A week ago, I wrote that "Samsung can hardly explain away all of Apple's smoking guns for intentional copying". The noose keeps tightening, and Samsung's efforts to deny copying continue to fail. Case in point: a Samsung designer firmly denied having copied the iPhone's icons, but company-internal documents prove conclusively that that's exactly what Samsung wanted to do. Despite the imponderabilities of jury trials, it's hard to imagine that Samsung has too much credibility left with the jury at this stage, and if Judge Koh upholds Judge Grewal's adverse inference jury instruction, Apple will be another step closer to victory.
Meanwhile, Samsung has started to make its own offensive case, claiming that Apple infringes on a handful of its patents, a couple of which are allegedly standard-essential. Apple just scored a very significant FRAND-related victory over Motorola in Wisconsin, and it has plenty of FRAND-related defenses and counterclaims going in the California case. Rather than offer Apple a royalty rate that deserves to be called FRAND, Samsung is still demanding the same 2.4% of Apple's sales that it's already been demanding for about a year. The figure first came up at a court hearing in The Hague, Netherlands, last September, and shortly thereafter in a couple of Italian court rulings.
Considering that Samsung owns only a limited percentage of all 3G (UMTS) patents, that 3G is only one of the standards that are needed to make a basic feature phone work and that this standard has nothing to do with the huge price difference between an iPhone-like smartphone and a feature phone, Samsung can't reasonably demand 2.4% of the entire market value of Apple's products implementing the standard. There are only two reasons for which Samsung makes this demand: it assumed all along that Apple wouldn't accept it, but thought that if Apple surprisingly did accept it, this would give Samsung a lot of leverage in any future settlement negotiations. Neither motivation has anything to do with the FRAND market value of those patents. Apple rightfully insists that Samsung comply with its FRAND pledge.
One of Samsung's challenges is now to defend its 2.4% demand in front of the judge and the jury. At a minimum, Samsung hopes to instill at least some doubt in them about Apple's (accurate) position that 2.4% is far from a FRAND rate.
In its initial disclosure of witnesses, Samsung listed the two expert witnesses that are most frequently hired by FRAND abusers around the world for the purpose of denying abuse even where it should be undeniable by any reasonable standard: New Zealand-born UC Berkeley Professor David J. Teece (here's his Wikipedia entry and his profile on the website of his consulting firm) and Swedish consultant Eric Stasik. Here's the disclosure (click on the image to enlarge):
I've seen their reports, and quotes from those documents, in multiple FRAND disputes that I've researched, and I sometimes couldn't believe what I saw. Teece, whose name is the last one on Samsung's witness list for this coming Friday, already defended Qualcomm's royalty demands about five years ago and supports Motorola against Microsoft. In the latter case, he's already taken some outrageous positions that were discussed in open court in Mannheim, Germany:
He wrote that the value of a single standard-essential patent is pretty much the same as that of an entire portfolio because "it only takes one bullet to kill" (using an analogy in the context of a bank robbery).
If Samsung later calls the other expert I mentioned above, Stasik, we can expect more of the same. Stasik once wrote about GSM (the 2G standard) that "the relationship between the number of patents and the total royalty rate is not linear" and that "a license to a single ESSENTIAL patent may be 2.5%, a license to two ESSENTIAL patents may be 3.5%, and a license to three ESSENTIAL patents may be 4%, while a license to ten or more ESSENTIAL patents rarely exceeds 5%".
Teece also told the Mannheim court that Motorola's 2.25% royalty demand (for its H.264-essential patents) was at the lower end (!) of the range. But most H.264-related patents are in the MPEG LA AVC/H.264 pool, and the following chart, from a Microsoft filing with a U.S. district court, shows how Motorola's demand and the pool rate compare:
An ITC judge saw all sorts of license agreements Motorola had struck with other companies and found "no evidence that any company would agree to the offer that Motorola sent to Microsoft". Instead, "[t]he evidence shows that the royalty rate offered by Motorola of 2.25%, both as to its amount and the products covered, could not possibly have been accepted by Microsoft". Judge Shaw thus concluded that "the evidence supports Microsoft's conclusion that Motorola was not interested in good faith negotiations and in extending a [F]RAND license to it".
The outcome of the H.264 dispute is probably going to be that Google will have to license Motorola's H.264-essential patents to Microsoft at the pool rate due to a grant-back clause it accepted when it took a license to the MPEG LA AVC/H.264 pool.
It's normal that expert reports favor the interests of the party paying for them, and it's also normal that professors like David Teece generate the bulk of their income as consultants to industry. But there comes a point when academics make such ridiculous claims in their expert reports and depositions that their universities -- in this case, the renowned University of California, Berkeley -- have to ask themselves whether the credibility of those institutions may be affected by highly problematic or downright preposterous claims made by certain individuals.
In connection with FRAND, Teece is by far and away the worst "expert witness" I've seen. The Motorola-Microsoft example is a particularly interesting one, but not the only one. For example, a court in The Hague, Netherlands, determined last year that Samsung's 2.4% demand was so far out of the FRAND ballpark that, in the court's opinion, Samsung has failed to honor its obligation to make an offer on FRAND terms.
In advance of Teece's testimony, Judge Koh ruled (late on Tuesday) on the parties' different objections.
Samsung succeded with an objection against Apple's plan to present a Samsung pleading and a related expert report in a UK case in which Samsung defended itself against a holder of FRAND-pledged standard-essential patents. Over the years, Samsung took positions on FRAND that are the opposite of its current ones, and Apple wanted to highlight the contradiction, but Judge Koh determined that the British case wasn't sufficiently relevant to the present dispute. The experts who worked for Samsung on the UK case aren't going to testify in California, and the British case "involved different parties, different patents, and the setting of different industry-wide standards than the current case".
Apple succeeded with an objection against Samsung's comparison of 4G (LTE) and 3G (UMTS) rates as well as a reference by Samsung to Qualcomm's UMTS rate. As for the 4G-3G comparison, Judge Koh held as follows:
"Samsung does not provide an explanation as to why the LTE licenses are comparable to the hypothetical license at issue [a license to Samsung's 3G SEPs]. Moreover, Dr. Teece could not identify whether any of Samsung's UMTS-declared essential patents have been declared essential to LTE."
And "Samsung has not shown that the Qualcomm 'UMTS rate' is a comparable license to the hypothetical license at issue".
The judge overruled Apple's objection to a couple of license agreements, but that objection related to "only the form in which [a] summary chart of information is presented", while Apple did not "contest the admissibility of the underlying license agreements".
It looks like Friday will be, in part, a FRAND day at this trial.
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