Tuesday, September 29, 2015

Judge sends Apple, Samsung to mediation with Nov. 15 deadline -- #1 problem: Apple's self-righteousness

On Monday, Judge Lucy Koh of the United States District Court for the Northern District of California received a joint ADR (Alternative Dispute Resolution) statement from Apple and Samsung, which is not publicly accessible. Further to that statement, Judge Koh referred the parties to mediation before Magistrate Judge Spero, which was the common ground of the positions they stated on ADR earlier this month. As per the parties' suggestion, that settlement effort will have a November 15 deadline.

More than a year after Apple and Samsung dropped all lawsuits against each other in jurisdictions outside the U.S. (i.e., numerous neutral jurisdictions as well as Samsung's country, Korea), it's time they also put aside the U.S. part of their dispute. I've always said that Apple should get something, but the longer this dispute has taken, the clearer it has become that Apple's leverage is limited, and let's not forget that Apple at some point needs a license, on FRAND terms obviously, to Samsung's standard-essential patents. Apple's iPhone patents are not nearly as great as its products, and even though Apple also has far better lawyers than patents, Apple's litigation would have gone nowhere if not for certain peculiarities of the U.S. patent system such as jury trials, which are statistically biased in favor of domestic companies suing foreign rivals (see Xenophobia in American Courts).

There isn't really much to gain for Apple. At this stage, if Apple wanted to really make a strong statement about its iPhone-related intellectual property, it would have to sue major Chinese companies such as Huawei, ZTE, and Xiaomi. But as far as I know, while Apple is paying standard-essential patent royalties to Chinese patent holders, no Chinese company is paying Apple anything for building iPhone-like Android-based smartphones.

A settlement on undisclosed terms, no matter what speculation it might trigger, would be a face-saving exit strategy for both Apple and Samsung, especially since they've had a commercial relationship for a long time and could somehow mix the patent settlement with some new commercial agreement (a structure that I've seen in connection with a couple of Microsoft patent cases).

As I've already said this month, a settlement at this stage would make Apple look stronger than it could have expected at any time since the spring 2014 trial. While I could see reasons for Samsung and its allies (such as Google) to push for Supreme Court clarification of one or more key issues, there's no reason why Samsung couldn't or shouldn't simply do a deal with Apple that makes business sense.

My primary concern about the prospects for a settlement at this stage is that, in my observation, Apple has become self-righteous beyond imagination and potentially even a bit too emotional about this matter.

Any reasonable person in the civilized world has a simple definition for theft: you take something you don't rightfully own. And if you take money by collecting a damages award over half a dozen patents, even though the most valuable software patent of them is a zombie patent by now and a key design patent has also been deemed invalid (for lack of inventiveness) by the very patent office that once granted it, then you are not a thief in a legal sense because you merely take advantage of a broken patent system, but in moral terms, you still take what's not rightfully yours.

I've been thinking a lot in recent weeks about why Apple, a company normally much more concerned about its reputation, is doing this. In a recent court filing, I found what might be a clue in this regard. Apple's lawyers mentioned that after last year's trial (in the second California Apple v. Samsung case), Samsung's lead counsel, John B. Quinn of Quinn Emanuel, said in public that after years of litigation, Apple still hadn't collected a penny.

My unsolicited advice to Apple would be: don't compromise your moral standards just because of what Samsung's trial counsel told the press.

I've tried to put myself in the shoes of Apple's lawyers. Such major trials are an enormous logistical effort for everyone involved. The lawyers get little sleep, yet have to concentrate on each and every detail and fight very hard day and night. Apple's lawyers did that in 2012 and got a billion-dollar award. They did it again for a 2013 limited damages retrial. And then again in early 2014 for that trial in the second case, which ended with a major disappointment for them because even a jury picked from Apple's backyard only awarded a small fraction of what Apple had demanded. After all this effort, it hurts to have nothing to show yet, and then Mr. Quinn put his fingers into that wound. It must have hurt.

No matter what Apple's lawyers may or may not do now, Steve Jobs's "thermonuclear war" on Android will always be remembered as an abject failure. Mr. Jobs simply overestimated the strength of his company's patents, as did so many other people.

The question is now: how can Apple at least lose like a winner? By trying to win like a loser (on an ethically problematic basis), it only makes things worse.

Apple appears very self-righteous. Only because Apple has believed all along that Samsung owes huge payments, Apple's patents aren't any more valid. At last year's trial, Apple's lead counsel argued that Apple just couldn't (for logistical reasons) assert 50 patents against Samsung in one case, it picked only a few. But Apple obviously picked the ones that its lawyers thought were going to be the strongest ones, and in the aggregate of two California cases and an ITC complaint, Apple has already asserted dozens of patents against Samsung, though not all of them until the bitter end. Maybe some people at Apple believe that since certain inefficiencies of the law (such as limits on how many patents a U.S. judge will let you take to a jury trial) can also affect a right holder, they can now seek to capitalize on a loophole for the monetization of zombie patents.

In Europe, it appears that not even one of all the patent claims Apple asserted against Android will stand. Slide-to-unlock, for example, has been deemed invalid by 15 different judges in three countries. Apple should realize that its complete failure in neutral jurisdictions is a major credibility and legitimacy issue. Taking advantage of structural flaws of the U.S. patent system, and protectionist tendencies of juries and possibly even certain "fanboy" judges, is not the answer.

If not for the emotional self-righteousness Apple has recently displayed, I would be very optimistic about a settlement.

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