Thursday, April 10, 2014

Google's 'bargaining chip' argument has traction, but Apple may still get a FRAND determination

As of tomorrow, seven months will have gone by since the Federal Circuit's hearing in the Apple v. Motorola "Posner (cross-)appeal", and there is still no ruling. In two ways, the fact that the same parties have another appeal involving FRAND issues pending before this appeals court may have contributed to the delay. One, at the Tuesday hearing in the "Wisconsin FRAND dismissal" case (official recording), a circuit judge audibly vented her frustration with the scattershot litigation that is going on between these parties. When judges feel that a party, or in this case both parties, could have made things more efficient for the courts, they're less inclined to reward their tactics with swift decisions. Two, there is a certain overlap between the FRAND-related part of the "Posner appeal" and the Wisconsin case (the latter is exclusively about FRAND issues). This also became clear at the Tuesday hearing when the court asked counsel for Motorola about the scenario of a certain hypothetical decision on its '898 standard-essential patent (SEP) in the Posner case. Maybe the appeals court preferred to wait with its decision in the Posner appeal so as to ensure absolute consistency.

In my commentary on the briefing in the Wisconsin case, I had noted that this was the most difficult one for Apple to win of its current and recent Federal Circuit appeals in the cases I watch (which are almost exclusively disputes between two large companies and very rarely NPE cases). I felt, as I wrote at the time (in different words), that Apple might have a stronger case in light of Wisconsin (patent-unrelated) precedent but Motorola had a reasonable policy argument that a FRAND determination Apple didn't commit unconditionally to accept would basically just set a ceiling (a term that a circuit judge indeed mentioned at the hearing) and give Apple a bargaining chip without putting the dispute to rest.

Having listened to the official recording of the hearing, I now know that this "bargaining chip" issue is, in fact, the appeals court's primary policy concern. This term came up again and again. But the court did not indicate a firm position either way. Anything is still possible, including a remand on which Apple will get the FRAND determination it's seeking. It's also still a possibility that the case might be referred to the Seventh Circuit, as Motorola requested.

Apple's lead counsel, Orrick Herrington Sutcliffe's Joshua Rosenkranz, has so far had an amazing track record on Apple's behalf, and the hearing in Oracle v. Google also went perfectly for him. If you listen to the recording of the hearing, you'll notice that it was at times difficult for him to make his points because the appeals court sometimes asked questions that appeared to be related to the antitrust claims in this case (I'd be surprised if Apple prevailed on those) and the more important "specific performance" issue under contract law (Apple's request that the court order Motorola to make an offer on court-determined FRAND terms) and then switched back to antitrust. But in his reply argument (more than 30 minutes into the hearing), he made some very compelling points and demonstrated once again what a fabulous appellate lawyer he is.

One thing Mr. Rosenkranz explained to the court is that while Apple believes Motorola is entitled to a maximum of $1 per device, Motorola is seeking 12 times that amount, and if you multiple the $11 difference by half a billion devices sold, it's a difference amounting to several billion dollars.

Besides harm and injury from Motorola's behavior, Apple also had to explain why it couldn't just file a new case to pursue the claims that were dismissed without prejudice. Mr. Rosenkranz explained that another judge looking at the same claims and an unchanged set of facts would be rather likely to dismiss again. But the appeals court stressed that District Judge Crabb had merely exercised her discretion in dismissing Apple's related claims. The reasonably high hurdle for Apple to overcome here is to show an abuse of discretion.

Usually I would say that if an appeals court does not appear to disagree in one or more rather important respects with the district court, affirmance is most likely. In this case, however, Motorola also faced some critical questions. I don't think there is a sufficiently clear basis for predicting the outcome either way, except that Apple's antitrust claims are probably a long shot. I also think Apple probably won't get the broad ruling from the Federal Circuit that it would like to see: a holding that district courts can set a FRAND rate if an implementer of a standard so requests because of a disagreement with a SEP holder on licensing terms. Should Apple win, then the decision will probably be narrow and based on Wisconsin contract law rather than a general rule.

Google (which owns Motorola Mobility and will keep most of its patents after selling its devices business to Lenovo) is clearly pursuing a more aggressive strategy with respect to SEPs than Samsung, and I actually see an increasing divergence between the two companies' approaches. It's no coincidence that Samsung now appears to be close to settling its FRAND- and Apple-related EU matter while the European Commission is working on a prohibition decision against Google's Motorola Mobility. Also, Google isn't backing off on any SEP assertions, while Samsung unilaterally withdrew its SEPs-in-suit ahead of the California trial, which gives it the benefit of a consistent position on what reasonable patent damages should amount to (by now, Apple is unfortunately the inconsistent one of those two parties).

There are good reasons for Samsung and Google's different approaches to SEP assertions. Google is in a FRAND dispute not only with Apple but also (unlike Samsung) with Microsoft, a patent holder that has proven an ability to have, at least temporarily (in Germany) an impact on Android devices that Apple has not been able to demonstrate in more than four years of Android-related patent infringement litigation. Google wants to use Motorola's patents to protect Android as a whole, while Samsung just needs to take care of its own needs. And while Samsung as the global market leader has an overarching strategic interest in FRAND terms being honored, Google is soon going to be pretty much (with some Nexus devices etc. being an exception to the rule) a non-practicing entity with respect to wireless SEPs.

The fact that Samsung's focus against Apple is more on the defensive side than on SEP-based countersuits is no small part of the reason why I consider Samsung's positions in the ongoing California trial much more reasonable and consistent than I did in previous contexts (such as the first California trial).

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents and Google+.

Share with other professionals via LinkedIn: