Tuesday, December 18, 2012

Judge denies Apple permanent injunction, throws out Samsung's jury misconduct claims

Judge Lucy Koh, the federal judge presiding over the Apple v. Samsung litigation in the Northern District of California, just entered two important post-trial orders. Within minutes of each other, the first order denied Apple a permanent injunction against Samsung despite a multiplicity of infringement findings by a federal jury in August and the second order denied Samsung a new trial on the grounds of alleged jury misconduct (the court won't even hold an evidentiary hearing on that issue, which most observers considered a long shot).

AppleInsider has published the ruling on injunctive relief.

There is not even the slightest doubt that Apple will appeal the ruling on injunctive relief. When Judge Koh previously ruled on Apple motions for injunctive relief (one against the Galaxy Tab 10.1 and one against the Galaxy Nexus smartphone), she was also rather reluctant to order sales bans: she did order them, but in each case over only one of several intellectual property rights deemed valid and infringed, a fact that few people noticed. But this time around, at the most important juncture of the district court proceedings, Judge Koh has denied Apple's motion in its entirety.

It may be unprecedented in the legal history of the United States for an injunction motion to be denied across the board despite such a large number of infringement findings (roughly half a dozen) by a jury and, especially, in light of the competitive situation between the two as well as the jury's findings of willful infringement. If no injunction is ordered in such a case, it is hard to see how any patent holder could ever prevail on such a motion, and I doubt that this is what the appeals court will consider the right outcome. But the appeal will take a year or more, and in the meantime, this is a huge defensive success for Samsung's lawyers.

Even a billion-dollar damages award would be strategically far less useful to Apple than a permanent injunction would have been, or could still be if it is granted after the appeal. A damages award doesn't give Apple major leverage against Samsung. At this point, the August jury verdict has little more than symbolic value. For most companies, a billion dollars would be a key objective. But not between these two cash-rich giants, and not at a time when both are fighting for market share more than anything else. It doesn't matter much that the products against which Apple was seeking this particular injunction have mostly become obsolete by now: there would have been different ways, through enforcement proceedings as well as (if necessary at all) new lawsuits, to extend the ruling to new products having the same infringing characteristics. Samsung would have had to modify all of its products in order to work around an injunction.

The order mentions an internal "Samsung presentation describing the US market as a 'two horse race between Apple and Samsung'", and the fact that Samsung did not refute Apple's claims of the competitive situation between the two. Judge Koh acknowledges that "[t]his finding increases the likelihood of harm from continued infringement", which is an understatement. So is the conclusion that "Apple has suffered some irreparable harm in the form of loss of downstream sales". Some? Samsung had a strategy and continues to execute a strategy that is all about taking market share away from Apple.

The outcome-determinative part here is called "causal nexus" (meaning that irreparable harm, a requirement for injunctive relief, must be proven to be specifically attributable to infringements as opposed to non-infringing commercial activity), and it's a rather new development in U.S. case law concerning injunctive relief. It came up in connection with Apple's two preliminary injunctions against Samsung, particularly on appeal. By coincidence, in my previous post, a few hours before Judge Koh's order denying a sales ban, I mentioned that the United States Court of Appeals for the Federal Circuit appears to be giving serious consideration to Apple's request for a rehearing en banc (full-bench review) of the reversal of the Galaxy Nexus injunction, and the "causal nexus" issue is the central legal question in that context. Apple asked for reconsideration because it believes that the bar has now been set too high for patent holders seeking to stop infringement of their rights by competitors. But it's not clear whether the Federal Circuit will reconsider (it's just more likely now than it used to be), and if it does reconsider, it's hard to predict the outcome. In the meantime, Judge Koh has decided to base her ruling on the requirements established by the Federal Circuit's previous Apple-Samsung decisions, and has found (what follows is my summary, not a quote) that Apple failed to show that the harm it suffers is caused by Samsung's infringement as opposed to Samsung's overall competitive activity. More specifically, Judge Koh interprets the Federal Circuit's ruling as having established "that customer demand for a general feature of the type covered by a patent was not sufficient; Apple must instead show that consumers buy the infringing product specifically because it is equipped with the patented feature."

As Apple basically told the Federal Circuit in its petition for a rehearing, it's hard to see how anyone can win a sales ban in U.S. federal court against a multifunctional smartphone or tablet computer if a single feature has to be shown to be a driver of demand.

For the infringed design patents, Judge Koh found that Apple presented evidence of this being key to customers' decisions, but Samsung presented evidence that it's less important than Apple claims, which in her view makes a "mixed record". And Judge Koh felt that Apple's design-related allegations lacked particularity and referred to "such isolated characteristics as glossiness, reinforced glass, black color, metal edges, and reflective screen", but "Apple does not have a patent on, for example, glossiness, or on black color". In other words, Apple would have had to show that the particular combination of design elements that each of its design patents protected was key. However, it's difficult to prove the impact of a whole without discussing impact for each part.

With respect to the utility (technical) patents, Judge Koh's order is a ringing endorsement of Samsung's position that Apple cannot meet the requirements for an injunction by proving the importance of "fun" and "ease of use" to customers. When I reported on Samsung's opposition to Apple's motion, I highlighted the statement that "Apple can claim no patent on 'fun' and no monopoly over 'ease of use'". Apple could have convinced Judge Koh only if it had proven for specific features such as rubber-banding that Samsung's continued infringement (or resumed infringement after temporary workarounds) would cause irreparable harm. And it's not just about specific features: Apple would have had to prove irreparable harm for its particular patented methods relating to those features. Even a company with Apple's resources can hardly prove causation at such an extremely high level of granularity. What was unfortunate for Apple is that the Federal Circuit's ruling on the Galaxy Nexus injunction was handed down only after Apple had filed its motion for a permanent injunction. Samsung, however, had the benefit of the Federal Circuit ruling when filing its opposition.

The circumstance of willful infringement did not save the day for Apple:

"Evidence of copying, like the evidence of Samsung employees' beliefs that this Court previously considered, also proves what Samsung thought would attract purchasers, not what actually attracted purchasers. Here, as at the preliminary injunction phase, Samsung’s impressions of what might lure customers, while relevant, are not dispositive. Accordingly, though evidence that Samsung attempted to copy certain Apple features may offer some limited support for Apple's theory, it does not establish that those features actually drove consumer demand."

While the "causal nexus" part is the key one, Judge Koh also held against Apple that it has extended licenses covering (among others) the patents-in-suit to third parties: "Apple has also licensed the precise utility patents at issue here, in agreements with Nokia ('381 patent), IBM ('915 patent; '163 patent), and HTC ('381 patent; '915 patent; '163 patent)", which in Judge Koh's opinion shows that monetary compensation is sufficient. In my opinion, her reference to the HTC agreement is clearly erroneous considering that HTC does not have an unrestricted license to those patents: HTC's license comes with an anti-cloning provision. I don't know about the Nokia and IBM deals because those agreements weren't published to the extent that the Apple-HTC agreement has been. It's astounding that Judge Koh does not even mention the anti-cloning part of the agreement and calls into question whether she fully appreciated its commercial significance. Also, if all U.S. judges held its license agreements (irrespectively of any anti-cloning provisions) against Apple, other patent holders might be discouraged from settling litigation and extending licenses while pursuing injunctive relief against multiple infringers.

Finally, Judge Koh also appeared to buy some of Samsung's public interest arguments, but those did not carry much weight. What really mattered here more than anything else was the "causal nexus" question, and the Federal Circuit's decision on whether to grant a rehearing on the reversal of the Galaxy Nexus injunction is now going to be even more important.

Under the current circumstances, prior to some kind of correction or clarification by the Federal Circuit, patent holders are increasingly going to choose jurisdictions such as Germany, where injunctive relief is a given once infringement has been proven (except under certain circumstances specific to standard-essential patents).

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