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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Thursday, November 23, 2017

Happy Thanksgiving -- and some information about my iOS trivia game app

I wish you all a Happy Thanksgiving! Hope you're having a great time now with family members and/or friends.

In recent years I've mentioned on various occasions that I was working on an app. Now, at long last and on the occasion of this holiday post, I'll be more specific about it.

This is one of only two posts you'll ever find here about my app. Promised. The only other one will be a single paragraph once it can be downloaded from the U.S. App Store, just to tell you that and where you can find it in case you're interested. Other than that, I'll keep my app and this blog completely separate, recognizing that only some--but presumably not most--of the professionals following patent and antitrust cases play trivia game apps. I've set up a separate blog and several separate social media accounts for my app.

Most of you presumably hadn't heard of me before I wrote about the "smartphone patent wars." That's why it may come as a surprise to some of you that my primary focus is a game app. Actually, in the mid to late 1990s--long before I started this blog (and even before I ran a campaign against a proposed piece of EU software patent legislation)--I was already in the computer games business: I was a consultant to Blizzard Entertainment, now best-known for World of Warcraft; and I founded an online gaming network, which was acquired by a large multinational telecommunications company. So I'm back to my roots now, as counterintuitive as it may seem.

In 2014, I founded a company, Quizista, to develop a revolutionary trivia game, Quizcover. It's revolutionary in the sense that it puts an end to the monotony of traditional trivia games and innovates the most fundamental aspects of trivia gaming: the way the game presents questions, the way players enter their answers, the way the answers are evaluated, and the kinds of hints (also called "boosters") players can get. It also has other advantages, several of which are shown on this feature comparison table (which, by the way, we're not going to use in communications with consumers).

Just like all other trivia game apps, Quizcover comes with the traditional trivia game question type (one option is right while three are wrong), which I call "Pick One" and which still makes sense for a lot of purposes. But on top of that, it has a couple of more interactive question types, Pick Some (multiple answers are correct) and Match Two (where players have to form correct pairs). The conventional Pick One trivia question type would also have worked on a 1990s Nokia phone. The Pick Some and especially Make Two types are very easy to learn, but they make much better use of touchscreens, they're more engaging, and they're more informative. They make all the difference, and I'm deeply convinced that the days of conventional trivia games are numbered. Once someone has experienced the diversity of Quizcover, why settle for monotony?

For a long time I have wanted to make knowledge more playable and trivia gaming more interesting and, at the same time, more informative. I've been fortunate to be working with a group of great software developers and content authors who share my vision. That vision has turned into a reality. Last month, Apple approved the first release of my app for distribution via the App Store and we made it available in a number of markets, but without any promotional efforts so far. In recent weeks we've made further UX improvements, some of which we consider very significant, and we're soon going to conduct our final test of a new version before publishing the app in the United States (the market for which its content was mostly created), which may already happen next week. And then we'll make more noise but, as I said, not on this particular blog.

If you have an iPhone or iPad running on iOS 10 or 11, and if you're interested in joining that final beta test, please email me at info@quizista.com and I'll be glad to make sure you receive a test version soon via TestFlight. There's no obligation attached to participating in such a beta test.

I would also like to invite you to follow Quizcover on Instagram. We recently started posting some facts and questions from our game there on a purely experimental basis and we like the platform, so once we've launched the app in the U.S. market, we'll be more active here, too.

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Tuesday, November 7, 2017

Supreme Court denies certiorari in second Apple v. Samsung case: $119M ruling upheld

This morning's Supreme Court order list indicates that Samsung's petition for writ of certiorari (request for Supreme Court review) in the second California Apple v. Samsung case has been denied. The top U.S. court's decision follows (literally and figuratively) the position taken by the Solicitor General of the United States, which was not a given but isn't much of a surprise either.

While I still believe the three Federal Circuit panel judges who threw out the $119 million decision got it right, the Supreme Court can only hear a limited number of cases per year. The decision to deny certiorari doesn't mean that the Supreme Court agrees with the Federal Circuit on any of the substantive issues in the case. Part of the anti-cert argument was that other cases might be better vehicles for addressing those issues.

This pretty much ends the roller-coaster ride that this particular case (which is just part of the once-huge #appsung dispute) has been. All that's left to be sorted out now is relatively unimportant.

Samsung made a lot of headway with respect to design patent damages, and will get a new trial. In that context, the Supreme Court had granted a cert petition by Samsung and overruled the Federal Circuit. The Supreme Court might have been particularly hesitant to hear yet another Apple v. Samsung case.

There was a time when this dispute comprised cases pending in nine or ten jurisdictions, and when it appeared to escalate endlessly. By now, it's just about non-strategic matters pending in the Northern District of California. After Judge Lucy Koh granted Samsung a new trial over design patent damages, I already expressed my opinion that this would be a good time for them to put the dispute behind them, especially since neither of them has a major problem with the "article of manufacture" test adopted by Judge Koh. As unfortunate as the Supreme Court decision that became known today may be in some ways, it, too, paves the way for a settlement. At a minimum, those Energizer Bunny-style litigants should be able to settle that second case. The remainder of that case is a mathematical exercise with limited probabilistic elements. They should conserve court and party resources now.

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Friday, November 3, 2017

After report that Apple will drop Qualcomm chips, Qualcomm files a breach-of-contract lawsuit

The day before Halloween, the Wall Street Journal reported that Apple was designing next year's iPhones and iPads without Qualcomm chips. Instead, Apple would use Intel and MediaTek components according to the report.

Nothing is final yet, and Qualcomm says it could and would still sell its products to Apple. But the window of opportunity for Qualcomm will presumably close in the not too distant future. At this point, if Qualcomm could reach an agreement with Apple, it would have to be considered a "design win" for Qualcomm (though at first sight it would merely be the continuation of a longstanding business relationship).

In case Qualcomm can't turn this around, a settlement of the earth-spanning antitrust and patent licensing disputes between the two companies will become considerably harder to reach. At a stage at which Apple relies entirely on other companies' chipsets, the only commercially relevant questions for the two to sort out will be about (re)payments and rebates for the past, and about standard-essential patent (SEP) licensing revenues for the past and for the future. In that scenario, Qualcomm will have to prove in court that Apple actually does need a license to any valid and enforceable Qualcomm SEPs, and that will take time.

It could be--but presuambly isn't--a coincidence that one day after the Wall Street Journal article, Qualcomm filed a breach-of-contract lawsuit against Apple in the Superior Court of California for the County of San Diego (this post continues below the document):

17-10-31 Qualcomm v. Apple Breach of Contract Complaint by Florian Mueller on Scribd

One of the reasons for which I doubt that the timing is a coincidence is that Qualcomm has previously appeared to make filings just before or after news that matter to investors, or before earnings calls. For example, in July it announced infringement lawsuits against Apple just before it became known that another customer (financial analysts tend to think it's Huawei) stopped paying patent royalties.

The short version of the Superior Court complaint is that Qualcomm is seeking damages and to enforce the right to perform a certain kind of audit (specific performance) because Apple allegedly violated a Master Software Agreement for Limited Use by disclosing confidential information about Qualcomm's program code to a rival chipset maker, Intel. For example, the complaint alleges the following:

"[I]n 2017, Apple requested that Qualcomm provide details about how Qualcomm's implementation of a particular interprocessor communication was designed to meet a certain wireless carrier's requirements. Qualcomm’s proprietary implementation of this communication protocol is not dictated by any standard and it contains Qualcomm's highly confidential trade secrets. Apple, however, included in the 'CC'd Persons' distribution list for this request an engineer from Intel (a competitive vendor) and an Apple engineer working with that competitive vendor. In a separate incident, Qualcomm received correspondence indicating that rather than preventing information regarding Qualcomm's proprietary implementations from being shared with Apple engineers working with competitive vendors, Apple appears to have merely redacted the code name that Apple uses for Qualcomm on that correspondence. As another example, an Apple engineer working on a competitive vendor's product asked an Apple engineer working on Qualcomm's product to request assistance from Qualcomm relating to a downlink decoding summary for carrier aggregation."

Also, Qualcomm makes reference to a "posting" by someone who Qualcomm believes could be an Intel engineer:

"[...] Qualcomm became aware of a posting regarding Intel Corp. layoffs that appears to have been posted by a former modem design engineer, and which contains several statements of concern that on August 14, 2017 Qualcomm specifically requested Apple investigate. The post references a CNBC article reporting on the ITC action filed by Qualcomm against Apple and goes on to say: 'We were told to ignore intellectual property rights when designing the modem. There was even a conspiracy to copy Qualcomm's technology by hints from Apple about the 'reference device'.' This statement appears to be made by an Intel engineer working on the Apple (Intel branded) modem."

Let's see how Apple will respond to these allegations. Only one thing is certain: this does nothing to justify Qualcomm's licensing practices, so whatever may or may not come out of that case in state court, the fundamental issues (which are of concern to the industry at large, not exclusively Apple and Intel) are still the same. A good offense is sometimes the best defense, but at first sight, the new complaint doesn't look like something that would give Qualcomm a great deal of leverage in settlement negotiations. In the short term this is just further escalation, and I doubt very much that this will "persuade" Apple to use Qualcomm chips in next year's iPhones and iPads. And if the bridge is burned, this dispute might take as long as Apple v. Samsung (actually, Samsung is still doing a lot of business with Apple, which is more than Qualcomm may be able to say in a year from now).

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Sunday, October 29, 2017

The EU's definitive defeat: digital tax plans and a declaration of surrender to Silicon Valley

What you're reading here is a highly skeptical take on the EU's innovation policy and economic outlook from an EU citizen who will leave the EU as soon as possible (more on my personal conclusions at the end of this post).

The EU has a huge competitiveness issue already, and due to the eurozone's lack of innovation, especially in its Mediterranean member states, the sovereign-debt crisis is never going to be resolved. The European Central Bank is, in some ways unlawfully, keeping Europe's south afloat and will do so for some more time, but at some point there will be a crisis of unprecedented proportions--either an acute and dramatic crisis or an extended depression from which the eurozone as an economic area won't really recover.

In the 21st century, innovation is the only way that industrialized countries can achieve more than 1% or 2% of year-on-year organic growth--obviously short of an unexpected discovery of natural resources, which is not realistically going to happen in the EU, or wage cuts in underperforming countries that are even less realistic than the existence of huge undiscovered gold mines in France, Spain, and Italy. The Finnish economy, for example, was performing extremely well while Nokia was setting new records all the time, but shrank by about 9% in a single year as a result of the iPhone/Android revolution. And it's shrinking again. Countries like Spain and Italy--and even France--never had a Nokia in the first place. The Mediterranean economies are strong in industries that mostly existed already in ancient Roman times (agriculture, construction, with even textile going to Asia). Tourism is, relatively speaking, the most modern industry that is strong in those countries, and the EU predicts about 5 million more tourists per year, which I don't doubt but it's not going to do much about youth unemployment rates of 46% in Greece, 38% in Spain, 36% in Italy, and more than 20% in France.

The EU wanted to become "the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth" by 2010, and failed, as even the then-prime minister of Sweden conceded in 2009. For example, per-capita GDP in the EU was less than $38K last year vs. $57K in the U.S.

By now the EU appears to have given up on its ambitions for the digital economy. Instead, its focus is on a new tax that could lead to a full-blown trade war with the U.S. and would definitely harm European companies and consumers in the end.

I'll write about the tax plan again soon because I'll try to make a contribution to the mobilization of app developers and other European technology companies against that plan. In this post, I'll connect a few dots to show the broader picture.

In a Q&A document on the EU's digital tax plans, the EU recognizes the increasingly important role of digital business to the economy:

"In 2006, only one digital company was among the top 20 firms by market capitalisation, accounting for only 7% of the market capitalisation. In 2017, 9 out of the top 20 companies were technology companies accounting for 54% of the total top 20 market capitalisation. Between 2008 and 2016, the revenues of the top 5 e-commerce retailers grew by 32% on average per year. During the same time period, revenue in the entire EU retail sector grew on average by 1% per year."

The largest companies in the digital economy are U.S. and Chinese companies, plus South Korea's Samsung. As a Wikipedia page shows, no EU company has been among the world's largest 10 companies (from all industries, but with digital businesses now leading) by market capitalization since Royal Dutch Shell in the second quarter of 2014. That's a huge failEUre, and a strategic issue because it means that to the extent Europe has any innovative businesses at all (such as SAP), they're not at the top of the M&A food chain.

While that tax plan Q&A still claims the EU wants its digital startups to succeed, the EU's digital industry commissioner has just given an interview to Frankfurter Allgemeine Zeitung, in which she says Europe doesn't need a company like Google. How little weight the digital economy has in the EU is reflected by the commissioners assigned to that area of responsibility. Presently, the EU's digital commissioner is Mariya Gabriel, a young Bulgarian politician with an even less impressive track record than her technology-illiterate predecessor, Germany's Guenther Oettinger, who became the laughing stock of many people in the EU tech industry. Mrs. Gabriel said in the aforementioned interview that the EU should focus on fields such as nanorobotics, security chips, and "automotive digitization", where she says EU companies are leading the way. I checked on who the current leaders in nanorobotics are and found more U.S. than EU companies among the top 10, with all of those EU companies being small enough to be acquired sooner or later, and I've previously outlined my thinking on the automotive future.

There are structural reasons for which the EU not only lacks major players like Apple and Google but why it's highly unlikely that any of its startups will, as an independent company, ever reach that level:

  • The U.S. market is the most important single market, followed by China. That's why I decided to focus on the U.S. first (we'll create content for other markets later), just like this blog has more readers in the U.S. than anywhere else, but EU companies usually serve their domestic market first. No matter how often the EU talks about the "Digital Single Market" (DSM), which is also the context of those terrible digital tax plans, it simply won't be a single market like the U.S. market anytime soon. Multilingualism is a major challenge for the EU, but most countries are too proud and too lazy to think for even one second of adopting English as an EU-wide official language. Therefore, startups can't address the EU market as a single market. It's about a lot more than just translating one's product. For example, there's no major tech news website or IT magazine that people read across the EU.

  • That EU tax document refers to something that is a huge factor indeed: network effects. It's not just that large U.S. companies benefit from network effects. In a way, the U.S. tech industry as a whole has the equivalent of network effects because it attracts and funds many of the world's most talented technologists. There's a virtuous circle involving business angels (many of whom made a fortune through stock and stock options in previous-generation tech startups) and institutional investors of the kind the EU won't have.

  • Investor mentality also plays a role. In the EU, investors generally prefer niche businesses, while in the U.S., there is more of a willingness to "think big" and place bets on what EU investors would consider unrealistic long shots.

  • Partly as a result of unselective migration, in many cases combined with dumbing-down educational policies, the eurozone's population is, on average, becoming weaker and weaker in math according to the Trends in International Mathematics and Science Study (TIMSS). Non-eurozone industrialized countries take fairly high percentages of their 12-year-old students to the top performance level (Singapore: 50%; South Korea: 40%; Northern Ireland: 27%; Russia: 20%; United States and Kazakhstan: 14%), while the largest eurozone countries perform worse each time the study is repeated. Germany, for instance, dropped by 10 ranks between 2007 and 2012 and is now at 5%, which makes it the one-eyed among the blind among major eurozone economies (Italy 4%, Spain 3%, France 2%). The French number is an unbelievable disaster. If you looked at an average class of 30 students in Northern Ireland, eight of them would reach the top level, while in France you'd need two classes of that size to find just one such student. But to address the root causes of that problem would require French politicians to say and do highly unpopular, politically-incorrect things. That's why no one's talking about the big elephant in the room.

Contrary to what the EU says, its tax plans won't make any EU company more competitive. Also, it doesn't make sense that U.S. and other digital businesses "can take full advantage of the networks, infrastructure and rule of law institutions available in EU Member States, without paying any tax in that country." Seriously, how many lawsuits have Apple's App Store or Google's Play Store given rise to in the entire EU? Few and far between I would guess. Do they use such infrastructure as roads and bridges? Not really. It just comes down to cheap electrical and optical signals going over the networks, and the network traffic caused by the download of an app is typically less than a couple of minutes of even a low-quality video stream.

Unfortunately, the Commission's tax initiative has drawn support even from normally libertarian, free-market and fiscally conservative parties such as Germany's FDP, whose secretary-general said last week that she wants to impose higher taxes on the likes of "Apple, Google, and Facebook."

There is some resistance from such countries as Ireland, and unanimity would be required for an EU-wide rule, but something bad could come out of this. Ideally, the EU would like to address the issue at an even higher international level (OECD). If not, the Commission will make a proposal for the EU to act unilaterally. And then, if some countries tried to block the plan, the largest EU member states such as Germany and France might just go ahead without the rest of the EU--and once that threat becomes real, an EU-level agreement might materialize.

Whatever may or may not happen in the end, it's already clear that the EU's dubious "state-aid case" against Apple was just an attempt by the Commission's competition enforcement arm to position itself as the vanguard of the EU's tax crusade against the digital economy's winners. This is just the behavior of sore losers.

I wouldn't have been against a small EU consisting of quality countries in economic and educational terms, with everyone giving up national sovereignty for a greater good. But an unselective and expansive EU that consistently puts the cart before the horse (common currency for disparate economies without a common economic and fiscal policy; internally open borders without effective external controls) was a bad idea.

A few days ago, the European Central Bank announced that, after spending (literally) trillions of euros buying government debt mostly from the likes of Italy and Spain, it was now going to reduce the extent of that program to 30 billion euros a month. By comparison, that is about 10% more than Germany's federal budget. Also, the ECB already owes Germany approximately 800 billion euros through its Target 2 system (with Italy and Spain being the primary net lenders, and even Greece being a significant net recipient). The only way that those countries could ever repay their debts would be sustainable, organic, rapid economic growth. The ECB says that the need for growth is why its "quantitative easing" must continue, and mainstream media in Europe largely parrot that pretext (and even those who criticize the ECB don't tell the whole truth about the mess). But quantitative easing and zero interest rates don't change the fundamental problems I mentioned above. It certainly won't hone anybody's math skills or prevent European tech companies from being bought by U.S. and Chinese acquirers. Instead of spurring growth, the ECB simply enables southern European governments to avoid hard and unpopular decisions. As their excessive borrowing continues, the mess gets bigger until the system implodes.

Just like the ECB's quantitative easing doesn't benefit innovative businesses, the kind of digital tax the EU has in mind would just benefit governments in the short term.

Finally, the kind of disclosure I promised further above. I must admit that I was totally against the 1992 Maastricht Treaty (the treaty that converted the European Community into the European Union and laid the foundation for the euro currency) and now, 25 years later, everything that could have gone wrong with the euro currency and free movement (and that experts had warned against before those fatal decisions were taken) has indeed gone wrong. In 2004-2007 I opposed various EU policy initiatives and consistently got along very well with the "Brexiteers" in the European Parliament. I do sometimes support EU competition cases if they involve genuine antitrust and merger control issues, but not if they're "total political crap".

I don't want to be a resident of the dysfunctional EU anymore. I'm on my way out of the EU as we speak. After years of development, I'm finally about to launch my app, which has already been approved by Apple for App Store distribution, in the U.S. market. I haven't announced the name of the product and of my company on this blog or on Twitter yet, but I will soon. All that I have said so far is that it's going to revolutionize the trivia game market. And it will.

Once my app generates a certain level of revenues, which I'm sure it will soon (just don't know exactly how much and how soon), I'll be in a position to relocate to the U.S. on a permanent basis. That step is actually overdue. As a matter of fact, this blog has widely been perceived as a U.S. tech/IP law/policy blog (even by the Library of Congress). I've always considered, despite its challenges, the United States the greatest country on Earth, and I've traveled a lot more in the U.S. than in Europe already. Now it's not just about personal preferences or the greater opportunities I see in the U.S.--I'm really deeply convinced that the eurozone is on the completely wrong track without any hope that things could somehow work out in the end. The overindebted economies of the Mediterranean region won't recover, and Germany isn't strong enough to support them forever. For example, Italy technically owes Germany (through the ECB) many hundreds of billions of euros, but Germany's trade surplus over Italy is just on the order of 10 billion euros a year. The numbers just don't make sense. Once Germany's pension system becomes unsustainable due to the demographic gap (by the 2030s at the latest), it will be game over for the eurozone, if not before.

Should the EU levy a special tax on digital businesses, its innovation problem would only exacerbate. It's worse than merely rearranging deck chairs on the Titanic.

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Monday, October 23, 2017

Samsung never quits, finally gets design patent damages retrial in long-running Apple case

If one thought it appropriate to label a company's in-house and outside counsel, collectively, a "Comeback Kid," the term would surely apply to Samsung's IP litigation group and Quinn Emanuel. Yesterday (Sunday), Judge Lucy Koh of the United States District Court for the Northern District of California determined that a new Apple v. Samsung trial on design patent damages, which Samsung had been fighting for in courts on both coasts of the United States since the 2012 verdict, is indeed going to happen. You can read her decision (as always, perfectly-structured and clear, whether one agrees or not) right below or, if you lack the time, my Reader's Digest version further below:

17-10-22 Order Requiring New Apple v. Samsung Trial on Design Patent Damages by Florian Mueller on Scribd

Samsung had originally asked Judge Koh for a retrial (in vain at the time), then the Federal Circuit (in vain), then requested an en banc (in vain), then petitioned for a writ of certiorari (successfully), then convinced the Supreme Court that the standard to design patent damages that had originally been applied was incorrect, then dissuaded the Federal Circuit from affirming the original ruling after the SCOTUS opinion, and, just last summer, persuaded Judge Koh that it had not waived its "article of manufacture" argument. But theoretically the retrial could still have been denied: Judge Koh explained that the test for the relevant article of manufacture (with respect to which Apple would be entitled to an otherwise-unapportioned disgorgement of infringer's profits) had to be determined first. The result could have been one under which Judge Koh would have held that, as a matter of law, the original approach of treating Samsung's entire products (certain smartphones) as the relevant article of manufacture had been undoubtedly correct, in which case the original jury instruction would probably have been deemed not to have been prejudicial to Samsung. Right for the wrong reasons, sort of.

Samsung has also taken this final pre-retrial hurdle, and no matter what the ultimate outcome of this case (which may even be ripe for a settlement now) may be, this is a heroic achievement by Samsung and Quinn Emanuel.

Since the Supreme Court had merely tossed the original approach but not (yet) established a new test, Judge Koh had three alternative proposed tests before her to choose from (short of coming up with her own):

Judge Koh has adopted the DoJ's approach, as had the United States District Court for the Southern District in a different case. This was a safe choice for her in some respects, especially since counsel for both parties had expressed that it viewed the DoJ proposal far less negatively than that of the respective adversary. Based on what Judge Koh quoted, Apple merely said it thought it "could live with" the DoJ test, while Samsung's counsel even said it "has a lot of merit." So I guess neither party is downbeat right now, but presumably the folks at Samsung and Quinn Emanuel are a bit happier.

These are the winning factors:

  • "[T]he scope of the design claimed in the plaintiff's patent, including the drawing and written description";

  • "[T]he relative prominence of the design within the product as a whole";

  • "[W]hether the design is conceptually distinct from the product as a whole"; and

  • "[T]he physical relationship between the patented design and the rest of the product," including whether "the design pertains to a component that a user or seller can physically separate from the product as a whole," and whether "the design is embodied in a component that is manufactured separately from the rest of the product, or if the component can be sold separately."

This test presents challenges and opportunities for either party when arguing to the jury. Apple will have the benefit of a local jury, and all in all the wordings of the adopted test appear more favorable to Apple than to Samsung, but Samsung will still have plenty of opportunity to persuade the jury that the outcome would be absurd and devastating if a disgorgement of profits made with entire smartphones was awarded. Anything's possible, but there's a relatively high likelihood that Samsung will manage to bring the award down, even though the jury will be picked from Apple's backyard.

After adopting this test, which makes it possible (though far from certain) that disgorgement will relate to something other than the end product, the retrial was inevitable.

The question of the burden of proof has now been resolved as well. Apple will have to persuade the jury that those entire Galaxy phones are the appropriate articles of manufacture, while Samsung will have to prove an alternative article and any deductions. On this one, Samsung clearly got a rather favorable outcome.

The parties now have until October 25 to propose a case schedule and retrial date. There's enough money at stake that the retrial may indeed happen, but I believe there is at least a 30% chance that they will settle before. They're both fine with the DoJ test, they've both shown to the world (including Qualcomm and its increasingly-impatient shareholders, who shouldn't necessarily share Qualcomm's CEO's optimism about a favorable settlement in the forseeable future) that they're prepared to see this kind of litigation through over the course of many years, and they have bigger issues (again, Qualcomm) to focus on. Plus, since they work together so closely (on the iPhone X, for example), they can structure this settlement in a way that whatever Samsung might pay would just be compensated somewhere else. I would recommend to them that Samsung pay, for the design patent-related part per se, less than half of the $400 million portion of the award that is in dispute now, given that Apple's risk of the award being reduced to a relatively small amount is greater than Samsung's risk of Apple being awarded more than half of the original award next time. But right now they'd probably both disagree, and if they need a mediator, they'll find someone more qualified than a blogging app developer.

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Wednesday, October 11, 2017

Decision by Taiwanese antitrust authority: huge setback for Qualcomm, breakthrough for industry

The Taiwan Fair Trade Commission's decision to impose a record fine of more than $700 million on Qualcomm and to demand a departure from some of Qualcomm's longstanding, problematic practices is really huge. If I didn't believe so, I wouldn't be writing this blog post about two hours after receiving approval from Apple to publish my iOS game, after three years of development. We're initially making the game available in 24 countries now and will do our U.S. launch (after a bit more fine-tuning) next month, at which time I'll be more specific about category, name, features, everything.

Taiwan is such a strategic region in the context of Qualcomm's dual-monopoly strategy involving standard-essential patents as well as chipsets. In Taiwan you have three types of key industry stakeholders suffering under what Qualcomm has been doing for a long time:

With a view to pending lawsuits, the biggest impact will be in the Southern District (contract manufacturers) and the Northern (FTC) District of California.

The Taiwan Fair Trade Commission has now joined the Korea Fair Trade Commission, the FTC, and the European Commission, and who knows what trouble Qualcomm may still face in the People's Republic of China, considering that there is speculation about Huawei having ceased to make royalty payments to Qualcomm.

As one would have expected, Qualcomm is fighting the decision. The Bloomberg story I linked to further above says Qualcomm will seek a stay and appeal. It was recently denied a stay in South Korea, by the way.

This has been a very eventful ten months for Qualcomm in antitrust terms. It's hard to identify the tipping point, but my prediction is Qualcomm will have to fundamentally change its patent licensing and other business practices in the not too distant future, and when that happens, today's Taiwanese decision will be considered to have been among the more important events in that regard.

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Monday, October 9, 2017

Qualcomm forced to offer commitments in order to obtain EU clearance of NXP deal

There have been strong indications that the European Commission's Directorate-General for Competition (DG COMP) has serious concerns about the potentially anti-competitive effects of Qualcomm's proposed acquisition of NXP Semiconductors. By now, there can be no doubt about that: the Commission's website states that Qualcomm submitted commitments four days ago. No one offers commitments if unconditional clearance is achievable.

Typically, companies discuss such proposed commitments with the Commission beforehand. If the Commission believes the commitments might be useful, it puts them to a market test, giving stakeholders an opportunity to comment. Here, there is no official confirmation--just rumors--of an ongoing market test.

As I've said earlier in the process, the only meaningful remedy here would be an obligation for Qualcomm to extend licenses (obviously on fair, reasonable and non-discriminatory terms) to rival chipset makers. That would help Qualcomm's competitors and customers alike. With the licensed product being a chipset, the royalty base alone makes it very hard, if not practically impossible, for Qualcomm to charge anywhere near the license fees it appears to demand from device makers. But it would have been out of character for Qualcomm to propose such a commitment. I guess Qualcomm would rather walk out on the NXP deal, but I wish I turned out to have been wrong on the effectiveness of its proposed commitments, though merger remedies (other than a divestment of certain assets) are rarely helpful--in most cases they just look like they would ensure fair competition while they actually don't, either because they don't go far enough or because they lack specificity.

No matter whether Qualcomm's proposed merger remedies are helpful, the fact that Qualcomm apparently felt forced to offer any commitments in order to obtain clearance is the latest indication that regulators in different parts of the world are concerned about some aspects of Qualcomm's business model and practices.

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Thursday, October 5, 2017

DoJ backs Apple, says Supreme Court should deny Samsung's most recent cert petition

Just this week, the Wall Street Journal reported on the high-volume business Apple is doing with Samsung, a key supplier of components for various products including the new flagship iPhone, the iPhone X, on which Samsung will reportedly make $110 per unit. But as device makers, the two remain fierce competitors--and adversaries in court.

A few months after the Supreme Court of the United States requested the Trump Administration's perspective on Samsung's most recent petition for writ of certiorari, the Solicitor General of the United States, Noel Francisco, has expressed the views of the U.S. federal government (this post continues below the document):

16-1102 Views of the United States by Florian Mueller on Scribd

The short version is this: the DoJ tells the Supreme Court to deny all three parts of Samsung's petition, but it's not a ringing endorsement of the Federal Circuit's controversial en banc decision. Not at all. It's completely based on procedural and standard-of-review considerations.

The following passages show that the DoJ doesn't necessarily agree with the Fed. Cir. majority:

"The sufficiency-of-the-evidence question presented on appeal was a close one, and the court of appeals may have erred in concluding that substantial evidence supported aspects of the jury's verdict."

"If the Federal Circuit continues to develop and enforce rigid rules for demonstrating obviousness, this Court's review may ultimately be warranted. This case, however, would be an unsuitable vehicle for addressing that issue. Because petitioners did not preserve any objection that the jury instructions [...]"

"Although the phrase 'some connection' may be infelicitous, [...]"

In the famous design patents case, the DoJ agreed with Samsung on the key legal question (article of manufacture). It additionally brought up a procedural question that could have enabled Apple to defend the original damages award. Now, with respect to the more recent petition relating to invalidity, injunctive relief, and infringement, the DoJ cautiously distances itself from the en banc opinion and indicates only between the lines that it may disagree, to some extent, from a policy perspective ("rigid rules for demonstrating obviousness" etc.). It would have been nice if the DoJ had been clearer about the implications of this for U.S. tech companies and for the work of the United States Patent and Trademark Office, which is supposed to protect real technological progress, which is hard to do if even weak evidence of non-obviousness gets a lot of weight. The DoJ could have expressed more clearly a concern over what this means for patent quality, but unfortunately it didn't.

So what does this mean for the prospects of Samsung's cert petition?

The George Mason Law Review published an empirical analysis of cert procedures (PDF), according to which the Supreme Court became more likely to grant certiorari in a case where the Solicitor General was invited to file a brief regardless of whether the SG recommended cert or not. It's a fact that the Supreme Court grants more petitions following a Call for Views of the Solicitor General than the SG recommends should be granted.

Of course, it's too early to have statistics on how the Supreme Court views Solicitor General Francisco's recommendations. But it's not like it's over for Samsung. It's a setback for them and, conversely, a significant intermediate victory for Apple, but the Supreme Court can still decide either way.

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Friday, September 29, 2017

Design patents: Apple, Samsung reject each other's proposals for identifying the relevant article of manufacture

Let me start this post with the final two sentences from Matt Levy's IP Watchdog post on the design patent damages issues in the Apple v. Samsung remand proceedings in the Northern District of California:

"It's understandable that Apple wants that $400 million. But let's hope that we don't end up with a mess in design patents as a result."

I'm presumably not alone in getting really tired of that neverending story, but from time to time, such as today, I just have to remind myself of the fact that the question of the base for a disgorgement of design patent infringer's profits is the most important one and it's only now starting to get resolved. The Supreme Court would have liked to define a test for the relevant article of manufacture, but it decided to focus on only the question of whether Judge Koh and the Federal Circuit had interpreted the statute (35 U.S.C. § 289) correctly when they held that Apple was without a doubt entitled to a disgorgement of Samsung's entire profits on cetain smartphones. The top U.S. court held that the relevant article of manufacture could be an entire product or a component, but left it to others (until the issue might return to the Supreme Court later, be it in connection with this dispute or in any other) to do the rule-setting job.

The best way to solve the rule-setting problem for all eternity would be for Congress to amend the statute. There should be apportionment. That would lead to the most reasonable results. But as long as the old statute must be applied (which may be the case for a lot longer since I don't know whether Congress will deal with this issue anytime soon), the courts will simply have to decide whether to adopt a test that is likely to overcompensate design patent holders or an alternative one that may quite often result in undercompensation. Forget about absolute fairness under the existing statute. Apportionment is precise; anything based on the article of manufacture is a step function.

Apple and Samsung have meanwhile responded to each other's proposed tests (Apple brief, Samsung brief). They accuse each other's proposal of being inconsistent with the Supreme Court decision, other case law, and statutory law. Up to a certain degree, I agree with Mr. Levy's criticism of Apple's proposed test: Apple is simply trying to salvage a $400 million award through a test that has rather subjective elements such as "how" a design was used, "how" a product was sold, or "the degree to which the asserted article of manufacture is physically and conceptually distinct from the product as sold." That kind of test would be a recipe for lengthy trials and confused juries, in many cases even hung juries.

Case in point: Apple refers to evidence that Samsung internally acknowledged (after the iPhone came out) that it had a "crisis of design," and Samsung explained in its responsive brief that the word "design" was meant in a more architectural sense, referring to Samsung's choice of a mobile operating system (Samsung later selected Android). That's the kind of hair-splitting Apple's proposed test would inevitably lead to (lots of it, actually). There can't ever be a mathematical formula that identifies the relevant article of manufacture, but legal tests that can be handled in far more predictable ways than what Apple would like to see adopted.

I said before that I agree with Mr. Levy's take on Apple's proposed test "to a certain degree," and the limitation here is that I believe Apple could have taken much more problematic positions. The way I see it, Apple's proposal is the least problematic one of all tests that would make it more likely than not that Apple would end up defending the $400 million award.

Samsung's argument very much focuses on what the asserted design patents claim. Apple argues that this leads to a contradiction: while Samsung says the article of manufacture is a question of fact for the jury to determine, claim construction would be a question of law. That is an inconsistency indeed, but the alternative (massive overcompensation based on simply ignoring claim scope) would be far worse.

A really interesting panel debate--the 90-minute recording is worth watching in its entirety-- took place in Washington D.C. the week before last. A Law360 reporter attended and noted that this design patent damages issue divides the patent world. Professor Rebecca Tushnet (Harvard) published some of the panelists' statements on her blog. I'll probably get back to some of what was said on that panel at the next procedural juncture.

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Thursday, September 21, 2017

Meet the patent trolls of the 2030s: Bosch, Volkswagen, Daimler, BMW

Four days before the 67th International Motor Show (IAA) in Frankfurt will end, I'd like to offer a bold prediction: unless a miracle of the kind I can't imagine happens, Germany's automotive industry (car manufacturers as well as suppliers) will suffer a fate similar to that of the smartphone divisions of the likes of Nokia and Ericsson, ultimately resulting in "trollification" by the 2030s.

As Frankfurter Allgemeine Zeitung noted last month, 52% of all patent filings related to self-driving cars belong to German companies, with Bosch alone (which is number one and followed by Audi and Continental)holding three times as many patents in that field as Google and Apple or Tesla not having any significant patent holdings in that field yet. Besides Bosch, Audi, and Continental, three other German companies are among the top 10 patent holders in this field: BMW, Volkswagen, and Daimler.

Patent filings related to self-driving cars are picking up speed, so the landscape will almost certainly change in some ways in the coming years, but not entirely.

So far, major automotive companies have not used patents aggressively. Much to the contrary, they often find themselves on the receiving end of patent troll lawsuits in the Eastern District of Texas and elsewhere, and they tend to support reasonable royalties (such as through the Fair Standards Alliance) and defensive initiatives (including a fake one--"fake" because it's merely about making a statement and doesn't solve a single patent-related problem ever--called Open Invention Network). I'm not aware of any major dispute between two large car makers. Apparently they work out cross-licensing deals quietly and amicably.

But that's because right now those companies are in the business of selling vehicles (and related services), not in the patent assertion business. While it may seem daring to talk in 2017 about what's going to happen in the 2030s (if not before), I am fairly convinced (not 100%, but way above 50%) that we're less than two decades away from the point at which Germany's automotive industry is going to enforce patents aggressively and try to shake down the future winners in the marketplace.

I believe Germany's leading car makers--and some of their key suppliers--are going to be in only a slightly better position than the smartphone divisions of companies like Nokia and Ericsson were when Apple and the Android ecosystem revolutionized the concept of a mobile communications device. I said "slightly better" because brands like BMW and Mercedes have been very strong for several times longer than Nokia's brand at the time of the iOS/Android revolution. Those brands are associated with certain strengths, some of which will remain important even in the self-driving electric future. But apart from that factor, those companies are practically doomed and will have to resort to patent licensing in less than 20 years' time. They won't disappear into oblivion too quickly, but over time they will, and there will be a long period during which they will still be around and you'll still see Mercedes stars on the roads, but where most of the revenue opportunity will belong to leading U.S. technology companies.

One challenge that those German automotive companies may somehow manage to overcome--though they haven't so far--is the one of creating good user interfaces. I've had an S-Class for a few years and the UI is just simply not well-thought-out. One example is the big button that also serves as a wheel. When using voice control to dial a number from my history of calls, that button means "Yes, this number" in one situation and "No, abort the operation" less than a second later--something that would be completely unthinkable at a company like Apple or Google. Another example is that they waste space on the screen by showing the city of a destination before the street name (which then often doesn't fit on the screen at all, or must be abbreviated beyond recognition). Those are simple things, and while it's astounding that Mercedes would ever have come up with a stupidly-designed user interface in the first place, they--and their competitors--may figure this part out over time.

Maybe someone will explain to their software developers the concept of a race condition because the way the thing intermittently fails to activate functions when starting up--or the way the UI occasionally freezes when dialing--suggests to me they have one or more of those in their code. Maybe they'll even understand that they should keep track of the last cities I navigated to so I don't have to select the same city again and again when entering a destination. And who knows, maybe they'll realize one day that they should provide free firmware updates from time to time to keep customers happy, especially when you have really nasty bugs in your software (as they do). Again, none of that is rocket science.

The bigger issues are of the strategic kind. For decades they have largely relied on a core competence: combustion engines, which involve about 200 times as many parts as electric motors. Daimler once invested in Tesla, then exited. With more foresight, it would have acquired it while it still had the chance. Anyway, those companies will lose their #1 competitive advantage.

Once Silicon Valley companies are the technology leaders (which Tesla in some ways already is) in the automotive industry, Germany's automotive companies will also struggle in the "war for talent." Most of the world's best software developers either already are in the United States or are potentially receptive to offers from such world-class employers as Google, where they can make a lot more money than at BMW, like Daimler or Volkswagen, get perks that are heard of in Germany, and often get to work on more interesting stuff. There will always be some talented developers who will choose to come to or stay in Germany, but a majority of the world's best programmers won't even consider Germany, period. Frankly, the cost-benefit ratio of learning German--a hard language to learn and of very limited use--is inferior, and most programmers already speak a least a little bit of English. In all likelihood, the average Google or Apple programmer will simply be better than his counterparts at German automotive companies, and if Apple or Google wanted to hire a very talented person away from a Volkswagen or BMW, they could in most instances.

Even if those German automotive companies figured out the digital user experience (which is doable) and even if they built better electric cars over time, there is, however, one thing that's simply going to marginalize them. It's that self-driving cars will be mobile communications devices on wheels. Speed and similar success factors of the old times aren't going to matter anymore at all. Instead, it's all going to be about what you can do while the car is doing all the driving.

The most lucrative parts of the car value chain are going to relate to productivity, communications, and entertainment applications. Plus all sorts of e-commerce (including "sharing economy"-style) services.

Those parts of the value chain will, without the slightest doubt, belong to such companies as Apple, Google, Amazon, and Microsoft. Of those companies, Apple is believed to be working on a car of its own and even made a joke about it at a corporate event. The others--especially Google--will be open to partnering (as they're already doing in some areas) with such companies as Daimler. But they're going to have all the leverage because of a force that is far more powerful than the leadership of traditional automotive companies presumably knows: network effects.

Short of developing something that would have to be several times more revolutionary than the iPhone was ten years ago, there's absolutely no way that BMW, Daimler and Volkswagen--even if they agreed to a three-way merger and secured regulatory approval for it--could ever get sufficient traction among app developers so they could compete effectively with Apple and Google. Even Microsoft with Windows Phone and with all of its money couldn't.

My app is in the final testing stage. We'll launch in a first market (probably New Zealand, where other games have also been launched early) in a couple of weeks and will quickly expand from there before finally launching in the United States. I know what drives platform choices. A few years ago I thought I would start on Android, then wanted to serve both major platforms at the same time, and ultimately decided to do iOS first, Android later. Before I would consider any other platform, we'd most likely do Mac and Apple TV versions of our game. Thereafter? Maybe, maybe, maybe even a Windows version at some point. But a Mercedes/BMW/Volkswagen version? I just don't see that happen.

Using Android on open-source terms won't be a viable option (at least nowhere outside China). Android is open-source in some ways but proprietary in others. It's no secret that most Android device makers aren't really profitable. Automotive companies can still make low-margin hardware in the future. But the biggest revenue streams are going to pass them by.

Also, a high percentage of the people buying premium cars are Apple customers, and their loyalty to Apple is simply stronger. Just this week I was thinking about this when I saw a German car with an Apple sticker on it. I was thinking to myself: Would anyone do it the other way round and put a Mercedes or BMW logo on an iPhone or a MacBook? Or a Volkswagen logo on an iPad? Obviously not.

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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.

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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.

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