Tuesday, December 12, 2017

EU guidelines on standard-essential patents favor product-centric businesses large and small

Given that I'm working hard on my personal "Flexit," I'm the exact opposite of your average "EU ├╝ber alles" kind of claquEUr. But when the EU does something right, I'll acknowledge it. The "Communication from the [EU] Commission to the [EU] Institutions on Setting out the EU approach to Standard[-]Essential Patents" (published the week before last) is by far the best I've seen from the European Commission, or any EU institution, in ages.

Just like the Fair Standards Alliance, I welcome this (now quoting the FSA) "forward-looking guidance to European industry" on SEP licensing because the European Commission declined to endorse "use-based" licensing fees, which is what the likes of Nokia and Ericsson (and their non-European allies, particularly Qualcomm) wanted. "Use-based" licensing is just a euphemism for gutting the "ND" (non-discrimination) part of "FRAND" by allowing patent holders to charge royalties on components of multifunctional products they have nothing to do with. Industry issues often enter the public sphere only through litigation, and the dispute between Apple and Qualcomm serves as a useful showcase: Apple credibly alleges that Qualcomm effectively seeks incremental royalties on iPhones with more memory, better/bigger screens, better cameras, fingerprint sensors, and so forth. That kind of insanity is what "use-based licensing" comes down to. I wonder when the likes of Qualcomm will demand royalties on the interior of the official Apple Stores, arguing that no one would walk into those stores in the first place if it weren't for wireless connectivity...

Obviously, Apple was among the parties who provided input to the European Commission that was materially consistent with what the Fair Standards Alliance proposed. We can talk about the proper royalty base (or damages base, to be precise) again in the build-up to next year's fourth Apple v. Samsung trial, but let's stay focused on SEPs right here and now.

The royalty-base issue became the most hotly-contested one during the EU consultations on which last month's official communication was based. But the question of injunctive relief is no less important. At the end of the day, a SEP holder can extract excessive SEP license fees either way: by going directly for overcompensation (in the form of license fees and/or damages awards) or by getting leverage through injunctive relief (sales bans, import bans, seizures by customs authorities; USITC-style remedies are indeed available and sometimes granted in the EU as well) and then imposing non-FRAND settlement terms. Arguably, injunctive relief is even more problematic since it can also be used to shut competitors out of markets. The EU guidelines on SEPs do make reference to the Huawei v. ZTE ruling by the Court of Justice of the EU, and it becomes clear (not just between the lines) that the Commission, generally speaking, disfavors SEP injunctions. What made stakeholders focus more on the royalty base is simply that the rejection of "use-based licensing" has yet to be enshrined in case law while there's plenty of case law around the globe that has practically made it impossible to obtain SEP injunctions except under extremely rare circumstances. The Qualcomm showcase is also telling: while Qualcomm has flooded Apple with patent infringement suits this year, it's not even trying to seek SEP injunctions (including SEP-based import bans): all of its injunction requests are based on non-SEPs according to Qualcomm's own representations.

The EU stresses that its guidelines are a set of policy recommendations, not an interpretation of the law. But the part on injunctive relief is a statement of the law for the most part. I hope that some of the ongoing disputes and competition enforcement actions will over the next few years result in so much clarification that even the royalty-base question will have to be considered a largely settled ("settled" in terms of "adjudicated") issue.

The Commission guidelines start off with transparency. I agree with that part. It's an interesting suggestion that patent offices could help determine and, after a standard is finalized and a patent finally issued (or narrowed through reexaminations or litigation), revisit the question of whether a given patent, as finally issued, is actually essential to a standard, as finally adopted. Apart from the standard-specific parts the EU positions on transparency relating to SEPs should also apply to non-SEPs. At least I can't see any reason why they shouldn't. But it would have been off-topic for the Commission to make a more comprehensive recommendation on patent ownership transparency.

In subsection 2.2, the EU SEP guidelines refer to the principle of non-discrimination (again, the "ND" in "FRAND"). That part of the guidelines could have been sharper, clearer, and more elaborate. But the Commission's competition enforcement arm still has the opportunity to make a positive impact with respect to some SEP holders' refusal to extend licenses to rival chipset makers.

I disagree with the Commission's rosy portrayal of alternative dispute resolution (ADR) mechanisms and of the (so far non-existent) Unified Patent Court. I always consider it a lost opportunity when a SEP licensing issue gets resolved through an opaque process that doesn't contribute to the evolution of case law (on the proper royalty base, for instance).

The part on open source and SEPs (Section 4) is factually accurate. What I think should always be made clear in this context is that open-source companies such as Red Hat do pay patent royalties all the time while claiming in policy discussions that open source, particularly software licensed under the GPL free software license, and patent royalties are inherently incompatible.

All in all, the EU SEP guidelines are a victory for businesses of all sizes whose focus is on making and selling products (as opposed to the monetization of patent portfolios). While Europe's companies are and will remain insignificant in the largest market segments and most lucrative fields of technology (apart from SAP, and even that one may be acquired by a U.S. tech company sooner or later), the jury is still out on its automotive industry (I'm skeptical, but others aren't), and the EU Commission refers to Internet-of-Things (IoT) startups. In IoT, there are and will be many niche opportunities, and that's exactly where the EU (as an economy) does have some opportunities (while it's never going to be competitive in search engines, operating systems etc.). I agree with the Commission that small IoT companies need a healthy and reasonable SEP-licensing environment. Helping those companies, and Europe's automotive industry, makes a lot more sense than wacko calls for a cordinated EU response to the success of companies like Apple, Google, and Facebook.

More than anything, I'm glad the European Commission didn't bow to lobbying pressure from increasingly patent-focused has-beens like Ericsson and Nokia. Those companies aren't Europe's future. And some of the key beneficiaries of supra-FRAND royalties would be non-EU companies such as Qualcomm at any rate.

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Friday, December 8, 2017

Google's Android-Java "fair use" trial win over Oracle is virtually certain to be overturned

I haven't blogged about this case in a long time and won't spend much time now, but I wish to be of service to my readers here since there doesn't seem to be any reporting in the IT press about how yesterday's Oracle v. Google Federal Circuit hearing went. To the extent anyone reported at all, it appears those reports were either written before the hearing or, if after, they're behind paywalls (or at least Google News doesn't find them).

I won't reiterate my unchanged position on the case in general and "fair use" in particular now. All that matters is what's going to happen now, and it would be a major surprise if last year's ruling by Judge Alsup in the Northern District of California, based on a jury verdict that came into being under circumstances I harshly criticized at the time, was affirmed.

The Federal Circuit yesterday published the official recording (MP3) of the hearing. The panel, which previously held the Java API declaring code copyrightable (it's no secret that this has been my view for a long time), does not appear to agree with Judge Alsup's decision to withhold evidence on non-mobile Android devices (desktop PCs etc.) from the jury. The only question at this stage appears to be whether the appeals court, after finding that this decision and possibly some others were wrong and prejudiced Oracle, will resolve the "fair use" defense by throwing it out directly as a matter of law or, at a minimum, remand for a retrial. I think the probability of a JMOL is greater than 50%.

When listening to the recording, you'll see that the appellate panel firstly was very interested in Oracle's JMOL argument and even allowed five minutes above and beyond the originally allotted time. Then Google's appellate attorney got a very rough ride. The most impressive part of the recording is the last five minutes: an amazingly powerful rebuttal statement by Orrick's Joshua Rosenkranz. This is as good as it gets.

While no one said so at the hearing, I believe Judge Alsup completely destroyed his credibility with the Federal Circuit by excluding absolutely essential and outcome-determinative evidence. He's in for a second reversal in the same case--which is unusual, but he had it coming.

When the appellate opinion is handed down, many people will be surprised that the case is still alive. But you won't be because I felt I had to tell you since, to the best of my knowledge, no other free-to-read website has done this job, at least not yet.

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Wednesday, December 6, 2017

After Apple's patent infringement counterclaims, Qualcomm launched a barrage of new complaints

A week ago, on November 29, there was a flurry of activity between Apple and Qualcomm, and I'd like to share the documents with you now as well as a few observations:

  • Apple filed its answer and counterclaims (uploaded to Scribd) to Qualcomm's first infringement complaint (a companion lawsuit to an ITC complaint). The introductory statement contains the following portrayal of the parties:

    "This case presents a tale of two companies. On one hand we have Apple who literally created the modern smartphone as a product category, with the iPhone's cutting edge design, easy connectivity, superlative battery life, and interactive applications that make the smartphone the smartphone. On the other we have Qualcomm, who developed rudimentary telephone technology that carried voice calls in the early days of feature phones, but whose technology is dated. [...]

    The weak patents Qualcomm asserts here for the first time appear to be a blatant effort to take credit for the innovation of others. Notably, all of Qualcomm's asserted patents were filed and prosecuted well after the iPhone was introduced. Put plainly, Qualcomm saw the unique features and success of the iPhone, and then pursued patents trying to cover the Apple product much like a common patent troll."

    While I wouldn't subscribe to this description 100%, it is a fact that Qualcomm's innovations already powered pre-iPhone devices, and if Qualcomm had really been the primary innovator in the smartphone space, the iPhone and iPhone-like Android devices wouldn't have displaced older phones such as those made by Nokia at the time. The difference that the iPhone made was at a different layer of the technology stack. As for whether Qualcomm is behaving "much like a common patent troll," I'd have been less inclined to agree with Apple's lawyers on this one before Qualcomm made its four other filings that same day. In other words, Qualcomm couldn't have done much more to lend credence to the "troll" label.

    In addition to defending itself against Qualcomm's claims, Apple brought counterclaims alleging that Qualcomm is infringing eight Apple patents on techniques that minimize battery power consumption.

  • Qualcomm filed a second ITC complaint against Apple (uploaded to Scribd), over five patents described as relating to touch gestures, autofocus, multitasking, quick charging, and machine learning. Once again, Qualcomm is seeking an import ban against devices incorporating Intel chips, which is problematic given Qualcomm's market dominance. Considering that the previous ITC complaint was filed in the summer, Qualcomm apparently just waited long enough so it would have a decent chance of avoiding consolidation of two ITC actions into one (in which case Qualcomm would come under pressure to narrow its combined case, and which would delay resolution).

  • In the Southern District of California, Qualcomm filed a civil companion lawsuit mirroring the ITC complaint (uploaded to Scribd).

  • Qualcomm also filed a complaint (uploaded to Scribd) over patents originally filed by Palm Computing and the creators of a device named TouchTable.

  • Finally, Qualcomm brought a complaint (uploaded to Scribd) over what it says relates to battery charging, content delivery, machine learning, stepped gain mixers, image processing, and circuitry.

Sometimes it's hard to see the forest despite all the trees. The core issue is Qualcomm's behavior that regulators around the globe have already held to be anticompetitive. Qualcomm writes in its latest complains that "Apple misled governmental agencies around the world into investigating Qualcomm in an effort to indirectly exert leverage over Qualcomm," but where there is so much smoke, and in so many different places, it's hard to imagine there isn't also a whole lot of actual fire. No company can ever have the persuasive power that Qualcomm claims Apple has. Qualcomm would have us believe that Apple managed to mislead multiple regulatory agencies with their specialized and dedicated case teams and experienced senior decision makers. I just can't imagine this to be the case. Instead, I believe that "you can fool all the people some of the time and some of the people all of the time, but you cannot fool all the people all the time" (a quote attributed to Abraham Lincoln).

There's an antitrust core here, which (let's not forget) also involves patent exhaustion issues. Around that core, there are tangential and peripheral issues and factors.

For example, there's Broadcom's takeover bid, which Qualcomm's board has rejected.

There's Qualcomm's constant struggle to balance investor relations and litigation/antitrust priorities. The investor relations part was important at the outset and became even more relevant after Apple and another company (which analysts tend to believe is Huawei) stopped royalty payments to Qualcomm through contract manufacturers.

And now there's a whole lot of infringement litigation.

As I've said in previous posts, the real issues here are so important to the entire mobile device industry that I hope it won't come down to leverage (whether it's leverage based on Apple's cessation of royalty payments or leverage based on Qualcomm's infringement claims against Apple). The outcome should depend on the merits--and only on the merits.

Whether Qualcomm will get much leverage out of its infringement cases is impossible to tell at this early stage, but in this industry companies typically don't get much leverage out of non-standard-essential patents because, if it comes to worst, they can usually be worked around--nor do they get much leverage out of standard-essential patents because of their obligation to license them on fair, reasonable and non-discriminatory terms to all comers (Qualcomm doesn't quite agree on "to all comers" yet, as it denies licenses to chipset makers, but that will hopefully change as a result of antitrust proceedings in multiple jurisdictions, Apple's cross-jurisdictional lawsuits, and maybe even lawsuits by other parties, which can always happen).

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