Wednesday, June 11, 2014

Samsung is trying to collect more than $2 million in damages before Apple receives its first cent

Late on Tuesday, Samsung filed a motion to enforce a preliminary injunction bond Apple had posted in the summer of 2012 after winning a U.S. sales ban against the Galaxy Tab 10.1 following an appeal. The injunction was lifted a few months later because, in the meantime, a California jury had cleared Samsung's accused tablets including the Galaxy Tab 10.1 of the tablet design patent underlying the preliminary injunction. Judge Koh declined to overrule the jury on this one. Unless the recently-filed cross-appeal results in a modification of this non-infringement holding, Samsung will be entitled to wrongful enforcement damages -- which was the scenario for which Apple had to post a bond in the first place.

The motion is sealed. A related declaration is publicly accessible and states that, as a result of Apple's enforcement of the injunction, Samsung scraped (in or about July 2012) components worth $2,049,651. Samsung wants to collect this amount from Apple now, based on Judge Koh's final judgment and before the appeals court has spoken.

The amount is so small (relatively speaking) because the Galaxy Tab 10.1 had already approached the end of its lifecycle by the time Apple finally won an injunction. It had sought one in 2011, but Judge Koh originally denied it, and Apple won it only after a partly-successful appeal. If Apple had won the injunction earlier, the value of the components Samsung would have had to scrape would have been far greater.

Relative to the scale of this patent dispute, and especially by comparison with the size of the players and the relevance of every tenth of a percent of market share one may gain at the expense of the other, a $2 million payment is unimportant. And it's even less important whether Samsung receives that amount now or, if it is still entitled to it after Apple's appeal, in a year or so. But I suspect that this is about principle, and the real risk to Apple is non-monetary: it would be rather embarrassing if the first context in which money physically changed hands as a result of the patent spat between these two companies was a damages award in Samsung's favor because of Apple's wrongful enforcement of a preliminary injunction.

Samsung's lead counsel in the recent trial (which was not about design patents but related to the second California lawsuit between these companies, filed in 2012), John Quinn, told reporters that years into its "holy war" on Android, Apple still hasn't "collected a nickel". Apple appears to be peeved at this and, for tactical reasons, pointed to that statement and similar remarks in its recent post-trial motions, one of which is a motion for a permament injunction. It would add insult to injury from Apple's perspective if Apple actually had to fork over some money to Samsung -- even if it's "only" two million dollars -- before Apple itself receives even a cent from Samsung.

Wrongful enforcement will increasingly be on the agenda in some major smartphone patent disputes. It would have been an issue between Apple and Google's Motorola Mobility, but they recently agreed to withdraw all pending lawsuits against each other. In the U.S. these two companies had not yet won anything against each other, but in Germany Apple had enforced three (permanent and provisionally enforceable) injunctions against Motorola -- two of them over patents the Federal Patent Court of Germany later declared invalid and one of them over a patent the European Patent Office may still revoke -- and Motorola had enforced a synchronization patent against Apple in Germany for 19 months. All three patents over which Microsoft enforced injunctions against Motorola in Germany have since been declared invalid by the Federal Patent Court. The Federal Patent Court's decisions can bem and presumably have been, appealed to the Federal Court of Justice. If Microsoft and Google/Motorola don't settle before, and if the nullity decisions are affirmed, then at some point Motorola will seek wrongful-enforcement damages in Germany.

It's very embarrassing for patent holders if they say over and over that someone fails to respect their "intellectual property" but, when all is said and done, it turns out that their "intellectual property" was invalid in the first place, or maybe it was valid but it wasn't actually infringed. Wrongful enforcement is theft. In many cases wrongful enforcers get away with their wrongdoing because their enforcement puts so much pressure on a defendant that a settlement occurs before wrongful enforcement is established and wrongful-enforcement damages are awarded. I've discussed this hold-up problem in connection with standard-essential patents. It is, as Samsung's motion to enforce Apple's 2012 preliminary injunction bond shows, also a serious issue in the context of non-SEPs.

There is no easy answer. Intellectual property litigation is so slow compared to the pace of certain markets (such as smartphones) that patent holders don't want to delay enforcement until all appeals have been exhausted. That's why enforcement in this industry typically does occur well ahead of a final ruling. However, if one looks at the cases in which patent infringement allegations and the related invalidity defenses come to final judgment, wrongful enforcement occurs so frequently that policy makers should be concerned about whether an intellectual property regime with a very high error rate serves its purpose in this industry or needs some serious reform.

Europe will get an even bigger wrongful-enforcement problem than it has so far unless the rules of procedure of the Unified Patent Court (UPC) are balanced. I will talk about that topic again soon.

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