Saturday, March 30, 2013

Samsung filing confirms 'Apple can seek even more damages [than $1.05 billion] in the new trial'

It's now official that a new Apple v. Samsung trial in California could lead to a total damages award exceeding the original $1 billion verdict. It could also result in a reduction. But Samsung itself has just confirmed in a pleading that the new trial is an opportunity for Apple to win even more than before. On March 1 there were fundamental misconceptions out there with a lot of people believing that the verdict had been "slashed" (down from $1.05 billion to $600 million), but I immediately pointed out that "the second damages trial over the 14 products with respect to which the jury award has been vacated (Galaxy Prevail, Gem, Indulge, Infuse 4G, Galaxy SII AT&T, Captivate, Continuum, Droid Charge, Epic 4G, Exhibit 4G, Galaxy Tab, Nexus S 4G, Replenish, and Transform) could result in a figure that is lower or higher than (or, theoretically but unlikely, identical to) the one reached by the jury in August".

On Tuesday I mentioned this fact again and explained that "a new jury [...] could theoretically even arrive at a higher number given that the first jury granted Apple only about 40% of what the court allowed it to present as a damages claim". Judges are gatekeepers with respect to what damages theories are presented to a jury, so Apple apparently had a plausible, defensible claim to a total of $2.5 billion. The jury sided with Apple on the vast majority of liability issues, but it didn't award Apple even half of what it legitimately asked for in damages.

Now Samsung has just confirmed in a late-Friday filing that "Apple can seek even more damages on these products in the new trial".

Just like Samsung, I was always talking about a possibility, not about the likelihood of such an outcome. I'm sure that if you asked Samsung, they'd tell you that while Apple can seek even more damages, Samsung is convinced it's not entitled to them and believes that it's now in a position to at least bring down the damages figure. The $600 million part of the verdict that stands is what Apple has already won (unless the appeals court overrules Judge Koh) -- and the vacated amount of $450 million can theoretically be lost in its entirety (rather unlikely), may be lost in part (far more likely), or it could also be replaced with a greater amount.

In some ways the March 1 damages order ups the ante for Apple. In particular, it shortened the product-specific periods of time with respect to which Apple is allowed to seek damages because Judge Koh corrected some of Apple's notice dates (without constructive notice of actual knowledge, no damages). But the impact of this on the damages base isn't huge: even the most conservative notice dates are in the spring of 2011 (when Apple filed and once amended its complaint), and Samsung's U.S. sales have been on a hockey-stick curve, making sales in late 2010 and early 2011 far less significant than sales between the second quarter of 2011 and the summer 2012 trial. Also, the first jury clearly misapplied the law with respect to the Galaxy Prevail (I agreed with Samsung on this one already in September). That mistake was worth tens of millions of dollars. Still, even after all of the necessary adjustments Apple will still be able to demand far more than $450 million with respect to the 14 "vacated damages" products. If the new jury doesn't reevaluate liability, or if it does but arrives at a result materially consistent with the first jury's findings, and if the new jury adopts Apple's damages claims as the right number or alternatively decides to adopt a higher pecentage (than the first jury's 40%), then the total damages award could be substantially greater. It's hard to predict what the future jury will do, but between 40% and 100% there's a whole lot of room for improvement in Apple's favor, while the extent to which Judge Koh's March 1, 2013 decisions limit Apple's claims in a subsequent trial is actually not dramatic (if she had sided with Samsung on a whole liability claim, especially with respect to design patents, where most of the money is in this case, then it would be accurate to assume, or it might then even be a certainty, that the second trial can't work out better for Apple than the first, but the adjustments that have happened aren't that huge).

The focus of most reports and comments has been on what Apple presumably "lost". Samsung certainly wanted to vacate as large a portion of the damages award as possible, and getting $450 million vacated is no small achievement -- but it would be foolish to think (or at least ignorant of the damages claim Apple was actually allowed to present last year) that the only way is down at this stage.

There are three kinds of people who are responsible for the widespread misconceptions concerning a "slashing" or likely reduction of the damages award:

  • A lot of people who comment on these issues simply don't analyze them -- and the law -- in sufficient depth. Judge Koh's order said that damages of $450 million were "stricken". It was correct, and I, too, adopted that term in the headline of my post, but I immediately clarified in the first paragraph that "stricken" in this case means "vacated" -- a clarification many others failed to provide.

  • I saw some commentary from undisputed experts in patent law who avoided the mistake of the first group but according to whom the final amount would be somewhere between $600 million and the original $1.05 billion ("will get smaller", "less than the original $1 billion"). Samsung's filing now shows that these statements, at least in that definitive form, were wrong. A reduction is neither a given nor can it be reasonably predicted considering that there is still so much upside left for Apple. I guess it's just that this is a huge case and the devil is in the details, including the detail that the jury awarded only 40% of the Daubert-surviving claims. At first sight the billion-dollar verdict looked like Apple had won it all, making it easy to forget that it could have obtained more than twice as much.

  • There may also be a third and small group out there: people who knew that anything including a higher award could happen but who didn't want to say so because they're biased. Or, more likely, who could have researched this in detail if they had wanted but would only have done so if they had expected to identify something that makes Apple look bad or weak.

It sometimes feels like swimming against the tide when you have reporters who reach many millions of readers, recognized experts in patent law (whom you, too, respect a great deal but who just may not have followed this particular case in full detail) and anti-Apple/anti-patent zealots unanimously (though for different reasons) say the opposite of what you consider to be a reality. That's why I'm always glad in this environment, in which a rational person striving to get it right may be misperceived to be a pro-Apple and/or anti-Android propagandist, when a minority position I take gets validated later. Like in this case. I wish to thank all those who already knew before that whatever I say, I say out of honest conviction and based on very hard work in terms of granular monitoring and research.

Procedural context and parties' proposals for how to proceed from here

Samsung made the statement confirming a potentially higher damages award in a reply brief (which it filed late on Friday and which I've uploaded to Scribd) reinforcing its arguments for a partial final judgment and a stay pending appeal of that partial judgment, and for the first time addressing Apple's claim that the court's March 1, 2013 damages order erroneously vacated $85 million in damages relating to two Samsung phones (the Infuse 4G and the Galaxy S II AT&T).

The parties are presently debating, in filings with the appeals court (for the Federal Circuit) and Judge Lucy Koh's court in the Northern District of California, the best way to resolve the case against the background of the aformentioned March 1, 2013 order vacating approximately $450 million in damages and requiring a new trial to fill the void created by that order. In a nutshell, these are the parties' related positions and preferences (at a high level, Samsung obviously wants to stall because it currently isn't affected by any remedies despite a multiplicity of infringement findings, while Apple wants to press on even if there's a risk of needing a third trial in this case):

  • Samsung says that a new trial that would focus exclusively on damages with respect to 14 (of the 28) accused products violates its Seventh Amendment rights, so a new jury would also have to reevaluate the merits (liability issues such as infringement and validity) with respect to those products. Whatever the scope of a second trial will be, Samsung has already requested a partial final judgment with respect to the other 14 products (the ones with respect to which the damages verdict is still intact) under Rule 54(b). If the court enters such partial judgment, Samsung will immediately appeal it to the Federal Circuit, wants Judge Koh to stay the proceedings in California pending the appeal, and will seek consolidation of its appeal with Apple's already-ongoing appeal of the mid-December denial of a permanent injunction, which will delay resolution of the question of injunctive relief, which is the most important one in this dispute.

    The strength of Samsung's proposal lies in the fact that even if only parts of it were adopted (for example, partial final judgment is granted, but the appeals court keeps injunctive relief and liability/damages issues separate), the courts would conserve resources and a second California trial in this first case (as an aside, there will also have to be, presumably next year, a first trial in a second California case) would have the benefit of guidance from the appeals court on some of the relevant issues, which might greatly reduce the likelihood of needing a third trial.

  • Apple wants a focused second trial only to redetermine certain parts of the damages amount. It opposes a partial final judgment because it believes the appeals court would most likely send the case back to Judge Koh without the useful guidance Samsung claims it could provide. Apple argues that its claims are patent-specific, not product-specific (product-related issues only being subsets of patent infringement claims), and that partial judgment is only an option for claims that have been resolved in their entirety. Apple obviously wants the appeal of the denial of an injunction to go forward in the meantime and says Samsung should appeal the liability and damages issues only after Apple's claims have been resolved by the district court with respect to all products.

    Apple's strongest point is that "justice delayed is justice denied". Unfortunately for Apple, most U.S. courts (including the United States District Court for the Northern District of California) are much less receptive to this argument in patent infringement cases than, for example, the ITC or German courts. Case in point: Apple just lost a (minor) procedural skirmish with this argument when it opposed a Samsung request for an extension of time for its brief answering Apple's opening brief in the injunction appeal. But if Apple convinces Judge Koh that a partial final judgment is premature and that there would be considerable risk of an appeal being deemed premature, in which case there would only be a delay and somewhat of an embarrassment for the district court, then it will indeed thwart Samsung's plan and get a new damages trial before Samsung gets to appeal.

Samsung opposes Apple's request for the court to correct an "error" regarding two products

On Tuesday I reported on Apple's conditional motion for reconsideration seeking to reinstate the damages award with respect to the Infuse 4G and Galaxy S II AT&T phones. I said that publicly-accessible documents I researched supported Apple's theory, certainly with respect to the S II AT&T and probably also the Infuse 4G, though the situation concerning that one is slightly more complicated.

Samsung challenges Apple's position on procedural and substantive grounds, but mostly procedural. To the extent that Samsung makes substantive arguments, those apply only to the Infuse 4G and don't address the S II AT&T at all. The S II was released after the Infuse 4G, and Samsung doesn't give any reason for which the court made the right decision by vacating the related damages.

Samsung stresses that the standard Apple has to meet here is that it must show a "manifest error": even a "clear error" would not warrant reconsideration. And it says that Apple now raises arguments it could have raised before (when it opposed Samsung's motion for judgment as a matter of law). I'm not convinced of this claim. Apple certainly had a different focus when opposing Samsung's JMOL motion, but it also couldn't anticipate that Judge Koh was going to inconsistently apply a certain set of rules to the damages issue. Had Apple known, I'm sure it would have placed more emphasis on the joint pre-trial statement and the release dates stated in it.

Also, Samsung argues that the dates Apple is referring to are the dates of first sale by carriers to end users, not by Samsung to carriers. I doubt that there's a lot of delay between a shipment by Samsung to a carrier and the carrier's distribution of products to its own customers. At least with respect to the S II AT&T I can't see how this would be relevant; the Infuse 4G raises more difficult issues, and a few weeks could make a difference in that context.

The statement on potentially higher damages at the second trial is part of Samsung's criticism of the fact that Apple brought only a conditional motion for reconsideration. I'll now quote that entire paragraph:

"Second, Apple's gamesmanship goes further, as its request and motion for reconsideration are merely conditional: Apple asserts that the Court made 'errors,' yet wants the Court to correct these purported errors only if Samsung's motion of entry of a Rule 54(b) judgment is granted and Apple's request for a 'prompt new trial' is denied. (Dkt. 2283, at 2:11; see also Opp. 15 ('[T]he Court's March 1 Order contains errors . . . which should be corrected before judgment is entered.') (emphasis added); Dkt. 2289, at 1:2-3 ('If despite that opposition, the Court intends to enter a judgment pursuant to Rule 54(b), Apple moves pursuant to Civil Local Rule 7-9(a) . . .') (emphasis added).) Thus, Apple seeks a result that would enable it to use the $85 million final award on the Galaxy S II (AT&T) and Infuse 4G as additional leverage against Samsung during the pendency of the appeal if Samsung's Rule 54(b) motion is granted, but if Samsung's Rule 54(b) motion is denied and Apple gets an immediate new trial, then Apple wants the Court to simply ignore the “errors” it has purportedly identified so that Apple can seek even more damages on these products in the new trial. Apple should not be heard to argue that there are 'errors' if the Court rules Samsung’s way, but no errors if the Court rules Apple's way."

I would agree with Samsung that Apple's stance on the errors allegedly identified is not principled. It's obvious and legitimate that Samsung tries to leverage that fact for its purposes. And let there be no doubt: if and when a new damages trial is held, Apple will of course try hard to win even more than it did last time. But I'm unconvinced that this is the primary reason for which Apple brought a conditional motion. It could be, but I believe there are other theories that are no less plausible. Above all, Apple wants to avoid delay, and to avoid delay, it needs to dissuade the court from entering a partial final judgment, or as a second-best option -- and I know that this is totally counterintuitive -- it needs to delay the partial final judgment Samsung wants. That's because it can make progress at the Federal Circuit with its appeal of the denial of an injunction (as I said before, that's the number one issue here, far more important than damages), and the later the partial final judgment from California arrives, the more likely Apple will be to dissuade the Federal Circuit from consolidating both appeals (injunction and merits/damages). Apple needed to raise the issue now because raising them later wouldn't affect the scope and schedule of the merits/damages appeal following Samsung's requested partial judgment. I don't think Apple was primarily thinking of how to get more money out of this case, but about how to optimize the schedule with an absolute priority on the denial-of-injunction appeal. It's unclear to me what Apple would do with respect to the alleged errors if the court denied Samsung partial judgment. I believe Apple more likely just wanted to make its proposal of a prompt new trial more palatable and, at the same time, Samsung's proposal of a partial final judgment less attractive. For Judge Koh the error that has apparently occurred (at least with respect to the S II AT&T even Samsung doesn't defend her decision substantively) is somewhat embarrassing -- it's embarrassing if she has to grant a motion for reconsideration, and even more so if she denies reconsideration but the appeals court later finds she made a big mistake and refused to correct it. Apple offers her a face-saving exit strategy: give us that new trial and your error won't ever have to be corrected because a new jury will simply determine a new damages award with respect to those products as well.

By bringing a conditional motion Apple also told Judge Koh between the lines that it really didn't intend to embarrass her, but Samsung's initiative forces it to raise this issue at all.

I feel quite strongly that this is the tactical idea behind the conditional nature of the motion for reconsideration. One might still speculate as to what Apple would do if it could avoid the partial final judgment anyway and got a prompt second trial. In that case I guess Apple's preference would depend on a great unknown: whether the new jury will re-evaluate the merits (infringement, validity etc.). If the new jury had to operate on the basis of the first jury's infringement findings, then Apple would have to ask itself whether the new jury will be likely to grant more or less than the first jury did (i.e., 40% of what Apple asked for, though the new jury would actually have to pick a higher quota just to compensate for the impact of the March 1 order on the parameters of the new trial, particularly the shorter periods of time for damages claims relating to certain products). That would be a tough call, and Apple would have to choose between one bird in the hand and two birds in the bush in a scenario in which it would be more likely to gain than to lose from a new verdict, but in which it might look foolish if the new jury surprisingly goes below the first jury's 40% quota (plus whatever is needed above 40% to make up for shorter periods). But if the second jury reevaluates the underlying merits issues, then I think the choice would be simple for Apple and it would rather preserve what it holds in its hands (otherwise it would never have opposed Samsung's request for a complete new trial in the first place).

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Friday, March 29, 2013

Skyhook v. Google patent trial slips into 2014 as result of consolidation of two lawsuits

Skyhook Wireless sued Google in 2010 for patent infringement and anticompetitive conduct after the company controlling Android bullied Samsung and then-independent Motorola out of partnerships with Skyhook concerning its location-positioning software. Two of the four patents it originally asserted were dismissed, and the other two could finally have gone to trial in the District of Massachusetts this summer, but the court granted Google's motion to consolidate another Skyhook v. Google lawsuit over nine more patents, filed in September 2012 in Delaware and transferred to Massachusetts in January 2013 at Google's request, into the earlier-filed one. As a result, a lot of homework still has to be done before the consolidated case can be tried, and there won't be a trial this year -- but when the case finally does go to trial, it will be considerably bigger than otherwise.

Consolidation of the two Skyhook v. Google cases was ordered more than two weeks ago, but became discoverable only now because the parties filed a stipulation regarding the schedule for the consolidated case, which references at the start the oral order to consolidate:

"WHEREAS at the hearing held on March 14, 2013, the Court ordered consolidation of Civil Action No. 1:10-cv-11571-RWZ [Skyhook's first patent lawsuit] and Civil Action No. 1:13-cv-10153-RWZ [the second one]."

A technology tutorial and claim construction hearing for the patents asserted in the second complaint will be held (if the court approves this stipulation) on October 10, 2013. The court will have to set a new trial date for the consolidated action. Before consolidation was ordered (but at a time when it was clear that it might very well happen), Skyhook proposed to hold the trial in June 2014, while Google did not take a position on a suitable trial date.

Google has thwarted Skyhook's plan of two parallel cases, one in Delaware and one in Massachusetts, but I guess Skyhook and its lawyers knew from the beginning that a transfer and consolidation were fairly possible. The only way to avoid it would have been for Skyhook to bring its second lawsuit much later (for example, after a trial in the first case, or so close to the trial that the first case would not have been affected by the second one). But after two of its four original patents-in-suit were tossed, Skyhook probably thought it needed to press on with its second round of assertions at the earliest opportunity -- even if this might result in consolidation and delay.

Considering how rapidly this industry evolves, it's unbelievable that a patent infringement suit filed in 2010 would go to trial in 2014 (which isn't even guaranteed as there could always be further delay). But Google can't solve its Skyhook problem merely by stalling. Eventually Skyhook will get its day in court -- and it most likely won't take Google's patent pledge.

