Sunday, October 14, 2018

Patent exhaustion keeps Qualcomm on the run from Apple's claims and motions

If exhaustion makes you run even further and faster, you're either above conventional physics--or you're Qualcomm.

Patent exhaustion has been an important and powerful concept for a very long time, but last year the Supreme Court provided a great deal of clarification in its Lexmark opinion. That opinion came down in the early phase of Qualcomm's disputes with the United States Federal Trade Commission (FTC) and Apple.

Apple asserted nine patents in its original Southern California complaint. Qualcomm surprisingly didn't bring mandatory infringement counterclaims, thereby waiving its right to assert infringement in that litigation or any other U.S. case against Apple. Apple threw in nine more patent DJs (declaratory judgment requests) in its first amended complaint, but Qualcomm persuaded Judge Gonzalo P. Curiel to throw those additional claims out. In order to do away with the original nine DJs for good (since Qualcomm would rather have everyone focus on the size of its portfolio--130K patents), Qualcomm "supersacked" (see this Lexology article for further information) Apple and the contract manufacturers by sending them a covenant not to enforce those patents against them, and in accordance with the Super Sack precedent immediately moved for dismissal of the original DJs including the patent exhaustion DJ for alleged lack of subject matter jurisdiction.

Apple and the contract manufacturers (Foxconn, Compal, Wistron, Pegatron) opposed. They basically argued that Qualcomm can't just duck patent-specific determinations while demanding billions of dollars in royalties. They pointed to a decision in the District of Massachusetts, where a judge still identified a justiciable controversy over patents despite a Super Sack-style covenant.

Qualcomm filed its reply in support of its motion for dismissal on Friday (this post continues below the document):

18-10-12 Qualcomm Reply Iso... by on Scribd

Qualcomm seeks to distinguish the Massachusetts precedent (Esoterix v. Qiagen) from its situation with Apple and the contract manufacturers. There are differences for sure, still it's true that the Massachusetts decision shows Super Sack isn't as absolute and comprehensive as some would have it.

The highlight of Qualcomm's reply is a true "gotcha" moment:

"Apple previously admitted that Qualcomm's position here is correct: “Qualcomm always has the power to remove the Nine Patents by granting Apple a covenant-not-to-sue pursuant to Super Sack.' [...] Now, faced with Qualcomm's covenant and Motion, Apple attempts to reverse course."

My guess is that Apple didn't quite expect Qualcomm to chicken out the way it ultimately did--at least not this late in the game. But this here is not about whether Apple had extended a standing invitation: a patent holder doesn't need any invitation to invoke Super Sack.

But Apple is determined to obtain judicial clarification of the all-important exhaustion question in the specific context of Qualcomm's alleged double-dipping by selling chipsets that substantially embody certain patented inventions and additionally charging patent license fees.

That's why Apple and its contract manufacturers--on Friday, just like Qualcomm's reply--brought a motion asking the court to entertain a new motion for partial summary judgment on patent exhaustion. The new motion relates to U.S. Patent No. 9,136,878 on a "file download and streaming system," one of 93 standard-essential patents (SEPs) Qualcomm listed in that San Diego case as part of its efforts to prove the value of its SEP portfolio and which its opening expert reports focus on (this post continues below the document):

18-10-12 Apple & Contr ... by on Scribd

The whole idea is to attack the '878 patent in case the pending motion for summary judgment on exhaustion would be mooted by Qualcomm's Super Sack covenant.

Qualcomm almost instantly voiced its opposition to this new motion, and asked the court for more time to respond.

In their motion, Apple and the contract manufacturers say "Qualcomm is desperate to avoid judicial review of its illegal business practices which include forced licenses of exhausted patents." Legality or illegality will have to be determined in court (antitrust authorities have already taken pretty clear positions). Any observer can already see that Qualcomm is trying to hide and and run from the question of patent exhaustion.

In this case, following high-stakes commercial litigation almost feels like watching a cartoon...

In the next post (later today) I'll show you a new infographic I created today to show the web of patent and antitrust disputes involving the likes of Apple, Samsung, Qualcomm, and Huawei.

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