Wednesday, September 19, 2018

Apple: Qualcomm's 13 German patent assertions part of "grand evil scheme" to force Intel out of wireless chip market

This is my second post on the Qualcomm v. Apple patent infringement trial held by the Mannheim Regional Court yesterday. In the previous post I reported on the alleged (non-)infringement and (in)validity of the patent-in-suit, EP2460270 on a "switch with improved biasing". While the case is too close to call, this patent assertion may fail on the merits just like the first one that went to trial in Mannheim. But the court might also, contrary to what the non-asserted independent claim 16 implies for claim construction purposes and despite a finding by the Swedish patent office that the patent lacks a sufficient inventive step over prior art presented by Apple, hold Apple liable for infringement and decline to stay the case pending a parallel nullity action. In that case, Apple's affirmative defenses--antitrust and licensing--will be outcome-determinative at least with respect to the availability of injunctive relief.

For a long time, it was hard to fend off even standard-essential patent injunctions in Germany on antitrust grounds (with or without a FRAND commitment, which German courts wouldn't deem enforceable by third-party beneficiaries anyway). It was arguably hardest in Presiding Judge Dr. Kircher's court. The situation improved after the Court of Justice of the EU ruling in Huawei v. ZTE; in a way, it already got a little bit better after the European Commission took action against Samsung and Motorola. But very regrettably, the thinking of German patent judges is still, by and large, that antitrust defenses are just part of a throw-in-the-kitchen-sink tactic of infringers.

The patents Qualcomm is asserting in Germany--at least the ones that have been discussed in hearings or trials--aren't standard-essential, which ups the ante for Apple's antitrust defense. However, it's a fact that Qualcomm's conduct has been deemed anticompetitive by competition enforcers in multiple jurisdictions ("Antitrust Grand Slam").

Judge Dr. Kircher stressed that yesterday's discussion of the antitrust issues in the case was just meant to be a round of opening statements, far from a final decision. However, the court's preliminary inclination is that

  • Qualcomm's conduct does not constitute a violation of Art. 102 of the EU Treaty (the abuse-of-dominant-position paragraph) in its own right,

  • nor does the court tend to believe that its German patent assertions against Apple constitute a violation of the conduct the European Commission fined it for (exclusivity arrangements with Apple depriving Intel of a fair chance to compete on wireless baseband chipsets; the court feels this is just a fundamentally different type of behavior).

The judge said Art. 102 TFEU violations are typically identified where a company abuses a dominant market position in order to cement its monopoly, with cases involving "divergent markets" (the one in which the dominant position is held and the one that is affected) representing a less common scenario. Therefore, he feels an antitrust defense of that kind should succeed only under exceptional circumstances. Then he is concerned about the "subjective" nature of Apple's theory that Qualcomm's (non-standard-essential) patent assertions are meant to force Apple to drop Intel as a baseband chipset supplier. He also pointed to the fact that Qualcomm denied any such intention. Also, he noted that Apple couldn't infringe Qualcomm's patents with impunity even if Qualcomm pursued anticompetitive goals. Apple's counsel--the antitrust part was mostly argued by Freshfields Bruckhaus Deringer's Dr. Frank-Erich Hufnagel--was quick to clarify that Apple wasn't seeking a "free ride," but prepared to take a license on reasonable terms. Apple is seeking the dismissal of the complaint, but on other grounds; its antitrust defense is all about injunctive relief.

First, I don't think "divergent markets" are nearly as much of an exception as the court indicated. Even the famous EU Microsoft cases involved the leveraging of Microsoft's desktop operating system monopoly and its effects on the markets for workgroup servers and media player software products. Second, the overarching objective of competition enforcement, be it merger control or antitrust in a narrow sense, is to preserve competitive restraints, meaning that a company can't just command any price it wants (without having to pay much attention to its competitors' price points) or impose all sorts of other terms. Competition is never perfect as evidenced by the prices Apple can command for its new iPhones, but the difference between those products and high-end Android smartphones is only gradual, while Qualcomm can charge, for the combination of SEP royalties and chipsets, a multiple of what its competitors demand. It's obvious that Intel's deal with Apple goes a long way toward some competitive restraints on Qualcomm's business decisions, so it's not far-fetched to see the intention.

In his opening statement on antitrust, Dr. Hufnagel explained to the court that--and why--the analysis should be holistic, taking into consideration the entirety of Qualcomm's conduct, which he described--using this exact English term--as a "grand evil scheme" involving different actions and measures such as exclusivity rebates for customers/licensees, the refusal to license rival chipset makers, and a multiplicity of patent assertions in different jurisdictions, including (but not limited to) its ITC complaints targeting specifically Intel-powered iPhones (earlier this week, the ITC staff raised public-interest concerns over that litigation strategy) and the German cases, which in practical terms target only Intel-powered devices because all of the accused devices are sold with Intel baseband chips in Germany.

Dr. Hufnagel said Qualcomm was, by now, asserting a total of 13 patents against Intel-powered iPhones in Germany. Prior to that statement, I was aware of three patents asserted in Mannheim and seven (four of which are from the same family) in Munich. I'll try to find out about the three remaining assertions--and who knows how many other suits Qualcomm may file in the meantime.

Apple's counsel noted that Qualcomm could have simply sued the maker of the allegedly-infringing chipset (Avago/Broadcom), and said the "subjective"/"objective" distinction wasn't key under antitrust law: the focus should be on anticompetitive effects.

It was a powerful statement, but Judge Dr. Kircher took the (preliminary) position that the court had to focus on the patent-in-suit before it in the particular litigation. Dr. Hufnagel conceded that a single non-standard-essential patent assertion was not going to force Apple into submission and back into the Qualcomm fold all by itself. But the wider "grand evil scheme" would have that potential.

The discussion will continue on October 2 in a trial involving a different Qualcomm patent (EP3036768 on a "layout construction for addressing electromigration"). Without a holistic assessment of Qualcomm's overall conduct, Apple's antitrust defense is likely a lost cause except in a case where a patent couldn't be worked around within a reasonable time frame.

In the present case, it appears that Apple could just solve the problem by having its products for the German market made by Pegatron, one of its contract manufacturers. Pegatron was drawn into the litigation. Apple doesn't usually want to do so, but had to plead it into the case because of a lack of clarity regarding whether the patent-in-suit was covered by Pegatron's license deal with Qualcomm, which is subject to "capture periods" (presumably this means that patents applied for or granted during a certain period fall under a license agreement, a structure I've seen in the public redacted versions of settlement agreements). But Apple's primary contract manufacturer, Foxconn (Hon Hai), may not be licensed. Wistron was als mentioned. I believe Compal, for whatever reason, was not named.

The license-based affirmative defense was apparently raised at a relatively late stage. That discussion, too, may continue when other Qualcomm patents go to trial. But it's not as certain as the continuation of the "grand evil scheme" debate, which is actually raging around the globe.

Share with other professionals via LinkedIn: