Tuesday, September 12, 2017

Apple v. Samsung design patent damages: September 13 panel discussion in Washington DC

About a month and a half ago, Judge Lucy Koh of the United States District Court for the Northern District of California held that Samsung had not waived its "article of manufacture" argument in the first Apple v. Samsung case. That was another step forward for Samsung in its quest to get the damages award reduced. But prior to ordering a new trial on design patent damages, Judge Koh ordered briefing on various questions to be resolved first.

Last week, the parties filed their answers to the court's questions (Apple, Samsung). Samsung argues that Apple has the burden of proof and that the only way the damages question could be resolved without a new trial would be for the court to find an evidentiary failure on Apple's part. Apple refers the court to the Solicitor General's Supreme Court brief. According to Apple, after a prima facie showing regarding the article of manufacture that infringes a design patent, the burden of proof is on the defendant to show that a component of that product is the appropriate basis for a disgorgement of infringer's profits. While I tend to consider Samsung's proposition better policy, I have no idea to what extent Judge Koh may be influenced by the DoJ's Supreme Court brief.

The Computer & Communications Industry Association (CCIA) will host a panel discussion tomorrow at the National Press Club in Washington, DC from 9 AM to 10:30 AM Eastern: "Next Up In Apple/Samsung Smartphone Wars: Design Patent Remedies Following The SCOTUS Decision"

Speakers include, among others,

  • Carl Cecere, who has filed really good amicus curiae briefs, at different stages of this dispute, on behalf of the Hispanic Leadership Fund and the National Grange,

  • Gibson Dunn's Howard Hogan, whose firm is counsel for Apple in the second Samsung case (not the one involving design patents), and

  • Rebecca Tushnet, First Amendment professor at Harvard Law School.

I will try to obtain a transcript or key quotes from the event and, if interesting things are said (which is very likely given the topic and the panelists), blog about it.

Share with other professionals via LinkedIn:


Friday, September 8, 2017

Judge denies Qualcomm motions for preliminary injunctions against Apple, contract manufacturers

It's not like Qualcomm didn't already have plenty of legal problems. But Judge Gonzalo P. Curiel of the United States District Court for the Southern District of California has just (this morning by Pacific Time) handed down two decisions denying a couple of Qualcomm motions for preliminary injunctions. Qualcomm has failed to obtain a preliminary injunction requiring four Apple contract manufacturers to make royalty payments before the matter is adjudicated. I had predicted that one. What isn't really surprising either, but was much less clear based on how a recent hearing went, is that Judge Curiel also declined to bar Apple from pursuing antitrust cases in other jurisdictions (such as China, Japan, Taiwan, and the United Kingdom).

In order to comment on these latest developments quickly, I focused on the key parts of the rationale underlying the two decisions. First, the expected denial of a preliminary injunction requiring the likes of Foxconn to make immediate royalty payments (this post continues below the document):

17-09-07 Denial of Qualcomm's Requested Preliminary Injunction by Florian Mueller on Scribd

It From the beginning, Qualcomm's motion for a preliminary injunction related to royalty payments was a total long shot, given that the most critical preliminary-injunction factor is irreparable harm as opposed to monetary harm. And indeed, that's why the motion failed. Judge Curiel wrote (among other things):

"The scales of equity, however, do not bend for dollar amounts alone no matter how great."

"This irreparable harm argument, however, is flawed because it is untethered to any discussion of the adequacy of legal remedies."

The second quote above means Qualcomm failed to expain why any problems resulting from the contract manufacturers having discontinued their royalty payments (related to Apple products) couldn't simply be solved, if one assumed purely for the sake of the argument that Qualcomm is entitled to those particular payments, by the court later ordering payments (with interest on top).

Let's turn to the decision denying Qualcomm's motion for an anti-suit injunction against Apple, which would have required Apple to abandon its international antitrust cases against Qualcomm (this post continues below the document):

17-09-07 Denial of Qualcomm's Requested Anti-suit Injunction by Florian Mueller on Scribd

Here, Qualcomm largely relied on a Ninth Circuit decision upholding Judge Robart's 2012 anti-enforcement injunction against then-Google-owned Motorola Mobility. Back then, however, it was the implementer of a standard--Microsoft--seeking an injunction preventing the patent holder--Motorola--from enforcing a couple of German patent injunctions. That is, as Judge Curiel explains in his order denying Qualcomm's motion for an anti-suit injunction against Apple, just the opposite situation. Judge Curiel points out that Motorola had an obligation to extend a FRAND license to Motorola. So does Qualcomm--but Apple doesn't. Even if Qualcomm made a FRAND licensing offer to Apple, Apple could (for whatever reason or no reason) reject it.

Qualcomm wants the San Diego court to determine a worldwide FRAND royalty rate covering Qualcomm's wireless standard-essential patents. But Apple wants a patent-by-patent determination, insisting that Qualcomm firstly prove its entitlement to royalties by establishing infringement and defeating any defenses (such as invalidity). In footnote 5, Judge Curiel explains the difference between the parties' positions and holds that he "need not decide this question [of whether a worldwide FRAND determination should be made in the Southern District of California] to resolve the instant motion [for an anti-suit injunction that would have prevented Apple from proceeding with its overseas antitrust cases against Qualcomm]."

While the judge didn't have to reach that question immediately, I doubt Qualcomm will get a worldwide FRAND determination in its San Diego backyard. Only one outlier judge in the UK has so far tried to usurp jurisdiction on a global scale (in Unwired Planet v. Huawei), and even that judge realized his decision was going to give rise to disagreement and therefore explicitly authorized an appeal, which will hopefully (and more likely than not) succeed. Three lawyers from the Orrick firm have recently published an article (PDF) on why the Unwired Planet decision is flawed and problematic. Highly recommended reading.

Qualcomm's litigation strategy against Apple and the contract manufacturers Qualcomm decided to draw into the case can be summed up with two expressions: "leave no stone unturned" and "throw in the kitchen sink." That includes long-shot motions of all kinds. So far that strategy isn't working out at all. If Qualcomm hadn't brought various motions, we'd know a lot less at this stage about where Judge Curiel in the Southern District of California and Judge Lucy Koh in the Northern District of California stand on the key legal issues. Now we do know. And what we know doesn't bode well for Qualcomm.

Share with other professionals via LinkedIn:


Thursday, September 7, 2017

Merger review of Qualcomm-NXP: European Commission stops the clock AGAIN

The website of the European Commission's Directorate-General for Competition (DG COMP) indicates that the clock has been stopped for an unusual second time in the regulatory review of Qualcomm's proposed acquisition of NXP, which went into Phase II a few months back as it raises serious concerns. In fact, the previous suspension ended on August 16, 2017 (as I mentioned in a recent post), but just the next day--August 17--the deadline was suspended again.

Whatever the reason may be, it means that the deal still isn't ready to be cleared.

Are Qualcomm and/or NXP unwilling to provide information requested by the Commission? In a unilateral-conduct context, Qualcomm even went to court (and lost) because it didn't want to supply certain information. That could be what's happening in the merger control proceedings as well, but it's also possible that Qualcomm is paying the price for antagonizing DG COMP.

Are negotiations on potential commitments progressing slowly (and if so, is there much hope)? It's a mystery, but again, what's clear is that this deal is ever less likely to get unconditional clearance.

The fact that the EU has stopped the clock again apparently became discoverable only this week--the same week that a legal challenge by Qualcomm to a decision by the Korea Fair Trade Commission (KFTC) went nowhere.

Behind the scenes, the Qualcomm-NXP merger review could be one of the most interesting and significant merger review cases in EU history, but unfortunately those merger control proceedings are very opaque (unless someone leaks documents, which happened in some cases but isn't the norm). I haven't even been able to find out which European companies and organizations are opposing the deal. If you know something about this merger control case that I don't, please tell me via my contact form.

Share with other professionals via LinkedIn:


Monday, September 4, 2017

Korean court denies Qualcomm's motion to stay execution of KFTC antitrust ruling

Last December, the Korea Fair Trade Commission (KFTC) handed down a decision against Qualcomm that U.S. tech companies welcomed. The following month, the FTC and Apple sued Qualcomm on antitrust grounds in California. In March, it became known that Qualcomm's refusal to licenses its standard-essential patents (SEPs) on FRAND terms to other chipset makers is one of the various concerns the Korean competition authority has.

Today, Reuters reports that a Korean court has denied a motion by Qualcomm to stay the execution of the KFTC ruling. That ruling, among other things, requires Qualcomm to negotiate patent licenses with its competitors and to adjust its royalty demands from device makers.

Qualcomm is still trying--and undoubtedly will keep trying--to get the KFTC decision overturned. And it can probably appeal the denial of the motion. But every defeat of this kind makes things harder for Qualcomm in other jurisdictions. So far, antitrust agencies and judges alike reject Qualcomm's legal theories. According to a source cited by Reuters, the court wasn't convinced of Qualcomm suffering irreparable harm from the KFTC ruling. Presumably, the likelihood to prevail on the merits (or, more appropriately in this case, a lack thereof) was also a factor in Korea as it would be in the jurisdictions I know.

No matter how often Qualcomm loses in one venue or another, each of the allegations brought against it must be analyzed independently--by courts and regulators, and also by those of us who express their opinions (as I do all the time). They can be wrong 99 times and right the 100th time. But fancy infographics and other aggressive, well-orchestrated PR efforts are no substitute for credibility. Qualcomm and Acting FTC Chair Maureen Ohlhausen untiringly try to convince us that everyone else is wrong and they are right on these FRAND issues. The "everyone else" who's allegedly wrong includes ever more agencies and courts. That's a growing problem for Qualcomm.

Share with other professionals via LinkedIn:


Wednesday, August 30, 2017

EU investigations of Qualcomm have come out of hibernation this summer: will anything noteworthy happen?

The European Commission's Directorate-General for Competition--the 28-nation bloc's top antitrust agency--has been criticized on various occasions (on which it went after U.S. tech companies) that it focused more on the strategic interests of competitors of their investigation targets than on consumer harm, which is the central and paramount aspect of U.S. antitrust law. And more than once it has been alleged or insinuated that draconian fines or a certain order to collect taxes were driven, in no small part, by a desire to siphon off billion-dollar amounts from highly-innovative American companies.

It's not always easy, and in some contexts I'm not at all inclined in the first place, to defend DG COMP against such criticism, though it is definitely the most impactful division of an EU institution that is, in pretty much every other regard, little more than the EU Council's de facto secretariat.

The issues raised by Qualcomm's aggressive conduct are serious from a consumer point of view since every European consumer effectively pays a Qualcomm SEP (standard-essential patents) monopoly tax on every smartphone or other cellular device sold in the EU's Single Market. There may not be any significant European smartphone maker left, nor any European chipset maker (Infineon's mobile chips division was acquired by Intel, a Silicon Valley company, and might still be a European company if not for Qualcomm's behavior). But with more than 500 million consumers living in the EU, the European aspect of Qualcomm's patent licensing and other practices is very important nonetheless.

By requiring Qualcomm to extend FRAND patent licenses to all comers, including rival chipset makers (even if those may typically be American and Asian corporations), the EU Commission could have a far greater positive impact than the fines it might impose on Qualcomm would suggest. Qualcomm's annual worldwide revenues are in the $25 billion range, so theoretically the EU could fine Qualcomm to the tune of $2.5 billion (10%), but more likely the amount would "only" be in the hundreds of millions (since 10% is the absolute maximum under EU law).

So by giving the Qualcomm matter(s) as much attention as other tech antitrust matters DG COMP is pursuing, and as much as other major competition agencies (such as the FTC and the KFTC) are giving their investigations of Qualcomm's unilateral conduct, the EU Commission could demonstrate that this is about principles of fair competition and consumer interests, not about being used by someone's competitors, and that revenue generation is not really the objective. However, should the EU just stay on the sidelines of the Qualcomm matter, some will compare such lack of follow-through against what's going on in some other cases.

There are two EU cases involving Qualcomm, but it's been quiet about them lately:

  • In late June, the Commission stopped the clock in the Phase II merger review of Qualcomm's proposed acquisition of NXP, but restarted it two weeks ago (August 16). The new deadline for a decision (which, if the Commission stayed firm and Qualcomm didn't offer meaningful concessions, would be a decision to block the merger) is December 6.

  • Further to a complaint by Icera, a once-European semiconductor company acquired by Nvidia and closed down later, DG COMP opened an investigation of Qualcomm's exclusivity arrangements and predatory pricing in July 2015 (technically, two parallel investigations) and issued Statements of Objection in December 2015. Since then there hasn't been any news. The narrow scope of those investigations hasn't been widened.

    Some delay was caused by Qualcomm's refusal to respond to a January 2017 information request by DG COMP. Qualcom argued it would cost millions of euros for "thousands of working hours" (in the aggregate of the effort made by up to 50 employees and external advisers) to comply. The EU Commission then ordered Qualcomm to produce the requested information lest it be fined more than half a million euros per day. Qualcomm took this matter to the EU General Court (formerly called the Court of First Instance), which upheld the Commission's order by decision of July 12 as Qualcomm failed to convince the judges it faced significant disruption of its business or other serious and irreparable harm.

In legal terms, and with respect to the professionals on the case teams, those are two separate matters. In practical terms, however, neither investigation exists in a vacuum. From a certain level up, the decision-makers are the same, and even below that level, people will be aware of what's going on in the other case. Qualcomm's unwillingness to cooperate with an information request does nothing to improve its relationship with the Commission--and this could also affect the merger review, which could turn into a bitter fight anytime now.

There is a potential overlap with respect to remedies, too. The most logical and most meaningful remedy would be a requirement to extend FRAND patent licenses to rival chipset makers. That wouldn't resuscitate Icera, but it would be unbelievably positive for consumers (though it would just be a reasonable interpretation of the relevant FRAND licensing promises). It's also what the FTC wants to see happen, and apparently the KFTC, too.

Hopefully there will be some positive EU developments to report in the coming months. If not, we can still talk about possible reasons then.

Share with other professionals via LinkedIn:


Monday, August 28, 2017

Qualcomm drops a patent asserted against Apple in an ITC complaint: "we hardly knew ye"

In early July, Qualcomm brought an ITC complaint against Apple over six non-standard-essential patents (NEPs) related to efficient battery usage, seeking an import ban against iPhones with Intel (or other third-party chips) but not against devices that might include Qualcomm's own chips.

A couple of weeks ago, the ITC instituted the investigation. As I wrote last month, it would have been unusual for the ITC not to investigate the complaint, despite the partly valid points raised in various public-interest statements.

But something unusual has happened now. On Friday, Qualcomm filed a motion (unopposed by Apple) for partial termination of the investigation by withdrawal of U.S. Patent No. 8,487,658 on a "compact and robust layout shifter design."

What's unusual here is not Qualcomm's decision to drop a patent. I'm sure they'll drop more as this investigation unfolds because that's what the ITC expects complainants to do so it can keep its relatively ambitious timelines (Qualcomm's motion makes reference to the normal course of business at the ITC, though the motion tends to portray a totally ordinary ITC timeline as something special, which it is not in my observation). What is strange and even pretty much unprecedented is the timing: two weeks into a just-launched investigation. In all other cases I've watched, with an exception I'll discuss next, parties withdrew patents after significant procedural progress. At a minimum, parties would want to review the respondent's non-infringement and/or invalidity arguments. Here, Qualcomm withdrew the patent without anything happening other than Qualcomm having changed its mind.

Approximately five years ago, then-Google-owned Motorola Mobility withdrew its entire second ITC complaint against Apple at the same procedural stage. But a withdrawal of an entire complaint is not the same thing as streamlining an investigation that is continuing. My guess is now, with the benefit of 2020 hindsight, that Apple would otherwise have filed a second complaint of its own against Moto, so maybe they agreed to at least cease further aggression. It still took a while (until May 2014) before Apple and Google withdrew all claims pending against each other, but there weren't any further infringement accusations between them (just fights over remedies and invalidity, and of course, appeals) between that withdrawal of Moto's second ITC complaint against Apple and the spring 2014 settlement. At a minimum, it was a gesture of deescalation--and "deescalation" doesn't appear to be in Qualcomm's vocabulary in connection with the Apple dispute.

Qualcomm produced a beautiful infographic to promote its ITC complaint. Unfortunately, it's outdated now, but I've just decided to exercise my fair-use rights to provide an update. Maybe Qualcomm itself will produce an up-to-date, clean version of that infographic (click on the image to enlarge):

Share with other professionals via LinkedIn:


Thursday, August 24, 2017

Qualcomm's credibility squeezed between conflicting goals: litigation and investor relations

About a month ago I shared the observation that Qualcomm's approach to its FTC and Apple litigations was in part driven by investor relations (IR) considerations. That same day, Qualcomm delivered another piece of that particular puzzle by filing two German patent infringement lawsuits against Apple just before a quarterly earnings report--they can file lawsuits whenever they want, but that was hardly a coincidence.

In the wake of last Friday's San Diego hearing(s), the call related to that July earnings report was mentioned in a letter by Qualcomm's lead counsel, Cravath chairman Evan Chesler, to United States District Judge Gonzalo P. Curiel, referring to something Mr. Chesler said as part of his irreparable-harm argument relating to Qualcomm's preliminary-injunction request:

"Your Honor, we write to provide one clarification regarding statements made during oral argument today on the preliminary injunction motion in Qualcomm's action against the Contract Manufacturers. While I correctly stated that the other licensee (as referenced in Mr. Rogers' reply declaration) had not yet stopped paying all royalties at the time of the April 2017 earnings statement shown during oral argument (Contract Manufacturers' slide 20), I may have misstated that the other licensee had not stopped paying before the July 2017 earnings call, in which Mr. Aberle made other remarks shown during argument (slides 29-30); it in fact had stopped paying prior to Mr. Aberle's remarks in July."

Retractions of that kind are not a routine follow-up to court hearings, and especially not when a litigant is clearly ready, willing and able to spend enormous resources to defend itself on multiple fronts and when the lawyer in question has been in this business for more than four decades and is regarded as one of the best trial lawyers in the United States.

Apple's contract manufacturers appear to have shared their slides with a number of people at and after the hearing. It has, however, taken me a while to obtain all of the information about the hearing that I needed. So here are the key quotes from Qualcomm president Derek Aberle's statements on that July 19 earnings conference call:

"[...] I don't think, as we sit here, we have any indication that this is somehow going to result in a bunch of other licensees deciding not to report and pay royalties."

"As we've had disputes, we've been able to work through and resolve them without other licensees necessarily just deciding they're not going to comply with their agreement."

Then, in response to an analyst question's whether that kind of contagion was actually happening:

"No. That's not what's happening. We have a dispute with Apple and their contract manufacturers, and we have a dispute with one other licensee." (emphasis added)

I'd still like to know who that other licensee is, especially since I still sometimes talk to Wall Street professionals over the phone (who obviously don't want to receive, and could never receive from a litigation watcher like me, material non-public information). What I've been able to find out is that Qualcomm describes that unnamed company as "one of the largest handset manufacturers in the world" and that, as a result of that company's and Apple's decisions, about 25% of all mobile phones are now made by companies rejecting Qualcomm's royalty rates. Samsung and Huawei have the volume that would fit that description; some others would, too, but if they're mostly or exclusively focused on Asia, the FTC and Apple cases wouldn't matter to them (Qualcomm says Apple's lawsuit triggered the other company's decision to withhold payments).

Since Qualcomm's counsel said at the hearing that everything was going great for his client in China despite an antitrust investigation of a couple of years ago, I would then consider Huawei less likely to be the one than Samsung. But--and this is a really big "but"--if Qualcomm misrepresented the timing of the decision to withhold payments, can we really believe them that there's no problem in China?

Can investors still trust Qualcomm's representations? Obviously, Qualcomm has every right to take the position it deems most advantageous in each context. In litigation, Qualcomm wants to argue that Apple is causing enormous harm. It wants to portray Apple as the bad guy and bully and itself as the innocent victim of undeserved injustice (which Judge Curiel, who pointed to international antitrust rulings, doesn't really appear to buy). In investor relations, Qualcomm wants everyone to feel good about its prospects. Within reason, Qualcomm can optimize its message for each audience: judges and the court of public opinion in one context, investors in the other. But this is a constant threading-the-needle kind of challenge, and the Friday letter suggests it's not working out well.

The Sanford Bernstein analyst who asked the question about contagion on that July 19 earnings call, and everyone she effectively spoke for, deserved a more specific answer. If Qualcomm can tell Judge Curiel how big the other non-royalty-paying device maker is and how much this impacts its business (one in four devices), why can't it--or one might say "why doesn't it have an obligation to"--tell the same to investors on an earnings call?

At the hearing, Qualcomm made stock market fluctuations part of its irreparable-harm argument, pointing Judge Curiel to the fact that Apple's market cap has increased by $200 billion since the beginning of the year while Qualcomm's declined by 16-18%.

Interestingly, Qualcomm tried to leverage statements on an earnings call against Apple. Apple CEO Tim Cook had said in early May that Apple "needed the courts to decide" how much it should (directly or through its contract manufacturers) pay Qualcomm in patent royalties. In connection with a request for an anti-suit injunction that would prevent Apple from pursuing antitrust litigation in other jurisdictions, Qualcomm tried to interpret Mr. Cook's statement as a desire to have one court determine a worldwide royalty rate. Apple's counsel disagreed, and Judge Curiel explained that the parties could obviously point to what each other's executives say on earnings calls but ultimately he was going to focus on court filings and hard facts.

Qualcomm's litigation/IR conundrum appears to be exacerbating, and I feel that there may be more situations, as those different FRAND-related cases unfold, in which Qualcomm won't be able to have its cake and eat it. For Apple the risk of inconsistencies, and especially the impact of any hypothetical inconsistencies, should be much less of an issue, though one can never know what might happen during multi-year litigation.

Share with other professionals via LinkedIn:


Monday, August 21, 2017

Qualcomm fighting hard to avoid adjudication of Apple's patent infringement defenses

Qualcomm has to defend itself against the Federal Trade Commission in the Northern District of California, where Judge Lucy H. Koh has so far been great for the mobile device industry, and against Apple in the Southern District of California, where Judge Gonzalo P. Curiel held a hearing on Friday. Apart from case management orders scheduling a March 22, 2018 claim construction hearing and a September 28, 2018 final pretrial conference for the non-patent claims, all I know about the hearing is what I found on the Twitter feeds of Law.com's Scott Graham and MLex's Mike Swift.

It's unsurprising that, according to these two reporters, Judge Curiel will consolidate Apple v. Qualcomm with Qualcomm's lawsuit against four Apple contract manufacturers (who in turn invited Apple to join, which Apple appeared happy to do), and that Qualcomm appears unlikely to obtain a preliminary injunction requiring those contract manufacturers to resume their royalty payments. The overlap between those cases is gigantic, and seeking a preliminary injunction for the purpose of collecting payments is--let's try to understate how hard it is--a long shot.

I would like to comment on a couple of other things I read about the hearing. The first one is that Evan Chesler, Qualcomm's counsel and chairman of the Cravath firm, told Judge Curiel the 18 patents Apple claims are invalid and not infringed were just a "drop in the bucket" and adjucating them wouldn't put the parties any closer to a settlement.

In contract negotiations as well as legislative processes, I've seen parties downplay the importance of something that actually is important. So the question to ask ourselves here is whether Qualcomm is merely trying to streamline the case or suffering from a severe case of meritophobia. If you haven't heard that term before, it may be because I just coined it. What I mean to say with this Latin-Greek mix is that Qualcomm may fear the adjudication of the merits of (various of) its standard-essential patents.

Qualcomm brought a motion in July seeking the dismissal of nine patent-related claims (involving theories of invalidity, noninfringement, and exhaustion) that Apple added to nine similar claims when it amended its complaint. According to Qualcomm, there is no controversy since the parties had never discussed those patents and Qualcomm had never accused Apple of infringing them. But Qualcomm conceded that those patents "were included on a list of thousands of patents Qualcomm has declared as potentially essential to cellular standards." That list was attached to Qualcomm's motion as a 1,977-page exhibit (the highest number of pages of any exhibit I've seen so far).

In its opposition brief, Apple says "[t]he lengths to which Qualcomm is going to prevent any real examination of its patents is astounding."

The sheer size of the declared-essential patent portfolios belonging to certain companies has always been a problem. Qualcomm is not the first, and sure won't be the last, SEP holder to argue that a FRAND rate-setting decision should be made without looking at whether the patents in that portfolio are valid and infringed. Everybody knows that no court could realistically adjudicate each and every patent from a list that is almost 2,000 pages long. But the fact that one extreme isn't feasible doesn't mean that the other extreme--the "drop in the bucket" position taken by Mr. Chesler--is acceptable.

What's certainly unacceptable is the notion that someone can collect certain royalties based on the size of a portfolio of patents declared potentially essential to one or more industry standards. Overpatenting happens because patent offices around the globe issue too many patents; overdeclaration happens due to the parameters of standard-setting organizations (including what could happen in future litigation if a participant in the process failed to disclose a patent). There's just no way that Qualcomm can expect to receive billions of dollars in annual patent royalties from Apple (whether directly or through its contract manufacturers) without a court, prior to a FRAND determination, looking at the underlying merits.

It really surprised me that Qualcomm didn't respond to Apple's declaratory judgment claims with its own infringement claims. Failure to bring infringement counterclaims has significant consequences. Someone with many thousands of declared-essential patents can afford effectively losing the ability of enforcing some of those patents against a particular company. But Qualcomm could also have decided to bring claims over any standard-essential patents of its choosing.

The most abusive kind of behavior by patent holders is when they just point to the size of a portfolio and basically say: "We have so many of them that you will surely infringe something." There is no substitute for actual merits, and considering the track record of mobile phone patent assertions (including assertions brought by companies adverse to Qualcomm in the current situation)

In Scott Graham's observation, Judge Curiel may like the idea of setting a FRAND rate for Qualcomm's worldwide portfolio, while Apple would prefer to limit the U.S. case to U.S. patents (as patents are territorial rights, not worldwide rights). That's the second one of the two tidbits from the Friday hearing I wish to comment on.

When Judge Robart entered his famous anti-injunction-enforcement injunction in 2012, which the Ninth Circuit upheld, he prevented Google's Motorola Mobility from abusing some standard-essential German patents at a time when German courts were too patentee-friendly in this context. In terms of preventing a bad thing from happening, Judge Robart's decision was great. But there is this concept of "international comity," of countries respecting each other's sovereignty. Apple's counsel apparently stressed this notion at the hearing, saying (according to Mike Swift) that an anti-suit injunction preventing Apple from proceeding with its antitrust case in China, the UK, Japan and Korea "would be a complete insult to those countries."

Shortly after Judge Robart's anti-enforcement injunction, I saw first-hand what that abstract concept called "international comity" means in practice. I had a brief conversation with a senior German judge who wasn't personally presiding over the German Motorola v. Microsoft cases affected by Judge Robart's injunction, but who for professional reasons was very well aware of what was going on. When I said something like "that upcoming decision by your colleagues won't have impact after that order by a court in Seattle," the judge suddenly had an expression on his face and was trying hard not to say what he presumably wanted to say. While I thought Judge Robart's decision was good for the industry at large, I did feel the disappointment on the German side that a foreign court had interfered with their domestic affairs.

At this point I hope Judge Curiel won't deprive his Asian and European colleagues of jurisdiction over patents that are valid only in those jurisdictions, not in the U.S., no matter how much he may be driven by a desire to resolve an earth-spanning legal dispute. Judges generally want to be peacemakers, and that's a good thing, but since there is no such thing as a worldwide patent, it isn't always possible without creating bigger problems than the one (parallel litigation in multiple jurisdictions) that is seemingly solved.

The biggest problem, however, would be if a FRAND determination was based on roughly 2,000 pages listing potentially standard-essential patents. The fact that two separate case management orders were handed down on Friday--one with respect to the patent claims and one with respect to the non-patent claims--doesn't necessarily mean that the rate-setting decision will be made without the benefit of adjudicating some of the (in)validity and (non-)infringement questions. Qualcomm must show that its claims of being entitled to patent royalties have merit.

Share with other professionals via LinkedIn:


Saturday, July 29, 2017

Samsung another step closer to design patent damages retrial: Judge Koh finds no waiver

Judge Lucy Koh of the United States District Court for the Northern District of California, who has been presiding over Apple v. Samsung since the Carter presidency (or not long thereafter, it feels) and recently positioned herself as a Judge Posner-like thought leader on standard-essential patent abuse, entered an order Friday evening local time that could very well (but won't necessarily) lead to another "AppSung" retrial (this post continues below the document):

17-07-28 Apple v. Samsung No Waiver of AOM Issue by Florian Mueller on Scribd

In April, Judge Koh had ordered the two perennial litigants to explain why Samsung had (as Apple claimed) or had not (as Samsung argued) waived the "article of manufacture" issue, which is central to any further determination of design patent damages in this case since the Supreme Court had overruled both the Federal Circuit and Judge Koh on that one. So the court is now dealing with the fallout of the first Apple v. Samsung matter that had made it to the top U.S. court while the Department of Justice is determining what positions to take on three issues raised in connection with the second Apple v. Samsung case.

I really like the structure and clarity of Judge Koh's analysis in her latest order because she simply declined to conflate procedures and merits. The court is now cracking one nut at a time, and the first nut was only waiver. However, in at least one context (footnote 5) the order goes beyond what was strictly necessary to arrive at a no-waiver finding and declares cases cited by Apple to be inapposite to the question of whether Apple was entitled to a disgorgement of profits on Samsung's entire phones.

As I had written on more than one occasion, it appeared unlikely that, in a dispute where both parties have spent enormous resources and generally pursued a throw-in-the-kitchen-sink approach, Samsung would not have said or produced anything that one could reasonably deem to have been sufficient to preserve the "article of manufacture" issue. The order now explains the chronology of this case, and as I had also said before, Samsung had not emphasized the article-of-manufacture question that much in the beginning, but over time that question got more and more attention.

What helped Samsung here was that it had proposed a jury instruction that explicitly raised the issue. There were also other references, though Samsung's earlier arguments in the case were apportionment-centric, and apportionment didn't get traction at any of the three levels (district court, appeals court, SCOTUS). Still, some of the arguments and especially some of the evidence related to apportionment can also be used in the article-of-manufacture context.

After succeeding with an extremely strong, "slam dunk" cert petition, after avoiding that the DoJ would have sided with Apple on statutory interpretation, after winning reversal, after persuading the Federal Circuit to remand the case to California, and after avoiding "sudden death" on remand, Samsung has cleared another hurdle. But that one still wasn't the final one.

Judge Koh now wants the parties to propose a test for identifying the relevant article of manufacture--a question with respect to which the Supreme Court previously didn't feel it got much help from the parties, but that was because the name of the game was to win (Samsung) or avoid (Apple) reversal, not to solve the whole problem. The second and third questions raised in the order relate to burden of proof. In my reaction to the Supreme Court decision I had already said that, while it's obvious the Supreme Court didn't need and especially didn't want to do it, it would really have been helpful if that one could have been clarified at that stage. Whoever will lose the next round is going to appeal the test Judge Koh will adopt and/or the decision she makes on the burden of proof...

Judge Koh's order leaves the door open to a finding on her part that she had previously been right for the wrong reasons. She may find that, based on the evidence in the record, those entire Samsung phones were the correct article of manufacture, so that even under the Supreme Court's statutory interpretation, the outcome would be the same as before. In that case, there wouldn't be another trial (unless there was another successful appeal). That would be an unfortunate outcome and lead to even more litigation over design patents (though future sophisticated defendants would obviously build their article-of-manufacture argument from the get-go).

The parties have until Tuesday to propose a briefing schedule, and a case management conference will be held on Wednesday.

Share with other professionals via LinkedIn:


Monday, July 24, 2017

Public-interest statements by Apple, Intel, CCIA and ACT oppose Qualcomm's ITC complaint

Earlier this month, Qualcomm filed an ITC complaint in pursuit of a U.S. import ban against Apple's iPhones (except for iPhones coming with a Qualcomm baseband chipset). Last week, Apple, Intel and two industries groups (CCIA and ACT) filed public-interest statements seeking to dissuade the U.S. trade agency from granting Qualcomm its requested relief and proposing, at a minimum, that the public-interest aspects of this case be referred to an Administrative Law Judge.

An outright decision by the ITC not to investigate Qualcomm's complaint would be unusual and I wouldn't bet on this happening, but in this particular case there are reasons for which Qualcomm would probably be denied an import ban at the end of the proceedings even if it prevailed on the merits (if it came to worst, by a presidential veto).

Here are links to the different stakeholders' statements:

Qualcomm's decision to request an import ban that would force Apple to sell only Qualcomm-powered iPhones in the U.S. has raised huge concerns. It's a transparent attempt by Qualcomm to get rid of its only major competitor, Intel. With all that's going on in terms of antitrust investigations and lawsuits, such as the Federal Trade Commission's progress in the Northern District of California, the ITC will (either now or at a laters stage) have to give serious consideration to the competition issues surrounding Qualcomm's complaint.

The following passage from Intel's statement describes the market landscape:

"When it comes to cellular phones and tablets, Qualcomm's anticompetitive tactics have meant that consumers who wish to purchase a premium product that operates on the LTE network have few choices but to buy a Qualcomm modem—the only real alternatives are the latest Apple handsets with Intel modems, and a modest number of Samsung handsets and tablets using Samsung's own modems."

That doesn't sound like healthy competition...

As I've stated on previous occasions, while I am an app developer (next week we'll start out final beta test with many new testers invited every day), I don't necessarily feel that ACT represents me (a non-member anyway) on all policy issues (nor does any other organization). But when they do, I say so, and they do speak for me when they point out the following in their public-interest statement:

"Thousands of our members reach their customers through the ubiquitous mobile communications devices manufactured by Apple which are the articles at issue in the complaint at hand. App Association members rely on a competitive environment in the information and communications technology hardware space, without which our members would have no means to provide countless Americans (both in the consumer and enterprise context) with new and innovative software products and services that require an increasing amount of bandwidth and computing power."

Finally, it's worth noting that CCIA (the Computer & Communications Industry Association) has frequently filed amicus briefs and other submissions adverse to Apple's interests, but with respect to Qualcomm's complaint, even CCIA (which counts various fierce Apple competitors among its members) is on Apple's side.

Share with other professionals via LinkedIn:


Wednesday, July 19, 2017

Qualcomm now suing Apple in Munich and Mannheim over energy-efficiency patents

This here is the latest development relating to Qualcomm's dispute with (not only, but most prominently) Apple. A few hours ago I just blogged about multiple U.S. court filings by Apple and four of its contract manufacturers and noted that there is an ever stronger alliance of companies critical of Qualcomm's business model.

A German news agency, dpa, now reports that Qualcomm has filed patent infringement lawsuits against Apple in the Munich and Mannheim Regional Courts (equivalent to U.S. district courts) over one patent in each venue. Both patents-in-suit reportedly relate to battery efficiency, so they may be from a couple of the patent families Qualcomm is asserting against Apple in the ITC.

Considering Quinn Emanuel's representation of Qualcomm in the U.S. and the choice of venues, I venture to guess that QE's German branch is involved. If so, Qualcomm has great representation over here, but whoever their counsel may be, Apple has an excellent defensive track record in Germany, where it typically works with Freshfields.

The dpa story mentions that Qualcomm believes the German legal system is favorable to patent holders' interests. Qualcomm is seeking a sales ban against all iPhones sold in Germany. The ITC complaint is limited to iPhones without a Qualcomm chip, but Apple isn't selling Qualcomm-based iPhones in Germany anyway (just devices with Intel chips).

In terms of timelines, the courts in Munich (depending on which panel of judges the case is assigned to) and Mannheim tend to be faster than the ITC--and there is no equivalent to the ITC's public-interest consideration or presidential veto.

The judges at the specialized patent infringement panels in Mannheim and Munich understand smartphone technologies very well. They are also first-rate case managers. Since German law doesn't have juries and even expert testimony can normally be avoided at trial (parties usually just file expert reports, and even if they bring experts along to the courtroom, they don't get much speaking time, if any), trials often take only an hour and a half. The judges typically walk into the courtroom with a very clear idea as to the outcome-determinative issues and ask very targeted questions. When I started watching those kinds of cases, I was a bit shocked at what kinds of trivial patents sometimes win the day in German courts (and result in injunctions, which are a legal--not equitable--remedy), but over time I thought they were increasingly balanced. While I have yet to see a patent in this industry (including Apple's patents, to be sure) that I believe justifies a 20-year monopoly, I respect other views and can separate that part from the competence and fairness I saw over and over again. Qualcomm shouldn't expect a cakewalk, much less against Apple.

[Update] On Friday, Qualcomm actually filed the following in San Diego: "Qualcomm respectfully requests that the Court enjoin Apple from pursuing its Foreign Actions and from initiating additional duplicative foreign actions against Qualcomm during the pendency of the U.S. Action." I've uploaded that PDF to Scribd. So Qualcomm doesn't want Apple to sue abroad, but views patent infringement matters differently. Today's German filings don't lend extra credibility to Qualcomm's motion for an anti-suit injunction in the U.S., even though Qualcomm will have thought how to thread the needle and distinguish its own foreign action from Apple's.

dpa just told me on Twitter that the German patents-in-suit are from the same patent families as two U.S. patents:

[/Update]

Just like in the U.S., Qualcomm made a well-orchestrated announcement. At 5 AM in the morning by San Diego time (unless they already prepared it beforehand), dpa quoted Qualcomm's top lawyer. I haven't seen a more PR-oriented litigant in this industry. There was a lot of PR activity related to the Nokia-IPCom dispute, but that was nothing in terms of orchestration compared to what Qualcomm is doing now. For example, on the occasion of its ITC complaint, Qualcomm published a very professionally-crafted infographic...

Apple is very low-key in this regard. But as I wrote toward the end of my previous post, it appears to me that Qualcomm is placing a whole lot of emphasis on doing what it believes prevents investors from shorting the stock, and that priority may not always be the best choice with a view to litigation. Apple can and does afford the luxury of strictly focusing on a few key issues--and Apple has a broadbased alliance of companies and other stakeholders on its side.

There's so much that Apple and Qualcomm cannot agree on, and apparently "the name of the game" is one of those areas of disagreement.

Share with other professionals via LinkedIn:


Apple and its contract manufacturers present united, ever stronger front against Qualcomm

On Monday, four of its contract manufacturers (the ones Qualcomm is suing in the Southern District of California) impleaded Apple into Qualcomm's breach-of-contract suit. Before midnight on Tuesday, Apple and its contract manufacturers (the most well-known of which is Foxconn) made various filings in San Diego. It will definitely take me some time to digest, but as I follow the various Qualcomm matters closely, I can share some observations here already.

First, an overview of the kinds of documents that have just been filed:

  • The contract manufacturers responded to Qualcomm's complaint. That one alone spans almost 250 pages (without exhibits). You can find it below this list or on Scribd.

  • The contract manufacturers oppose Qualcomm's motion for a preliminary injunction. I uploaded that one to Scribd as well.

  • Apple additionally opposes Qualcomm's preliminary injunction. It has asked the court for permission to file its own opposition brief, which I've uploaded to Scribd, too.

    In a recent post I got the "obstruction of justice" theory wrong. I now have to correct what I wrote then: I thought the Qualcomm suit against contract manufacturers was considered obstruction in its own right, but it's now clear that what Apple means is something I also find extremely objectionable: Qualcomm's contract terms according to which companies like Apple aren't allowed to work with competition authorities.

  • Apple filed an answer to the third-party complaints by its contract manufacturers. Apple unequivocally stands by the manufacturers and basically says: "Qualcomm isn't entitled to what it claims, but if all else fails, the manufacturers are contractually entitled to indemnification from us as per the terms of our agreements with them." That's good news for the contract manufacturers since, theoretically, Apple could have disputed both Qualcomm's claims and the contract manufacturers' entitlement to indemnity. Others have done so in comparable situations for sure.

  • Apple and the contract manufacturers jointly seek consolidation of this case with Apple's case against Qualcomm. Ever since Qualcomm brought its case against the contract manufacturers I've taken a consistent position on it. I now dare to predict that consolidation is a slam dunk. It would have been a slam dunk even if the contract manufacturers hadn't challenged some of Qualcomm's patents (which Apple is also challenging), but now there is so much overlap I can't imagine any court in the world would want to make a duplicative effort of gigantic proportions.

Here's the 268-page booklet with which the contract manufacturers responded to Qualcomm's complaint against them (this post continues below the document):

17-07-18 Contract Manufacturers' Answer to Qualcomm's Complaint by Florian Mueller on Scribd

With so many trees before us, let me make my little contribution to seeing the forest. No point in going into detail on things that are common and expected, or even boilerplate. What matters now is the strategic landscape, and when quickly going over these filings I tried to identify the parts that go that extra mile and say something about the parties' relationships and resolve.

While the contract manufacturers say they would have had to implead Apple into the case anyway (if Apple had so requested, which it may informally have done anyway), and while it's a reasonable assumption that their indemnification also depends on them at least making reasonable efforts to defend themselves, those contract manufacturers are independent parties, not like wholly-owned subsidiaries of Apple Inc.

The manufacturers raise three dozen affirmative defenses, which is at the upper end of the range but not unprecedented. The really impressive part is where they raise counterclaims: 67 counts. Those fall into two groups, either one of which is very bad news for Qualcomm:

  • FRAND-related antitrust and contractual counterclaims (on that basis they are, for example, seeking a disgorgement of whatever was paid on top of FRAND), and

  • patent invalidity, non-infringement, and exhaustion.

Through their FRAND claims, the contract manufacturers raise the kinds of issues that antitrust authorities in multiple jurisdictions, Apple, and consumers have raised (and that many others have supported through amicus briefs and an open letter to President Trump).

The patent claims aren't nearly as fundamental as the FRAND claims, but in terms of the contract manufacturers throwing down the gauntlet, they are huge: licensees are often contractually barred from challenging licensed patents, and even where they would be free to do so, they rarely do. To me, this decision on the contract manufacturers' part means that they want to bring about change regarding Qualcomm's practices, and they don't want it to any lesser degree than any of the other stakeholders I mentioned in the previous paragraph.

I'm pretty sure the motion for a preliminary injunction will fail. Qualcomm can't show a likelihood to succeed on the merits, and irreparable harm (despite the amounts being substantial) is something else than "to get our money," a quote from a public statement by Qualcomm's top lawyer (that quote appears in the manufacturers' opposition brief). Qualcomm still has the chance to argue irreparable harm in its reply brief, but so far I'm really very skeptical. And, as I said, Qualcomm won't be able to dissuade the court from consolidating those two huge cases.

The contract manufacturers could have done a lot less here than they have. A whole lot. Qualcomm has now made itself some additional enemies, and at least some of those enemies have considerable clout in China, a jurisdiction that has previously looked into Qualcomm's business model.

So far, Qualcomm's best initiative in all those U.S. cases was its motion to dismiss the FTC's complaint (there was a possibility that some kind of amendment would have been required, though it didn't happen), and it's too early to take a position on its ITC complaint, but its decision to drag the contract manufacturers into this dispute looks like its worst mistake. For now at least. Instead of hiding behind Apple, the manufacturers are now playing an active role, and their perspective is in some ways complementary to Apple's--and vice versa.

The motion for a preliminary injunction is a downright Hail Mary pass. One might say the same about any attempt by Qualcomm to oppose consolidation. It's very clear to me, and I know a lot less about all of this than Qualcomm's executives, in-house and outside counsel. So why are they doing this at all?

I can't help but make the observation that Qualcomm is struggling here because of conflicting goals:

  • antitrust investigations/decisions in different jurisdictions (sometimes it's hard enough for companies if they have to design a strategy just because of a couple of investigations, with a potential move being good in one jurisdiction and bad in another, but here there's also private litigation in parallel),

  • Apple's case,

  • the contract manufacturers' claims (consistent with Apple's, but still a new challenge that Qualcomm could have avoided),

  • PR considerations (Qualcomm basically issues a press release every time it files a complaint), and

  • investor relations (somewhat related to PR, and all about preventing the stock price from falling further and further) and fiduciary-duty considerations.

It must be incredibly difficult at times for Qualcomm to set its priorities. Just one example: its action against the contract manufacturers serves the purpose of showing to investors that it's pushing very hard to collect money, and since it's about shareholders' money, it might be that Qualcomm's decision was driven by fiduciary-duty obligations, though a preliminary injunction for the purpose of collecting money is so outlandish that I'm not sure anyone could have held them liable for not trying. It may also be a means of showing to antitrust authorities that Qualcomm believes it never committed any wrongdoing related to licensing. But the PI motion will most likely fail; Qualcomm now has additional enemies; and consolidation will almost certainly happen, so everything will only get harder and more time-consuming for Qualcomm in the end.

A related observation: public statements of the "to get our money" kind can backfire. At least that's what the contract manufacturers' lawyers think, which is why they quoted that passage.

To the extent Qualcomm tries to shield its directors and officers from liability issues, that's a necessity, but it doesn't make its complaints and motions any more meritorious. If Qualcomm goes beyond an absolute necessity and just tries to make investors feel as good as possible about an increasingly difficult situation, that will only have short-term effects because sooner or later the only thing that will matter is the actual outcome (in terms of judgments or a settlement). Technically, the jury is still out on this, but common sense suggests that Qualcomm should have tried to focus just on Apple and the regulators and should have left the Foxconns of this world alone. Dragging them into this--apparently a boomerang--makes things harder, not easier, and slower, not faster, for Qualcomm as it seeks to defend its business model and licensing terms, which are now being challenged from multiple sides and angles, in multiple jurisdictions, by multiple types of stakeholders.

Share with other professionals via LinkedIn:


Tuesday, July 18, 2017

Apple accepts invitation by its contract manufacturers to join another Qualcomm fray

On Monday by San Diego time, the four Apple contract manufacturers who have to defend themselves against a Qualcomm contract suit in the Southern District of California (Foxconn/Hon Hai, Pegatron, Compal, and Wistron) each filed a third-party complaint for contractual indemnity against Apple, and based on what they say and what I can easily imagine, Apple is more than happy to join this additional fray. Here's Foxconn's complaint (this post continues below the document):

17-07-17 Foxconn Impleading Apple in Qualcomm Case by Florian Mueller on Scribd

Paragraph 22 of the complain with which Foxconn impleads Apple says that "at Apple's request, Foxconn must implead Apple into the action." While the complaint doesn't affirmatively say that Apple requested this invitation, paragraph 23 does state that "Apple has consented to be impleaded into the current action because it has an indemnification obligation to Foxconn, and so that it may assert various claims and defenses to Qualcomm's Complaint to minimize or eliminate its liability for such indemnification." So it's fair to say that, at a minimum, Apple gladly accepted this invitation. That presumption is based on the representation that Apple never intended to deny its indemnification obligation.

The fact that the contract manufacturers have decided to implead Apple into this case (adding yet another Qualcomm case to Apple's list of pending lawsuits) enables Apple to take even more direct control of its Qualcomm-related destiny.

In April, Qualcomm (in its counterclaims to Apple's Southern California complaint) already alleged that Apple had interfered with Qualcomm's contractual relationships with the contract manufacturers, which is why the related royalty payments ground to a halt a few months ago. Therefore, it really never made sense to me in the first place that Qualcomm brought a separate action against the contract manufacturers (in which it has meanwhile requested a preliminary injunction): the thing to do, in my view, would have been for Qualcomm to add the contract manufacturers to the case as third-party counterclaim defendants.

Now that the door has been opened to Apple in the contract manufacturers case and that Apple has apparently walked through it without anyone having to drag it into the case against its will, there are two cases pending in the same district court relating to the same patent royalty payments to Qualcomm over the same Apple products. Efficient use of judicial resources is something else.

In other news, Qualcomm's CEO has expressed his belief that the Apple dispute would be settled out of court. The question is, however, when. Depending on what decisions come down before, and also depending on what further headway the FTC and other competition authorities make against Qualcomm, the industry at large and, ultimately, consumers will hopefully benefit from it. This large-scale, cross-jurisdictional litigation will have been worth its while if, when all is said and done, chipset makers like Intel have a FRAND license to Qualcomm's standard-essential patents.

Share with other professionals via LinkedIn:


Tuesday, July 11, 2017

Qualcomm's corporate structure and overseas patents: key issues in answer to FTC complaint

A couple of weeks ago, Judge Lucy Koh of the United States District Court for the Northern District of California denied Qualcomm's motion to dismiss the FTC's antitrust complaint. My theory is that Qualcomm was trying to necessitate an amended FTC complaint, ideally (from Qualcomm's point of view, not mine) to the effect that a FRAND rate-setting determination would have become necessary, in which case Qualcomm could have tried again to consolidate the FTC's case with Apple's case in the Southern District of California since I doubt that two federal courts (here, even in the same state) would have wanted to make duplicative and most likely inconsistent FRAND determinations. But Judge Koh was FRAND-friendlier than I would have thought, so Qualcomm had to file an answer to the FTC's complaint (almost six months after the filing of the competition authority's complaint).

As I said (in different words) in my commentary on Judge Koh's denial order, she went beyond the call of duty and explained her view of the law and many of the alleged facts beyond what would have been strictly necessary to deny a motion to dismiss. The noose is tightening for Qualcomm, and any FTC officials and commissioner(s) supportive of this case have already made so much headway--and the FTC's case has received such broadbased industry support in the form of amicus briefs and an open letter to President Trump--that I remain optimistic (not without caution, though) about the Administration's determination to fix the issue(s).

For the most part, Qualcomm's answer to the complaint is boilerplate. It's the usual deny-everything-that-is-not-110%-undeniable thing, but I'll highlight two aspects that I believe are going to be interesting as the case unfolds (this post continues below the document):

17-07-10 Qualcomm Answer to FTC Complaint by Florian Mueller on Scribd

In paragraph 17 of its complaint, the FTC described (in addition to stating Qualcomm's legal domicile and some financials) Qualcomm's corporate structure as follows:

"Qualcomm's principal businesses are the development, design, and sale of baseband processors and other semiconductor devices used in cell phones and other mobile consumer products (collectively, 'handsets'), and the licensing of intellectual property related to cellular technology. Qualcomm sells cellular baseband processors through a business unit called 'Qualcomm CDMA Technologies' or 'QCT.' Qualcomm licenses its intellectual property rights through a business unit called 'Qualcomm Technology Licensing' or 'QTL.'"

Normally, one would think that there's no reason Qualcomm would feel forced to deny the above. It's just so basic and, at first sight, nonjudgmental. Isn't Qualcomm selling baseband processors? Isn't it licensing patents? Isn't it doing the former through QCT and the latter through QTL? What's incorrect here? But Qualcomm denies the FTC's portrayal of its corporate structure and offers its own version instead:

"(ii) Qualcomm's businesses involve the development and commercialization of digital communications technologies; (iii) Qualcomm conducts business through reportable segments including Qualcomm CDMA Technologies ('QCT'), which develops and supplies integrated circuits and system software for use primarily in voice and data communications, and Qualcomm Technology Licensing ('QTL'), which grants licenses or otherwise provides rights to use portions of Qualcomm's intellectual property portfolio[.]"

I believe Qualcomm is trying to nuance its corporate structure here because it will try to somehow argue (which is going to be a tall order and I doubt it will persuade Judge Koh) that the Supreme Court's recent Lexmark ruling on patent exhaustion wouldn't apply to Qualcomm's situation.

