Wednesday, July 31, 2013

ITC judge finds patent troll to be far more reasonable than Google's Motorola Mobility

InterDigital has been listed among "tech's 8 most fearsome 'patent trolls'", and I have serious doubts about its compliance with its FRAND licensing obligations, but the worst is the enemy of the bad. It's quite interesting that the same Administrative Law Judge at the ITC, Judge David Shaw, has not found indications for a lack of "good faith" on InterDigital's part in its negotiations of standard-essential patent (SEP) licenses with Nokia, Huawei, and ZTE, but determined last year that now-Google-owned Motorola Mobility "was not interested in good faith negotiations and in extending a [F]RAND license" to Microsoft.

Judge Shaw's analysis of InterDigital's conduct has recently become available in a public redacted version of his final initial determination on InterDigital's mid-2011 complaint against Nokia, Huawei, and ZTE. The initial determination was made about a month ago and identified no violation of a valid InterDigital patent by any defendant. While Judge Shaw sided with defendants on liability, he threw out their FRAND defenses, as InterDigital told a federal court earlier this month. Until recently it was unknown why he ruled against those FRAND defenses. The public redacted version of the full ID sheds some light on this (though it is heavily-redacted and, for example, does not specify the financial terms discussed between the parties).

The standard Judge Shaw applied in his analysis of InterDigital's compliance with FRAND is the wrong one in my view. The right approach would have been consistent with what an FTC official said at a Senate hearing held yesterday: while patent law is usually set up for exclusion, FRAND-pledged SEPs are fundamentally different. Judge Shaw just argues that the ITC's governing statute doesn't make any dinstiction between SEPs and non-SEPs, and after interpreting InterDigital's commitments to ETSI under French law, he concludes that InterDigital merely had an obligation to negotiate in good faith. By contrast, even if one doesn't consider FRAND and injunctive relief irreconcilable per se except under very rare circumstances not present in this case, it's more common that courts and regulators believe a would-be licensee must act in good faith in order to shield itself from injunctive relief -- the "willing licensee" standard. I have previously criticized the ITC's reversal (or one might even call it a perversion) of the "willing licensee" principle by basically saying that someone who appears to be a willing licensor is entitled to import bans.

I'm also disappointed that the ITC (with the notable exception of one of the six commissioners) continues to take utterly bizarre positions on the antitrust issue of tying. Judge Shaw disagreed with the defendants in this action on the import of InterDigital's insistence on worldwide license deals. For example, Nokia made and InterDigital rejected a U.S.-only license. Maybe the FTC and DoJ should offer a seminar for other government agencies who need to learn about the basics of tying.

Anyway, Judge Shaw looked at the history of negotiations between InterDigital and each of the three defendants in this ITC investigation. These are his defendant-specific conclusions:

  • "Having reviewed the lengthy history of negotiations between InterDigital and Huawei adduced by the record evidence, as well as the arguments raised by the parties, it is determined that Huawei has not shown that InterDigital has negotiated in bad faith with Huawei."

  • "When viewed as a whole, the entire negotiation history between InterDigital and ZTE fails to support ZTE's allegations that InterDigital has breached its FRAND obligations to negotiate in good faith towards a license."

  • The part about Nokia is heavily-redacted, but the conclusion is also that InterDigital met its obligation to negotiate in good faith.

This contrasts with his findings in the Motorola-Microsoft case in 2012:

  • "The offers made to Microsoft show that although Motorola assured the [standard-setting organizations] and the public that it would provide reasonable and non-discriminatory licenses for the patents essential to certain standards, those communications were misleading."

  • "[...] Motorola's statements and conduct toward Microsoft, and also toward [REDACTED/presumably including Apple], show that Motorola's statements to the SSOs were misleading."

  • "The evidence shows that the royalty rate offered by Motorola of 2.25%, both as to its amount and the products covered, could not possibly have been accepted by Microsoft."

  • "Indeed, there is no evidence that any company would agree to the offer that Motorola sent to Microsoft."

  • "[...] the evidence supports Microsoft's conclusion that Motorola was not interested in good faith negotiations and in extending a [F]RAND license to it."

To be very precise, Microsoft's equitable-estoppel defense was also rejected but only because Judge Shaw did not find one of the criteria (reliance) fulfilled. Other than that, he agreed that Motorola's conduct was outrageous, as the above quotes show.

Google is a vocal critic of patent trolls and a driving force behind anti-patent-troll legislation. Judge Shaw's findings related to Motorola's conduct prior to the formal closing of the acquisition, but Motorola's SEP assertions continued when Google controlled the company. This makes it all the more astounding that a judge would find a so-called patent troll to have acted more reasonably in SEP licensing negotiations than a wholly-owned and micromanaged Google subsidiary. Is Google perhaps trying to divert attenton away from its own conduct with a bogeyman called "patent trolls"?

I'm actually not surprised that Motorola's conduct was deemed fundamentally worse than that of InterDigital. InterDigital just wants to monetize its patents. That, too, can be an incentive to make supra-FRAND demands. But at the end of the day one-way licensing is "only" about money, while companies like Samsung and Motorola leverage SEPs and the threat of injunctive relief and/or excessive damages/royalties based on SEPs in order to force other parties into cross-license agreements involving non-SEPs that they (Samsung and Motorola) infringe. If the goal is to get access to non-SEPs, asking for a lot of money is not enough: only prohibitive demands can help achieve that goal. InterDigital is very demanding, and it appears that it engages in conduct that antitrust authorities should investigate from a tying point of view, but at the end of the day it's interested in doing cash-only license deals, unlike Samsung and Motorola. (The ITC is, of course, happy to give leverage to any SEP holder, regardless of strategic considerations, provided that liability is established, which is rarely the case.)

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