Wednesday, March 14, 2012

Samsung suffers second and even more important FRAND defeat to Apple in the Netherlands

Dutch website reports that the Rechtbank 's-Gravenhage (the District Court of The Hague, Netherlands) just handed Apple -- and the concept of FRAND standards, which is more important than even the world's most valuable company -- a highly meaningful victory over Samsung.

The Dutch court reaffirmed in a partial ruling based on a full-blown main proceeding ("bodemprocedure" in Dutch), which included a hearing on February 17, what it had already decided in a fast-track proceeding triggered by a Samsung motion for a preliminary injunction ("kort geding" in Dutch) last October: in light of its FRAND licensing obligation governing patents allegedly essential to 3G/UMTS, Samsung cannot pursue injunctive relief as long as Apple appears willing to negotiate a license agreement on FRAND terms, an effort that shouldn't be marred by the threat of an injunction. At the time, the court stated that the first step toward an agreement on FRAND terms is a request by the license-seeking party for an offer on FRAND terms by the patent holder, followed by such an offer. Yesterday I said that this - as opposed to the German Orange-Book-Standard line, which places all the burden on the implementer of a standard -- also appears to be the thinking of the European Commission, based on a number of indications I identified in its clearance decision on the proposed acquisition of Motorola Mobility by Google.

Furthermore, the court held that Samsung cannot assert 3G/UMTS patents against the iPhone 4S due to patent exhaustion: Apple is licensed by extension since it purchases baseband chips from Qualcomm, and Samsung's attempt to terminate its license agreement with Qualcomm as far as third-party beneficiary Apple is concerned failed because Samsung had make a commitment to ETSI, the standards body in charge of 3G, that it would grant irrevocable licenses to its 3G/UMTS-essential patents.

On those grounds, a French and an Italian court had previously denied Samsung preliminary injunctions against the iPhone 4S. In December, Samsung withdrew an infringement claim against the iPhone 4S in Germany (but kept its options open to reassert the claim later).

Subsequently, Samsung was allowed by a U.S. court to obtain, and present to international courts, contracts and letters relating to the commercial relationship between Qualcomm and Apple, and the related supply chain. It appears that the related information has not tipped the scales in Samsung's favor. Today's Dutch ruling is, at least to my knowledge, the first one to have been handed after that discovery effort.

The court did not find Samsung's patent rights to be exhausted with respect to baseband chips Apple purchased from Infineon until January 2011. Concerning baseband chips Apple subsequently purchased from Intel (which acquired Infineon's mobile baseband chip division), the court granted Apple leave to make a case for patent exhaustion based on an analysis under U.S. law. Apple has until March 28 to file that brief, and Samsung gets to reply on or before April 11.

To the extent that Apple actually infringed Samsung's patents because it wasn't licensed indirectly through the purchase of its relevant baseband chips, Samsung is entitled to damages. Based on the positions the court has taken on FRAND so far, it appears most likely to me that any such damages will be determined in light of Samsung's FRAND licensing obligation. This means that whatever money Samsung can expect to get out of this litigation will, most likely, be rather limited.

While the most important part of today's ruling -- the denial of injunctive relief based on FRAND -- reaffirms the court's previous position, today's decision is a more meaningful victory for Apple, and a more hurtful defeat for Samsung, than the mid-October ruling for the following reasons:

  1. A decision resulting from a full-blown main proceeding is still appealable, but it is based on a more comprehensive analysis than a fast-track decision in the process adjudicating merely a motion for a preliminary injunction.

  2. The Dutch court once again found that Samsung sought injunctive relief at a time when, in that court's opinion, it had yet to comply with its FRAND licensing obligations. Samsung is going to have to explain this conduct to the European Commission, which is formally investigating Samsung's use of standard-essential patents against Apple.

  3. Today's decision is (at least) the third one in Europe that agrees with Apple concerning patent exhaustion due to Samsung's 1993 patent license agreement with Qualcomm.

    The fact that European courts do not believe Samsung was in a position to terminate its license agreement with Qualcomm with respect to Apple as a third-party beneficiary also means that Motorola Mobility, which receives advice from the same U.S. lawyers and tried the same thing, will have a hard time, at last in those countries, if it seeks to convince courts of its "termination" theory. While it is possible and even likely that there are significant differences between Qualcomm's agreement with Samsung and the one with Motorola, the dismissal of the "termination" theory by those European courts is always based on ETSI's FRAND declaration and its requirement to grant "irrevocable" licenses.

  4. Even Samsung's theory based on the Qualcomm-Apple supply chain hasn't enabled it to achieve a better result than in previous decisions involving patent exhaustion.

So far, Samsung has not been able to prevail with any of its offensive claims against Apple anywhere on this planet. Today's ruling is only the latest in a series of losses. Samsung succeeded against Apple only defensively by fending off, or winning the reversal of, decisions in Apple's favor. Against that background, Samsung is not presently in a position to force Apple into a settlement on the Korean company's preferred terms. (Apple was reported to have recently made licensing proposals, but apparently with carve-outs, to Samsung and Motorola.)

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