Friday, February 21, 2014

Samsung to U.S. appeals court: Presidential veto not broad enough to protect Apple once more

Last week I asked: "Are U.S. and EU antitrust enforcers taking a rather soft line on standard-essential patent issues?" Based on a Samsung filing with the United States Court of Appeals for the Federal Circuit that entered the public record yesterday, I must answer this question with a resounding "Yes!" as far as the Antitrust Division of the United States Department of Justice (DoJ) is concerned. Basically, Samsung's filing makes clear that it seeks to benefit from reverse protectionism in which I believe the U.S. government is engaging for geopolitical reasons that have nothing to do with Apple, phones, tablets, or patents.

Only two weeks have passed since the DoJ announced the closing of its investigation of Samsung's use of FRAND-pledged standard-essential patents (SEPs) against Apple, arguing that "[a]s a result of the [Obama Administration's veto of an import ban Samsung won last year], the Antitrust Division has determined that no further action is required at this time". The fundamental importance of the underlying issue to industry would have been enough of a reason to penalize Samsung even for a failed attempt to win an import ban over a SEP. The European Commission has not closed the Samsung investigation yet even though Samsung also failed with its related attempts in multiple European countries. The U.S. government, however, apparently wanted to avoid the impression of dual punishment (veto plus antitrust decision).

Even on that basis, it was just totally premature to "close" the investigation (except for keeping the door open very slightly by promising to continue to monitor the situation) without remedies of any kind. If this was about SEPs as opposed to foreign policy, the DoJ would have expected at a very minimum that Samsung withdraw all of its still-pending requests for injunctive relief against Apple over U.S. SEPs. In December 2012, Samsung dropped its European SEP-based injunction requests against Apple in an effort to pave the way for a settlement with the European Commission and to avoid or minimize fines. It never did this in the U.S., so it would have been anything but unreasonable for the DoJ to close its investigation of Samsung only after similar withdrawals. Again, foreign policy is the only plausible explanation for why the DoJ did not demand this.

There were and still area two ongoing efforts by Samsung to win sales and import bans against Apple's standards-compliant products in the U.S. market:

  1. At the trial that will begin in California in less than six weeks, Samsung is going to be asserting two SEPs (as well as a couple of acquired non-SEPs against Apple. Samsung's April 2012 prayers for relief concerning its counterclaims included and still include a request for injunctive relief:

    "That Apple and its officers, agents, servants, employees, and all those persons acting or attempting to act in active concert or in participation with them or acting on their behalf be immediately, preliminarily and permanently enjoined from further infringement of Samsung's Patents In Suit;"

    Prior to the DoJ's closing of the investigation, Samsung should have withdrawn that request -- which is exactly the kind of request it dropped Europe-wide -- with respect to the two SEPs it's taking to trial (for the non-SEPs it's obviously free to pursue such relief).

  2. On November 1, 2013, the public redacted version of Samsung's appeal of the unfavorable parts of the ITC ruling on its complaint against Apple became available. The veto was not appealable, but the ITC had sided with Apple on one more SEP and a couple of non-SEPs. It turned out that Samsung is pursuing on appeal only one patent: a FRAND-pledged SEP. In my commentary I thought Samsung primarily did this with a view to a damages claim in federal court (in Delaware, where its mirror lawsuit of the ITC complaint was filed) and possible FRAND determinations in which it would want to argue that the patent is still alive. I said it would "be a long shot to win an import ban (on the remand it seeks) in light of the last veto (though not 100% impossible if the FRAND-related facts changed in the meantime, such as new offers made in negotiation that might warrant a new public interest analysis down the road, most likely in 2015)".

    In its recent answer brief to Samsung's appeal, Apple raised FRAND issues and argued that, in light of the last veto, Samsung's appeal should be tossed because Samsung won't be able to win the only type of remedy the ITC can order. The ITC itself merely defended its non-liability finding. I saw those briefs a few weeks ago but decided to wait until Samsung's reply brief before blogging about them. I wanted to see what position Samsung takes on Apple's FRAND arguments, and that's what the remainder of this blog post is about. Samsung is indeed arguing the way I suspected it would (i.e., that it can win an import ban on remand, should the appeal succeed on liability), and this shows that the DoJ should never have closed the investigation without Samsung withdrawing that Federal Circuit appeal or at least clarifying that the purpose of the appeal was just to get the non-liability holding reversed, with a view to damages and royalty determinations (though this might have supported certain mootness arguments by Apple).

Here's the import ban-related part of the public redacted version of Samsung's filing:

"G. An Exclusion Order Is the Proper Remedy for Apple's Failure to License the '644 Patent

The Commission properly rejected Apple’s claims that Samsung's commitment to standards-setting organizations precluded an exclusionary remedy for the '644 Patent. As the Commission noted, Apple identified no per se rule barring the ITC from issuing an exclusion order on a FRAND-encumbered patent. [...] In particular, the Commission noted that ETSI's IPR policy does not prohibit patent owners from seeking injunctive relief, and that several attempts to add such language have failed. [...] Although Samsung does not dispute that exclusionary relief ought to be a last resort when declared essential patents are asserted, it cannot be the case that an accused infringer can avoid the ITC's statutory mandate by simply raising FRAND concerns while refusing to 'engage in an impartial and honest Essential IPR licensing negotiation process,' as ETSI expects of its members. [...] As described below, that is exactly what the Commission concluded Apple did here.

Apple's citation to opinions from other courts denying injunctions on FRAND-encumbered patents have no bearing on the Commission' s determination. Such cases are not binding on this Court or the Commission and largely relate to different standards-setting organizations with different rules, policies, and objectives, such as ITU, IEEE, and JEDEC. No statute or other precedent requires the lTC to deny an exclusion order simply because monetary remedies would be adequate before a district court. [...]

To the extent the '644 Patent is subject to a FRAND licensing commitment, the Commission also correctly determined that Apple had failed to show that Samsung did not satisfy that obligation. [...] Over the course of three years, beginning before the underlying Investigation was commenced, Samsung sought in good faith to license its UMTS patents, including the '644 Patent, to Apple on FRAND terms and conditions. [...] Apple rejected every offer and never made any serious counter-offer. [...] Although Apple's brief refers only to certain unilateral license offers proposing [[REDACTED]], Apple conspicuously fails to mention Samsung's December 2012 proposal for [[REDACTED]] Apple's rejection of license terms that it previously suggested were FRAND, combined with its refusal to make a counteroffer or otherwise reasonably engage in further licensing negotiations, confirms that Apple is not negotiating in good faith, and does not intend to license Samsung's patents unless compelled to do so. [...] It was this inexplicable unwillingness to license on any terms that prompted the Commission to characterize Apple's approach as 'reverse patent holdup' in which 'an implementer utilizes declared-essential technology without compensation to the patent owner under the guise that the patent owner's offers to license were not fair or reasonable.' [...] Even Apple's cases agree that exclusionary relief is appropriate in these circumstances. See Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901, 914 (N.D. Ill. 2012).

Unable to demonstrate that Samsung is not entitled to exclusionary relief as a matter of law, Apple contends that a remand with respect to the '644 Patent would be futile because the USTR would likely veto an exclusion order if granted, as it did for Samsung's '348 Patent. As an initial matter, Apple cannot ask this Court to usurp the function of the executive to conduct policy evaluations of Commission determinations by denying relief that is otherwise appropriate under the ITC's statutory mandate and this Court's precedent. Moreover, Apple overstates the USTR's position with respect to the '348 Patent.

The USTR did not conclude that exclusion orders are never appropriate for declared essential patents; rather, the USTR stated that 'whether public interest considerations counsel against a particular exclusion order depends on the specific circumstances at issue,' such as the infringer’s refusal to take a FRAND license. [...] (emphasis added). The USTR's disapproval of the '348 Patent exclusion order was based on the lack of 'a comprehensive factual record' and 'explicit findings' regarding issues such as 'the presence or absence of patent hold-up or reverse hold-up.' [...] Any deficiencies in the record or the Commission's findings can be easily addressed on remand, allowing the USTR to confirm that standards-related concerns have been adequately considered, and that any issued exclusion order will not implicate public policy concerns."

I agree with Samsung -- as I already did in my commentary on its opening appellate brief -- that the USTR veto was not broad enough to make it 100% impossible for Samsung to win an import ban on a potential remand. I also agree with Samsung that Apple's brief somewhat overstated the scope of the USTR veto. But on that basis, I can't agree with the DoJ's decision to "close" the investigation. The issue was not and is not moot.

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