Tuesday, February 28, 2012

U.S. district court to hold special FRAND mini-trial in Microsoft-Motorola case

Yesterday the United States District Court for the Western District of Washington ruled on a Microsoft motion for partial summary judgment in a litigation involving FRAND-pledged, standard-essential Motorola Mobility patents allegedly covering mandatory parts of the H.264 video codec standard and the IEEE 802.11 WLAN (WiFi) standard, and Microsoft's related defenses and counterclaims. I think there's some interesting stuff in the court order that's also reasonably relevant to FRAND issues in other jurisdictions.

The order adjudicates a couple of the issues Microsoft's motion raised, and a footnote suggests that Motorola didn't oppose those parts of the motion (apparently because it realized it couldn't succeed). With respect to a couple of other questions, the court did not find that Microsoft met the threshold for summary judgment (i.e., the combination of a winning legal argument and the absence of a relevant, genuine factual dispute) at this stage, but its reasoning nevertheless makes several points that clearly show that FRAND is not an empty word.

The court now plans to reach conclusions on the remaining FRAND-related questions ahead of a patent infringement liability trial. For that purpose, the court declares its intent to schedule a "mini-trial" on FRAND and allows both Microsoft and Motorola to bring additional summary judgment motions on limited issues. The scope of those motions would actually enable Microsoft to win the most important part of this case even ahead of the mini-trial.

This course of action demonstrates that FRAND-related considerations are absolutely key to that litigation. It reminds me of the way a Dutch court handled a Samsung v. Apple case last year (putting FRAND first).

The court order stops short of setting a date for the FRAND mini-trial. For the next round of FRAND summary judgment motions, the briefing schedule has a deadline for final reply briefs on April 20, 2012, and after the court decides on those motions (no particular target date given for that), it will set a schedule for the mini-trial. My guess is that the mini-trial will take place in the summer.

In the following, I'll highlight the court's decisions and some of Judge James Robart's remarks that appear particularly interesting to me.

FRAND licensing obligations as a means of preventing extortionate or exclusionary conduct

Quite at the beginning, the court order summarizes, at a high level, what FRAND licensing commitments in connection with standards are all about. The court order uses the term RAND, which is synonymous with FRAND (the absence of the "F" doesn't suggest unfairness) and still very common in the United States.

Here's the court's summary of the concept of FRAND-based standards:

"Standards setting organizations ('SSOs') play a significant role in the technology market by allowing companies to agree on common technological standards so that all compliant products will work together. Standards lower costs by increasing product manufacturing volume, and they increase price competition by eliminating 'switching costs' for consumers who desire to switch from products manufactured by one firm to those manufactured by another.

One complication with standards is that it may be necessary to use patented technology in order to practice them. If a patent claims technology selected by a SSO, the patent is called an 'essential patent.' Here, Motorola is the owner of several declared-essential patents to certain standards established by the IEEE and the ITU. [...] In order to reduce the likelihood that owners of essential patents will abuse their market power, many SSOs, including the IEEE and the ITU, have adopted rules related to the disclosure and licensing of essential patents. The policies often require or encourage members of the SSO to identify patents that are essential to a proposed standard and to agree to license their essential patents on reasonable and non-discriminatory ('RAND') terms to anyone who requests a license. Such rules help to insure that standards do not allow essential patent owners to extort their competitors or prevent them from entering the marketplace."

The royalty base issue

The court document also quotes from two offer letters (one related to 802.11, the other to H.264) that Motorola sent Microsoft and which resulted in Microsoft instigating this lawsuit. Motorola's 2.25% demand is publicly-known by now. What increasingly gets attention is the fact that Motorola wants to apply that percentage to the price of end products even if a patent covers only a subset of the functionality of a single component. Here's what Motorola wrote to Microsoft:

"As per Motorola’s standard terms, the royalty is calculated based on the price of the end product (e.g., each Xbox 360 product, each PC/laptop, each smartphone, etc.) and not on component software (e.g., Xbox 360 system software, Windows 7 software, Windows Phone 7 software, etc.)."

In the "Common Royalty Base" part of this recent blog post, I gave examples that this could also mean the price of an entire car that comes with built-in functionality of certain kinds. Or how about airplanes that offer WLAN/WiFi services? While computers are the most expensive one of Motorola's own examples, Motorola's offer just says "end product", and the list of examples is open-ended (it ends with "etc."), so any concern about how they would handle cars and airplanes with such functionality is reasonable, and well-founded. It's bad enough if they want a $45 royalty on a $2,000 computer, but where does it stop? Apple's proposal of a Common Royalty Base would be the solution -- but Motorola doesn't appear to like that.

Even if someone was convinced that Motorola could not extend its royalty base to an entire car or airplane, those examples nevertheless serve to show that there must be some reasonable apportionment of the value of patents to the subset of a larger product that their claimed inventions actually form part of.

I saw in a recent filing with the ITC that Motorola says it might have been willing to negotiate with Microsoft and that Microsoft could, in the course of such negotiations, have explained its business model to Motorola. In my opinion, Microsoft's business model of selling operating system software for PCs and smartphones (and complete devices only in the case of the Xbox 360) is well-known and didn't have to be explained to Motorola.

I'll leave the royalty base discussion at that for the time being, though I guess I'll address it again in the not too distant future because it is a major problem.

Court agrees that Motorola has contractual commitments

Especially in Europe, courts don't always hold that commitments to make licenses available on FRAND terms are binding contracts. Quite often, FRAND licensing obligations are viewed as a matter of antitrust law rather than contract law. The Dutch case I mentioned before would be an example of a court disagreeing that a FRAND pledge has the status of a contract.

But Microsoft has convinced the Seattle-based district court that "through Motorola's letters to both the IEEE and ITU, Motorola has entered into binding contractual commitments to license its essential patents on RAND terms."

Taking this concept even further, the court furthermore "finds that Microsoft, as a member of both the IEEE and the ITU, is a third-party beneficiary of Motorola's commitments to the IEEE and ITU."

The judge explains in a footnote that "[o]n February 13, 2012, the court held a status conference in which Motorola stated on the record that it did not dispute that it entered into the aforementioned binding contractual commitments with the IEEE and the ITU and that Microsoft is a third-party beneficiary of these commitments." In other words, Motorola only recently realized that these two items were slam dunks for Microsoft, making further opposition appear futile.

Does each offer have to be in line with FRAND?

The court notes that "Microsoft argues that because Motorola committed to make its essential patents relating to the 802.11 and H.264 Standards available to an unrestricted number of applicants on RAND terms, any offer by Motorola must likewise be on RAND terms." Let me compare this once again to the Dutch Samsung v. Apple case. In that one, the judge looked at Samsung's 2.4% royalty demand (also on the full market value of the end product) as being "out of step with Samsung's FRAND licensing obligation", and therefore denied Samsung injunctive relief.

Motorola told the Seattle-based court that only the completed licenses need to be on FRAND terms, not each and every offer on the way to a final agreement.

This district court tried to resolve the question through contract interpretation (not through the application of antitrust law) and wasn't satisfied with Microsoft's related arguments. But the court notes that "Microsoft may ultimately prevail on this point" (the position that Motorola's "exorbitant" royalty demands are the opposite of its obligation to make its relevant patents available on FRAND terms).

The court didn't find Motorola's counterargument compelling either, but since Microsoft wanted summary judgment, it had the burden of proof and didn't prevail at this stage. Rather than merely denying this part of Microsoft's motion, the court elected to provide "guidance for the path forward". In this context, the judge says that he's presently unconvinced by Motorola's claim that a give-and-take negotiation process would ultimately lead to FRAND terms. At least in the ITU policy (which governs H.264), the court sees a potential indication that the negotations themselves (and, therefore, any offers that form part of them) must meet FRAND criteria. Furthermore, "[i]t seems unlikely to the court that either the IEEE or the ITU would deem a patent essential for a certain standard only to permit that patent holder to turn around and abuse that power by seeking outrageously high royalty rates. To wit, during the February 13, 2012 status conference, counsel for Motorola agreed that blatantly unreasonable offers would violate its RAND obligations under the policies."

I think it's a major deficiency of the German Orange-Book-Standard approach that it doesn't deny patent holders injunctive relief based on abusive demands -- only on abusive refusals to accept offers from implementers of the standard. In that regard, the guidance provided in this ruling from Seattle is clearly more holistic, and in my view, pro-competitive.

It appears that Microsoft still has every opportunity to prevail on this count. It just didn't address the contract interpretation issues that the court would have liked to see discussed in greater depth at this stage.

Taking disputes over FRAND royalty rates to court is perfectly acceptable and doesn't change anything about a patent holder's FRAND licensing obligations

Motorola argued (in that district court as well as in other venues) that Microsoft basically lost its entitlement to a FRAND license because it went to court right after Motorola's first set of licensing offers. On this one, the Seattle court sets the record straight in no uncertain terms:

"Indeed, it would appear that at any point in the negotiation process, the parties may have a genuine disagreement as to what terms and conditions of a license constitute RAND under the parties' unique circumstances. Because the policies leave it to the parties to determine what constitutes a RAND license, when such a genuine disagreement arises, it appears to the court that the only recourse for the parties is to file a lawsuit in the appropriate court of law."

That is a clear pro-rule-of-law stance. With respect to Motorola's "repudiation" (loss of entitlement) argument, the judge even says that "[t]he court is perplexed by Motorola's argument". This looks to me like a diplomatic way of saying that the argument is nonsensical, and possibly also disingenuous.

Even though Microsoft formally didn't prevail on the third count of its motion, the passages I just quoted from the court order show that Microsoft's argument was persuasive from a policy point of view.

Breach of obligations through unFRANDly offers: depends on facts, therefore not suitable for summary judgment

Microsoft's fourth request was for the court to determine that Motorola's offers to Microsoft breached Motorola's FRAND licensing obligations. This presupposes a ruling in Microsoft's favor on the previously-discussed third count, on which the court appears to be quite sympathetic to Microsoft's views but, for the time being, unconvinced at the legal level. Furthermore, the judge wouldn't be comfortable deciding summarily that "it is always facially unreasonable for a proposed royalty rate to result in a larger royalty payment for products that have higher end prices". He denied this part of the motion, not because Microsoft was necessarily wrong but because this depends on the specific facts, and the envisioned mini-trial will be an opportunity to reach conclusions on any such factual issues.

But Microsoft has the chance to make a lot of headway even before that mini-trial. The order allows Microsoft to "file another summary judgment motion on its breach of contract and promissory estoppel claims specifically addressing whether the IEEE Policy and ITU Policy require offers to be on RAND terms". Promissory estoppel would mean that Microsoft has a defense that serves all (or at least the most important ones) of its purposes, and it now has the chance to get to that point even before the mini-trial.

The court formally also allows Motorola to "file a summary judgment motion with respect to its claim that Microsoft repudiated its right to a license for Motorola's declared-essential patents on RAND terms", but based on what I quoted above from yesterday's order, Motorola would need to come up with entirely new and surprisingly strong arguments to succeed on this count.

So the really interesting question at the summary judgment stage is going to be whether Microsoft wins on the promissory estoppel count, or alternatively makes progress toward that goal. Otherwise, it gets another bite at the apple at the mini-trial. The coming months should be very interesting for this litigation and the wider Microsoft-Motorola dispute (though it would be even more interesting if it also touched directly on the antitrust issues that standard-essential patents raise).

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Apple's proposal for licensing Motorola's standard-essential patents does NOT specify a royalty rate

In the aftermath of yesterday's key decision by a German appeals court on a Motorola v. Apple injunction, I did a follow-up post today proposing that Google and Motorola should now pursue licensing, not litigation. I have seen the debate continue in many other places, of which I'd like to highlight two:

  • I agree with AllThingsD's John Paczkowski that Motorola is engaging in reality distortion by claiming victory based on yesterday's decision. I'd like to add a couple of "local" observations:

    1. One, the final paragraph of the court's press release makes clear that the current opinion of the court is that Motorola is committing an ongoing violation of antitrust law. That's nothing to be proud of or happy about, especially not in light of the fact that the European Commission will soon decide on whether to launch formal investigations further to Apple's and Microsoft's complaints over Motorola's alleged FRAND abuse. Many other companies in MMI's place would now read the writing on the wall and accept Apple's licensing proposal in order to defuse the antitrust situation.

    2. Two, if the appeals court recognized that Apple made a binding offer to take a license and pay FRAND royalties (of an unspecified amount, as I'll explain in this post), that's nothing new. When the same appeals court denied Apple's previous motion for a suspension of the injunction on January 23 (a fact that shows that winning such a stay is not a routine thing in Germany at all), it already recognized the same fact. At the time, the outcome-determinative objection to Apple's motion was a lack of clarity concerning the exact implications of a future challenge to the validity of MMI's relevant patents -- not a lack of an offer to pay royalties.

  • The Korea Times reports today that Samsung CEO Choi Gee-sung (a courageous and ambitious business leader) appears less confident about further developments in Samsung's litigation with Apple, and quotes an unnamed senior Samsung executive saying that the company's "legal experts are closely studying the possible effect of Apple's recent legal victory against Motorola". Indeed, the defense that worked for Apple against Motorola could also be invoked against Samsung if necessary. So far, however, Samsung hasn't proven Apple's infringement of any valid Samsung patent in Germany. Whenever it achieves this in connection with a standard-essential patent, Apple can use the same strategy as in the Motorola case to avoid an injunction.

Also, while this speech was almost certainly written before yesterday's Karlsruhe decision, European Commission Vice President Almunia told members of the European Parliament today that "hold-up" based on essential patents is not acceptable. The related article doesn't specifically mention the word "standard-essential", but the context is clear, especially in light of how the Vice President's recent statement on Google-Motorola highlighted the issue that standard-essential patents can no longer be worked around once they become a mandatory part of a standard (prior to that elevation, they can still be worked around like any other patent, such as slide-to-unlock).

Three examples of how the FRAND subject continues to make headlines. And it probably will for some more time.

In follow-up discussions today (with different, independent people whom I hold in the highest regard) I realized that something I previously said about Apple's proposal to take a license to Motorola's standard-essential wireless patents has largely gone unnoticed, simply because there's so much going on and the information was conveyed in the middle of a very long blog post on Apple's iterative approach (of repeatedly amending its licensing proposal). Some people were wondering how much less than Motorola's well-documented 2.25% royalty demand on the selling price of entire devices (see the "Common Royalty Base" part of this recent blog post) Apple may have offered to win yesterday's suspension of the enforcement of Motorola's injunction. The answer is that Apple has not offered any particular percentage. It has just committed to pay whatever a court would consider to be a FRAND royalty.

I've been watching (by reading court documents and attending different trials) the evolution of Apple's proposal to MMI for some time. I can rule out that Apple has offered a specific percentage. Under German law, it doesn't have to. In order to satisfy the German Orange-Book-Standard criteria, it's sufficient to commit to paying a FRAND royalty. I did report on this in the aforementioned long blog post on Apple's iterative approach, but I should have reiterated this in the meantime. This link leads to the relevant section of that post:

The issue in this iterative process is not that they have to agree on a particular percentage for future royalties. Under Orange-Book-Standard, a would-be licensee can either offer a particular royalty rate or can leave this determination to the courts (technically, the patent holder is then free to determine the amount in his reasonable discretion, but subject to judicial review and, if necessary, adjustment). Leaving the exact royalty amount open is the path Apple has, not surprisingly, chosen.

There wasn't any indication at any of the trials I watched or documents I read that indicated that Apple changed its approach and offered a specific percentage or amount. Otherwise the appeals court would have had to comment, in its ruling, on the appropriateness of whatever Apple would have proposed. But it didn't.

Under German law (not just patent law but also in other fields), it's fairly common to agree on an obligation to pay something without specifying the amount beforehand. I've signed such agreements myself. The legal basis for this is Article 315 of the German Civil Code, which basically says that if an agreement lets the beneficiary of a payment or other consideration unilaterally determine what he is owed, then this discretion must be exercised in a fair and reasonable manner, and any such demand can be adjusted by a court of competent jurisdiction if need be. This enables parties to conclude an agreement and recognize, in principle, certain obligations even before they are able to agree on, for example, the amounts of future payments. They can enter into a binding agreement and sort out such questions later.

In a case like Motorola v. Apple, this is helpful because it enables Apple to create a situation in which Motorola is barred from pursuing injunctive relief (otherwise Apple and Motorola would never agree, or Apple would have to pay far more than it believes a court would consider appropriate). In other cases, the Art. 315 approach comes in handy because the parties may not be able to foresee the future circumstances under which an amount has to be determined. For example, if parties agree on a contractual penalty and the range of how severe a formal breach of contract may be is very wide, there's no single amount that they can agree upon ex ante, but they can agree that certain misconduct must have consequences and rely on the ability of a court of law to determine an appropriate amount ex post if they fail to agree on it without judicial help.

There's no doubt that Motorola will try to get as much out of Apple's unspecified FRAND commitment as possible. But at this stage, it appears that Motorola has not yet accepted Apple's proposal anyway, so it can't trigger the process that would result in a court's determination of the royalty rate. If Motorola at some point does accept Apple's proposal (it might come under pressure from antitrust regulators who probably won't tolerate the current situation forever), it can then certainly try to convince German judges that the royalty should be significant. I explained that in a section on the German situation in my post earlier today on Google's and Motorola's worldwide tactical options. This is unlikely to be so much of a threat to Apple that it can tip the scales in the wider dispute. If necessary, Apple will pay what it has to pay, but it won't have an obligation to grant Motorola a license to any of its own non-essential patents.

So far, Microsoft's German proposal to Motorola (concerning MMI's patents on the H.264 video codec standard) is different from Apple's in the sense that it does specify a particular per-unit royalty amount. At the trial I had the impression that Motorola's 2.25%-of-price-of-device demand was not really viewed by the court as a realistic position. We will see how that case evolves. Differences like this aside, yesterday's ruling is also very helpful to Microsoft because it shows that the Orange-Book-Standard bar isn't infinitely high once these issues are put before senior German judges.

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After German FRAND setback, Google and Motorola should pursue licensing, not litigation

Yesterday's provisional denial of injunctive relief sought by Motorola against Apple in Germany is not just a procedural kind of reprieve. Instead, the Karlsruhe Higher Regional Court's press release (which I translated) shows that it's based on a preliminary assessment of the merits by a panel of very senior judges who have been looking at this case and different licensing proposals submitted by Apple since December. It furthermore indicates that there comes a point at which even Deutschland is part of FRANDland.

There are still various options for Google and MMI, and I will look at some of those below. But in practical terms, they're not going to shut down any Apple products in Germany with FRAND patents for a year or so, and even further down the road, it's probably not going to happen. If Google's and Motorola's strategy was "mutually assured destruction" (and there are strong indications that that's where they wanted to get), they have to re-evaluate their plan at this critical juncture.

For the sake of the argument, I will now assume that Google is soon going to own Motorola Mobility. It's been telling investors all the time that it expects to close the deal in early 2012. I don't mean to be disrespectful of regulatory agencies that have yet to approve the deal and have every right to form their own opinion, but as MMI's stock price shows, this acquisition looks like a done deal from a statistical perspective.

The combined "Googlorola" entity is going to leverage its combined patent holdings. A year ago, Google's own patent portfolio was extremely weak. In the meantime, Google has acquired more than 2,000 patents from IBM as well as various patents from smaller sellers, including some failed startups. Last summer, Google was finally able to give (on whatever commercial basis) nine patents to HTC, which it didn't hesitate to assert against Apple.

When Google announced the merger agreement with MMI in August, its stated objective was "to better protect Android from [allegedly] anti-competitive threats from Microsoft, Apple and other companies".

So what should Google try to accomplish, after closing the MMI deal, with respect to the two companies it named?

In the headline I already expressed my opinion: I think that licensing is a better choice than escalation or protracted litigation. In Apple's case, a license deal may not cover all of the patents that Google would like to implement in Android, but intellectual property sometimes involves exclusivity. Google will have to respect those rules sooner or later. But I try hard to be realistic, and after paying out $12.5 billion to MMI's selling shareholders and creating doubts about a level playing field among Android device makers, Google's management may be led by the desire to prove the aforementioned official logic of the deal to its own shareholders. Some senior executives at Google may soon be scrambling to somehow extract value out of the deal just because they don't dare to tell their CEO that the boldest decision he made in his second term so far was not necessarily a good one. Still, I stand by my opinion that Google would be well-advised to be constructive sooner rather than later.

Googlorola is relatively late to the party

By the time the Googlorola deal closes, Apple's patent enforcement activities against Android will have been going on for more than two years. They started in early March 2010 with Apple's first ITC complaint and federal lawsuit against HTC.

According to his official biography, Steve Jobs told Google's then-CEO Eric Schmidt right at the beginning that he considered Android a stolen product. It's amazing that Apple's actions and Steve Jobs's clear message in early 2010 weren't sufficient to create a real sense of urgency in Mr. Schmidt to address Google's patent problem. But that's another story.

Google is somewhat lucky that Apple hasn't yet dealt a legal knock-out blow to Android. With some better choices of when and where to litigate, Apple could have made a whole lot more headway already. But by now Apple has won some rulings (and I don't mean preliminary injunctions that got lifted anyway, but regular decisions following full-blown proceedings) and it has already identified some winning patents. And just as important: Apple continues to be granted new patents (based on applications that were filed a few years back) that appear quite valuable. Four of the eight patents Apple is asserting in its latest U.S. lawsuit against Samsung have a number starting with "8", meaning they were granted during the last few months. Also, just like Google, Apple has acquired patents from third parties. Unlike MMI, Apple won't seek injunctions based on standard-essential patents, but it has also bought many non-FRAND patents.

As far as Microsoft is concerned, it's hard to see what Google believes it can accomplish at this stage. Microsoft recently announced that more than 70% of all Android devices sold in the U.S. have a (presumably royalty-bearing) license to its patent portfolio. Motorola Mobility is the only major Android device maker not to have taken a license, and if Google had not agreed to acquire MMI, there's a high probability that MMI would by now also have reached an agreement with Microsoft.

I don't know what Google expects to achieve. Does it believe that it can have so much leverage over Microsoft at some point that the existing license agreements with large parts of the Android industry would have to be turned into royalty-free arrangements? I don't think that's even remotely realistic.

While the public may never find out how much of a hand Google had in Barnes & Noble's "patent misuse" allegations against Microsoft (which were mostly antitrust-related accusations and conspiracy theories), neither the ITC staff (which acts as a third party to certain proceedings, protecting the public interest) nor an Administrative Law Judge at the ITC felt that B&N had a case for "patent misuse". Even when all of B&N's claims were viewed in the light most favorable to the Nook maker, its allegations weren't held to amount to anticompetitive behavior or other forms of patent misuse. An all-star team of lawyers couldn't even convince the judge that those claims deserved to be discussed at trial. This preliminary outcome is, of course, a major vindication of Microsoft's licensing-oriented approach to Android's patent issues.

Like in Apple's case, it's accurate to say that Microsoft hasn't yet had a decisive legal victory that would really force MMI to give up its resistance. But in my opinion, that's only a matter of time.

Google can't "pull an Oracle" against Apple and Microsoft

Google's efforts to defend Android against Oracle's patent assertions even without countersuing over any patents of its own have, so far, been absolutely admirable. In my view, a tipping point has been reached with the USPTO's rejection of all of the asserted claims of the "James Gosling patent" (not a final decision, but statistically likely to be affirmed). Oracle may now be forced to drop its patent infringement allegations (with prejudice) in order to take the copyright part to trial in the near term.

At the outset of that litigation, I wouldn't have thought that a year and a half later, pretty much nothing would be left of the seven patents Oracle initially asserted. But almost all of the asserted claims have been found invalid based on Google's reexamination requests, and while a first claim construction ruling went well for Oracle, a more recent, supplemental, claim construction order suggests to me that Google has excellent chances of not being found to infringe even a single valid patent claim asserted by Oracle. Again, I didn't expect this because general patent litigation statistics would have suggested a different outcome. I'm not aware of any high-profile case like this in which a heavyweight like Oracle asserted seven patents only to see them go down the tubes during the course of the litigation. Congratulations to Google and, especially, its lawyers on this outstanding work.

Even Oracle's case is not lost yet (and Oracle may find other patents to assert in a subsequent round of litigation). Google failed with a motion for summary judgment against the copyrightability of Oracle's asserted material, which is mostly about API-related source code. It will be up to a jury to decide whether this is expressive material worthy of copyright protection. Those are dozens of files. A printout for the jury will likely span hundreds of pages. All of that was undoubtedly created by human beings, and it will be quite difficult for Google to convince a jury that such a large body of code is devoid of any protection.

Whatever may happen on the copyright side of that case, the more general question is whether the strategies employed by Google against Oracle could also be effective against Apple and Microsoft.

Applying the approach from the Oracle case to those companies, Google would fight hard to have as many of the asserted patents as possible declared invalid, hoping to avoid a finding of infringement with respect to the surviving patent claims and ultimately planning to work around anything that is deemed both valid and infringed. Moreover, Google was trying to have Oracle's lawsuit delayed, though it obviously denied any such intention.

While Oracle as a company plays in the same league as Apple and Microsoft, it's important to consider that the Oracle patents against which Google is fighting so very successfully are former Sun Microsystems patents. I never thought highly of Sun, to be honest. I think there was a lot of make-believe and window-dressing at that company. There were some good ideas and innovative achievements there, but a geeky image isn't a substitute for serious, professional work. The fact that several of the most important ones of Sun's Java-related patents turned out to have been improperly granted calls into question that Sun really was cutting-edge in the field of virtual machines and operating systems. In my view, it's a safe assumption that Apple's patents (except perhaps from a period of a few years when it was in terrible shape) and Microsoft's patents are, on average, much stronger than those former Sun patents.

Even if Apple's and Microsoft's patents were considered, on average, similarly strong as the ones that used to belong to Sun, the success of Google's invalidation campaign against those Java patents is statistically unlikely to be replicated. Google will always do a great job searching for prior art and arguing against the patentability of a claimed invention, but it can't always have such an absolutely unbelievable hit rate. Even if Oracle sued Google over another seven Java patents, Google would hardly achieve the same result again.

Googlorola's remaining options in Germany

Germany was a key part of Motorola's litigation strategy against Apple and Microsoft (it sued both companies in Germany before those took the disputes overseas, and it chose Germany as the only jurisdiction outside of the United States to file claims in) as well as Google's plan related to the acquisition. In a letter to standards bodies that was meant (but failed) to make regulators comfortable with Google's plans for the post-acquisition use of MMI's patents, Google advocated, without mentioning Germany, the German Orange-Book-Standard case law on the FRAND defense as its worldwide approach (see item 8 of Google's statement and my paragraph-by-paragraphy commentary). Google obviously didn't advocate the more recent Dutch approach (a judge in The Hague threw out a Samsung motion for an injunction against various Apple products because he held Samsung to have failed to comply with its FRAND licensing obligations since it asked for a 2.4% royalty, which the Dutch judge thought was "out of step" with FRAND). No, Google definitely wanted the German approach, which places the heaviest burden of all the jurisdictions I know on defendants invoking FRAND.

As I explained yesterday, the Karlsruhe Higher Regional Court might still agree with one or more of MMI's objections to Apple's proposal at the end of the full-blown appellate proceedings. But yesterday's decision suggests that Apple is more likely than not to succeed with its appeal, and a "realistic worst-case scenario" for Apple would be the need to make one or more concessions of minor relevance in order to prevent MMI from obtaining injunctive relief.

MMI also has three lawsuits going in Düsseldorf against Apple Retail Germany GmbH, the operating company of the official German Apple Stores. The same three patents were previously asserted in Mannheim against other Apple legal entities. Assuming Motorola also convinces the Düsseldorf court that one of its standard-essential patents is infringed (and is not too probable to be invalid), that other court would have to rule on Apple's FRAND defense. From the Düsseldorf Regional Court, that matter could be appealed to the Düsseldorf Higher Regional Court -- a different circuit than the one of the Karlsruhe appeals court.

The Düsseldorf courts would be free to reach their own conclusions. But Apple will certainly inform them of the preliminary assessment of the Karlsruhe court, and that fact will bear considerable weight even in a different circuit (and even though case law is less relevant under German law than Common Law).

Motorola could also try to assert new standard-essential patents against Apple in different courts. For example, Munich is another court and part of a circuit that doesn't always agree with the Karlsruhe and Düsseldorf circuits. In Munich, Apple and Microsoft have already sued MMI (in February, Apple already won a first ruling there), but I'm not aware of any assertions by MMI itself in that court.

With new patents, MMI would theoretically even have a new chance in the Karlsruhe circuit, if it can come up with arguments concerning Apple's FRAND defense that are new.

But all of this is going to be an uphill battle. Yesterday's ruling is a strong indication that, as I thought all along, the German Orange-Book-Standard framework, however patent-holder-friendly it may be, was nevertheless meant to give implementers of industry standards a somewhat reasonable chance to claim that they're entitled to a compulsory license, which in turn rules out injunctive relief.

Injunctions based on standard-essential patents will be a long shot for MMI against Apple in Germany (and also against Microsoft, which could solve the problem by using the same defense as Apple, especially since they also use the same law firms in Germany against MMI). What MMI can try to do now are two things. They can bring more assertions of non-standard-essential patents (they are already enforcing the only standard-unrelated patent they asserted in their initial round of German lawsuits against Apple). And they can try to maximize the royalties that Apple and Microsoft will have to pay under German FRAND rules as well as the damages they will seek for past infringement.

Theoretically, they could seek very substantial damages, and there's no doubt that Apple was previously somewhat (though not extremely) concerned about that possibility. But Google's own claim that a smartphone implements about 250,000 patented inventions would be held against MMI post-acquisition in connection with the apportionment of damages to the patents at issue in a particular litigation. After all, it's pretty obvious that a couple of patents, or even hundreds of patents, represent only a limited part of the total commercial value of a computing device or an operating system.

I believe it's unlikely that Googlorola can achieve FRAND royalty rates and/or damages for past infringement that will be so substantial that Apple and Microsoft will come under pressure to drop their patent claims against Android. Google may be able to get a slightly better outcome in financial terms, but not a fundamentally different result than without the German FRAND stuff.

U.S. litigations

Most of the litigation between Motorola and Apple (or, respectively, Microsoft) is taking place in the United States. Motorola's potentially most devastating U.S. patents-in-suit are also subject to FRAND licensing obligations.

In the U.S., winning an injunction is very difficult at any rate, even before a FRAND defense is raised. Also, the position taken by the United States Department of Justice on Google's FRAND statement in connection with the MMI deal shows that standard-essential patents raise just the same antitrust concerns in the United States as they do in Europe.

Globalizing the disputes may not be a good idea

If MMI didn't face certain resource constraints, it might already have tried Samsung-style worldwide scattershot litigation. With Google's money, that would be an affordable option, but not necessarily a good one. Despite suing Apple in nine different countries, Samsung has so far not won a single ruling against Apple (though it made a few bids for preliminary injunctions). This shows that breadth is not a substitute for depth.

Stalling merely delays the inevitable, but gives Android more time to grow its market share

Patent litigation is slow, and the drop-out rate of smartphone-related patents has been relatively high, at least at the ITC, which some players initially thought was going to be the most important venue in these disputes.

Google would certainly have the ability to delay a resolution of the ongoing disputes, but a "stalling" strategy comes with considerable risk. In particular, Apple has some patents in action that are very powerful, such as the multipoint touchscreen ('607) patent, the touchscreen heuristics ('949) patent, or the real-time API ('263) patent. I also think that a couple of the patents it is asserting against Samsung in the latest lawsuit (especially in the related motion for a preliminary injunction) could have major impact, such as the Siri patent. While it's possible that only less powerful patent claims will be successfully enforced against Android in the near term, there's always the risk of a decision coming down in the second half of this year somewhere (such as in the Apple v. Motorola Chicago action) that could suddenly give Apple massive leverage.

In a similar way, Microsoft's assertions against Motorola could at some point be fairly impactful.

If "stalling" worked out, Google might gain another year or two or even more during which Android can continue to grow its market share. Google's latest Android activation numbers (which don't even include such "renegade" devices as the Amazon Kindle Fire or Barnes & Noble Nook since those aren't totally Google-aligned) are above 850,000 devices per day. It's likely that Android will in the near term hit a million units a day even based on Google's (incomplete) count. Also, as Oracle pointed out in a recent court filing, Android is making inroads into other market segments than smartphones and tablet computers.

Again, my personal advice to Google would be to negotiate agreements with Apple and Microsoft sooner rather than later, and I think that by the second half of this year this position may be validated in different ways, but if Google determines that time is on Android's side, we may all have to be patient.

Theoretically, a "stalling" strategy could work out if the current paradigm of multi-touch touchscreens was superseded by something else (gestures, voice control etc.) within a couple of years. In that case, the patent landscape could look different again. But as far as Apple and Microsoft are concerned, Google will most likely still want access to some of their patents. Those players are investing large amounts of money in research and development not only related to today's but especially also to tomorrow's technologies.

The political cost of Google's current strategy

Looking beyond Google's particular interests in connection with Android, I really wonder whether it makes sense for Google to behave in problematic ways only to "protect Android".

For example, it was nothing short of astonishing that the United States Department of Justice felt forced to criticize Google for an "ambiguous" statement on the use of standard-essential patents while pointing out that Apple and Microsoft had taken clear positions (such as "no injunctions"). Google, which claims to be an advocate of open source and open standards, would usually be expected to at least match Apple's and Microsoft's proposals for a reasonable use of standard-essential patents, or even to go beyond what those "proprietary" technology companies do. But Google chose to take a rogue position that promotes uncertainty and advocates aggressive behavior.

There are people out there who believe that the end (of "protecting Android") justifies the means, but there are many other people, especially opinion leaders and key decision-makers, who definitely take note of Google's attitude toward the use of standard-essential patents.

Other large companies have learned before Google that it's not a good strategy to provoke antitrust intervention on different fronts at the same time, or in short succession. Google has enough antitrust worries, and it's now buying a company that in the preliminary opinion of high-ranking German judges appears to be committing an ongoing antitrust violation.

All things considered, Google as a whole may be better off by acting reasonably and cooperatively on the Android patent front.

The coming months, or years, will show how far Google is willing to go only to fight for the right to infringe third-party patents.

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Monday, February 27, 2012

Translation of German appeals court's press release on decision protecting Apple against Motorola injunction

Earlier today I reported on the Karlsruhe Higher Regional Court's extremely important decision to suspend, for the duration of a pending appeal, the enforcement of Motorola's standard-essential patent injunction. As a follow-up, I am now providing my own (therefore, unofficial) translation of the court's press release. I believe this will help everyone understand that this is not a decision to stay in order to prevent Apple from suffering irreparable harm, but a summary determination by the court based on a preliminary analysis of Apple's arguments and a preliminary finding that Motorola would be violating antitrust law by seeking bans of Apple's products in Germany based on patents essential to wireless standards.

Concerning the provisional nature of this suspension, I would like to stress that this means in practical terms that no enforcement will be allowed for the duration of the appeal. Only if Motorola won the appeal (though the appeals court is presently inclined to agree with Apple), it could seek enforcement again. Motorola's reply brief was taken into account, but its arguments failed to convince the appeals court. There won't be any near-term opportunity for MMI to persuade the appeals court to allow enforcement again. There will now be a full-blown appellate proceeding before the Karlsruhe Higher Regional Court, and that will take time.


Press release of the press office of the Karlsruhe Higher Regional Court

February 27, 2012

Motorola v. Apple -- enforcement suspended

In a patent infringement lawsuit between Motorola and Apple, the Karlsruhe Higher Regional Court has suspended the enforcement of a ruling by the Mannheim Regional Court.

Motorola Mobility Inc. sued Apple Sales International in Mannheim for the infringement of a European patent. The complaint requested, inter alia, an injunction against the further sale in Germany of devices known under the iPhone and iPad brands. According to Motorola's representations, every device that works according to the established technical standard for wireless communications necessarily practices the related invention. Therefore, the patent was described as a so-called standard-essential patent.

Apple is defending itself in this litigation with, inter alia, the so-called compulsory license objection under antitrust law. By means of this objection, a defendant against allegations of infringing a standard-essential patent asserts that his use of the patent must not be prohibited since every participant in a market desiring to comply with the established technical standard is forced to use that patent, a reason for which the owner of that patent allegedly has to grant a license. In that manner, the rights of a patent holder under patent law are countered with an objection under antitrust law that a prohibition of the use of the patent would restrict competition.

The Federal Court of Justice ruled in 2009 that this objection is, in principle, valid. According to that ruling, the objection is availing if the defendant makes the patent holder-plaintiff a proposal for the conclusion of a license agreement that the latter cannot refuse without contravening antitrust law.

The Mannheim Regional Court ordered an injunction against Apple and stated, inter alia, in its rationale that the proposal for a license agreement Apple had made at the relevant time was not deemed to address Motorola's legitimate interests to a sufficient degree.

Apple appealed the December 9, 2011 decision of the regional court (case number 7 O 122/11). Simultaneously with the appeal, Apple brought a motion to suspend, on a provisional basis, the preliminary [pre-appeal] enforcement of the ruling, which the regional court had permitted. Apple's motion was based on, inter alia, the argument that it had made Motorola, after the regional court's ruling, a further, amended proposal for an agreement that Motorola should be required to accept. Apple's motion at that time was denied by this Court as per an order of January 23, 2012. This Court deemed Apple's then-proposal for a license agreement insufficient because it did not contain a clause for the event that Apple might challenge the validity of the relevant patents after the conclusion of the agreement.

