Apple has won the first Apple v. Samsung battle today: the Federal Circuit's appellate hearing relating to the denial of a permanent injunction against Samsung products infringing half a dozen Apple patents. Having listened to the one-hour recording (MP3 file), I totally agree with the headline of the Wall Street Journal report on this hearing: "Appeals Court Presses Samsung in Apple Patent Case"
This does not mean to say that the court agrees with Apple on everything, or that Apple's counsel, WilmerHale's Bill Lee, didn't also face some critical questions. But if you listen to the recording, I'm sure most of you will agree that Samsung's counsel, Quinn Emanuel's Kathleen Sullivan, was very much on the defensive. Usually it should be the opposite, given that Samsung won the first round (in district court).
It's not always easy to conclude much from what judges say at a hearing. Today, however, the panel composed of Judges Prost, Bryson and O'Malley gave rather clear guidance on the key issues in this appeal. I'm as convinced as I could be after listening to the recording of a hearing that Apple will be granted a permanent injunction against Samsung over some if not all of the six patents and the trade dress a California jury found infringed almost a year ago. And that sales ban will, contrary to widespread misbelief and ignorance, not be limited to a few mostly obsolete products but will also apply to newer infringing products that are "no more than colorably different", which a judge clarified is not overbroad (as Samsung alleged) but simply the standard language. Also, the patents at issue in this particular case aren't nearly as important as two other sets of partly much more powerful patents with respect to which Apple may seek injunctive relief in the rather near term:
the patents to be asserted at the trial in the second California Apple v. Samsung case starting on March 31, 2014 (Apple will get to assert up to five different patents out of these six)
eight back-burner patents (three design patents, five utility patents) dropped without prejudice (i.e., reassertion is an option) ahead of last year's trial, which include the two multi-touch patents over which Apple won a favorable appellate ruling against Google's Motorola Mobility earlier this week (Apple could seek injunctions over some of these patents without a need for a jury trial as long as it doesn't go for damages)
Samsung doesn't face much settlement pressure because of the high probability of Apple now winning an injunction over the patents asserted at last year's trial. It can deal with that. But the two additional categories of patents I listed above, plus any patents Apple could assert in subsequent cases, should give Samsung pause if the standard for injunctive relief is clarified in a way that will help Apple in other cases involving smartphones and tablet computers. In that case, if Apple prevails on liability with respect to some more powerful patents, it may win an injunction shortly thereafter, and then Samsung may come under serious settlement pressure next year.
For my commentary on the hearing let me refer you to a passage on the four key issues from my vantage point (a list that is similar but not identical to the parties' set of priorities) in an earlier post and use it as the structure of my take on the court's apparent inclination at today's hearing.
Causal nexus requirement and related evidentiary standard
It appears that the court won't abandon the "causal nexus" requirement, but the evidentiary standard will come down a lot. Otherwise I don't think the judges would have focused so much on the implications of a lower standard in their questions. Apple has been arguing ever since this ruling that the way Judge Koh applied the "causal nexus" standard would basically make injunctions unavailable over features that are not proven in granular detail to be the driver of consumer demand for an infringing product. Judge Koh already used a rather high standard in her preliminary injunction rulings (her equitable analysis favored Samsung 75% of the time, which most people failed to notice because they just saw that some injunctions were ordered), but the standard went completely through the roof in her post-trial ruling on Apple's request for a permanent injunction.
Samsung says that Apple's evidence relating to the importance of "design" and "ease of use" was too broad (and argues that the patents-in-suit are very narrow). But Apple had actually made a fair amount of effort (more than smaller plaintiffs, whose intellectual property should also be protected, could even afford) to prove a connection between infringement and irreparable harm, and even to show consumer demand (also in the damages context). In particular, the appeals court appears inclined to attach considerable weight to a study by MIT Professor John Hauser, a marketing expert, according to which consumers would pay certain premiums to get particular features. For example, AllThingsD reported on his testimony at last year's trial. As far as I can see, Samsung's counsel simply couldn't convince the court that this kind of evidence was irrelevant or insufficient. One judge said this to Samsung's counsel:
"Why do you think that testimony that customers would pay X amount more for particular features ... why that isn't a pretty good proxy for demand driver? I understand it's not the same same thing, but a proxy, why not?"
Samsung's counsel then drew a comparison to an infringing cupholder in a car. But the judge didn't agree with her and said that if it turns out that sales double after an infringing cupholder is incorporated into the car relative to sales in the absence of the infringing feature, then there would be a causal nexus.
This exchange about the causal nexus is very telling with respect the appeals court's assessment of the sufficiency of the evidence Apple had provided to the district court and likely key to a decision overruling Judge Koh.
Apple argued that the standard for a permanent injunction, after full adjudication of liability, must be a different one than for a preliminary injunction that changes the status quo based on merely an assessment of the likelihood of different outcomes. Like I said, I believe some causal nexus will be required even in this permament injunction case, but the standard will be much lower than the insurmountable one applied by Judge Koh. Whether the appeals court will specifically say that the evidentiary standard should be lower for a permanent injunction than a preliminary one is unclear, but possible.
Samsung struggled to even explain how anyone could still win an injunction against a complex, multifunctional product under the standard it advocates. It pointed to the Galaxy Tab 10.1 case (a design patent case) but didn't really make any practical proposal with respect to utility patents.
Apple complained about an evolution of the standard in recent Apple-Samsung decisions from having to show that a feature is "a" driver for consumer demand vs. proving that it's "the" driver, which could mean that ultimately there is at most one patent over which you can win an injunction against a given product. Samsung's position was a red herring: its counsel argued that Apple failed to prove that either a single feature or a set of features drives demand. Again, I believe the hurdle will come down, and Apple will surmount it with respect to at least some if not all of its intellectual property rights-in-suit.
Implications of fiercely competitive situation
The second item on my list was what implications (in terms of presumptions following from it) a fiercely competitive situation between two companies -- in this case, the market is sort of a two-horse race -- should have. Apple pointed to a loss of market share. As it did in one of its pleadings, it said that Apple spent five years and five billion dollars developing the iPhone, Samsung copied it in three months, and pointed to the success it has had ("see what happens to market share"). Apple considers this the classical case in which an injunction is required. The court didn't disagree but focused on the specifics of the case.
Samsung argued that certain products should not be taken away from consumers.
Implications of workarounds/designarounds
Workarounds (or its synonym, designarounds) will also be a big part of the discussion if Apple wins the ITC ruling scheduled to be handed down in a couple of hours.
I never understood why Samsung tried so hard and extensively to use workarounds as an argument against an injunction. To me it was always clear that ths is actually an argument favoring Apple's request for an injunction.
In May I commented on a ruling in a snowplow patent case that I believe raised some very similar issues as Apple v. Samsung with respect to injunctions, and quoted this sentence from Chief Judge Rader's opinion:
"If indeed Buyers had a non-infringing alternative which it could easily deliver to the market, then the balance of hardships would suggest that Buyers should halt infringement and pursue a lawful course of market conduct."
Circuit Judge O'Malley asked Samsung an almost rhetorical question that is consistent with the above: "If it's so easy to design around [...], why is there any harm?"
Samsung's argument was basically that Apple would later misuse an injunction and, under the "no more than colorably different" standard, use contempt (i.e., enforcement) proceedings to sue Samsung instead of bringing new lawsuits over new products raising what Samsung believes would be new issues. But "colorably different" is the standard. Apple will most likely get an injunction now, and there may very well be contempt proceedings if disputes arise over whether certain designarounds infringe. For example, the parties are known to disagree on the legality of Samsung's pinch-to-zoom implementation. But Apple would still have to prove infringement at the contempt stage, as its counsel noted. It's not like Apple could arbitrarily have non-infringing Samsung products removed from the market.
One reason for which I'm particularly interested in the workarounds/designarounds issue is because it makes all the difference between a standard-essential patents case like the one that gave rise to last Saturday's Presidential veto and non-SEP cases like the one the Federal Circuit heard today or the one on which the ITC will rule later. Only those who haven't understood the differences between SEPs and non-SEPs or those who have a propagandistic agenda conflate the issues.
License agreements and licensing offers
In its effort to argue that Apple can be made whole through exclusively monetary relief, Samsung points to certain license agreements Apple struck with companies like Nokia and HTC as well as a licensing offer it made to Samsung in 2010, the year before this dispute began.
As for the licensing offer, one of the judges indicated clearly that testimony by Apple's then-licensing director Boris Teksler (according to which Apple was not going to license key user experience patents) has more weight than a page from a presentation. He asked Samsung's counsel a rhetorical question: "we can't conclude that this page trumps Mr. Teksler's testimony, can we?"
It appears that Apple has been successful in distinguishing past license agreements from the situation in this case, which is about whether or not an injunction will issue. The court knows these agreements inside-out because the same panel also dealt with sealing issues (a separate process I don't report on). The court knows that the HTC deal comes with an anti-cloning provision while the deal with Nokia doesn't, but Apple reminded the court of the fact that the deal with Nokia was just a short-term standstill agreement, just a covenant not to sue as opposed to a full-fledged license, and came with other limitations. (As an aside, it will be interesting to find out at some point whether Apple and Nokia renew the deal or have another dispute.)
Pre-iPhone license deals also won't bear much weight with the court.
I don't think these license agreements and offers will be ignored, but their limitations and restrictions will be weighed, and whatever is left of those agreements for the purposes of the injunction analysis will have rather limited weight -- too little to be outcome-determinative in Samsung's favor.
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