Wednesday, April 30, 2014

Supreme Court rulings on fee-shifting are helpful, but not a substitute for patent reform legislation

This month of April I've done a lot more blogging than I intended to. This here should be my final post for the month (barring unforeseeable events), and I will considerably slow down my blogging in the coming months to about five (and at most 10) posts per month. I'll talk about my priorities further below.

With so much public debate over the Apple v. Samsung II trial (with a poor signal-to-noise ratio as neither the jury nor mass media focus on the most important issues), I lacked the time recently to talk about some other interesting developments. For example, the question of ITC jurisdiction over non-physical imports is a fascinating (or potentially troubling, depending on one's perspective) issue. Patently-O also analyzed two decisions by the Supreme Court of the United States that came down yesterday and relate to attorney fee-shifting in patent litigation: Octane Fitness v. Icon Health and Highmark Inc. v. Allcare. An initial analysis, already fairly detailed, can also be found on the Comparative Patent Remedies blog.

In both cases the Supreme Court took a fee shifting-friendlier position than the Federal Circuit. Octane is about the standard, and the SCOTUS gives district courts more wiggle room because they can now award fees in their discretion not only if a patent infringement complaint was "objectively baseless". Highmark makes it harder for the Federal Circuit to overrule a district court's discretionary finding that a case was exceptional enough to warrant fee-shifting.

These (unanimous) decisions are not the first ones in which the Supreme Court disagrees with the Federal Circuit, and probably won't be the last. I would particularly like Google to further appeal the "Posner case", over which a Federal Circuit panel was divided in key areas.

However, disagreements between the Supreme Court and the Federal Circuit don't justify the bashing of the highest U.S. patents court that I've seen in some places on the Internet.

Some of those opposing far-reaching patent reform measures in the U.S. argue that lawmakers should keep their hands off patent law because judges can redress the balance all by themselves. I disagree with the anti-reform movement. The hurdle may be lower now for fee-shifting than it appeared to be, but if fee-shifting is really meant to make patent trolling a considerably less lucrative business than it currently is, then fee-shifting must become the norm. And that can only be achieved through legislation. However, if lawmakers couldn't agree on a new framework that would make fee-shifting the standard outcome, then it might indeed be better to just wait and see how case law evolves after yesterday's SCOTUS rulings. A watered-down political compromise could ultimately be less helpful than judicial decisions in this post-Octane era.

Also, fee-shifting is just one of various patent reform topics. It is a particularly important one, but other matters such as ways to cost-efficiently challenge bad patents, transparency in ownership, or measures against deceptive demand letters are examples of other priority subjects that even the SCOTUS can't address (but Congress can).


The average number of posts on this blog peaked at 52 per month in 2012 and decreased to 41 in 2013, but was still above the 2011 average of 28. In the first four months of this year, the monthly average was 26. But for the remainder of the year, and going into 2015, it will decrease sharply: my plan is to do only an average of five or six posts per month going forward, but in some months the number could increase to 10, should there be an exceptional density of developments I absolutely want to cover. There may also be months in which I do less than five posts.

I just need to focus on my app development project. I have decided that my future is in software development, not IP- and antitrust-related consulting. In connection with my app development project, I will file for patent applications in different jurisdictions.

I may still do limited amounts of consulting of the kind that doesn't distract me. For example, I have done and may still do some litigation monitoring and research for the purpose of private (non-published) reports.

Over the next few months, these are topics that I will talk about:

  • I will obviously comment on the Apple v. Samsung II jury verdict and some of the post-trial proceedings.

  • The litigation I am most interested in no longer involves patents: Oracle v. Google is now a copyright-only case over Android's unlicensed use of Java. I have been advocating reasonably strong protection of API-related code (provided that it's creative and not infringed inadvertently) for more than a decade. During most of that time, I did not have any relationship of any kind with Oracle. I had that position before, while, and after fighting against Oracle's acquisition of Sun Microsystems (the deal that resulted in Oracle's ownership of Java). The fact that Oracle became a client in connection with standards issues in 2012 changed nothing about that. Nor did the district court's decision change anything: it will very likely be reversed soon by the Federal Circuit, which held a hearing in early December, with respect to copyrightability, and Google had not prevailed on "fair use" because a hung jury can't resolve an issue, so it will be decided by a court or a jury. After the erroneous district court ruling on copyrightability all sorts of people criticized me, and they will soon have to admit that I was actually right, just like I also accurately predicted what would happen to Judge Posner's Apple v. Motorola ruling on appeal.

  • I plan to also blog about Microsoft v. Motorola cases pending before three Munich-based courts (a preliminary injunction case, a related Federal Patent Court nullity action, and an appeal involving a patent narrowed by the Federal Patent Court last year). All of this is taking place in my backyard, I think very highly of both parties' lawyers, and I always find their courtroom clashes entertaining.

  • I will occasionally comment on patent reform, as I just did further above. My angle in that regard is primarily going to be that of an app developer (thus I care particularly about issues like deceptive demand letters and ways to fend off bogus patents), though I will also draw on my experience as a long-time patent litigation watcher.

  • The rules of procedure for Europe's Unified Patent Court (UPC) are of great concern to me. I hope that the right balance will be struck. Since I'm going to file for patents (also in Europe), I don't want patent enforcement to be weakened, but I'm concerned that Europe could become too attractive for trolls.

  • Closely related to patent reform is the question of certain patent holders' tactics. In retrospect I recognize I should have talked more, and sooner, about such issues as privateering. I have had various meetings in recent months with industry players (from strongly anti-reform to centrist to decidedly pro-reform organizations) and none of them was positive about privateering, though one of them sold patents to a troll a few years ago. I'm not going to bash everyone who ever sold a few patents to a troll or contributed funding to a privateering-oriented transaction, but I will keep an eye on longer-term patterns of behavior. For example, Nokia has transferred patents to various organizations, and I don't blame the buyers but I don't like the fact that Nokia complicates patent licensing. Also, now that Nokia has (which I think was the right outcome from an antitrust point of view) sold its devices business to Microsoft, it's going to be more patent monetization-focused than ever. While the deal was procompetitive with a view to mobile platforms (I really liked some of Microsoft's recent announcements and Windows is my #2 platform priority, after Android), a side effect with respect to patents is that Nokia is now, more than before, a privateer. To be clear, I'm not anti-Nokia, and I hope that it will act in ways that I will consider reasonable. But I will keep an eye on it and criticize it if (IF!) necessary.

  • FRAND-pledged standard-essential patents (SEPs) were a key issue to me in recent years. Actually, FRAND matters to me in other contexts than patents, too. The first work I did on FRAND was in 2007 for a soccer club that won an important game yesterday in my town (I went to the stadium here to support them, as always). My positions won't change, but my focus and priorities will be adjusted. App developers like me usually don't have to deal with SEP assertions. And yesterday's European Commission decisions in the Samsung and Motorola Mobility cases, prior to which there had already been settlements and clearance decisions in the U.S. and Korea, have greatly reduced my interest in Samsung and Motorola's SEP assertions. Should they do anything that raises serious issues, I'll talk about it, but it doesn't appear likely (otherwise antitrust regulators wouldn't have let them off the hook). However, just like antitrust regulators focused on those two companies' SEP assertions in recent years, so did I, and I do know that there are some other key SEP portfolios out there that must be licensed on FRAND terms. The Competition Commission of India's investigations of Ericsson's conduct are very interesting -- this looks like the new FRAND frontier. I may at some point also talk about FRAND in connection with major SEP portfolios held by players like Qualcomm, Nokia, and Rockstar (former Nortel patents). And while there are key differences between SEPs and non-SEPs from an antitrust point of view, I will highlight any inconsistencies between companies' "reasonable royalties" positions in SEP and non-SEP contexts.

  • I started this blog more than four years ago because I wanted to talk about open source-related IP issues. I've talked about those from time to time, but this blog became more of a Smartphone Patents than FOSS (Free and Open Source Software) Patents blog. Every once in a while I may still chime in on open source IP issues.

In October -- four years after some key disputes broke out and I decided to focus on smartphone patent litigation -- I plan to summarize the outcome of numerous patent assertions against Android. There was a time when courts had identified a number of infringements around the globe, but meanwhile there have been appeals, reexaminations, and invalidation decisions. Android has proved unstoppable, and an update on how much (or, actually, how little) impact patents have actually have had on Android is something I really need to do. I adjust positions when it's warranted by facts, and the fact that only a very small percentage of all patent assertions against Android had any effect at all (and even that effect was very limited so far) just can't be ignored. But it's more of a mid-term than near-term plan.

Longer-term I might also talk about how app developers might benefit from patent protection, but I'm not sure I'd even want to go into detail on that before my own patent applications have been published (i.e., late 2015).

When my app is launched, I will also announce it on this blog, but will set up a separate website (with or without a blog) for my app.

I hope you will still find this blog a useful, interesting source of information and opinion even as I discontinue my high-frequency, granular litigation (and litigation-related antitrust) coverage and focus on select issues, which I'll mostly be able to write about at a time of my choosing, except for some key appellate decisions.

I've concluded that litigation coverage of the kind I did in recent years requires a total commitment. It's an all-or-nothing proposition. In a year like 2012, I would not have missed Apple's inadvertent disclosure of its patent licensing terms with Nokia and others, for example. Even in the first half of 2013 I wouldn't have missed it. But then I had to gradually reduce the time I spend on this. Something worth doing is worth doing right. And that's what my app is. But I will still, occasionally, comment on key issues, most of the time proactively, sometimes reactively. Thank you very much in advance for your continued interest!

If you haven't done so yet, you may now wish to subscribe to this blog because it will be more convenient to get email updates than to check on it every day when there will be new posts only once a week or even less frequently at times. In the righthand column you can find a field that enables you to subscribe to it by email.

I have another blog to recommend and you can subscribe to it by email, too. Professor Thomas Cotter's Comparative Patent Remedies blog covers cross-jurisdictional developments in patent remedies and the intersection of patent law and competition enforcement. I believe many of my readers are also interested in those issues, and Professor Cotter's blog is really worth recommending.

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:

First jury questions in Apple v. Samsung II show focus on non-technical, tangential issues

On this second day of Apple v. Samsung II jury deliberations, jurors have put in a request for an easel, paper, scissors, and tape. This -- coupled with the fact that there was no verdict after only a few hours -- could be an indication of this jury intending to have more of an internal discussion than the one in 2012, a couple of members of which did everything they could to subsequently discredit the whole U.S. jury system (in connection with patent cases) through interviews. In particular, one juror told CNET that the jury stopped looking at prior art after the first patent because it was just "bogging [them] down". A few days after the 2012 verdict I identified the fact that the jury did not find any of the patents-in-suit to be invalid as the number one issue (if I do it now, some "fanbois" will nevertheless claim that I've changed my stance). The fact that Apple's most valuable software patent in that case (most of the damages were about design patents, but this one was the relatively most valuable one of the three software patents-in-suit) was rejected by the USPTO in reexamination after the trial, which is why a whole new trial will probably be needed in that first case, vindicates my concern about the jury's position on validity.

I didn't disagree with the 2012 jury's verdict (apart from validity and the fact that I would have actually seen a stronger design patent case in connection with tablets than with smartphones, as Judge Koh did in her preliminary injunction decision as well) nearly as much as with its approach. The approach was not to waste time because everything is easier in a fairly-tale world in which you have good guys and bad guys, all of them easily identifiable.

The jury that is currently deliberating may not be as totally thoughtless as the one in 2012, but the first four questions this jury submitted already show that this jury is, at least at this initial stage of its deliberations, focused on non-technical issues that are not at the core of what the jury must decide. Software patents are technical. The jury should focus on claim construction (understanding the related directions from the court), infringement and non-infringement theories, validity and invalidity arguments. Instead, this jury just confirmed what the Wall Street Journal's Apple reporter Daisuke Wakabayashi said on Twitter yesterday: "With a jury of patent/tech novices, trial comes down to which lawyer can tell the better story." Both parties' lawyers are first-rate, so anything could come out of this jury trial, but if the jury doesn't after the first five questions get to the nitty-gritty technical detail, then it's unlikely to get things right.

As America's most-cited judge, Judge Richard Posner, put it last year, "Judges have difficulty understanding modern technology and jurors have even greater difficulty, yet patent plaintiffs tend to request trial by jury because they believe that jurors tend to favor patentees, believing that they must be worthy inventors defending the fruits of their invention against copycats [...]".

The jury submitted five notes, but the fifth one is just a request for more copies of the verdict form. Each of the first four questions begins with this sentence: "Is there any evidence available to us that would answer this question?" And the questions are:

  1. "What did Steve Jobs say at the moment he directed, or decided to prosecute, a case against Samsung? Was Google mentioned, and/or included in that directive, or subsequent directives, to be included in any way in the case?"

  2. "How were the five Apple patents chosen? Were they identified to Apple execs prior tot he decision to pursue patent infringement, or after?"

  3. "How were the two patents chosen by Samsung to be purchased? Who specifically, and initially, recommended that purchase, and what was his/her title?"

  4. "What did the CEO of Samsung say or write, at the moment he first heard about Apple Corp. [sic] believing Samsung was infringing their intellectual property? What subsequent direction did he give to his team as to how to respond?"

I don't know all the trial exhibits. It's possible that there are no answers to these questions in the exhibits. I guess there is none. Even if there was any, this would not only be irrelevant to the key questions of infringement and validity, but it also has nothing at all to do with the question of whether any infringement, if identified, was willful (except for the fourth question).

These four questions are phrased in a non-judgmental form, but they do show that the jury considers these questions at least potentially relevant to its decision, though they are all irrelevant to the substance of the case. At best the jury could draw some conclusions from answers to these questions concerning the credibility of lawyers and witnesses. For example, Apple denied Google's involvement (while highlighting an indemnification agreement with Samsung, which contradicts Apple's own denial of Google's key role), so if the jury was now pointed to evidence that Steve Jobs sued device makers (like HTC initially) as a means of attacking Google, it could now undermine Apple's credibility. Evidence to the contrary could undermine Samsung's credibility, obviously. But either way this does not make a patent stronger or weaker, or more or less distinguishable from the prior art. Same with Samsung's patents-in-suit, of course.

At some point the jury may also ask questions relating to the infringement and validity issues in the case. Maybe it just wanted to start with the simpler, non-technical stuff before moving on to the decisive technical issues.

I now understand from tweets bearing the #appsung hashtag that Judge Koh will tell the jury they can just consider the evidence they have and not ask for other evidence. So the jury won't get the answers it hoped for. And it probably won't find them in the evidence it has available.

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:

Workarounds: When will the first mass media report on Apple v. Samsung II discuss the real issue?

The jury began its deliberations yesterday, and since it has not handed down a verdict on the same day, there is hope that it may be more thoughtful (or, at least, less thoughtless) than the 2012 jury.

Several reporters who watched the Apple v. Samsung II trial in San Jose, California provided excellent Twitter coverage right out of the courtroom under the #appsung hashtag (the #icourt hashtag, which was more popular during the 2012 trial, has become displaced). I want to thank them for their tweets, also on behalf of those of my Twitter followers who appreciated the #appsung tweets I retweeted. Real-time coverage was great, and asynchronous web reports also provided a really good account of what was said inside the courtroom, but -- with the greatest respect -- the articles on the trial that I saw could have done more to connect the dots between the courtroom action and some other important stuff that was, for various reasons including legal restrictions, not discussed in court, yet could have been easily identified by reporters.

I'll start with a simple example before I address a more fundamental issue. If you run a Google News search now for the combination of the keywords "Apple", "Samsung", and "reexamination", you will not find any article that discusses the reexamination history of two of Apple's five patents-in-suit (the '647 "quick links" and '172 "autocomplete" patents). Reexaminations by the United States Patent and Trademark Office do, however, result in plenty of publicly-accessible documents, and since I reported on those issues here on this blog, one didn't have to go the USPTO's Public Pair (Patent Application Information Retrieval) web portal to find out about this. In case of the '647 patent, it's less of an issue because Apple's ongoing appeal relates to other claims than the one asserted in California. But in the case of the '172 patent, it's absolutely essential information that the USPTO itself now has doubts about the validity of (among many others) the claim of this patent that Apple is asserting.

The jury was not told of the fact that the USPTO recognizes the existence of a substantial new question for the patentability of the asserted '172 claim because this is not a final decision, so this is considered evidence that would cause too much prejudice to Apple's case because the jury might not understand that this is not a final invalidity ruling. However, no such restrictions apply to the media covering the trial. Judge Koh found, on summary judgment, that this patent had been infringed. This means invalidity is Samsung's sole remaining defense. The general public, regardless of questionable rules that require a court to withhold key facts from a jury, has the right to know.

