Monday, February 25, 2013

Apple to FTC: Samsung and Google lose most of their cases over declared-essential patents

The FTC has published 25 submissions commenting on the proposed consent decree in the Google standard-essential patent (SEP) abuse case. I'm going to analyze this input in more detail, but there are a few things I wanted to share immediately.

  1. Both Apple and Microsoft, who are the targets of Google's (Motorola Mobility's) SEP-based injunction requests that gave rise to the investigation and the envisioned order, state in their submissions (Apple's letter, Microsoft's letter) that Google still hasn't withdrawn all of its SEP-based injunction requests. Here's what Microsoft says:

    "[Despite the proposed order] Google has not withdrawn all of its pending injunctive relief actions based on FRAND-encumbered SEPs. This is true even though these actions were filed against 'willing licensees,' and this anticompetitive conduct by Motorola, and then Google, is the basis for the Complaint in this matter. We assume that Google's refusal to withdraw its pending claims for injunctive relief means that it interprets the proposed Order to permit it to continue its existing claims for injunctive relief, notwithstanding the Commission's public statement to the contrary. Clarification of the decree in this regard would be appropriate."

    Documents filed on Friday with a U.S. court show that, for example, Google refuses to withdraw its German injunction requests against Microsoft. It is still looking for an opportunity to enforce an H.264 patent injunction it won last year. Here's what Apple says about it:

    "All that said, Google's actions and public statements since the issuance ofthe FTC's Complaint raise concerns that it has yet to get the message. First, Google/MMI continues to deny that it engaged in hold-up and instead blames the victims of its anticompetitive conduct for 'holding out.' Second, Google continues to pursue injunctive relief against Apple in federal court and seeks to exploit the injunction it obtained and enforced against Apple in Germany. Third, Google/MMI continues to demand royalties (in the German rate-setting action and in ongoing negotiations) based on past licenses it negotiated while wielding the threat of injunction. Such licenses are the proverbial 'fruit of the poisonous tree' and cannot be presumed FRAND."

    Footnote 10 of Apple's letter recalls what the FTC itself thought Google would actually have to do now:

    "Remarks of Chairman Jon Leibowitz, Google Press Conference (Jan. 3, 2013), available at ('Google's settlement with the Commission requires Google to abandon its claims for injunctive relief on any of its standard essential patents with a FRAND commitment, and to offer a license on FRAND terms to any company that wants to license these') (emphasis added); Proposed Consent Order, In the Matter of Google Inc., FTC File No. 121-0120, supra note 7 ('Google's settlement with the Commission requires Google to withdraw its claims for injunctive relief on FRAND-encumbered SEPs around the world, and to offer a FRAND license to any company that wants to license Google's SEPs in the future.')."

  2. Microsoft's submission primarily stresses the need to (preferably) drop or (alternatively) narrow the "defensive use" exception. Microsoft says there should be no exceptions to the rule that injunctions cannot be sought against willing licensees. I'm also against self-help: companies should never be authorized or encouraged to take the law into their own hands. As a litigation watcher I see the threat to consumer interests that mutual SEP-based injunction requests such as in the Ericsson-Samsung dispute pose, and how unbelievably far-fetched the theories of some litigants are if they believe they have a benefit from alleging that a patent they have to defend themselves against is standard-essential, which would also happen if someone wants to invoke the "defensive use" clause in order to respond to non-SEP litigation with SEP-based retaliatory injunction requests.

  3. The final paragraph of Microsoft's letter is a suggestion that the FTC could adopt without any modification to the proposed consent decree. Microsoft would consider it useful to clarify that the procedures set forth in the proposed order are not the only basis on which a defendant can argue that the pursuit of injunctive relief is abusive. As Microsoft's letter points out, it's unusual enough that the proposed order in this case "appears to create obligations for third parties if they wish to shield themselves from the injunctive relief actions that Google already relinquished under the reasoning of the proposed Complaint". It should just be clarified that even if a defendant did not follow the proposed procedures, Google or any other SEP holder wouldn't necessarily be "free to seek injunctive relief and freed from its FRAND commitments".

  4. Apple's letter raises the very important point (starting on page 6) that most patents that are declared essential to a standard (by their holders, typically without any independent verification of essentiality) actually aren't -- and if someone wants to get paid for an allegedly standard-essential patent, a defendant must have the right to challenge the validity of the patent and its essentiality in court without having to pay for a portfolio license based on an arbitrated or court-determined value of an unverified portfolio. While the proposed consent decree generally mentions that challenges to validity, essentiality and infringement allegations don't make a company an unwilling licensee, a very recent InterDigital filing in lawsuits targeting Huawei and ZTE shows that some SEP owners nevertheless argue that they should receive royalties even without having to prove that their asserted patents are valid and actually used by an implementer of the standard in question.

    Apple's letter provides some data points on the problem of overdeclaration:

    "The only true check on essentiality today -- at least in the context of cellular SEPs -- occurs in court when a patent holder chooses to assert a SEP and seeks to demonstrate as part of its infringement claim that its asserted patent is standard essential. At most standard setting organizations, patentees unilaterally declare their patents to be essential to a standard. There is no independent verification that patents are truly essential. Further, patentees are often required to declare their potentially essential patents before the standard is determined, which necessarily will result in over-declaration. The incentives to disclose patents, the lack of independent verification, and the disclosure requirements of standard setting organizations have led to significant over-declaration. For example, over 7,300 patents have been declared as essential to UMTS, a 3G cellular standard. Independent third-party analysis suggests that the majority of these patents are not technically essential to the UMTS standard. See PA Consulting Group, Essential Intellectual Property in 3GPP-FDD 17 (May 2006) (finding that of patents studied that were declared essential to 3GPP-FTD standards, including UMTS, only 36% were actually essential); see also PA Consulting Group, LTE Essential IPR: PA's 3GP P-LTE Database and Report 13 (July 2012) (finding that of patents studied that were declared essential to LTE, only 40% were essential).

    SEP holder must also demonstrate that its patents are infringed by the implementer's product and rebut any counterarguments or defenses of invalidity, unenforceability, or exhaustion. Apple's experience has shown that declared-essential patent holders often fail to satisfy their burdens of proof on these issues in litigation. For example, MMI has asserted ten declared-essential patents against Apple in the United States and Germany. Nine of those patents have been found invalid or not infringed (or both). Similarly, Samsung has asserted over 20 allegedly essential patents against Apple. To date, Samsung has lost thirteen decisions (either because of non-infringement or invalidity or both) and won only three. In addition, Samsung has dropped eight other declared-essential patents, tacitly recognizing the defects in those patents."

  5. Again, these are statistical facts: Google (Motorola Mobility) had a hit rate of only 1 out of 10 with its SEP assertions against Apple, and Samsung only 3 (2 of them in its own country, 1 in the Netherlands) out of 24 (if withdrawn patents and cases stayed by courts over doubts concerning validity are included). 3 out of 24 is the same hit rate as 1 out of 8. So Google has won 1 out of 10, Samsung 1 out of 8 if Korea (an outlier in this regard) is included, and 1 out of 22 if it is not.

    Those companies accuse Apple of "hold-out" tactics, but with such sky-high drop-out rates they should perhaps blame it all on the weakness of their own patents rather than blame Apple for taking the position that it "will not [...] capitulate to attempts at hold-up".

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents and Google+.

Share with other professionals via LinkedIn: