Wednesday, May 27, 2015

U.S. Dept. of Justice finds Google's Supreme Court petition in Oracle case flawed, recommends denial

The Obama Administration may open its doors to Google more frequently than to any other IT company, but it doesn't buy absurdities from Mountain View. It's good news for software developers that the Solicitor General of the United States (the top lawyer representing the U.S. government before the Supreme Court and number two official at the Department of Justice) opposes Google's petition for writ of certiorari (Supreme Court review) in Oracle's Android-Java copyright infringement case. The high court had asked the government to inform it of the views of the United States. From the beginning I attributed that request to Google's amicus brief campaign, which changes nothing about the deafening silence from the software industry at large, rather than anything substantive.

As for substance, or more precisely the lack thereof, these two quotes say it all:

"That argument lacks merit." (referring not to a limited portion of Google's petition but to the essence of Google's statutory argument)

"[Google]'s Section 102(b) argument also suffers from a broader flaw." (this sentence transitions from the Administration's rejection of Google's suggestion that declaring code is inherently more functional and less expressive than implementing code to the DoJ's agreement with Oracle's lawyers on the purpose of Section 102(b))

Even worse for Google, the DoJ's filing also contains a statement that is damning for its "fair use" argument:

"The Android platform uses the Java programming language, but [Google] purposely designed Android not to be compatible with the Java platform or interoperable with Java programs."

While the filing does say that certain of Google's arguments are relevant to the "fair use" analysis that should be the next step in the DoJ's opinion, relevance is different from merit. Interoperability is generally relevant to fair use. I don't know anyone who would disagree. But the U.S. government has also concluded that Google can't make a "fair use" argument based on compatibility or interoperability because of the specifics of this case.

Even in commenting on the Solicitor General's filing, Google simply ignores the fact that Android was designed not to be interoperable with Java programs. quotes Google on the DoJ filing with the following sentence:

“We still look forward to defending the concepts of interoperability that have traditionally contributed to innovation in the software industry."

Good luck trying to "defend[] the concepts of interoperability" when everyone including the U.S. government has already figured out that there is no interoperability case (unless one stretches the meaning of the term to a nonsensical extent).

The timing of the DoJ's filing enables the Supreme Court to make a decision on Google's cert petition next month, before the summer break. The court will give significant weight to the views of the U.S. government but is free to hear the case regardless. While the outcome is not predictable, denial would be the best thing that could happen from a software developer's point of view and the DoJ's input makes it more likely for two reasons:

  1. The DoJ completely dismantles Google's Section 102(b) argument. In particular, it rejects the notion that declaring code (headers) should be less copyrightable than implementing code:

    "Both declaring code and implementing code ultimately perform the same practical function: They instruct a computer to work. The declaring code tells the computer to call up the implementing code, and the implementing code tells the computer to perform an operation, such as executing a sorting algorithm."

    Actually, declaring code may be even more copyrightable:

    "Declaring code may be one step further removed than implementing code from the ultimate operation that a computer performs."

    Very importantly, the Solicitor General agrees with Oracle's counsel on appeal, Orrick's Joshua Rosenkranz, who had said at the appellate hearing that Section 102(b) does not limit copyrightability according to Section 102(a) but the scope of the rights conferred:

    "The basic purpose of Section 102(b), however, is not to distinguish between copyrightable and uncopyrightable portions of a larger work of authorship, but rather to distinguish between the work of authorship itself and something else—be it an idea, a process, or a method of operation—that the work of authorship describes or explains."

    In this post, published between the Federal Circuit hearing and the opinion, I described this as follows:

    In a nutshell, §102 a giveth (defines what is copyrightable) and §102 b taketh away (defines what copyright does not extend to), but not in the sense of a straightforward subtraction: it's more like §102 a defining what types of works are copyrightable and §102 b ensuring that enforcement doesn't reach further beyond. For example, you get a copyright on a cookbook under §102 a, but §102 b ensures that you can't use that copyright and sue everyone who cooks a meal according to your book. For software, it means creative code (including declaring code) is copyrightable, but you can't assert broad patent-like monopoly rights later over methods of operation.

    Google's counsel misrepresented Oracle's position on copyrightability by saying that "the basic structure of the copyright statute is you have (a) and (b), and they're proceeding as though (b) doesn't even exist -- they're saying 'if it's creative under (a), boom, you're home.'" Circuit Judge O'Malley contradicted immediately and firmly: "I don't think that's what they're saying at all. No. They're just saying that a method of operation [which copyright does not extend to] should be looked at at a more abstract level." She got this so right: contrary to Google's counsel's representations, Oracle does not want to use copyright to monopolize abstract concepts such as the idea of having a function that determines the greater of two numbers -- Oracle just claims copyright in a body of work that involves in this case many thousands of lines of highly creative declaring code, which is concrete and not abstract. It's about specific expression, not about high-level concepts and algorithms.

  2. As I said before, the Supreme Court might already have rejected Google's cert petition if not for the well-orchestrated but duplicative, echo chamber-like amicus brief campaign. The amicus curiae briefs all suggested that there was a huge public interest issue at stake here. But without a very few exceptions that had their specific reasons to side with Google on this one, software companies are on Oracle's side. They elected not to speak out at the cert stage (though I don't have the slightest doubt they would if the petition was granted). The court couldn't have sent a letter to the likes of Apple, Microsoft and IBM about this, so it asked the U.S. government, which is in frequent contact with leading industry players and presumably also received, solicited or unsolicited, input on this from key U.S. companies.

A couple more things. The U.S. government agrees with Oracle that Google's petition is premature because its "fair use" defense has not been adjudicated yet. When Oracle made this argument, I said that this is not a key consideration for the Supreme Court, but I take note of the fact that the DoJ does view this as an additional reason to decline Google's petition. The DoJ's final point is about the suitability of this case for a first Supreme Court ruling on the application of §102 to computer software:

"[T]he parties and the courts below have devoted considerable attention to questions—such as the distinction between declaring code and implementing code, the technical significance of various features of the Java Standard Library, and the degree to which Java programmers possess familiarity with [Oracle]'s prewritten methods—that may have little significance in more common disputes. The [Supreme] Court's resolution of this case therefore might not cast meaningful light on the proper resolution of more typical copyright infringement cases involving computer programs."

I've said it before that the only way the Supreme Court could ultimately rule in Google's favor here would wreak havoc to software copyright as a whole. Even just a decision to hear the case would be an undesirable development at a time when patent protection for computer software faces growing uncertainty. But if I was wrong and there could be a narrow ruling in Google's favor, it wouldn't be helpful because this case is simply not representative of the cases that usually involve software copyrightability questions.

Whom has Google convinced so far? Apart from its network of friends, and their friends' friends, just a single district judge. Three IP-specialized appellate judges unanimously overturned that erroneous decision. And now the U.S. government also agrees with Oracle that the judge in California had made a mistake.

[Update] Below please find a copy of the Solicitor General's brief expressing the views of the United States.

15-05-26 SG Views on Google's Certiorari Petition by Florian Mueller


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Thursday, May 21, 2015

Nokia and Ericsson seek to justify their privateering ways, defend patent transfers to NPEs

The debate over privateering (patent transfers by large operating companies to so-called non-producing entities or patent assertion entities) is in full swing, and it will be with us for a while. The week before last I made a call for input in an effort to build a smartphone-related privateering directory. This week, IAM (Intellectual Asset Management) magazine politely disagreed with my approach, and I respectfully disagree with them.

At the heart of that disagreement is the question of whether infringers unwilling to take a license are the real issue. IAM thinks so; I don't. When the "smartphone patent wars" started in 2010, and in the following two to three years, I also believed that more companies should take licenses and felt that certain right holders had a reasonable basis for asserting their IP in court. But what has come out of all those lawsuits so far does not support claims of massive patent violations: most smartphone patent lawsuits go nowhere and even the few assertions that do succeed usually don't have meaningful results. in this field of technology (which is a large one because smartphones are highly multifunctional) I can now understand each and every defendant who isn't impressed by claims to infringe many patents held by someone. I wouldn't have thought back in 2010 that Motorola still hasn't felt forced to take an Android patent license from Microsoft after four and a half years of crossjurisdictional litigation. But that's the way it is (unless there's a reversal of fortunes down the road) and I can't blame others for "doing a Motorola" when they face royalty demands.

Smartphone patent assertions are so vastly unsuccessful that I've arrived at the conclusion the term "intellectual property" is a propagandistic misnomer for smartphone patents. I still like IP as a term for patents in a field where the system may work, for copyright, for trademarks, and for certain other categories of rights that are reasonably reliable. IPRs will never come with the degree of legal certainty that real property provides and I understand that. However, when the vast majority of assertions turn out meritless and the few that have merit in a formalistic, legalistic sense are still unimpressive from a technical/commercial point of view, transaction costs are totally out of proportion and the value of most of those patents is not in the "innovation" they allegedly protect but in the ability to force someone to spend money on legal defense and in the off-chance that one of the asserted patents may beat the odds and have some real impact in the end.

Most right holders and IP professionals still claim that patents, even smartphone-related patents, should be treated like real property, but Congress wouldn't be looking at the reform proposals that are currently on the table if lawmakers truly believed that the patent system was all about the legitimate protection of innovation. No one would seriously make similar proposals with respect to real property. It's just for political reasons that even those favoring far-reaching reform frequently repeat the mantra of how beneficial the patent system is to innovation. Saying the opposite would be unwise with a view to international trade negotiations and would draw massive protest from various large organizations. But when even the largest and most well-known companies in the smartphone industry fail with most of their patent assertions, something is fundamentally wrong, the system is increasingly detached from the notion of protecting true innovators, and more reform is needed.

Just like patent enforcement is structurally different from the enforcement of real property rights, it also makes sense to treat (at least in this field of technology) patent transfers differently from other asset sales.

Nokia and Ericsson have issued statements to IAM (cited in the blog post I linked to in the first paragraph) on their patent transfers to patent assertion entities (PAEs). They basically told IAM that those deals are beneficial, but they don't explain why companies with such vast resources and enormous sophistication (in-house and externally, in legal and in technical respects) need help from little guys with a controversial business model to do license deals with the very same licensees with which they've already done deals before and do deals with all the time.

They also fail to explain why a number of major right holders generally don't sell patents to PAEs. For example, I'm not aware of Qualcomm doing this. Or IBM (all the IBM patent sales I know about were to operating companies such as Google and Twitter). Or even Microsoft. While Microsoft has been criticized by some for providing funding for the Nokia-Mosaid deal, for the way it structured its acquisition of Nokia's wireless devices business (sort of a "reverse privateering" deal) and for funding Intellectual Ventures even at a time when almost everyone else in the industry didn't want to be associated with it anymore, even Microsoft's critics can't deny that it has built an enormously successful licensing business with well over 1,000 licensees--and it runs this business itself, without having to transfer patents to trolls.

Privateering is a huge and important issue, and there's no way to discuss all of its aspects in one post. For the remainder of this post I just want to comment quickly on a few things Nokia and Ericsson said in their statements:

  • Both companies say the acquirers of their SEPs (to the extent that SEPs are involved) have to fulfill their FRAND licensing commitments. The problem is not that the acquirers would claim the patents weren't encumbered. The key issue is that those companies have previously taken positions on the royalty rate for their portfolios. For example, on page 3 of this American Bar Association Document you can see that Nokia and Ericsson publicly announced a 4G (LTE) royalty rate of 1.5% each. But when such right holders sell parts of their portfolio to third parties, there's no longer a guarantee that the collective royalty demand implementers of the standard will face about the patents presently and formerly held by the respective right holder would still not exceed that limit. If a plurality of patent holders of what used to be a single portfolio makes a collective demand that is not FRAND, privateering becomes a means of circumventing or vitiating FRAND licensing obligations.

  • Nokia touts its "relatively young portfolio" and continuing innovation but it has far fewer engineers on staff than it had a few years ago and in its dispute with HTC I saw it assert mostly very old patents.

  • Nokia claims that "the majority [of its patent divestments in recent years] have been to operating companies." That means they must have sold patents to many operating companies since at least ten deals with PAEs are documented. But the only Nokia patent sale to an operating company that I can find on Google is that certain design (not technical) patents were given to Microsoft along with the handset business. So the other deals are either secretive or they aren't talked about because it's the deals with PAEs that raise issues. Even if Nokia had publicly announced patent tranfers to hundreds of operating companies, that fact still wouldn't justify privateering in the slighest.

    (As for transparency, IAM says Nokia and Ericsson have been more transparent than, for example, BT. I don't see any indication for that. It's just that BT transferred patents to privately held entities, which don't have to make SEC filings, unlike Unwired Planet or Mosaid. And some of the transferred patents showed up in litigation or prosecution before any announcement had been made by anyone.)

  • Ericsson says transferring patents to PAEs "is a way for innovators to get a fair return faster on their significant investment and contribution to the eco system." I could see an acceleration of a licensing business in a case where an acquirer makes a substantial upfront payment. But Unwired Planet received thousands of Ericsson patents without having to pay anything initially. Ericsson can't seriously say that this is a faster road to revenues. For example, Unwired Planet sued Samsung after Ericsson had agreed with Samsung on a new license deal. It would undoubtedly have been faster to include those patents in the deal Ericsson did with Samsung directly than to have Unwired Planet assert those patents against Samsung later.

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Monday, May 18, 2015

Appeals court finds third trial necessary in first Apple-Samsung case: $380 million in damages vacated

In early December, the United States Court of Appeals for the Federal Circuit held a hearing on Samsung's appeal of the final district court judgment awarding Apple $929 million in damages (but no injunction) in the first California case between these two parties. At the time the possibility of a third trial in this case (the original one took place in 2012 but a portion of the original damages award had to be redetermined, which was done at a 2013 retrial; this is separate from the second California Apple-Samsung case, in which a trial was held in 2014) already loomed large. And indeed, today's appellate opinion reverses the trade dress-related part of the district court ruling and, on that basis, remands the case for a new trial. A new jury will have to determine damages for all products the first jury found to have infringed an Apple trade dress: the Fascinate, Galaxy S (i9000), Galaxy S 4G, Galaxy S II Showcase (i500), Mesmerize, and Vibrant phones. The total amount of damages (these were only at issue in the 2012 retrial, not the 2013) retrial was over $380 million.

The original jury verdict only specified damages by product, but not by product and intellectual property right. That's why the total damages amount for those products must be redetermined. There's no way to simply subtract the part that related to trade dress.

The Federal Circuit agreed with Samsung that it would have been entitled to judgment as a matter of law (JMOL) on the functionality of the trade dresses on which Apple prevailed. In all other regards, such as invalidity of design and software patents, the Federal Circuit sided with Apple. This includes the controversial issue of whether even the infringement of a single design patent by a multifunctional product implementing numerous design and utility (technical) patents could entitle the right holder to a disgorgement of entire infringer's profits. 27 law professors as well as the CCIA had argued in their amicus curiae briefs that this should not be the case. The Federal Circuit dignified the law professors' submission with only a footnote:

"Amici 27 Law Professors argues that an award of a defendant's entire profits for design patent infringement makes no sense in the modern world. Those are policy arguments that should be directed to Congress. We are bound by what the statute says, irrespective of policy arguments that may be made against it."

The CCIA argument, however, was not merely based on policy. It was about the application of the term "article of manufacture" (the complete phone or just the casing) to the products at issue. That one is not addressed specifically in the appellate opinion. Interestingly, Apple's primary issue in the Ericsson patent dispute is about the proper royalty base for standard-essential patents, which Apple wants to defined narrowly in that case.

I'm not sure the law is as clearly on Apple's side with respect to design patent damages as the Federal Circuit describes it in today's decision. Samsung has two options now:

  • It can accept this opinion, in which case Apple would soon be allowed to collect approximately $547 million (the portion of the damages that the Federal Circuit affirmed) and then try to mitigate the damage at a retrial. Theoretically the third jury could award even more than the original $380+ million, but the basis for that award will be narrower (just design and software patent infringements, no trade dress), so all other things being equal (which they won't be because each jury comes up with its own approach) that portion would be reduced.

  • Samsung can further appeal this matter, at least the part on design patent damages. It can request a Federal Circuit rehearing (panel rehearing or full-court review), which would likely not change anything in this case. So Samsung might directly proceed to the filing of a petition for writ of certiorari with the Supreme Court. I don't know whether this will happen, but if Samsung did it, it would do the industry (and in the long run-as odd as it may sound--even Apple itself) a favor. I for my part hope that Samsung will try to bring this to the attention of the Supreme Court, and the Supreme Court may indeed find a way to bring the statutory rule on design patent damages in line with today's reality.

Even in the best case for Apple (in which today's appellate opinion would stand, either because there is no further appeal or because a further appeal fails), the outcome of Apple's patent enforcement efforts against Google's Android mobile operating system is a disappointment--after more than five years of trying. A few hundred millions more or less changing hands between Apple and Samsung--two companies that have over the years already done business for many billions of dollars (because of Apple purchasing various components from its Korean partner and rival--won't affect anyone's market share. By now some other Android device makers would also be interesting targets for Apple to sue if it held patents with which it could really have an impact, and what has happened so far in court suggests that it doesn't have arrows in its quiver that would really scare its rivals. At the same time Apple continues to do unbelievably well in the market, thanks to the iPhone 6.

The Federal Circuit has a couple of other Apple-Samsung appeals pending. Those two appeals relate to the second California case, in which Apple was awarded only $119 million in damages last year. Decisions have yet to issue in those cases. Apple appealed the denial of a permanent injunction in that second California case, and the Federal Circuit did not appear to be inclined to reverse Judge Lucy Koh on that one. (Apple previously lost a couple of other injunction-related appeals and withdrew the related part of the appeal adjudicated today.) In another appellate case, Samsung is challenging the liability findings in that second case, while Apple primarily wants a new trial on damages. Apple filed its opening brief last week. Samsung will then respond to that one, and Apple will get to reply to certain parts; then a hearing will be scheduled.

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Friday, May 15, 2015

Copyright in declaring API code: here's why I don't have any competition concerns (Oracle v. Google)

Reuters' Dan Levine, a world-class court reporter, has just published a story on what's going on behind the scenes of the U.S. government's decision-making ahead of its Supreme Court brief in Oracle v. Google.

Mr. Levine's article says both parties recently argued their position to the U.S. government, and a larger meeting room than usually was required because of all the government lawyers who were interested in hearing Oracle and Google's versions of the story. It's unclear why so many officials wanted to attend. Google's White House connections and overall Washington lobbying efforts are well-known. The combined relevance of the two parties to the U.S. economy (especially its most innovative part) is also beyond doubt. Such factors are completely detached from the Supreme Court's certiorari criteria, which are centered around the legal issue per se.

Reuters quotes Charles Duan from the Public Knowledge group saying that the Federal Trade Commission (FTC) and the antitrust division of the Department of Justice (DoJ) "were very interested in the competition implications of the case." Again, there's any number of reasons to be interested in a legal fight between two large Silicon Valley players, but as a software developer (a company I founded last year will launch two apps--in completely different game genres--later this year) who has spoken out on a number of information technology competition issues over the last 10+ years I don't see the slightest reason for competition enforcers to be concerned. (The article doesn't say "concerned.")

Much to the contrary, I'm concerned that the industry would become less competitive, on balance, if Google's proposed weakening of software copyright became the (new) law. There are situations in which limits to IP protection (and/or enforcement) are necessary in order to have a healthy competitive environment. I've taken that position in connection with standard-essential patents (SEPs) for years, and I believe regulatory authorities should start to take action against privateering, such as in connection with Nokia's proposed acquisition of Alcatel-Lucent. However, this here is one of the contexts in which a reasonable degree of protection and enforceability is a prerequisite for fair competition.

When thinking and talking about the competition implications of software copyright, these are the top three things to bear in mind:

  1. Software copyright is unbelievably narrow as compared to software patents.

  2. Software copyright is unbelievably narrow as compared to software patents.

  3. And don't forget: software copyright is unbelievably narrow as compared to software patents.

I have an example that involves Google with the shoe on the other foot. A year and a half ago, the Federal Patent Court of Germany narrowed a Motorola patent over which Google's Motorola had won and (for 19 months) been enforcing an injunction against Apple, and over which it tried to also obtain one against Microsoft. It was also suing Apple over the U.S. equivalent of this patent in the Southern District of Florida. The aforementioned injunction required Apple to deactivate push notifications of new messages for German iCloud users. They still got their email, but their devices had to check periodically for new messages instead of being notified. The whole validity debate in the Federal Patent Court was about whether the patent covered all synchronization between two devices ("push" and "pull"), or just push notifications. Here, Motorola had an interest in arguing that it was just as broad as it needed it to be, but not broader, since broader patents are more likely invalid. But even Motorola still claimed that it covered all push notifications, and the court found it covered pull techniques as well.

That's just one of countless examples one could give for how ridiculously broad software patent claims typically are.

The "breadth" of software copyright is pretty much nothing compared to that. Not absolutely nothing, but almost literally nothing.

Even the narrowed version of the aforementioned synchronization patent, while commercially useless except that Google/Motorola could have tried to limit the wrongful enforcement damages it owes Apple by claiming that there had been some infringement at any rate, is far broader than any copyright at issue between Oracle and Google.

There were some filings, including the flawed district court ruling, that could lead someone to believe that this was about Oracle using copyright to monopolize functionality. There's probably no appeals court in the whole wide world that hears more attempts to monopolize functionality than the Federal Circuit, which hears all patent infringement and validity appeals in the United States. But the Federal Circuit understood very well that Oracle's case here is all about the literal copying of 7,000 lines of concededly highly-creative, expressive material.

Sure, if Oracle's appellate victory stands, it doesn't mean that only the combination of all 7,000 lines is protected: significant subsets, such as 6,000 lines, would certainly also be protected (though a jury would then have to make an infringement determination). But isolated lines that define a Math.Max function that gives you the greater of two values still wouldn't be monopolized.

A patent claim with a dozen or so claim elements (limitations), each of which can be asserted meritoriously or not) to have a broad meaning, can be a threat to competition. I'm quite sure neither Apple nor Microsoft even knew about that crazy Motorola synchronization patent (they presumably never read it before they were sued, and if anybody did, the description sounded like this was just about pagers, an obsolete technology). By contrast, Google admitted to literal copying of the material at issue in the Oracle case. It had no other choice because no one would realistically believe that someone just "happens" to independently come up with 7,000 lines that are identical to the corresponding lines in something that existed before.

This case is not about whether copyright is broad or narrow. Copyright is narrow and always will be.

There is some undeniable, inherent tension between intellectual property, which is about creating monopolies, and antitrust, which is about preventing the abuse of monopolies. But this doesn't make the two disciplines enemies. Broad IP-based monopolies are a problem for competition. Narrow intellectual property is far less likely to raise concerns unless you aggregate tons of it (for example, if someone bought up a large part of all copyrighted music that consumers want to buy) or own a single, very critical piece and abuse your ownership position.

The former is easy to imagine. The latter is not. The program code you write won't become critical for the industry at large unless you get many developers to write code for it, and that won't happen unless you allow an ecosystem to thrive.

But even if it happened nevertheless, the FTC and the DOJ know, as do their counterparts in many other jurisdictions, that compulsory licensing (on FRAND terms) is the appropriate remedy.

In the open source community I've heard numerous times that there is always concern about Microsoft (or other proprietary software companies) pursuing "embrace, extend, extinguish" strategies:

  • "embrace" = the ill-meaning rival adopts a competing technology

  • "extend" = then some features are added, which third parties will rely on and the ill-meaning rival owns exclusively

  • "extinguish" = the effect of the extended technology becoming more popular and displacing the original

Small software companies can thwart an embrace-extend-extinguish strategy only by means of IP enforcement, which allows the little guy to succeed and is, in turn, pro-competitive. As Greek tragedian Sophocles wrote thousands of years ago, "in a just cause the weak will beat the strong." Software copyright has much more to do with justice than software patents.

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Tuesday, May 12, 2015

Privateering: let's name and shame companies that feed patent trolls -- please help complete the list

Privateering--the act of large companies giving patents to patent assertion entities (PAEs)--is (unfortunately) not illegal (yet), but it is abusive, antisocial behavior. It pollutes the legal environment and harms the economy. It has nothing to do with protecting legitimate innovation: legitimate innovators suffer from it because it drives up litigation and licensing costs, and deep-pocketed, sophisticated legitimate patent holders don't need third parties to strike deals with their industry peers. Privateering also gives patents in general and patent transfers in particular a bad name.

I'm asking you for your help to shed some light on this problem. Below you can find the first version of my list of known privateering deals, and if you're aware of any other verifiable transactions of this kind, please fill out this blog's contact form. I need a link to a press release or other public statement, a trustworthy media report, or a publicly accessible court filing. Sources won't be disclosed. The industry focus here is on everything relevant to smartphones (including mobile network infrastructure), tablet computers, and the various technologies they incorporate (such as operating systems and multimedia codecs).

There's no deadline for this. Depending on how much input I receive and when, I'll update the list, maybe once, maybe several times. In the very near term I may also add items to the list below.

So far it appears that no company has engaged in troll-feeding to nearly the same extent as Nokia (which celebrates its 150th anniversary today). By contrast, only one sale of Apple patents to a patent troll is known, and that was a long time ago, so privateering is not in Apple's DNA despite this regrettable but apparently isolated incident. So let's build a comprehensive list of privateering transactions.

[Update] First, thanks to those who have already proposed additions to the list above (most of which I've already incorporated). Second, I got some reactions on Twitter from IP professionals taking issue with the term "patent trolls" and fearing that this was a "witch hunt." Let me assure you that I used the term "patent trolls" in the headline just to increase the likelihood of people seeing this on Twitter and contributing information to the list. Obviously the patent licensing/assertion entities listed above aren't all the same in terms of how they act. There are differences. As for the operating companies, I've bought products from most of them, used Ericsson products indirectly (their base stations) and have said positive things about another company's products just based on what I learned about them from reliable sources. This blog here is mostly read by people with a strong, typically professional interest in IP issues: an audience that I believe is for the most part interested in shedding light on privateering transactions, not in name calling. This "crowdsourcing" effort was my idea and I didn't even discuss it with anybody before I went ahead and did this post. The idea came up because I had a hard time finding out about how the scope and scale of Nokia's troll-feeding compared to that of others, though it was clear to me from the beginning that Nokia was the worst offender in this respect, by far and away. [/Update]

[Update 2] I've received an email from a reader who said "[a] patent privateer not only receives patents from an operating company to pursue competitors, but also returns money to that operating company." In some cases it is verifiable that this is the case (Unwired Planet, Mosaid). In other cases the contract terms are not known. Feeding "patent trolls" is a bad thing and harms the selling company's peers regardless of specific terms, though I do agree that pseudo-transfers such as in the Unwired Planet case are the most problematic deal type. If you're aware of more pseudo-sale type of deals, please point me to publicly verifiable information and I may (though I can't promise that I'll find the time, or when) talk about them the way I talked about Ericsson's contract with Unwired Planet. [/Update 2]

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Monday, May 11, 2015

How much leverage will Ericsson gain over Apple with its European patent infringement actions?

On Friday, Ericsson announced the filing of " suits in Germany, the United Kingdom and the Netherlands against Apple's products" because negotiations in a global patent license have not resulted in a deal in more than two years but Apple "continues to sell products, for which its licenses have expired, on a global scale." Four months ago Ericsson had already sued Apple in the Eastern District of Texas, followed by an ITC complaint (request for U.S. import ban).

The gist of Ericsson's Friday press release is that Apple is allegedly an unwilling licensee. That term does not appear in the statement, but it's what Ericsson wants to say. Motorola and Samsung said it before. The willingness of an implementer of an industry standard to reach a license agreement on FRAND terms is a key consideration for antitrust regulators and courts. Even the defendant-friendliest FRAND ruling ever, which Judge Posner handed down in an Apple-Motorola case and the FRAND-related part of which was affirmed by the Federal Circuit (though then-Chief Judge Rader dissented), did not rule out access to injunctive relief over standard-essential patents (SEPs) on a "no matter what (the defendant will or will not do)" basis. The bar for SEP injunctions has been raised in recent years, also in Europe, but implementers of standards still have to proceed with caution because their own conduct, not only that of the patent holder, will be taken into consideration.

In any event, Ericsson says it is also asserting non-SEPs against Apple in Europe. Those are unencumbered, so Ericsson is free to seek and enforce injunctive relief.

Compared to the size of Ericsson's patent portfolio, very few assertions have ever come to judgment. The most optimistic (for Ericsson) perspective would be that this is because defendants realized this was a strong portfolio and backed down. It's also a valid perspective, however, to say that Ericsson's portfolio is largely untested in court. With so much money being at stake between Apple and Ericsson, it's now more likely that at least some decisions will come down.

In light of the entire industry's low "hit rate" with smartphone-related patent infringement actions, it's unlikely that Ericsson's European lawsuits will scare Apple to death:

  • Non-SEPs have usually been worked around. There was only one dispute in which I saw an indication that a company may have agreed to pay because workarounds weren't going to be immediately available (at least not without major cost implications), and that was HTC in its dispute with Nokia, but Nokia had lost so many cases by the time of the settlement that it may have offered HTC a relatively good deal just to get a result rather than lose dozens of additional cases.

  • Of the three European jurisdictions in which Ericsson has sued Apple, only Germany makes access to injunctive relief generally available over non-SEPs. In the UK and the Netherlands, the question of whether monetary compensation is sufficient always comes up.

  • While Germany is very patent holder-friendly on the remedies side and infringement actions tend to be adjudicated rather quickly, its courts are increasingly inclined to stay smartphone patent cases because those patents are normally invalidated in their entirety or narrowed beyond recognition when they come to judgment in the Federal Patent Court. If the patent holder then loses the first validity ruling, the infringement case won't be resumed (if at all) until the Federal Court of Justice has spoken.

  • In the UK, infringement and validity are adjudged in the same proceeding, and the invalidation rate there is extremely high (rightly so).

  • Ericsson's press release states that Apple let an offer to set a FRAND rate by arbitration expire. So what? Arbitration is an option if both parties agree. If one of them (typically the implementer) doesn't want to go down that avenue, any rate-setting decision will have to be made by a court of law, in a public proceeding (public at least to some extent, while arbitration is 100% private).

Ericsson will have to perform better than other smartphone patent litigants to even reach the point at which Apple will seek a FRAND rate determination by one or more European courts, and for the reasons I just explained, this could also take quite some time. If and when it happens, Apple will likely emphasize the royalty base issue in Europe as well (it already does so in the U.S.). That one has the potential to go all the way up to the Court of Justice of the European Union (CJEU).

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