Wednesday, April 17, 2019

Prior to settlement, Apple got Qualcomm's German fake patent injunction lifted: appeals court deemed it likely flawed

Days before the sudden settlement between Apple and Qualcomm, a German appeals court had preliminarily annulled the latter's most significant courtroom victory over the former, as I found out today. After months of briefing and in-depth analysis, the Oberlandesgericht München (Munich Higher Regional Court) granted a motion by Apple to stay the enforcement of a Germany-wide patent injunction Qualcomm had obtained from the Landgericht München I (Munich Regional Court). Apple had worked around that injunction anyway, and its effects were as minimal as they were short-lived. But the implications for patent enforcement in Germany--a sizable market in which injunctions have so far (change may be coming soon) been granted as a near-automatic legal remedy.

Blogs are opinion platforms, and my outspokenness and willingness to make sometimes daring predictions position me as a particularly opinionated blogger on patent matters. In fact, patent professionals sometimes share my posts on LinkedIn saying that they disagree with my views but find useful information here--which is perfectly fine, and it would be a surprise if a former anti-software-patent campaigner's positions were perfectly congruent with those of people whose job it is to prosecute or enforce patents.

Nevertheless, I try hard to disagree respectfully when I disagree, and judges deserve particular respect for all intents and purposes. So only under the most egregious of circumstances would I refer to a decision as a "fake injunction," but I carefully chose that term for the injunction the Landgericht München I (Munich Regional Court) had granted to Qualcomm against Apple on December 20, 2018 on an agnostic basis, creating what I called a "defendant's dilemma": give up your secrets by letting a competitor's engineers learn about the inner workings of a chipset--or lose your case.

At first I just called it an "agnostic" injunction because the court had made clear (not only at the oral announcement of the ruling but also in a written press release) that the question of whether or not a Qorvo enveloper tracker chip in the iPhone 7, the iPhone 8 and the iPHone X actually infringed Qualcomm's patent-in-suit. The decision was based on the court's determination that Qualcomm's infringement assertion, though based on an inherently unreliable (as the court-appointed expert acknowledged) teardown report, was deemed more substantiated than Apple's denial. Apple had brought along the Qorvo engineer who designed the chip. Heroically, but in vain, Mr. Mike Kay waited on a hard wooden seat outside the courtroom for about 12 hours.

In early February, after a summary judgment ruling by a U.S. district judge here in San Diego (Judge Dana M. Sabraw) agreed with Apple's primary non-infringement contention (after looking at evidence and hearing testimony the Munich court never got to, and consistently with what the ITC found last year), I replaced "agnostic" with "counterfactual" or simply "fake." I did so despite truly (and still) considering Presiding Judge Dr. Matthias Zigann a leading German patent judge. And I harshly criticized, with words like "worse than the worst troll," Qualcomm (a great mobile tech innovator) and Quinn Emanuel's Dr. Marcus Grosch (a phenomenal patent litigator) for enforcing a fake injunction, which I considered unethical. Not only did Qualcomm enforce that injunction but they also obtained another one over allegedly deceptive advertising because Apple assured customers they'd still find the iPhone 7 and the iPhone 8 everywhere. That one also got lifted, but by the lower court itself (and a different panel of judges; not Judge Dr. Zigann's patent-specialized panel).

Now, after almost four months, there's justice. Apple's lead counsel in this action, Hoyng Rokh Monegier's Klaus Haft, who is regarded as one of Germany's best patent litigators, brought a motion back in December asking the appeals court, the Munich Higher Regional Court, to stay the enforcement of Qualcomm's injunction pending the appeal. That appeal won't be resolved anymore after yesterday's global settlement. But I've been able to receive official confirmation from a spokeswoman (an appellate judge in her main capacity) for the Munich Higher Regional Court that Mr. Haft's motion had been granted because Presiding Judge Konrad Retzer's panel of three appellate judges determined (on a preliminary basis since a final appellate opinion would require full-blown appellate proceedings) that the lower court had erred in three ways:

  • The lower court erroneously rejected Apple's infringement defense as insufficiently substantiated.

  • The lower court erroneously dismissed Apple's infringement defense (I would compare this to a successful motion to dismiss in a U.S. case, or a summary judgment to that effect).

  • The lower court erroneously deemed some of Apple's contentions to have been brought out of time. (On that basis, as I recall, the Munich I Regional Court denied Apple's motion to reopen the record, which would have allowed it to discuss new evidency and hear testimony on an additional trial day.)

Due to a workaround, the injunction had no more impact on consumers anyway--but other injunctions on a smilar "damned if you do, damned if you don't" basis could have harmed consumers and innovation. Sanity has been restored. That's excellent news.

There still are some patent-related issues with respect to which we need sanity. One of them is the question of global FRAND rate determinations by UK courts.

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Tuesday, April 16, 2019

Apple and Qualcomm settle their antitrust/FRAND/patent dispute: clash of California tech giants is amicably resolved

Opening statements in the Apple, Foxconn et al. v. Qualcomm antitrust trial in San Diego (Southern District of California) were ongoing when CNBC broke the news of a settlement. A little later it was confirmed by Apple's newsroom: All pending lawsuits between Apple and Qualcomm, and Apple's contract manufacturers and Qualcomm, have been dismissed.

There is a new patent license agreement as well as a new chipset supply deal in place. In other words, California's two mobile hardware giants--Apple from the North, Qualcomm from the South--are working together again. An amicable resolution of a dispute that last more than two years and was a bit acrimonious at times.

Cravath Swaine & Moore's Evan Chesler finished his opening statement (with only about 20 minutes left at the time the settlement became known). Counsel talked to Judge Curiel privately, and he then explained the situation to the jury. He also invited jurors to his chambers to thank them personally for everything.

A trial that could have lasted, if one includes jury deliberations, 1.5 months or more has therefore ended after only 1.5 days.

This would have been a huge and extremely difficult case for the jury to decide. As always, I congratulate both parties on their deal, and in this case I think either side would have had to take quite some risk by letting a jury render a verdict on complex commercial and partly technical issues.

Even though it ultimately didn't matter anymore what counsel said today, I really was impressed by Fish & Richardson's Ruffin Cordell's opening statement. One of the best explainers I ever got to listen to in a courtroom. I must admit I hadn't heard of him before, but probably will again, sooner or later.

The terms of Apple's new deal with Qualcomm haven't been disclosed other than money flowing from Apple to Qualcomm, not the other way round (which could have happened after the trial in theory). Analysts will probably soon claim to know the exact numbers. We won't know whether they're right until something surfaces in future litigation.

In the immediate aftermath of this settlement, the question is what this means for the FTC v. Qualcomm case that went to trial in January. Judge Lucy H. Koh of the United States District Court for the Northern District of California might rule anytime now. Or that case might get settled, too.

The Federal Trade Commission of the United States deserves respect. What's obvious (and therefore not a question of respect or a lack thereof) is that there's now less of a national interest in that antitrust case than before. However, I have consistently said that the case is about important issues, not just particular companies. It could be that the FTC, whose primary job is to prevent consumer harm, decides to carry on regardless. Or they might settle in the short term. We'll see what happens.

Standard-essential patents (SEPs) and FRAND licensing terms have been and will remain a key focus of this blog, of course. And, more generally, patent infringement remedies.

By the way, live tweets from the courtroom were allowed again today.

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Common sense against Qualcomm: Apple stresses smartphone functionality also works without modem chip--over WiFi--but Qualcomm wants royalties on entire device

I'm typing this while Fish & Richardson's Ruffin Cordell is still delivering Apple's opening statement in the Apple v. Qualcomm antitrust trial here in San Diego (Southern District of California). There are two key points made in the first half of the statement that are going to make things hard for Qualcomm to persuade the jury of its own story:

  • Mr. Cordell made a point that is very obvious: why would Qualcomm impose gag clauses with multi-billion dollar penalties attached on its customers if it had nothing to hide? The fact that Qualcomm insisted on contract terms that would make it economically irresponsible under most circumstances for companies to ask competition enforcement agencies for help indeed speaks volumes. It's about covering up misdeeds.

    It will be hard for Qualcomm to explain this away. It's not just that companies entering into business agreements with other companies want some peace of mind. They don't want to sign a contract one day and be sued the next day. But government agencies in charge of antitrust enforcement don't just cause one company a lot of grief because another company asks them for it. They perform their own analysis, generally starting with a first plausibility check, followed by what some call "preliminary investigations" if there's enough smoke to suspect fire, and things get real only if those agencies reach independent conclusions. As for independence there certainly is no such agency in the world that would be in Apple's pocket because the United States is just too large an economy and too well-respected a democracy for one company to control the government and in other countries Apple is just a foreign entity.

    So if Qualcomm had had a clear conscience, it would never have had to worry about a customer like Apple potentially complaining to independent government agencies because the agencies would just decline to investigate, or they would take a short look and stop wasting their time. Only someone who really has something to hide and, as a result, something to fear would do that. That Qualcomm had something to hide and therefore something (antitrust charges) to fear is evidenced by the battlemap chart I showed you in yesterday's post on the start of this trial (jury selection). In the aggregate, Qualcomm has been fined to the tune of many billions of dollars by regulators on multiple continents, which I once called the "Antitrust Grand Slam."

  • The next context in which common sense complicates things for Qualcomm is the question of the royalty base. Qualcomm's royalty is based on the entire device. There is a cap now ($400), but it's dozens of times higher than the market value of a modem chips. So Qualcomm collects royalties--as Qualcomm told the IRS--on the whole enchilada because it's "humongously more lucrative." But this means they charge for parts of the product they don't actually make any technical contribution to.

    The key term is "royalty base": What is the 100% basis against which whatever reasonable royalty percentage should be applied? Is the 100% a $1,000 phone? A hypothetical $400 phone? Or should it be a baseband processor (also called modem chip, or modem processor, or baseband chip)--which Qualcomm itself sells at $20 per unit and others sell at $10 or less?

    If Apple wins the royalty-base part, it's within striking distance of convincing the jury of Qualcomm's terms being unreasonable. They have other ways, such as (what came up later in the opening argument) a comparison between what Qualcomm collects per unit vs. other companies like Ericsson that may hold even more standard-essential patents. But what I think may have the greatest persuasive impact here is the following point Mr. Cordell made:

    A smartphone is a mobile computer, with conventional telephone functionality representing just a limited part of it. But most of that smartphone functionality--such as playing computer games, listening to music, watching or recording videos--works over WiFi, too! And if something works over WiFi (in fact, many of those apps work better over WiFi than over cellular networks, which are slower and less stable in general), then there's no plausible basis on which a cellular SEP holder can collect a royalty on the commercial value of the related computing functionality.

    Mr. Cordell announced that Apple would get back to this point throughout the trial. I can see why. They won't have to talk about this every trial day, but when testimony--people confirming that everything works over WiFi (in fact, I quite often make WiFi calls where people call me on a cellular number or I call them)--shows to the jury that the very largest part of the value of an iPhone is not dependent on Qualcomm's modem chip technology, Qualcomm is going to have a problem persuading the jury of the opposite.

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Apple v. Qualcomm trial kicks off in San Diego: jury of nine selected, live tweets disallowed

Today was Day One of the Apple, Foxconn et al. v. Qualcomm trial in San Diego (Southern District of California). Formally, there are two cases, which the court combined under the official caption In re Qualcomm litigation. The reason for two cases existing technically is that a few months after Apple sued Qualcomm in January 2017, Qualcomm sued Apple's four contract manufacturers (Foxconn, Wistron, Pegatron, and Compal), who counterclaimed. The contract manufacturers' counterclaims became the economically biggest issue in the case, amounting to approximately $9 billion, which could be tripled (as a damages enhancement) to $27 billion. Qualcomm is seeking damages of up to $15 billion according to Reuters.

United States District Judge Gonzalo P. Curiel is presiding over the trial. In one of his most important pretrial decisions, Judge Curiel agreed with Apple and its contract manufacturers that this is indeed primarily an antitrust/FRAND case, which Qualcomm sought to portray as a contract dispute in the first place so it could argue that contracts must be complied with, period (a principle that is very important but just doesn't outweigh antitrust considerations as serious as here). Somewhat ironically one might say Qualcomm already faces too many antitrust cases in the U.S. and on a couple of other continents that it would rather reduce than inflate the number of pending antitrust matters. The following smartphone patents battlemap, which I created about six months ago, shows the pressure Qualcomm is facing from antitrust agencies in multiple jurisidctions as well as some other cases (click on the image to enlarge; this post continues below the image):

The cases most closely related to the one being tried in San Diego as we speak are the U.S. Federal Trade Commission's antitrust lawsuit against Qualcomm in the Northern District of California (where Judge Koh might rule anytime now, given that the trial took place in January) and a consumer lawsuit alleging that 250 million Americans who bought smartphone over the last roughly eight years overpaid to the tune of $5 billion (an average of $20 per consumer) because of Qualcomm's accused business practices. Qualcomm appealed Judge Koh's certification of the consumer class action, but let's stay focused on the San Diego case (the real San Diego case, i.e. the antitrust case, as opposed to a patent infringement case that is a sideshow).

In one of the strongest signs of there truly being one or more antitrust issues with Qualcomm's business practices, the company has for some time insisted that those entering into certain agreements with Qualcomm were not allowed to complain to antitrust regulators (theoretically, they had that option, but at a high cost due to an immediate termination of rebates and even a clawback of past kickback payments). Judge Curiel found no contract violation of that kind by Apple, a decision that is worth a few billion dollars to Apple.

Today a jury of nine was selected, which means that up to three jurors could drop out (the trial might take about a month, though there are only four trial days scheduled for this week and three for each of the following weeks until jury deliberations begin) and they could still reach a verdict under the district court's Local Rules.

There were some funny situations and remarks, but nothing specific happened today besides jury selection (and, which is unusual for a district court on the West Coast, a decision that no electronic devices with an active online connection could be used inside the courtroom, which is why live tweets didn't continue after the lunch break). Opening arguments will be delivered tomorrow, and that's when the trial really begins.

On the eve of opening arguments, it makes sense to reflect on what this dispute is--and what it is not--about in high-level, philosophical, moral terms. The questions the jury will have to answer are unrelated to Qualcomm's history of innovation in cellular communications. Not only would no one doubt that Qualcomm succeeded a few decades ago with a courageous and ambitious bet on a technique called code division multiple access (CDMA), but it's also clear that Qualcomm has continued to invest heavily in research and development. No one claims they stopped innovating altogether. The dispute is all about whether they went, and are going, too far in their rent-seeking (and governmental agencies--antitrust enforcers--around the globe have so far found that it's the case, imposing fines that in the aggregate amount to several billion dollars).

If all that Qualcomm had done since its initial success had been to keep innovating, and if there hadn't been any issues, then those competition watchdogs would have focused on other companies and this San Diego trial wouldn't have started because Apple would never have brought the underlying complaint.

Both Apple and Qualcomm are innovative in fundamentally different ways, respects, and fields of technology (though Apple is now also creating many jobs in San Diego for chipset engineers). Some will consider one of them more innovative than the other, but it's an apples-to-bananas comparison. There are two key differences, however:

That patent tax is artifically inflated by means of such practices as royalties on repairs, royalties on royalties (meaning that the royalty base for a royalty includes among other components the royalty), and interest on interest). They charge royalties separately from the prices of the chipsets they sell, though the longstanding judicial doctrine of patent exhaustion says that after you've sold a product you can't assert your own patents against it later.

What's under attack (not only in this particular trial but in a host of cases as shown in the battlemap further above) is not Qualcomm's business model in its entirety, but certain problematic practices. Qualcomm will have a bright future either way. It will continue to create jobs. It will continue to rake in huge profits. It may, however, have to make some adjustments so as to ensure an allocation of resources that will work best for the economy and for society. This is a story à suivre.

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Thursday, April 11, 2019

Munich I Regional Court lifts Qualcomm's deceptive-advertising injunction against Apple (indirectly related to patent injunction)

After this week's news of an EU General Court ruling against Qualcomm (related to the European Commission's enforcement of compliance with a couple of antitrust information requests) I also checked again with the Munich I Regional Court, mostly because I was curious about Qualcomm's recent contempt motion against Apple, alleging non-compliance with the injunction Apple has meanwhile worked around. Please check out my mid-February post on that matter because it summarizes the unusual circumstances (procedural shenanigans) under which an agnostic patent injunction came down and explains the workaround, which involved replacing an Intel baseband processor with a Qualcomm chip even though the accused component was a Qorvo envelope tracker chip.

Not only did Qualcomm bring a contempt motion, which a spokeswoman for the court tells me hasn't been adjudicated yet, but in January it also became known (as I once mentioned in passing) that Qualcomm obtained a preliminary injunction from a different chamber (= panel of judges) of the same Munich court against Apple's public statements that the iPhone&nbsmp;7 and the iPhone 8 would remain widely available in Germany notwithstanding Qualcomm's enforcement.

Meanwhile the court has confirmed to me that the deceptive-advertising injunction was based in the UWG (Germany's unfair competition law). I also have a case number now (1 HK O 257/19; the "HK" means it's a commercial dispute). And I learned that just on Tuesday the court lifted the competition law-based injunction, but hasn't stated the reasons yet.

That one is a sideshow (deceptive advertising) of a sideshow (a fake patent injunction that had no serious impact), while the one that really matters is the Apple, Foxconn et al. v. Qualcomm antitrust case going to trial in San Diego on Monday over tens of billions of dollars. I still wanted to mention it because Qualcomm made some noise about this preliminary injunction when they obtained it, and by now it's an injunction that has ceased to be.

I wouldn't rule out at all that Qualcomm's pursuit of that injunction was driven by some emotions on top of PR considerations (though they are extremely PR-oriented, and very good at playing that game).

Qualcomm and its German lawyers--their lead counsel, Quinn Emanuel's Dr. Marcus Grosch, is really an amazing patent litigator--had fought very hard to win anything in Germany. Most of their German patent infringement cases against Apple went nowhere. Then, after several setbacks, they finally got one--though I consider it a highly illegitimate one, despite otherwise having great respect for the judge who handed it down and for counsel--and they thought it would give them leverage. They laid down more than $1.5 billion, an insane amount given that this case probably has an official value in dispute (based on which court fees are calculcated) somewhere in the range from 5 to 10, maybe 20, million euros (like the other German Qualcomm v. Apple cases). And then they saw that Apple removed those olders iPhones from its own German stores (for six weeks or so), but its major resellers (carriers like T-Mobile, Vodafone, and Telefónica/O2, but also retailers like MediaMarkt) just kept on selling as if nothing had happened, with some smaller resellers even mocking the injunction in their ads.

It's a typical situation where each side of a cube has a different color and if you stand on one side, it looks green, and from the other side it looks red. I just described Qualcomm and Quinn Emanuel's perspective. They probably were upset about Apple seemingly disrespecting the injunction. But then my perspective is that it should be beneath the likes of Qualcomm and Quinn Emanuel--two world-class Q's--to obtain and enforce (!) an agnostic patent injunction when professional judges in the U.S. actually agreed with what was Apple's primary non-infringement argument. QE has a tremendous reputation for vigorously representing clients, and there's not even the slightest indication of them having done anything illegal here, but it's highly likely that this was an egregious case of utterly abusive, wrongful patent enforcement.

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Wednesday, April 10, 2019

IRS described itself as Qualcomm's 'silent partner' in imposing patent tax on mobile device industry

Standard-essential patent (SEP) holders with ambitious monetization goals and aggressive tactics notoriously refuse to extend licenses to chipset makers. There's more than one reason for this, but besides the real reasons--the primary one of which is money--there are some cheap pretexts and excuses that they'll present when challenged. It's the next best thing to hypocrisy.

I do appreciate it, however, when those companies come clean and tell it like it is. Ericsson, thankfully and boastfully, created an entire slide deck that explains it's just about (more) money plus a reduced risk of retaliation. That was just disarmingly honest.

Toward the end of the FTC v. Qualcomm antitrust trial in January, a transcript of a 2012 interview conducted by the Internal Revenue Service (IRS) with some Qualcomm employees made it into the record over Qualcomm's lawyer's objections. Given how incriminating that document is from an antitrust point of view, and imagining how Judge Lucy H. Koh in the Northern District of California might view it especially in the strategically critical context of chipset-level licensing, it's easy to see why Qualcomm wouldn't want that transcript to be considered by any judge or jury in any dispute.

But it's great stuff and proves that Qualcomm, too, can be disarmingly honest in the right context. In a long interview with the IRS (the actual transcript spans 120 pages), they were just as forthcoming as Ericsson in the aforementioned slide deck. So here's the transcript, and I'll quote some passages and share some observations below:

19-01-28 Qualcomm IRS Inter... by on Scribd

After reading the transcript as a whole I've concluded that the IRS apparently conducted some sort of preliminary investigation of whether Qualcomm's corporate structure results in an underpayment of U.S. taxes due to (and this is not clear to me) either a violation of the arm's-length principle for inter-company charges between QTL and QCT (because of QTL, the licensing business, not charging a patent royalty to QCT, the chipset division) or because of the possibility of some revenues being taxed in foreign jurisdictions like China--or some combination. In any event, what matters here s what was said more so than why the interview took place, but I tried my best to figure out the context.

The IRS wasn't being hostile in that interview. They were just trying to understand Qualcomm's business and were appreciative of the information they got. The Qualcomm licensing executives they interviewed were just trying their best to explain that their decisions make economic sense and that, between the lines, there was no tax avoidance or tax-shifting scheme there.

In Judge Koh's courtroom in January, Qualcomm's attorneys also presented legitimate, if not even pro-competitive, business justifications for everything, even for the refusal to license rival chipset makers. But the story there was completely different from what they told the IRS. It was far-fetched stuff such as arguing that there'd be fewer licensees if you extend licenses only to device makers (and contract manufacturers)--but there's only a very few chipset makers in this space versus literally hundreds of device makers.

What they told the IRS, however, is the true story. It's also pretty consistent with Ericsson's slide deck. And, especially, common sense.

The revenue maximization part of that interview was already mentioned in January: "obviously the handset is humongously more ucrative for a bunch of -- a bunch of reasons."

In the vicinity of that statement (page 72 of the PDF document), Qualcomm explains that royalties on handsets accounted, at the time (and probably still), for 95% of their patent licensing revenue stream. Elsewhere they explain that the chipset opportunity was just in the 1% range. The remainder would then be attributable to base stations.

On page 74, Qualcomm's Mr. Blecker explains:

"Yeah, but if I would average royalty on all the handsets that we collect royalties on -- I don't remember what it is anymore, I used to know the number -- but if -- if it were ten dollars, for example, you couldn't charge a ten-dollar royalty on a chipset that cost five dollars, or six dollars, or seven dollars."

His colleague Fabian Gonell then noted that "[t]heorectically you could, but as a practical matter you can't. As a practical matter it's hard." Mr. Blecker then added that "it would be hard to convince a court that that was a fair royalty also."

Then, at the very bottom of that page of the transcript, the IRS's Mr. Howell essentially assures Qualcomm that they should just maximize their income because it's in the agency's interest:

"Right. No, we're your silent partner. We want for you to make a lot of money, for that to happen."

And then Qualcomm's Mr. Blecker stressed again that it's on the handset where the money is."

There are some other interesting statements in there. In particular, starting on page 25, Qualcomm explained to the IRS the doctrine of patent exhaustion, how it evolved, and how that evolution required Qualcomm to change its licensing terms so as to avoid exhaustion. They also explain how patent exhaustion is always something that adversaries in legal disputes might hold against them, so they have to be very careful to navigate around it.

Ideally they don't want to do business with other chipset makers at all, but sometimes it can't be avoided, such as because the other party may have patents that Qualcomm wants to license (and typically exhaustively so it can tell its customers that they're covered). Early on it would have been possible to make a covenant not to sue a chipset maker, but then the Federal Circuit held that a covenant not to sue was tantamount to a license for exhaustion purposes, so as to avoid double-dipping.

In response to that case law, Qualcomm then switched to a structure called a "covenant to sue last" (as I reported during the trial) or, more formally, a covenant to exhaust remedies, meaning that Qualcomm wouldn't sue a chipset maker unless it would have a problem to obtain and collect damages from the device makers who buy those chipsets. In other words, they'd have to sue a device maker first, and then the device maker would have to go bankrupt so they'd have a basis for suing the chipset maker--theoretically possible, but practically rather unlikely.

As I wrote further above, the question is what Judge Koh will think of everything that's in that transcript. Her ruling could come down any moment now. And I think she already sees through all those smokescreens. Sure, there are patents that are not implemented in a baseband chipset, such as user interface or antenna patents. And there are patents that are't embodied in a baseband chipset alone. But cellular standard-essential patents are, and that's what she's held in an unrelated case (GPNE Corp. v. Apple) and in her partial summary judgment in FTC v. Qualcomm, which both Judge Gonzalo P. Curiel in the Southern District of California (at a recent hearing) and Judge James L. Robart of the Western District of Washington (at a Munich conference last Friday) appear to like as well. That IRS interview transcript just validates Judge Koh's and her colleagues' thinking. It's just clear that it's just about Qualcomm not wanting to go to court or conduct arbitration and argue over the reasonable royalty on a chipset when the end product--a smartphone or tablet--can serve as a far higher royalty base to start from.

What's almost funny in that transcript is how those Qualcomm licensing executives--all of whom are lawyers--remind each other of not making definitive concessions regarding the law. For instance, each time one of says some kind of contract may be exhaustive, someone else says "may be," even when they're all convinced it's simply certain to be the case.

Finally, from a competition policy perspective it's also interesting to read what they say about a contract term under which they require rival chipset makers to disclose their customers and the number of units they ship to them. They concede in the interview that it's very helpful for them to obtain such information on a competitor's business, and they try to impose that term whenever and wherever they can, but sometimes they don't have enough leverage to get all that they want and may then focus on other contract terms.

Another problematic term that was also mentioned already in the FTC trial is that they get other chipset makers to promise not to sell chips to device makers that don't have a patent license from Qualcomm. Such a contract clause enables Qualcomm at least to threaten with the pursuit of an injunction against shipments by a chipset maker to an unlicensed device aker.

With their covenant-to-exhaust-remedies approach to rival chipset makers, they're basically trying to achieve anticompetitive goals with respect to those competitors--and to make the end products more expensive. For Qualcomm's self-declared "silent partner," the IRS, that's just fine: whatever makes them the most money. But in an antitrust and FRAND context, a different kind of analysis is performed...

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Final pretrial conference order in Apple, Foxconn et al. v. Qualcomm (Southern District of California)

There were two developments yesterday in connection with Qualcomm's antitrust issues.

First, the EU General Court (which used to be call the European Court of First Instance) handed down a judgment that upholds the entirety of the European Commission's March 31, 2017 decision that Qualcomm would incur a daily fine of 580,000 euros for non-compliance with two information requests after specified dates (May 12, 2017 for one of them, and May 26, 2017 for the other). The EU General Court already denied in July 2017 a Qualcomm motion to stay the order, as I mentioned in this post. Apparently Qualcomm then had to comply (though it still appealed the decision), and the investigation of Qualcomm's exclusivity arrangements and predatory pricing further to a complaint by Icera, a once-European semiconductor company acquired by Nvidia (and shut down later).

At first sight one may wonder why Qualcomm would be accused of overcharging in one context and of predatory pricing in another, but the two theories can be reconciled: Qualcomm's supra-FRAND royalties enable the company to impose a tax on everyone and to sell chipsets, especially in the low-end segment, at a lower cost than Qualcomm could if it contented itself with FRAND royalties. It's one of the ways Qualcomm benefits from a business model that flies in the face of all we know about the concept of patent exhaustion.

Second, we're five days away from the start of the Apple & Contract Manufacturers v. Qualcomm antitrust and (secondarily) contract dispute in the Southern District of California. Judge Gonzalo P. Curiel (whom Judge James L. Robart, known for two groundbreaking SEP-related rulings, holds in the highest regard), has entered a final pretrial conference order (this post continues below the 262-page document):

19-04-09 Final Apple Foxcon... by on Scribd

This is a long document and I've mostly published it here as reference material for the upcoming trial. I haven't fully digested it yet, but it reflects the judge's prior categorization of the case as primarily an antitrust/FRAND and only secondarily a contract dispute.

The way the defenses to the parties' different claims are presented is consistent with what Apple had proposed: to list the defenses after each claim. Qualcomm had argued it would have been more efficient to discuss the defenses just once (and then apply them to multiple claims).

What both parties appear to be fine with is that the judge will interpret some disputed contract terms after the presentation of evidence, but before jury deliberations.

Don't be puzzled by the official date of the order. It came down on April 9, but with retroactive (ex tunc) effect.

There's probably something more in that long document that's worth talking about, and I'll take a closer look between now and the start of the trial on Monday.

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