format patentability in the United States. But at least for now, they'll be facing an uphill battle whenever they try.

What is clearly needed is a pushback against overreaching patent enforcement in Germany. Yesterday's academic presentation was neither a campaign speech nor particularly alarmist. Expressing a personal--not corporate--view, Dr. Uhrich responded to a question from the audience with a reference to other forms of intellectual property protection for data, such as database rights (a big thing in the EU, by the way) and copyright law.

I mentioned my Art. 52 EPC concern, but I also think that regardless of software patent-eligibility, the MPEG 2 decision is bad as a matter of policy because if an encoder is patentable, then so is, typically, the related decoder. And that's what the enforcement of codec patents should be limited to.

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Wednesday, July 17, 2019

DOJ, DOE, Pentagon, Ericsson support Qualcomm's Ninth Circuit motion for stay of FTC's antitrust remedies

As the longest-standing and staunchest Donald Trump supporter among IP bloggers, I must admit I'm more than a little bit disappointed at three very recent events, two of which are related to the mobile industry. I keep my fingers crossed for Four More Years no matter what, but

  • the "go back" suggestion had a factual basis with respect to only one "Squad" member (Ilhan Omar);

  • it wasn't a good idea to conflate security and trade issues with respect to Huawei, so I honestly don't know what to think of that new bipartisan Lex Huawei proposal (was there a security issue in the first place, or was it more of a pretext? either way, the Administration's approach to Huawei doesn't look principled at this stage); and

  • yesterday the Department of Justice tripled down on its pro-Qualcomm advocacy I already criticized on previous occasions (as recently as last month), with declarations by the Department of Defense (Scribd link) and Department of Energy (Scribd link) attached (this post continues below the document):

19-07-16 DOJ Statement of I... by Florian Mueller on Scribd

Antitrust Assistant Attorney General Makan Delrahim's subordinates made a bizarre filing in early May when they asked Judge Lucy H. Koh of the United States District Court for the Northern District of California to hold a special remedies hearing. I said "bizarre" because of the substance of the brief, the timing (more than three months after the San Jose bench trial), and the way the DOJ antagonized the FTC. That was the first time they were in the tank for Qualcomm (not counting public comments by Mr. Delrahim, a former Qualcomm outside counsel). The second time, in connection with Qualcomm's appeal of Judge Koh's certification of a consumer class, their intervention was infinitely more reasonable. But yesterday's Statement of Interest (of the United States, as the DOJ is authorized to speak on behalf of the federal government regardless of whether an independent government agency like the FTC agrees) is closer in (un)reasonableness to the DOJ's first pro-Qualcomm filing than to the second.

The district court's well-reasoned ruling is the FTC's biggest success in a long time. The DOJ should have more respect for the independent Federal Trade Commission and for the independent judiciary. Instead, the brief, filed yesterday with the United States Court of Appeals for the Ninth Circuit, arrogantly asserts that the FTC and Judge Koh failed to figure out the law.

The DOJ attacks Judge Koh's decision from three angles: merits (liability), remedies, and the public interest. As for the public-interest part, the DOJ mostly relies on the aforementioned declarations by two other departments, and Reuters' Stephen Nellis accurately described the gist of those statements as follows:

While the public-interest part is the most appropriate aspect for a Statement of Interest, the accuracy and relevance of a public-interest argument is not a function of how many sister departments say essentially the same thing. This case is about patent licensing. It's not about Qualcomm's ability to develop and sell great 5G chips being hamstrung. By contrast, there have been antitrust cases that impacted product design, such as the Media Player part of the first EU case against Microsoft (though Microsoft ultimately managed to comply with the decision in a way that minimized its effects). In the Qualcomm case, we're talking about one company raking in roughly 25% of the industry's total patent licensing revenues, and collecting 80% or 90% of the totality of what some device makers such as Huawei spend on patent royalties. And this is a company that has just spent tens of billions of dollars on stock buybacks in recent years. It's not like Qualcomm would have to, or would want to, cut back on R&D as a result of this antitrust case.

If Qualcomm's supporters in the Administration really wanted to make a compelling case, then we'd find some financial analysis, even if based on only rough estimates of inherently limited reliability, in the DOJ's filing and/or the supporting declarations. They'd be talking about how many billions they believe Qualcomm would not make as a result of the immediate enforcement of the FTC's remedies, and what impact this would have on Qualcomm's R&D strength and its influence on the evolution of the 5G standard. Instead, they just posit that anything of substantial impact would automatically pose a threat to national security.

Qualcomm's dilemma is that numbers, whether provided by Qualcomm itself or by its governmental allies, would potentially impact future negotiations, in which they'll try to defend their royalty demands to the greatest extent possible. And in order to have a chance to persuade the Ninth Circuit, the numbers (right or wrong) would have to be dramatic, which would also scare investors. But without numbers, the public-interest argument here is a non sequitur. Even a non-starter. With numbers, one could at least perform a plausibility check.

On the merits (liability) side, the DOJ's filing is perfectly consistent with Mr. Delrahim's philosophy that patents are sacrosanct rights that antitrust law shouldn't interfere with. That philosophy, which one might even call a religion, is not the law, however. Nor should it be.

The most important aspect of the DOJ's merits-based argument is that a duty to deal must be a rare exception. In this regard, the DOJ's brief focuses very much on Judge Koh's citation to the Supreme Court's Aspen Skiing decision. I have re-read the related citations in the district court's findings of fact and conclusions of law, and nowhere does Judge Koh say or suggest that Qualcomm's obligation to extend FRAND licenses to rival chipset makers is like a photographic image of the fact pattern in Aspen. The Aspen case was about competing ski resorts in Aspen, CO. Originally, there were three resorts owned by three companies, but then one of them acquired one of the others, and created a fourth. When that consolidator owned three of the four resorts, it was no longer willing to continue a previously very popular and profitable multiarea-ticket cooperation with the sole remaining competitor on the previous--or any other reasonable--terms. The district court put the case before a jury, which identified an antitrust violation in the form of a refusal to deal, and both the Tenth Circuit and the Supreme Court affirmed.

I'm aware and, while I disagree, respect that many lawyers are very skeptical of the notion of an antitrust duty to deal with competitors. For an example, I know at least one lawyer who absolutely wants the likes of Qualcomm to be required to grant SEP licenses to rival chipset makers, but, as a matter of principle, purely on the basis of contract--not antitrust--law. Granted, Aspen is not the least controversial Supreme Court antitrust ruling in history. But its key holding--that a refusal to deal may constitute an antitrust violation under special circumstances--is still the law of the land and probably won't ever be overruled. There have been decisions like Trinko that stress the importance of not imposing a duty to deal in too many cases. But none of that makes Aspen an exclusive and extremely narrow path to the conclusion Judge Koh reached in FTC v. Qualcomm with respect to chipset licensing.

The DOJ argues that Judge Koh misapplied Aspen in two ways. First, the DOJ argues Qualcomm never voluntarily licensed other chip makers, but just "erroneously relied on its interpretation of Qualcomm’s FRAND obligations to standard-setting organizations, as required by their IP policies, as contractually compelling Qualcomm to license rival chip makers." This is at odds with the way Qualcomm portrayed (in its disputes with the FTC as well as Apple) its decision to make CDMA an industry standard, and to participate in standardization in general, as an act of generosity, or at least as a sound business decision. Second, the DOJ claims Judge Koh incorrectly held that Qualcomm discontinued (for anticompetitive reasons) something profitable by stopping at some point to license other cellular baseband chipset makers: "Qualcomm realizes greater profits by licensing at the end-device rather than the chip level." That's what Qualcomm had told the IRS as we know. But there's a wealth of evidence in the record, such as testimony by Intel and MediaTek, as to the anticompetitive effects of Qualcomm's rivals being unable to sell a licensed product to customers (and unable to control the effective bottom-line cost their customers incur). And on page 43 of the findings and conclusions, Judge Koh wrote that "the Court's focus is 'upon the effect of [the defendant's] conduct, not upon the intent behind it.'" (though anticompetitive malice is relevant, too)