A few days later, Apple brought another motion to suspend enforcement and highlighted another amended proposal for the conclusion of a license agreement. That proposal now does contain a clause according to which Motorola can rescind the agreement in the event of a challenge to the validity of the relevant patents.

This Court gave Motorola the opportunity to file a reply brief. As per an order of February 27, 2012, this Court has suspended enforcement on a provisional basis, holding that Apple's new proposal for a license agreement sufficiently addresses Motorola's legitimate interests. Based on the current state of the proceedings, which is however necessarily limited to a summary analysis of the parties' arguments, the assumption would have to be that Motorola would breach its obligations under antitrust law if it continued to demand that Apple cease and desist from the sale of the iPhone and the iPad.

Karlsruhe Higher Regional Court, order of 02/27/2012 -- [case no.] 6 U 136/11

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Motorola can't enforce standard-essential patents against Apple in Germany while appeal is pending -- huge victory for Apple, bad news for Google

[Update] I have produced an unofficial translation of the court's press release. [/Update]

Apple scored a breakthrough court victory today against Motorola (Bloomberg was first to report). Its importance can hardly be overstated. This is so huge that it even begs the question of whether Google's strategy for its $12.5 billion purchase of Motorola Mobility has failed before the deal is even formally closed (they're still waiting for some regulatory approvals).

The Karlsruhe Higher Regional Court ("Oberlandesgericht Karlsruhe"), the appeals court within whose circuit the Mannheim Regional Court is based, decided today that Motorola Mobility is barred from further enforcement of its standard-essential patent injunction against Apple in Germany at least for the duration of the ongoing appeal (which I believe will take a year, if not more). And while today's decision is only a summary and preliminary decision that MMI could overturn during the course of the full-blown appellate proceedings, this indicates thatApple's appeal is highly likely to succeed -- and even if it didn't, Apple could realistically resolve the problem with limited additional concessions.

The appeals court summarily held that Apple has made an amended proposal for taking a license to MMI's patents on FRAND terms that should be acceptable to MMI, turning any further attempts to ban Apple's iPhone and iPad products into a violation of applicable antitrust law.

Earlier this month, the same court already ordered a first temporary suspension of the enforcement of MMI's standard-essential patent injunction. But that first suspension was only meant to bar further enforcement while the appeals court was evaluating the parties' arguments related to Apple's motion for a suspension for the duration of the appellate proceedings. It was a suspension only for a few weeks, but today's suspension is going to be in effect for the entire duration of the appeal.

Three weeks ago I explained Apple's iterative approach: Apple repeatedly amended its proposal to MMI in order to address any remaining concerns on the parts of judges. Apple knew that MMI was always going to find something to grouse about, but it needed to find out at which point the appeals court would conclude that enough is enough and tell MMI that refusing to accept this proposal is, at least based on the court's preliminary finding, an antitrust violation.

Today's ruling by the Karlsruhe Higher Regional Court will affect certain upcoming FRAND-related decisions to be taken by the Mannheim Regional Court, which has recently been on a quest for new ways to weaken the FRAND defense. On the basis of today's order from Karlsruhe, a Mannheim decision scheduled for mid-April will most likely work out in Apple's favor as far as the same standard-essential patent is concerned.

The rationale behind today's decision lends further credibility to the EU antitrust complaints that Apple and Microsoft brought against Motorola Mobility.

Motorola was hoping to gain near-term leverage against Apple and Microsoft through the aggressive pursuit of injunctive relief based on standard-essential patents. Google, which was totally in agreement with MMI's litigation strategy, was hoping to buy that leverage for $12.5 billion, and Germany was a key part of that plan because its legal system places a relatively high burden on implementers of standards invoking the FRAND defense. In fact, Google's public statement on the post-acquisition use of MMI's patents proposed the German approach to FRAND as the way forward for the whole world. With today's ruling, Googlorola's strategy has failed even before the companies have formally merged. This is such a major blow to Google's patent strategy that, from a mere shareholder value point of view, it should now give serious consideration to the possibility of coughing up the $2.5 billion break-up fee agreed upon with MMI's board of directors and walk out on this deal. After all, that $2.5 billion payment would be an affordable subsidy for the only totally Google-aligned company among the major handset makers. But in all likelihood, Google will nevertheless try to close the deal, if only to avoid a colossal embarrassment for its CEO and other decision-makers.

MMI is now in a tricky situation. The Karlsruhe Higher Regional Court has formally alerted it to the fact that its refusal to accept Apple's offer -- which from an antitrust point of view is now apparently too good to refuse -- is a potential antitrust violation. By continuing not to accept Apple's proposal, MMI risks consequences that could include fines from the European Commission.

It's a funny coincidence that this important decision comes on the first day of Mobile World Congress 2012.

Just to make sure there are no misunderstandings here: MMI's other German injunction against Apple, which is also being enforced and has obligated Apple to deactive certain push notification services in Germany, is not affected by this ruling in any way. That injunction is not based on a standard-essential patent. That's why its enforcement doesn't raise FRAND issues, but it's also why that one isn't nearly as devastating as the one based on a standard-essential patent. Deactivating push notifications is a somewhat inconvenient option - but a phone that can't connect to the wireless networks isn't salable at all. And that's exactly why antitrust law must prevent the abuse of patents that cannot be worked around only because they cover a mandatory part of a standard (the same patents could be worked around before they make their way into a standard).

[Update] I have produced an unofficial translation of the court's press release. [/Update]

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Friday, February 24, 2012

Judge may postpone Oracle-Google trial in light of patent reexaminations

Yesterday I wrote that the patent part of Oracle's patent and copyright infringement case against Google appears to have reached a tipping point with the USPTO's preliminary rejection of all of the asserted claims of the "James Gosling patent". As long as the USPTO hadn't spoken out on the Gosling patent, I thought Oracle might still be able to win the patent part of this case. But that patent is now apparently going down the tubes. A preliminary rejection need not be ultimately confirmed, but so far Oracle hasn't been able to salvage even one asserted patent claim that was deemed invalid on a preliminary basis. The WHDA Reexamination Alert blog has also taken note of this fact.

Judge William Alsup has just entered an order that says the following:

"Based on the recently filed joint statement regarding reexaminations, the parties are requested to do the following. By NOON ON MARCH 9, the parties shall submit a candid discussion of the impact these rejections will have on the shape of trial. Please discuss whether in light of the track record of final rejections, it is best to delay the trial to allow the single remaining non-final reexamination to run its course."

Once again, there's a cloud of uncertainty over the trial date. Originally, the case was scheduled to go to trial on Halloween. It then turned out that it would slip into this year, and temporarily it looked like it might even slip into 2013. Then, most recently, the judge thought that, all going according to plan, trial might start in mid-April. As recently as Thursday, the judge reminded both parties' lawyers to keep themselves available for trial anytime between April 16 and late June.

At the time that the mid-April date was first presented as a possibility, Judge Alsup rejected a then-surprising proposal by Oracle to stay the patent part of the case, or dismiss it without prejudice (allowing Oracle to reassert those patent claims in a new litigation). The judge wanted this case to be resolved for good, rather than keep parts of it on the back burner or see parts of it resurface in a subsequent lawsuit.

There are various ways in which Oracle could respond to today's order. It could reiterate once more, as it did on several previous occasions including this one, that Google is basically hijacking Java with Android and that Oracle needs help from the court to "bring Android back into the Java fold". The judge does appear to understand this problem, but he's very concerned about managing the court's resources wisely. Alternatively, Oracle could withdraw all of its patent claims with prejudice, depriving itself of the opportunity to ever assert them again against Google in connection with Android.

