Tuesday, December 18, 2018

Funny photo: former Qualcomm president duct-tapes gate to avoid testifying at January FTC trial

The following picture shows the pedestrian gate of former Qualcomm president Derek Aberle's San Diego home. Even high-tech execs resort to no-tech means--good ol' duct tape, in this case--when trying to avoid having to testify in court (this post continues below the image):

Last week the Federal Trade Commission requested the court's permission to serve trial subpoenas on former Qualcomm president Derek Aberle and former Qualcomm vice chairman Steven Altman by mail after the two "repeatedly evaded attempts to personally serve subpoenas seeking their apperance at [the January 2019 FTC v. Qualcomm] trial."

In order to document those fruitless efforts, the FTC attached, among other things, a report by a San Diego process server, Mr. Manfred Arnold Briese, Jr.:

"12/10/2018 at 4:45- Arrived at location to relieve previous server [so they were basically camping outside the property]

5:40pm-Black Land Rover SUV arrived with female adult and minor male

5:45pm- Minor male came out to pedestrian gate and duct taped it closed [document by the photo shown further above]

6:26pm- Black SUV left residence and returned at 6:35pm.

10:00pm-No activity. Left location."

[and a similar report for the following day]

The FTC also tried to serve the subpoenas through Cravath, a law firm representing Qualcomm but also Messrs. Altman and Aberle at earlier depositions. However, Cravath denied being authorized to accept documents on behalf of Messrs. Altman and Aberle, pointing to the fact that Mr. Aberle is part of a group formed by former Qualcomm chairman Paul Jacobs, trying to raise funds to take over (and privatize) Qualcomm.

Mr. Aberle apparently concluded that testifying at trial wouldn't be in his interest. He doesn't want to do anyone a favor by showing up. He wants to be left alone. So he's hiding behind a duct-taped gate--or he's somewhere else, but the people currently living on his property are hiding.

What won't help him avoid or delay his testimony is a potential federal government shutdown. Judge Koh handed down an order yesterday according to which the trial will go forward in any event.

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Friday, December 14, 2018

Judge Koh rejects Qualcomm's bid to introduce new evidence related to Intel's success with Apple, Qualcomm's new 5G agreements

We're now only three weeks away from the Federal Trade Commission v. Qualcomm antitrust trial in the Northern District of California, and Judge Lucy H. Koh has again asserted her authority and demonstrated her unrelenting focus on the facts that really matter. On Thursday, she flatly rejected an 11th-hour attempt by Qualcomm to delay or derail the FTC's push for injunctive relief (the FTC is seeking to "redress and prevent recurrence of Qualcomm's conduct") by introducing evidence more recent than March 30, 2018, and at the end of her sharp ruling told Qualcomm one more time that "[t]he January 2019 trial will address both liability and remedy" (this post continues below the document):

18-12-13 Order Denying Qualcomm's Request Re. Post-discovery Events by Florian Mueller on Scribd

In late October, Qualcomm brought a motion to introduce evidence related to post-discovery (i.e., post-March 30) events that the wireless chipset maker believes weigh against the FTC's pursuit of an injunction:

  • Intel's growing business with Apple (a design win related to the entire range of next-generation iPhones, though Intel, as the ruling notes, already had a chipset supply deal in place with Apple well before the discovery cutoff date) and

  • some 5G patent license agreements Qualcomm has concluded more recently, arguing that since it doesn't make any 5G chips (yet), it can't leverage a chipset monopoly ("no license-no chips" policy) in connection with 5G. This part did not refer to Qualcomm's "new deal" with Samsung (which it may have to renegotiate anyway), which was concluded earlier this year, well ahead of the discovery cutoff date.

In formal legal terms (FRE 403), Judge Koh concluded that allowing Qualcomm to take and present further evidence would unfairly prejudice the FTC, and that such prejudice would be outweighed by the alleged probative value of anything Qualcomm would inject into the case. In her efforts to balance different considerations, the judge wasn't persuaded by precedents Qualcomm pointed to, especially not by other cases in which several years had passed between a discovery cutoff date and a trial. She also points to the fact that she actually did allow various out-of-time depositions because of witnesses's travel and for similar reasons. And she notes that there will always be something that happens post-discovery, so no case can ever go to trial (at least not to one that would be fair to the opposing party) unless courts exercise their discretion at some point to close the door. And in this case, the deluge of motions that Judge Koh faced (her ruling doesn't say "deluge," but contains an impressive list) between the cutoff date and the trial doesn't suggest that the period between the cutoff date and the trial was longer than what the court really needed. While I've sometimes had different opinions, especially on economic issues and the (in)validity of patents-in-suit, I can say from my vantage point as a litigation watcher that I'm not aware of any U.S. judge who would be more efficient than her.

The key factor here is that the FTC is entitled to injunctive relief if there is a risk of Qualcomm's (mis)conduct recurring--regardless of whether, as Qualcomm argues, anything may have recently changed about its market power. Judge Koh points to case law that makes this principle crystal clear. If Qualcomm had wanted a different outcome, it would have had to show that its conduct had changed, and even a change of conduct wouldn't necessarily have meant that there was no more risk of recurrence.

As Judge Koh recalls, Qualcomm's desire to avoid a decision on injunctive relief after the January 2019 trial is old news. Qualcomm originally sought to bifurcate the trial (one trial on liability followed by a separate one on remedies).

The fact that Intel's deal with Apple is not new per se (though the scope of that partnership may have expanded lately) diminishes the probative value of anything that Intel and Apple may have done together, or may have decided to do together, since late March. As for the 5G part, Judge Koh doesn't mention Qualcomm's deal with Samsung, but the fact that this modification of an agreement with the world's largest smartphone maker (at least by some measure) occurred prior to the cutoff date also suggests that whatever other deals were struck in the second or third quarter of 2018 won't present a fundamentally new situation. And it could be that Judge Koh already sees a certain likelihood of Qualcomm being ordered to renegotiate patent license agreements at the end of this. In that case, the probative value of such contracts might be zero.

This latest order is not the first major pretrial ruling that doesn't bode well for Qualcomm's defensive efforts:

The exclusion of evidence relating to post-cutoff date events is the latest in a string of significant decisions made and positions taken before the upcoming trial.

Assuming that Qualcomm loses the trial (and I can't imagine it would get away unscathed), it will then have to set priorities for an appeal, and I guess--though this is now a second-degree hypothetical as it already presupposes a certain outcome of the trial--Qualcomm is fairly likely to tell the appeals court that it lost only because some relevant post-discovery events weren't considered and to request a reversal or at least a retrial. But Judge Koh obviously considered this scenario and structured her ruling accordingly.

There most probably won't be any spectacular developments in the U.S. Qualcomm cases between now and the end of the year. Maybe we'll hear something more about the software patent enforcmeent dispute in China (to be fair to Qualcomm, when Apple enforces its own patents, it doesn't easily accept that a workaround is indeed a workaround). And I'm extremely interested in what the Munich I Regional Court will decided next Thursday (December 20). "Cutoff" for evidence also plays a role there, but it's different in three major respects: a different jurisdiction, where the constitutional right to be heard quite often weighs in favor of reopening the record; it's a patent infringement, not antitrust, case; and what Qorvo credibly explained to me suggests that Qualcomm originally led the court and Apple to believe that the schematics of the accused chipset would be discussed with the court-appointed expert at trial, but then made an about-face and opted for evidentiary minimalism, which is why in that case I believe the plaintiff would not be unfairly prejudiced by taking a bit more time to put facts on the table that, based on the ITC decision (first an Administrative Law Judge cleared Qorvo of infringement, then the six-member Commission threw out Qualcomm's petition to review that finding), have the potential to be outcome-determinative in the defendants' favor.

