Today the public redacted version of Google's (Motorola's) reply brief in the appeal of Judge Posner's Apple v. Motorola ruling was filed. The confidential version was submitted on Monday. Here's the brief (this post continues below the document):
Google (Motorola) filed this brief a week after the European Commission issued a Statement of Objections (SO), a preliminary antitrust ruling, against Motorola Mobility's use of standard-essential patents (SEPs) against Apple in Germany. In its opening brief, Google had claimed that Apple was such an unwilling licensee that injunctive relief should have been available and had warned that Judge Posner's approach to damages for past infringement threatened to devalue SEPs. The reply brief obviously reinforces these points:
- With respect to the risk of low FRAND royalties (and damages) disincentivizing participation in standard-setting, Google points to Qualcomm's amicus curiae brief. There's no doubt about Qualcomm's interest in high FRAND royalties. But I don't think its particular business model must be protected in order to ensure that companies continue to develop industry standards. There are enough device makers with an interest in cellular standards that research and development will be funded even if Qualcomm's revenues and profits shrank.
Google uses more aggressive rhetoric (but doesn't advance any new arguments) concerning Apple's refusal to accede over the years to the 2.25% royalty demand, claiming that "Apple has been intransigent since it began its infringement in 2007" and that "Apple declined to negotiate and continued to infringe while collecting massive profits", and demanding "the opportunity to seek an injunction to stop Apple's six years of ill-gotten gains from stretching into a decade or more".
Google complains that "Apple has gained considerably from its intransigence, while Motorola still has nothing to show for the contributions it made to the standards that have enabled much of the functionality of Apple's devices". This statement contrasts with the fact that after more than two and a half years of litigation Motorola still hasn't proven that Apple infringes even one of its U.S. SEPs. Motorola prevailed on an infringement claim in Germany, but whether the relevant patent (on a countdown) is valid is another question. Motorola forced Apple to withdraw its challenge to the validity of that patent, an imposed condition that the European Commission believes violates European antitrust law.
Considering Motorola's more than dismal SEP litigation track record against Apple, it's remarkable that it keeps insisting that "the first patent from the portfolio to be licensed [would typically] have a disproportionate value of 40 to 50 percent of the overall rate". Google wants to be paid the full rate for a portfolio of doubtful value. It may not even contain a single valid cellular SEP that Apple actually infringes. If Google at some point prevailed on one such patent, it might be the only one in the entire portfolio. Google says this is necessary for efficiency reasons relating to transaction costs:
"Under Apple's theory, Motorola would be forced to sue on each patent in its standards-essential portfolio individually to recover the full value reflected in the previous standards-essential portfolio licenses Motorola has entered. And, in each individual case in which Motorola was successful, it could recover only the fraction of the overall rate attributable to that single patent. Therefore, under Apple's theory, a company that contributed more technology to the standard than another would have significantly higher transaction costs to recover any value for the technology it developed."
But Judge Posner had already explained in his ruling that even without a "loser pays" rule it just doesn't make sense for an implementer like Apple to refuse a FRAND rate and to litigate if it can be avoided.
I'm now going to focus on an interesting part of Google's reply brief, which addresses Apple's claim that the controversy over injunctive relief is moot as a result of the proposed FTC-Google consent decree. I'll quote the relevant section from Google's reply brief and a related footnote:
"2. The FTC Consent Decree Does Not Prevent Motorola From Seeking An Injunction Here
Apple also raises the FTC consent decree with Google to imply that Motorola is improperly pursuing an injunction in this case. ARB [Apple's responsive brief defending the FRAND part of Judge Posner's ruling] 40-41. Apple is incorrect. The FTC has not banned Google from ever pursuing an injunction involving SEPs; instead, the FTC permits Google to seek injunctive relief for SEPs in certain specific circumstances. In the Matter of Motorola Mobility LLC and Google Inc., FTC File No. 121-0120, Decision and Order, 2013 WL 124100, at *10-11. The FTC acknowledges that '[w]e agree that injunctions may issue in certain situations even when a RAND-encumbered SEP is involved, such as when a licensee is unwilling to license on FRAND terms….' Id. at 38, fn. 14. Nothing in the consent decree prevents Google from opposing the imposition of an effectively categorical rule against injunctions involving any SEPs or from continuing to seek an injunction in a case that is already pending in federal court."
The footnote even claims that the FTC may have misrepresented (in the sense of overstating) in a public statement the effect of the proposed consent order:
"To the extent the Commission's statement suggests otherwise, it was incorrect and cannot alter the terms of the actual consent decree. In addition, Google is within its rights to seek a court's ruling that an injunction is proper in this case. If an injunction is granted, then Google understands that it would need to go through the steps outlined in the consent decree in order for the injunction to actually issue. See FTC Order at ¶ II(c) (prohibiting Respondents from 'obtaining or enforcing'--but not seeking--an injunction in a pending action 'unless and until Respondents have made Qualified Offers to the Potential Licensee[']). Because Motorola could obtain injunctive relief on remand (if it were to make Qualified Offers to Apple and ultimately prove both infringement and its entitlement to injunctive relief), the controversy is not moot, as Apple incorrectly suggests (ARB 40-41)."
Google is trying to leverage a potential loophole in the proposed FTC order when it suggests that "obtaining" injunctions is a different thing than "seeking" one. I agree that there's a difference between obtaining and enforcing, and the relevant paragraph of the proposed FTC order clearly makes that distinction:
"Respondents shall not obtain or enforce Covered Injunctive Relief based on a claim of alleged Infringement of a FRAND Patent that is pending on the date this Order is issued, unless and until Respondents have made Qualified Offers to the Potential Licensee against whom the Covered Injunctive Relief is sought. The foregoing means that it shall be a violation of this Order if Covered Injunctive Relief based on a claim of alleged Infringement of a FRAND Patent is enforced before Respondents make the Qualified Offers and the time periods specified in Paragraph IV.B. of this Order have lapsed."
The second sentence of that paragraph also draws a line where actual enforcement begins. But the difference between "to seek" and "to obtain" is just whether one succeeds with a petition. If Google argues that the FTC order bars it from "obtaining" -- but not from "seeking" - injunctions, it says that the pursuit of injunctive relief is fine as long as it doesn't succeed. Google believes it's fine if it makes a licensing offer in accordance with the proposed consent decree anytime before a court actually grants injunctive relief. But Google doesn't always control when a court makes this decision. If things happen quickly, it may not have time to make the Qualified Offer the proposed FTC consent decree requires it to make.
I've looked up all occurrences of the verb "to seek" in the proposed FTC consent order that relate to injunctive relief:
Paragraph II.E (just two paragraphs down from II.C, which Google cites to) defines circumstances under which "[n]othing in this Order shall prohibit Respondents from seeking Covered Injunctive Relief".
Paragraph III.F: "to file a claim seeking, or otherwise obtain or enforce, Covered Injunctive Relief"; similar: the first paragraph of Section IV and paragraph IV.F, which elsewhere defines criteria for what happens "prior to seeking the Covered Injunctive Relief"
Paragraph IV.C defines when "Respondents shall be relieved of their obligations not to file a claim for, or seek or enforce, Covered Injunctive Relief". Frankly, I don't see how "to file a claim for [injunctive relief]" is different from "seek[ing]" it.
Paragraph V.B makes it a requirement for a purchaser of any of Motorola's FRAND-pledged SEPs "not to seek Covered Injunctive Relief on the basis of Infringement of the FRAND Patent except to the extent Respondents would be permitted to seek such Covered Injunctive Relief by the terms of this Order".
The letter Google has to send to alleged infringers says:
"Under the Order, Google generally cannot seek an injunction or exclusion order against [POTENTIAL LICENSEE] while the above action is ongoing. However, Google can demand that, as a condition of not seeking an injunction or exclusion order, Google and the Potential Licensee make the following binding commitments that cannot be revoked: [...]"
It also says at the very end that if the recipient of the letter does not agree to the terms, "GOOGLE MAY BE ABLE TO SEEK AN INJUNCTION OR EXCLUSION ORDER AGAINST YOU WITHOUT VIOLATING THE ORDER."
It's hard to see why an acquirer of any of those SEPs should be barred from "seek[ing]" an injunction if Google itself has (as it claims) the right to do so. That adds to my impression that what the FTC wanted to prevent is that Google would "seek" injunctive relief, and where it says "otherwise obtain or enforce", it means to close potential loopholes. And I think the offer letter (which forms part of the proposed consent order) provides the clearest indication that Google is barred from seeking (and not just obtaining and enforcing) injunctive relief. There are exceptions in the proposed FTC consent order under which Google is allowed to seek injunctive relief. I don't believe any of them applies here, but even if Google was right and one or more exceptions applied, I can't see a clear indication in the FTC consent order that it's fine to "seek" injunctive relief as long as you don't succeed (and "obtain" it) and, subsequently to succeeding, "enforce" it. Should there be any ambiguity about this, then the FTC still has the opportunity to provide more clarity -- in the consent order itself (which has yet to be finalized) and not just in a public statement that, as Google accurately notes, can't alter the agreement.
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