Wednesday, May 30, 2012

Tim Cook makes clear-cut distinction between standard-essential patents and other patents

Tim Cook was the guest star at the opening session of the D10 conference yesterday. AllThingsD, which organizes D10, published this video of the part of the discussion that covered the ongoing wireless patent disputes.

The first question was whether the patent wars are a problem for innovation. Tim Cook reiterated that Apple does not want to "be the developer for the world", arguing that Apple doesn't want to be ripped off like a painter on whose paintings someone else puts his name.

AllThingsD founder Walt Mossberg, a long-time Wall Street Journal tech columnist whose articles I read and whom I saw at software industry conferences 20 years ago, then reminded Tim Cook of the fact that those lawsuits aren't one-way streets: "you're suing other people, other people are suing you." Tim Cook replied: "yes, of course, and when you look at those, the vast majority of those are standard-essential patents, and this is an area where the patent system is broken today". He argues that there's only "an economic argument" about how much one can expect to receive for the use of a standard-essential patent, but "no one should be able to get an injunction off a standard-essential patent", which he describes as "an abuse of the system that was not intended".

I support those views 100%. I think almost everyone who doesn't have a vested interest in the abuse of standard-essential patents would agree after a close look at the problem. There are basically just three kinds of companies who do think that the holders of standard-essential patents should not have to honor their FRAND licensing obligations:

  1. companies whose only business is to assert patents (pejoratively called "trolls");

  2. companies whose operating business is either much smaller than the opportunity they see in their patents (such as failed businesses who are left with nothing but patents) or whose product business also heavily depends on standard-essential patents (such as Qualcomm); and

  3. Google, Samsung, Motorola and (to a smaller degree) HTC.

The companies in the third group have one problem in common. On the one hand, they have to defend themselves in court because of Android's huge patent infringement problems (Android has already been found by courts in the United States and Europe to infringe a number of patents held by Apple and Microsoft), but on the other hand, their non-standard-essential patents are far too weak to reach a state of "mutually assured destruction" and get away with Android's infringements (either entirely or on sweet terms).

All of those companies can claim that most of the patents they own are non-standard-essential patents. Statistically, that's right. With the exception of Samsung, they can even claim that a majority of the patents they assert in Android-related litigation are non-standard-essential patents. But even in Motorola's (though not, or not yet, HTC's case), the percentage of standard-essential patents among their patents-in-suit is at least conspicuously high. Most importantly, no matter how many non-standard-essential patents they may be asserting in addition to their SEPs, it's really the SEPs that they hope to gain leverage with. Thus far, the entire Android camp has enforced only one non-standard-essential patent, in only one jurisdiction (Germany), against its rivals: Motorola's push notification patent (which will expire in three years) against Apple's iCloud and MobileMe services. Apple deactivated one feature (which causes some inconvenience, but only to some of Apple's customers who use particular email services in Germany), pursues its appeal and may get the patent invalidated in a parallel nullity proceeding. Motorola is struggling to enforce the same patent in the same court against Microsoft.

Motorola may have invented the cell phone back in the 1970's, but the patents Motorola filed for when it was at the forefront of wireless innovation expired long ago.

Google and its device makers are advised by some of the brightest lawyers in the world and know that they have to formally offer a cash-only licensing option. If they told Apple and Microsoft openly that the only way they will get a license to those SEPs is to enter into a broad cross-license agreement, they would make it too easy for antitrust regulators to go after them. They just want to create a situation in which those companies whose patents Android infringes will feel that they absolutely have to conclude a cross-license agreement on the Android camp's preferred terms. So the strategy of the Android companies is to make prohibitive cash-only demands: offers that they know cannot possibly be accepted. An ITC judge figured Motorola out, and the European Commission wouldn't have launched formal investigations against Samsung and Motorola if it was convinced that those royalty demands are legitimate.

AllThingsD interpreted Tim Cook right: he wants to settle those SEP issues but considers this a separate issue from Apple's enforcement of non-standard-essential patents. And that's where there's a fundamental disagreement between companies like Apple and Microsoft on the one hand, and the Android camp on the other hand.

When Tim Cook refers to an area in which the patent system is "broken" and to an "abuse that was not intended", he draws a line between SEPs and other patents. That line is perfectly logical. We are indeed talking about two categories of patents that have different characteristics and come with different rights and obligations. But from the perspective of Google and others, the patent system is "broken" in a more general sense, and "abuse" isn't uniquely limited to SEPs.

When talking about a "broken" patent system and "abuse", such issues as patent quality or the increasing industrialization of patent trolls come to mind. Apple is right about SEPs, but in my previous post I discussed new reexamination requests that were brought against the two most important multitouch software patents Apple holds, and one of them, the '949 "touchscreen heuristics" patent, is also a very clear indication of a need for serious improvement of the patent system. That patent covers the idea of a computer program distinguishing between, for example, a vertical and a diagonal movement by saying that any movement with an initial angle of up to 27 degrees counts as vertical while everything with a greater deviation from a perfect vertical line doesn't. That's not a contribution to technological progress. Even if Apple had been first to come up with that idea in connection with touchscreens (which is now very doubtful in light of the reexamination request I reported on), the related patent application sought to monopolize an entire category of problem-solving strategies.

The debate would benefit greatly from two things:

  • Google cannot complain about the state of the patent system as long as its wholly-owned subsidiary Motorola engages in by far the worst kind of abuse by pursuing injunctions based on SEPs while making demands no responsible would-be licensee can ever accept. If Google wants to credibly claim that Tim Cook's criticism doesn't go far enough, it has to refrain from engaging in the worst form of patent abuse. After that, it can still ask for further improvement and reform, or bring antitrust complaints of its own if it identifies any abuse of non-standard-essential patents (the hurdle for that is far higher though).

  • At the same time, Apple should acknowledge that SEPs aren't the only context in which the patent system needs to be fixed or in which there's abuse. Apple wants its products to be distinguishable from those of its competitors, and it's a legitimate position for an innovator to say he doesn't want to be ripped off. SEP abuse is the most pressing problem to address. Otherwise it could impact consumer choice (especially in an injunction-happy jurisdiction like Germany). But other issues also need to be dealt with. Patent quality would also be in Apple's interest. While some of Apple's patent assertions have succeeded, and many more of them will succeed in the future, the drop-out rate has been quite high, which shows that patents that shouldn't have been granted in the first place create legal uncertainty for plaintiffs and defendants alike.

What I just outlined may, however, be wishful thinking for the most part. Google apparently doesn't want to change Motorola's SEP-abusing strategy. In particular, it doesn't want to recognize that SEP abuse is the most urgent problem since it hopes to gain leverage from it. Apple probably won't want to concede that there are problems beyond SEP abuse since it needs immediate help in order to ensure that it can keep selling its products in major markets like the U.S. and Germany. A broader debate would take forever to arrive at a solution, and the broader an issue is, the harder it is to form a coalition around it.

Tim Cook finally answered the question about the impact of all of this on innovation. He made clear that SEP abuse won't stop Apple from innovating. It's hard to predict the outcome of a large number of lawsuits pending in multiple jurisdictions (and of antitrust investigations), but one thing is pretty certain: time is on Apple's -- not Google's -- side. The longer this takes, the more headway Apple will make with non-standard-essential patents despite the high drop-out rate I mentioned, while Googlorola and Samsung may come under regulatory pressure to back down. Also, there are some FRAND-specific lawsuits pending that may have a clarifying effect and strengthen Apple's position.

Many people look at patent litigation and oversimplify things by saying that everyone will ultimately settle due to "mutually assured destruction". That metaphor applies in some cases, but not in all. Between Apple and the Android camp, I don't really see "mutually assured destruction". It appears that Apple's overly broad patents are difficult or even impossible to enforce. Apple will need to enforce a significant number of patents. And the Android camp can't destroy Apple with non-standard-essential patents. Samsung and Googlorola are trying to use their SEPs to get decisive leverage, but Apple will either be able to fend off those threats in the courts or otherwise those FRAND abusers will run into serious antitrust trouble.

There will be settlements at some points, though no one knows when. But the terms will make a major difference in the competitive landscape. The assumption that everyone will ultimately go home and say that the only way to win this game is not to play it (the conclusion of the War Games movie) is too simplistic. Google hopes to get there, but it most likely won't. I fear that Google's unwillingness to face the reality of Android's patent infringement and to stop SEP abuse will just result in a waste of time -- time that could be used more productively to fix other problems.

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