Thursday, August 30, 2018

Consumers' motion to bar Qualcomm from enforcing a U.S. import ban against Intel-powered iPhones deemed premature by Judge Koh

A day before an originally-scheduled-then-canceled hearing on a motion by a group of class-action consumers to enjoin Qualcomm from enforcing a hypothetical ITC exclusion order (i.e., a U.S. import ban) against Intel-powered iPhones, Judge Koh has denied the motion without prejudice. One might also say: with an invitation to try again later.

More than a month ago, I analyzed Qualcomm's opposition and plaintiffs' reply brief, and wrote that "Qualcomm's timing-related arguments appear[ed] potentially more interesting to me than the other points it [made]." And indeed, timing was outcome-determinative, for the time being: Judge Lucy Koh of the United States District Court for the Northern District of California based her decision on the Supreme Court's 2013 holding in Clapper, a case in which Amnesty International and others expressed fears over the federal government, under the Foreign Intelligence Surveillance Act (FISA), intercepting communications between U.S. citizens and foreigners in ways that would infringe on some people's constitutional rights. In Clapper, the Supreme Court declined to see "certainly impending" injury in a "highly attenuated" chain of possibilities, given that multiple decisions that could go either way had to go one particular way (in each case) in order for the alleged injury to materialize. To the Supreme Court, this was just "too speculative," and Judge Koh identified parallels with the consumer motion against Qualcomm, given that even if Qualcomm prevailed on the merits of one or more patents-in-suit, the ITC might not grant the exclusion order (broad except that it's limited to Intel-powered iPhones, which does raise competition concerns) in the form Qualcomm is seeking, that the ITC decision would be appealable, and the President could veto it.

Timing is key, and these consumer plaintiffs, regardless of all the good and strong points they made on the merits, have failed to convince the judge that now was the appropriate time for their motion. The primary reason for which I concluded last month that Qualcomm had a point on timing was that only one thing had changed since last year (when Qualcomm brought the ITC complaint): the ITC held a hearing at which the ITC staff states its opinion that one valid Qualcomm patent was infringed by the iPhone, and the Administrative Law Judge (ALJ) might adopt the staff recommendation (which is, however, not binding on him). If not for this non-binding (even if frequently adopted) recommendation, plaintiffs could have brought an antisuit motion about a year earlier, calling into question that there was the sense of urgency justifying a preliminary injunction.

The only footnote makes it even clearer that this order is an invitation to try again later if necessary (i.e., in the event that everything does play out the way plaintiffs fear, including that there wouldn't even be a presidential veto):

"At this time, no Plaintiff has stated that he or she intends to purchase one of the accused Apple devices in the future; thus, it is not clear that Plaintiffs have an injury sufficient to seek to enjoin enforcement of a forward-looking exclusion or cease-and-desist order. [...] Plaintiffs would not be subject to any shortage of cellphones or incremental increase in the retail price of a cellphone that could result from Qualcomm's enforcement of such an order if no Plaintiff plans to buy at least one of the accused Apple devices."

To me, this sounds like some guidance for a future retry. While I agree with Judge Koh on everything else, I think this is an overly rigid standard: as long as those consumers intend to buy any smartphone in the near term, they'll be affected by what Qualcomm is doing here, and the iPhone is roughly half of the U.S. smartphone market anyway. But it's one of the most surmountable hurdles one could imagine. The attorneys representing those consumers are now aware of what they should do differently next time, and it won't be hard for them to obtain one or more declarations according to which someone intends to purchase an iPhone.

What does the order indicate for the event that a renewed motion becomes necessary in the future? And for the FTC v. Qualcomm bench trial that will take place in a few months? Things aren't going well for Qualcomm, even though it escaped an antisuit injunction for now (this post continues below the document):

18-08-29 Order Denying Antisuit Injunction Against Qualcomm by Florian Mueller on Scribd

14 months after Judge Koh's world-class order denying Qualcomm's motion to dismiss the FTC's antitrust complaint, her positions on the (anti-)competitive dynamics at issue haven't changed. If anything, they've firmed up, and we're now a whole lot closer to the antitrust bench trial, so Qualcomm is running out of time and opportunities to change Judge Koh'S views.

I said "firmed up" in light of Judge Koh's express holding that plaintiffs have a point regarding consumer harm:

"[...] Plaintiffs cite to an American Consumer Institute Center for Citizen Research report, which estimates that an exclusion order would ban 29.3 million Apple smartphones and create a shortage that 'will result in a $47 average price increase per unit sold.' [...] While the Court agrees that this report identifies concrete harms that would be felt by consumers, the report assumes that the ITC will issue Qualcomm’s proposed exclusion order without exemptions. [...] At this time, Plaintiffs' claim of an imminent injury is too speculative."

As the order recalls, Judge Koh dismissed plaintiffs' pursuit of damages. But that doesn't mean that there isn't harm. There is, or at least there would be in the event of a U.S. import ban.

The following passage is comparably bad news (though "old news" in light of last year's denial of a dismissal of the FTC complaint) for Qualcomm:

"Among SEP holders, Qualcomm garners an outsized share of licensing revenues paid by OEMs, and OEMs pay Qualcomm far more in royalties than OEMs pay other SEP licensors, even those with comparable portfolios of cellular SEPs. [...] Indeed, an analysis conducted by Qualcomm in 2015 showed that revenues from Qualcomm's licensing program were ''equivalent in size to the sum of ~12 companies with a form of technology licensing,' including leading cellular SEP licensors such as Ericsson, Nokia, and Interdigital.'"

This is as unsustainable as it is outrageous.

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Friday, August 3, 2018

Huawei, Qualcomm, and patent holders' three preferred ways to gain anticompetitive leverage

Over the last year and half, it turned out that Huawei's patent enforcement campaign against Samsung and Qualcomm's antitrust issues as well as the parallel patent infringement cases raise bigger and more interesting issues than any other smartphone patent disputes going on as we speak.

Qualcomm is just being Qualcomm: it's always leveraged its wireless standard-essential patents more aggressively than the rest of the industry (maybe even more than the rest combined). But now it has competition watchdogs from around the globe going after it; it's embroiled in cross-jurisdictional litigation with Apple (large parts of which are effectively an Intel-Qualcomm dispute in the first place, with Apple purportedly having decided to use Intel's instead of Qualcomm's baseband chips in new iPhones); and someone else (analysts believe Huawei) stopped paying royalties, too.

Huawei, however, has been undergoing a steady transformation for a while. The first time it took center stage as a patent enforcer was in 2012 when it went after fellow Chinese device maker ZTE--in Germany, where Huawei obtained an injunction it never elected to enforce and took the question of injunctions over standard-essential patents (SEPs) all the way up to the Court of Justice of the EU. But for about two years it's now been trying to coerce Samsung into a license agreement on terms that the Korean electronics giant considers utterly unreasonable according to court filings.

Both Huawei and Qualcomm have anticompetitive intentions. Huawei and Samsung are the two leading Android device makers, so any transfer of supra-FRAND royalties from one to the other would distort competition in the device market centered around Google's mobile operating system. Qualcomm is clinging to its business model where patents are leveraged to drive chip sales and chip sales are leveraged to the benefit of the patent licensing business. As I noted above, when Qualcomm enforces patents against Apple, it quite often looks almost like Apple is in the crosshairs as a proxy for Intel.

As I'm keeping an eye on Huawei and Qualcomm's patent-leveraging strategies, I'd like to highlight the three ways in which some aggressive patent holders are seeking undue, anticompetitive leverage in our times (in no particular order):

1. Chinese patent injunctions

In the original "anti-Android" smartphone patent wars, China didn't play a role yet. Even Apple and Samsung weren't suing each other there (just in about ten other countries before the dispute lost steam and, ultimately, settled out).

By now, China is a patent litigation hotbed. In October (2017) it became known that Qualcomm brought patent infringement claims against Apple in China, where the iPhone is manufactured and where Apple enjoys strong sales). In its home court, Huawei won a couple of patent injunctions against Samsung, but due to a U.S. antisuit (anti-enforcement in this case) injunction, it doesn't get to enforce them. Huawei is trying to overcome that roadblock through a Ninth Circuit appeal filed with the Federal Circuit, but the latter declined to shorten the time for Samsung's brief, which will be due on the 27th of this month.

2. United States International Trade Commission (ITC)

If Huawei had known in 2016 (when it started suing Samsung) that Presidents Clinton and Obama weren't going to get the next best thing to a joint third term, it might have given an ITC complaint against Samsung a try. It didn't, but Qualcomm has already brought two such complaints against Apple. In one of them, it may prevail on one patent, but its strategy of targeting iPhones incorporating Intel baseband chips raises serious antitrust and public-interest issues.

This Qualcomm scheme, like Huawei's Chinese scheme, may be thwarted by an antisuit (anti-enforcement, to be precise) injunction in the Northern District of California. An antisuit injunction motion was brought on behalf of consumers in an antitrust class action against Qualcomm. Judge Lucy Koh will hear the motion on the 30th of this month. She denied the parties' motion for a rescheduling, and in the same order indicated that she won't necessarily rule on the motion at the end of the hearing but may take it under advisement.

3. German patent injunctions

Germany is still a top three patent infringement jurisdiction and the undisputed #1 in Europe.

Whatever the reason may be, Huawei is not--or not yet--known to be going after Samsung in Germany, but Qualcomm is actively seeking to gain leverage in Mannheim and Munich. There are currently six-week school vacations in the relevant states, Baden-Wurttemberg and Bavaria, but in the middle of September, just days before the late-September start of the 2018 Oktoberfest, Qualcomm and Apple will square off in Mannheim (September 18) and Munich (two days later). And there'll be more to come, including but not limited to another Mannheim trial in early October.

Not only, but particularly in Germany, the current hiatus is the quiet before a scheduled set of storms.

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