Most of Qualcomm's nine defenses (stated at the end of the document) are legal theories that are identical or related to what didn't persuade Judge Koh in connection with the motion to dismiss, plus theories according to which whatever may appear anticompetitive is actually good for consumers (or, conversely, whatever remedy might appear procompetitive would ultimately harm consumers). Considering how much I, as a consumer, believe to have indirectly paid to Qualcomm over the years (vs. what other patent holders presumably collected), I disagree. In particular, the consumer-friendliest remedy would be to enforce Qualcomm's "to all comers" FRAND licensing obligation so that Intel, Samsung and others could sell baseband chips to device makers that come with a license to Qualcomm's standard-essential patents.

The defense that I think will raise the most interesting discussions is the ninth (and last) one:

"Any requested relief that would apply to the licensing of patents issued by a jurisdiction other than the United States would be barred as beyond the reach of the U.S. antitrust laws, including the FTC Act, and/or as an improper application of those laws due to principles of international comity."

Patents issued by other jurisdictions do raise special issues, but aren't necessarily "beyond [...] reach." For example, the Ninth Circuit upheld Judge Robart's antisuit injunction against Motorola Mobility. Presumably the FTC will explain its theories with respect to ex-U.S. patents in its reply.

Let's assume, just hypothetically (it really doesn't mean an agreement or disagreement with Qualcomm's ninth defense), a scenario in which Qualcomm would lose the wider war but win the foreign-patents battle. In the single most lucrative market for most companies in this industry, Qualcomm would then, for example, have to grant patent licenses to rival chipset makers. In the rest of the world, it could still deny a license to the likes of Intel, but only if antitrust authorities and courts in those other jurisdictions let Qualcomm get away with that behavior when the country in which Qualcomm is headquartered doesn't. It would likely be hard for Qualcomm to convince competition enforcers in places like China and the EU that they should accept behavior that was deemed anticompetitive and harmful to consumers in the United States.

Share with other professionals via LinkedIn:


Friday, July 7, 2017

Qualcomm seeking U.S. import ban against iPhones with Intel (or other non-Qualcomm) chips

[Update on July 8, 2017] added ITC complaint, mentioned routinely request for public interest statements, domestic industry infringement claim charts [/Update]

Yesterday evening, Qualcomm did something it had already indicated a couple of months ago and finally announced the filing of an ITC complaint (request for an exclusion order, i.e., import ban by the United States International Trade Commission) against Apple (this post continues below the document):

17-07-06 Qualcomm v. Apple ITC Complaint by Florian Mueller on Scribd

The announcement also mentioned a companion complaint filed with the United States District Court for the Southern District of California in San Diego (this post continues below the document):

17-07-06 Qualcomm v. Apple Patent Infringement Complaint by Florian Mueller on Scribd

Qualcomm also published an infographic on the six patents-in-suit (PDF), which stresses a point made in the press release: the six patents Qualcomm is asserting are, according to its holder, not essential to an industry standard. About four years ago, the Obama Administration vetoed an import ban Samsung had obtained against Apple over a standard-essential patent (SEP), a decision that upped the ante for anyone trying to obtain an ITC import ban over a FRAND-pledged SEP.

Let's believe Qualcomm that those patents--hardware and software patents relating to energy efficiency--aren't standard-essential (a claim that is perfectly credible given the subject matter of those patents). Before any remedies can be ordered, Qualcomm firstly needs to prevail on the merits. I haven't watched the ITC in recent years, but I was watching it for several years during which it was a monumental smartphone patent graveyard. Unlike in district court, where juries rarely invalidate patents, ITC judges are pretty receptive to invalidity arguments, and they aren't easily persuaded of an infringement allegation either. Quite often, complainants run into a situation in which a patent claim can be construed more narrowly or a bit more broadly, and in one case it isn't infringed while in the other event it isn't valid.

Qualcomm highlights that all six patents issued in the last four years. While an exclusion order, should Qualcomm obtain one, could then stay in effect for longer than it could over very old patents, youth isn't a virtue with respect to validity. It means that there must be a whole lot of prior art out there that also deals with saving battery power when a mobile device performs certain operations. The (claimed) priority dates of all of those patents but one are from this decade, and the sixth one claims priority from a 2008 application. Many other companies in the industry were working on power-saving techniques at the time--and long before.

The non-standard-essentiality of those patents, while avoiding one major obstacle to ITC exclusion orders and (in federal court) injunctive relief, is a major limitation on the infringement side. Other major patent holders had very limited success with non-SEP infringement assertions. Typically, even where infringement was established, defendants usually came up with pretty good workarounds, often of the kind that consumers didn't even notice. However, workarounds are more complicated when patents claim certain hardware features/configurations, as some of Qualcomm's patents-in-suit do. Still, should Qualcomm prevail on the merits, the ITC has previously granted rather generous transitional periods during which defendants were able to modify their products so as to steer clear of further infringement.

Qualcomm is clearly worried about the public interest analysis that the ITC will have to perform (and that the Trump Administration may additionally perform). Its choice of asserting non-SEPs (despite the challenge this represents on the infringement side) is only one indication. In a Wall Street Journal interview, Qualcomm's top lawyer explained that the request for an import ban relates only to iPhones with non-Qualcomm (practically, that would simply mean Intel) baseband processors because of the public interest factor: Qualcomm argues that it would be OK to block some iPhones from importation into the U.S. while others (those using Qualcomm chips) would remain available. In other words: Qualcomm says that blocking all iPhones might run counter to the public interest, but blocking some (especially then the latest models at the time) would not.

Whenever an injunction (here, it's called an exclusion order, but the effect is the same) is sought, courts are potentially more willing to grant it if it's narrowly-tailored than if it appears overreaching. But Qualcomm told the Wall Street Journal that it doesn't want to "affect in unecessary ways competitive conditions in the U.S. economy." When I read that sentence, I can't help but wonder whether Qualcomm has forgotten about all those competition authorities the world over who are concerned about its exclusionary practices with respect to other chipset makers. Now Qualcomm is saying that it's better for competition if it excludes devices that come with Intel chips than excluding its own.

Is Qualcomm concerned about patent exhaustion in light of the Supreme Court's Lexmark ruling? That depends on which components of a smartphone practice the asserted patents. To its ITC complaint, Qualcomm attached domestic industry claim charts, i.e., its theories as to why its own products practice the patent technologies (that's the best way to satisfy the ITC's domestic industry requirement). So if the iPhones included those products, exhaustion would apply. In any event, the connection with the public interest context is clear, and "only" banning iPhones with Intel chips would raise serious issues. We're well over a year away from the earliest point at which the ITC would make a final initial determination and, if that preliminary ruling suggested an import ban, would request the most important round of public interest submissions (the complaint also triggered a request for input, but the most important submissions would likely be made at a later stage). Nevertheless it's easy to imagine what concerns the FTC--and even Apple's fiercest competitors--as well as industry bodies and public-interest advocacy groups would express at that stage...

What Qualcomm hopes to achieve is obvious: it hopes to gain leverage over Apple that would result in a comprehensive settlement. In that case, some of the antitrust and exhaustion issues raised by Apple in its complaint(s) against Qualcomm wouldn't get adjudicated. But the rest of the industry is presumably hoping that Apple's initiatives bring clarity and force Qualcomm to change its practices. That's why I just said that even Apple's fiercest competitors would oppose an iPhone ban in this case, even though they could theoretically hope to gain market share. Also, other smartphone device makers don't want to see their own devices banned.

It's another battle in a wide-ranging war, but once again it comes down to Qualcomm vs. device makers and other chipset makers. Apple is doing all of this proactively, but the way to look at this is that Apple is also a proxy here for the likes of Samsung, Intel, Huawei... you name them.

Share with other professionals via LinkedIn: