Friday, August 17, 2012

Apple and Google's Motorola Mobility disagree on implications of Wisconsin FRAND ruling

Apple and Google may agree on a joint bid for Eastman Kodak's patents, but they certainly can't agree on what a partial summary judgment ruling in the Apple v. Motorola Mobility FRAND-related lawsuit in the Western District of Wisconsin, which issued a week ago, means for the ITC investigation from which this lawsuit was spawned and which is scheduled to conclude next Thursday, and for the discovery process relating to the Wisconsin action itself.

The summary judgment ruling was largely a win for Apple, though Motorola also scored some points. This is not just my opinion. Alison Frankel of Thomson Reuters News & Insight reported almost simultaneously with me and arrived at a similar conclusion.

But Motorola legitimately wants to maximize the mileage it can get out of the parts of the ruling that worked out in his favor. Rather than let Apple notify this decision to the ITC and downplay it, Motorola decided that the best defense is a good offense, and filed its own notice of supplementary authority. This was a smart move, especially since this the week before the (current) target date for a final determination on the investigation. In a letter dated August 14, Motorola placed particular emphasis on certain parts of the order:

"At page 12 of the Order (Section D of 'UNDISPUTED FACTS'), Judge Crabb makes findings related to Apple's conduct in licensing negotiations with Motorola. At page 22-26, she finds that Apple has failed to demonstrate any anti-competitive harm resulting from its allegations of misconduct by Motorola. Nonetheless, we encourage the Commission to consider Judge Crabb's order in its entirety."

The last sentence I just quoted only means to excude confidence. If the ITC reads the Wisconsin order in full, which it will do anyway, it will see that Apple made considerably more headway than Motorola did.

Also, the order doesn't say anything particularly negative about "Apple's conduct in licensing negotiations with Motorola". Here's what it says on page 12, one of the pages Motorola points the ITC to:

"D. Negotiations for Licensing between Apple and Motorola

In 2005, Apple began developing the iPhone. No later than mid-2006, Apple became aware that Motorola had declared patents essential to cellular standards. Apple released its iPhone in 2007 without seeking a patent license from Motorola.

In August 2007, Motorola offered Apple a license to its essential patents. At the initial meeting between the companies, Motorola presented information to Apple concerning its licensing program and stated that its standard royalty rate was 2.25% for a worldwide license to its portfolio of standards-essential patents. Apple rejected the 2.25% rate. Motorola continued to engage in license negotiations with Apple for approximately three years, but Apple refused to accept a license on any terms offered by Motorola."

Of course Apple did not accept a license involving a 2.25% royalty rate. That rate is outrageous, and it's not hard for the ITC to see that no company comparable to Apple has ever paid Motorola even nearly that much. If this was the usual rate in the industry, Motorola would not have been acquired for the $12.5 billion Google paid, but would have been worth at least ten times as much just because of its patent licensing income.

Motorola also points to the dismissal of Apple's antitrust counterclaims, but there's a fundamental difference between the facts considered by Judge Crabb in Wisconsin and the ones that are key to the ITC at this juncture. In Wisconsin, Apple had to make a damages claim in order to have an antitrust case at all, and its claim for recovery of legal expenses was rejected under the Noerr-Pennington doctrine. The ITC doesn't award legal fees or damages. If the ITC granted Motorola's request for an import ban, there would certainly be anticompetitive harm, even though such harm would be mitigated by the fact that Motorola elected not to attack Apple products incorporating a Qualcomm baseband chipset (iPhone 4S, iPad 4G).

Again, it made sense for Motorola to be proactive rather than reactive about this decision. Apple also filed its own notice on the same day. Apple highlighted pages 4-12 (page 12 is the one from which I quoted further above) and pages 37-45 (a general analysis concerning FRAND).

Another part of the fallout from last Friday's summary judgment order is that Motorola yesterday filed a motion for a protective order. Motorola complains that Apple still makes the same allegedly broad and repetitive discovery requests as before, as if the order had not issued the scope of the case. Among other things, Motorola alleges that Apple still asks a number of questions and wants to take more depositions relating to facts that Motorola believes are relevant only to Apple's antitrust claims, which have been dismissed, and not to the remaining issues (contractual obligations and estoppel). It's hard for me to form an opinion on this because I don't have access to information on the ongoing discovery. Based on Motorola's memorandum in support of its motion for a protective order, it's plausible that some of Apple's recent discovery requests may indeed be unnecessary after the summary judgment order, but if Motorola's motion was granted, Motorola might try to use it to withhold some information that Apple's lawyers are actually entitled to obtain. The court will have to strike a reasonable balance.

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