Qualcomm's motion cited to some Ninth Circuit decisions, trying to argue that only a refusal to deal that is a bad business decision in the short run but a good one in the long run because of competitors being driven out of the market can be an antitrust violation. But that's not even what Aspen says. The dominant ski resort operator in Aspen presumably also had some very short-term benefits because a three-resort ticket (for all three resorts owned by that operator) was an attractive package in its own right, and nothing in Aspen says that only a long-term investment in the total annihilation of competitors constitutes an antitrust violation. What appears more important is that Qualcomm's refusal to deal had and still has anticompetitive effects on the chipset market. Qualcomm is/was not just one monopoly like the Aspen defendant, but the case is about two mutually-reinforcing monopolies (chipsets and patents, which are monopoly rights by definition, especially standard-essential patents). Qualcomm killed two birds with one stone by maximizing its patent royalties and greatly reducing the competitiveness of other cellular baseband chipset makers.

While it's unsurprising that Ericsson also supports Qualcomm's motion for a stay (Scribd link), the angle is interesting. Ericsson focuses on its use of Qualcomm chips in its base stations. However, Ericsson's motivation as a patent licensor to refuse to license chipset makers is well-documented, as is the fact that Ericsson itself once complained about such refusal to deal.

Another brief in support of Qualcomm has been filed by former Federal Circuit chief judge and pro-patent extremist Paul Michel.

Without a doubt, the Ninth Circuit will give some weight to the DOJ (plus DOD plus DOE) statement. But the FTC and its amici will now get to respond, and while the DOJ brief does contain some food for thought, I believe it can be effectively countered. However, at this stage it's about a motion to stay enforcement, so there won't be a full-blown analysis of the relevant questions. Qualcomm will be granted a stay if an analysis of limited depth results in a conclusion that there would be irreparable harm from immediate enforcement, that Qualcomm is reasonably likely to prevail on the merits, and that a stay is in the public interest. This hurdle is a lower one for Qualcomm than the actual appeal.

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Friday, July 12, 2019

Ninth Circuit grant's Qualcomm motion to expedite appeal of FTC's antitrust victory

On Wednesday, the United States Court of Appeals for the Ninth Circuit granted Qualcomm's motion to expedite its appeal of the FTC v. Qualcomm antitrust ruling (this post continues below the document):

19-07-10 Order Granting Qua... by on Scribd

These are the two key paragraphs:

"The opening brief and excerpts of record are due August 9, 2019; the answering brief is due October 4, 2019; and the optional reply brief is due October 25, 2019."

"This case shall be placed on the first calendar available upon completion of briefing."

That's a tight schedule for such a complex case, but the FTC's litigation team has been very efficient and will probably be able to craft a great response to Qualcomm's opening brief in the eight weeks they will have.

This schedule slightly increases Qualcomm's chances of obtaining a partial stay of enforcement while the appellate proceedings are ongoing. The length of such a stay is part of the consideration. However, even with this schedule it may still be spring or so before the Ninth Circuit actually hands down a decision, given the scope and scale of this case.

By the way, Samsung filed a motion to intervene, but only with respect to the sealing of its highly confidential effective royalty rates under its 2018 deal with Qualcomm.

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Thursday, July 11, 2019

United States Trade Representative launches investigation into France's digital tax for good reasons--and should look into copyright law, too

Yesterday the United States Trade Representative (USTR), Robert Lighthizer, announced, officially at the behest of President Donald Trump, the initiation of a Section 301 investigation (i.e., an analysis of whether a foreign government violates a trade agreement or acts unreasonably or discriminatorily against U.S. commercial interests) of France's digital services tax. The next formal step will be a Federal Register notice. This is what Mr. Lighthizer said:

"The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies. [...] The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce."

