Monday, April 28, 2014

Comments by chief U.S. patent judge strengthen Google, Samsung in EU antitrust settlement talks

After years of advocating the notion that antitrust enforcers should give meaning to FRAND, I now have little hope that a great deal of clarification will be provided in connection with standard-essential patent (SEP) assertions by Google (Motorola Mobility) and Samsung against Apple in Europe. European Commission Vice President Joaquín Almunia had already indicated in a recent speech that a settlement with Samsung was very likely, but at the time it appeared that Google's Motorola was going to get a "prohibition decision" in the absence of satisfactory commitments.

Bloomberg has now (on Friday, to be precise) reported that even Motorola Mobility is expected to avoid being fined. What the report does not indicate, however, is what would happen to a license agreement Apple was forced to enter into at the threat of injunctive relief (an extortionate circumstance in my opinion) and based on which Motorola is already suing Apple in Germany. The report is not clear on that. In November 2013, the Mannheim Regional Court stayed that contract case and asked the European Commission for input. A withdrawal of injunction requests is not really the answer anymore because there is a contract in place and the real issue is that Apple contests the enforceability of certain clauses it was forced to accept.

Whatever the solution is going to be in the Samsung and Motorola EU antitrust cases, Apple's ability to insist on strong remedies has just been impaired by Friday's Federal Circuit opinion in the "Posner" Apple v. Motorola case. In my previous post, published on Sunday, I discussed that appellate opinion in detail and particularly recommended Judge Prost's dissent, which I largely agree with. I also mentioned Chief Judge Rader's dissent from the majority's affirmance of Judge Posner's denial of injunctive relief to Google's Motorola over a FRAND-pledged SEP. The highest-ranking U.S. patent judge has just weakened Apple's position in the EU antitrust proceedings (though he was obviously just concerned with the development of U.S. case law in this area and didn't intend to influence foreign antitrust proceedings). Chief Judge Rader feels that Motorola may have been right with its allegation that Apple was an unwilling licensee against whom the pursuit of injunctive relief would have been appropriate:

"To my eyes, the record contains sufficient evidence to create a genuine dispute of material fact on Apple’s posture as an unwilling licensee whose continued infringement of the ’898 patent caused irreparable harm."

"Market analysts will no doubt observe that a 'hold out' (i.e., an unwilling licensee of an SEP seeking to avoid a license based on the value that the technological advance contributed to the prior art) is equally as likely and disruptive as a 'hold up' (i.e., an SEP owner demanding unjustified royalties based solely on value contributed by the standardization). These same complex factual questions regarding 'hold up' and 'hold out' are highly relevant to an injunction request."

"The record in this case shows evidence that Apple may have been a hold out."

"[T]he district court acknowledged the conflicting evidence about Apple's willingness to license the '898 patent [...]"

"In my opinion, the court should have allowed Motorola to prove that Apple was an unwilling licensee, which would strongly support its injunction request. The court states that 'the record reflects that negotiations have been ongoing,' [...] but, as the district court even acknowledged, Motorola asserts otherwise--that Apple for years refused to negotiate while nevertheless infringing the '898 patent [...]"

The European Commission based its Statement of Objections (SO) against Samsung on a preliminary holding that Apple was a willing licensee. In connection with Motorola, it again focused on the question of whether certain conduct is anticompetitive vis-à-vis a willing licensee.

Apple's dispute with Samsung is obviously separate from the one with Google's Motorola, but the issues are very similar. Both Google (Motorola) and Samsung can now point to the opinion of America's highest-ranking patent judge according to which there is at least some serious doubt as to whether Apple's behavior justified the pursuit of injunctive relief by patent holders. I, for my part, much prefer Judge Prost's position that "a party's pre-litigation conduct in license negotiations should [not] affect the availability of injunctive relief". But that is not what the European Commission has said so far. The European Commission focused only on the question of what a patent holder can do vis-à-vis a willing licensee.

Chief Judge Rader's skepticism regarding Apple's posture is also unhelpful to Apple as it seeks to portray, in the public debate, Samsung as a reckless infringer.

Apple basically has two problems in its Android-related disputes. One is that its patents, with the exception of rubberbanding, can apparently be worked around quite easily. In the ongoing trial, there is one patent (slide-to-unlock) that even Apple does not allege to be infringed by all of Samsung's accused products in this case, another patent ('647 "quick links") that the Federal Circuit has just defanged and devalued, and three patents that Samsung could work around by "copying" Apple's implementations of the related features. As long as Apple's leverage is so limited, Google and Samsung don't even have to abuse FRAND-pledged SEPs because on that basis it's all heading toward a zero-zero license with maybe some payment for past damages (particularly for design patent infringement, a context in which I think Samsung does owe Apple a substantial amount of money unless the liability findings are reversed on appeal). The other problem is that Apple is increasingly inconsistent, even on core FRAND questions such as the appropriate royalty base.

It was remarkable when the European Commission took the initiative, without a formal complaint, to open its antitrust investigation of Samsung's use of SEPs against Apple. The Commission didn't do this to help Apple or harm Samsung. It thought that the issue warranted intervention. But Apple, maybe due to arrogance that makes no sense in light of its eroding global market share, behaves in ways that just don't make it easy for antitrust enforcers (and not only for them) to keep supporting it over the years...

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