Saturday, October 6, 2018

Apple and manufacturers: Qualcomm can't demand "billions in royalties" while ducking patent-specific claims

Those seeking to monetize their standard-essential patents (SEPs) very aggressively--such as "Qualwei" (Qualcomm and Huawei), Ericsson, Nokia, or InterDigital--always want to be paid on the basis of some imaginary portfolio value while avoiding concrete, patent-specific decisions altogether or asserting particular patents only for the purpose of gaining unfair leverage in the form of injunctive relief.

If Judge William H. Orrick hadn't enjoined Huawei, it might sooner or later have abused its Chinese SEP injunctions in order to force Samsung to submit to an arbitration process on unfair premises. Qualcomm isn't presently asserting SEPs, but it's trying to enforce non-SEPs, an effort that has dealt the dominant baseband chipset maker setbacks in the ITC as well as Germany.

In its original complaint against Qualcomm in the Southern District of California (filed in January 2017), Apple included declaratory judgment claims (non-infringement, invalidity, and exhaustion) relating to nine Qualcomm patents. In June 2017, Apple amended its complaint and added claims relating to nine more Qualcomm patents. In November 2017, Judge Gonzalo P. Curiel agreed with Qualcomm that there hadn't been any sufficiently clear threats (such as product-specific infringement allegations in the form of claim charts) over those second-round patents, and granted a related motion to dismiss. It was a threshold question that could also have been decided the other way, but the judge, at the time, expressed concern that countless patent-related claims could otherwise be added to that case. But, at any rate, all claims over the first round of patents remained in the case.

Three weeks ago, Qualcomm filed a motion to dismiss Apple and its contract manufacturers' (Foxconn and others) declaratory-judgment claims over the first round of nine patents. As I noted in last year's post on Apple's amended complaint, it was already highly unusual that Qualcomm didn't bring infringement counterclaims. Such counterclaims are compulsory, so by not bringing them, Qualcomm deprived itself of any future opportunity (in this case or in any other) to enforce those patents against Apple. Patent holders very rarely do so. Qualcomm argued in its motion that "resolution of claims regarding nine patents will not further resolution of the parties' broader licensing dispute concerning Qualcomm's portfolio of more than 130,000 issued patents and patent applications worldwide," and pointed to a letter it sent to Apple and the contract manufacturers right before filing the motion, according to which Qualcomm "unconditionally and irrevocably covenant[ed] to refrain from making any claim(s) or demand(s) against Apple or the CMs [...] under the patent laws of the United States, relating to any claim of the Patents-in-Suit [...]". Qualcomm described this covenant as "broad and unrestricted," but Apple and its contract manufacturers disagree: in their opposition (filed on Friday) to Qualcomm's motion, they say this covenant is to narrow to put any dispute over those patents aside, given that Qualcomm

  • is still seeking billions of dollars in royalties based on license agreements at issue in the San Diego case,

  • alleges a high portfolio value when seeking to justify its royalty demands (which Qualcomm says are FRAND, while Apple and its contract manufacturers--and, explicitly or implicitly, antitrust authorities around the globe disagree or at least have serious doubt), and

  • allegedly engages in double-dipping by charging royalties on patents that are actually exhausted due to chipset sales.

I surmise that the last point--exhaustion--is, in light of the Supreme Court's 2017 Lexmark ruling, the one Qualcomm wants to duck more than any other. And Qualcomm generally just wants to be paid on the basis of portfolio size.

Obviously, no court could practically adjudge the merits of many thousands of Qualcomm patents. But it wouldn't be a problem to rule on at least a certain sample of patents, and it just doesn't make sense to let a patent holder get away without any determination on the merits whatsoever.

The fate of Qualcomm's motion and, conversely, Apple and the contract manufacturers' opposition will now depend on whether the new situation Qualcomm has created with its covenant (actually not completely new since it had previously waived certain rights by not bringing compulsory counterclaims) renders any infringement, validity and exhaustion decisions as unnecessary as Judge Curiel thought they were with respect to the second round of nine patents or whether the judge will agree with Apple and the contract manufacturers that it's insufficient for Qualcomm to give up on those patents "under the patent laws" while effectively reserving the right to leverage those patents in antitrust, contract and other legal contexts.

Apple and the contract manufacturers' opposition brief concedes that courts have held declaratory-judgment claims over patents ripe for dismissal after a covenant by the patent holder not to sue over the relevant patents. "But, that is not always so," they write: "Where resolving patent issues remains relevant to live disputes between the parties, such as whether one party owes another payment under a license agreement, dismissal is not warranted." And then they quote from a decision the District Court of Massachusetts made in August 2016 in Esoterix v. Qiagen:

"[T]he resolution of Qiagen's contract-based Counterclaim regarding its obligation to pay royalties under the License Agreement depends on whether the underlying patents are valid or invalid. In light of this dispute, which is still very much alive, LabCorp and Esoterix's promise not to sue Qiagen for infringement does not moot the case."

That precedent, coupled with the fact that Qualcomm actually did provide infringement claim charts for the first-round (though not second-round) patents and very clearly expressed in writing that Apple, by implementing certain cellular standards, allegedly infringes on them), would spell doom for Qualcomm's motion to dismiss if the same common-sense position had been taken by the Supreme Court or the Federal Circuit, or (though patent infringement claims don't go there anymore) the Ninth Circuit. But a district court ruling from the northeast is obviously not binding in the southwest. The United States District Court for the Southern District of California may or may not adopt it. It's more than persuasive, but presumably Qualcomm will now try to find case law that supports, or at least appears to support, its motion to dismiss despite the logic and beauty of the Massachusetts opinion. That's going to be the most interesting thing to look for in Qualcomm's reply brief from a legal perspective.

Qualcomm wants a shortcut, but how could a court just award Qualcomm huge amounts of money without the slightest evidence that valid Qualcomm patents are infringed without being exhausted by chipset sales?

Sooner or later, Qualcomm will have to answer that question. And the more time goes by without Qualcomm achieving a breakthrough in Germany or in the ITC or any other jurisdiction, the harder Qualcomm will try to duck any decision on the merits. It's so much easier to just point to a Texas-size portfolio...

Finally, here's the opposition brief with all public exhibits:

18-10-05 Apple & Contr ... by on Scribd

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