This morning, opening statements were delivered at the start of the evidentiary hearing in the investigation of Qualcomm's second ITC complaint (request for U.S. import ban). The complaint was filed last December. An earlier complaint by Qualcomm against Apple is at a more advanced procedural stage: a final initial determination (a preliminary ruling by an Administrative Law Judge, which is however subject to Commission review) was originally due last Friday, but after the ALJ originally in charge retired, Chief ALJ Bullock took over and extended the deadline by two weeks. In that earlier case, the Office of Unfair Import Investigations (OUII, commonly referred to as "the ITC staff") recommended an infringement finding with respect to one patent. Staff recommendations are not binding on ALJs, and even ALJs don't make the final decision: the Commission itself does. But what the staff says is often adopted.
This morning's hearing in the U.S. trade agency with quasi-judicial authority didn't start the way Qualcomm would have liked it to. The staff just presented the following recommendations:
None of the three remaining patents-in-suit ('336, '356, '674) is invalid (good for Qualcomm), but none is infringed (a disaster for Qualcomm). The latter would dispose of Qualcomm's case all by itself, so the other findings will be potentially outcome-determinative only if the final determination by the U.S. International Trade Commission's top decision-making body (which in the case I watched has sided with the staff to an even greater extent than the ALJs did) disagreed and identified an infringement. But in light of the other case pending and, even more so, the public interest in fair competition in the wireless chipset market, they're important at any rate:
With regard to the '336 patent, Qualcomm failed to satisfy the domestic industry requirement (rather unusual, and another hurdle it would have to overcome in the further proceedings).
A U.S. import ban would adversely affect competition in the baseband processor market and may adversely affect the production of alternative baseband processors. In case anyone forgot, Qualcomm's two ITC complaints against Apple don't target all iPhones--but only Intel-powered ones. Actually, Qualcomm sought to avoid issues with the ITC's public-interest considerations by limiting its request for an exclusion order to Intel-powered iPhones. But the alternative would just be Qualcomm-powered iPhones. Given that Intel is the only major competition Qualcomm is now--at long last--facing in the baseband chip market, I felt all along that this litigation tactic didn't alleviate the public-interest concern. Arguably, it exacerbated the situation, also from an antitrust point of view.
As Bloomberg's patent (and especially ITC) expert Sue Decker wrote in a pre-hearing report, "Apple is trying to underplay its dominance in the baseband chip market by focusing on how an exclusion order would supposedly harm Intel" and its "public interest argument would create a dangerous precedent." The ITC staff apparently disagrees with Qualcomm on the allegedly dangerous precedent, and either disagrees or just doesn't care about whether Apple is, as Qualcomm basically claims, opportunistically hiding behind Intel.
All of this is a surprise. Qualcomm has a huge patent portfolio and some of the best IP lawyers in the United States--firms that also have a tremendous track record at the ITC. I wouldn't have expected the ITC staff to clear Apple (and, by extension, Intel) of infringement of all three remaining patents-in-suit. But the ITC staff doesn't have a track record of being very sympathetic to public-interest arguments weighing against import bans. In this case, however, the anticompetitive effects of a hypothetical U.S. import ban have apparently been shown to be fairly serious.
Apple and Intel received far less support from the ITC staff in the other ITC investigation. It's impossible to know from the outside whether the ITC staff has become more open-minded about competition-centric considerations or whether this is attributable to a different body of evidence. But the importance of having Intel compete with Qualcomm in the baseband chipset market has been recognized, and there should be no difference between those cases in terms of the ultimate outcome. That's why today's staff recommendations pose a huge problem for Qualcomm with respect not only to the case heard this week but also to the earlier-filed one.
On the other coast, in the Northern District of California, Judge Lucy H. Koh can now realistically hope that she may never have to adjudicate a consumer motion (which was denied without prejudice, thus could be refiled later) to bar Qualcomm from the enforcement of a potential U.S. import ban against Intel-powered iPhones. The way things are going now validates her wait-and-see approach. And who knows, maybe the ITC staff read her decision and agreed with some of the concerns over Qualcomm's conduct that she raised in last month's order.
Jurisdictional differences exist, but the European Commission, which is preliminarily investigating an Apple complaint over Qualcomm's anti-Intel lawsuits targeting German iPhones, and the Mannheim and Munich courts may also take note of the findings in Washington, DC.
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