Friday, December 14, 2018

Judge Koh rejects Qualcomm's bid to introduce new evidence related to Intel's success with Apple, Qualcomm's new 5G agreements

We're now only three weeks away from the Federal Trade Commission v. Qualcomm antitrust trial in the Northern District of California, and Judge Lucy H. Koh has again asserted her authority and demonstrated her unrelenting focus on the facts that really matter. On Thursday, she flatly rejected an 11th-hour attempt by Qualcomm to delay or derail the FTC's push for injunctive relief (the FTC is seeking to "redress and prevent recurrence of Qualcomm's conduct") by introducing evidence more recent than March 30, 2018, and at the end of her sharp ruling told Qualcomm one more time that "[t]he January 2019 trial will address both liability and remedy" (this post continues below the document):

18-12-13 Order Denying Qualcomm's Request Re. Post-discovery Events by Florian Mueller on Scribd

In late October, Qualcomm brought a motion to introduce evidence related to post-discovery (i.e., post-March 30) events that the wireless chipset maker believes weigh against the FTC's pursuit of an injunction:

  • Intel's growing business with Apple (a design win related to the entire range of next-generation iPhones, though Intel, as the ruling notes, already had a chipset supply deal in place with Apple well before the discovery cutoff date) and

  • some 5G patent license agreements Qualcomm has concluded more recently, arguing that since it doesn't make any 5G chips (yet), it can't leverage a chipset monopoly ("no license-no chips" policy) in connection with 5G. This part did not refer to Qualcomm's "new deal" with Samsung (which it may have to renegotiate anyway), which was concluded earlier this year, well ahead of the discovery cutoff date.

In formal legal terms (FRE 403), Judge Koh concluded that allowing Qualcomm to take and present further evidence would unfairly prejudice the FTC, and that such prejudice would be outweighed by the alleged probative value of anything Qualcomm would inject into the case. In her efforts to balance different considerations, the judge wasn't persuaded by precedents Qualcomm pointed to, especially not by other cases in which several years had passed between a discovery cutoff date and a trial. She also points to the fact that she actually did allow various out-of-time depositions because of witnesses's travel and for similar reasons. And she notes that there will always be something that happens post-discovery, so no case can ever go to trial (at least not to one that would be fair to the opposing party) unless courts exercise their discretion at some point to close the door. And in this case, the deluge of motions that Judge Koh faced (her ruling doesn't say "deluge," but contains an impressive list) between the cutoff date and the trial doesn't suggest that the period between the cutoff date and the trial was longer than what the court really needed. While I've sometimes had different opinions, especially on economic issues and the (in)validity of patents-in-suit, I can say from my vantage point as a litigation watcher that I'm not aware of any U.S. judge who would be more efficient than her.

The key factor here is that the FTC is entitled to injunctive relief if there is a risk of Qualcomm's (mis)conduct recurring--regardless of whether, as Qualcomm argues, anything may have recently changed about its market power. Judge Koh points to case law that makes this principle crystal clear. If Qualcomm had wanted a different outcome, it would have had to show that its conduct had changed, and even a change of conduct wouldn't necessarily have meant that there was no more risk of recurrence.

As Judge Koh recalls, Qualcomm's desire to avoid a decision on injunctive relief after the January 2019 trial is old news. Qualcomm originally sought to bifurcate the trial (one trial on liability followed by a separate one on remedies).

The fact that Intel's deal with Apple is not new per se (though the scope of that partnership may have expanded lately) diminishes the probative value of anything that Intel and Apple may have done together, or may have decided to do together, since late March. As for the 5G part, Judge Koh doesn't mention Qualcomm's deal with Samsung, but the fact that this modification of an agreement with the world's largest smartphone maker (at least by some measure) occurred prior to the cutoff date also suggests that whatever other deals were struck in the second or third quarter of 2018 won't present a fundamentally new situation. And it could be that Judge Koh already sees a certain likelihood of Qualcomm being ordered to renegotiate patent license agreements at the end of this. In that case, the probative value of such contracts might be zero.

This latest order is not the first major pretrial ruling that doesn't bode well for Qualcomm's defensive efforts:

The exclusion of evidence relating to post-cutoff date events is the latest in a string of significant decisions made and positions taken before the upcoming trial.

Assuming that Qualcomm loses the trial (and I can't imagine it would get away unscathed), it will then have to set priorities for an appeal, and I guess--though this is now a second-degree hypothetical as it already presupposes a certain outcome of the trial--Qualcomm is fairly likely to tell the appeals court that it lost only because some relevant post-discovery events weren't considered and to request a reversal or at least a retrial. But Judge Koh obviously considered this scenario and structured her ruling accordingly.

There most probably won't be any spectacular developments in the U.S. Qualcomm cases between now and the end of the year. Maybe we'll hear something more about the software patent enforcmeent dispute in China (to be fair to Qualcomm, when Apple enforces its own patents, it doesn't easily accept that a workaround is indeed a workaround). And I'm extremely interested in what the Munich I Regional Court will decided next Thursday (December 20). "Cutoff" for evidence also plays a role there, but it's different in three major respects: a different jurisdiction, where the constitutional right to be heard quite often weighs in favor of reopening the record; it's a patent infringement, not antitrust, case; and what Qorvo credibly explained to me suggests that Qualcomm originally led the court and Apple to believe that the schematics of the accused chipset would be discussed with the court-appointed expert at trial, but then made an about-face and opted for evidentiary minimalism, which is why in that case I believe the plaintiff would not be unfairly prejudiced by taking a bit more time to put facts on the table that, based on the ITC decision (first an Administrative Law Judge cleared Qorvo of infringement, then the six-member Commission threw out Qualcomm's petition to review that finding), have the potential to be outcome-determinative in the defendants' favor.

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Thursday, December 13, 2018

ITC decides to review initial determination that Intel-powered iPhones infringe one Qualcomm patent

Yesterday afternoon the United States International Trade Commission ("USITC" or just "ITC"), a U.S. trade agency with quasi-judicial powers, issued a determination to review meanwhile-retired Administrative Law Judge (ALJ) Thomas B. Pender's initial determination according to which Intel-powered iPhones infringe one Qualcomm patent (U.S. Patent No. 9,535,490 on "power[-]saving techniques in computing devices").

A headline I read this morning suggested that this is a "second shot" for Qualcomm to prevail, which may be attributable to spin doctoring and is fake news just like a story according to which Apple CEO Tim Cook was preparing a 2020 presidential run (paid for by Qualcomm, presumably in an effort to adversely impact Mr. Cook's relationship with President Trump). The determination to conduct a review is actually a setback--not progress--for Qualcomm if, which gained nothing whatsoever yesterday if one analyzes carefully what the ITC actually decided and compares it to what it could have decided in the alternative.

First, as I explained on November 2, a fundamental distinction must be made between an initial determation (ID) on the merits (whether a valid patent is infringed) and a recommended determination (RD) on remedy and bond. The ALJ issues both simultaneously, but the ID (or any given part of it) becomes the final Commission determination if the Commission--the six-member decision-making body at the top of the organization--decides not to review it, while the RD is just what its name says (a recommendation) and the Commission must make a determination on those questions whether or not anyone files a petition (in fact, it's not even possible to formally "petition" for a "review" of the RD because only decisions, not recommendations, can be "reviewed"; a recommendation can, at best, be adopted).

The public-interest inquiry is only relevant to the remedy part:

  • Yes, ALJ Pender recommended not to order an import ban over the patent he deemed infringed, as he viewed Qualcomm's related ITC complaint as part of an anti-Intel campaign with serious anticompetitive implications (for a closer look at his findings, see this post).

  • Yes, the Commission yesterday requested answers to five public-interest questions (vs. nine related to the merits), and it's procedurally possible that the Commission ultimately reaches a different conclusion than ALJ Pender.

  • But no, this does not mean that the Commission has taken a procedural decision in Qualcomm's favor (such as by granting a petition to review) or identified any potential reasons to disagree with ALJ Pender. As I've explained repeatedly, and as yesterday's document actually also states (though not as clearly as this post), the Commission must evaluate the statutory public-interest factors. It couldn't just say: "we affirm the ALJ". Even if the Commission wholeheartedly agreed with the recommendation, it would have to make its own determination, and would have to request input from stakeholders.

While the parties couldn't even petition for a "review" of the RD on remedy and bond, the Commission requested public interest statements in the build-up to yesterday's determination. The implications of an anti-Intel ban on U.S. competitiveness in 5G were put front and center by Apple's submission, and yesterday's public-interest question D also refers to "the alleged exit of Apple's chipset supplier from the market for 5G technology."

What remains to be seen now is whether the public-interest questions will even be reached by the Commission. Unless Qualcomm prevails on at least one patent claim, there obviously won't be a remedy.

With respect to the merits, the Commission

  • granted Apple's petition to review the liability finding with respect to the '490 patent, with Apple now getting the proverbial second bite at the apple to defeat the complaint (in fact, a second round of three bites: the Commission's nine questions involve infringement, liability, and domestic industry, any one of which would be a "get out of jail free" card for Apple on its own), but

  • denied Qualcomm's (conditional) petition to review the holdings that Apple did not infringe the other two patents ALJ Pender ruled on.

One key difference here is that Apple's petition for review was unconditional (Apple definitively asked the Commission to overrule ALJ Pender on liability), while Qualcomm's petition was conditional. Qualcomm wanted the Commission to adopt the ALJ's initial determination on the merits, but also wanted second bites at the apple (in this case, at "the" Apple with a capital A) if a review was going to take place. What has happened now is that the ITC decided to review the part that is good for Qualcomm (and can only get worse for Qualcomm, not better), but declined to review the parts where Qualcomm could have made further headway.

This also means that the Commission won't review the ALJ's finding that a certain Qorvo chip in Intel-powered iPhones doesn't infringe a Qualcomm patent that has a European "sibling" that is at issue in a case the Munich court will decide on next week.

Obviously, Qualcomm's conditional petition for review looked weak from the start. A party that believes there's a good chance of prevailing on one or two additional patents simply requests a review on an unconditional basis. Many other ITC complainants have sought to widen, broaden and deepen their ITC wins, and in all the cases I saw, except for this Qualcomm case, those petitions were unconditional. Theoretically, a party's desire to save time and rather get one bird quickly than two or three birds later could result in a conditional petition for review even if the case was strong. However, we're just talking about a couple of months here that Qualcomm could have saved in the best case--not much given that this dispute started almost two years ago. The Commission determination has been scheduled for February 19, 2019.

So by now, there's only one patent in the case, and Apple has four different chances to avoid an import ban, and needs to prevail on just one while Qualcomm must overcome all four hurdles:

  1. infringement (a matter of claim construction, and the Commission is interested in claim construction arguments),

  2. validity (the Commission appears particularly interested in one prior art reference, but also in a second one that might be relevant to an obviousness analysis),

  3. domestic industry (here, claim construction also comes into play), and

  4. the public interest in thwarting a market monopolization campaign.

Meanwhile, media reports suggest there's a bitter enforcement fight raging in China, where Qualcomm just secured two preliminary injunctions against Apple (from what I hear, there had only been two other patent PIs in Chinese history before these two), but Apple argues that iOS 12, which the court didn't look at, doesn't infringe. The patents in that case are software patents, and iOS 12 contains at least one other workaround related to a Qualcomm patent-in-suit. As Apple's and Microsoft's patent enforcement efforts against Android devices showed years ago, it's very hard to find a software patent that is broad enough so it can't just be worked around easily (and in ways that end users often don't even notice), yet not so broad that it would be held invalid. Anyway, I only have indirect information (media reports) on the Chinese situation and will continue to focus on jurisdictions in which I can conduct primary research (analyzing documents and attending hearings/trials/announcements).

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Saturday, December 8, 2018

Qualcomm fears being required to renegotiate patent license agreements with Samsung, many others

This is the first post, and probably not the last, in which I'll discuss some interesting information I found in the Federal Trade Commission's and Qualcomm's proposed findings of facts and conclusions of law with a view to next month's San Jose trial. Qualcomm's filing is more than twice as long (157 pages) as the FTC's submission (71 pages), but Judge Lucy H. Koh will decide strictly based on the law and the facts, so this antitrust case is not going to turn into a battle of matériel. The litigation departments of government agencies are outnumbered by private-sector litigants' armies of lawyers all the time, but quite often they prevail nevertheless.

Here are the two filings (this post continues below the documents):

18-12-06 FTC's Proposed Findings and Conclusions by Florian Mueller on Scribd

18-12-06 Qualcomm's Pro... by on Scribd

Those proposed findings and conclusions serve as a roadmap for the upcoming trial. There may still be some surprises, but by and large the points the parties seek to drive home are clear now, except for those heavy redactions, which I wish someone could fight the way Reuters, MLex, the First Amend Coalition and others attacked excessive sealings in Apple v. Samsung years ago (and I had to do the same at the Federal Patent Court of Germany; by the way, I'm presently involved in a new access-to-documents dispute there, with a notorious privateer).

Section III.I of Qualcomm's filing is one of the most outrageous examples of overredaction. That section is meant to justify Qualcomm's "no license-no chips" policy, which is central to the case. Under the headline "Qualcomm's Practice of Not Selling Chips to Unlicensed Companies Has Valid Business Justifications," paragraph 245 says:

"Qualcomm's practice of not selling chips to unlicensed OEMs is based on the following considerations:"

And then every single one of those business considerations is blackened out. 100%. It's hard to imagine that those redactions are reasonable, and maybe the court won't approve them. Or we'll find out at trial.

Fortunately, the paragraph that is most interesting in commercial terms is public:

"765. Moreover, the FTC seeks an order requiring Qualcomm to 'renegotiate . . . license terms' with all OEM licensees. (Joint Pretrial Statement at 2; FTC Interrogatory Response at 6.) Not only would such an injunction require renegotiation in markets where Qualcomm is not even alleged to have market power, such as WCDMA or non-'premium' LTE, but it is also overbroad insofar as it requires renegotiation of agreements no matter what the terms and no matter whether any anticompetitive harms caused or resulted from those agreements. Such an injunction would be tailored neither to the markets nor harms at issue, including because it would apply to agreements entered into outside the 2011-2016 timeframe for which the FTC has presented evidence."

The passage on the requested relief that Qualcomm's filing refers to says this:

"Require Qualcomm to negotiate or renegotiate, as applicable, license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical, software, or other support;"

It's obvious why Qualcomm doesn't like this, but it's inevitable: if someone violates antitrust law and as a result of such behavior (including, but not limited to, the "no license-no chips" policy) imposes supra-FRAND royalties on others, renegotiation is the only way to redress the balance and fix the problem.

As the final sentence of paragraph 765 of Qualcomm's proposed findings and conclusions shows, they complain, among other things, about the requested injunction not being limited to the 2011-2016 period. The most significant agreement that is still in force and effect and that Qualcomm concluded outside that timeframe is presumably its early 2018 new deal with Samsung. Even if the FTC didn't present evidence that is specific to that timeframe, there can be no doubt that the 2018 Qualcomm-Samsung agreement came into being under the same problematic circumstances--simply because things will only get better if and when the FTC prevails (or if and when private parties prevail, with the Apple v. Qualcomm trial being scheduled for mid-April).

Qualcomm's proposed findings and conclusions do indicate some changes to their business policies after that timeframe, and they seek to leverage those changes so as to argue that the prospective remedy of injunctive relief wouldn't be warranted only on the basis of past behavior. The risk of recurrence is obviously key. But what Qualcomm changed (such as capping its 5% patent royalty demand at a device price of $400) is either unrelated to, or at least falls far short of, what the FTC is tackling here and seeking to redress and to prevent from happening again.

Actually, to the extent Qualcomm's refusal to extend SEP licenses on FRAND terms to rival chipset makers like Intel was a breach of contract (as Judge Koh has determined on summary judgment), that fact alone means that the economics of certain deals, such as the one with Samsung, would have been different if Qualcomm had behaved the way the court thinks it should have, and if a licensee like Samsung could also have decided to simply purchase baseband chips from Intel, or to license Qualcomm's SEPs at the chipset level (Samsung's Exynos division) instead of at the device level.

The requirement to renegotiate license terms would affect Qualcomm in two ways. Besides the direct implications of having to modify existing agreements in favor of implementers, a judge or jury tasked with determining whether or not Qualcomm complied with its FRAND licensing obligations will also look at (among other things) Qualcomm's other license agreements. It's a safe assumption that Qualcomm's recent deals, such as the one with Samsung, were optimized for the purposes of the forthcoming Apple trial. However, should those agreements be null and void in the sense that they must be renegotiated as per a court order, then they don't serve as useful points of reference for any FRAND-compliance analysis in any jurisdiction.

Again, there's a lot more in the 220+ pages Qualcomm (two thirds) and the FTC (one third) filed on Thursday, such as an interesting passage that could backfire against Qualcomm in connection with promissory estoppel (and possibly have novel implications for exhaustion), but it's simply too much for a single blog post.

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Friday, December 7, 2018

When defending against standard-essential patents, beware of standard-essential utility models

While "standard-essential patents" (SEPs) is one of the most common terms in the tech sector, it would sometimes be more accurate and inclusive to refer to "standard-essential intellectual property rights" (SEIPRs). That collective term would include both SEPs and SEUMs: standard-essential utility models. Utility models are a German specialty, basically a second-class type of patent with a shorter term but instant registration (no substantive examination). This blog covered a utility model case years ago when Apple asserted a slide-to-unlock utility model against Samsung in Germany; that case got stayed over validity concerns and never went anywhere. Beyond German utility models, the collective term "SEIPRs" would cover any other IPRs that may exist in other jurisdictions and are like patents, but aren't called patents.

Yesterday I went to the Munich I Regional Court to watch a standard-essential utility model case, Netlist v. SK Hynix and HP, over German utility model no. DE2020100185017, which was derived last year, in preparation of this lawsuit as counsel for Netlist explained, from a pending European patent application, EP2454735 on a "system and method utilizing distributed byte-wise buffers on a memory module." From what I've been able to find out, this patent was declared essential to a JEDEC memory standard.

An EPO patent examiner rejected the application, though Netlist is still trying to persuade the EPO to grant a patent. But in parallel to that effort, they quickly took out a utility model, with claim language drafted specifically for the purposes of the lawsuit against SK Hynix and HP, and sued in Munich.

The previous Munich trial I reported on took 12 hours; yesterday's trial took only about four. No would-be witness was sitting on the hard wooden seats outside.

Netlist's counsel in this action, Fieldfisher's Benjamin Grzimek, was mentioned on this blog about five years ago when Unwired Planet, an Ericsson privateer, sued a bunch of mobile device makers. A filing made by SK Hynix with the ITC suggests Netlist is also a patent assertion entity (unsurprising after I had noticed the extent to which they emphasize their patent infringement cases on their corporate website):

"Netlist does not design or manufacture JEDEC compliant DDR4 RDIMM or LRDIMM, and it never has. It does not compete with Respondents. And, Netlist freely admits that it made no technical contribution to any JEDEC standard. Others contributed the technologies JEDEC adopted into its standards, which JEDEC compliant products implement. Indeed, in years past when Netlist designed and sold memory modules, its business model was to sell non-JEDEC compliant memory modules; these are the products, according to Netlist, from which the patents arose. Tellingly, despite having litigated the patents and defended IPRs, Netlist did not even disclose four of the five patents asserted at the [ITC] hearing to JEDEC as potentially essential to the standard until years after the patents issued, and just months before filing its [ITC] complaint. All of this reflects a shift in Netlist's overall strategy. After operating at a loss for all but one year of its existence, Netlist now touts that '[t]he Company is focused on monetizing its patent portfolio' and that it 'plans to pursue an intellectual property-based licensing business in which it would generate revenue by selling or licensing its technology, and it intends to vigorously enforce its patent rights against infringers of such rights.'"

"Consistent with this strategy, Netlist has secured third-party funding for its litigation campaign against SK hynix, which is by no means limited to the two investigations in the ITC. Netlist recently announced that it 'obtained outside investment to finance the legal fees and costs of its legal action against SK hynix” from TR Global Funding V, LLC."

The defendants in the Munich utility model are represented by IP and antitrust litigators from Bardehle Pagenberg led by Professor Peter Chrocziel (who has been named German IP litigator of the year twice and was mentioned numerous times on this blog because of his past work for Microsoft and Apple), with rising star Dr. Anna Giedke arguing non-infringement for the most part. Interestingly, even though Bardehle has many patent attorneys itself, including some of the most well-known ones in Europe, two patent attorneys from Samson & Partner (another top-notch firm I mentioned often because of its work on behalf of Nokia and, such as in the pending Qualcomm cases, Apple) represented SK Hynix and HP yesterday: Dr. Georg Jacoby and Dr. Robert Baier. The involvement of Samson's patent attorneys doesn't imply anything negative for Bardehle's great patent attorneys; if anything, it speaks to the strength of Bardehle's litigation team.

The court will announce a decision at the end of January, and Presding Judge Dr. Matthias Zigann said at the end of the trial that he can't indicate an inclination before a post-trial conference with his two side judges. If I had to make a guess, I'd expect the case to be dismissed or stayed. Defendants made a pretty good "squeeze" case, where the asserted claim would either have to be construed too narrowly to support an infringement finding or, in the alternative, the claim would be too broad to be valid. A patent attorney from the Bosch Jehle firm, representing Netlist, showed a computer animation meant to distinguish the claimed invention from the prior art, but patent attorney Dr. Baier dismissed its core--the idea of taking CAS latency into account-as a "triviality" and, while Judge Dr. Zigann didn't say what he thought of it, I wouldn't bet on Netlist's chances here.

Judge Dr. Zigann noted at the start of the trial that the utility model and its underlying patent specification lack clarity. He explained that "the upside for you is that counsel can read anything into it; the downside is that so can the Court."

There are two important lessons to be learned:

  1. Reference was made to a U.S. case in which one or more defendants sought or even obtained (at some point, however, that case got stayed by stipulation) a U.S. antisuit injunction barring Netlist from the enforcement of injunctive relief over SEPs--but if Netlist prevailed in the case tried by the Munich court yesterday, there would be an argument over whether an SEUM falls within the scope of that injunction. I believe SK Hynix and/or HP would have a strong case, given that this SEUM was simply derived from a pending SEP application. But there could be an enforcement dispute, and there would be a risk of a court saying that if they wanted to preclude Netlist from enforcing utility models, they should have requested a differently-worded antisuit injunction. And that could give Netlist leverage, even if perhaps only for a short period.

  2. While utility models don't enjoy any presumption of validity (for lack of substantive examination), there can be situations in which a (final or non-final) rejection of the underlying patent application by the EPO actually suggests to a German court that the utility model is likely valid. In yesterday's case, that doesn't appear to be an issue. But there have been utility model cases in Germany in which an EPO examiner based a rejection on a theory that doesn't apply to German utility models. The differences between the two jurisdictions are limited and sometimes subtle, but there are some and they can prove outcome-determinative, resulting in a utility-model injunction while a patent couldn't be enforced.

Implementers of standards should always bear the additional risks arising from utility models in mind, especially when there is a threat of litigation, or already an ongoing one. You need an invalidation strategy that will not only work against a European patent or patent application, but also take down a utility model. And you shouldn't forget about utility models when crafting antisuit injunction motions.

