Wednesday, October 19, 2011

Essence of Apple's FRAND defense against Samsung unaffected by negative ruling on certain counterclaims

Samsung has persuaded a federal court to run a razor over Apple's FRAND-related counterclaims, cutting off some excessive parts without materially reducing the likelihood of success of Apple's FRAND defenses against some of the patents Samsung is asserting in the United States. In a nutshell, Apple fails to convince the court that Samsung committed any wrongdoing that harks back to when it participated in the 3G standard-setting process, but as far as the current situation is concerned, Samsung will nevertheless have to honor its FRAND commitments. This here is entirely unrelated to Apple's own patent infringement claims against Samsung. It's all about how Apple can defend itself against Samsung's counterattack.

In July, Apple brought counterclaims to some of Samsung's counterclaims in the parties' federal lawsuit in the Northern District of California. Why counterclaims to counterclaims? The original claims in that lawsuit were Apple's patent infringement assertions against Samsung. Samsung brought counterclaims against those original claims. And then Apple brought counterclaims against some of those counterclaims. Think of it as a "two-lawsuits-in-one" package. There's an Apple v. Samsung track, and a Samsung v. Apple track. We're now on the latter track, which used to be a separate Samsung lawsuit until it was (voluntarily) consolidated into Apple's lawsuit.

On this track, Samsung filed a motion to dismiss and strike some of Apple's counterclaims. In other words, Samsung wanted some of Apple's counterclaims thrown out at the earliest stage possible. The counterclaims Apple brought on this track were, essentially, enhanced versions of its FRAND defenses. Apple of course fought to keep the challenged counterclaims alive.

In a purely quantitative sense, the court agreed with this particular Samsung motion for the most part. Apple was sent back to the drawing board with respect to counterclaims that were lacking in particularity. The judge set a fairly high bar in terms of how Apple would have to amend those counterclaims if it wanted to resuscitate them. Some duplicative stuff was thrown out right away. But a very important counterclaim (under which the court could hold that Apple is entitled to a license to certain Samsung patents on FRAND terms and possibly even determine the amount of a FRAND royalty) survived.

More importantly, Apple's FRAND defenses (like I said, those counterclaims were just enhanced versions of its defenses) are still standing. Those defenses include that Apple denies Samsung's entitlement to an injunction. Samsung's motion to dismiss and strike did not relate to those defenses. In terms of the rationale underlying those defenses, the court order indicates that some broad and excessive accusations aren't credible unless Apple can be more specific about them, but the core of Apple's defense -- the notion that Apple is entitled to a license on FRAND terms and that Samsung should not be granted an injunction unless Apple refuses to take a FRAND license -- is undoubtedly intact.

A simplistic way to put it is that Apple threw in everything including the kitchen sink in connection with its FRAND standard-based defense, which included some accusations against Samsung that were incriminating (if not downright nasty), but the court doesn't buy the excessive part, at least not on the basis on which it was originally asserted. That said, the fact that Samsung aren't quite the bad guys some of Apple's counterclaims made them out to be still doesn't mean that Samsung can use FRAND-pledged standards-essential patents to have Apple's products banned. All of the reasons for which a Dutch judge last week denied Samsung a preliminary injunction based on FRAND patent assertions would still be fully available to the California-based court to deny Samsung a US-wide injunction based on 3G-essential patents.

It's quite possible that Apple knew some of its claims were rather ambitious and aggressive but hoped there might have enough of an argument that the court would at least allow Apple to conduct some discovery, which could always result in interesting findings. Samsung did the right thing by bringing a motion to dismiss and strike, and the judge concluded that the largest part of Samsung's motion was right on the law. This is good news for Samsung, but it's important to understand that it doesn't poke a hole in Apple's FRAND defenses. It just limits those defenses and the related counterclaims to their reasonable parts.

For those who want to look into this in more detail, let me show you the ruling and then explain it item by item:

11-10-18 Order on Apple FRAND Counterclaims Against Samsung

Item by item:

  1. The court dismissed Apple's claim that Samsung misrepresented its intent to license its declared essential patents on FRAND terms. While the court recognizes that a false FRAND declaration (made at the time of joining a standard-setting process) would be illegal anticompetitive conduct, "Apple has not set forth facts establishing when these declarations were made and by whom, and for which patents these FRAND declarations were made". Apple argued that only Samsung would be able to tell, but Apple either has to be a lot more specific before Samsung produces any documents or this claim won't get a second chance.

  2. Apple also needs to provide more substance if it wants to claim that ETSI (the standard-setting organization relevant to this case) would have chosen a different standard than 3G if it had known that Samsung wasn't going to honor its FRAND licensing commitment. "Without more, for example, factual allegations that there were other technologies considered by the [standard-setting organization] at the time of standard setting, Apple has not met its burden
    under the [applicable] pleading standards".

  3. Apple basically argued that a standard-setting consortium is a borderline cartel by definition and it takes only one participant engaging in abusive behavior -- in this case, that would allegedly be Samsung -- to render the whole process anticompetitive. However, the court doesn't agree. Unless Apple can bring specific allegations that Samsung had partners in crime, it doesn't have a point in the first place.

  4. Apple would also have to come up with something better for its claims under California unfair competition law. The issues appear to be the same as with respect to Apple's claim under United States antitrust law.

  5. At least at this early stage of the process, the court allows Apple to pursue a counterclaim asking for a declaratory judgment that Apple is licensed to Samsung's 3G-essential patents. While this counterclaim stays alive, I'm not sure Apple will really convince the court that it has an actual license. It's far easier to argue that one is entitled to a license than to assert that one automatically receives a license. The Dutch decision was also based on the former, not the latter.

    The same surviving counterclaim in the California litigation that alleges the existence of a license also asks for a "declaratory judgment setting forth the FRAND terms and conditions for a license to the Declared-Essential Patents, including the applicable royalty rate". The Dutch court didn't want to make that determination, but that doesn't mean that it denied Apple's rights. It's just that the judge in The Hague believes the ball is in Samsung's court and Samsung now has to make Apple a FRAND offer (since the offer Samsung previously made was considered outside of the FRAND ballpark in the Dutch court's view). So the question here is just who has to take which initiative at which point in time before the court will step in and make a determination. It's about the sequence of those kinds of events, but doesn't cast any doubt whatsoever on Apple's entitlement to a FRAND license.

  6. The court then threw out a couple of Apple counterclaims that are "mirror images" of defenses it has already brought. One of those was a request that the court declare that Samsung isn't allowed to ask for an injunction. Apple can still use this as a defense, but the court doesn't see that Apple can additionally ask the court to make a declaration on this legal issue. In practical terms, this means that if the court decides against Samsung's patent infringement claims (for example, because it finds the patents are not valid or not infringed), it won't have to look into the question of whether Samsung would have been entitled to an injunction if there had been an infringement of valid patents. If one defense succeeds, it's game over. But if one or more of the related patents are deemed valid and infringed, and if there isn't any other defense that works, then Apple's claim that Samsung isn't entitled to an injunction would still have to be evaluated by the court as the motion to strike related to a duplicative counterclaim, not to the defense.

My personal view has been all along that Apple sometimes portrayed Samsung too negatively. I also said that in connection with Apple's labeling of Samsung as a "copyist" and "copycat". Samsung may have stepped over the line in some ways. It's quite possible that Apple holds various valid intellectual property rights that Samsung infringes. I also see pretty strong indications that Samsung makes demands that are anything but FRAND, and I don't like that attempt to push the envelope. But I can see why the court isn't inclined to believe that Samsung maliciously subverted an entire standard-setting process, and I doubt that Apple will be able to prove that. Maybe Apple will try again and amend the dismissed claims. It has the right to try, and it can afford it. But I would be surprised if Apple could meet the standard laid out by the judge.

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