Friday, March 1, 2013

InterDigital says FTC-Google settlement 'is not a basis to adjudicate subsequent cases'

InterDigital yesterday responded to motions by Huawei and ZTE to expedite the adjudication of their FRAND licensing counterclaims against the non-practicing entity in litigation pending in the District of Delaware. The Chinese telecommunications hardware makers hope that the proceedings in federal court can dispose of an ongoing ITC investigation, which they would like to be stayed pending the federal lawsuit.

In a pleading in support of its own motion for an extension of time to respond to those counterclaims (which was granted this week against Huawei and ZTE's opposition), InterDigital had already commented on the motion to expedite. Yesterday's filing states InterDigital's opposition in more detail. InterDigital's latest round of lawsuits is particularly interesting in light of the envisioned FTC-Google settlement, on which more than two dozen entities submitted comments (see this recent "trilogy" of blog posts on particularly interesting submissions: 1, 2, 3). In my analysis of InterDigital's expected opposition to Huawei and ZTE's motion I'll focus on the parts of InterDigital's pleading that are most directly related to the FTC-Google consent order.

This is the filing (this post continues below the document):

13-02-28 InterDigital Opposition to Huawei-ZTE Motions to Expedite by

InterDigital accurately notes that "Huawei and ZTE [...] rely primarily on a proposed settlement agreement between Google/Motorola and the Federal Trade Commission as authority for the proposition that a patent holder may only seek injunctive relief after litigation to set a FRAND rate is complete". That's the way it is.

While Qualcomm's submission to the FTC recognized that the antitrust authority wants the Google deal to serve as a generally applicable model, InterDigital tries to downplay its significance in the Delaware-based court:

"Putting aside that the Google/Motorola situation is inapposite in a number of ways, Huawei and ZTE are simply wrong in their characterizations of the Google/Motorola settlement. An administrative consent decree is not law. It is an agreement between third parties who have no relationship to this action, and is not precedent binding on this (or any other) Court. That Google/Motorola may have chosen to agree with the FTC to undertake certain obligations is not a basis to adjudicate subsequent cases. In the consent agreement, Google/Motorola expressly denied liability, and denied the allegations of the FTC's complaint, which have never been tested in a court of law. [...] Consent decrees are not legal determinations, and have no precedential weight even in the context where they arose (FTC administrative proceedings under Section 5 of the FTC Act), much less in the very different context of this action."

InterDigital's portrayal of the situation is not inaccurate at all. It is just incomplete. Non-precedential decisions and agreements can be quite influential, even if only in a persuasive (and not binding) form. U.S. courts are definitely going to give serious consideration to the FTC-Google settlement and are not going to grant injunctions over standard-essential patents against willing licensees. While InterDigital is right that the (envisioned) FTC-Google settlement does not entitle Huawei and ZTE to expedited proceedings, I believe the two hardware makers will ultimately be fine with any procedural course of action that results in a FRAND rate determination. They just don't want an injunction to take effect before the licensing issues have been resolved.

In light of that objective (license before injunction), the procedural challenge that Huawei and ZTE face and try to tackle with their motions (asking the ITC for a stay and the Delaware-based court for expedited FRAND adjudication, knowing that they'll be fine if only one of the motions succeeds) is related to timing. Computer programmers call this a "race condition". It's when a program may crash (or enter an endless loop) because one part of the program only works properly if another one has been completed. In this case, the FRAND rate-setting part would fail if an injunction entered into force before a license agreement has been brought about because the commercial implications of a sales or import ban would require the affected companies to settle on the terms of the patentee, who would be "the dictator of the royalties" in that scenario.

Well-written computer programs don't have race conditions. They are designed in a way that everything is performed in the right order and that a step B requiring the prior completion of step A won't be executed prematurely. In that regard, Huawei and ZTE's motion to stay the ITC investigation makes a whole lot of sense. Trying to speed up the proceedings in federal court is worth trying, but even if it worked in this case, it wouldn't work in other cases.

Another problem in the race condition context is that there are two other companies defending themselves in parallel cases brought by InterDigital in federal court and in the same ITC investigation: Nokia and Samsung. While Huawei and ZTE are aligned with respect to FRAND licensing issues, it's unclear how Samsung and Nokia wish to proceed. InterDigital is obviously trying to take advantage of the fact that different defendants favor different approaches to FRAND, knowing that the ITC and the Delaware-based federal court would always find it more efficient to have all these claims and cases on the same schedule.

There's just one more issue raised by InterDigital's filing that I'm going to highlight here. InterDigital points to what happened in the Apple v. Motorola case in the Western District of Wisconsin, where a trial was canceled at the last minute because of Apple conditioning its acceptance of the royalty the court would have determined on rates of $1 or less per iPhone. InterDigital argues that even if Huawei and ZTE declare themselves bound by the results of a FRAND rate determination (which is a requirement of the proposed FTC-Google consent order), they could play opportunistic games later on:

"In reality [...] nothing prevents Huawei and ZTE from later changing their position if events in the other pending actions make it expedient for them to do so, just like the alleged infringers in [certain] other cases. As the counterclaimants, Huawei and ZTE can always modify the relief they seek or even withdraw their claims entirely -- once they have accomplished their goal of delaying the adjudication of the patent infringement claims, as they seek to do via this motion, and via their motion to stay the parallel ITC investigation. the hard-won experience of other courts in this situation vividly illustrates that parties seeking a 'FRAND rate' can and will change their positions on what they want adjudicated and the extent to which they are willing to actually pay the determined FRAND compensation."

The way I understand the proposed FTC-Google consent order, an implementer who withdraws a FRAND determination claim (or modifies its position to the effect that the FRAND determination no longer meets the criteria laid out by the FTC) would immediately be considered an unwilling licensee, and the patent holder could then seek an injunction (unless there are other valid defenses). I doubt that there's a way someone bringing a FRAND determination action (or counterclaim) can be precluded beforehand from a future withdrawal, but such conduct would go to the analysis of the party's willingness to take a license. As long as someone declares himself really and truly bound by the court-determined rate and doesn't withdraw a complaint or (counter)claim, he's a willing licensee.

InterDigital is concerned that someone could delay resolution and avail himself of the procedural options outlined in the proposed FTC-Google consent decree today but reconsider tomorrow. But nothing would prevent InterDigital from only suing for damages in federal court. The FTC-Google deal only has a bearing on the pursuit of injunctive relief, including requests for ITC import bans. InterDigital shouldn't speculate about whether Huawei and ZTE might one day withdraw their FRAND determination counterclaims. It should instead withdraw its own requests for SEP-based injunctive relief.

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