Wednesday, April 3, 2013

Google faces a double hurdle in what's left of its ITC case against Microsoft's Xbox

More than 27 months after Motorola filed an ITC complaint against Microsoft's Xbox gaming console, Google still hasn't won an import ban, but keeps pursuing one. On March 22, Administrative Law Judge David P. Shaw issued a preliminary ruling recommending the dismissal of the remainder of the complaint, and based on the detailed version of Judge David Shaw's remand initial determination that was published today, it's going to be fairly difficult for Google (Motorola Mobility's owner) to persuade the Comission (the six-member decision-making body at the top of the U.S. trade agency) to overrule Judge Shaw. At this point, only one patent -- a WiFi-related but not standard-essential one -- is still in the game. Google withdrew two WiFi standard-essential patents (SEPs) in October 2012 and two H.264 (video codec) SEPs in January 2013.

I realize that in my most recent post on this case (the one on Judge Shaw's remand initial determination) I had incorrectly stated that the sole remaining patent in this case is U.S. Patent No. 6,246,862 on a "sensor controlled user interface for portable communication device" -- but that's the patent in the Apple case. The sole remaining patent-in-suit in the Microsoft case is U.S. Patent No. 6,069,896 on a "capability addressable network and method therefor". This kind of oversight happens when you look up the wrong document and I apologize for it. Also, while I'm in autocorrect mode, in my post on the withdrawal of the two H.264 patents I originally said that Google would need a successful appeal to the Federal Circuit to bring the '896 patent back into the game. I correctly noted that the ALJ had found that patent infringed, and what happened is that the Commission did not adopt his infringement finding, but it didn't reverse it either. I apologize for this inaccuracy as well. The parallel Apple ITC case got me too confused, but I promise that it won't happen again in this context -- and that I'll try to avoid it in other cases as well.

Anyway, today the detailed version of Judge Shaw's remand initial determination ("RID") entered the public electronic record. Neither party requested any redactions of confidential business information. Otherwise it would have taken several more weeks for the RID to be published.

The RID sided with Microsoft for two separate reasons, any one of which would be sufficient on its own to fend off the remainder of Google's case. I'll explain.

The key problem for Google in this case is that Motorola, when it brought the complaint in late 2010, didn't anticipate the landmark Commission ruling on (now-HTC-subsidiary) S3 Graphics' complaint against Apple, in which the Commission clarified that method claims can only give rise to ITC exclusion orders (import bans) under special circumstances. That's because the ITC only has the authority to prohibit imports of goods if importation itself -- as opposed to post-importation use of the imported goods -- violates U.S. patent law. For product claims ("apparatus", "device" etc.), that's typically the case, but a method claim can only be infringed at the time a product crosses the border if it was manufactured in violation of a manufacturing-related method patent or if the importer is liable for indirect (induced or contributory) infringement. If Motorola's lawyers back in 2010 had interpreted the statute governing the ITC's patent infringement investigations ("Section 337") that way, they would probably have chosen different patent claims, or even entirely different patents. But they didn't, and they built their whole case on direct infringement theories, with indirect infringement being, at best, an afterthought. As a result, one of the two independent reasons for which Motorola's case must be dismissed in Judge Shaw's view is simply that it failed to develop an indirect-infringement theory at the appropriate stage of the proceedings:

"As noted by Microsoft, the administrative law judge previously found that Motorola had not shown that Microsoft's accused products indirectly infringe the asserted claims of the '896 patent. [...] The administrative law judge noted that Motorola's pre-hearing brief included only a single sentence on indirect infringement of the '896 patent. [...] The administrative law judge found that Motorola did not include, and has therefore waived, any argument that the accused products lack substantial noninfringing uses or that Microsoft intends others to infringe. [...]

Accordingly, the undersigned [judge] finds that there is no need for further analysis concerning indirect infringement. Indeed, even after being afforded a hearing to address the application of [the S3 Graphics ruling], Motorola was only able to presented indirect infringement evidence that could have been presented earlier."

If the RID had stopped there, Google would have lost only for procedural reasons, but Judge Shaw decided to address Motorola's arguments anyway, even though he deemed them waived, which makes it even harder for Motorola to win a favorable ruling because the Commission would have to overrule Judge Shaw procedurally and substantively:

"Nonetheless, in the event the Commission disagrees with the administrative law judge's findings in the underlying investigation on this issue, the undersigned provides the following analysis.

As discussed below, Motorola failed to show essential elements of both induced and contributory infringement. Motorola's induced infringement argument fails because Motorola has not established intent to cause infringement. Motorola's contributory infringement argument also falls short because it did not show that the accused 'components' are material parts of the claimed invention. Further, Motorola has not shown that these 'components' lack substantial noninfringing uses."

In connection with the intent that is required for a finding of induced infringement, the RID explains that the Kinect controller would not be affected by the import ban Google is seeking and, in fact, the marketing effort Microsoft puts behind the non-infringing Kinect is a key reason to deny intent to induce infringement by end users:

"The evidence shows that there is another way of controlling the Xbox 360 that is not accused of infringement: the Kinect accessory. Microsoft offers the Kinect accessory in certain packages with the Xbox 360 and advertises it on other packages that do not include the Kinect. [...].

The Kinect is a wired Xbox 360 accessory that is 'packed with an array of cameras and microphones that track users' movements and listen to their voices, allowing the Xbox to be controlled through speech and motion instead of a clunky game pad.' [...]

The evidence shows that Microsoft markets the use of Kinect as a way to control the Xbox without using a game pad — either wired or wireless. [...] Microsoft's inclusion and promotion of the Kinect (and 'controller-free' entertainment) weighs against Motorola's argument that Microsoft has specific intent to induce users to infringe."

With the ITC case not looking too promising for Google, it may at some point have to choose between continuing its pursuit of an import ban despite the challenges it faces and, in the alternative, focusing on its companion complaint in federal court. A district court could hold Microsoft liable for direct infringement of a method claim even if no infringement occurs at the time of importation. But the federal case is stayed pending resolution (including appeals) of the ITC investigation, and if and when it finally resumes, it will take a while before it goes to trial. And even if Google won an infringement finding, its commercial scale is likely limited if it just comes down to Microsoft's own use of the Xbox in connection with wireless controllers. In a patent dispute of this kind you really need infringement of reasonably massive scale to win a substantial amount of damages.

Google continues to get no leverage on the patent litigation front out of its $12.5 billion acquisition of Motorola Mobility. Later this month the ITC will rule on its complaint against Apple, and the sole remaining patent-in-suit in that case has already been found invalid twice by an administrative law judge.

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