Sunday, April 27, 2014

Google should further appeal the 'Posner' Apple-Motorola case: Federal Circuit panel was divided

When the Federal Circuit finally (7.5 months after the appellate hearing) handed down its opinion in the "Posner case" (Apple v. Motorola), I initially focused on only two things: injunctive relief over FRAND-pledged standard-essential patents (SEPs) and the claim construction of the '647 patent, which is at issue in the ongoing Apple v. Samsung II trial in the Northern District of California. I had seen a couple of filings in which Samsung pointed to Judge Posner's claim construction. It asked the court to tell the jury about that interpretation of the patent (which will now finally happen, tomorrow, as a result of the Federal Circuit decision), and it wanted to point to Apple's own 60-cent-per-device damages claim over this patent in the Motorola case. Judge Koh had actually not miscontrued the patent (as I erroneously wrote when reacting in a hurry to the Federal Circuit ruling and pointing out the bearing it has on the Samsung case ahead of everyone else). But she had denied those Samsung requests relating to relevant information available in the Motorola case and apparently disagreed with Samsung that Apple was bound to Judge Posner's claim construction by collateral estoppel.

The Federal Circuit's affirmance of Judge Posner's claim construction has defanged and devalued the '647 patent. Now there isn't even one patent claim in the California case that Samsung can't simply work around. Apple can't really win over Samsung in a strategic sense. It can just hope for a symbolic victory that it can try to use for PR purposes.

I have meanwhile read the entire Federal Circuit opinion, which does contain more good stuff for Apple than for Google's Motorola (except for the '647 claim construction). While Apple will ultimately get its Chicago trial, the patents at issue in that case don't appear strong enough to have serious impact on Motorola's business.

Besides the '647 "quick links" patent that can be worked around by compiling certain code into applications as opposed to providing a certain operating system function, Apple is asserting in that Chicago case the '263 "real-time API" patent (related to streaming) and the '949 "touchscreen heuristics" patent often referred to as the "Steve Jobs patent". The '263 patent was one of the first patents Apple asserted against Android back in March 2010. I would be surprised if Google and its device makers did not have a workaround in place by now, more than four years later.

The "Steve Jobs patent" is theoretically being enforced against Samsung through an ITC import ban that entered into force in October 2013, but simultaneously with an infringement finding relating to older products, the ITC cleared Samsung's designaround products for this patent, including among various others the Galaxy Note, because the ITC concluded that they don't practice at least one limitation of the asserted claims of the '949 patent. On that basis, Samsung is doing just fine in the U.S. market: consumers don't notice the internal change that was necessary to avoid further infringement. Judge Posner had ruled large parts of the '949 patent invalid for indefiniteness. The Federal Circuit has reversed that finding, but I have not found anything in the Federal Circuit opinion that suggests the workaround that Samsung is shipping in the U.S. would not be an option for Motorola as well.

Even though Apple's patents-in-suit are anything but thermonuclear, I believe there are three key issues -- on every one of which the Federal Circuit panel was divided -- that Google should appeal further by firstly requesting a rehearing en banc (if granted, the full court would likely be divided over those issues as well) and later, if necessary, appealing one or more of these key issues to the Supreme Court. These are the issues of transcendental importance that require further clarification:

  1. Injunctions over FRAND-pledged SEPs

    On this highly important matter, the Federal Circuit ruling contains as many opinions as there were judges on the panel: three. There is a majority opinion that says Judge Posner had erred to the extent that he applied a per se rule that injunctions are unavailable for SEPs, yet affirms his decision to deny SEP-based injunctive relief in this case because, among other things, "Motorola's FRAND commitments, which have yielded many license agreements encompassing the '898 patent, strongly suggest that money damages are adequate to fully compensate Motorola for any infringement".

    From that majority opinion, Chief Judge Rader dissents because he saw evidence in the record that Apple was an unwilling licensee, and he thinks SEP holders just be able to obtain injunctions in response to a "hold out" (refusal to pay), which he considers just as likely and disruptive as a "hold up" (excessive demands). In order to make this determination, Chief Judge Rader believes a FRAND royalty rate would have had to be identified first. Circuit Judge Prost also dissents, but from the opposite angle: while the ruling went too far for Chief Judge Rader, it did not go far enough for Circuit Judge Prost. She supports affirmance of Judge Posner's denial of injunctive relief but disagrees with parts of the reasoning. Judge Prost notes that Judge Posner hadn't really applied a bright-line rule (since his opinion mentioned that an injunction might have been warranted if Apple had refused to take a license on FRAND terms) but simply decided the question under the eBay framework. And she "disagree[s] as to the circumstances under which an injunction might be appropriate". She supports the idea that implementers of standards, like Apple in this case, should have the right to defend themselves against infringement allegations before agreeing to pay up for a license, and sees no reason "why a party's pre-litigation conduct in license negotiations should affect the availability of injunctive relief". Then she says:

    "Instead, an injunction might be appropriate where, although monetary damages could compensate for the patentee's injuries, the patentee is unable to collect the damages to which it is entitled. For example, if an alleged infringer were judgment-proof, a damages award would likely be an inadequate remedy. Or, if a defendant refused to pay a court-ordered damages award after being found to infringe a valid FRAND patent, a court might be justified in including an injunction as part of an award of sanctions."

    On this question, I'm absolutely on Judge Prost's side, and on Apple's side. Google is on the opposite side, but I'd still like it to further appeal the FRAND part of the ruling because the current state of affairs -- three judges with essentially three different opinions -- is not a good outcome with a view to other cases. It would work fine for Apple here, and I'm happy about that, but there would still be too much uncertainty in other SEP cases. SEP holders would point to Chief Judge Rader's dissent all the time. Defendants would point to the majority opinion and Judge Prost's dissent on parts of the reasoning. This is a mess of CLS Bank v. Alice (a software patent-eligibility case) proportions. Please, Google, do appeal. And then, please, lose out to Apple on this one.

  2. Injunctions over non-SEPs

    In this context, things are even messier (imagine that) than in the CLS Bank case. On the one hand, there are the earlier Apple v. Samsung injunction-related decisions by the Federal Circuit that established a fairly strict "causal nexus" (tying infringements to alleged irreparable harm) standard. On the other hand, as Judge Prost highlights in her extremely well-reasoned dissent (if you don't have the time to read the whole 95-page opinion, I still encourage you to read her dissent, even if you read none of the other parts of the document), Apple did not really satisfy the "causal nexus" requirement in the "Posner case", yet a majority reversed Judge Posner's grant of summary judgment against Apple's pursuit of injunctive relief. That majority consists of Chief Judge Rader, who is notoriously patentee-friendly and even labeled as "death squads" patent judges at the USPTO who invalidate patents that shouldn't have been granted in the first place, and Circuit Judge Reyna, who is an ardent admirer -- if he weren't a judge, I'd say "fanboi" -- of Apple's contributions to innovation, which have however not impressed any judge outside the United States).

    While I'm 100% on Judge Prost's side in the FRAND context, I agree with "only" about 75% of her stance on non-SEP injunctions. But she's absolutely right that the Friday opinion in the "Posner case" is inconsistent with the Apple v. Samsung rulings. There is a need for clarification here. There are two conflicting panel positions on non-SEP injunctions relating to smartphones. This, too, results in a lack of clarity to put it mildly. That lack of clarity is not even in Apple's interest, but in this "Posner case", it's all up to Google to appeal, which I very much hope it will.

  3. Functional claiming

    This third part is harder to understand than injunctive relief but no less important. Judge Prost warns in connection with the "Steve Jobs patent" that "under the majority's view, this case provides a stark example of how patent applicants are able to claim broad functionality without being subject to the restraints imposed by § 112 [para.] 6", i.e., the rules governing means-plus-function claims, which are particularly susceptible to invalidation challenges. Judge Prost refers to a paper by Stanford Professor Mark Lemley, Software Patents and the Return of Functional Claiming. This issue of overbroad software patent claims is also on a list of patent policy priorites that the White House published in June 2013.

    I have over the last couple of years repeatedly (here's one example) stated that I don't like the "Steve Jobs patent" because it seems too broad to me. Now that Samsung has worked around it successfully (which has rendered Apple's ITC import ban ineffectual), I recognize that it's not too broad to be worked around, but it still covers too much in my view. I absolutely agree with Judge Prost's related concerns. If Google further appealed this matter, it might provide an opportunity for the Supreme Court to restore sanity.

A fourth issue of transcendental importance is that of permissible damages theories, but the Federal Circuit panel was unanimous (with a very limited exception) and found that Judge Posner had been too strict by excluding the entirety of both parties' damages testimony:

"A judge must be cautious not to overstep its gatekeeping role and weigh facts, evaluate the correctness of conclusions, impose its own preferred methodology, or judge credibility, including the credibility of one expert over another. These tasks are solely reserved for the fact finder."

There are probably better opportunities for getting further clarification on damages, such as an appeal of the ongoing Apple v. Samsung II case. But on any of the three strategic issues I outlined further above, the "Posner case" appears to be a first-rate opportunity to get high-level clarification, ideally from the Supreme Court, which has recently granted certiorari to several patent cases. Chief Judge Rader doesn't seem to always like the Supreme Court's patent-related decisions, but that philosophical disagreement may be part of the reason why the Supreme Court has to review Federal Circuit decisions so frequently.

Even if this didn't go all the way up to the Supreme Court, there should at least be an en banc hearing at the Federal Circuit. Chief Judge Rader and Circuit Judge Prost have practically invited the parties, with their dissenting opinions, to ask for a full-court review.

There will ultimately (absent a settlement) be the Chicago Apple v. Motorola trial that Judge Posner canceled in 2012, but it may still take some time before a mandate to the district court can issue. I see a reasonably high likelihood of an en banc rehearing and a significant likelihood of a further appeal to the Supreme Court.

See, I told you so

While this process is far from over, at least we now have a (divided) panel opinion in the "Posner case", and on this occasion I'd like to compare the (present) outcome with what I had said about that case before. The day after Judge Posner's ruling came down, I published a detailed analysis of its key aspects. The public debate at the time was more focused on whether this meant that judges in general are tired of smartphone patent suits, and there was a fundamental misunderstanding on the part of all those who thought the cancelation of the Chicago trial was a loss only for Apple, when in reality the FRAND-related part of Judge Posner's ruling -- which I called "absolutely fantastic" in the analysis I just linked to -- was a major victory for Apple (more important than the negative part for Apple in my view).

Almost two years after that ruling, and two days after the (first) appellate opinion in that case, there can be no doubt that the FRAND part of the ruling did indeed (as I had accurately predicted) become the most influential part. But I also noted at the time that Judge Posner's decision had to be seen in the light of his publicly-stated skepticism of the state of the patent system, and I thought that he had been too strict in dismissing the case without at least giving the parties the chance to present new damages claims based on his guidance. The day after the 2012 ruling I wrote this:

"In particular, Chief Judge Rader of the CAFC (whose court is going to be next to look at this case) has repeatedly made statements that are markedly more favorable to the interests of patent holders than the positions Judge Posner takes. Again, I'm personally more on Posner's than Rader's side, but with a view to what will happen next, it's a safe assumption that the CAFC will be concerned about the patent-skeptical stance embodied in this ruling and will probably be hesitant to affirm this in its entirety."

As I predicted then, the Federal Circuit has indeed determined that Apple and Google/Motorola should get their Chicago trial.

I told you so. I also told you that Oracle's declaring Java API code would be found copyrightable, and that will be the next major Federal Circuit ruling for me to blog about. I guess that one will come down in the coming weeks. A number of people who dismissed my commentary on the "Posner case" and on Oracle v. Google only because of district court decisions in 2012 will have to concede now in 2014 that I was right and they were not.

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