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Thursday, December 13, 2018

ITC decides to review initial determination that Intel-powered iPhones infringe one Qualcomm patent

Yesterday afternoon the United States International Trade Commission ("USITC" or just "ITC"), a U.S. trade agency with quasi-judicial powers, issued a determination to review meanwhile-retired Administrative Law Judge (ALJ) Thomas B. Pender's initial determination according to which Intel-powered iPhones infringe one Qualcomm patent (U.S. Patent No. 9,535,490 on "power[-]saving techniques in computing devices").

A headline I read this morning suggested that this is a "second shot" for Qualcomm to prevail, which may be attributable to spin doctoring and is fake news just like a story according to which Apple CEO Tim Cook was preparing a 2020 presidential run (paid for by Qualcomm, presumably in an effort to adversely impact Mr. Cook's relationship with President Trump). The determination to conduct a review is actually a setback--not progress--for Qualcomm if, which gained nothing whatsoever yesterday if one analyzes carefully what the ITC actually decided and compares it to what it could have decided in the alternative.

First, as I explained on November 2, a fundamental distinction must be made between an initial determation (ID) on the merits (whether a valid patent is infringed) and a recommended determination (RD) on remedy and bond. The ALJ issues both simultaneously, but the ID (or any given part of it) becomes the final Commission determination if the Commission--the six-member decision-making body at the top of the organization--decides not to review it, while the RD is just what its name says (a recommendation) and the Commission must make a determination on those questions whether or not anyone files a petition (in fact, it's not even possible to formally "petition" for a "review" of the RD because only decisions, not recommendations, can be "reviewed"; a recommendation can, at best, be adopted).

The public-interest inquiry is only relevant to the remedy part:

  • Yes, ALJ Pender recommended not to order an import ban over the patent he deemed infringed, as he viewed Qualcomm's related ITC complaint as part of an anti-Intel campaign with serious anticompetitive implications (for a closer look at his findings, see this post).

  • Yes, the Commission yesterday requested answers to five public-interest questions (vs. nine related to the merits), and it's procedurally possible that the Commission ultimately reaches a different conclusion than ALJ Pender.

  • But no, this does not mean that the Commission has taken a procedural decision in Qualcomm's favor (such as by granting a petition to review) or identified any potential reasons to disagree with ALJ Pender. As I've explained repeatedly, and as yesterday's document actually also states (though not as clearly as this post), the Commission must evaluate the statutory public-interest factors. It couldn't just say: "we affirm the ALJ". Even if the Commission wholeheartedly agreed with the recommendation, it would have to make its own determination, and would have to request input from stakeholders.

While the parties couldn't even petition for a "review" of the RD on remedy and bond, the Commission requested public interest statements in the build-up to yesterday's determination. The implications of an anti-Intel ban on U.S. competitiveness in 5G were put front and center by Apple's submission, and yesterday's public-interest question D also refers to "the alleged exit of Apple's chipset supplier from the market for 5G technology."

What remains to be seen now is whether the public-interest questions will even be reached by the Commission. Unless Qualcomm prevails on at least one patent claim, there obviously won't be a remedy.

With respect to the merits, the Commission

  • granted Apple's petition to review the liability finding with respect to the '490 patent, with Apple now getting the proverbial second bite at the apple to defeat the complaint (in fact, a second round of three bites: the Commission's nine questions involve infringement, liability, and domestic industry, any one of which would be a "get out of jail free" card for Apple on its own), but

  • denied Qualcomm's (conditional) petition to review the holdings that Apple did not infringe the other two patents ALJ Pender ruled on.

One key difference here is that Apple's petition for review was unconditional (Apple definitively asked the Commission to overrule ALJ Pender on liability), while Qualcomm's petition was conditional. Qualcomm wanted the Commission to adopt the ALJ's initial determination on the merits, but also wanted second bites at the apple (in this case, at "the" Apple with a capital A) if a review was going to take place. What has happened now is that the ITC decided to review the part that is good for Qualcomm (and can only get worse for Qualcomm, not better), but declined to review the parts where Qualcomm could have made further headway.