The most important objective, besides reciting what is said by whom inside the courtroom, should be to help the outside world understand what the case is really about, and what practical implications for companies and consumers its outcome may have. There is often a discrepancy between the two, and there is precedent for this in connection with the Apple-Samsung dispute:

When Apple obtained from the ITC (a U.S. government agency with quasijudicial competencies) a U.S. import ban against Samsung over the '949 "Steve Jobs patent" and a hardware patent in August 2013, numerous media reported. But few gave attention to the fact that the ITC had simultaneously cleared various designarounds (workarounds) presented by Samsung: noninfringing alternatives. The worst part here is -- a dramatic #fail in Twitter lingo -- that to the best of my knowledge there was never any mass media report that looked at the actual, practical effects of the import ban, which would have been possible for more than six months (!) now as it entered into effect in early October 2013.

The fact of the matter is that Apple's widely-reported U.S. import ban has had absolutely no business implications. No consumer has noticed any change. No product has disappeared from the marketplace as a result of the ruling ahead of the end of its natural lifecycle. No sales that Samsung could otherwise have made in the U.S. were lost.

It would have been difficult to predict this outcome with certainty when the ruling came down. The ITC's clearance of Samsung's workarounds was not very detailed (because Apple didn't bring specific infringement allegations against the workarounds but merely wanted the ITC to turn a blind eye to them at that procedural stage). But after the import ban entered into force in early October 2013, any effects would have had to become identifiable -- at the latest, whenever Samsung launched new products (ITC import bans are not limited to the products accused in an investigation).

It should have given a lot more people pause -- and was not the only reason but the most important reason for which I realized during the first quarter of this year that I had overestimated the leverage Apple could ever get out of its patent infringement suits against Android devices -- that even the formal enforcement of the patent Apple's own lawyers in the "Posner case" wanted to call the "Jobs patent" had no impact. None whatsoever.

History could now repeat itself in connection with the Apple v. Samsung II trial. What the parties' lawyers were allowed to discuss with the jury in the courtroom this month was only a subset of the real issues. Whatever the jury decides will be only a milestone but not the end of the proceedings.

The 2012 verdict has not had any business impact yet either: no money has changed hands yet (pending an appeal), and no injunction was granted, and if one had been ordered and had entered into force, then we would all have had to look at how good Samsung's workarounds were. For rubberbanding, the workaround was basically a "throwout", but this feature alone (the only one of which Apple has so far established its ownership in court) won't result in a global settlement. For the tap-to-zoom-and-navigate feature, the workaround is simply to leave out the "and navigate" part, which doesn't really matter. For the '915 pinch-to-zoom API patent, I had doubts about Samsung's alleged workaround, but this will probably never be clarified because the USPTO has since rejected the patent (Apple is still appealing that one and it will take time for reexamination to play out with all the appeals, but in the meantime Samsung's appeal of the "final judgment" in the first case will be adjudicated and is reasonably likely to result in a declaration of invalidity of the asserted claim of the '915 patent).

Back from 2012 to 2014. The whole jury trial, despite Apple's out-of-this-world damages claim, is not going to change anything in strategic terms unless Samsung is ultimately forced to modify its products in ways that reduce consumer demand. The question of which workarounds are legally above-board and commercially viable without any significant effect on demand is a rather complicated technical and legal one. I don't mean to blame mass media for not having a definitive answer to this, though to me after all of my patent litigation monitoring it's clear that it just take some "copying" on Samsung's part to deal with whatever issue Apple may prevail on in this case. But I do believe it's necessary for the media to pay attention to the workaround question -- one can raise and discuss a question without claiming to have a definitive answer -- after the verdict comes down, should there be any liability findings.

Those reporting and/or commenting on the verdict should keep a few workaround-related facts in mind that can be reasonably easily researched and understood:

  • The verdict form itself reflects the fact that there are products in this case against which Apple is not even asserting its slide-to-unlock patent, such as the Note 2. Therefore, Samsung just needs to "copy" its own alternative slide-to-unlock implementations from those newer products to be legally safe. And there is no sign that those products were less in demand than the earlier ones that the jury might (without necessarily being unreasonable) find to have infringed the asserted patent claim a long time ago.

    (Should Apple prevail on slide-to-unlock to any extent, this would contrast with the fact that all ten European judges who looked at the European member of the same patent family did not deem the claimed invention patentworthy. But reports on U.S. lawsuits and rulings rarely ever refer to related international cases, so I don't have much hope that this fact would be highlighted anywhere else than on this blog.)

  • On Friday, it didn't take long (after this blog was first to highlight the issue because I had been following the "Posner case" in detail over the years) before the appeals court ruling affirming Judge Posner's claim construction of the '647 patent was discussed everywhere, and that was good. Considering what a mess the Monday testimony and lawyer argument on the effect of the new claim construction was (because, frankly, both parties had previously hedged their bets as they didn't know what the appeals court would do), the jury is probably now very confused about it (and Judge Koh did the right thing by denying both parties' motions for judgment as a matter of law since there are reasonable arguments for and against infringement, for and against validity). But there can be no confusion about the fact that Judge Posner himself had outlined a workaround for the '647 patent based on his claim construction, which now also governs the California case:

    "[...] inventing around the '647 patent by reprogramming Motorola's smartphones to avoid at least one claim limitation, for example by simply creating copies of the code that performs structure detection and linking for each particular program rather than using a common code module for all programs, because if there is no common code there is no 'analyzer server,' as required by the patent claim."

  • Apple itself has not claimed that its more recent products practice the other three asserted patent claims. It based its "practice" argument completely on past products, partly on prototypes that were never actually sold. I very much like the headline of this CNET article by Shara Tibken: "Samsung to jury: You can't copy iPhone features that aren't in the iPhone" That is a key message by Samsung based on everything I read about the trial and in the build-up to it. Copying is, however, just a question of what was done in the past. With a view to the future, the fact Apple itself does not even claim that its current products practice three of the asserted claims also means that Apple's own products provide blueprints for workarounds that are doing very well in the U.S. market.

Only because the nature of this lawsuit is backwards-oriented -- it's not even about last year's products but even older ones --, those who report and comment on the case and its implications don't have to be completely backwards-oriented, too. The real issue in this rapidly-evolving market is what effects the case will have going forward. The name of the game is whether a patent claim that proves valid and is held to have been infringed at some point in the past really gives its owner any strategic leverage.

Remember that here is an ITC import ban in force and effect over the vaunted "Steve Jobs patent", and so far its business impact has been zero (and Friday's appeals court ruling involving this patent in connection with another case does not provide any indication that the patent could not be worked around in the way in which Samsung has already worked around it). With the benefit of 2020 hindsight, there was much ado about nothing when the decision came down. This blog at least pointed out (in its headline, about 15 minutes after the ITC published its ruling) that workarounds were the key question.

No report on the upcoming jury verdict will be incorrect per se if it just talks about whatever findings of past infringement -- over pre-2013 products -- there may be. Workarounds are nevertheless the name of the game. For definitive clarity on workarounds, there must be injunctive relief (such as in the ITC case), it must be actually enforced, products must enter the market after enforcement begins, and there must not be an enforcement proceeding (in federal court, that would usually start with a contempt motion) that casts doubt on whether a workaround that is sold is legally acceptable (or, if there is an enforcement dispute, it must be adjudicated). That will take time. But the question of whether the verdict matters is a legitimate one the moment it comes down. And that question necessarily involves workarounds.

Even the reasonableness of a damages award cannot be assessed without looking at viable workarounds. If a patent can be worked around in ways that still allow a defendant to provide the relevant feature to consumers, it's worth much less than whatever responses a study, such as the Dr. Hauser conjoint survey, may elicit from respondents based on the alleged desirability of a particular feature. Ownership of a patent does not necessarily mean ownership of any particular feature. If that difference didn't exist, the Apple v. Samsung II trial would never have had to be held because Apple would have had enough leverage (possibly even prior to having to bring any litigation) long ago.

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:

Tuesday, April 29, 2014

EU settles SEP antitrust case with Samsung, declines to fine Google's Motorola Mobility

While Apple's ongoing smartphone patent disputes with Samsung and Google's Motorola Mobility haven't been settled yet, the antitrust matters relating to those companies' assertions of standard-essential patents (SEPs) against Apple have now been resolved by regulators on different continents. After the closing of the investigations by the United States Department of Justice (DoJ) of Samsung and Google's (Motorola Mobility's) conduct, and the Korea Fair Trade Commission's investigation of Samsung's SEP assertions against Apple, the European Commission has now made its decisions in the related cases as well:

  • The EU's top antitrust enforcer has made a settlement offer by Samsung "legally binding under EU antitrust rules". I had harshly criticized Samsung's original proposal in October 2013 and was not surprised that the Commission later recognized a need for further improvement, but some very important progress has been made since. The part that mattered most to me at the time has been addressed: according to the announcement, a FRAND determination will be made by a court of law if only one of the two parties (Samsung or an implementer of a standard) prefers judicial determination over arbitration. I was against a framework under which arbitration would be the rule and judicial determination an exception. I'm very happy about the fact that arbitration is now subject to mutual consent.

    Samsung had already dropped its European SEP-related injunction requests in December 2012, which was a win for the EU (while reserving the right to seek damages over SEPs and any remedies, including injunctions, over non-SEPs). It won't seek any SEP-based injunctions in Europe for the next five years against those who agree to a particular framework that will result in a license agreement. The parties will negotiate for up to 12 months, and if no agreement is reached, the license terms will be determined by a court (if one party prefers) or an arbitrator (if both agree). This means Apple will have to pay SEP royalties to Samsung, but Samsung won't be able to force Apple to accept any particular licensing terms at the threat of injunctive relief.

    Since this is a settlement, there are no sanctions against Samsung, just like there haven't been any in the U.S. or Korea either. Samsung had sought SEP-based injunctions in Europe, but it never won any, despite attempts in several countries. If it had been more successful with its SEP enforcement in Europe, then it would now have had a harder time settling the antitrust matter.

  • No sanctions were imposed on Google's Motorola Mobility either, but it has been "ordered to eliminate the negative effects resulting from" its pursuit and (very temporary) enforcement of injunctive relief against Apple in Germany. Those negative effects are, as far as I can see, limited to a license agreement that Apple was forced to enter into and that contains clauses that the European Commission deems anticompetitive, particularly that Apple had to "give up its rights to challenge the validity or infringement by Apple's mobile devices of Motorola SEPs".

    The good news for Google is that "[t]he Commission decided not to impose a fine on Motorola in view of the fact that there is no case-law by the European Union Courts dealing with the legality under Article 102 TFEU of SEP-based injunctions and that national courts have so far reached diverging conclusions on this question". But this is not nearly as bad for defendants against SEP-based injunction requests as it may seem at first sight: it's just that the European Commission won't try to impose its perspective on SEP injunctions on the whole of Europe while Europe's highest court, the Court of Justice of the EU, is looking into this in connection with a Huawei v. ZTE case. Clarity and EU-wide harmonization may very well be provided as a result of that case. This would have been the wrong time for the Commission to set EU-wide rules in an area in which national courts have divergent approaches.

    The Commission today also published a Q&A document on these SEP-related decisions, which among other things explains the bearing the Motorola prohibition decision may have on the application of the Orange-Book-Standard framework by German courts. The Commission notes that Orange Book did not relate to SEPs (in fact, it was a compulsory licensing case, but in my opinion it was a SEP case, just not a case involving FRAND-pledged SEPs). In any event, the Commission's Motorola decision makes clear that it would be anticompetitive to require a "willing licensee" (a term that different people interpret in different ways) to waive the right to "challenge the validity, infringement and essentiality of the SEPs in question". Certain German courts had expected defendants to give up fundamental rights like these, and will probably not do so anymore unless the CJEU opinion in Huawei v. ZTE opens the floodgates for such terms and conditions.

