Monday, September 10, 2012

Apple wants ruling on its FRAND defenses and unfair competition counterclaim against Samsung

Last Tuesday, Apple brought a "motion regarding schedule for briefing of non-jury claims", asking Judge Koh to allow Apple to file on September 21 a "motion on all non-jury claims including waiver, equitable estoppel, unclean hands, and unfair competition", Samsung to file a 20-page opposition brief on October 19, and Apple to reply on November 9 (ten pages). A hearing, if the court deems it necessary, should take place on December 6, the day on which the court will also hear the parties' Rule 50 motions (motions asking the judge to overrule the jury) and Apple's request for a permanent injunction and willfulness enhancements.

Yesterday, Samsung opposed Apple's motion. Samsung wants Apple to address all of these issues in its Rule 50 motion, claims that Apple's FRAND defenses are moot for the time being (since the jury didn't find Apple to infringe Samsung's asserted standard-essential patents, and furthermore sided with Apple on patent exhaustion), and it also argues that "[t]he jury's rejection of Apple's FRAND claims forecloses Apple's assertion of similar claims that would require the Court to make a contrary finding". Today, Apple replied to Samsung's filing and reinforces its request, stressing the following three points:

  1. The court "set a briefing schedule for all post-trial issues raised pursuant to Rules 50, 52(b), 59, and 60", but items that haven't been decided yet (neither by the judge ahead of trial, nor by the jury) fall under Rule 52(a). Rule 52(a) is about findings and conclusions the court makes in the first instance, while the rules that the court listed in connection with the parties' motions for post-trial relief were all about modifying a verdict or decision, and/or a new trial. The fact that Judge Koh didn't list Rule 52(a) in her order makes it a possibility that she had forgotten about the fact that there were still some to-do items.

  2. Apple disputes that its FRAND defenses are moot only because Apple was cleared of infringement and prevailed on patent exhaustion. For example, those defenses could help Apple recover legal fees from Samsung (by supporting a theory that this is an "exceptional case").

    The further process, including Judge Koh's ruling on the forthcoming Rule 50 motions and the foreseeable appeal, could still result in a finding that one or both SEPs-in-suit are infringed and a reversal of the finding of patent exhaustion. In that case, Apple's defenses would be outcome-determinative again. Apple wants all of these decisions made in the near term and seeks to minimize the risk of a situation in which Samsung would at least temporarily have the upper hand. Also, a subsequent adjudication of Apple's defenses could cause further delay.

    The unfair competition counterclaim is not a defense per se. At any rate, Apple's reply brief clarifies that Apple will only pursue this counterclaim if the jury's finding of no breach of contract is overturned.

    The filing notes that "[t]he Court opted not to send any of these defenses or counterclaims to the jury for an advisory verdict, and now, Apple simply requests a briefing schedule that would allow these issues to be presented to and decided by the Court in the first instance." This point is particularly interesting since Samsung had succeeded in dissuading the court from putting those issues before the jury for an advisory verdict (which is what Apple had unsucessfully suggested).

    What's more important is that Samsung overstates the significance of the jury verdict by claiming that the jury found against the factual bases of Apple's FRAND defenses and its unfair competition counterclaim. I agree with Apple that the FRAND items on which the jury supported Samsung do not prevent Judge Koh from "concluding, as a separate matter, that Samsung waived its rights to enforce its patents by indicating to others in the industry that it did not intend to enforce its patents (waiver) or that Apple relied on Samsung's misleading conduct or silence regarding its intent to enforce its patents (estoppel)". The jury verdict on those FRAND items does not explicitly address those questions. Here are the relevant questions from the jury verdict form:

    30. has Apple proven by a preponderance of the evidence that Samsung breached its contractual obligations by failing to timely disclose its intellectual property rights ("IPR") during the creation of the UMTS standard or by failing to license its "declared essential" patents on fair, reasonable and non-discriminatory ("FRAND") terms?

    31. Has Apple proven by a preponderance of the evidence that Samsung has violated Section 2 of the Sherman Antitrust Act by monopolizing one or more technology markets related to the UMTS standard?

    If the jury had sided with Apple on questions 30 and 31 (and, as a result, determined a damages amount in question 32, which was moot after the jury sided with Samsung on questions 30 and 31), those findings would support Apple's equitable defenses, but if the jury was unconvinced of a breach of contract (by failure to timely disclose patents to the 3G consortium or to license on FRAND terms) or a Sherman Act violation, it had looked (if it followed the instructions) at multiple requirements and it cannot be reasonably concluded from the verdict form that the jury found against Apple as far as any kind of allegedly misleading conduct on Samsung's part is concerned. The sets of issues underlying those particular claims and those on which Apple's FRAND defenses are based simply aren't identical. And if they overlap at all, they don't overlap in a way that makes a failure of the equitable defenses an automatic and inevitable effect of the failure of those counterclaims. After the verdict I saw a few people who usually don't seem to spend too much time on FRAND matters claim that Apple had lost on FRAND, and I never viewed it that way. The fact of the matter is that its equitable defenses are still alive, regardless of those counterclaims.

    Several Apple v. Samsung trial watchers felt that FRAND issues are difficult to argue to a jury. I guess they are...

  3. Apple's third point relates to Samsung's argument that if Apple gets a separate briefing process for its equitable defenses, Samsung also wants the same for some of its own claims, such as allegations of certain patent claims being indefinite. Apple argues that this is a claim construction or related summary judgment issue, but not an equitable defense.

The last item -- Samsung saying that at least it also wants an additional opportunity to brief certain issues -- shows that the current fight is probably more about page limits than timing. In connection with the Rule 50 (including 52(b), 59 and 60) motions, Apple already has a significant advantage: with the far more favorable trial outcome, it has fewer issues on which it will ask the court to overrule the jury, but either party gets 30 pages for its original motion and 20 pages for its reply brief. Apple can address fewer issues with a higher average number of pages per issue than Samsung. I believe that fact is a major concern to Samsung, and Samsung probably hopes that if Apple has to incorporate its Rule 52(a) stuff (equitable defenses, unfair competition counterclaim) into its Rule 50 motion, Samsung's disadvantage will be smaller than otherwise.

This procedural disagreement is the latest one of its kind that requires Judge Koh to rule on an equal-treatment argument, which already worked well for Samsung in the context of adverse inference jury instructions but did not work for Apple's request to decide on a new injunction at the same time as on the potential dissolution of an existing one. Judge Koh can easily imagine how much of a challenge the page limit is to Samsung's efforts to have the jury verdict modified. But Apple made some really good points as to why its FRAND defenses are not a Rule 50 (or 52(b), 59 or 60) issue.

It's just a truism, but equal treatment rarely provides a good solution when there are objective differences. In particular, there's a huge difference in terms of the parties' post-verdict needs. It made no sense to me that Apple was disadvantaged because it wanted to raise a number of issues in a preliminary injunction motion when this was simply due to the fact that it scored a sweeping trial win (and not a matter of being arrogant or baselessly demanding). And it may be very difficult or even impossible for a court to do under general rules of civil procedure and its own local rules, but for the Rule 50 motions in this case it would actually make sense to give Samsung at least (!) three times as much room as Apple given that it has so many more issues to raise, while Apple should have been allowed to request a preliminary injunction over all six trial-winning patents. In this whole post-trial cleanup, unequal treatment -- seemingly favoring Apple in one context and Samsung in another -- would actually be in the interests of justice. Instead, we may see even more equal-treatment arguments, not all of which are particularly good.

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