Wednesday, October 31, 2018

ITC judge didn't buy testimony for which Qualcomm paid a single expert $3-4 million in Apple dispute

First, Happy Halloween!

There's a lesson for life that Qualcomm may have learned in recent weeks as an unintended side effect of its dispute with Apple: if smart judges figure out whom they can trust, the facts are not for sale.

Qualcomm's patent litigation campaign against Apple (and, by extension, chipset maker Intel) has suffered a few setbacks already. The first two judicial decisions against infringement complaints brought by Qualcomm came down in Washington, D.C. (United States International Trade Commission) in September and in Munich (Munich I Regional Court) in October. In both cases, Qualcomm's attempts to outspend Apple and Intel on expert testimony backfired:

  • The Munich I Regional Court indicated in its decision (of which the court thankfully made a redacted version available) that two expert reports Qualcomm had paid for (one by a Professor Schulze--I guessthis one--and another one by Professor Strehle) weren't persuasive in the slightest, while Apple and Intel's expert, Professor Franz Kreupl (who used to work for Infineon/Qimonda and SanDisk) "completely convinced" the court owing to the power of reason and logic.

  • This week the United States International Trade Commission published a redacted version of the late-September initial determination by Administrative Law Judge (ALJ) Thomas B. Pender in the investigation of Qualcomm's first ITC complaint against Apple. ALJ Pender was impressed with the "unequivocal, uniquely credible, and highly logical testimony of Aicha Evans, Chief of Strategic Planning for Intel and the former General Manager of the Intel [division] responsible for the baseband chipsets." The ALJ therefore found "Ms. Evans' testimony to be decisive on all matters upon which she offered her testimony concerning Intel's intentions and plans," but he also describes testimony by other witnesses called by Apple (Dr. Scott Morton, Dr. Jeffrey Eisenach, and Steven Bowers) to be "highly credible and specific."

    However, the meanwhile-retired ITC ALJ found "Qualcomm's non-fact witnesses, especially its economic witnesses, to be far less credible, for a myriad of reasons, including the likelihood of bias, the speculative and conclusory nature of their testimony, and the number of unsupported assumptions [the ALJ] found to be inherent with the testimony they offered."

    The one Qualcomm expert ALJ Pender critized most harshly is J. Gregory Sidak, who is running his own consulting firm named Criterion Economics:

    "[T]he amount of money paid to Mr. Sidak, before the current investigation, was approximately $1 million over several years and [...] the company he owns has invoiced between $3 million and $4 million just for this [ITC] investigation [of Qualcomm's first complaint against Apple] alone. [...] In my almost 39 years of practicing law, I have never seen or heard of anything even approaching this level of financial commitment by a witness to a party. Moreover, even absent this financial commitment, I was troubled by his testimony, for example his testimony about there being enough iPhones without the introduction of any new models in 2018 [...] ignored reality. From his financial relationship with Qualcomm bias may be presumed, and I find it would be an abuse of my discretion to give any material credibility to this witness or his findings. I also note the [ITC] Staff questioned his credibility twice during their discussion of the Public Interest, and that I noted it above." (emphasis added)

I heard that at the most recent Munich trial--the one leading to the decision I mentioned above--Judge Dr. Schoen ("Schön" in German), who filled in for Presiding Judge Dr. Zigann on that occasion, made an even more scathing remark about one of Qualcomm's expert witnesses in the German case. Based on hearsay, he felt but ultimately resisted the urge to call up the expert's university to complain because someone who submits, to a court of civil jurisdiction, an expert report that doesn't contain a single scientific statement "shouldn't be educating our young people." The related passage of the redacted Munich ruling doesn't contain such rhetoric, but in their purely factual it's no less dismissive.

Qualcomm must slowly but surely be concerned about its credibility. In September I mentioned that the volume of Qualcomm's share buybacks is simply irreconcilable with last year's claim (by Qualcomm's lead counsel in the Apple case in the Southern District of California, Cravath's Evan Chesler) that the house was "on fire," and in that post I quoted an analyst who complained about an unusual degree of discrepancy between what Qualcomm tells judges and what it tells financial analysts. I have many contacts in the analyst community (just yesterday I got multiple calls and messages regarding IBM's proposed acquisition of Red Hat), and recently I learned that Qualcomm told an analyst it expected to get leverage in the very near term from its Mannheim lawsuits against Apple, which makes absolutely no sense to me after attending all three trials (with more to come next year).

Those experts may be very smart people, but the facts in both cases just aren't favorable to Qualcomm's interests. The Munich case over a post-passivation layer patent and the public-interest part of the ITC investigation (the ALJ found that Qualcomm should not be granted a U.S. import ban against Intel-powered iPhones due to its anticompetitive effects) are far apart not only in geographical terms. In Munich, Qualcomm (if we believe the court) tried to make up an infringement theory out of thin air and paid two professors for testimony that was a substanceless smokescreen at best and fake science at worst. In the ITC investigation, Qualcomm faced an uphill public-interest battle since its own decision to seek an import ban exclusively against Intel-powered (but not Qualcomm-powered) iPhones made it all too easy for everyone to figure out the strategic objective: a wireless baseband chipset monopoly.

After bringing an ITC complaint that almost made Apple look like a proxy for Intel, Qualcomm then sought to limit the ITC's public-interest analysis to the implications of an iPhone ban, without thinking through the obvious effects on Intel's baseband chipset business. That was already foreseeable based on the original complaint: by not targeting Qualcomm-powered iPhones, Qualcomm wanted to be able to claim that the replacement for any banned iPhones would simply be other iPhones, plus, of course, phones made by any other manufacturer.

ALJ Pender understood the ramifications for the baseband processor industry. The doomsday scenario would be that Intel would be forced out of the market.

Just like in any antitrust case (which the ITC public-interest analysis in this case practically is, not in all but in several important regards), market segmentation is a key battle. It's the first important part of the analysis, like claim construction in patent infringement proceedings. Qualcomm failed to convince ALJ Pender that there was only one market for baseband chipsets. One segmentation vector is the usual high-end/low-end distinction. Another one, which is extremely important here, is the one between "merchant" chipset makers that sell their products to others and companies like Huawei (with its wholly-owned HiSilicon subsidiary) and Samsung (with its Exynos division) that build baseband chipsets more or less exclusively for their own devices.

Intel and Qualcomm are "merchant" suppliers: they sell to others, and that's their business. Whether a company serves customers or only builds something for its own use is one of the most obvious criteria for market segmentation one might imagine. No expert, no matter how smart, expensive or articulate, can explain away basic facts like that.

ALJ Pender's initial determination spans more than 200 pages. I'll talk about the public-interest analysis again soon (from an antitrust angle), but for now I'd just like to show you (a) the initial determination and, below that one, (b) the ITC's call for public-interest statements (which are due by November 8; by coincidence, that's also the date of the next Qualcomm v. Apple trial in Munich):

18-09-28 ITC 337-TA-1065 Qu... by on Scribd

18-10-22 ITC 337-TA-1065 Re... by on Scribd

Share with other professionals via LinkedIn: