On Friday, Apple filed motions to stay in two of its various lawsuits with Motorola, arguing that the pending acquisition of Motorola Mobility (MMI) by Google has resulted in "a fundamental loss of Motorola's patent rights". One of the lawsuits was started by MMI in the Southern District of Florida (with both parties asserting six patents each), and the other one by Apple in the Western District of Wisconsin (with Apple asserting 15 patents and MMI asserting 6 patents).
Under the merger agreement with Google, MMI is severely restricted in its ability to enforce its patents and negotiate settlements (as I'll explain further below). Therefore, Apple's lawyers argue that MMI currently lacks standing (meaning the right to sue).
Whichever party may prevail, Apple says it would be prejudiced
Apple argues that prior to completion of the merger, it would be a prejudiced in any of the following two events:
If any of MMI's infringement claims succeeded:
"Apple should not have to face the threat of an injunction based on the claims of a party that now has no standing to bring those claims."
Its lawyers also argue that "Apple will be expending enormous resources litigating claims against a party that does not have standing".
If Apple fended off MMI's infringement claims:
"Apple should not be required to litigate this case only to reach a result that may well be overturned on appeal due to the absence of prudential standing."
The term "prudential standing" means that a party has to meet, beyond the constitutional requirements for standing, certain additional criteria that the courts have established.
Apple's second concern may also relate to a scenario in which it wins on one or more counts (and it's very unlikely that all 21 Apple patents-in-suit in those two cases would fail), in which case such a win will be of no value if the ruling can later be thrown out: "[W]ere Apple to prevail in this case, it risks an attack on its victory on appeal by a third party, whether Google or another Android smartphone manufacturer, contending that the judgment should be overturned due to a lack of prudential standing."
The Wisconsin case has an April 30, 2012 trial date. At the time, Google's acquisition of MMI may still be pending (and if Google's other major acquisitions are any indication, it will probably be pending). The Florida case has an August 13, 2012 trial date. Even at that point, the merger may still not be closed. The merger agreement gives the parties a lot more time. Also, these cases -- or, more realistically, parts of these cases -- can also be decided before a trial by summary judgment.
Under the merger agreement, Motorola allegedly ceded control over its patents and can't really litigate or settle
Apple refers to the pending acquisition of Motorola by Google as "one of the most significant transactions in the technology industry", mentions the transaction value of "$12.5 billion, representing a 60% premium on Motorola’s market valuation", and interprets Google's official declarations as saying that "[a] driving force behind Google's extraordinary bid is its drive to acquire Motorola's patents" and that Google was "acquiring the Motorola patents to 'protect' the Android ecosystem".
Note that Apple's lawyers simply seek to capitalize on Google's and MMI's own statements, knowing that Google and MMI can't contradict them. Nowhere do they say that MMI's patents are strong enough to serve the stated goal of protecting the Android ecosystem: this is just about the official motivation. In connection with motions to stay patent cases, the patent-centric rationale provided by the parties for the deal simply comes in handy, regardless of what Apple's management may truly think of those patents.
After recalling the official terms of and reason for the deal, Apple's lawyers say:
"To further its pending acquisition by Google, Motorola has surrendered critical rights in the patents-in-suit, such that Motorola no longer has prudential standing to pursue this action. According to the publicly-filed Merger Agreement, Motorola has ceded control of the most basic rights regarding the patents-in-suit. Absent Google's consent, Motorola cannot: (1) sue for infringement of its patents in any new action; (2) settle pending litigation (including this case) that would require a license to any of its patents; (3) license or sublicense its patents except in limited circumstances relating to the sale of Motorola’s products; (4) assign its rights in its patents; and/or (5) grant a covenant not to sue for infringement of its patents."
When I first saw the merger agreement, I also noticed that there are such restrictions. Those restrictions have limitations, and Apple's motions address those. The key problem here is "[a]bsent Google's consent". Google wants to be in control of MMI by the time it settles with Apple, Microsoft and possibly others.
In fact, a key motivation on Google's part may have been to acquire MMI before it might, for example, have agreed to pay royalties to Microsoft, considering that MMI is in serious trouble against Microsoft. A formal capitulation by MMI -- in the form of taking a royalty-bearing license -- would have been a disaster for Android at large, presumably resulting in each and every other Android company also recognizing a need to take such a license. MMI's patents aren't as strong as many people believe, but it's much stronger than most of the other Android device makers, so if even MMI had failed to defend itself, that would have been a very meaningful event.
The problem with MMI's need to obtain Google's consent for the aforementioned types of patent-related actions and agreements is that Google's hands are also tied before the merger is closed. A would-be acquirer can impose certain terms by way of a merger agreement but isn't allowed to exploit the acquisition target before the deal is closed. Otherwise, a would-be acquirer could do serious damage to an acquisition target, and if the deal isn't closed, this would prejudice such a company's shareholders. Therefore, Google wouldn't be allowed at this stage to order MMI to negotiate a cross-license with a third party that also benefits Google in one way or another.
That's why Google would like those lawsuits to continue and take its seat at the negotiating table if and when it's really in charge. Apple's lawyers describe MMI's settlement-related restrictions as enough of a reason in and of itself to stay the case. Courts usually want litigants to settle.
But Apple also argues that Google can't "cure" the alleged "defect in Motorola's prudential standing" by joining the lawsuit as another party:
"Google itself lacks standing under Article III of the Constitution to enforce the patents-in-suit. Google has no ownership interest in the patents. Google has no right to license, assign, or encumber the patents, and no right even to practice the patents, much less an exclusive right. Accordingly, Google is not injured if another party infringes the patents. Google only has the right to veto actions taken by Motorola with respect to the patents. On these facts, Google lacks constitutional standing to enforce the patents-in-suit and cannot be joined as a party to this action due to a lack of subject matter jurisdiction."
By the way, for the time being I haven't formed an opinion as to whether Apple's motions should succeed. I need to see MMI's answers to these motions, which are due shortly. For now I'm merely reporting non-judgmentally on what Apple claims and advocates. These motions to stay are an interesting development.
Apple argues Google moved to dismiss a different case due to a conveyance of patent-related rights
Apple's motions cite a pleading from another case in which Google (jointly with AOL, Yahoo, and Lycos) argued that a plaintiff named Software Rights Archive lacked standing. In that case, the defendants asked for the case to be dismissed altogether. Apple's motions ask only for a stay, assuming that either the acquisition of MMI will be closed at some point or it will fall through, but either way there would be clarity at some point and someone would have standing -- or the case could still be dismissed.
In the Software Rights Archive case, Google and other defendants argued that the plaintiff lacked "substantial rights in the asserted patents and [had] no Article III standing to pursue this action". In particular, they argued that Software Rights Archive was just a front for another organization:
"Altitude is 'a litigation finance / investment firm” that forms shell subsidiaries for the purpose of bringing litigation that Altitude directs and controls, while shielding itself, the true stakeholde, from exposure as a party. A federal court in Delaware recently dismissed two actions brought by Altitude shell companies for lack of standing in precisely these circumstances—i.e., where Altitude, not the plaintiff, controlled litigation and settlement strategy, depriving the plaintiff of substantial rights to the patents. This action, too, must be dismissed."
Citing other cases, Google and other defendants also said this:
"It is no answer for Plaintiff to say that it holds the 'title' to the patents or that it has not formally assigned the patents to Altitude. '[W]hat matters is the substance of the arrangement.' [...] In other words, the conveyance of rights—not mere title—is what matters. Here, even if Plaintiff did not 'transfer formal legal title,' it 'effect[ed] a transfer of ownership for standing purposes [by] convey[ing] all substantial rights' to Altitude."
On the surface, this sounds a lot like what Apple is now saying in connection with MMI due to the restrictions imposed by the merger agreement, but again, I don't want to take any particular position yet.
An interesting anecdote about that motion in the Software Rights Archive case is that Google and AOL were represented by some of the lawyers who initially also led Google's defense against Oracle, while Yahoo and Lycos were represented by some of the lawyers who represent Oracle against Google.
MMI's position was unclear when the motion was filed
Attached to its motions, Apple's lawyers told the court about their attempts to obtain MMI's lawyers' consent. At some point, Apple's lawyers announced that they were going to file their motions at noon the next day and wanted a clear yes or no from the MMI side. MMI's lawyers asked for several more days to analyze the situation and discuss this with their client.
It's possible that MMI's management and lawyers had a hard time taking a decision on this. By supporting Apple's motion, they would admit that their hands are currently tied. But that doesn't mean they'll contradict vehemently. We'll see soon.
Other lawsuits between Apple and MMI are not affected
Apple filed those motions to stay in two cases, but there are several others in which they didn't do so:
There's a Wisconsin case that is stayed anyway at this time pending the ITC investigations instigated by the parties.
There's a third Wisconsin case. In that one, Apple is bringing claims related to FRAND-committed patents declared essential to industry standards. I mentioned that one in connection with similar claims Apple just brought against Samsung in California (in the form of counter-counterclaims). Apple apparently wants that FRAND case against MMI to continue since it's not about MMI's patents but about clarifications of the legal situation concerning standards-related patents. It's possible that Apple's motivation to move for a stay of a couple of infringement cases is to gain time during which other cases -- such as this FRAND case -- can progress. This FRAND case could result in clarifications that could be very useful to Apple in some other cases.
In the ITC investigation of MMI's claims against Apple, all deadlines are currently stayed because the Administrative Law Judge (ALJ) who was in charge of the investigation until recently has retired (apparently somewhat surprisingly), and the ITC has resource constraints due to too many cases. We will see whether Apple tries to have that one stayed as soon as the ITC resumes its work on it.
Another ITC investigation relates to Apple's claims against MMI. A hearing in that one will begin in two weeks, and an initial determination is scheduled for the end of November. Since that case is only about patents held by Apple (unlike federal courts, the ITC doesn't allow counterclaims), it's just about MMI's alleged infringement and unrelated to MMI's control over its own patents. Apple may also like the idea of staying the federal infringement cases while its own ITC case progresses.
So there are some potential benefits for Apple. Otherwise its lawyers wouldn't have have filed those motions. The ball is now in MMI's court.
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