Thursday, October 3, 2013

Sanctions loom large: Samsung execs were told all terms of secret Nokia-Apple patent license

Three months ago I saw a filing by Nokia that related to some discussions with Samsung considered so secretive that it wanted even the very title of a document to be sealed. It was clear that Nokia and Samsung were talking about something that also related somehow to the 2011 Nokia-Apple settlement, about the terms of which nothing was known except that Apple described it, at a very high level, as "merely a 'provisional license' for a limited 'standstill' period". One could figure that Nokia and Samsung wouldn't talk about some other patent agreement without talking about some sort of patent deal between them -- a license or an outright purchase.

On Wednesday evening local time, Magistrate Judge Paul S. Grewal of the United States District Court for the Northern District of California, whose writing style is well-liked by various patent litigation watchers including me, entered an order that finally sheds light on this. The order came down after a hearing held yesterday on a request by Apple (and possibly also one by Nokia) for sanctions against Samsung (and/or its outside counsel) for violation of a protective order, i.e., for illegal disclosure of (in this case, extremely) confidential business information.

I must say that I'm shocked.

Licensing executives from Samsung and Nokia held a meeting on June 4, 2013 to discuss a patent license deal between these parties. In that meeting, a Samsung exec, Dr. Seungho Ahn, "informed Nokia that the terms of the Apple-Nokia license were known to him" and according to a declaration from Nokia's Chief Intellectual Property Officer, Paul Melin, "stated that Apple had produced the Apple-Nokia license in its litigation with Samsung, and that Samsung's outside counsel had provided his team with the terms of the Apple-Nokia license". The Melin declaration furthermore says that "to prove to Nokia that he knew the confidential terms of the Apple-Nokia license, Dr. Ahn recited the terms of the license, and even went so far as to tell Nokia that 'all information leaks.'"

Right now the focus is on the Apple-Nokia license, but Apple also provided other license agreements under the same protective rules, including deals it struck with Ericsson, Sharp, and Philips.

So how did Samsung's executives get access to contracts that were meant to be used only by its outside counsel (marked as "Highly Confidential -- Attorneys' Eyes Only") for the purposes of litigation with Apple and absolutely positively not for the pupose of gaining unfair advantages in licensing negotiations with anyone (not with Apple, and much less with third parties like Nokia), when such disclosure would constitute an unbelievably serious violation of court rules?

The court is still trying to find out more about how the information was improperly disclosed, but it already knows a lot about what happened. For last year's Apple-Samsung trial, Samsung had a damages expert for its standard-essential patents (SEPs), Berkeley Professor David J. Teece. He wrote a report that supported Samsung's ridiculous 2.4%-of-full-iPhone-price royalty demand and "included key terms of each of the four Apple license agreements" (Nokia, Ericsson, Sharp, Philips). On March 24, 2012, Samsung's outside counsel (Quinn Emanuel) sent a draft report by Dr. Teece to its client without, as it would have been required to do under the law, fully redacting out any confidential business information of the "attorneys' eyes only" kind.

This happened over an FTP file download site that every Samsung employee involved with the Apple-Samsung litigation was able to access -- as well as lawyers representing Samsung in other cases (these parties have litigation pending in eleven jurisdictions), which also weren't supposed to get this information. "The information was then sent, over several different occasions, to over fifty Samsung employees, including high-ranking licensing executives", the order says. Additionally, "on at least four occasions between March 24, 2012 and December 21, 2012, Samsung's outside counsel emailed a copy of some version of the report to Samsung employees, as well as various counsel representing Samsung in courts and jurisdictions outside the United States".

All of this is really, really bad, but the court, in order to determine sanctions, wants to know more. Judge Grewal does not rule out at a hypothetical, intellectual level that "Dr. Ahn’s encounter with Mr. Melin [the meeting in which Samsung told Nokia all the key terms of the Apple license] occurred very differently". But Samsung has been uncooperative so far. According to the order "Samsung has elected not to provide the court with any sworn testimony from Dr. Ahn or anyone else at the meeting" and "also has failed to supply the court with any evidence at all regarding other uses of the Apple-Nokia license, or those of the other confidential licenses". But it has acknowledged that "many dozens of individuals at Samsung and its other counsel have knowledge of confidential license terms that they had no right to access".

At yesterday's hearing, "Samsung's counsel repeatedly denied even one violation of the protective order, asserting that such a violation can only occur willfully" and denied the need for formal discovery. After three months, Samsung still doesn't answer some very basic questions. And Samsung's counsel at this point says it's not directed to answer questions about Samsung's disclosure of the terms of Apple's license agreements with Ericsson, Philips, and Sharp.

Samsung appears likely to be sanctioned, and (which the order does not say but which certain headlines on an ITC docket recently indicated) faces a similar risk at the ITC, which is even stricter in its protection of confidential business information than federal courts. Judge Grewal writes "[t]here is reason to believe the rule [that confidential information made available only to outside counsel won't be disclosed to the party itself] has been breached in the present case". But due to the current lack of information, the judge can't say yet "[w]hether the actions of Samsung and its counsel are worthy of sanctions, and what those sanctions might be". The court does, however, want clarification, and it won't rely on Samsung because this would mean putting the fox in charge of an investigation of the disappearance of chickens at the henhouse.

Therefore, the court has ordered some discovery, and certain email and "other communications" concerning Apple's license deals with third parties must be provideed to Apple now. Also, there will be some depositions now. Dr. Ahn, obviously, will have to speak out on the June meeting with Nokia. Samsung will also have to identify and provide various other witnesses.

Nokia will get to participate in this discovery, and the next hearing on this motion for sanctions will be held on October 22.

I am disappointed. Here's the order:

13-10-02 Order Re. Apple Motion for Sanctions Against Samsung by Florian Mueller

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