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Thursday, March 28, 2013

Google's promise not to assert 10 patents against open source software: just a PR stunt

In 2005 certain companies (IBM, Sun Microsystems, Computer Associates) promised not to assert select patents against open source software. They all got some publicity for their announcements, but after a while it was easy for everyone to see that those pledges had not changed anything, particularly because they involved relatively limited numbers of patents. The problem with patent pledges and pools is not what's in them -- it's what's not in them. As a result, those pledges didn't prove to be helpful in any way (I'm sure that not even one lawsuit has been avoided because of those pledges) and quickly fell out of favor. For almost eight years no major industry player joined these companies in publishing a list of patents that would not be asserted against open source.

Then came Google. Today it pledged a total of ten patents. Ten. By comparison, IBM had pledged 500, and Sun approximately 1,600.

Not only in absolute numbers but also relative to portfolio size, Google's pledge is the least generous one ever. I criticized IBM for making available only about 1% of its portfolio; in Sun's case, the pledge actually involved far more than 1% of the company's patents at the time. For what I know, Google owns at least 17,000 patents (including, of course, the ones it acquired as part of the Motorola deal and a series of transactions with IBM). 10 patents are a small fraction of a percent of Google's portfolio.

In 2011 Google gave nine patents to HTC, which immediately sued Apple over them (that was the idea behind the deal). A company that gives nine patents to a single Android OEM to sue only one particular rival could pledge more than ten patents to open source if it wanted to.

Why should a concept that failed with far larger numbers of patents eight years ago suddenly be the answer, with a far smaller number of patents involved this time around?

I don't know what Google has in mind as the next step. Will it make more patents -- possibly all of its patents -- available on these terms in an attempt to commoditize and devalue intellectual property and innovation? Or will it continue to keep the good stuff back (search-related patents, for example)?

Whatever Google's plan may be, an initial pledge of 10 patents is much ado about almost nothing. The focus should be on what companies do with their overall patent portfolios, not what they do with a tiny number of patents.

There's an example of an open source patent promise covering an entire portfolio: the Microsoft Community Promise was not limited to a particular list of patents. It's a promise Microsoft made (when it formed a partnership with Novell years ago) not to sue individual open source developers over any of its patents (and not just ten patents). By contrast, Google reserves the right to sue open source developers over at least 17,000 patents it owns but hasn't pledged.

I'd actually like to know how many patents -- and which ones -- Google really owns. It has done a number of patent purchases over the last few years, not just the acquisition of Motorola Mobility and certain transactions with IBM. But I'm not aware of a complete and public list of all the patents Google controls. Transparency is key. Also today, Microsoft launched its Patent Tracker tool, which gives every interested party access to a complete list of patents held by Microsoft. Its patent list is available as a comma-separated value (CSV) file, which can be viewed, searched and sorted with spreadsheets and database programs. I downloaded it, opened it with Excel, and saw that it has almost 39,000 rows. Google also provides a patent search: it has indexed various patent registers. But Google's patent search won't tell you how many patents Google owns because many patents bought on the secondary market aren't formally reassigned to their new owner in the patent database until they are asserted in court. Google itself knows which patents it owns. If it wanted to do so, it could make a list available to the public in no time. If it doesn't do so in the near term, it apparently isn't committed to transparency in patent ownership.

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BSA and four law professors agree: injunctions should 'ordinarily' not be available for SEPs

Two more amicus curiae briefs related to Google's appeal of Judge Posner's FRAND ruling in Apple's favor have become available: one of them was submitted by BSA | The Software Alliance, and the other one by four law professors. Both support Judge Posner and Apple. I have previous published and commented on Intel's pro-affirmance and Qualcomm's pro-reversal briefs. In connection with the latter I said that one of the two key challenges Apple and its amici face in their defense of Judge Posner's reasoning is the part of the eBay v. MercExchange ruling that disfavors the unavailability of injunctive relief in any "broad swath" of cases. The BSA and the four professors argue that Judge Posner's ruling is perfectly consistent with eBay and explain why injunctions over FRAND-pledged standard-essential patents (SEPs) in most cases must be denied as such requests fail to satisfy the eBay criteria.

For more information on BSA | The Software Alliance (including a list of its members) and the four law professors just follow the links to sections of an earlier post (written before the actual briefs became available).

I'm now going to publish the two letters and will talk about them a little more further below.

This is the submission made by industry group BSA | The Software Alliance:

13-03-20 BSA Amicus Brief in Support of Apple on FRAND by Florian_Muelle_439

And this is the joint amicu curiae brief filed by law professors Thomas F. Cotter, Shubha Ghosh, A. Christal Sheppard, and Katherine J. Strandburg:

13-03-20 Law Professors' Amicus Brief in Support of Apple on FRAND

The BSA letter focuses entirely on injunctive relief. The professors' submission also addresses FRAND SEP damages.

On the availability of injunctive relief over SEPs, both briefs take very similar positions. The professors write that "Injunctions Ordinarily Should Not Be Available To Holders Of RAND-Encumbered Standard-Essential Patents". The BSA says Judge Posner "correctly recognized that injunctions ordinarily are not an appropriate remedy for infringement of a standard-essential patent when the patentee has made a [F]RAND commitment". The word "ordinarily" appears repeatedly in both submissions, which of course raises the question of which extraordinary circumstances would warrant injunctive relief. The only examples given are that an infringer cannot be sued for royalties, in which case an ITC exclusion order may be appropriate, and scenarios in which someone refuses to pay a FRAND royalty determined by a court or an arbitrator.

Both submissions apply the eBay criteria to the issues presented by Google's appeal. According to eBay, a patent holder seeking an injunction must demonstrate: "(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction."

Judge Posner had placed particular emphasis on the second part, inadequacy, which he considered to be an absolute requirement that generally can't be met in FRAND cases. The amicus briefs go into a more detailed factor-by-factor analysis.

Addressing the first two factors (irreparable harm and inadequacy of monetary compensation) together, the professors express their belief "that a patentee who has committed to license its patent to all comers cannot, absent egregious conduct by the putative licensee, demonstrate that it has suffered an irreparable injury or one for which money damages would be inadequate". They also find with respect to the third factor that "the balance of hardships between a patentee and a standards-implementer ordinarily tips decidedly in favor of the implementer where a [F]RAND-encumbered standard-essential patent is at issue" in light of significant investments and the related lock-in (high switching costs). With respect to the fourth factor, the public interest, they tout the positive and potentially pro-competitive effects of standards (interoperability etc.) and warn against the chilling effects of letting patent holders prevent industry players from implementing standards.

BSA makes clear that it's not against all SEP-based injunctions, but it supports injunctive relief only in special circumstances and normally opposes it. BSA is also known for supporting injunctive relief with respect to non-SEPs. Its brief focuses on why SEPs are so special and must be treated differently.

Performing the eBay test, BSA writes that "because the premise of a [F]RAND commitment is that the patentee will make licenses available on reasonable terms to those who wish to practice the patent, a patentee who has made a [F]RAND commitment ordinarily will be unable to establish that denial of an injunction would lead to 'irreparable injury.'" Accordingly, BSA agrees with Judge Posner that a patent holder who makes a FRAND pledge "acknowledge[s] that a royalty is adequate compensation for a license to use that patent." Like the law professors, BSA also points to "high switching costs" and a potential "lock-in effect" in connection with the third eBay factor (balance of hardships). With respect to the fourth factor, BSA writes that the public interest "would be threatened if courts frequently awarded injunctions to remedy infringement of [F]RAND-encumbered, standard-essential patents, because such remedies could seriously destabilize the standards-setting process and thus deprive consumers of its considerable benefits." BSA also makes an "unclean hands" argument against the abuse of SEPs through an "opportunistic bait-and-switch" (promising FRAND licenses in order to make a patented technique part of a standard only to turn around later and leverage the lock-in situation against an implementer).

One might argue that the submissions by BSA and the four law professors are in some regards duplicative, but as I said in another post, amicus curiae briefs are not only about what is said but also about by whom it is said. In that regard, a leading industry organization and a group of law professors are complementary.

In closing I would also like to draw attention to a very interesting paper published this month by one of the four law professors who submitted the aforementioned amicus brief, University of Minnesota Law School Professor Thomas F. Cotter. "Reining in Remedies in Patent Litigation: Three (Increasingly Immodest) Proposals" proposes that injunctions be unavailable over FRAND-pledged SEPs, advocates apportionment of the disgorgement of an infringer's profits that a design patent holder can seek (this approach would have taken care of a substantial part of the damages issue in Apple v. Samsung, for example), and finally -- which is the most ambitious part but makes a lot of sense to me -- elaborates in the form of a "thought experiment" on an idea Judge Posner tossed out a few month ago: for a "wide swath of U.S. patent cases" it might be preferable to avoid juries. Obviously the Seventh Amendment right to a jury trial is difficult to challenge, but Professor Cotter talks about a way in which bench trials might be justified in many patent cases under the existing legal framework.

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Wednesday, March 27, 2013

ITC judge issues preliminary ruling on Apple v. Samsung case six days ahead of schedule

Yesterday, Administrative Law Judge (ALJ) Thomas B. Pender of the United States International Trade Commission (USITC, or just ITC) made an initial determination on remand ("remand ID") in the investigation of Apple's complaint against Samsung. At this point the document has to be redacted so as not to disclose confidential business information, and this process typically takes a few weeks. The ITC's electronic document system does, however, reveal that the remand ID was filed (click on the image to enlarge or read the text below the image):

Doc Type: ID/RD - Final on Violation

Security: Confidential

Official Receive Date: 03/26/2013 04:20 PM

Filed By: Thomas B. Pender

Firm/Org: USITC

On Behalf Of: Administrative Law Judge

The filing system also indicates that the document is 15 pages long. It addresses only some narrow issues. Here's a recap of the procedural context:

Judge Pender had handed down his initial determination (the original one, prior to remand) in October 2012 and held Samsung to infringe four Apple patents, but also blessed workarounds with respect to three utility patents (the fourth patent found infringed was a design patent, and those can always be designed around). The ITC staff (Office of Unfair Import Investigations), which participates in some investigations as a third party whose recommendations are not binding on the judges and the Commission, supported Judge Pender's findings.

On January 23, 2013 the Commission, the six-member decision-making body at the top of the U.S. trade agency, ordered a remand of certain issues to Judge Pender and also said it would review the initial determination in its entirety. I said at the time that the remand part of this decision was only an opportunity for Apple to broaden its preliminary win with respect to two patents, but a full review is more of an opportunity for Samsung to achieve a better outcome than the four infringement findings of the original initial determination.

Shortly after the remand and review notice, Judge Pender set the target date for the further process and said his remand determination would issue no later than April 1, 2013. He actually filed it six calendar days ahead of schedule. This fact does not move up the target date for the final Commission decision, which is still August 1, 2013.

Now that Judge Pender has made this remand initial determination on the narrow issues the Commission asked him to revisit, the parties can petition for review of that preliminary ruling (they already requested that the Commission review the original initial determination), and unless the Commission now decides to adopt Judge Pender's recommendations as the final ruling, the parties will then get to submit briefing on the issues key to the review. In such a multi-patent case involving so many different issues it would be unusual for the Commission not to review the preliminary rulings -- the original ID and the supplemental remand ID -- at all. In other words, this investigation is now entering the most important phase.

In December a federal judge denied Apple a permanent injunction against Samsung despite multiple findings of infringement at a trial held last summer in the Northern District of California. Apple is appealing that denial, but its nearest-term opportunity to obtain injunctive relief against Samsung in the U.S. is to win an import ban at the end of this ITC investigation. While Samsung has shipped unknown quantities (which could also be very small) of products implementing the workarounds approved by Judge Pender, it's unclear what the commercial impact would be if Samsung had to implement those workarounds in all of its flagship Galaxy products in order to be able to keep importing them into the United States. The details of those workarounds have not been discussed yet in publicly-accessible pleadings or rulings. Sometimes patents can be worked around in ways that end users don't even notice (because only some of the inner workings of a product are modified) or that don't make a major difference, but some workarounds do come with noticeable degradations of the user experience. If a judge approves a workaround, the decision is based exclusively on whether the workaround falls outside the legal scope of the relevant patent, and unrelated to commercial considerations.

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Qualcomm asks appeals court to reject categorical rule against injunctive relief in FRAND context

Qualcomm's amicus curiae brief filed with the Federal Circuit in the appeal of Judge Posner's Apple v. Motorola FRAND ruling has become publicly available. Yesterday I published and commented on Intel's amicus brief in support of Judge Posner and Apple. Qualcomm asks the Federal Circuit to reverse certain parts of Judge Posner's FRAND ruling and, while noting that "both parties to this appeal are commercial partners and customers of Qualcomm", effectively (and unsurprisingly) sides with Google.

Here's Qualcomm's amicus brief (this post continues below the document):

13-03-20 Qualcomm Amicus Brief in Support of Reversal of Posner FRAND Ruling

Unlike a submission to the ITC that was replete with Apple-bashing and subsequently withdrawn, Qualcomm's amicus curiae brief steers clear of alienating Apple while disagreeing respectfully on certain key issues.

Qualcomm's amicus brief is not laden with rhetoric like a policy paper but instead focuses completely on what Qualcomm hopes are the legal concerns the Federal Circuit will be most receptive to. Qualcomm's business interests are clear: the brief mentions that it "has the most widely licensed 3G and 4G portfolios in the wireless industry; it now has more than 225 3G licensees and more than 40 4G licensees". Qualcomm makes some public interest arguments about the importance of protecting intellectual property, but it probably knows that it's preaching to the converted when telling the Federal Circuit about the importance of IP to innovation, and focuses on making an argument that characterizes Judge Posner's decision to deny injunctive relief as inconsistent with Supreme Court and Federal Circuit precedent.

All in all, Qualcomm's position on injunctions is very similar to Google's, and the combination of Google's opening brief and Qualcomm's amicus brief shows in my opinion the two key injunction-related issues that Apple and its amici will have to address at the appellate hearing:

  • The Supreme Court's 2006 eBay v. MercExchange decision opposed "expansive principles suggesting that injunctive relief could not issue in a broad swath of cases" and held that "traditional equitable principles do not permit such broad classifications". Here, Google and Qualcomm argue that Judge Posner's ruling does preclude injunctive relief for a "broad swath of cases": all cases involving FRAND-pledged standard-essential patents (SEPs).

    The "broad swath" argument is a key one -- not only in the FRAND context but also in connection with the "causal nexus" requirement Apple is fighting against.

    I believe that equitable principles don't stand in the way of broad classifications if patent holders themselves act in ways (such as by participating in standard-setting after making a FRAND pledge) that limit their IP enforcement, and also if the pursuit of injunctive relief is abusive under competition law (even the process of standard-setting itself raises antitrust issues unless FRAND promises are made and mean something, so as to ensure that the bottom-line effect of standardization is procompetitive). That said, Apple and its amici will have to make a very strong case for a broad and bright-line rule. The persuasive challenge is steep.

  • Google and Qualcomm want the case-by-case equitable analysis to focus on the details of the FRAND licensing promise made. They propose that the availability of injunctive relief depend on contract interpretation, and they advocate this because they know that the FRAND declarations required by standard-setting organizations (SSOs) such as ETSI are far from perfectly-crafted crystal-clear contracts. Also, they often involve questions of governing law, such as whether FRAND pledges made to ETSI should be construed under French law (in my observation, most courts have so far agreed that this is the case).

    The chief economists of the Federal Trade Commission and the European Commission, in a paper they coauthored with a former United States Department of Justice official, said "many existing SSO policies are not strong or clear enough to achieve the above goals ["to ensure that [SEP] market power is constrained so that consumers can benefit as much as possible from standard-setting activity, and so that SEP owners cannot discourage innovation by engaging in hold-up"] reliably or efficiently". Qualcomm and Google don't want the rules to work reliably and efficiently, but Apple and its amici will have to explain why it's necessary to have legal certainty with respect to SEP-based injunctive relief regardless of whether or not the relevant FRAND pledges have loopholes. There are vast numbers of SEPs out there that are subject to FRAND pledges that are vague and soft if one applies traditional principles of contract interpretation. Even if all SSOs adopted better FRAND declarations now, they couldn't go back in time and modify the promises that were made to standards that are relevant today and will be relevant for the next 20 years.

Qualcomm argues that "hold-up" (extortion of supra-FRAND royalties at the threat of injunctive relief) is not an established phenomenon. I've actually seen behavior by certain SEP holders that I believe amounts to hold-up, but Qualcomm obviously denies this and even argues that "the contrary effect is more likely; the elimination of any possibility for injunctive relief would only serve to empower recalcitrant licensees, [...] and threaten innovation".

Finally, Qualcomm opposes the next-best-alternative test, or incremental-value test, advocated by Cisco, HP, Walmart and others, as well as by Intel in the brief I discussed yesterday. Qualcomm says that the Federal Circuit has previously considered this test to be "flawed", and it believes that the Federal Circuit should simply decline to address this question because it's not a contested issue in this appeal and Judge Posner's decision didn't mention that test.

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Tuesday, March 26, 2013

Apple alleges $85 million error in court's damages order regarding two Samsung phones

On March 1, Judge Lucy Koh vacated approximately $450 million of Apple's $1.05 billion damages award in its first Samsung lawsuit in the Northern District of California. This doesn't mean that the $450 million amount is gone forever: any vacated parts of the award would have to be redetermined by a new jury, which could theoretically even arrive at a higher number given that the first jury granted Apple only about 40% of what the court allowed it to present as a damages claim, and Samsung argues that the new jury would also have to re-evaluate the underlying liability issues (Apple disagrees).