As far as this particular case is concerned, I'm now convinced that the best decision Oracle could make would be to focus entirely on the copyright part of the case. If it wins on that basis, it may achieve all of its strategic objectives. If it doesn't, it can think about trying again with another set of patents, if some of Oracle's hundreds (or even thousands) of Java-related patents read on Android.

For Oracle, it must be very disappointing that the seven patents it selected in August 2010 haven't proven strong enough to enable it to solve the Android/Java problem. Since there is no such thing as a sui generis right protecting programming languages and virtual machine APIs, Oracle has the burden of proof that Google infringes valid intellectual property rights. Google's intention to take the risk of infringement of any such rights is well-documented, but the rule of law requires evidence of an actual infringement of valid rights, not just evidence of a reckless intent.

The way Google has hijacked Java with Android is the most pressing problem for Oracle's Java business, but if it can't successfully enforce its rights against Google, it will also have a hard time asserting its control over Java vis-à-vis any other companies in the industry. Obviously, Java implementations that are fully compatible may infringe on some intellectual property that Dalvik (Android's virtual machine) doesn't because it indirectly uses Java as an input programming language but has a rather different architecture. The problem for Oracle is that if the Android denomination of Java appears to be unprotected, those who don't want to take a license from Oracle will presumably use that one in the future.

This is the first high-profile case since Oracle's acquisition of Sun in which the question of who owns (key parts of) Java is on the agenda, and at least as far as those seven originally-asserted patents are concerned, it appears that patents don't give Oracle legal leverage to enforce its rights even against a totally intentionalinfringer. Again, Oracle may still be able to win everything on the basis of copyright law -- but the judge appears hesitant to let this case go to trial as long as the validity of the asserted patents is doubtful. He probably thinks that the USPTO should get some more time to make a final (though still appealable) decision on the Gosling patent.

I don't want to read too much into today's order, but this could be a message to Oracle that the only path to a speedy copyright trial is the dismissal, with prejudice, of its patent infringement claims.

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Motorola forces Apple to deactivate iCloud and MobileMe push notifications for German customers

Last night, Apple posted some new information (in German) to its German support knowledge base, informing customers using the iCloud or MobileMe push email service in Germany of the need to pull their email manually (by bringing up their email client) or configuring their email clients to check periodically for new messages. (Just to avoid misunderstandings: iCloud and MobileMe are both operational, but their push notification features are affected, within the borders of Germany.)

This was previously reported by the leading German news agency, dpa (Deutsche Presse Agentur).

Apple points to a Motorola patent ruling that is under appeal and stresses that this "only impacts customers in Germany who use a Push setting to get their MobileMe and iCloud email". The affected customers will still receive email -- new messages just won't be pushed to them BlackBerry-style. Apple also says that it is appealing the decision and "believes this patent is invalid".

It appears that Motorola Mobility, which is in the process of being acquired by Google, has sent Apple an enforcement letter demanding compliance with a permanent (but appealable) patent injunction that was handed down three weeks ago by the Mannheim Regional Court. The Motorola patent at issue in that litigation harks back to the time of pagers, a predecessor of text messages.

This is the first time that Apple's customers (in one particular country) start to see and feel the effects of the ongoing patent disputes in the smartphone and tablet computer industry in the form of a (temporary) removal of certain functionality. Earlier this month, Apple also had to temporarily remove some of its products from its German online store.

The key difference is that the temporary removal of products was due to an injunction over a standard-essential patent. A week ago, it became known that Apple lodged a formal antitrust complaint against Motorola Mobility with the European Commission over MMI's allegedly anticompetitive use of standard-essential patents. This week, Microsoft also complained about this kind of conduct by MMI. But the patent that now affects Apple's push email service in Germany does not appear to be essential to any industry standard. If the very same patent was standard-essential, Apple couldn't just switch off a certain feature: it would have to stop selling its products altogether.

I don't blame Motorola for seeking the enforcement of an injunction based on a patent that is not standard-essential. This is fair. Like I said, it's the first time that Apple's customers experience a certain kind of technical restriction, but as a result of Apple's own enforcement of patents, Android users see this happen all the time, with features either being removed or hobbled. For example, as a Samsung customer, I no longer get the overscroll bounceback feature on my device; I have to unlock my device with the inferior slide-to-unlock circle (last week, Apple won a German ruling against Motorola based on the relevant patent); and a few months ago, after I updated my firmware, I noticed that turning pages in the Android photo gallery was different (and less convenient).

Apple may be right that Motorola's push messaging patent is invalid. One thing that German patent law has in common with U.S. patent law (but not with UK patent law, for example) is that it is designed to allow the enforcement even of patents that should never have been granted in the first place. In the United States, a court will only deny an infringement ruling if there is "clear and convincing evidence" (a relatively high standard) of invalidity, and in Germany, a regional court like the one in Mannheim will only stay an infringement case for the duration of parallel nullity actions in other courts if it is convinced of a "high probability" of invalidity. In my experience, Mannheim is a particularly difficult court to persuade of the invalidity of asserted patents. The judges there routinely point out that it's not their job to analyze in full detail whether a patent-in-suit is valid. In particular, they are highly reluctant to question the non-obviousness of a granted patent.

The big problem with the American and German approach is that in this industry, a majority of all granted patent claims are invalid as granted. Patent offices aren't really able to identify all of the relevant prior art. A patent examiner may spend about 15 hours (spread out over the course of several years) on the examination of a patent application. That's by far not enough to research the whole body of prior art in this field, where a lot of prior art isn't even contained in any patent database.

It's basically a value judgment of lawmakers (and, within their respective wiggle room, of judges) whether they think it's better to hand down too many rulings in favor of the holders of dubious patents than to be more skeptical of the validity of issued patents. In my opinion, both the United States and Germany are on the wrong track here simply because statistics show that too many patent claims are invalid as granted. If most patent claims were valid, it might be acceptable (though still problematic) to take into account that some rulings are based on patents that should never have been granted. But in this industry, the fact that a patent office issued a patent isn't sufficiently meaningful to justify injunctions and other remedies.

From a strategic point of view, it wouldn't make sense for Apple to back down at this stage and settle on Google's and Motorola's terms. The impact of this enforced injunction in Germany is visible, but it is clearly limited. It causes a minor inconvenience that won't result in any loss of sales or any appreciable reduction of customer satisfaction.

There are probably some people at Apple who look at this and think to themselves: "Is this already all that Motorola can do? FRAND abuse and a push notification patent? And that's worth $12.5 billion to Google?"

With a view to Apple's appeal, the hurdle for a suspension of the enforcement of the injunction is lower when an appeals court (in this case, the Karlsruhe Higher Regional Court) evaluates Apple's invalidity contentions. A German appeals court is willing to stay if it sees a probability above 50% of the patent being invalid. There's no "high probability" (which suggests something like 70% or 80%) requirement at that stage. But it may take Apple a year or so to get to the point at which the appeals court makes this determination (though a stay could also happen much more quickly).

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Thursday, February 23, 2012

Apple keeps fighting for ITC import ban against Motorola Mobility

On January 13, 2012, an Administrative Law Judge (ALJ) at the ITC made an initial determination according to which Motorola Mobility shouldn't be found to infringe any of three patents asserted by Apple in investigation no. 337-TA-750. I said at the time that Apple would certainly petition for a review of this preliminary ruling by the six-member Commission at the top of the ITC.

Last week, the public redacted versions of various petitions and reply briefs of the parties with a view to a possible Commission review became available. Please excuse my delay in reporting on this. Things have been quite busy lately, especially on the famous FRAND front, and last week was a tough one for me due to a seasonal illness (meanwhile, I've recovered almost entirely).

