Saturday, April 14, 2012

Deficiencies of US$280,000 bond may require Apple to restart a German Samsung lawsuit

Four hours after yesterday's pronouncement of a Motorola v. Apple ruling, the Mannheim Regional Court held an Apple v. Samsung trial -- the sixth one that I attended (not counting Samsung's Mannheim claims against Apple, three of which have already gone to trial and been adjudicated).

If Apple won this case, it would get quite some leverage against Samsung in Germany because a fairly important part of the user interface layer of the Android operating system would have to be rewritten (requiring a rewrite of many if not all existing applications that were written for Android versions 2.3 or higher), and an infringement finding is within the realm of possibility, but the court won't even rule on that patent anytime soon if Samsung's objections to a bond provided by Apple (to cover litigation expenses in the event Samsung prevails) succeed -- and the court identified at least two reasons for which the latter might indeed happen. The decision was scheduled for June 22, 2012.

In the following, I'll firstly discuss the administrative issues concerning the bond, and then I'll talk about the patent and the likelihood of Apple's success on the merits if and (especially) when a decision will be made on the actual infringement claim. Usually substance would come first, but in this case, the likelihood of a procedural decision is so high that this is the right order.

Samsung claims Apple's €214,000 ($280,000) bond was signed by bank clerks without signatory powers and has legal loopholes

Under German law, the loser picks up the prevailing party's legal fees -- not the expenses that were actually incurred but an amount that is degressively proportional to the amount in dispute. If a plaintiff is not based in Germany, the defendant can demand that a bond over that amount (typically for the fees of not only the first ruling but also of an appeal) be posted. Even though it's hard to think of a creditworthier company than Apple, whose market capitalization is approximately two million times the amount of that bond (214,000 euros, or approximately 280,000 U.S. dollars), they're all equal before the law.

Samsung has previously raised this objection. I reported on it once (at the end of this post), and I saw it happen again but didn't even mention it here because I thought it was just a sideshow: a long shot to cause delay. HTC also raised this issue at a recent hearing in Munich. But this time around, this issue may very well be outcome-determinative for the pending lawsuit, and if the court dismissed Apple's lawsuit for failure to provide the required bond (this might be treated the same way as if Apple had simply withdrawn its complaint without prejudice), Apple would have to start all over again and bring a new lawsuit over the same patent.

There's no question that Samsung isn't genuinely concerned over whether it will get paid, but the law is the law, and if this helps Samsung delay a ruling, especially in a lawsuit that could have serious implications for its business, it's legitimate to raise this objection.

In the other cases in which this issue came up, it was raised at the start of the trial for the first time. Here, however, Samsung raised the objection in an earlier pleading (which adds to the legitimacy of the objection), and Apple then provided a bond three days before the trial (right on the deadline the court set, i.e., Tuesday, April 10). Should this bond be found to be unsatisfactory for whatever formal or substantive reason, the court will dismiss the lawsuit at Apple's expense, without ruling on the actual issues, and without prejudice.

Samsung's lawyers complained that the two ladies who signed the bond on Deutsche Bank's behalf do not appear in Deutsche Bank's trade register record as representatives with signatory powers. Samsung provided a copy of the current trade register record, and the court appears, in principle, inclined to agree that a bond, in order to be formally binding, must be signed by someone with full authority to do so.

Judge Andreas Voss furthermore expressed, on a preliminary basis after a recess, the court's "dislike" for a potential loophole in the wording of the bond: basically, Samsung can claim its money if it "prevails", but there are other procedural events (such as a withdrawal) in which Samsung would benefit from the German "loser pays" rule without winning the actual lawsuit.

Samsung also objected on the basis that two Samsung legal entities are beneficiaries of the bond, but the bond doesn't clarify what would happen if (for example) one party claimed all of the money. The judge didn't comment on that one. This objection also appeared exceedingly formalistic to me since one of the two companies is the parent company of the other, and they should be able to sort this out internally. But if any one of the other two objections (which Apple can now address in a post-trial brief) succeeded, Samsung would gain time.

For Apple's counsel, it would be better if the signature authority issue was outcome-determinative (an issue for which Deutsche Bank would have to accept all the blame and be ashamed) than if this depended on the wording of the bond, which was well-meant to protect Apple's interests in a scenario of Samsung redeeming the bond in situations in which it isn't entitled to it, but that wasn't necessarily the right priority. If Samsung cashed in without a legal basis (which is doubtful anyway), Apple could still sue in order to get that money back later, or in extreme cases indict Samsung -- and in any event, the commercial value of real leverage against Samsung definitely outweighs the $280,000 amount.

I don't know how optimistic Apple is about winning this case on its merits if the bond issue is resolved. I saw the trial but none of the documents, and based on what I know, I think Apple may win this, but there's considerable uncertainty. In my estimate, Apple has a 40% chance of winning. A dismissal without prejudice would make it quite easy for Apple to refile this matter with a different court and try its luck there. Should Apple be skeptical of the outcome of the Mannheim case, then it might not even want to defend the bond too vigorously.

Infringement analysis raises an issue that helped Samsung defeat a motion for a preliminary injunction in the Netherlands

The patent-in-suit is EP2098948 on a "touch event model". Basically, this patent covers ways in which "views", a term that for the purposes of the patent means pretty much anything visible from a button or menu item all the way up to a window, have flags (data points) that indicate how a touch event (such as "this item is being touched") should be routed. For example, if multiple views are flagged as "exclusive", then only the first item at which contact is detected will be notified and all other items won't even receive the information (from the operating system) that inform them of additional contacts with the screen. Alternatively, "views" can also be flagged as supporting multitouch.

The "nasty" part about this patent is that we're talking about operating system-level user interface functionality. A workaround might require some kind of "cardiac surgery" that has implications for potentially all Android apps. That creates some transitional problems, and in the long run, not being able to implement the patented invention (if that one is defined as broadly as Apple suggests) would result in a loss of efficiency from a software development perspective.

Apple asserted this one in the Netherlands last summer in a motion for a preliminary injunction against Samsung. I published the August 24, 2011 decision of the court in The Hague, which found Samsung's Android-based devices at the time to infringe a photo gallery flipping patent but not the touch event model patent. The reason for which the Dutch judge concluded, on a preliminary basis since he had to decide in a fast-track proceeding at the time, is also the stronger one of the two non-infringement arguments Samsung makes in Mannheim.

That non-infringement contention basically comes down to arguing that one of the required flags is set at the window level, not at the level of each user interface element ("view" in the terminology used by the patent) as Samsung says the patent requires.

The other non-infringement argument (claiming that "selective sending" only means a binary choice of whether or not to send a message at all), has much less traction as far as I can see.

It's hard to tell whether the argument that saved the day for Samsung in the Netherlands last August is going to succeed again in Mannheim. For example, the judge noted that a single incident of infringement in the Android codebase (for example, if windows with only one "view" constituted an infringement) would be sufficient for a ruling against Samsung. If Apple can show one such incident, then I believe Samsung will lose this case (with or without a delay). Even if there's no evidence of such an incident, I think the breadth with which Apple would like to see the claim language interpreted and applied to the accused technology is not extreme. On a scale from 1 to 10, comparing this to what I see in those patent infringement cases all the time, I would say that the breadth proposed by Apple is a 3 or, at the most, a 4.

In other words, Apple's infringement theory might be just about good enough to succeed on the merits, if and when it gets there.

Samsung presented some new prior art references shortly before the trial, and those weren't discussed on Friday, but none of its earlier references appeared persuasive to the court. One of them was discussed, and based on keywords I tracked it down: U.S. patent application No. 2006/026535 on a "mode-based graphical user interfaces for touch sensitive input devices". That one ranks user interface objects by a "figure of merit", which has some things in common with the touch event model but still appears to solve a different kind of problem with largely different means.

From Samsung's perspective, there's still a decent chance of defending itself successfully even if the bond is ultimately deemed satisfactory. Also, Samsung's lawyers performed extremely well at this trial. This time they were particularly good at making points the presiding judge was genuinely interested in (on some other occasions I thought they insisted too much on unavailing arguments), and they made them very well. But this is not an easy patent to deal with. That's why the alleged deficiencies of the bond come in handy, and I think this case is more likely than not to be dismissed without prejudice. Then it may go to trial again later this year or early next year, unless Apple and Samsung settle in the meantime.

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents and Google+.

Share with other professionals via LinkedIn: