Tuesday, May 8, 2012

Apple and Samsung drop claims against each other but disagree more than ever on key issues

Late on Monday by local time, Apple made a filing in its first California litigation with Samsung that offers a truly impressive narrowing of its infringement claims in that action, roughly cutting them in half, and five hours later, Samsung offered to drop five of its 12 asserted patents but argued that Apple's case is still far too big to go to trial this summer. Apple's filing accused Samsung of being uncooperative in the build-up to these filings, but Samsung puts all the blame on Apple and says the case still isn't ready for a summer trial.

There's also the usual bickering over whether Samsung makes "copycat products" infringing Apple's rights or, as the Korean company argues, "innovative, independently developed technologies". Samsung is innovative in some areas but it adopted Google's Android, which has been found by judges on three different continents (and, just yesterday, by a San Francisco jury) to infringe third-party intellectual property rights, and added its own infringements on top. Steve Jobs once said that "good artists copy, great artists steal". But between these two companies here, there can be no doubt about who's copied from whom, just like there can be no doubt about who singlehandedly revolutionized an entire industry. The only question left to be answered is about scope: which of the asserted rights are both valid and infringed? (That said, as a consumer I like to have choice, and I own a Samsung Galaxy Note, which constitutes a truly innovative form factor, as well as an iPad 2).

A week ago I reviewed a joint filing by Apple and Samsung and expressed serious doubt that the narrowing proposed at the time was sufficient to ensure a summer trial date. It was significant, but not huge. I had so much doubt that I thought Apple was more interested in a broadbased case than in a near-term trial. Now Apple has shown that it's really prepared to make substantial concessions in order to keep the schedule.

We've probably reached the point at which further narrowing would best be achieved with summary jugment decisions. Judge Posner made a gigantic contribution to the narrowing process through his numerous summary judgment decisions in the Apple v. Motorola Mobility litigation he's presiding over in Chicago. I didn't fully agree with all of them substantively, but their impact on narrowing is beyond doubt.

Let's start with the parties' argument about the competitive landscape (which is very important at this critical juncture of the lawsuit and less than two weeks before the companies' CEO will meet in San Francisco for court-moderated settlement talks), followed by a bird's-eye view of their proposed narrowings and remaining assertions, and then I'll talk about individual intellectual property rights at issue.

Apple says Samsung has now become the number one in worldwide smartphone sales thanks to infringement, claims Samsung owes billions of dollars in damages

In order to underscore the sense of urgency Apple stresses the "massive, continuing harm on Apple" resulting from Samsung's alleged infringements:

"While the parties have been readying the case for trial Samsung has vaulted into first place in worldwide sales of smartphones, with massive sales of its copycat products. (http://www.washingtonpost.com/business/industries/samsung-electronics-reports-record-profiton-strong-smartphone-sales/2012/04/26/gIQAraz0jT_story.html.) Samsung's infringement of Apple's intellectual property has already resulted in damages that reach billions of dollars. [...] It is critical to Apple to start trial on July 30, to put an end to Samsung's continuing infringement."

Samsung claims Apple is "[u]nable to compete in the marketplace" and "instead seeking to compete through litigation, requesting injunctions against the full lineup of Samsung's mobile phones and tablet products". Samsung also says that "Apple has only been able to muster utility patents covering extremely minor user interface features, and design patents and trade dresses that offer far narrower protection than Apple urges".

Except for the question of market leadership (in this litigation it's obviously in Apple's interest to be a number two that needs protection) and the explicit claim that this is, besides an injunction, about billions of dollars in damages, the thrust of this is consistent with the positions these parties have had ever since the dispute started. Still, at this juncture the question is how -- and especially, how quickly -- this will be resolved, and that's why I want to look at the broader picture once again.

As far as Samsung's claims are concerned, I'm generally closer to its position on the scope of design patents (though those are unusually important in this particular case as I'll address in the next section) than to what it says about Apple's patented user interface features: those are quite important to end users (like me). If they weren't, Samsung could agree to take them out and settle with Apple.

Apple CEO Tim Cook was unequivocally clear two weeks ago that he's always hated litigation and is prepared to settle so long as he's assured that others will innovative independently so Apple won't have to serve as the world's development studio. Rather than disparage Apple's patents (though ith as every right to defend itself against them), Samsung should give those assurances. Then the CEO-level settlement talks scheduled for May 21 and 22 will yield a breakthrough success; without Samsung being prepared to make that commitment (which it can only make if its key software supplier Google supports it), mediation is doomed to fail before the first word is spoken and the parties' time would be spent more productively on a trip to Yosemite.

Apple needs to maintain a coherent, multi-pronged case while Samsung offers to drop claims that appear weak

There are fundamental differences between the parties' offensive claims that go far beyond the mere numbers of intellectual property rights (or as Samsung argues, the result of multiplying the number of claim elements with the number of formally accused products). These are the structural differences:

  1. Apple asserts a combination of utility patents (technical invention patents), design patents, and trade dresses, while Samsung asserts only technical patents. Samsung tries to capitalize on this difference by overstating the complexity of design-related rights -- the fact of the matter is that judges and juries can evaluate a whole list of design rights (even if multipe products are accused) in the amount of time it takes to understand just one technical patent of average technicity and complexity. More importantly, it's quite telling that Samsung can't assert design rights against Apple without bringing frivolous claims. That's because Samsung imitated Apple's products, not the other way round. Samsung owns many design rights, but Apple doesn't infringe them. Even if Samsung is right that such design-related rights tend to be softer and narrower than technical patents, that makes it even more embarrassing for Samsung that it may nevertheless be found to infringe on a number of those.

    For Apple, it's strategically important to maintain a coherent story. Apple wants to show copying at the design level as well as the technical level. There are synergies with a view to liability as well as remedies. This coherent story sets Apple's claims against Samsung fundamentally apart from, for example, a lawsuit brought by a patent aggregator like Intellectual Ventures or even Yahoo!'s lawsuit against Facebook, which is only a case of one of yesterday's winners trying to tax one of today's winners, capitalizing on the fact that the patent system rewards the first to register something, regardless of whether subsequent innovators, like Facebook, operate totally independently.

    I'm a design rights skeptic from a strategic point of view. But even I think Apple should pursue those claims in this particular case for the sake of coherence but also because it must get those claims adjudicated in order to draw a line in the stand. As odd as it may seem, even a lost assertion of an intellectual property can have the effect of drawing a line in the sand by forcing the defendant to claim differences between his design or technology and what is covered by the asserted intellectual property right, which has an effect going forward. I also think that the recently-presented Samsung Galaxy S3 would probably be much more of an iPhone lookalike if Apple didn't bring and pursue all those design rights cases. It won't be able to bring Samsung to its knees with design rights -- but it has to get as much mileage (in terms of differentiation) out of them as it possibly can. It's about managing expectations.

  2. Samsung asserts a combination of allegedly standard-essential patents that Apple may infringe, but only if they're standard-essential, and non-standard-essential patents that appear weak to me at this stage. Samsung's counterclaims are underwhelming. They're the kind of counterclaims someone brings only for the sake of bringing counterclaims, which is why it's far easier for Samsung to drop a number of them (Samsung now proposed to withdraw 5 of its 12 technical patents). When Samsung countersued Apple over such a long list of patents, it knew that the case would be narrowed. The fact that it now proposes that all claims should be dropped with prejudice, while Apple wants to still pursue its remaining claims elsewhere, also shows that Apple believes in its asserted rights to a much greater extent than Samsung does.

  3. There's another reason to assume that Samsung's claims are, on average, considerably weaker than Apple's: the parties have now been suing each other for a while, with more than 50 lawsuits having been filed in 10 countries, and both of them have made several attempts to win preliminary injunctions. Apple has had a high drop-out rate but has also had some successes. Samsung has had a 100% drop-out rate so far. That rate won't stay at 100% forever, but all that Samsung is likely to enforce will be standard-essential patents (which raise serious antitrust issues) and weak non-standard-essential patents.

  4. Apple prevailed on claim construction.

Samsung does a great job denying and concealing those differences. Ultimately, Apple's home court will try hard to appear very fair. I'm a blogger and independent consultant and can share with you my assessment of how strong the parties' claims are, but Judge Koh wouldn't be able to say this, let alone base a decision on this, even if she had the same kind of opinion.

There's a lot of diplomacy and politics involved here. But even between two companies from the same country, it would be virtually impossible to get a court to determine, ahead of summary judgment and a trial, that one party has a fundamentally better case, no matter how strong the indications may be. Samsung has every right to take advantage of those circumstances, and every party believes in its claims to a greater extent than a third party would. Apple has the right to argue that Samsung's narrowing doesn't go far enough, but it must be realistic about what the court can do. That's why I repeat myself: the very best next step would be for the court to help out with summary judgments (even though some of the "fairness" and "diplomacy" issues might also complicate that task, and Judge Posner may just have a different, more authoritarian approach than Judge Koh, but then he's also the most-cited U.S. legal scholar of the 20th century). Ultimately, Apple will probably have to live with the fact that Samsung won't narrow its claims down to four patents (which is the number Apple suggests). Samsung will always assert more technical patents than Apple to make up for those design-related rights.

Details of Apple's proposal

Apple is basically willing to cut approximately in half the number of intellectual property rights (utility patents, design patents, trade dresses) asserted at trial and to drop all of its claims based on trademarked icons, but it doesn't want to drop most of those claims "with prejudice": Apple either wants to assert those other claims at a separate bench trial (no jury) or reserve the option to make them the subject of a new lawsuit. In order to make a bench trial an option, Apple would "solely seek injunctive relief" -- and no damages. That's because a request for an injunction is, under U.S. law, a matter of an equitable determination ("four-factor test") by a judge, while the amount of a damages award is a factual issue to be put before a jury, which then also looks at infringement.

As I mentioned above, Samsung insists on dismissal with prejudice.

Samsung claims that "Apple already made this proposal [of dropping certain claims only for the jury trial] at the last Case Management Conference, and the Court expressly stated that if Apple wanted multiple staged trials, it would need to find some other forum to bring its case".

Here's a list of the relevant intellectual property rights:

  • Utility (i.e., technical) patents: from 8 to 4

  • Design patents: from 7 to 4

  • Trade dresses: from 8 to 2

    • Last week, Apple already offered to drop

      • iPhone trade dress Registration No. 3,475,327;

      • iPhone trade dress Registration No. 3,475,327; and

      • the unregistered trade dress for the original iPhone and the iPhone 4.

    • Apple is now willing to drop (for the jury trial)

      • iPhone trade dress Registration Nos. 3,457,218.

    • Apple still plans to assert (for the jury trial)

      • iPhone trade dress Registration No. 3,470,983;

      • the iPhone 3G (unregistered) trade dress;

      • iPhone/iPhone 3G/iPhone 4 (unregistered) trade dress;

      • the iPad and iPad 2 (unregistered) trade dress; and

      • the unregistered iPad/iPad 2 trade dress.

  • Trademarks: all dropped

    • Apple has by now dropped all of its trademark clams (most of those were trademarked icons).

With respect to defensive claims, the final sentence of Apple's filing also notes that "[o]bviously, Apple is not willing and should not be required to waive any right to a jury trial on claims and defenses that arise from Samsung's continued assertion of patents that Samsung contends are essential to practice the UMTS telecommunication standard, including Apple's Twenty-Fifth through Twenty-Ninth Counterclaims in Reply". Those counterclaims are FRAND- and antitrust-related. Samsung previously suggested that Apple drop those counterclaims, but neither the court nor Apple will let Samsung get away unchallenged with what appears to be a clear case of abuse of FRAND-pledged, standard-essential patents.

Details of Samsung's proposal

The first eight pages of Samsung's filing focus on criticizing Apple's proposal as insufficient. On page 9, Samsung finally specifies which of its own claims it's willing to drop:

"Samsung will proceed to trial on fifteen claims from seven patents. With these reductions, Samsung has narrowed its case from twelve patents to seven, dropping 42% of its affirmative counterclaims. From a total of 75 claims identified by Samsung's experts as infringed by Apple's products, Samsung will drop 60 and only proceed on 15—a reduction in total claims of 80%."

Samsung dropped three patents last week:

With the latest filing, Samsung drops two more and greatly reduces the number of claims selected from those patents:

  • U.S. Patent No. 7,050,410 on an "apparatus and method for controlling a demultiplexer and a multiplexer used for rate matching in a mobile communication system", the European equivalent of which the Mannheim Regional Court did not deem infringed; and

  • U.S. Patent No. 7,069,055 on a "mobile telephone capable of displaying world time and method for controlling the same".

These are Samsung's remaining claims:

  • U.S. Patent No. 7,675,941 on a "method and apparatus for transmitting/receiving packet data using pre-defined length indicator in a mobile communication system" (asserted claims: 10, 11 and 15)

  • U.S. Patent No. 6,928,604 on a "turbo encoding/decoding device and method for processing frame data according to QoS", the European equivalent of which the Mannheim Regional Court did not deem infringed (asserted claims: 17 and 18)

  • U.S. Patent No. 7,447,516 on a "method and apparatus for data transmission in a mobile telecommunication system supporting enhanced uplink service" (asserted claims: 15, 16 and 17)

  • U.S. Patent No. 7,362,867 on an "apparatus and method for generating scrambling code in UMTS mobile communication system" (asserted claims: 25 and 26)

  • U.S. Patent No. 7,698,711 on a "multi-tasking apparatus and method in portable terminal" (asserted claims: 9 and 10)

  • U.S. Patent No. 7,577,460 on a "portable composite communication terminal for transmitting/receiving and images, and operation method and communication system thereof" (asserted claim: 1)

  • U.S. Patent No. 7,456,893 on a "method of controlling digital image processing apparatus for efficient reproduction and digital image processing apparatus using the method" (asserted claims: 10 and 12)

It appears that a majority of Samsung's remaining patents-in-suit are FRAND-pledged, standard-essential patents.

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