I believe Apple has raised some good points that make a review of the ALJ's initial determination reasonably likely, and I believe it will most probably relate to at least two of the three patents-in-suit. Motorola has made strong points in its reply to Apple's petition, and in a contigent petition for review it has raised additional issues that could be outcome-determinative in its favor, but at this stage the question is not yet who will ultimately prevail on these issues. For now it's about whether there's a genuine dispute and whether there are signs that the ALJ may have erred to Apple's detriment. Having read the different briefs, I think there are valid reasons for a review.

Assuming the ITC decides to review the ALJ's findings, I guess Apple has a realistic chance of perhaps prevailing on one of those patents because the decision appears to be a relatively close one on each of them. If it prevailed on two, that would be a major surprise, and it's almost impossible to imagine that Apple would win on all three. But whatever the ITC will decide can be appealed to the Federal Circuit, and I guess that's what Apple will do.

Like I said, each of the decisions was relatively close, but the ALJ ultimately came down on Motorola's side 100% of the time. He was consistently very defendant-friendly, and that's why a review may very well result in some kind of adjustment.

One indication of how close a call those decisions were is that with respect to each asserted patent, Apple prevailed on two of the three counts that matter at the ITC (validity, infringement, domestic industry). Apple proved a domestic industry for the asserted claims of all three patents. Two of the patents were deemed infringed but not valid, while one was deemed valid but not infringed. All of the factors that were outcome-determinative against Apple appear to hinge entirely on claim construction.

The ITC as a whole is statistically very defendant-friendly, at least in connection with smartphone patent disputes. By my count, only about 1 out of 20 asserted patents ultimately results in a finding of a violation. Even in the most difficult court in Europe (the Chancery Division of the High Court of England and Wales), patent holders have a significantly better chance of winning (approximately 15% based on the most recent statistics I saw). Given how difficult the ITC makes it for patent holders to win, the popularity of German courts among the major players in the smartphone patent wars is easily understood (though the plaintiff-friendly line of some German judges is the diametrically opposed position and, in my opinion, against the public interest).

In the following three sections, I will elaborate on the situation concerning each of the three patents. In the final part, I'll also talk about a public interest statement that Google filed yesterday in this investigation.

U.S. Patent No. 7,812,828 on "ellipse fitting for multi-touch surfaces"

This patent is a multi-touch algorithm, applied-mathematics kind of patent. It's about figuring out the boundaries of a magnetic fingerprint.

The key disputed term in the wordings of the claims is "mathematically fit[ting] an ellipse to at least one of the [one or more] pixel groups". Apple proposed to interpret this as "comput(ing) numerical parameters that mathematically define an ellipse which approximates the shape of at least one of the pixel groups". Motorola proposed a much narrower construction ("for at least one of the pixel groups, applying a unitary transformation of the group covariance matrix of second moments of proximity data for all pixels in that pixel group to fit an ellipse"). One can have a reasonable argument over whether Apple's broader or Motorola's narrower construction is the more appropriate one, but the ALJ's own construction ("performing a mathematical process where by [sic] an ellipse is actually fitted to the data consisting of one or more pixel groups and from that ellipse various parameters can be calculated") is unsupported by the patent document and circular (it defines fitting an ellipse as a process in which "an ellipse is actually fitted"). Also, the use of the word "actually" is confusing, and another problem that needs to be fixed in my view.

I think the ITC is highly likely to overrule the initial determination on this claim construction question. Whether the construction ultimately adopted by the Commission will result in a finding of infringement (or possibly raise invalidity issues) is another question. I don't want to take a position on this one, at least not at this stage.

U.S. Patent No. 7,663,607 on a "multipoint touchscreen"

I previously said that this patent is a strategic one that could be very valuable to Apple (provided that its validity is confirmed and that it's interpreted broadly enough to be infringed by Android device makers). That assessment was shared by Ambercite, a research firm that evaluates patents based on citations.

The ALJ deemed it infringed, but also held it to be invalid. He thought that one prior art reference anticipated this patent, and a combination of two others rendered it obvious. There is reasonable doubt about whether the initial determination correctly applied the clear-and-convincing-evidence standard and other parts of patent law. The allegedly anticipatory reference may not be eligible as prior art at all, and the two prior art references over the combination of which the patent was deemed obvious were, according to Apple, before the examiner who nevertheless decided to grant the '607 patent (a fact that further raises the bar for any invalidity contentions based on prior art known to the examiner).

Apple also raises a legal issue concerning the extent to which secondary indicia of non-obviousness were properly taken into account.

I don't mean to claim that I have strong feelings about this patent being valid (or not). I do, however, believe that I have seen enough to be convinced that there's a genuine dispute over the validity of this patent, and this patent could be so valuable that I'm sure Apple will fight hard for the recognition of its validity (including an appeal to the Federal Circuit, which may be necessary). Apple must get the initial determination overruled both on the finding of an anticipation and the finding of obviousness, but for now I believe it may be able to achieve both and defeat additional invalidity contentions brought by MMI (or others in the future).

U.S. Patent No. 5,379,430 on an "object-oriented system locator system"

This old patent will apparently expire in August 2013. If Apple can't win an import ban very soon, I'm not sure it can still get much mileage out of this one after an appeal to the Federal Circuit. This may be a now-or-never situation.

The initial determination deemed this patent invalid because the ALJ didn't want to interpret the term "properties" more narrowly. He thought it should be given its ordinary meaning. As a result of this broad (non-)construction, even name- or file-size-search technology found in 1960s/1970s UNIX versions could be considered to locate properties and, therefore, to render this Apple patent non-novel.

Of the ALJ's three claim constructions that Apple contests in its petition for review, the decision to interpret "properties" rather broadly is the one I am most sympathetic to. While I don't mean to say that this patent is necessarily invalid, it appears to me that it applied rather old techniques to new objects, and that does call into question the validity of this patent.

Google's public interest statement

In October, Google filed a public interest statement with the ITC in the investigation of Apple's first comüplaint against HTC. Yesterday, Google also filed such a statement in this investigation of Apple's complaint against Motorola, once again arguing against an import ban that could result from a finding of a violation.

Google submits a seven-page statement as a self-described "non-party" and apparently fails to point out that it's in the process of acquiring Motorola Mobility. Given that the deal could close soon (and easily before an ITC decision on possible remedies), this omission is debatable, or even disingenuous.

Google's self-serving statement is extreme. Look at this sentence, for example:

"Should the Commission enter an exclusion order, it will reward Apple for asserting patented technologies that are, at best, minor components of the accused products."

If no violation is found, there won't be an exclusion order and those public interest considerations won't even be relevant. But assuming the ITC does find Motorola to infringe on a patent such as the '607 patent on a "multipoint touchscreen", it's preposterous to claim that such inventions are "at best, minor components of the accused products". Without Apple's innovative achievements, Android would today probably look like pre-iPhone-era versions of Symbian or the old BlackBerry operating system. There's no denying that Apple revolutionized this whole product category, and Android has at the very least been "inspired" by it.

Google furthermore appears to argue that Apple doesn't deserve intellectual property protection because it's so profitable that everyone should be free to steal from it:

"Apple needs no protection from the forces of the market; it is the largest seller of mobile devices, with a record $46.33 billion in recent quarterly revenue and $13.06 billion in quarterly net profit."

Google's "public interest" statement is a total non sequitur. The examples I gave above are representative of its overall quality. The ITC may be quite receptive to a lot of political arguments, but I'd be rather surprised if it based a decision to deny an import ban to any degree on one or more of the "public interest" considerations Google submitted yesterday.

At some point, the ITC will probably ask for input on possible remedies in cases involving standard-essential patents asserted by, for example, Motorola. Will Google then file public interest statements in support of FRAND access to standard-essential patents? Given that it's fully behind Motorola's conduct, there's no reason to assume that Google will advocate the true public interest in a context like that one.

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