The Samsung case is definitely over now. Google's Motorola Mobility could appeal the Commission decision. Also, no decision (not even a preliminary ruling) has come down yet in connection with Motorola Mobility's pursuit of SEP-based injunctive relief against Microsoft in Europe.

For both Samsung and Google, today's news is really good news, and it comes at an opportune time.

Later today, or first thing tomorrow, the Apple v. Samsung II jury will begin its deliberations. Jurors are not allowed to inform themselves about the dispute in the media, but in the public debate (which is the key battlefield here because Apple's patent claims-in-suit won't give it serious strategic leverage no matter the outcome), the fact that Samsung had not been sanctioned by any of three antitrust regulators investigating its potential wrongdoing clearly helps the global market leader defend its reputation.

For Google the timing is good because it soon wants to close the sale of Motorola Mobility's devices business to Lenovo. It now knows that there are not going to be any sanctions over its SEP assertions against Apple. Since Google will retain most of Motorola Mobility's patents anyway, the antitrust matter was basically just Google's, not Lenovo's, problem. Still it helps to clear up a mess before a major transaction is consummated.

It is now in the eye of the beholder whether the reason is that Samsung and Motorola Mobility's conduct had not been "that bad", that these companies' (in-house and outside) lawyers did a great job at dissuading antitrust regulators from imposing sanctions, or that regulators ultimately didn't have the resolve to act more decisively. In my opinion, the first two theories hold some truth, but the third one is a non-issue. I believe the Commission didn't really have a practical alternative to (as it now has) leaving the harmonization of European SEP injunction law to the EU's highest court.

Without Huawei v. ZTE pending before the CJEU, I would have criticized the Commission today. But against that background I think today's decisions were the right ones. Also, as I wrote yesterday, Apple's own conduct vis-à-vis Samsung and Motorola Mobility is, to put it diplomatically, neither perfectly consistent nor overly constructive, and antitrust regulators (as well as judges) can see that easily. Of course, the Commission could have taken forceful measures against Samsung and Google if it had been willing to take the risk of the CJEU's Huawei v. ZTE opinion potentially rendering its decisions wrong in the near term. But that would have made sense only in a situation in which it would have been necessary to take that risk of an embarrassment in order to defend a major cause or to protect someone who really needed help. There was no risk of competitive harm between now and the resolution of the CJEU case, and it's hard to see why Apple couldn't or shouldn't pay court-determined (or, if mutually agreed-upon, arbitrated) SEP royalties to Samsung and Google.

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:

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...

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:

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.

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:

Saturday, April 26, 2014

Copying is all that Samsung needs to do in order to work around four of Apple's five patents-in-suit

Apple's "copying" accusations against Samsung have over the years degenerated into a red herring. In 2011 I truly admired the coherent and compelling fashion in which Apple's lawyers told a complex copycat story in their original complaint against Samsung over a diversity of intellectual property rights. And I thought Samsung responded to it in a very smart way, countering Apple's copying mantra with a competition mantra:

"The Samsung Defendants admit that they have not ceased competing with Apple notwithstanding Apple's efforts to avoid such competition."

The original lawsuit and certain related lawsuits in other jurisdictions undoubtedly had a positive effect on product differentiation at a visual, physical level: Samsung's Galaxy products are much more distinguishable now from the iPhone and iPad than they used to be. I believe Samsung still owes Apple money for past design patent infringement, as I also pointed out earlier this month when I outlined the terms on which I believe they should settle.

But more than three years after the original complaint (which went to trial in 2012), Apple's enforcement efforts have more to do with avoiding competition than with discouraging copying. As counterintuitive as it may be, the patent claims Apple selected for the ongoing California lawsuit actually encourage copying because copying would result in workarounds -- non-infringing alternatives -- for at least four of the five patents-in-suit (and the fifth one is just slide-to-unlock, which can be worked around in numerous other ways; Apple is not even accusing such devices as the Note 2 of infringement of that patent). In one case (the '647 "quick links" patent), Samsung and Google would have to copy certain Android code into applications, and in three other cases, Samsung and Google would be in the clear with products resembling more closely the way Apple implements the related features.

That fact contrasts with Apple's continuing smear campaign against Samsung's alleged copying, including a questionable Earth Day ad that some people on the Internet speculated might have been run purposely during the ongoing trial. Things like that don't get funnier or more accurate with the passage of time. Quite the contrary.

Apple has achieved visual differentiation with its enforcement efforts, and that's positive. But it has been unable to ensure functional differentiation apart from rubberbanding. As a result, its market share continues to erode. I was impressed by the iPhone sales figures Apple reported this week (though the iPad did not do too wel). However, even at that rate, Apple continues to lose market share. Tomi Ahonen (with whom I don't always agree) pointed out that "[y]es, iPhone sales are up from this same period one year ago but that is up only 20% while the industry grew neary twice as much at over 35% in the same period" and he rightly asks where "THAT story" is. I also tend to agree with BGC analyst Colin Gibbs who sees "Apple as a provider of premium priced electronics, a lucrative market but one that may not sustain its current market valuation [...] in the years ahead".

Maybe Apple believes it can slow down the erosion of its market share by making Samsung out to be a copyist, just to make its own customers feel better for buying the original thing. This may work with a certain, impressionable audience. Those who look more closely at what kinds of intellectual property rights Apple is actually asserting can easily see that Apple v. Samsung II is just about an attempt to win some infringement findings regardless of whether there is actual copying involved -- and even if a "win" would actually encourage copying.

There are two kinds of copying here that can result in non-infringing alternatives (should Samsung's current technologies be found to infringe, despite reasonably good non-infringement and invalidity theories): copying Apple and copying Google.

As for the first category, Apple was not off to a great start in this new trial when the first major controversy related not to whether Samsung infringed Apple's patents but to whether Apple itself even practiced certain of the asserted patent claims. Apple would have liked to argue (which I thought was a reasonable plan) with respect to the three of its patents that its current products practice different claims than the asserted ones, but still certain claims of those patents. But as far as the actually-asserted claims of those three patents are concerned, Apple just argued that it practiced them in the past (partly not even in products that were ever sold, and Samsung disputed everything). This means that Samsung would avoid infringing those three actually-asserted claims by implementing the related features just the way Apple's more recent products do. Copying as a recipe for non-infringement.

If Samsung did that, Apple could assert other claims of the same patents, but it would have to bring a whole new lawsuit for that purpose, which would take time. In that case, Apple would have to assert broader claims, and broader claims are more susceptible to invalidation challenges, which is why in at least one case (the '414 synchronization patent) Judge Koh had indicated to Apple that a broader originally-asserted claim would have been invalidated at the summary judgment stage.

A lot of people out there may have misconceptions about the significance of an infringement finding. If an infringement finding is a thing of the past and the defendant can simply work around the asserted claim going forward, then the only remedy is damages for past infringement -- but there is no strategic leverage to gain from past-infringement damages in a dispute between the global market leader and the original category creator, as opposed to a lawsuit brought by a patent assertion entity against an operating company where the only objective is to extract a settlement.

There's a difference between symbolic and strategic wins, and Apple appears to have prioritized the probability of symbolic wins over the possibility of having serious business impact.

Software patent infringement allegations are rarely due to copying (in which case one can assert copyright, which is what Oracle, unlike Apple, is doing against Google) but to independent authorship that may or may not be inspired by seeing a certain feature somewhere. And in connection with operating system patents, a workaround often consists in simply copying over certain program code from the operating system level to the application level.

Yesterday, when everyone thought Apple and Samsung were done presenting evidence at this trial, the United States Court of Appeals for the Federal Circuit handed down a ruling that contains some really good stuff for Apple in its dispute with Motorola -- and for other defendants against FRAND-pledged standard-essential patents, a fact that I'm very happy about -- but also defanged and devalued the '647 "quick links" patent. The appeals court affirmed Judge Posner's claim construction of the '647 patent (almost the only thing, other than his "no injunction over FRAND SEPs" determination, that was affirmed). Based on that narrower interpretation of the patent, it's possible to work around it by simply copying and compiling the structure detection and link generation code from the operating system (the Android Linkify library) to the applications that make use of it. This is the recipe for a workaround that Judge Posner himself provided two years ago (based on his claim construction, as opposed to the broader one that Judge Koh allowed Apple to base its infringement argument on):

"[...] inventing around the '647 patent by reprogramming Motorola's smartphones to avoid at least one claim limitation, for example by simply creating copies of the code that performs structure detection and linking for each particular program rather than using a common code module for all programs, because if there is no common code there is no 'analyzer server,' as required by the patent claim."

(first emphasis added, second in original)

Against that background, Apple only asked for 60 cents per device from Motorola (which still seemed too much for Judge Posner, though not for the appeals court), less than one-twentieth of its per-unit damages demand from Samsung in the current case, in which Apple pursued a broader claim construction that enabled it to claim ownership of the whole feature as opposed to a particular internal architecture that can be avoided.

The Federal Circuit stresses that, as Judge Posner recognized, "the plain meaning of 'server,' when viewed from the perspective of a person of ordinary skill in the art, entails a client-server relationship", and points to Fig. 1 of the patent specification, which shows an analyzer server as a separate module (item 165, "program of the present invention") from the "application" (item 167). The Federal Circuit declined to adopt Apple's proposal to render the term "server" meaningless.

Defanged: the patent can be worked around now, so any finding of past infringement is not going to hurt Samsung and Google in the future. Devalued: on this basis, Apple expert Dr. Hauser's feature-focused conjoint analysis was not the way to arrive at an accurate valuation of the '647 patent, as Apple's own 60-cent claim in the Motorola case shows.

Prior to the Federal Circuit claim construction ruling, I thought it might take a long time to find out how strong that patent is. Now its limits are pretty clear. In this case, copying (Google's own code) is the solution. A solution that Judge Posner outlined but didn't (and couldn't) patent.

There will be some more expert testimony on the '647 patent on Monday, and it's not impossible that Apple will be able to present a good infringement theory even based on the narrower interpretation of the patent. But past infringement findings are not the name of the strategy game.

The whole Apple v. Samsung II story is not just a disappointing sequel. It increasingly looks like a modern-day version of The Emperor's New Clothes. A lot of people may think Samsung is doomed should the jury (despite pretty good defenses) identify past infringements because they don't understand that the name of the game is to assert patent claims that can't be worked around without serious commercial implications. But reasonably informed people won't be impressed.

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:

Friday, April 25, 2014

Appeals court deals Apple's current case against Samsung a massive blow: key patent devalued

There's an amazing development with respect to the ongoing Apple v. Samsung trial that suggests to me the court should drop Apple's '647 "quick links" patent from the verdict form before jury deliberations begin on Monday. [Update] The patent won't be dropped, but there will be new testimony next week, see Update 3 further below. [/Update]

Basically, before Samsung even got to file an appeal, it has already won its appeal against the patent that Apple considered to be the most valuable one in the current trial (or, more precisely, Google's Motorola Mobility has won that part of the appeal, but Samsung benefits -- and Samsung and Google's Motorola are being represented against Apple by the same firm, Quinn Emanuel).

As recently as on April 11 (in a motion for judgment as a matter of law that Judge Koh denied), Samsung told Judge Koh that "Apple is bound by these [Judge Posner's] constructions by collateral estoppel". On March 27, Samsung had brought a motion to include Judge Posner's constructions in the jurybooks, which Judge Koh denied the following day.

Judge Koh was wrong and Samsung was right. Judge Koh allowed Apple to base its infringement arguments on a claim construction of the '647 patent that was too broad, and on that basis, Apple demanded 20 times more money from Samsung in the ongoing trial ($12.49 per unit for this patent alone, more than 30% of a total claim of $40 per device) than from Motorola Mobility ($.60) in Chicago. Samsung's counsel had argued all along that Apple should be bound to Judge Posner's 2012 claim construction in Apple v. Motorola. Judge Koh again and again disagreed. Now she has a problem, and the only reasonable solution I can see is that the '647 patent be withdrawn from the current case because Apple's infringement argument and its damages claim, both erroneously supported by Judge Koh, were based on a wrong claim construction.

This would also mean that Apple's damages claim would have to be reduced by about a third.

7.5 months after the hearing, the United States Court of Appeals for the Federal Circuit finally handed down its opinion (95 pages including the dissenting opinions) on the "Posner appeal". The Chicago trial that was canceled in 2012 will take place, Judge Posner's denial of an injunction over a FRAND-pledged standard-essential patent (SEP) was affirmed by the majority of the panel (though Chief Judge Rader disagreed), and there are other interesting effects. Also, I think it's quite likely that an en banc rehearing will be requested on some of the issues, and one or more issues might even go all the way up to the Supreme Court. But for now, the key thing is that the Federal Circuit has affirmed Judge Posner's construction of the '647 "quick links" (I usually called it "data tapping") patent:

"Apple's '647 Patent

Regarding Apple's '647 patent, the parties dispute the meaning of the claim terms 'analyzer server' and 'linking actions to the detected structures.' The district court construed 'analyzer server' as 'a server routine separate from a client that receives data having structures from the client' and 'linking actions to the detected structures' as 'creating a specified connection between each detected structure and at least one computer subroutine that causes the CPU to perform a sequence of operations on that detected structure.' Apple argues that both constructions are erroneous. We disagree with Apple and affirm the district court's claim construction.


Based on Judge Posner's claim construction, even Apple itself only demanded 60 cents per device from Motorola Mobility because it was forced to recognize that the patent was cheap and easy to work around. Even the 60-cent amount was too high in Judge Posner's opinion. The Federal Circuit has now allowed Apple to present that damages claim to a jury. Apple can also seek an injunction, but the patent, as construed by Judge Posner and affirmed by the Federal Circuit, will be easy to work around, so the impact of an injunction will be negligible.

There's a lot of good stuff in today's appellate ruling for Apple with respect to its dispute with Google/Motorola Mobility. But with a view to the ongoing Samsung trial, this is the worst thing that possibly could have happened to Apple's case.

Earlier today I wrote that Apple won't get any serious value out of a patent ruling based on patent claims of a sub-feature scope. Apple's slide-to-unlock patent doesn't cover all slide-to-unlock. Three other patent claims-in-suit are not even practiced by Apple's current products. Only with respect to the '647 patent I wrote that "it may take some time before the scope of the '647 patent is really clear, but even in a best-case scenario for Apple, this patent (of which I haven't found any international equivalent) can only give Apple some limited leverage in the U.S. market, which is not enough to settle a global dispute". It didn't take long. Only a few hours after that post of mine, the Federal Circuit has devalued the patent that Apple itself considered the commercially most valuable one in the ongoing California trial.

Here's what Judge Posner wrote two years ago about how easy and cheap it is to work around the patent based on his claim construction (which now also governs, after the Federal Circuit ruling, the California case):

"[...] or by inventing around, such as inventing around the '263 [a different patent in the "Posner case"], which, because of the deficiencies of Napper's expert report, I cannot conclude would be expensive, or inventing around the '647 patent by reprogramming Motorola’s smartphones to avoid at least one claim limitation, for example by simply creating copies of the code that performs structure detection and linking for each particular program rather than using a common code module for all programs, because if there is no common code there is no 'analyzer server,' as required by the patent claim."

The "server" is the key thing that now affects the California case. And if the patent can be worked around at a rather limited cost, then Apple can't seek $12.49 per device in past damages, and it can't get serious leverage out of an injunction. This patent has just been defanged and devalued.

The timing of the appeals court's decision -- so shortly before jury deliberations -- makes this all the more interesting. I'm sure the Federal Circuit was aware of the ongoing California litigation over the '647 patent. Samsung had urged Judge Koh to use Judge Posner's claim construction. Now she doesn't have any choice anymore, and a lot of time and money was literally wasted at the ongoing trial on this patent because Judge Koh didn't construe it the way she should have.

I will also blog about the other parts of the decision in the "Posner appeal". But this part here is the one that has the most immediate effect.

[Update] Shortly after this post I saw tweets from the courtroom in San Jose that counsel was discussing this issue with Judge Koh. According to CNET's Shara Tibken, "[Judge] Koh says she's frustrated because this could 'potentially blow up what we've already done with this jury for a month.'" MLex's Mike Swift reports that the '647 patent will apparently stay in the case, but new testimony may be necessary on Monday. And Martyn Williams of the IDG News Service wrote on Twitter that closing arguments, originally scheduled for Monday, "could slip to Tuesday as a result of [the appeals court's decision on the '647 patent]". [/Update]

[Update 2] It looks like there will just be some further testimony regarding the '647 patent, but it will be considered by the jury. In that event, however, I believe the jury should be told that Apple itself demanded only 60 cents per device from Motorola based on the correct claim construction. [/Update 2]

[Update 3] CNET's Shara Tibken has reported on this issue and, as she also said on Twitter, "[b]oth sides will get more time Monday to present expert witness testimony." [/Update 3]

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: