After yesterday's Presidential, essential veto it's still not impossible that someone might win a U.S. import ban over FRAND-pledged standard-essential patents (SEPs) at some point, but only under rare and narrow circumstances, subject to criteria that won't be met unless an accused implementer doesn't makes a major, stupid mistake.
Some players who favor superstrong SEP enforcement and supra-FRAND SEP licensing terms -- Qualcomm, InterDigital, Tessera, LSI -- are among the members of a lobby group named the Innovation Alliance, which has advocated relatively broad access to injunctive relief over SEPs in submissions to the ITC and other government agencies. The Innovation Alliance is nothing short of shocked. Here's its reaction to the veto:
"Innovation Alliance Expresses Strong Disappointment of Disapproval Decision in 794 Investigation, Believes It Will Increase Litigation and Depress Innovation
'The Innovation Alliance is tremendously disappointed by the administration's decision to disapprove the exclusion order in the 794 investigation. The letter to the International Trade Commission offers no explanation of the reasons for the disapproval, presenting participants in standard setting bodies with perhaps the worst of all possible outcomes – a decision that overturns decades of settled understanding without clear guidance to the parties to inform their future FRAND negotiations.
'Although the letter emphasizes that it is beyond the scope of the policy review to revisit the facts as found by the Commission, that appears to be precisely what the administration has done in this instance. Given the facts the Commission found, the Innovation Alliance is at a loss to explain the disapproval any other way.
'The decision is particularly damaging given that the patent at issue was never found to be standard essential, but was only declared by its owner that it might be or might in the future become essential. It is hard to see how this decision will do anything but lead to less participation in standard setting bodies and more litigation involving not just standard essential patents, but also declared-standard essential patents. That is bad for innovation and bad for U.S. consumers.'
The tone is no surprise. The largest member of the Innovation Alliance, Qualcomm, has previously taken a rather aggressive stance on the Administration's SEP-related efforts, threatening court challenges to regulatory decisions. The above statement criticizes the United States Trade Representative's veto letter to the ITC for lack of specificity. But a conclusion that a certain ruling is against the public interest is different from a judicial decision. I guess what the Innovation Alliance really dislikes is that the ITC's reasoning, which was very detailed but irreconcilable with general antitrust and FRAND-related contract law (except for one commissioner's dissent), has been rejected. Had it not been, then the ITC standard (unless reversed on appeal, which I'm quite sure would have happened) would have been that any SEP holder who creates the appearance of being a willing licensor is entitled to exclusion orders -- instead of every reasonable implementer being able to rely on a FRAND licensing pledge.
Unlike the Innovation Alliance, I'm not in the slightest concerned about incentives for participation in standard-setting. Industry players will continue to develop industry standards, companies will continue to have an interest in influencing the process, and right holders will continue to see opportunity in the inclusion of their patented techniques in the specifications of standards. As an Intel lawyer accurately noted at a Senate hearing on SEPs a few days ago, most SEPs cover insignificant contributions to the state of the art and are powerful only thanks to inclusion in a standard. Prior to standard-setting, there are numerous alternatives. Thus most SEPs would otherwise have little (if any!) commercial value in a world of choice. If you own a SEP, you don't have to compete with those other alternatives, and you get a large number of implementers required to license your IP. That is a huge incentive even if you're not allowed to overcharge or, what Samsung and Google/Motorola really want, force others to tolerate infringement of non-SEPs.
The Innovation Alliance complains about a lack of "clear guidance to the parties to inform their future FRAND negotiations". There can always be more clarity. The statement actually shows that the Innovation Alliance has read the writing on the wall. So there's much more guidance already than it concedes.
SEP holders and abusers are going to read the writing on the wall and draw the appropriate conclusions. Let's take a quick look at the implications for some of the most important disputes and the usual suspects.
Implications for Samsung v. Apple
The Korean electronics giant, which has been found by multiple courts to infringe Apple's non-SEPs and may soon be found to have engaged in unfair competition by copying Apple's products, can now forget about getting leverage over Apple anytime soon through the pursuit of SEP-based import bans.
In December, after failures in four different European courts to win SEP-based injunctions against Apple, Samsung withdrew all of its European SEP-based injunction requests. A few days later the European Commission nevertheless issued a Statement of Objections (SO), a preliminary antitrust ruling. The U.S. decision does nothing to discourage European Commission Vice President Almunia from standing in for FRAND and fair competition.
In other jurisdictions than the U.S. and the EU, Samsung is also unlikely to obtain injunctions. Earlier this year it lost a case in Japan. In Australia, various Samsung SEP assertions against Apple will go to trial soon, and the judge there has already called that part of the dispute "ridiculous". Ultimately, South Korea, where an antitrust investigation is also underway, is unlikely to turn its country into the FRAND rogue state that the ITC majority almost made the United States.
Just like Google's Motorola, which has shifted its focus to monetary claims (and is probably going to suffer a setback in that regard in its favorite court), Samsung may now also have to focus on monetization rather than mutually assured destruction. At the end of his letter to the ITC, Ambassador Froman says that Samsung should seek relief in court. Obviously the White House cannot veto court decisions or tell courts what to do (the ITC is a trade agency, not a court). But if Samsung can't obtain injunctive relief at the ITC, everyone knows that Samsung is not realistically going to win injunctions in U.S. district court under the eBay standard.
So far Samsung hasn't even won a SEP-based liability finding in district court, without which there are obviously no remedies. Its next chance on the liability front will be at the trial in the second California litigation, scheduled to start on March 31, 2014.
Samsung now has to decide whether to accelerate the pursuit of monetary compensation over the SEP that the ITC found Apple to infringe or whether to keep pushing, on appeal, for an ITC import ban over the non-SEPs the ITC did not find violated. In parallel to its June 2011 ITC complaint involving SEPs as well as non-SEPs, Samsung filed a mirror (companion) lawsuit in the District of Delaware. That one was stayed pending resolution of the ITC investigation including any appeals. Samsung can't appeal the Presidential veto; it could, however, appeal the part of the ITC ruling that threw out its non-SEP claims. Should any finding of no violation of a non-SEP be reversed on appeal, an import ban will be ordered (the veto was completely FRAND-specific). But Samsung's non-SEP claims were very weak and I doubt that the Federal Circuit would hand it a liability finding. I think it would make sense for Samsung to not appeal. If it accepts the ITC ruling as the final ruling on the investigation, it can immediately ask the United States District Court for the District of Delaware to unfreeze the federal litigation. The ITC ruling isn't binding on the Delaware court in any way, but it does have some persuasive power. Should Samsung prevail on liability over the same SEP (and/or the other SEP-in-suit) in district court, then it will be entitled to monetary relief, which the ITC can't award.
Theoretically, Samsung could try to get both, but I doubt that it would work. Samsung would only appeal the ITC ruling with respect to other patents than the SEP that was found infringed, and it could ask the Delaware-based court to unfreeze the case only with respect to that SEP (and possibly also the other SEP-in-suit, which was not found infringed, but with respect to which Samsung would never win an ITC import ban after yesterday's veto). But in an Apple v. HTC case, the Delaware court actually stayed almost all of the litigation pending between those two parties even though only a subset of the patents-in-suit were being asserted in parallel at the ITC. If Samsung wants to optimize for monetary relief over SEPs, it must refrain from appealing the ITC ruling.
Implications for other disputes and parties
In my second update to yesterday's immediate reaction to the veto, I already noted that there are other disputes in which Samsung may benefit from it. And I mentioned the ITC investigations of Ericsson and InterDigital's complaints. In the InterDigital case Samsung can only benefit because it's just a defendant; in the dispute with Ericsson it's more complicated because both parties are asserting SEPs (and some non-SEPs) against each other, and Samsung might have hoped for "mutually assured destruction", knowing that it's sure to end up the net payer in a settlement under normal circumstances.
Ericsson and/or Samsung may now withdraw their SEPs from the related ITC investigations and ask the United States District Court for the Eastern District of Texas to adjudge those claims. If the Texas-based court declines to resume those litigations because there are still some non-SEPs pending at the ITC, then Ericsson and Samsung will have to make the kind of decision I described above: maybe they will drop their non-SEPs in order to accelerate an award of monetary relief over SEPs.
Even InterDigital will have to think hard about whether there's a point in pursuing ITC investigations over its SEPs. The stock market will certainly draw its conclusions for InterDigital's stock price from the fact that ITC import bans over FRAND-pledged SEPs are now going to be very, very difficult to obtain. A preliminary ITC ruling on InterDigital's complaint found no infringement of a valid InterDigital patent by Nokia, Huawei or ZTE, but dismissed the respondents' FRAND defenses and, in a departure from settled antitrust law, blessed InterDigital's approach of insisting that implementers take worldwide licenses despite major differences in the strength of InterDigital's portfolios in various jurisdictions.
The mirror lawsuit to InterDigital's 2011 complaint against Nokia, Huawei and ZTE was stayed pending resolution of the ITC investigation. The companion lawsuits to the 2013 complaints (which targeted those three companies and Samsung) were not stayed because defendants wanted to press on with the district court case. Nokia, Huawei and ZTE were particularly interested in getting a district court ruling (also a FRAND rate determination) before an ITC import ban, but the Delaware judge declined to engage in a race with the ITC. Nokia, Huawei and ZTE still proposed a rather ambitious schedule for the federal litigation, while Samsung sided with InterDigital and advocated a slower schedule. Now that it's virtually certain that InterDigital won't be able to win an ITC import ban, InterDigital may withdraw its ITC complaints and focus on district court litigation -- and in that case Nokia, Huawei and ZTE will actually be less interested in swift resolution. When the parties took their position on the district court's case schedule, they didn't know how the situation would change because of yesterday's Presidential veto. Therefore, InterDigital and three of the defendants took positions on case management that actually run counter to what would benefit them now under the new circumstances. Samsung basically did the right thing anyway.
Unlike InterDigital, which is a non-practicing entity, Qualcomm does have a huge product business. And it doesn't currently have any SEP assertions pending at the ITC. But SEPs play a major strategic role in Qualcomm's business -- directly (in licensing) and indirectly (with licensing-related considerations making its products more attractive). Qualcomm's leverage has just been reduced. It will have to content itself with FRAND royalties, and it will have to sell its products on their technological merits, which is the way it should be.
I know this is old news, but the veto also demonstrates once again that Google overpaid for Motorola Mobility.
Finally let me also mention the dispute between LSI/Agere and Realtek. Judge Whyte in the Northern District of California barred LSI/Agere from enforcing an ITC import ban, in the event it was going to obtain one (this decision has been appealed to the Ninth Circuit). In the meantime the initial determination (preliminary ruling) on that ITC complaint has come down, and there was no finding of a SEP violation. Even if this changed as a result of the Commission review, an import ban is now far less likely.
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