I just saw a couple of filings by Apple, in the context of what the next procedural steps should be (Apple wants the vacated damages to be redetermined ASAP while Samsung wants a stay pending an appeal of the merits that Apple believes would be premature). Interestingly, Apple claims to have found an error on Judge Koh's part to the tune of $85 million (approximately 19% of the total vacated amount): she thought the jury had granted, on the basis of an impermissible legal theory presented by Apple at its own peril, $40,494,356 for the Galaxy S II AT&T and $44,792,974 for the Infuse 4G, but Apple points out that Samsung's own admissions concerning the dates of first sale of these products as well as certain exhibits consistent with those admissions prove that the relevant theory -- disgorgement of profits for design patent infringement -- was permissible. Therefore, the number of products for which the damages award can stand would go up from 14 to 16, while the number of products for which a new determination is needed would go down from 14 to 12. The affirmed damages award would increase from $600 million to $685 million, almost two thirds of the $1.05 billion verdict.

Apple is right that a joint pretrial conference statement the parties stipulated to in July 2012 contradicts Judge Koh's belief that Apple had based its damages claims with respect to those products on an "aggressive notice date for all of the patents". Having checked on the facts (based on the publicly-filed documents Apple's motion references) I believe Apple's theory is correct with respect to both products, but it's slightly more complicated for the Infuse 4G than for the the Galaxy S II AT&T. Here's my summary of the facts and issues:

  • The court agreed with Samsung's lawyers that the underlying logic of most of the jury's product-related damages awards was identifiable by means of reverse engineering. For many products the numbers the juries arrived at clearly showed that a disgorgement of infringer's profits had been awarded. The verdict form didn't say so explicitly, but mathematically it was clear.

  • Such a disgorgement is only permissible if at least one design patent was infringed (it's impermissible for infringement of utility patents) and (which is not specific to design patents but to all patent damages under 35 U.S.C. § 287(a)) if the infringer had "actual or constructive notice of the patent" (as Judge Koh described the requirement in her damages order).

  • Design patent infringements were identified with respect to the Infuse 4G and Galaxy S II AT&T. But Judge Koh held that Apple's damages expert, Terry Musika, gave the jury incorrect information regarding the notice dates for various patents. Only for the rubber-banding '381 patent Judge Koh agreed that Apple had put Samsung on notice in August 2010 (more than eight months before filing suit) in a presentation that specifically mentioned it. For all other patents, Judge Koh determined that the notice date was only when Apple actually sued over them. For some of the patents the jury found infringed that would be the date on which the original complaint was filed (April 15, 2011); for some others, which Apple asserted only when it amended its complaint, it would be the date of the amendment (June 16, 2011).

  • This means that the jury, if it relied upon Apple's claimed notice dates that preceded Judge Koh's most conservative assumptions, may have awarded infringer's profits with respect to an impermissibly long period (too long in terms of starting too early). Since the jury awarded just one amount per product, Judge Koh felt that she couldn't make the necessary adjustments to subtract any disgorgement relating to the impermissible part of the total damages period, and therefore ordered a new trial on damages for products where this plays a role.

  • The problem I just outlined can, of course, affect only products released before the relevant notice dates. If Apple's claimed notice dates were overly aggressive but even the most conservative notice date -- when a patent was asserted in court -- predates the release date, it doesn't matter. In connection with certain products, Judge Koh's damages order also recognized this fact.

  • Apple argues that this also applies to the Galaxy S II AT&T and the Infuse 4G. Apple points to a July 6, 2012 joint pretrial conference statement, paragraph 24 of which states the dates on which Samsung (one or more of three legal entities) "first sold the [relevant] products in the United States", and the stipulation says that sales of the Infuse 4G began on May 15, 2011, and sales of the Galaxy S II began on October 2, 2011. There are some documents in the evidentiary record that show the first sales of the Galaxy S II AT&T in the third quarter of 2011, which is earlier than October 2, 2011 but still after Judge Koh's most conservative notice dates, so for the purposes of Apple's motion it doesn't matter whether the stipulation or the evidentiary record are right because Apple's theory of an error on Judge Koh's part works either way for the Galaxy S II AT&T. For the Infuse 4G the same record states that the first sale occurred "in the second quarter of 2011", which doesn't contradict the stipulation that sales began on May 16, 2011, which was in the second quarter of 2011.

  • For the S II it's really simple because its sales began after the relevant notice date. This really looks like an oversight on Judge Koh's part.

  • For the Infuse 4G, however, the stipulated date of first shipment is between the date of the original complaint and the date of the amendment. In a footnote one of Apple's latest filings argues that the later date (the one of the amendment) "is not relevant" because the S II was found to infringe the D'677 design patent, which Apple asserted in the original complaint, and it doesn't matter that the D'305 patent was additionally asserted in the amended complaint (and also found infringed by this product according to the jury): "Once Apple could recover Samsung's profits for infringement of the D'677 patent, notice and infringement of the D'305 patent by the same two products does not change the amount of the award under 35 U.S.C. § 289."

    Apple correctly points to the fact that a disgorgement of infringer's profits is not apportioned: it's an all-or-nothing deal. Also, which Apple's motion does not say, Samsung's own reverse-engineering of the jury award does not identify any correlation between the disgorgement award and the number of design patents deemed infringed. So I would agree with Apple that what Judge Koh considered to be an aggressive notice date doesn't matter with respect to the Galaxy S II AT&T. It's a fact that the jury, if it relied on Apple's representations as it apparently did, assumed a notice date for one of the infringed design patents that predated the shipment of the product as well as what Judge Koh thought was the accurate notice date, but irrelevant both under the law and based on how the jury actually calculated damages -- and let's not forget that the jury award gets some deference anyway.

Apple now seeks the court's permission to bring a motion for reconsideration, but the request to bring such a motion is, for the time being, conditional: only if Samsung's request for a partial final judgment was granted, Apple would want the Galaxy S II AT&T and the Infuse 4G to be removed from the list of products for which the court ordered a new trial on damages. I believe Apple would want Judge Koh to correct this error in any event, but it raises this issue now to pre-empt the partial final judgment requested by Samsung.

Apple's conditional motion cites Civil Local Rule 7-9(b)(3). The related rule of the Northern District of California allows a motion for reconsideration in the event of "[a] manifest failure by the Court to consider material facts or dispositive legal arguments which were presented to the Court before such interlocutory order".

Presumably no one will be unhappier to find out about this apparent error in the March 1 damages order than Judge Koh herself. But just like the jury and everyone else involved with this dispute, she's only human. In such a complex case judges and juries -- and also the parties and their lawyers -- can err on some minor detail that proves outcome-determinative in some way.

Fortunately for Judge Koh, she erred only in a way that prejudiced Apple. If she had erroneously vacated $85 million to Samsung's detriment, there would be a lot more noise -- and conspiracy theories -- about it.

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Intel: 'Injunctions [over] FRAND-encumbered SEPs create a risk of coerced windfall settlements'

Intel's amicus curiae brief supporting Apple with respect to Judge Posner's FRAND ruling was the first one to be filed and today became the first one to be publicly accessible. I have read it, and I like it. A lot of its content is consistent with other pro-FRAND positions I've previously reported on and stated myself, but I wanted to publish the document for all those who care to read it in detail and also wanted to highlight (further below) a few particularly well-worded passages. Here's the brief (this post continues below the document):

13-03-20 Intel Amicus Brief in Support of Apple on FRAND

Intel supports Judge Posner's denial of injunctive relief as well as his position on damages.

In the headline of this post I already quoted how Intel describes the risk of patentee overcompensation resulting from negotiations under the threat of an injunction:

"Injunctions with respect to FRAND-encumbered SEPs create a risk of coerced windfall settlements that would distort competition, undermine the standard-setting process, and injure consumers."

In connection with the second risk -- "undermine the standard-setting process" -- Intel notes that at the end of the days it's not even in interest of SEP holders to allow abuse:

"Taken to its extreme, the issuance of injunctions against standards implementers would in fact be contrary to the interests of all SEP holders because it would undermine the widespread adoption and utilization of interoperability standards in furtherance of which the SEP holders made the FRAND commitments."

Intel is right. There are two reasons, however, for which certain SEP holders won't be convinced by this argument to behave more reasonably. Pressure to maximize short-term revenues is huge (most SEP holders in this industry are publicly-traded companies) and next quarter's numbers will in many cases be a higher priority than long-term sustainability of the standard-setting system. And if companies like Google (Motorola) and Samsung are desperately trying to get away with infringement of non-SEPs (by hoping to bring about a stalemate through SEP injunctions), they just have their own competitive interests in mind and not the greater good of the standardization system. Therefore, it's up to the courts to protect the system, with long-term considerations in mind, against self-serving abuse.

Intel's brief also describes very well the effect that incorporation of a patented technique into a standard has on the viability of alternative solutions:

"Before a standard's adoption, the royalties that the patentee could demand from licensees reflect only the value of its patent relative to other methods of achieving the same technological objective. Once an SSO [standard-setting organization] adopts an interoperability standard that incorporates a particular patent, however, substitutes for the technology typically lose commercial viability, which--absent FRAND commitments--enables SEP holders to extract supra-competitive royalties from firms that must implement the standard."

"When SSOs’ interoperability standards attain substantial commercial acceptance, [...] substitute technologies are often effectively foreclosed."

Others have said this before, but saying that "substitutes [...] lose commercial viability" is a really good wording. If people have misconceptions about the value of the innovation behind and protected by SEPs, it's usually because they focus on the importance of what a technique does (for example, a handover between two base stations in a cellular network) rather than the fact that there may be, and often are, countless other ways to achieve the same effect, just that all those alternative solutions wouldn't be interoperable because the standard prescribes, for example, only one handover mechanism.

Intel summarizes its position on FRAND royalties (and related damages) as follows:

"Third, in order that the royalty be 'reasonable,' FRAND royalty-setting must be based only on the value of the component that implements the standard; reflect the ex ante value of the SEPs (i.e., their value before they were incorporated into the standard); and take into account all the other technologies (patented or otherwise) incorporated into the component."

The first part -- "based only on the value of the component that implements the standard" -- is an argument Apple emphasizes all the time in the policy and antitrust contexts (as well as in litigation). The usual counterargument (made, for example, by Nokia in a submission to the ITU) is that a lower percentage on a broader royalty base will have the same bottom-line result as a higher percentage applied to a narrower base ("as 1% of a base of 100 leads to the same result as 10% of a base of 10, which royalty structure is actually used has no economic relevance, as long as the result reflects the appropriate value for a license"). I believe the whole process of courts determining FRAND royalties (be it for the purpose of calculating past damages or for a FRAND rate determination with a view to the future) would work a lot better if all patent holders were required to base their demands on what is in each case the smallest salable unit implementing the relevant standard. Everything else serves no useful purpose. It just allows SEP holders to muddy the water and complicate the process.

Intel's brief also supports Judge Posner's decisions to exclude FRAND damages claims. In this context Intel endorses an amicus brief filed in the same appeal back in December 2012 by Cisco, HP and other companies, which brief addressed damages methodologies in general (not limited to royalties for FRAND-pledged SEPs). Intel says that "Judge Posner's exclusion of Motorola's damages experts should be affirmed as a textbook example of proper gate-keeping by a trial judge". Like Cisco, HP and friends, Intel also criticizes the 15 Georgia-Pacific factors for patent damages:

"[T]hat outmoded and unworkable approach produces economically unsound results, confuses juries, and distorts reasonable royalty calculations, to the detriment of the patent system and the economy as a whole."

In Intel's opinion (and in mine, by the way), "Georgia-Pacific should have no application in the FRAND context, and this Court should insist on damages models that better reflect actual business decisions and market realities."

One of the alternatives Intel considers preferable over Georgia-Pacific in FRAND cases is "the next-best-alternative methodology, which Judge Posner properly adopted and applied when he excluded testimony from one of Motorola's damages experts".

The next-best-alternative methodology is closely related to the ex ante approach Google criticizes in its opening brief. As I wrote in my commentary on that brief, I don't think the point in time -- which Google focuses on -- is all that important. What really matters is that there's a scenario in which a technology is licensed on its merits and has to compete with alternatives (especially the next best alternative), and there's one in which a group of industry players formed a consortium and defined a standard that precludes those alternatives. The temporal aspect isn't nearly as important as the competition-related one. If the reasonableness analysis is based on the hypothetical assumption that alternatives are still commercially viable at the time of infringement, and if the intrinsic value of the patented technology is properly separated from the value of standardization itself, then the result will always be a FRAND royalty. There may even be additional technical alternatives available at that time that weren't known at the time of standard-setting.

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Standard-essential patent litigation arrives in India as Ericsson sues local player Micromax

Reports by the Times of India and the Economic Times (apparently sister publications) show that standard-essential patent (SEP) enforcement increasingly also takes place in Asia. According to the reports, Ericsson has sued local player Micromax.

The Delhi High Court ordered Micromax to make a deposit, apparently for the purpose of protecting Ericsson's financial interests while the parties are negotiating. The royalties to be deposited are category-specific and set forth in the order as follows:

  • "A. For phones/devices capable of GSM : 1.25% of sale price.

  • B. For phones/devices capable of GPRS + GSM : 1.75% of sale price.

  • C. For phones/devices capable of EDGE + GPRS + GSM : 2% of sale price.

  • D. WCDMA/HSPA [UMTS] phones/devices, calling tablets : 2% of the sale price.

  • E. Dongles, data cards : USD 2.50"

At first sight the royalty rates appear very, very high to me. This is not the result of any FRAND determination by the court but may merely be based on Ericsson's demands. A deposit (presumably to avoid injunctive relief) is not a final resolution of a case. The order mentions that products had been held up at customs over Ericsson's claims and will be released now, and the deposit has the purpose of allowing Micromax to keep importing and selling. The parties shall negotiate for a month. If they can't agree, the dispute over royalty rates will be referred to a mediator.

Intellectual property enforcement is critical to the growth prospects of emerging economies, including foreign companies' IP. India does not have the best reputation so far when it comes to patent protection. By comparison, China is widely considered to be far more advanced in that field than India. But for a jurisdiction in which IP enforcement is just developing, SEPs -- which are the intersection of IP and antitrust laws -- pose a particular challenge. The local players in those economies generally lack patents to countersue over (Indian companies also file far fewer patents abroad than, for example, their Chinese counterparts), and probably don't own any wireless SEPs.

Countersuing Ericsson is generally difficult unless someone holds patents that read on wireless network infrastructure. In a recent filing with a U.S. court, Samsung alleged that Ericsson, having "recently jettisoned its mobile phone business [...] now feels unhinged as a non-practicing entity in the mobile phone market to extort vastly unreasonable and discriminatory license fees".

Ericsson also accuses Samsung of FRAND violations, and it's too early to tell who's right (they could, in fact, both act abusively at the same time).

Samsung and Micromax are not the only companies Ericsson is presently suing over SEPs. Last months I watched an Ericsson v. Acer SEP trial in Mannheim, Germany.

In other Asian jurisdictions some decisions on SEP issues have already come down. Samsung won two SEP-based injunctions against Apple in Korea (which it can't currently enforce while on appeal), a fact that has given rise to an antitrust investigation of Samsung's conduct vis-à-vis Apple, and a Japanese court sided with Apple against Samsung.

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Saturday, March 23, 2013

Nokia comments on VP8 patent infringement assertions filed with IETF, criticizes Google

After discovering and blogging about Nokia's declaration of intellectual property rights (IPRs) allegedly infringed by Google's VP8 video codec I asked Nokia for comment. The declaration itself just listed 64 granted patents and 22 pending patent applications, and stated that Nokia would not commit to royalty-free or even just FRAND licensing with respect to VP8. Meanwhile a Nokia spokesman has sent me the following response:

"Nokia believes that open and collaborative efforts for standardization are in the best interests of consumers, innovators and the industry as a whole. We are now witnessing one company attempting to force the adoption of its proprietary technology, which offers no advantages over existing, widely deployed standards such as H.264 and infringes Nokia's intellectual property. As a result, we have taken the unusual step of declaring to the Internet Engineering Task Force that we are not prepared to license any Nokia patents which may be needed to implement its RFC6386 specification for VP8, or for derivative codecs."

A few observations:

  • Nokia describes H.264, which resulted from the consensus of dozens of leading industry players and patent holders, as "open and collaborative", while criticizing Google's push to elevate VP8 to an Internet standard as "one company attempting to force the adoption of its proprietary technology".

    Different companies mean different things when talking about "open" versus "proprietary" technology. The way H.264 was defined definitely meets all the criteria for an open standard. The process was inclusive, collaborative, and consensus-based. By contrast, VP8 was created by a single company, which Google acquired. That's the very opposite of inclusion.

    VP8 is sometimes also described as an "open source" codec. But even H.264 has been implemented in open source software, and it's fully documented, so anyone can implement it. There's nothing "closed source" about H.264. There are closed-source H.264 codecs just like anyone can create, and some have created, closed-source VP8 implementations. It's not like VP8 comes with a GPL-like copyleft mechanism.

    So in which ways would some argue VP8 is "open" and H.264 is not? All that you ultimately hear from VP8 supporters comes down to patent royalties. But I don't know any dictionary definition of "open" that corresponds to "free of charge". You can find millions of closed-source programs on the Internet that you can download for free (like Chrome, the browser with which I wrote this post), just like you can pay millions of dollars for program code that is actually provided to you for inspection. Wholly apart from true and twisted meanings of the word "open", even if one wanted to define "open" as "royalty-free", Nokia's IPR declaration and its ongoing VP8-related patent lawsuits (one trial has already taken place this month, another one will be held in June) suggest that implementing VP8 may ultimately prove even more costly than implementing H.264. For H.264 all the essential patent holders have made a FRAND licensing commitment, and Google itself, as a suspected FRAND abuser under antitrust scrutiny, has already experienced that U.S. courts, including Judge Posner (who ruled against Google on FRAND) and the highly influential Court of Appeals for the Ninth Circuit (who supported Microsoft against Google), consider such FRAND pledges to be enforceable contracts. No promise, thus no contract, exists in Nokia's case with respect to VP8. Nokia can demand anything or simply withhold licenses altogether.

    It's not even clear how serious Google is about VP8 being royalty-free. Instead of linking to the W3C's royalty-free patent policy an email a Google employee sent to a mailing list referred to a FRAND standard.

  • I can relate to Nokia's objections to Google's quest for world domination. Google owns the largest video website, YouTube. It owns the market-leading smartphone and tablet computer operating system, Android. And above all, the leading search engine and online advertising business. A video codec standard of Google's choosing -- driven by a desire not to pay royalties to those who invested heavily over the years in technological progress in this area -- is not a good idea.

    It's not just Nokia's concern. A famous app developer who dislikes software patents, Instapaper author Marco Arment, has also pointed out in a recent blog post that "'open' has very little to do with anything they [Google] do":

    "What they're really doing most of the time is trying to gain control of the web for themselves and their products."

    Google is so aggressive and its agenda poses so much of a threat to competition that even software patent critics at some point believe that some reasonable patent enforcement may be necessary to thwart the most problematic ones of Google's initiatives.

  • Nokia's statement describes its VP8 IPR declaration as an "unusual step". Unusual, but not unprecedented. I sided with Apple against Nokia in the nano-SIM context. At some point Nokia declared itself unwilling to make its patents available to implementations of Apple's proposal. So did Google's Motorola. After some of its concerns were addressed, Nokia ultimately agreed to make its related patents available on FRAND terms. But I don't expect such a solution here. Nokia is a member of ETSI, but not of the VP8 consortium, and I don't think it will partner with Google on VP8 anytime soon. ETSI needed a way forward for a new SIM card standard, while no one (besides Google) really needs VP8 given that H.264 works fine for the industry at large and for consumers (and it already has a successor, H.265). Even if Nokia -- contrary to what I believe will happen -- agreed to the same kind of solution, a FRAND licensing commitment would be antithetical to Google's claims that VP8 is royalty-free and unencumbered, and irreconcilable with the W3C's royalty-free patent policy.

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Setback for Google's VP8: Nokia refuses to commit patents to royalty-free or FRAND licensing

Not only does Nokia own a patent on tethering (and has already defeated Google on claim construction in an ITC investigation) but its strong intellectual property position is also of growing concern to Google in connection with its initiative to make the allegedly royalty-free VP8 codec (part of the WebM Project) an Internet Engineering Task Force (IETF) video standard. I reported on a German VP8 patent infringement trial held two weeks ago and found out about another one coming up in mid-June. The latest news is that Nokia has made an official IPR (intellectual property rights) declaration to the IETF with respect to the VP8 Data Format and Decoding Guide listing 64 granted patents and 22 pending patent applications (I've reformatted the list further below).

Obviously those 86 declared IPRs aren't 86 different inventions: these are a few patent families with multiple international registrations per patent. Still, the number is significant, especially because a patent that is, for example, declared invalid in one jurisdiction may still be enforced successfully in another. Or a judge in one country may find it not to be infringed, while a judge in another country will.

This declaration would be just perfect for Google's purposes if Nokia had committed to royalty-free licensing. And if Nokia had not been that generous but had at least made a FRAND licensing commitment, VP8 still wouldn't be "free", but at least there would be a guarantee that licenses to Nokia's relevant patents are available at all (and that they are available on prices that won't be excessive). But in Section IV, Licensing Declaration, Nokia bluntly says the following:

Unwilling to Commit to the Provisions of a), b), or c) Above

This couldn't be clearer. The precise meaning of a), b) and c) can be found in Section 6.5 of the relevant IETF document, RFC 3979:

Specifically, it is helpful to indicate whether, upon approval by the IESG for publication as RFCs of the relevant IETF specification(s), all persons will be able to obtain the right to implement, use, distribute and exercise other rights with respect to an Implementing Technology

  • a) under a royalty-free and otherwise reasonable and non-discriminatory license, or

  • b) under a license that contains reasonable and non-discriminatory terms and conditions, including a reasonable royalty or other payment, or

  • c) without the need to obtain a license from the IPR holder.

  • (emphasis and bullet points added)

So option a) is what is called "RAND-0" ("RAND-ZERO"), meaning it's a royalty-free license and any non-monetary terms (such as grant-back obligations) must be FRAND, option b) is FRAND with royalties, and option c) is so permissive that a right holder doesn't even require the conclusion of a license agreement. Nokia rejects all three. And given that it's already seeking injunctions against HTC in Germany over two VP8 patents, there can be no doubt that it means business and that a no is a no. They're not just saying they have patents that read on VP8; they're actually suing.

Nokia doesn't have an obligation to make a FRAND promise with respect to VP8. It wasn't involved in VP8 standard-setting. VP8 was and in practical terms (even if not in formal terms) still is a single-company project (when Google says "open", it usually means "control"), and that's why no one can be forced to support it. By contrast, H.264 was an industry-wide initiative and everyone sitting at the standard-setting table agreed to FRAND licensing from the beginning.

What Nokia is doing here is simply the normal course of business if a patent holder (Nokia) does not share the vision of another company (Google) with respect to a proposed standard and reserves all rights. What motivation could Nokia possibly have to donate something to a Google initiative? None. No motivation, no obligation, no license. Simple as that.

This doesn't mean that Nokia will categorically rule out granting licenses to someone like HTC. If the price is right, it can always do so. But there won't be any freebies, and in licensing negotiations it can ask for any amount of money because there's no FRAND promise that it could possibly breach by making a blatantly non-FRAND demand, while Google (Motorola) does have a FRAND licensing obligation with respect to H.264.

Again, it's the normal course of business, and if Google had not acquired Motorola Mobility, then (apart from saving Google $12.5 billion for a patent portfolio that consistently fails to give its acquirer any leverage) Motorola would certainly have done the same thing. Motorola never joined the VP8 initiative before Google decided to buy it. Motorola, too, reserved the right to enforce any VP8-related patents it might own: to seek injunctions or to demand any royalty it wants.

It would be interesting to know where AT&T stands. AT&T was involved in H.264 standard-setting but didn't contribute its patents to the MPEG LA AVC/H.264 pool. If any AT&T video codec patents read on VP8, then AT&T, like Nokia, doesn't have a FRAND licensing obligation.

IPRs listed in Nokia's VP8-related declaration to the IETF

I took the list published by the IETF and reformatted it:

  1. Country:DE:Filing date:22.05.1998, Filing number:98660050.0, Pub.number:0884911, Grant number:69825220
  2. Country:FR:Filing date:22.05.1998, Filing number:98660050.0, Pub.number:0884911, Grant number:0884911
  3. Country:GB:Filing date:22.05.1998, Filing number:98660050.0, Pub.number:0884911, Grant number:0884911
  4. Country:NL:Filing date:22.05.1998, Filing number:98660050.0, Pub.number:0884911, Grant number:0884911
  5. Country:US:Filing date:09.06.1998, Filing number:09/094177, Pub.number:NA, Grant number:6504873
  6. Country:CN:Filing date:10.08.2000, Filing number:00814037.5, Pub.number:1378750, Grant number:ZL00814037.5
  7. Country:DE:Filing date:10.08.2000, Filing number:00957359.3, Pub.number:1206881, Grant number:60015566.8
  8. Country:FI:Filing date:10.08.2000, Filing number:00957359.3, Pub.number:1206881, Grant number:1206881
  9. Country:FR:Filing date:10.08.2000, Filing number:00957359.3, Pub.number:1206881, Grant number:1206881
  10. Country:GB:Filing date:10.08.2000, Filing number:00957359.3, Pub.number:1206881, Grant number:1206881
  11. Country:IT:Filing date:10.08.2000, Filing number:00957359.3, Pub.number:1206881, Grant number:1206881
  12. Country:NL:Filing date:10.08.2000, Filing number:00957359.3, Pub.number:1206881, Grant number:1206881
  13. Country:US:Filing date:11.08.1999, Filing number:09/371641, Pub.number:NA, Grant number:6735249
  14. Country:US:Filing date:13.02.2004, Filing number:10/778449, Pub.number:20040165664, Grant number:7149251
  15. Country:US:Filing date:12.12.2006, Filing number:11/609873, Pub.number:20070140342, Grant number:NA
  16. Country:JP:Filing date:09.04.2008, Filing number:2008-101068, Pub.number:2008-178149, Grant number:NA
  17. Country:AU:Filing date:22.01.2001, Filing number:30275/01, Pub.number:NA, Grant number:778990
  18. Country:CA:Filing date:22.01.2001, Filing number:2374523, Pub.number:NA, Grant number:2374523
  19. Country:CN:Filing date:22.01.2001, Filing number:01800565.9, Pub.number:1365575, Grant number:ZL01800565.9
  20. Country:CN:Filing date:06.10.2005, Filing number:200510113767.6, Pub.number:1756362, Grant number:NA
  21. Country:FI:Filing date:20.01.2000, Filing number:20000120, Pub.number:NA, Grant number:117533
  22. Country:HK:Filing date:10.01.2003, Filing number:03100263.7, Pub.number:1048411, Grant number:1048411
  23. Country:HK:Filing date:17.08.2006, Filing number:06109148.6, Pub.number:1089030, Grant number:NA
  24. Country:RU:Filing date:22.01.2001, Filing number:2002100648, Pub.number:NA, Grant number:2295203
  25. Country:RU:Filing date:10.11.2006, Filing number:2006139951, Pub.number:2006139951, Grant number:2358410
  26. Country:SG:Filing date:22.01.2001, Filing number:200107086.1, Pub.number:NA, Grant number:84926
  27. Country:SG:Filing date:17.09.2004, Filing number:200405663.6, Pub.number:128476, Grant number:128476
  28. Country:US:Filing date:19.01.2001, Filing number:09/766035, Pub.number:20010017944, Grant number:NA
  29. Country:AT:Filing date:22.01.2001, Filing number:01902442.1, Pub.number:1186177, Grant number:1186177
  30. Country:FR:Filing date:22.01.2001, Filing number:01902442.1, Pub.number:1186177, Grant number:1186177
  31. Country:DE:Filing date:22.01.2001, Filing number:01902442.1, Pub.number:1186177, Grant number:60145194.5
  32. Country:IE:Filing date:22.01.2001, Filing number:01902442.1, Pub.number:1186177, Grant number:1186177
  33. Country:IT:Filing date:22.01.2001, Filing number:01902442.1, Pub.number:1186177, Grant number:1186177
  34. Country:NL:Filing date:22.01.2001, Filing number:01902442.1, Pub.number:1186177, Grant number:1186177
  35. Country:ES:Filing date:22.01.2001, Filing number:01902442.1, Pub.number:1186177, Grant number:1186177
  36. Country:SE:Filing date:22.01.2001, Filing number:01902442.1, Pub.number:1186177, Grant number:1186177
  37. Country:TR:Filing date:22.01.2001, Filing number:01902442.1, Pub.number:1186177, Grant number:1186177
  38. Country:GB:Filing date:22.01.2001, Filing number:01902442.1, Pub.number:1186177, Grant number:1186177
  39. Country:BR:Filing date:22.01.2001, Filing number:PI0107706.6, Pub.number:0107706, Grant number:NA
  40. Country:CA:Filing date:22.01.2001, Filing number:2397090, Pub.number:NA, Grant number:2397090
  41. Country:CA:Filing date:15.01.2007, Filing number:2572566, Pub.number:NA, Grant number:2572566
  42. Country:CN:Filing date:22.01.2001, Filing number:01806682.8, Pub.number:1418436, Grant number:ZL01806682.8
  43. Country:CN:Filing date:11.03.2005, Filing number:200510056330.3, Pub.number:1658677, Grant number:200510056330.3
  44. Country:FI:Filing date:21.01.2000, Filing number:20000131, Pub.number:NA, Grant number:116819
  45. Country:HK:Filing date:10.09.2003, Filing number:03106477.6, Pub.number:NA, Grant number:1054288
  46. Country:HK:Filing date:04.01.2006, Filing number:06100170.6, Pub.number:1080653, Grant number:1080653
  47. Country:JP:Filing date:22.01.2001, Filing number:2001-553307, Pub.number:2003-520531, Grant number:NA
  48. Country:KR:Filing date:22.01.2001, Filing number:2002-7009307, Pub.number:NA, Grant number:714355
  49. Country:SG:Filing date:22.01.2001, Filing number:200204136.6, Pub.number:NA, Grant number:90389
  50. Country:US:Filing date:19.01.2001, Filing number:09/766193, Pub.number:20010017942, Grant number:6907142
  51. Country:US:Filing date:06.06.2005, Filing number:11/146196, Pub.number:20050254717, Grant number:7295713
  52. Country:ZA:Filing date:22.01.2001, Filing number:2002/5506, Pub.number:NA, Grant number:2002/5506
  53. Country:JP:Filing date:20.09.2007, Filing number:2007-244456, Pub.number:2008-054335, Grant number:NA
  54. Country:CA:Filing date:17.12.2007, Filing number:2614571, Pub.number:NA, Grant number:NA
  55. Country:US:Filing date:09.10.2007, Filing number:11/869445, Pub.number:20080247657, Grant number:7567719
  56. Country:DE:Filing date:22.01.2001, Filing number:01902443.9, Pub.number:1249132, Grant number:60144513.9
  57. Country:NL:Filing date:22.01.2001, Filing number:01902443.9, Pub.number:1249132, Grant number:1249132
  58. Country:GB:Filing date:22.01.2001, Filing number:01902443.9, Pub.number:1249132, Grant number:1249132
  59. Country:JP:Filing date:20.04.2012, Filing number:2012-096255, Pub.number:2012-170122, Grant number:NA
  60. Country:BR:Filing date:08.05.2001, Filing number:PI0110627.9, Pub.number:0110627, Grant number:NA
  61. Country:CA:Filing date:08.05.2001, Filing number:2408364, Pub.number:NA, Grant number:2408364
  62. Country:CN:Filing date:08.05.2001, Filing number:01812464.X, Pub.number:1457606, Grant number:01812464.X
  63. Country:EE:Filing date:08.05.2001, Filing number:P200200627, Pub.number:P200200627, Grant number:5487
  64. Country:EP:Filing date:08.05.2001, Filing number:01931769.2, Pub.number:1282982, Grant number:NA
  65. Country:HU:Filing date:08.05.2001, Filing number:P0302617, Pub.number:P0302617, Grant number:NA
  66. Country:JP:Filing date:08.05.2001, Filing number:2001-583055, Pub.number:2003-533142, Grant number:4369090
  67. Country:KR:Filing date:08.05.2001, Filing number:2002-7014937, Pub.number:2003-11325, Grant number:772576
  68. Country:MX:Filing date:08.05.2001, Filing number:PA/A/2002/010964, Pub.number:NA, Grant number:229275
  69. Country:MX:Filing date:02.06.2005, Filing number:PA/A/05/005901, Pub.number:NA, Grant number:259781
  70. Country:SG:Filing date:08.05.2001, Filing number:200206648.8, Pub.number:NA, Grant number:92888
  71. Country:US:Filing date:08.05.2000, Filing number:09/566020, Pub.number:NA, Grant number:6711211
  72. Country:US:Filing date:03.02.2004, Filing number:10/770986, Pub.number:20040156437, Grant number:6954502
  73. Country:US:Filing date:07.09.2005, Filing number:11/219917, Pub.number:20060013317, Grant number:NA
  74. Country:ZA:Filing date:08.05.2001, Filing number:2002/8767, Pub.number:NA, Grant number:2002/8767
  75. Country:US:Filing date:17.04.2007, Filing number:11/736454, Pub.number:20080095228, Grant number:NA
  76. Country:AU:Filing date:29.08.2007, Filing number:2007311526, Pub.number:NA, Grant number:2007311526
  77. Country:BR:Filing date:29.08.2007, Filing number:PI0718205.8, Pub.number:NA, Grant number:NA
  78. Country:CN:Filing date:29.08.2007, Filing number:200780044601.0, Pub.number:101548548, Grant number:200780044601.0
  79. Country:EP:Filing date:29.08.2007, Filing number:07826205.2, Pub.number:2080375, Grant number:NA
  80. Country:IN:Filing date:29.08.2007, Filing number:2656/DELNP/2009, Pub.number:NA, Grant number:NA
  81. Country:JP:Filing date:29.08.2007, Filing number:2009-532920, Pub.number:2010-507310, Grant number:4903877
  82. Country:MX:Filing date:29.08.2007, Filing number:MX/a/2009/004123 , Pub.number:MX/a/2009/004123 , Grant number:NA
  83. Country:PH:Filing date:29.08.2007, Filing number:1-2009-500724, Pub.number:NA, Grant number:NA
  84. Country:RU:Filing date:29.08.2007, Filing number:2009117688, Pub.number:NA, Grant number:NA
  85. Country:SG:Filing date:29.08.2007, Filing number:200902620-4, Pub.number:NA, Grant number:151785
  86. Country:VN:Filing date:29.08.2007, Filing number:1-2009-00996, Pub.number:22209, Grant number:NA

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