Friday, September 16, 2011

Apple still has upper hand against HTC but review decision threatens preliminary win at the ITC

Two weeks ago I analyzed HTC's and the ITC staff's petitions for review, and Apple's contingent petition for review, of an ITC judge's initial determination that found HTC to infringe two valid Apple patents and recommended an import ban. I previously showed the infringement claim charts related to those two patents.

Yesterday the Commission, the six-member decision-making body at the top of the ITC, published its notice of a decision to review various of the judge's findings.

While the review is limited to 16 issues, those relate to the validity and the infringement of all four patents still in play at this stage. Therefore, the number of valid patents deemed practiced by Apple in the U.S. market (a requirement in ITC cases) and infringed by HTC could theoretically range anywhere from zero to four at the end of the process. However, in light of the public record of this investigation so far, the issues raised and a set of five questions the Commission wants the parties to address now, this is how I assess, as a first reaction that may be followed by more detailed analysis in the weeks and months ahead, the likelihood of different possible outcomes:

  1. I continue to be skeptical as to Apple's chances of getting a better outcome, meaning that Apple could convince the Commission of the validity and infringement of one or both of the two patents that the Administrative Law Judge did not consider valid, practiced and infringed. At this stage, my feeling is that Apple's chances of achieving that are less than 20%.

    Apple asked the Commission to review the decisions on those patents, too, if it (as Apple probably expected to happen) decided to review the parts that worked out well for Apple. The Commission has accepted several of Apple's suggestions that might be able to change the outcome with respect to those patents, but those patents will probably play much less of a role during the review than the other two. Also, in addition to Apple's questions related to the two "losing" patents, the Commission also agreed to look into a couple of ITC's related questions.

  2. The '263 patent ("realtime API patent") appears to come under most pressure. My feeling is that HTC has a chance of 50% (if not more) of defeating this part of the preliminary ruling.

    Among other things, the Commission agreed to look into HTC's and the ITC staff's concerns over the interpretation of "realtime API", an issue I discussed at length in my previous report on this process. On that one, I still believe Apple should prevail, and I don't agree with claims that there was an inconsistency in how the ITC judge applied this term and another one in different parts of the ruling (validity and infringement). But there's some risk here for Apple, and a couple of other issues that are going to be looked into could also tip the scales in HTC's favor as compared to the preliminary decision.

    Should Apple defend its preliminary success with this patent, it would be a huge win for two reasons:

    • This patent is much broader than the other one that was found valid and infringed. HTC and Google can talk about workarounds all they want, but for this patent I won't believe in a workaround until I see one. This is an architecture patent. I don't like that patent, but based on the record in this case it's non-trivial to have it declared invalid, and pretty much impossible to escape infringement based on any reasonable interpretation of its scope.

    • This patent could play a very important role in any direct litigation between Apple and Google (or with Motorola Mobility following the proposed acquisition), should such direct confrontation occur in the future. In connection with this particular patent, Apple claimed that Android founder Andy Rubin got the inspiration for Android while working for Apple in the early 1990s.

  3. The '647 patent ("data tapping patent") is still fairly likely to be deemed valid and infringed. The issues that the Commission is interested in could modify the related decision, but I believe there's at least a 75% chance for Apple to win on this one. That 75% probability includes multiple conceivable scenarios in which parts of the related decision might be reversed in ITC's favor, such as with respect to a couple of patent claims (out of the four that the judge deemed infringed), but not change the principal outcome concerning that patent.

    With respect to a possible workaround for this patent, I don't doubt that one can build smartphones without that functionality -- it's a really a convenience thing to be able to tap on a phone number in an email and open the dialer -- but I find it much harder to believe that one can work around this patent without degrading the user experience. That degradation wouldn't be striking, but Apple has many more patents in play against HTC, and if several patents of this kind were enforced, the aggregate effect on sales could become quite significant.

  4. After listing the issues under review and the questions the parties should particularly address, the Commission points out the limits of the scope of this review. There seems to be doubt about one or more of the issues raised particularly in HTC's petition for review as to whether it came up during the previous stages of the process. The Commission reminds parties of the fact that it "for example, decline to disturb certain findings in the final ID upon finding that issue was not presented in a timely manner to the ALJ".

    The Commission also says it "has determined not to review the remainder of the final ID". That's why I said further above that this is a review "in part". By contrast, the initial determination on S3 Graphics' complaint against Apple is being reviewed in its entirety.

    One paragraph in the Commission's notice shows that HTC's petition for review was in many respects out of line. HTC obviously wants to avoid an infringement finding and it's understandable that it raised many issues, but there are certain rules in place and the notice stresses that the Commission rejects HTC’s attempt to “incorporate[] by ... reference in their entirety all of the arguments .. with respect to all issues decided adversely to HTC's positions” from the thousands of pages of briefing before the ALJ [and other documents]. [...] Accordingly, such issues are 'deemed to have been abandoned' by HTC 'and may be disregarded by the Commission in reviewing' the final ID. [...] Similarly, HTC's single-sentence recitals of issues proposed for review – such as 'HTC likewise demonstrated that claims 5 and 6 are invalid in light of [...]' – do not constitute a 'concise argument' as required by Commission rules and omit the requisite 'concise statement of the facts material to the consideration' of the issue. [...] Such issues are deemed to have been abandoned as well.".

    In its defense against Apple, HTC's legal team clearly does various things that don't enhance its credibility to put it mildly. The ALJ's initial determination already criticized HTC's lawyers for making a "disingenuous" argument, and the related story indeed reflects extremely negatively on the approach chosen by HTC's lawyers.

It's pretty normal for the ITC to review such decisions, and to place particular emphasis on the part that could result in an import ban. It's not a particular setback for Apple that this review should happen, but there's a substantial risk of a narrower win, while an improvement in Apple's favor is more of a long shot. Even though a win that might ultimately be limited to the data tapping patent wouldn't be a fatal blow to HTC, it would represent significant progress for Apple in its enforcement actions against Android-based devices.

After the ALJ's initial determination I already said that Apple has many more patents in action against HTC, and can always add more. If you take a look at my updated battlemap of Apple's dispute with HTC and its subsidiary-to-be S3 Graphics, you can see how big the battlefield is -- and it's likely to get even bigger. This ITC investigation relates to Apple's first-ever complaint against Android-based devices. It's only the beginning. This is a marathon, not a sprint. It's a you-win-some-you-lose-some business, a characterization that also applies to the ITC review that has now begun and has a target date of December 6, 2011.

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