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Monday, December 3, 2018

FTC seeking to "redress and prevent recurrence of Qualcomm's conduct" through antitrust injunction

The FTC and Qualcomm once intended to settle the antitrust litigation pending before Judge Lucy H. Koh in the Northern District of California by November 14, but we're now just one month and one day away from the trial date and no agreement has been reached. But there's been tremendous progress in the form of Judge Koh's recent summary judgment order on Qualcomm's obligation to extend standard-essential patent (SEP) licenses to rival chipset makers such as Intel.

On Thursday, the FTC and Qualcomm filed a joint final pretrial statement, which outlines (on page 4 of the PDF document) the remedies the FTC is going to fight for (this post continues below the document):

18-11-29 FTC v. Qualcomm Jo... by on Scribd

Let's look at the injunctive relief sought by the FTC item by item:

  • "Prohibit Qualcomm from conditioning the supply of modem chips on a customer’s patent-license status"

    This would be the end of Qualcomm's "no license, no chips" policy. Qualcomm's going to argue that it shouldn't have to tolerate that its chipset customers infringe on its patents, but as a monopolist it's not allowed to engage in tying and, regardless of market share, patents embodied by its chip are simply exhausted. Last year's Lexmark ruling by the Supreme Court makes this pretty clear, one would think.

  • "Require Qualcomm to negotiate or renegotiate, as applicable, license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical, software, or other support;"

    This, too, would prevent Qualcomm from leveraging its chipset market position when negotiating license terms.

  • "Require Qualcomm to submit, as necessary, to arbitral or judicial dispute resolution to determine reasonable royalties and other license terms should a customer choose to pursue such resolution;"

    I've warned against arbitration on unfair terms on various occasions and in different ocntexts (most recently, Huawei v. Samsung). What's good here is the requirement that a Qualcomm customer would "choose to pursue such [dispute] resolution." This way, customers preferring to have an Article III court make a FRAND determination can't be forced to arbitrate.

  • "Require Qualcomm to make exhaustive SEP licenses available to modem-chip suppliers on fair, reasonable, and non-discriminatory terms and to submit, as necessary, to arbitral or judicial dispute resolution to determine such terms;"

    The second reference to arbitration must be seen in light of the first one: it's up to the licensee whether the matter is arbitrated or litigated.

    This prayer for injunctive relief goes beyond the summary judgment victory the FTC has already scored. As the FTC clarified in August, the summary judgment motion was merely about contract interpretation, not about a general requirement on antitrust grounds. Now they're shooting for a bright-line rule.

  • "Prohibit Qualcomm from discriminating or retaliating in any way against any modem-chip customer or modem-chip supplier because of a dispute with Qualcomm over license terms or because of a customer's license status;"

    The intention behind this one is good and clear. However, Qualcomm's criticism of the FTC's requested relief lacking specificity is not entirely unfounded with respect to this broad and vague terminology: "retaliating in any way" could also involve legitimate forms of intellectual property enforcement. Maybe the FTC will provide greater clarity.

  • "Prohibit Qualcomm from making payments or providing other value contingent on a customer's agreement to license terms;"

    This one is meant to close a loophole: Qualcomm has previously entered into rebate/kickback agreements in order to get companies to accept contract terms with anticompetitive implications.

  • "Prohibit Qualcomm from entering express or de facto exclusive-dealing agreements for the supply of modem chips;"

    Here, the FTC is seeking to prevent Qualcomm from monopolization through contracts.

  • "Prohibit Qualcomm from interfering with the ability of any customer to communicate with a government agency about a potential law enforcement or regulatory matter;"

    This issue is well-known because of Apple's dispute with Qualcomm. Qualcomm promised Apple some rebates, but then withheld a billion-dollar amount just because of Apple allegedly having violated a "business cooperation and patent agreement" (BCPA) by talking to regulators, which Apple says was in some cases merely about responding to questions from competition enforcers and in the remaining cases happened after the BCPA expired. Apple argues that it didn't violate the agreement while it was in force, and didn't emphasize the policy implications of such contract terms too much; fortunately, the FTC is now trying to establish a general rule that Qualcomm's customers must remain free to talk to regulators,even proactively as complainants.

  • "Require Qualcomm to adhere to compliance and monitoring procedures and appropriate 'fencing in' provisions, including but not limited to a potential firewall between patent licensing and chip personnel;"

  • I'm not sure this would work in practice. In either division, employees would likely try to optimize the result for Qualcomm as a whole.

  • "Impose any other relief that the Court finds necessary and appropriate to redress and prevent recurrence of Qualcomm's conduct"

    This is just meant to give Judge Koh greater flexibility. What it means, and whether it will give rise to any particular injunction after the bench trial, remains to be seen.

These prayers for injunctive relief suggest that the trial is going to be extremely interesting, and what will happen afterwards may be very significant. Parties sometimes settle on the eve of the trial, so it's not certain yet that the trial will happpen. But, at a minimum, any settlement (consent decree) would have to be viewed against the background of the above proposals. If the FTC settled on a basis that would fall far short of the above, the agency's credibility would be compromised...

In other news from last week, Judge Gonzalo P. Curiel scheduled the Apple v. Qualcomm trial in the Southern District of California to begin on April 15. It's a safe assumption that Judge Koh, who is known to work both smart and hard, will hand down her decision on the FTC case before the San Diego trial between Apple and Qualcomm. If Qualcomm's "no license, no chips" policy and other tying and various forms of threatening or discriminatory behavior came to an end and/or if Qualcomm's contract terms prohibiting antitrust complaints were held illegal ahead of the trial in Southern California, Judge Curiel could presumably streamline his case in different ways, narrowing the issues to be put before the jury.

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Friday, November 30, 2018

Hoping to defend the iPhone against Qualcomm, chip designer waited for almost 12 hours on hard wooden seat at Munich courthouse

Litigation is a hardass business, as I'm sure none of this blog's informed readers would deny. At the Munich I Regional Court ("Landgericht München I"), one of Europe's patent powerhouses, that's also literally true. Should the court ever adopt the German custom of naming benches after real persons (you can see the little name plates in many parks), I propose the following seating area right outside of courtroom 501 be named after a certain Mr. Mike Kay since he spent almost 12 hours waiting there on November 8, unfortunately in vain, for an opportunity to testify in a Qualcomm v. Apple patent infringement trial:

Mike Kay is a Qorvo employee and designed the envelope tracker chip used in some iPhones models that Qualcomm alleges infringe on its European patent EP2724461 ("low-voltage power-efficient envelope tracker"). The court must be exonerated for a couple of reasons. First, because Mr. Kay was so eager to speak out on the inner workings of his chip, he voluntarily stayed as close to the courtroom as possible, though at the other end of the hallway there would have been a slightly more hospitable seating area:

What's more important is that the defending alliance (Apple-Intel-Qorvo) brought him along to the November 8 trial without the court having put him on the official witness list. There was no formal discovery order in place. German courts can, in their discretion, depose a witness who happens to be around voluntarily. Presiding Judge Dr. Matthias Zigann didn't exercise his discretion to that effect, but he's not responsible for rewarding perseverance. He could, however, still do so in a decision currently scheduled to be announced on December 20, provided that the three-judge panels he presides over will conclude that it's necessary in order to arrive at a well-founded, factually correct judgment. One of the things that may give the judges pause is the fact that an Administrative Law Judge (ALJ) at the United States International Trade Commission (USITC, or just ITC), with the benefit of Mike Kay's testimony and access to the schematics of the accused circuitry, concluded that Qorvo's chipset architecture does not infringe a claim of a U.S. patent from the same Qualcomm patent family.

I spend most of my time on things unrelated to this blog and the topics it covers, and that was also the case on the trial date. However, when the story of "Mike's ordeal" made the rounds in the IP community, I tried to find out more. A spokeswoman for the court pointed out that Mr. Kay was not on the court's witness list for that particular trial date. Apple declined to comment; Qualcomm's great PR agency (Burson Cohn & Wolfe) was quick to respond, but didn't elaborate beyond correcting a factual error (regarding a technical aspect of the case) in a news agency article. So I reached out to Intel, who reacted the way Apple did, and Qorvo. I very much appreciate the competence and the patience with which Qorvo's Chief IP Counsel Michael Baker, who had attended the trial, answered my questions. I didn't have the opportunity to talk to Mike Kay, but got all the information I needed.

