Friday, November 2, 2018

Apple stresses ramifications for 5G in public interest statement filed in Qualcomm's ITC case

On Halloween, shortly after the United States International Trade Commission (USITC, or just ITC) released a public redacted version of Administrative Law Judge (ALJ) Thomas B. Pender's initial determination (ID) regarding Qualcomm's first ITC complaint against Apple, the parties' public interest statements were due.

Let's talk about procedures first. The ID on the merits must be viewed separately from the recommended determination (RD) on remedies. On the merits, ALJ Pender sided with Qualcomm on one of three remaining patents-in-suit, but not on the other two. But even to the extent Qualcomm might ultimately prevail on the merits, the ALJ spoke out against an exclusion order in light of the anticompetitive effect this would have in light of Intel being the only Qualcomm competitor in terms of a baseband chipset maker willing to sell to actual customers as opposed to just making chips for its own devices (such as Huawei's HiSilicon).

  • Apple petitioned the Commission (the ultimate decision-making body of the U.S. trade agency) to review ALJ Pender's ID on the merits and find no infringement of a valid patent.

  • While I would have thought Qualcomm would be disappointed at prevailing on only one out of six originally asserted patents and seek to prevail on one or two more patents, Qualcomm is apparently optimizing for time: it wants to get a potential import ban sooner rather than later. Therefore, Qualcomm would take the bird in the hand instead of three birds in the bush, and filed a contingent petition: ideally Qualcomm would like the Commission to decline the ID on the merits, but in case it does, Qualcomm wants the chance to prevail on the other two remaining patents-in-suit.

    Qualcomm's strategy is actually consistent with how it treated certain patents in the San Diego litigation with Apple, where Qualcomm simply waived its rights to assert a whole bunch of patents in order to avoid a finding on the merits, particularly with respect to patent exhaustion. Before anything takes longer or before a strategically undesirable issue (exhaustion) gets adjudicated, Qualcomm would rather throw some patents away because it owns so many more.

    The Office of Unfair Import Investigations (OUII, commonly referred to as "the ITC staff") disagrees with both petitions.

  • The parties cannot formally petition the Commission to review the RD on remedies. However, the Commission requested (new) public interest statements. I published that request at the very end of my post on the ID.

    Those statements were filed on Halloween. I saw Qualcomm's statement yesterday, but Apple's was sealed. Today I was able to download a public redacted version of Apple's statement.

Let's start with Qualcomm's statement since Qualcomm is the de facto "appellant" of the RD on remedies (this post continues below the document):

18-10-31 ITC 337-TA-1065 Qualcomm Pub Int Stmt by Florian Mueller on Scribd

Qualcomm says Apple and Intel work "hand-in-glove" (which may actually be the case based on how they pursue their invalidity challenges to Qualcomm's German patents-in-suit, using the same patent law firm and making near-identical filijngs), and describes ALJ Pender's RD as "unprecedented" because the ITC usually does impose U.S. import bans on mobile phones found to infringe patents not deemed invalid, because all other ALJs who conducted fact finding on the public interest (after the Commission delegated this to ALJs, starting in 2011), and because "[t]here has not been a case since the 1980s in which the Commission has found a violation of Section 337 without issuing an exclusion order, and in each case, there were no available substitutes for the excluded products."

But all of what Qualcomm says in that regard depends on its choice of the relevant market: smartphones. The ALJ, however, determined that the public interest issue in this case is about the market for cellular baseband chipsets--more, specifically, baseband processors for the premium segment, and focusing on "merchant" suppliers (Qualcomm and Intel) as opposed to chipset makers that more or less exclusively supply their chips only to other companies of the same group (HiSilicon supplying chips to Huawei, for instance).

Qualcomm argues that focusing on the effect an import ban would have on Intel's viability as a Qualcomm competitor would make it impossible for the ITC to "enforce any patent against any iPhone with an Intel chipset." But in this context Qualcomm doesn't mention its own tactical choice to target only Intel-powered smartphones through its ITC complaints (and, effectively, its 13 patent assertions in Germany).

Apple's public interest statement highlights (in its first footnote) a fact that shows Qualcomm's targeting of Intel-powered iPhones through ITC complaints can't simply be attributed to technical considerations:

"Underscoring the discriminatory nature of Qualcomm's requested remedy, Qualcomm alleges infringement of U.S. Patent No. 8,633,936 based on graphics processing functionality in the accused iPhones that has nothing to do with the baseband chipset."

Now I've quoted Apple's statement before showing it (this post continues below the document):

18-10-31 ITC 337-TA-1065 Apple Pub Int Stmt by Florian Mueller on Scribd

Apart from footnote 1 (quoted above the document), a couple of aspects of Apple's filing are worth highlighting:

  • Apple attributes to Qualcomm's "anticompetitive practices" the fact that "in the past decade, multiple U.S. baseband chipset suppliers--including Broadcom, Marvell, and Texas Instruments--exited the [relevant] market." This focus on U.S. chipset makers (while there would also be examples in Asia) makes sense since the ITC is concerned about protecting U.S. companies from unfair competition. It's an "America first" agency (though there are many Democrats there who won't like that slogan).

  • "Except for Intel's portion of sales to Apple, Qualcomm is the sole merchant supplier to every other manufacturer supplying premium smartphones in the United States."

  • Unlike Qualcomm, Apple places a lot of emphasis on 5G. Basically, the argument is that U.S. leadership in 5G depends on Qualcomm facing at least one major U.S. competitor (Intel). Apple points to the Presidential Memorandum on Developing a Sustainable Spectrum Strategy for America's Future issued on October 25, 2018.

    Actually, Qualcomm also mentions the President: Qualcomm argues that national security considerations (related to 5G) are not part of the Commission's public interest inquiry but might later give rise to a presidential veto.

  • Just like ALJ Pender, Apple argues that Qualcomm could still obtain damages in the companion case filed in district court. While this is a simple procedural truth, it's important not to forget that if the ITC denies an import ban, it doesn't mean that anyone gets away with an infringement or that a patent holder wouldn't be compensated.

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