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'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.

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