Sunday, June 3, 2012

Samsung drops patent ahead of busy litigation week with Apple

An ITC hearing on Apple's complaint against Samsung started on Thursday (May 31), the ITC hearing on Samsung's complaint against Apple will begin on Monday (June 4), and this coming Thursday (June 7), there will be two preliminary injunction hearings in the parties' two federal lawsuits in the Northern District of California (one on Apple's February 2012 PI motion against the Galaxy Nexus smartphone and the other on a post-appeal motion against the Galaxy Tab 10.1).

Samsung had previously dropped some claims from a couple of its ITC patents. On Friday, the last business day before the ITC hearing on its complaint against Apple, Samsung filed an unopposed motion to withdraw from the investigation all claims of U.S. Patent No. 6,897,843 on a "device and method for storing and reproducing digital audio data in a mobile terminal" (a non-standard-essential patent, unlime most of the patents Samsung asserts against Apple around the globe) and another claim (claim 77) from a patent that Samsung doesn't withdraw completely (U.S. Patent No. 7,706,348 on an "apparatus and method for encoding/decoding transport format combination indicator in CDMA mobile communication system", an allegedly standard-essential patent).

As a result, there will be four patents at issue at the ITC hearing: two allegedly standard-essential ones (U.S. Patent No. 7,706,348 and U.S. Patent No. 7,486,644) and two apparently non-standard-essential ones (U.S. Patent No. 6,771,980 and U.S. Patent No. 7,450,114).

Samsung sought to preclude Apple from alleging that Samsung failed to make a licensing offer for its standard-essential patents on FRAND terms, but Judge Gildea denied that motion. The details of the decision aren't in the public record (only the headline is). It's well-documented that Samsung demanded a 2.4% royalty from Apple. The number was mentioned at a Dutch trial and showed up in an Italian decision. Whether Samsung has modified that demand is not known, but there's no indication that it has. In a final initial determination on the ITC investigation of Motorola's complaint against Microsoft's Xbox 360, Judge Shaw looked at Motorola's demand of a 2.25% royalty rate and saw evidence that no company in Microsoft's position could ever have agreed to that rate, concluding that "Motorola was not interested in good faith negotiations and in extending a [F]RAND license". Apple presumably hopes that Judge Gildea will arrive at a similar conclusion regarding Samsung.

In this investigation, Apple may get help from the Federal Trade Commission, a U.S. antitrust authority, which plans to file its concerns about import bans over standard-essential patents with the ITC. According to FTC chairman John Leibowitz, "the bipartisan majority on [his] commission is very concerned about suing for injunctive relief" over FRAND-pledged patents, a tactic that Apple CEO Tim Cook also denounced (speaking at the same event, AllThingsD's D10 conference, as Chairman Leibowitz).

These days, Apple and Samsung filed dozens of documents in their two California lawsuits. These are the key points:

  • Apple replied to Samsung's opposition to its post-appeal motion for a preliminary injunction against the Galaxy Tab 10.1 over an iPad-related design patent. Apple's reply stresses that the district court is free to enter a preliminary injunction now, despite Samsung's request for a rehearing by the Federal Circuit. In response to Samsung's argument that the Galaxy Tab 10.1 4G (the only version it's still selling the United States) doesn't compete with the iPad 2, Apple notes that "Samsung failed to make this argument in its original opposition to Apple’s preliminary injunction motion", disputes that the 4G LTE model is addressed to an entirely different market, and points out that a 4G-capable iPad went on sale in March. Apple turns Samsung's argument that an injunction would hurt its carrier relationships around by arguing that an injunction should enter now "before customers enter long-term contracts for Samsung products that result in customer loyalty and 'long-term effects that are difficult to calculate and may not be recaptured.'" As for the public interest, Apple points out that patent enforcement -- not infringement -- is in the public interest unless there's a "critical public interest", which Apple says Samsung hasn't identified. Apple exposes an out-of-context quote by Samsung's lawyers: in a citation they omitted the part that clearly indicated the relevant passage related only to assertions by non-practicing entities. There's also some disagreement between the parties over the amount of the bond Apple will have to post.

    As I said before, Apple is fairly likely to win this injunction. Samsung would be fortunate to get a delay.

  • The parties filed their opposition to various summary judgment motions (in the first of the two California lawsuits) I talked about in this recent post. Only one item in the publicly-accessible parts of the opposition briefs and their many attachments caught my interest: New York University Professor of Economics Janusz Ordover, whose "areas of specialization as an economist include industrial organization, antitrust, and regulation economics", provided a declaration on the effects of Samsung's enforcement of standard-essential patents in this litigation. In his opinion, "Samsung's conduct, specifically its failure timely to disclose its intellectual property rights ('IPR'), its failure to offer licenses to its declared SEPs on FRAND terms, and its efforts to obtain injunctive relief against Apple's sale of mobile devices without offering Apple a FRAND license to its declared SEPs harmed competition in the technology markets in which Samsung’s declared SEPs competed". Professor Ordover also says that "Samsung's conduct has harmed Appl[e] by imposing on it the cost and expense of defending against infringement claims, which defense would not have been required had Samsung not breached its obligations under the ETSI IPR Policy". In his deposition, Professor Ordover said Apple "sustained certain harm due to the need[] to defend itself across a broad range of jurisdictions". And, very importantly, "downstream consumers of handsets and tablet computers will be harmed--in the form of increased product prices and decreased innovation--if Samsung succeeds in obtaining non-FRAND royalties from and injunctive relief against Apple or other manufacturers": "Excessive royalties relative to the FRAND benchmark … would generally lead to higher end-user prices and less choice, to the detriment of consumers."

  • In the second California litigation, Samsung recently brought counterclaims over eight patents, including several standard-essential ones (as usual). Apple has now responded to those counterclaims and brought its counter-counterclaims (or "counterclaims in reply"), which are the common requests for declaration of non-infringement and invalidity of the asserted patents and those FRAND-related contractual and antitrust counterclaims that Samsung didn't get dismissed from the first California litigation.

  • In a joint case management statement, the parties officially confirmed for the first time what was previously reported in the media (and what Tim Cook said at the D10 conference he wasn't allowed to talk about): their very recent CEO-level settlement talks didn't yield a result. Here's the related passage from the joint filing (click to enlarge or read the text below the image):

    Here's the text again:

    "Per the Court’s order, the parties engaged in mediation before Magistrate Judge Spero on May 21-22, 2012. Each party’s Chief Executive Officer participated in the mediation. The parties did not reach a settlement."

We'll see if the things that happen over the next few days put them closer to a settlement, but it's less likely to happen now than at (or before) the California trial scheduled to begin on July 30.

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