Wednesday, September 11, 2013

Apple winning Posner appeal -- Chief Judge describes Google's royalty demands as 'crazy'

The United States Court of Appeals for the Federal Circuit has already issued one ruling in Apple's favor against Google's Motorola (reversing and remanding an ITC ruling, which Google just asked it to reconsider), was clearly leaning Apple's way last month with respect to its continued pursuit of a permanent injunction against Samsung, and based on how today's appellate hearing on Judge Richard Posner's June 2012 dismissal of a two-way Apple v. Motorola lawsuit went (here's the recording), it now appears the most likely outcome that Apple will ultimately get a patent infringement trial in Chicago against Motorola, presumably involving among other ones the "Steve Jobs patent", but the FRAND-related part of Judge Posner's ruling will probably be affirmed and Motorola won't obtain an injunction over its standard-essential patents-in-suit nor will it be paid anything close to what it demanded in damages.

It appears that due to Seventh Circuit rules the remanded Apple v. Motorola case will be put before a different judge than Judge Posner. Let me also recall that Judge Posner is an appellate judge (on the Seventh Circuit, which doesn't hear patent infringement cases), but served by designation on the United States District Court for the Northern District of Illinois when adjudicating this Apple-Motorola case.

I've talked a lot about the "Posner appeal" at the briefing stage. You can find links to my previous posts on these proceedings in my report on the scheduling order and you may find my more recent post on how Google flip-flopped on the scope of the FRAND part of Judge Posner's ruling interesting as well.

It turned out a lot easier than I thought to analyze today's hearing. The court took very clear positions. Apple is winning all the way. Google is losing all the way. That's the only reasonable conclusion one can reach when listening to the official recording.

It's a cross-appeal. Apple is the appellant and Google the cross-appellant. Apple's lead counsel on this appeal (and also on the appeal of the ITC ruling as well as the appeal of the Wisconsin dismissal of a FRAND contract and rate-setting case) is Orrick Herrington Sutcliffe's Joshua Rosenkranz. He was first to argue, and stressed that Apple and Motorola "occupy completely opposite ends": on the one hand, there are the "distinctive" patented features with which Apple "revolutionized" wireless devices and Apple's "exclusivity"-centric approach of not licensing those patents "in general" to anyone, much less competitors, and on the other hand, Motorola's patents-in-suit, which relate to standards and which it promised to "license universally to everyone". Judge Posner's ruling was a denial of remedies to both parties, and Mr. Rosenkranz then explained why these "two polar opposite ends of the spectrum" have implications for damages, defending the FRAND part of Judge Posner's ruling (i.e., Apple's defensive case) but urging reversal and remand of the non-SEP part (i.e., Apple's offensive case), a "classic case for injunctive relief".

Apple's counsel was sure to clarify that "exclusivity" as a "practice of general policy" is not sufficient in every patent infringement case to conclude that an injunction should issue, but he believes this is the case here. The court asked about the basis for Judge Posner's finding that Apple's patents-in-suit covered minor features, and Mr. Rosenkranz said that these findings stemmed from "plain wrong" claim constructions of the touchscreen heuristics patent (that's the "Steve Jobs patent") and other patents-in-suit. As for Judge Posner's holding that Apple's patents-in-suit were easy to design around, Apple's counsel argued that the main error Judge Posner made here was that he didn't wait to "hear the actual evidence" but based his decision on his "predictive judgment" as to how he as a fact finder would rule. The court appears to agree with Apple that there was no sufficient basis for a summary judgment on these issues because there were issues that needed to be tried.

Then the focus turned to FRAND, and I'll talk about that further below, but for the purposes of this post it's better to look at this issue by issue than chronologically.

When Google's (Motorola's) lead counsel, Quinn Emanuel's David Nelson, defended the non-SEP part of Judge Posner's ruling, it became very clear that the Federal Circuit disagrees with Judge Posner's analysis of the Steve Jobs patent. Judge Posner identified various means-plus-function claim elements, but under the law there is a strong presumption against means-plus-function if the word "means" doesn't appear in a claim, and Motorola appears unable to overcome that presumption (no evidence on the record). Mr. Nelson was fighting hard against this patent, which another Quinn Emanuel client, Samsung, must avoid infringing soon due to an ITC import ban, but Chief Judge Rader, who presided over today's hearing, told Mr. Nelson that he just "spent six minutes to tell me nothing about why [Judge Posner's holding of indefinite means-plus-function claims] is not error".

I understand why Google's counsel felt he had to fight this uphill battle, despite the time limits of such a hearing, but it appears that he made no headway and is going to lose.

The Federal Circuit does not seem to agree with Judge Posner's decision to throw out Apple's evidence. Judge Posner criticized Apple's experts' positions, but the appeals court feels that what he considered deficient "goes to credibility, not to admissibility". In other words, Judge Posner was, in the Federal Circuit's apparent opinion, wrong not to hold a trial on Apple's claims. A remand appears pretty certain now, and the new trial will probably take place next year. In the meantime, Google must hope for good news -- in terms of invalidity determinations -- from the United States Patent and Trademark Office, which is reexamining the Steve Jobs patent.

In my analysis of Judge Posner's ruling, I said (about the non-SEP part) that "it's a safe assumption that the CAFC will be concerned about the patent-skeptical stance embodied in this ruling and will probably be hesitant to affirm this in its entirety". I was also uncertain -- but not nearly as skeptical -- with respect to whether the appeals court would affirm the FRAND part of the decision. But I commented enthusiastically on that one from the beginning.

The emphasis at today's hearing was clearly on the non-SEP part because that's where a reversal and remand is very likely to happen, while the FRAND part appears likely to be affirmed. Maybe the appeals court won't agree with every single part of Judge Posner's reasoning, but Motorola's positions are so very ridiculous that Chief Judge Rader asked the following two rhetorical questions:

  • "Isn't it crazy to give that much value [hundreds of millions of dollars] to one patent in a crowded field? Give me some reason why I as a judge at any level of proceeding would give so much value to one patent."

  • "[For a single patent], 40% of the value of an entire portfolio? What kind of crazy negotiator would I be to agree to that?"

Could the court have been any clearer that Google is losing because it can't defend the indefensible?

This is now the fourth forum -- not even counting antitrust agencies in this context -- to find Motorola's FRAND positions totally out of line. An ITC judge found last year that "Motorola was not interested in good faith negotiations and in extending a [F]RAND license" to Microsoft . Judge Robart in the Western District of Washington found Motorola entitled, also in a Microsoft case, to less than one-twentieth of a percent of the royalty rate it demanded. The Mannheim Regional Court indicated in June that it won't approve Motorola's 2.25% royalty demand as a FRAND rate. And now the Federal Circuit's Chief Judge has told Motorola that its positions are "crazy", that anyone acceding to its demands would also be "crazy", and that no non-crazy judge could ever agree with it.

Motorola's strategy of demanding prohibitive royalty rates (only to have an excuse for seeking injunctions) and bringing out-of-this-world damages claims over FRAND-pledged SEPs has failed all the way, and the Federal Circuit ruling on the Posner appeal will be yet another blow to Google's strategy relating to the patent portfolio that was the primary reason for paying $12.5 billion for Motorola Mobility. Google is free to pay crazy prices for patents. But it can't expect companies like Apple and Microsoft to be crazy enough to accede to its demands, and it's been unsuccessful so far to find crazy judges to side with it.

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