The President and the USTR are rightly concerned. France, with its almost plan-based highly-centralized economy and statist approach (= the opposite of Reagan's take that one has to get government out of the way) is an abysmal digital-industry failure, and TIMSS, the leading international math skills analysis, shows that French students are pretty much at a level with Third World countries, which means things are only going to get worse in the "Hexagon." Geographically, France is part of Europe; in educational terms, it's the worst country in the entire EU. By comparison, Singapore takes 25 times as many students (relative to the total number of students) to the top-performing level; Russia, ten times as many; and even the U.S., with its oft-criticized educational systems, seven times the number of France (again, this is a relative measure, so large countries don't have any advantage). While Germany performs 2.5 times as well as France (still far behind not only East Asia but also the U.S. and even a country like Kazakhstan), its politicans are incompetent and/or ideological enough to believe that France is their best partner in innovation policy, instead of trying to stay away from the failed French approach as much as possible.

There are two French computer game makers I think highly of: Ubisoft and (in the segment of "snackable" minigames) Other than that, I can't even think of a French technology product that would matter.

The French digital-tax initiative is ill-conceived because they don't want to tackle the real issue. The real issue is simply that the EU as a whole is a fundamentally-flawed supranational structure that does more harm than good. I sometimes recommend a great Wall Street Journal article (which doesn't even mention all of the problems), "Incredible Shrinking Europe."

Just like it was stupid and irresponsible in the first place to put a common currency in place without a common economic policy (as a result, the European Central Bank hasn't increased its interest rates even once in more than a decade, while the U.S. had half a dozen hikes during the same period), it was also incompetent and irresponsible to create a "Single Market" without some minimum tax standard or, in the alternative, an easy way to exclude members taking unfair advantage of this by positioning themselves as a low-tax access point to a market of 500 million consumers. As a conservative I'm all for tax competition, but fair tax competition and not just leeching.

The EU and the large member states of the eurozone are so poorly run that they didn't even seize the historic opportunity they had when Ireland needed a bailout. They could have conditioned the bailout on Ireland agreeing to some minimum tax standard. Obviously, leeches like Luxembourg (Juncker's country) wouldn't have liked this anyway, but Ireland is the #1 problem in this regard.

The Apple "state aid" case is the only crazy thing Mrs. Vestager did during her first term (other than that, I disagree only gradually, not fundamentally, such as with respect to some aspects of the Android case; I'm now looking forward to her second antitrust hammer--the final one for this term--coming down on Qualcomm soon; and on Twitter I repeatedly voiced the view that she was the best potential candidate for the presidency of the European Commission). That Apple-Ireland case has nothing to do with "state aid" and everything to do with "buyer's remorse" in the sense of the EU now seeing the problems that a Single Market without a common fiscal policy (at least a minimum tax standard) creates. Apple is not responsible for the EU's structural issues.

What France is doing with its digital tax is really odd. It's not a sales tax because there is no physical sale occurring in France when Facebook, for instance, displays an advertisement. Nor is it a tax on profits. Instead, France argues that because major digital platform companies are very profitable, foreign entities owe France a percentage of revenues attributable to the French market.

France wanted to make this happen at the EU level, but never got real traction as Germany was reluctant to support this with a view to potential backlash affecting its automotive industry. So France decided to implement something at the national level, and I'm glad the U.S., under its best president in decades, will seriously consider some retaliation in order to dissuade France from this idiocy. Maybe the U.S. International Trade Commission, with its investigative resources, will also be of help in the process. The top-listed candidate of Macron's party in this year's EU Parliament elections made it very clear that they view Google, Amazon, Facebook and Apple as enemies of the state, or collectively as the equivalent of a rival world power, all of which is downright insane.

While I'm not going to do any more copyright reform-related posts on this blog (maybe a new blog further down the road), I would like to just say that Articles 15 and 17 (previously Articles 11 and 13) of the EU Copyright Directive adopted this year are also the equivalent of a digital tax discriminating against U.S. Internet platform makers. France was the driving force behind Article 17 (upload filters), while Germany was more interested in Article 15 (link tax). In fact, France politically blackmailed Germany by threatening to block the Nord Stream 2 pipeline deal with Russia at the EU level if Germany hadn't supported Article 17 of the copyright bill. That is not a conspiracy theory. It was confirmed by reliable sources and reported by Frankfurter Allgemeine Zeitung, and it was obviously no coincidence that both the gas pipeline issue and copyright reform were the only two "A items" on the EU Council's April 15, 2019 agenda (so as to make it clear to Germany, which was having second thoughts, that derailing copyright reform would trigger some energy-related blowback).

The "upload filter" paragraph of the copyright bill is practically a digital tax because it creates a liability regime that is so strict that even the term "strict liability" the way it is reasonably understood in the U.S. would be an understatement. It gives enormous leverage to copyright holders (many of whom are European collecting societies and publishers) against major Internet platform companies in licensing negotiations. There are, as we all know, many very significant U.S. copyright holders (Hollywood, music industry etc.), and they'll benefit from this, too, but the European share of copyrighted works consumed in Europe is hugely greater than the European share of digital platforms used by Europeans. Therefore, this is another means of unreasonably and discriminatorily sucking money out of major U.S. Internet platform companies. It's like the digital tax, but indirect: collecting societies and publishers will initially receive the money, but obviously this will result in incremental tax payments in Europe, including France.

EU member states have some limited flexibility--a modicum of wiggle room--regarding the transposition of Article 17 into their national laws. France is already pressing ahead with the most draconian and unbalanced implementation imaginable, and other European countries may follow, though there's clearly less enthusiasm for this elsewhere.

I will follow the Sec. 301 investigation of the digital tax issue, and I strongly recommend to major Internet platform companies and the industry bodies representing them to raise the EU Copyright Directive, or at least its transposition into French law, in this context. It really is an indirect digital tax. Doing so now might dissuade other EU member states from adopting France's copyright extremism. While that is not what President Trump was elected for, it would happen to have significant benefits for European Internet users, too.

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Tuesday, July 9, 2019

Qualcomm files motion with Ninth Circuit for partial stay of FTC antitrust remedies

Within only a few days of Judge Lucy H. Koh's order unsurprisingly denying Qualcomm's motion for a stay of the Federal Trade Commission's antitrust remedies, Qualcomm has taken this matter to the United States Court of Appeal for the Ninth Circuit (this post continues below the document):

19-07-08 Qualcomm Motion to... by on Scribd

I just wanted to be of service and share the document with you, though I lack the time right now to go into detail (I may do so later, most likely after Qualcomm's reply brief). Therefore, just a very few observations for the time being:

  • Originally, Qualcomm wanted Judge Koh to stay all aspects of the injunctive relief obtained by the FTC. Now Qualcomm focuses just on two parts: (i) the requirement to extend exhaustive SEP licenses to rival chipset makers, and (ii) the "No License-No Chips" part, which includes an obligation to renegotiate existing licenses.

  • On LinkedIn, the chairman of Orrick Herrington Sutcliffe's antitrust practice group, John J. "Jay" Jurata (whom I previously mentioned in connection with a paper on the UK Unwired Planet global FRAND rate case), noted an irony:

    "Even Qualcomm believes patent hold-up is real! 'If this Court does not grant a stay, Qualcomm will be forced to negotiate under the cloud of an injunction requiring it to accept terms to which it would not otherwise agree.'"

    I obviously remember Qualcomm's various policy statements and amicus curiae briefs arguing that SEP holders should be entitled to injunctions. The most outrageous one of those bashed Apple at a time when Apple was just a customer--not an adversary--of Qualcomm's, and was subsequently withdrawn. So Qualcomm has no qualms about others being "forced to negotiate under the cloud of an injunction requiring [them] to accept terms to which [they] would not otherwise agree."

  • What Qualcomm's attorneys, now led by Goldstein & Russel's Tom Goldstein, put front and center is that the FTC brought the lawsuit with only two commissioners voting in favor (at the time, there were only three commissioners), and that former Qualcomm attorney (in terms of his positions, forget the "former") and now-Antitrust Assistant Attorney General Makan Delrahim and FTC commissioner Christine Wilson disagree. So they're trying to discredit the case and the ruling, and I have my doubts that this will impress the Ninth Circuit, especially given Judge Koh's stellar reputation throughout and beyond that circuit as well as the fact that her judgment is simply in the global antitrust mainstream in light of other decisions in the EU and in Asia (with a second EU antitrust hammer having been unofficially announced by DG COMP to come down in the months ahead, possibly just at a time when the Ninth Circuit will be working on a decision on this motion).

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