Wednesday, December 21, 2016

Enough is enough: Apple files antitrust complaint against multiple Nokia privateers

PatentlyApple was first to report on Apple's antitrust case against Acacia and other patent assertion entities (PAEs) that Nokia is using to extract, in the aggregate, excessive license fees from Apple and other companies. As a service to readers, I wanted to publish the complaint here (this post continues below the document):

16-12-20 Apple Complaint v. Acacia Et Al. by Florian Mueller on Scribd

For a long time I had hoped someone would finally do this. Last year I called out Nokia and others on their privateering ways, and it turned out that Nokia had industrialized the concept of privateering to a far greater extent than anyone else. My list of PAEs fed by Nokia contained all of the defendants in Apple's antitrust suit--Acacia and Conversant (technically, Apple is also suing particular subsidiaries of those)--and more. That post prompted attempts by Ericsson and Nokia to explain away their privateering ways.

Privateering-related issues have been raised in other litigations, including a case involving Samsung and an Ericsson privateer in London, but this is now the major anti-privateering lawsuit. Without a doubt, all other major industry players focused on making products (as opposed to those who increasingly rely on patent licensing income) will join me in wishing Apple luck. This is not just about Apple, or about smartphones and tablet computers. It's a huge issue for automotive and other IoT (Internet of things) companies as well.

I just hope Apple will see this one through. There is a risk that Apple may settle (as it did with Ericsson, though I had hoped the case would provide clarity on the "smallest salable unit" approach to FRAND royalties). In a FOSS Patents guest post I published last month, top-notch analysts from Arete noted that "a critical [for Nokia] renewal at Apple [is] forthcoming." It could be that Apple will drop this antitrust suit as part of an overall agreement with Nokia on an extension of the license agreement originally agreed upon in 2011.

The story Apple tells the court is that Nokia, after failing as a mobile device maker, changed its positions on FRAND licensing of standard-essential patents and conspired with various PAEs in order to bring numerous royalty demands and infringement lawsuits against Apple and other industry players and with the objective of circumventing its original FRAND licensing commitments:

"21. With its cell phone business dying, Nokia began to seek out willing conspirators and to commence its illegal patent transfer scheme in full force; that scheme has continued in full effect to the present. The driving force behind Nokia's strategy was to diffuse its patent portfolio and place it in the hands of PAEs. Acacia and Conversant were its chief conspirators."

"24. [...] According to an expert report that Nokia submitted in a prior proceeding: '[T]he relationship between the number of patents and the total royalty rate is not linear. For example, a license to a single [SEP] may be 2.5% ... while a license to ten or more [SEPs] rarely exceeds 5%.' Thus, by creating a network of conspiring PAEs to hold slices of its former portfolio and sharing in the proceeds of the PAEs' assertions, Nokia seeks to work with PAE collaborators like Acacia and Conversant to extract royalty rents and tax product innovators in yet another way that would not have been possible had it kept its portfolio intact."

On the remedies side, it's worth noting that Apple, besides damages, wants those patent transfers to be declared illegal and to be undone. Also, one of Apple's prayers for relief relates to injunctions: it asks the United States District Court for the Northern District of California to order an anti-suit injunction against Acacia and Conversant. The most prominent case in which an anti-suit injunction actually issued was Motorola Mobility v. Microsoft (Western District of Washington); it got upheld by the Ninth Circuit, and that's the circuit court for this case, too.

In terms of positive effects on innovation, an Apple win over Acacia and Conversant would eclipse Microsoft's win over Motorola Mobility, and that one was also very significant and positive.

I plan on talking about this some more after the defendants have filed their answer to the complaint. Also, while it's a different field of law and a different jurisdiction, I've meanwhile read the 130-page European Commission decision on what the EU says is "state aid" Ireland gave to Apple, and I'll comment on it soon. Suffice it to say for now that it's far-fetched to say the least; the EU Commission may lose the case just simply because the arm's length principle for inter-company charges is not part of Irish tax law; and there is not even the slightest indication of any wrongdoing by Apple in that whole document (wrongdoing by the recipient of alleged subsidies is, of course, not a legal requirement, but I wanted to mention it anyway).

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