Mr. Baker stressed that Qorvo actually has a good relationship with Qualcomm in some other areas, but they do disagree with Qualcomm's infringement assertions in this case. And he convincingly explained that Qorvo has the greatest respect for both the Munich judges and the renowned, court-appointed chipset expert, Professor Stefan van Waasen. However, Qorvo believes the court and Dr. van Waasen should have all of the information--the chipset schematics as well as Mike Kay's testimony--in front of them when they opine and rule. Mr. Baker told me Qorvo would be more than happy to present the schematics to the judges, the expert, and parties' counsel in order to prove that various claim limitations, with particular emphasis on an "offset" (number 328 on Figure 5 of the patent specification), are not practiced by Qorvo's envelope tracker chip. They say their product achieves the same power-saving effect (which is relevant when battery power goes down) by different means, but in this "hypercompetitive" market (as Mr. Baker describes it) they can't possibly let Qualcomm's or anyone else's engineers take a look at their schematics.

According to a German news agency report that mischaracterizes the technical aspects of the case, Dr. van Waasen basically said he can't see how else (if not by infringing the patent-in-suit) the accused iPhone models achieve the same effect. But that opinion was based on a tear-down report provided by Qualcomm, and as I've been told, such tear-down reports are inherently less than 100% reliable, much less complete.

Most of this blog's readers are based in the U.S. and may wonder: why can't they just solve this through an "AEO" (Attorneys' Eyes Only) designation of the material in question and exclude the public from Mike Kay's testimony?

But in a similar way Germans might ask: why the hell do they need juries in the U.S. and multiple weeks of testimony to rule on patent infringement questions that German courts quite often adjudge after a two-hour trial without any witnesses or discovery? There simply are differences between the jurisdictions.

German courts can also depose witnesses behind closed doors. However, there's no German equivalent to a protective order.

Actually, everything was in place and on track to get the best of both worlds: the efficiency of German proceedings and the flexibility regarding a protective order provided by U.S. law. But then Qualcomm made an about-face that I really don't understand. I've downloaded and studied various documents from a U.S. discovery proceeding that Qualcomm started in March, telling the U.S. court it needed to conduct discovery of Qorvo's chipset architecture under 28 U.S.C. § 1782. In the summer, the United States District Court for the Middle District of North Carolina (where Qorvo is headquartered) approved a protective order that Qualcomm and Qorvo had negotiated (this post continues below the document):

Stipulation and Protective ... by on Scribd

As far as I understand, while Qualcomm's U.S. counsel from the Quinn Emanuel firm agreed to the protective order, Quinn Emanuel's German lawyers elected not to do so, and thus claimed they couldn't present Qorvo's chipset schematics at the November 8 trial.

This is evidentiary minimalism on QE's part. It's in stark contrast to what the firm's founder, John Quinn, told Judge Lucy Koh of the United States District Court for the Northern District of California at a 2014 Apple v. Samsung trial. "What's the point in having a trial [without all the evidence on the table]?" I agreed with Mr. Quinn then. I agree with Qorvo, between the lines, saying the same thing now.

I don't have, and for lack of access to the evidence, won't ever have an opinion on whether Qorvo's chip practices all limitations of the patent claim-in-suit. But the outcome at the ITC does suggest the schematics and Mike Kay's testimony are relevant, and there's a pattern here where Qorvo goes to extreme lengths, as long as the confidentiality of its chip design be protected, including that they offered to set up a complete test environment in Germany for the expert, while Qualcomm and Quinn Emanuel, for whatever reason or no reason, prefer the expert to opine on the basis of a reverse-engineering effort commissioned by Qualcomm.

Also, I've been party to a couple of non-patent cases in Germany where courts appointed experts, and the ordinary procedure here is that an expert furnishes an opening report, enabling the parties to ask questions that give rise to one or (often) more supplemental reports before the expert finally testifies in court. Here, Judge Dr. Zigann made it clear in February that the appointment of an expert only for the November trial was going to be an experiment. I can understand that he, actually a leading author on patent procedures, sought to streamline the process. With multiple rounds of questions to be put before the expert, it could have taken another 6-12 months to resolve this case. But even the 12-hour court session on November 8 (from 9 AM to 9 PM local time) apparently failed to shed light on some key technical aspects, for lack of access to the material Qualcomm's counsel had actually obtained through a U.S. discovery proceeding.

There's a certain indication that the German court wasn't necessarily satisfied with the state of affairs at the end of the November 8 trial as the official minutes of the meeting (based on what I learned) explicitly mention that the court would entertain a motion to reopen proceedings. Since no leave to file such a motion is required under German procedural law, that may mean that a reopening of the record may happen contrary to a non-final holding at the trial that the defendants presented certain evidence out of time. As far as I understand things based on what Qorvo told me, the timing problem was due to Qualcomm's about-face as they had all originally relied upon the chipset schematics (and Mike Kay's testimony) forming the basis of the decision in Germany, just like at the ITC.

In all the patent infringement cases I watched, a reopening of proceedings (which basically means that another trial is scheduled) was needed at least once. The Mannheim Regional Court reopened a Motorola Mobility v. Microsoft case over a push notification patent that ultimately turned out invalid anyway. Should the Munich Qualcomm v. Apple case over Qorvo's envelope tracker continue, I have no doubt the court won't let Mike Kay wait outside for so many hours. And, in the hypothetical, I'd recommend to Mr. Kay to sit on the softer chairs down the aisle, with a nicer view.

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Tuesday, November 20, 2018

Call to action: Munich should remain a leading patent litigation venue in Europe

Roughly two thirds of all European patent infringement cases are brought in Germany. Unlike in the U.S., where patent cases can be filed with any district court in the country, only a limited number of German courts have in rem jurisdiction over such cases, and only three of them really matter: Düsseldorf (this venue gets most cases, but not in the smartphone industry), Mannheim (the primary smartphone venue, where some judges almost deserve an honorary doctorate in radio frequency electronics), and Munich, where I grew up though I'm westbound by now.

Munich has two regional courts. Munich I has in personam jurisdiction over cases involving actions or persons within the city border, and in rem jurisdiction over patent cases; Munich II serves the outskirts (and doesn't try patent cases).

Munich I earned its place among the top three German patent venues--and, I would say, among the top five in Europe--for a combination of reasons:

  • It used to be a rocket docket, about as speedy as Mannheim and clearly faster than Düsseldorf.

  • It has its own--I'll use a U.S. term--patent local rules. Unlike Mannheim and Düsseldorf, where everything substantive is discussed in a single trial, Munich has broken the trial up into two parts, an "early first hearing" ("frühe erste Anhörung") and a "main hearing" ("Hauptverhandlung"). The first hearing usually takes place a few months after the complaint was served, and is somewhat similar to a U.S. Markman hearing, though they usually don't write down a claim construction the way U.S. courts do and, beyond the Markman scope, start to discuss infringement questions. The early first hearing gives parties a chance to fine-tune their argument with a view to the second hearing, which is the actual trial.

  • Many patent-focused firms have a strong presence in Munich (for an example, Quinn Emanuel's German center of gravity appears to be shifting from Mannheim to Munich) because of the strength of the regional economy (including many subsidiaries of major U.S. tech companies) and all those proceedings taking place before the European Patent Office (oppositions to recently-granted patents) and the Federal Patent Court of Germany ("Bundespatentgericht"; nullity proceedings against German patents or, typically, German parts of European patents).

  • While this is only a minor factor, Munich is also far more of a tourist attraction than Düsseldorf, let alone Mannheim, which is almost creepy and has an increasing problem with violent crime.

But there's a serious problem--a lack of political support for this patent venue.

While the government of the state of North Rhine-Westphalia, regardless of whether the state is run by conservatives in name only (as it is now) or by the self-declared political left (as it was before), recognizes patent infringement litigation as a regional economic development factor, the party that has been in government in the state of Bavaria for half a century (CSU) appears to be pretty clueless, which is irreconcilable with its "Laptop und Lederhose" (laptop and Oktoberfest-style leather pants) slogan. Instead of strengthening the "civil law chambers" ("Zivilkammern") that hear patent cases in Munich, the court's former chief judge even reduced staff size by one judge, which sounds like a minor difference but has huge practical implications whenever one of the three judges (and they need three to form a panel that can hear and adjudicate a case) is on vacation or ill.

That's why I'm asking those of you who have a professional interest in Munich remaining a major patent litigation venue, also with a view to the future Unified Patent Court (UPC), to help those provincial folks figure out the problem and, more positively speaking, the potential.

A new Bavarian state government has just been formed, and a new state AG (again I used a U.S. term; in German, he's called "Justizminister", or "minister of justice"), who is ultimately in charge of providing the Munich I court (unlike a U.S. district court, a German regional court is a state--not federal--court) with sufficient resources, has just been appointed. Georg Eisenreich was previously in charge of (among other areas of responsibility) "digitization," a fact that may make him much more receptive to patent-related issues than the average state-level politician.

You can find his ministry's contact data on this web page. If you care about Munich as a patent litigation venue, please write to him and explain that you've learned about a recent staff cut affecting the "7. Zivilkammer" of the Landgericht München I, and that you would like to express your concerns about how this decision, beyond its practical implications, sends out a signal that threatens to reduce the relevance of Munich as a patent litigation venue. You may wish to highlight the following points:

  • It's important for Bavaria as a state that prides itself on its strong technology sector to have a strong patent infringement court.

  • Patent infringement cases tend to generate very high court fees for the state, so strengthening--not weakening--the venue will pay for itself, and more.

  • The state government should strive to ensure that Munich remains a significant venue if and whenever the Unified Patent Court starts.

  • Many patent litigants travel to German patent litigation venues from other countries (very often even from other continents). The government of the state of North Rhine-Westphalia appears to be aware of the economic benefits of such business travel, and so should its Bavarian counterpart.

  • Patent prosecution and litigation firms have created, and will continue to create, many high-paid jobs in the Munich area, some of which depend on the ability to enforce patents in their backyard. Also, many inventors may seek patent attorneys in cities they read about in the context of high-profile patent litigation involving U.S. and Asian technology giants.

  • If the state government fails to act, other specialized judges, whom it is hard to replace, may follow the example of former presiding judge Dr. Peter Guntz, who was hired away by the European Patent Office, where his after-tax income is presumably a lot higher.

None of this is meant to criticize the work performed by the court's patent judges. It's all about what the state government should do in order to let those specialized judges do their work as efficiently as their peers in other major German patent litigation venues.

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Sunday, November 11, 2018

More than a dozen public interest statements filed in investigation of Qualcomm's first ITC complaint against Apple

In late September, the ITC's meanwhile-retired Administrative Law Judge (ALJ) Thomas B. Pender recommended that the U.S. trade agency refrain from banning Intel-powered iPhones he deemed to infringe a Qualcomm patent, given Qualcomm's overtly anticompetitive litigation tactics of targeting only Intel-powered iPhones. In late October, a heavily-redacted version of his findings became available. On Halloween, the parties filed their public interest statements.

The parties, government agencies, and the general public have multiple opportunities to submit public interest statements to the ITC. I've created a three-page diagram that shows at which procedural milestones the ITC requests and/or invites such statements.

On Thursday (November 8), the latest round of statements by the general public was due. A total of thirteen statements were filed that day. Here are some observations:

Intel's statement is particularly relevant. Its testimony on what would happen if Qualcomm could successfully exclude Intel-powered iPhones from the U.S. market is at the heart of ALJ Pender's factual findings relating ot the public interest.

Intel's public interest statement reinforces its testimony (this post continues below the document):

18-11-08 Intel Public Inter... by on Scribd

The Computer & Communications Industry Association (CCIA) is an industry body whose members include many major hardware and software companies (including Intel). CCIA supports ALJ Pender's recommendation against a U.S. import ban of Intel-powered iPhones.

ACT | The App Association speaks for many app developers and receives funding from some large corporate sponsors including Intel. ACT's statement contains the following passage:

"And the fact that Qualcomm is seeking an exclusion order only for Apple's iPhones that contain Intel modem chips, and not all iPhones, strongly suggests that damages available in the district court for any infringement of its patents should be adequate compensation."

It's true that an Apple competitor like Samsung or Huawei wouldn't discriminate between Qualcomm-powered and Intel-powered iPhones (except if some license agreements required differentiation). But Qualcomm just wants 100% of Apple's baseband chipset business.

The joint statement of the Electronic Frontier Foundation (EFF), Engine Advocacy, the R Street Institute, and the (conservative/libertarian) Lincoln Network connects the dots between Qualcomm's behavior in its dispute with Apple in the Southern District of California (where it's willing to give up on a host of patents just to avoid a ruling on the question of patent exhaustion) and its insistence on an ITC import ban over a single patent:

"Second, there is strong reason to believe that Qualcomm is not even interested in compensation for any patent infringement. In a related district court case, Apple sought declaratory judgment that it did not infringe several Qualcomm patents. Rather than countersuing for infringement, Qualcomm voluntarily gave Apple a covenant not to sue for infringement. Certainly the patents at issue before the Commission are different, but Qualcomm's willingness to forego any remedy on a large portion of the company's patent portfolio strongly suggests that recompense for its patent rights is not Qualcomm's motivation."

Public Knowledge and the Open Markets Institute focus on the discriminatory nature of Qualcomm's decision to target only Intel-powered iPhones:

"Qualcomm's anticompetitive intent is obvious. [...] Because many of the disputed patents are common to all iPhones and do not concern baseband technology at all, it’s clear that Qualcomm is choosing to selectively enforce its patents in a way designed to maintain its monopoly position in the baseband market."

But this time around, unlike in the context of the FTC's successful summary judgment motion, Qualcomm has also received broadbased support from stakeholders.

France Brevets (a governmental patent troll) is obviously interested in maximizing patent holders' leverage, as are IP Europe (Qualcomm is a member of its "Global Innovation Taskforce") and the Innovation Alliance (co-founded by Qualcomm), which pretty much represent the interests of the Qualcomms, Nokias, and Ericssons of the world, and Inventors Digest, a magazine for patentees.

Then there are four conservative groups supporting Qualcomm. In three of those cases it's hard to reconcile those organizations' names with what they're advocating here:

  • Americans for Limited Government ("if they were asking for a subsidy or hand up, we would likely oppose it") wants a government agency, the ITC, to instruct another government agency (Customs & Border Protection) to give Qualcomm leverage over its competitor

  • Frontiers of Freedom says "[i]t is outrageous that a judge can conclude that a company has violated the patent rights of another company but then impose no punishment or remedy whatsoever," when it's just due to the statute that the ITC doesn't have more flexibility regarding remedies. In any event, import bans are not a matter of freedom.

  • Conservatives for Property Rights submitted its IPWatchdog article and complains about "the highly irregular outcome in this matter" without attributing it to Qualcomm's highly unusual litigation tactic of specifically targeting Intel-powered iPhones. But more fundamentally, what about the property rights of Apple and Intel--two companies that definitely have invested and continue to invest a lot in innovation?

What disappointed me more than anything else is that an organization I actually like a lot--the American Conservative Union, famous for organizing CPAC--ignores the unusual parameters (due to Qualcomm's litigation tactics) of this ITC investigation and blows things completely out of proportion:

"A recent ruling at the International Trade Commission (ITC) just put all American companies on notice: 'We are all socialists today.'"

That term reminded me of a story that is exactly 13 years old. A then-SAP executive described open-source software as "IP socialism," and I disagreed then as I do now.

First, neither ALJ Pender nor Apple said Qualcomm's innovations should be socialized. The question here is just about the appropriate remedy. It's not about whether or not Qualcomm would get paid. If it prevailed in district court, it absolutely positively would be entitled to damages.

Second, it's perfectly conservative to prevent companies from monopolizing markets. Two great Republicans from Ohio were key to the creation of antitrust law: Senator Joseph Sherman sponsored the namesake law, and President Benjamin Harrison signed it into law. In its 1993 Spectrum Sports v. McQuillan decision, the Supreme Court explained what the Sherman Act always was about: "The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself."

The public-interest issue in ITC investigation no. 337-TA-1065 is about preventing Qualcomm from leveraging patents to destroy competition itself. Conservatism is all about fair competition, not about its destruction.

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Saturday, November 10, 2018

Judge Koh's high-profile summary judgment order doesn't bode well for Qualcomm's efforts to elude patent exhaustion finding

This is a follow-up (as I promised) to Judge Lucy Koh's summary judgment order according to which Qualcomm must meet its self-imposed obligation to license its cellular standard-essential patents (SEPs) to rival chipset makers. On Tuesday I mostly wanted to publish the news quickly, and I focused on the commercial consequences.

The legal standard applied by Judge Koh was stated as follows in the Ninth Circuit's 2006 opinion in Miller v. Glenn Miller Prods., Inc.: summary judgment is warranted "[i]f, after considering the language of the contract and any admissible extrinsic evidence, the meaning of the contract is unambiguous." (emphasis added)

Qualcomm unsuccessfully argued that an alleged need for two U.S. standard-setting organizations (ATIS and TIA) to be consistent with policies established by other organizations supported its position that there was no obligation to extend a SEP license to rival chipset makers, and that baseband chips don't actually implement the standards in question.

Not only did Judge Koh find that the FRAND licensing pledges Qualcomm had entered into were unambiguous, but she also saw that a right to withhold SEP licenses from competitors would allow someone to monopolize a market, which is precisely what all those FRAND declarations are meant to avoid. And she drew the inevitable conclusions from how Qualcomm and its executives had previously characterized their chips as "the heart of a cellphone," or testified that key cellular technologies were "implemented" in modem chips. The following two passages are particularly important:

"Despite having SEP licenses for its own modem chips, Qualcomm argues that its FRAND obligations for SEPs extend only to device suppliers and not modem chip suppliers because only device suppliers 'practice' or 'implement' standards. However, that distinction not only violates the non-discrimination obligation, but also makes little sense. As Qualcomm's founder conceded and Qualcomm's own documents demonstrate, modem chips may be 'compliant' with cellular standards."

"Moreover, undisputed evidence in Qualcomm's own documents demonstrates that a modem chip is a core component of the cellular handset, which only underscores how a SEP license to supply modem chips is for the purpose of practicing or implementing cellular standards and why Qualcomm cannot discriminate against modem chip suppliers. In an amicus brief filed in the Federal Circuit, Qualcomm characterized its own modem chips as 'the heart of a cellphone.' [...] Qualcomm's founder testified in a deposition that key cellular technologies were 'implemented' in modem chips. [...] In Qualcomm's own Annual Report, Qualcomm stated that Qualcomm is a 'leading developer and supplier' of circuits, including modem chips, 'based on' the CDMA family of cellular standards. [...] Qualcomm also represents that Qualcomm's modem chips 'perform the core modem functionality in wireless devices.'"

Those statements will presumably also bear significant weight with the appeals court.

From Qualcomm's point of view, Judge Koh's conclusion that baseband chips are indeed the heart of a cellphone (and implemented cellular SEPs) is unhelpful beyond the FTC v. Qualcomm case and the desire of companies like Intel to secure a FRAND license to Qualcomm's SEPs:

  • Qualcomm is trying hard to avoid a ruling on whether its SEPs are exhausted by chipset sales, but if and when a court looks into this question, Qualcomm will argue that baseband chips don't implement standards all by themselves--just like Qualcomm did in its opposition to the FTC's summary judgment motion.

  • Patent exhaustion and standard-essential patents are not at issue in the investigations of Qualcomm's two ITC complaints against Apple, but in connection with the ITC's statutory public interest factors (see this recent post on the related procedures) Qualcomm also argues that the focus should be on entire mobile devices, not baseband chips. Qualcomm's ITC complaints target only iPhones without a Qualcomm baseband chip, which in practical terms means Intel-powered iPhones.

The order Judge Koh handed down on Tuesday is likely to be cited a lot going forward.

Finally, there are three recent media reports related to the Qualcomm antitrust and patent matters that I'd like to draw your attention to:

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Tuesday, November 6, 2018

Qualcomm must license patents to rival chipset makers: Judge Koh grants FTC's partial summary judgment motion


Judge Lucy H. Koh of the United States District Court for the Northern District of California has just granted the Federal Trade Commission's motion for partial summary judgment against Qualcomm regarding the latter's self-imposed obligation to license, on FRAND (fair, reasonable and non-discriminatory) terms, its cellular standard-essential patents (SEPs) to rival chipset makers such as Intel (this post continues below the document):

18-11-06 Order Granting Par... by on Scribd

The motion was strongly supported by the rest of the industry, apart from Nokia and Ericsson (companies that actually used to take the same position against Qualcomm many years back).

As the FTC clarified in response to Nokia's filing, the motion was specific to FRAND licensing promises Qualcomm made to two U.S. standard-development organizations--the Telecommunications Industry Association (TIA) and the Alliance for Telecommunications Industry Solutions (ATIS)--as opposed to arguing that all FRAND licensing promises must be construed as benefiting rival chipset makers. In this FTC v. Qualcomm antitrust case pending in Northern California, the FTC also took the position that Qualcomm had the same obligation under the ETSI (European Telecommunications Standards Institute) FRAND declaration, but the FTC sought (successfully, as we know now) to simplify and streamline the case by obviating the need for interpreting a document under French law when the relevant obligation, as Judge Koh has agreed, already exists under FRAND declarations Qualcomm made under U.S. law.

This is the outcome I had predicted. I've said all along that the FTC had a very strong case, with this particular motion for partial summary judgment having represented a sweet spot in terms of focusing on an issue that the court can resolve ahead of trial while tackling one of the most problematic aspects of Qualcomm's (and, to be fair, not only Qualcomm's) conduct.

Nothing made the importance of this motion clearer than a procedural motion brought by the FTC and Qualcomm asking the court to go forward with all other aspects of the case except this one, which the parties didn't want to have adjudicated before November 14. Fortunately, Judge Koh denied that administrative motion right away. In a subsequent post on FTC officials who are against this case I wrote that the likelihood of the motion being granted had increased.

Judge Koh has now made a decision that will presumably result in some other companies, such as Intel, telling Qualcomm again that they want a FRAND license to its cellular SEPs. I guess those renewed requests will happen rather shortly.

What's hard to analyze from the outside is the impact of this on settlement talks between the FTC and Qualcomm. Just a few days ago the Capitol Forum (a subscription service) broke the news that FTC chairman Joseph J. Simons is recused from the matter. This successful motion is, in its own right, a major accomplishment by the FTC's litigators. Qualcomm will definitely want to avoid the January antitrust trial, but the FTC is on the winning track.

Today's order also strengthens the position of consumer plaintiffs in their class action against Qualcomm (in which they're seeking $5 billion in damages, which would have to be paid out to up to 250 million consumers). The fact of the matter is that Qualcomm consistently refused to extend a SEP license to rival chipset makers, but the market would definitely have been more competitive if Qualcomm had complied with the obligation it actually had (according to Judge Koh).

I wanted to publish the decision immediately, and I'll read it carefully tomorrow and may do a follow-up post then.

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Sunday, November 4, 2018

How and when the ITC analyzes its statutory public interest factors: three-page diagram

The roughly 100 pages on which meanwhile-retired Administrative Law Judge (ALJ) Thomas B. Pender discussed the statutory public interest factors in the investigation of Qualcomm's first ITC complaint against Apple warrant further commentary. There are antitrust cases pending against Qualcomm around the globe, and Apple raised an affirmative antitrust defense against Qualcomm's German patent assertions, but ALJ Pender's public-interest analysis is the first detailed judicial holding--based on extensive briefing and a multi-day hearing.

That's why I will soon dedicate a blog post to the subject of inhowfar ALJ Pender's public-interest analysis overlaps with key antitrust questions at issue in various other proceedings. But before we get there, I wanted to provide some procedural background.

It's important to understand that the United States International Trade Commission, a trade agency with quasi-judicial powers, clearly delineates the question of a "violation" (typically, the infringement of a patent not shown to be invalid; I sometimes refer to this as the "merits" part) from "remedies and bonding" (which I'll briefly refer to as "remedies"). This is one major difference from the public interest eBay factor, which is considered together with the other three factors.

The ALJ in charge of an investigation finishes his job by issuing an Initial Determination (ID) on the alleged violation and a Recommended Determination (RD) on the remedy sought. The Commission (the six-member decision-making body at the top of the organization) makes the final (apart from appeals or a Presidential veto) decision on both, but there is a technical difference: the ID becomes the final decision if the Commission declines to review it (which parteis can request); the RD is just a recommendation, and the Commission makes the first actual decision on remedies, which is why parties cannot seek a review of the RD (though they can, of course, voice any disagreement).

And then there's also the ITC staff (formerly called Office of Unfair Import Investigations, abbreviated as OUII). The staff participates in many investigations as a third party (though it sometimes elects not to do so, or limits its participation to specific issues). The staff's involvement is also meant to protect the public interest, but not in the sense of playing a "devil's advocate" and arguing against an import ban. In connection with the staff, "public interest" basically means to file third-party pleadings in order to increase the likelihood of a correct decision (ALJs adopt many, but by far not all, staff recommendations). As far as the statutory public interest factors that may counsel against an import ban are concerned, the ITC staff is normally (with the investigation of Qualcomm's second ITC complaint against Apple representing a remarkable exception) rather patentee-friendly. For the purposes of this post and the diagram contained in it, "public interest" refers to the statutory public interest factors, not the public interest in correct decisions.

The statutory public interest factors ("the effect of [a hypothetical import ban] upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers") have gained importance over the years. It's an irony of fate that a case where Qualcomm was the respondent (and Broadcom the complainant) played a key role in the evolution of the public interest debate at the ITC. The purpose of those public interest factors is not to condone patent infringement: patentees can always (and do most of the time) file a companion lawsuit in district court and seek an injunction as well as monetary damages there (though it will take longer, and injunctive relief will be far harder to obtain).

When the public interest is at issue, government agencies and the private stakeholders must also be able to chime in--and the parties are obviously listened to as part of this. Before an ITC exclusion order (= U.S. import ban) comes down and actually takes effect, there are various junctures at which the statutory public interest factors may be considered based on input from the parties as well as, potentially, government agencies and the general public. There's an explanation on the ITC website, but I wanted to add the Presidential review period to it and created a diagram (three-page PDF; this post continues below the document):

18-11-04 ITC Public Interes... by on Scribd

Now let's go through the steps shown in the diagram and look at them in the specific context of the ITC investigations of Qualcomm's two complaints against Apple (and, by extension, Intel, as Qualcomm decided to target only Intel-powered iPhones, even though one of the patents is about graphics and, therefore, technically not related to Intel's baseband chips by any stretch of the imagination).

Complainants are nowadays required to file a public interest statement along with each complaint. When a complaint is received, the ITC always solicits public interest statements from the general public. Responds can and often do file their statement at this stage, where it's still voluntary.

What's relatively new is that the Commission decides on whether to delegate fact-finding related to the statutory public interest factors to the ALJ in charge of the investigation. The ALJ will hold an evidentiary hearing either way, but only if the Commission directs him to gather evidence relating to the public interest will he also hear testimony related to those factors (and unrelated to the merits part). And if the ALJ is tasked with this, then the respondent (the company against which someone is seeking an import ban) is required (not merely invited) to file a public interest statement before the investigation is in full swing.

In the bottom third of page 1 of the PDF you find the rectangular box labeled "Public interest briefing, discovery, evidentiary hearing (before ALJ)" and, to the right of it, a reference to the ITC staff presenting its public-interest findings. That is exactly where the investigation of Qualcomm's second complaint against Apple stood when I reported in mid-September that the ITC staff, in the public part of the evidentiary hearing, recommended that no import ban be ordered should a violation (contrary to the staff's analysis, according to which there is none) be identified. However, in the investigation of Qualcomm's first ITC complaint against Apple, the ITC staff sided with Qualcomm. For lack of access to all the relevant documents I don't know why, but the record may differ, just like Presiding Judge Dr. Holger Kircher of the Mannheim Regional Court acknowledged substantial progress with Apple's antitrust defense at an early-October trial over what Apple had presented in a case involving another patent that was tried two weeks earlier.

The investigation of Qualcomm's first ITC complaint against Apple started several months earlier than the second one, and the RD (which will probably take until January inthe other investigation) already came down in late September. That procedural milestone is visualized by the rhombus at the bottom of page 1. And the ALJ, despite the staff's negative recommendation in that case, held that no import ban should be ordered owing to the anticompetitive effects of Qualcomm's anti-Intel efforts.

The issuance of the RD in late September triggered further public-interest briefing in accordance with 19 C.F.R. § 210.50(a)(4), as shown in the upper part of page 2 of the PDF.

The statute refers to government agencies, the general public, and the parties, but those submissions are on different schedules: the parties are obviously served the RD, and then have 30 days to comment on the public interest, while the clock technically begins to tick for the general public only after an official Commission notice appears in the Federal Register. In the first Qualcomm v. Apple case, the parties had their deadline on Halloween (see Friday's post for the filings and my related commentary), while government agencies and the general public have until Thursday (November 8). The deadline for government agencies and other stakeholders is another reason for which I wanted to explain the procedures here.

The parties are challenging the parts of the ALJ's ID (on the alleged violation) that are unfavorable to their respective interests, with Qualcomm requesting a review only in the event that Apple's petition succeeds (otherwise Qualcomm would rather prevail on one patent now than, hypothetically, over up to three patents later). The Commission now has to determine whether to review the ID. In cases where, unlike here, the ALJ found no violation, a decision not to review means that the ALJ's finding of no violation is affirmed, and then there's no public interest discussion anymore unless the complainant successfully appeals.

If the Commission decides to review, there's another chance for everyone to comment on the public interest (though it obviously wouldn't make sense for those who commented before to write something again unless there's something new to take into consideration).. As the ITC says on its website, "the rules continue the Commission’s past practice inviting the parties, government agencies, and members of the public to submit comments on the public interest after the Commission decides whether to review the ALJ’s decision on violation (unless the Commission affirms an ALJ's decision that there is no violation)."

Page 2 of the diagram ends with the final Commission determination, but if that one involves a finding of a violation and an exclusion order (import ban), it still isn't over. Not only can there be an appeal, but more immediately, the Commission will write a letter to the United States Trade Representative (USTR), to whom U.S. presidents typically delegate the review of ITC import bans. The Presidential review period takes 60 days, and no import ban takes effect before the President's office (in practical terms, the USTR) has had the chance to veto it. As page 3 shows, the USTR also receives briefing from the parties--and third parties will usually try to lobby the federal government as well.

In closing I'd just like to explain the colors in the diagram:

  • white background = ITC and USTR

  • red = complainant

  • green = respondent

  • yellow = complainant and respondent (as yellow results from mixing red with green)

  • blue = government agencies and general public

I hope that diagram, as well as my new smartphone patents battlemap, will prove useful to many of you as these processes unfold!

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