This also means that the Commission won't review the ALJ's finding that a certain Qorvo chip in Intel-powered iPhones doesn't infringe a Qualcomm patent that has a European "sibling" that is at issue in a case the Munich court will decide on next week.

Obviously, Qualcomm's conditional petition for review looked weak from the start. A party that believes there's a good chance of prevailing on one or two additional patents simply requests a review on an unconditional basis. Many other ITC complainants have sought to widen, broaden and deepen their ITC wins, and in all the cases I saw, except for this Qualcomm case, those petitions were unconditional. Theoretically, a party's desire to save time and rather get one bird quickly than two or three birds later could result in a conditional petition for review even if the case was strong. However, we're just talking about a couple of months here that Qualcomm could have saved in the best case--not much given that this dispute started almost two years ago. The Commission determination has been scheduled for February 19, 2019.

So by now, there's only one patent in the case, and Apple has four different chances to avoid an import ban, and needs to prevail on just one while Qualcomm must overcome all four hurdles:

  1. infringement (a matter of claim construction, and the Commission is interested in claim construction arguments),

  2. validity (the Commission appears particularly interested in one prior art reference, but also in a second one that might be relevant to an obviousness analysis),

  3. domestic industry (here, claim construction also comes into play), and

  4. the public interest in thwarting a market monopolization campaign.

Meanwhile, media reports suggest there's a bitter enforcement fight raging in China, where Qualcomm just secured two preliminary injunctions against Apple (from what I hear, there had only been two other patent PIs in Chinese history before these two), but Apple argues that iOS 12, which the court didn't look at, doesn't infringe. The patents in that case are software patents, and iOS 12 contains at least one other workaround related to a Qualcomm patent-in-suit. As Apple's and Microsoft's patent enforcement efforts against Android devices showed years ago, it's very hard to find a software patent that is broad enough so it can't just be worked around easily (and in ways that end users often don't even notice), yet not so broad that it would be held invalid. Anyway, I only have indirect information (media reports) on the Chinese situation and will continue to focus on jurisdictions in which I can conduct primary research (analyzing documents and attending hearings/trials/announcements).

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Saturday, December 8, 2018

Qualcomm fears being required to renegotiate patent license agreements with Samsung, many others

This is the first post, and probably not the last, in which I'll discuss some interesting information I found in the Federal Trade Commission's and Qualcomm's proposed findings of facts and conclusions of law with a view to next month's San Jose trial. Qualcomm's filing is more than twice as long (157 pages) as the FTC's submission (71 pages), but Judge Lucy H. Koh will decide strictly based on the law and the facts, so this antitrust case is not going to turn into a battle of matériel. The litigation departments of government agencies are outnumbered by private-sector litigants' armies of lawyers all the time, but quite often they prevail nevertheless.

Here are the two filings (this post continues below the documents):

18-12-06 FTC's Proposed Findings and Conclusions by Florian Mueller on Scribd

18-12-06 Qualcomm's Pro... by on Scribd

Those proposed findings and conclusions serve as a roadmap for the upcoming trial. There may still be some surprises, but by and large the points the parties seek to drive home are clear now, except for those heavy redactions, which I wish someone could fight the way Reuters, MLex, the First Amend Coalition and others attacked excessive sealings in Apple v. Samsung years ago (and I had to do the same at the Federal Patent Court of Germany; by the way, I'm presently involved in a new access-to-documents dispute there, with a notorious privateer).

Section III.I of Qualcomm's filing is one of the most outrageous examples of overredaction. That section is meant to justify Qualcomm's "no license-no chips" policy, which is central to the case. Under the headline "Qualcomm's Practice of Not Selling Chips to Unlicensed Companies Has Valid Business Justifications," paragraph 245 says:

"Qualcomm's practice of not selling chips to unlicensed OEMs is based on the following considerations:"

And then every single one of those business considerations is blackened out. 100%. It's hard to imagine that those redactions are reasonable, and maybe the court won't approve them. Or we'll find out at trial.

Fortunately, the paragraph that is most interesting in commercial terms is public:

"765. Moreover, the FTC seeks an order requiring Qualcomm to 'renegotiate . . . license terms' with all OEM licensees. (Joint Pretrial Statement at 2; FTC Interrogatory Response at 6.) Not only would such an injunction require renegotiation in markets where Qualcomm is not even alleged to have market power, such as WCDMA or non-'premium' LTE, but it is also overbroad insofar as it requires renegotiation of agreements no matter what the terms and no matter whether any anticompetitive harms caused or resulted from those agreements. Such an injunction would be tailored neither to the markets nor harms at issue, including because it would apply to agreements entered into outside the 2011-2016 timeframe for which the FTC has presented evidence."

The passage on the requested relief that Qualcomm's filing refers to says this:

"Require Qualcomm to negotiate or renegotiate, as applicable, license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical, software, or other support;"

It's obvious why Qualcomm doesn't like this, but it's inevitable: if someone violates antitrust law and as a result of such behavior (including, but not limited to, the "no license-no chips" policy) imposes supra-FRAND royalties on others, renegotiation is the only way to redress the balance and fix the problem.

As the final sentence of paragraph 765 of Qualcomm's proposed findings and conclusions shows, they complain, among other things, about the requested injunction not being limited to the 2011-2016 period. The most significant agreement that is still in force and effect and that Qualcomm concluded outside that timeframe is presumably its early 2018 new deal with Samsung. Even if the FTC didn't present evidence that is specific to that timeframe, there can be no doubt that the 2018 Qualcomm-Samsung agreement came into being under the same problematic circumstances--simply because things will only get better if and when the FTC prevails (or if and when private parties prevail, with the Apple v. Qualcomm trial being scheduled for mid-April).

Qualcomm's proposed findings and conclusions do indicate some changes to their business policies after that timeframe, and they seek to leverage those changes so as to argue that the prospective remedy of injunctive relief wouldn't be warranted only on the basis of past behavior. The risk of recurrence is obviously key. But what Qualcomm changed (such as capping its 5% patent royalty demand at a device price of $400) is either unrelated to, or at least falls far short of, what the FTC is tackling here and seeking to redress and to prevent from happening again.

Actually, to the extent Qualcomm's refusal to extend SEP licenses on FRAND terms to rival chipset makers like Intel was a breach of contract (as Judge Koh has determined on summary judgment), that fact alone means that the economics of certain deals, such as the one with Samsung, would have been different if Qualcomm had behaved the way the court thinks it should have, and if a licensee like Samsung could also have decided to simply purchase baseband chips from Intel, or to license Qualcomm's SEPs at the chipset level (Samsung's Exynos division) instead of at the device level.

The requirement to renegotiate license terms would affect Qualcomm in two ways. Besides the direct implications of having to modify existing agreements in favor of implementers, a judge or jury tasked with determining whether or not Qualcomm complied with its FRAND licensing obligations will also look at (among other things) Qualcomm's other license agreements. It's a safe assumption that Qualcomm's recent deals, such as the one with Samsung, were optimized for the purposes of the forthcoming Apple trial. However, should those agreements be null and void in the sense that they must be renegotiated as per a court order, then they don't serve as useful points of reference for any FRAND-compliance analysis in any jurisdiction.

Again, there's a lot more in the 220+ pages Qualcomm (two thirds) and the FTC (one third) filed on Thursday, such as an interesting passage that could backfire against Qualcomm in connection with promissory estoppel (and possibly have novel implications for exhaustion), but it's simply too much for a single blog post.

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Friday, December 7, 2018

When defending against standard-essential patents, beware of standard-essential utility models

While "standard-essential patents" (SEPs) is one of the most common terms in the tech sector, it would sometimes be more accurate and inclusive to refer to "standard-essential intellectual property rights" (SEIPRs). That collective term would include both SEPs and SEUMs: standard-essential utility models. Utility models are a German specialty, basically a second-class type of patent with a shorter term but instant registration (no substantive examination). This blog covered a utility model case years ago when Apple asserted a slide-to-unlock utility model against Samsung in Germany; that case got stayed over validity concerns and never went anywhere. Beyond German utility models, the collective term "SEIPRs" would cover any other IPRs that may exist in other jurisdictions and are like patents, but aren't called patents.

Yesterday I went to the Munich I Regional Court to watch a standard-essential utility model case, Netlist v. SK Hynix and HP, over German utility model no. DE2020100185017, which was derived last year, in preparation of this lawsuit as counsel for Netlist explained, from a pending European patent application, EP2454735 on a "system and method utilizing distributed byte-wise buffers on a memory module." From what I've been able to find out, this patent was declared essential to a JEDEC memory standard.

An EPO patent examiner rejected the application, though Netlist is still trying to persuade the EPO to grant a patent. But in parallel to that effort, they quickly took out a utility model, with claim language drafted specifically for the purposes of the lawsuit against SK Hynix and HP, and sued in Munich.

The previous Munich trial I reported on took 12 hours; yesterday's trial took only about four. No would-be witness was sitting on the hard wooden seats outside.

Netlist's counsel in this action, Fieldfisher's Benjamin Grzimek, was mentioned on this blog about five years ago when Unwired Planet, an Ericsson privateer, sued a bunch of mobile device makers. A filing made by SK Hynix with the ITC suggests Netlist is also a patent assertion entity (unsurprising after I had noticed the extent to which they emphasize their patent infringement cases on their corporate website):

"Netlist does not design or manufacture JEDEC compliant DDR4 RDIMM or LRDIMM, and it never has. It does not compete with Respondents. And, Netlist freely admits that it made no technical contribution to any JEDEC standard. Others contributed the technologies JEDEC adopted into its standards, which JEDEC compliant products implement. Indeed, in years past when Netlist designed and sold memory modules, its business model was to sell non-JEDEC compliant memory modules; these are the products, according to Netlist, from which the patents arose. Tellingly, despite having litigated the patents and defended IPRs, Netlist did not even disclose four of the five patents asserted at the [ITC] hearing to JEDEC as potentially essential to the standard until years after the patents issued, and just months before filing its [ITC] complaint. All of this reflects a shift in Netlist's overall strategy. After operating at a loss for all but one year of its existence, Netlist now touts that '[t]he Company is focused on monetizing its patent portfolio' and that it 'plans to pursue an intellectual property-based licensing business in which it would generate revenue by selling or licensing its technology, and it intends to vigorously enforce its patent rights against infringers of such rights.'"

"Consistent with this strategy, Netlist has secured third-party funding for its litigation campaign against SK hynix, which is by no means limited to the two investigations in the ITC. Netlist recently announced that it 'obtained outside investment to finance the legal fees and costs of its legal action against SK hynix” from TR Global Funding V, LLC."

The defendants in the Munich utility model are represented by IP and antitrust litigators from Bardehle Pagenberg led by Professor Peter Chrocziel (who has been named German IP litigator of the year twice and was mentioned numerous times on this blog because of his past work for Microsoft and Apple), with rising star Dr. Anna Giedke arguing non-infringement for the most part. Interestingly, even though Bardehle has many patent attorneys itself, including some of the most well-known ones in Europe, two patent attorneys from Samson & Partner (another top-notch firm I mentioned often because of its work on behalf of Nokia and, such as in the pending Qualcomm cases, Apple) represented SK Hynix and HP yesterday: Dr. Georg Jacoby and Dr. Robert Baier. The involvement of Samson's patent attorneys doesn't imply anything negative for Bardehle's great patent attorneys; if anything, it speaks to the strength of Bardehle's litigation team.

The court will announce a decision at the end of January, and Presding Judge Dr. Matthias Zigann said at the end of the trial that he can't indicate an inclination before a post-trial conference with his two side judges. If I had to make a guess, I'd expect the case to be dismissed or stayed. Defendants made a pretty good "squeeze" case, where the asserted claim would either have to be construed too narrowly to support an infringement finding or, in the alternative, the claim would be too broad to be valid. A patent attorney from the Bosch Jehle firm, representing Netlist, showed a computer animation meant to distinguish the claimed invention from the prior art, but patent attorney Dr. Baier dismissed its core--the idea of taking CAS latency into account-as a "triviality" and, while Judge Dr. Zigann didn't say what he thought of it, I wouldn't bet on Netlist's chances here.

Judge Dr. Zigann noted at the start of the trial that the utility model and its underlying patent specification lack clarity. He explained that "the upside for you is that counsel can read anything into it; the downside is that so can the Court."

There are two important lessons to be learned:

  1. Reference was made to a U.S. case in which one or more defendants sought or even obtained (at some point, however, that case got stayed by stipulation) a U.S. antisuit injunction barring Netlist from the enforcement of injunctive relief over SEPs--but if Netlist prevailed in the case tried by the Munich court yesterday, there would be an argument over whether an SEUM falls within the scope of that injunction. I believe SK Hynix and/or HP would have a strong case, given that this SEUM was simply derived from a pending SEP application. But there could be an enforcement dispute, and there would be a risk of a court saying that if they wanted to preclude Netlist from enforcing utility models, they should have requested a differently-worded antisuit injunction. And that could give Netlist leverage, even if perhaps only for a short period.

  2. While utility models don't enjoy any presumption of validity (for lack of substantive examination), there can be situations in which a (final or non-final) rejection of the underlying patent application by the EPO actually suggests to a German court that the utility model is likely valid. In yesterday's case, that doesn't appear to be an issue. But there have been utility model cases in Germany in which an EPO examiner based a rejection on a theory that doesn't apply to German utility models. The differences between the two jurisdictions are limited and sometimes subtle, but there are some and they can prove outcome-determinative, resulting in a utility-model injunction while a patent couldn't be enforced.

Implementers of standards should always bear the additional risks arising from utility models in mind, especially when there is a threat of litigation, or already an ongoing one. You need an invalidation strategy that will not only work against a European patent or patent application, but also take down a utility model. And you shouldn't forget about utility models when crafting antisuit injunction motions.

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Monday, December 3, 2018

FTC seeking to "redress and prevent recurrence of Qualcomm's conduct" through antitrust injunction

The FTC and Qualcomm once intended to settle the antitrust litigation pending before Judge Lucy H. Koh in the Northern District of California by November 14, but we're now just one month and one day away from the trial date and no agreement has been reached. But there's been tremendous progress in the form of Judge Koh's recent summary judgment order on Qualcomm's obligation to extend standard-essential patent (SEP) licenses to rival chipset makers such as Intel.

On Thursday, the FTC and Qualcomm filed a joint final pretrial statement, which outlines (on page 4 of the PDF document) the remedies the FTC is going to fight for (this post continues below the document):

18-11-29 FTC v. Qualcomm Jo... by on Scribd

Let's look at the injunctive relief sought by the FTC item by item:

  • "Prohibit Qualcomm from conditioning the supply of modem chips on a customer’s patent-license status"

    This would be the end of Qualcomm's "no license, no chips" policy. Qualcomm's going to argue that it shouldn't have to tolerate that its chipset customers infringe on its patents, but as a monopolist it's not allowed to engage in tying and, regardless of market share, patents embodied by its chip are simply exhausted. Last year's Lexmark ruling by the Supreme Court makes this pretty clear, one would think.

  • "Require Qualcomm to negotiate or renegotiate, as applicable, license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical, software, or other support;"

    This, too, would prevent Qualcomm from leveraging its chipset market position when negotiating license terms.

  • "Require Qualcomm to submit, as necessary, to arbitral or judicial dispute resolution to determine reasonable royalties and other license terms should a customer choose to pursue such resolution;"

    I've warned against arbitration on unfair terms on various occasions and in different ocntexts (most recently, Huawei v. Samsung). What's good here is the requirement that a Qualcomm customer would "choose to pursue such [dispute] resolution." This way, customers preferring to have an Article III court make a FRAND determination can't be forced to arbitrate.

  • "Require Qualcomm to make exhaustive SEP licenses available to modem-chip suppliers on fair, reasonable, and non-discriminatory terms and to submit, as necessary, to arbitral or judicial dispute resolution to determine such terms;"

    The second reference to arbitration must be seen in light of the first one: it's up to the licensee whether the matter is arbitrated or litigated.

    This prayer for injunctive relief goes beyond the summary judgment victory the FTC has already scored. As the FTC clarified in August, the summary judgment motion was merely about contract interpretation, not about a general requirement on antitrust grounds. Now they're shooting for a bright-line rule.

  • "Prohibit Qualcomm from discriminating or retaliating in any way against any modem-chip customer or modem-chip supplier because of a dispute with Qualcomm over license terms or because of a customer's license status;"

    The intention behind this one is good and clear. However, Qualcomm's criticism of the FTC's requested relief lacking specificity is not entirely unfounded with respect to this broad and vague terminology: "retaliating in any way" could also involve legitimate forms of intellectual property enforcement. Maybe the FTC will provide greater clarity.

  • "Prohibit Qualcomm from making payments or providing other value contingent on a customer's agreement to license terms;"

    This one is meant to close a loophole: Qualcomm has previously entered into rebate/kickback agreements in order to get companies to accept contract terms with anticompetitive implications.

  • "Prohibit Qualcomm from entering express or de facto exclusive-dealing agreements for the supply of modem chips;"

    Here, the FTC is seeking to prevent Qualcomm from monopolization through contracts.

  • "Prohibit Qualcomm from interfering with the ability of any customer to communicate with a government agency about a potential law enforcement or regulatory matter;"

    This issue is well-known because of Apple's dispute with Qualcomm. Qualcomm promised Apple some rebates, but then withheld a billion-dollar amount just because of Apple allegedly having violated a "business cooperation and patent agreement" (BCPA) by talking to regulators, which Apple says was in some cases merely about responding to questions from competition enforcers and in the remaining cases happened after the BCPA expired. Apple argues that it didn't violate the agreement while it was in force, and didn't emphasize the policy implications of such contract terms too much; fortunately, the FTC is now trying to establish a general rule that Qualcomm's customers must remain free to talk to regulators,even proactively as complainants.

  • "Require Qualcomm to adhere to compliance and monitoring procedures and appropriate 'fencing in' provisions, including but not limited to a potential firewall between patent licensing and chip personnel;"

  • I'm not sure this would work in practice. In either division, employees would likely try to optimize the result for Qualcomm as a whole.

  • "Impose any other relief that the Court finds necessary and appropriate to redress and prevent recurrence of Qualcomm's conduct"

    This is just meant to give Judge Koh greater flexibility. What it means, and whether it will give rise to any particular injunction after the bench trial, remains to be seen.

These prayers for injunctive relief suggest that the trial is going to be extremely interesting, and what will happen afterwards may be very significant. Parties sometimes settle on the eve of the trial, so it's not certain yet that the trial will happpen. But, at a minimum, any settlement (consent decree) would have to be viewed against the background of the above proposals. If the FTC settled on a basis that would fall far short of the above, the agency's credibility would be compromised...

In other news from last week, Judge Gonzalo P. Curiel scheduled the Apple v. Qualcomm trial in the Southern District of California to begin on April 15. It's a safe assumption that Judge Koh, who is known to work both smart and hard, will hand down her decision on the FTC case before the San Diego trial between Apple and Qualcomm. If Qualcomm's "no license, no chips" policy and other tying and various forms of threatening or discriminatory behavior came to an end and/or if Qualcomm's contract terms prohibiting antitrust complaints were held illegal ahead of the trial in Southern California, Judge Curiel could presumably streamline his case in different ways, narrowing the issues to be put before the jury.

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