Wednesday, January 23, 2019

Patent office and Qualcomm's litigation tactics render prof's fanboy testimony on patents unreliable

Yesterday (Tuesday, January 22) was Day 8 of the FTC v. Qualcomm antitrust trial in San Jose (Northern District of California). The parties don't have much trial time left for testimony on Friday and Monday, and closing arguments have been moved up from next week's Friday to Tuesday. Thereafter, we'll have to wait. As Judge Koh said after the trial session: "Sadly, this opinion's gonna take some time." But that's because she'll presumably deliver something extremely well-reasoned (which doesn't mean that reasonable people might not be able to disagree here or there). The combination of two Apple v. Samsung cases with this landmark antitrust case and numerous other Silicon Valley disputes makes her the world's #1 technology industry judge--and apart from political considerations it's time for her to serve on an appeals court.

The way I see the current state of affairs, Qualcomm really doesn't appear to have any silver bullets. Practically all major players have now testified against Qualcomm (I'll talk more about that on or after Friday since a handful of videotaped Samsung depositions are on the list, though we've already heard testimony from Samsung that supports the FTC). Qualcomm's efforts to impeach industry witnesses have been largely unsuccessful.

Industry consensus hurts Qualcomm in two ways: much of what was said has probative value (even on such questions as whether supra-FRAND royalties were charged), and beyond that, Judge Lucy H. Koh has simply heard from multiple sides now what the issues are. The only company siding with Qualcomm here is Nokia, a company that actually brought the first antitrust complaint over Qualcomm's supra-FRAND patent royalties that I'm aware of. At the time, the EU had a tendency to underenforce (now it is, except with respect to some cases such as Qualcomm, quite the opposite). Meanwhile Nokia's handset business has gone down the tubes, and it's become a patent troll, so it's Qualcomm's natural ally. Nokia's anti-FRAND lobbyist at ETSI and other organizations, Dirk Weiler, claimed not to know whether Nokia was a net licensor. If true, that might make him the only Nokia employee above the level of a receptionist not to know the answer...

The battle of the experts will reach its culmination with Professor Nevo's testimony on Friday, though the FTC's expert economist in this case, Professor Shapiro, has already commented on his methodology and will be able to rebut on Monday.

Qualcomm declared one of its employees, Lorenzo Casaccia (VP of Technical Standards, spending most of his time with 3GPP), an expert on 3GPP. An employee-expert hybrid, but most of what he said was at a technical and practical level, and served to underpin Qualcomm's already pretty successful attack on the approved-contribution counting that one of the FTC's three experts, Michael Lasinski, indirectly relied upon. At times, Mr. Casaccia's testimony sailed close to the hearsay wind, and he claimed to know from people who represented Ericsson and, which he mentioned even more often and more emphatically, Huawei in standard-setting meetings and allegedly told him how their companies had instructed them to inflate the number of approved contributions (the obvious motivation being to increase the percentage of the overall royalties considered reasonable for a standard that a given company would get). Inflation happens by, for instance, splitting up a set of purely editorial/typographical corrections into multiple submissions, none of which has any substance, but every one of which gets counted. I can't verify Mr. Casaccia's allegations, but he said this under oath and it wouldn't surprise me to see an expert known to do a lot of work for Huawei rely on a methodology susceptible to manipulation and favorable to Huawei's financial and strategic interests...

Getting back to non-hybrid experts, I was underwhelmed. In fact, the hybrid employee-expert, with his narrowly-tailored topic, was actually more convincing than the non-hybrids.

One of Qualcomm's experts does nothing else for a living than testifying in litigation: Dr. Tasneem Chipty. Her firm's website says: "Matrix Economics is a boutique consulting firm focused on competition analysis for adversarial proceedings, including antitrust litigation and merger reviews." (emphasis added) There's no doubt she has a lot of experience, but the FTC's Dan Matheson (the order of names on the FTC's filings in this case suggests to me he's #2, after Jennifer Milici) impeached her very effectively. I wouldn't have expected her to struggle so much. When Mr. Matheson asked her about other "thin modem" (meaning baseband chips that are standalone chips as opposed to system-on-a-chip products that do everything including app processing) customers during a certain period, after she had claimed Apple was essentially the only buyer at the time, he pointed to Samsung and its own Exynos chips. The shocking thing was that she wasn't even able to say whether Samsung had used a greater or lower number than 200 million (!) of such chips during the relevant period--and she had to concede she didn't consider this a fact relevant to her analysis.

Dr. Chipty also had to admit she never defined what represents a premium chipset. And with respect to Samsung again, she lumped all of its R&D expenses together, so Mr. Matheson asked her whether she knows Samsung also makes, for instance, washing machines. She was evasive, but lost again.

There was even another major deficiency in Dr. Chipty's testimony that the FTC didn't even raise, but this blog reported on the relevant fact a long time ago: the Korea Fair Trade Commission (KFTC) investigated Qualcomm because it prevented Samsung's Exynos division from selling chips to third-party customers such as Meizu. But Dr. Chipty said Professor Shapiro had allegedly made a mistake by not considering Samsung as a competitor in the "merchant" (= ready to sell to others) modem chip market. But the parallel proceedings in Korea--the country Judge Koh's ancestors immigrated from--show that Qualcomm took measures to avoid such competition.

Professor Shapiro will get to rebut her testimony on Monday. I guess he will do so, but in my opinion he doesn't have to anymore. Dr. Chipty appeared a bit unsure and uncomfortable in the second half of her cross-examination. She clearly underperformed.

Qualcomm also called Professor Ted Snyder, the dean of Yale Management School. His testimony isn't worth talking about in detail here. It can be summed up in only five words: "You can't argue with success." In other words, because Qualcomm succeeded and others did not, he didn't care to look into any of the allegedly anticompetitive patterns of behavior at issue in the case. To explain briefly, he says his analysis was "empirical" and focused on "real-world outcomes" and whether they could be "fully explained" with "industry factors," which he claimed they can, but on cross-examination he had to concede that, for just one example, prices could have come down even faster without the additional presence of anticompetitive conduct.

So Qualcomm fielded a hybrid employee-expert who bashed other patent holders but made many reasonable, factual points; a full-time expert witness who potentially considered a quantity of more than 200 million thin modem chips irrelevant to her analysis of what is "competitive relevant" (exactly what she claimed Professor Shapiro failed to consider); an economist with a pointless "You can't argue with success" angle; and we also heard a dreamer (not in the DACA sense, of course): former Qualcomm employee and now professor Jeff Andrews.

Professor Andrews's tasks was to opine, which he did in the form of a rave review, on 34 handpicked Qualcomm patents in order to make the case that Qualcomm's standard-essential patent portfolio contains some technically very valuable stuff (which, even though his analysis stopped far short of patent valuation, let alone portfolio valuation, implied a justification for high royalties).

He looked and sounded like a Qualcomm fanboy. I remember Samsung's lawyers from the Quinn Emanuel firm criticizing Apple for presenting fanboy-style testimony referring to Steve Jobs as "St. Eve," and that testimony ("slavish adoration of their client") may have been structurally similar to what we got from Professor Andrews yesterday.

I've been working on patent policy for too long (about 15 years by now) to consider 34 handpicked patents representative of a portfolio consisting of tens of thousands standard-essential patents. And even a representative selection (which this one clearly wasn't--it had obviously been put together by Qualcomm for the purpose of buttresing its claim of core innovation, which isn't completely wrong but nowhere near as right as its royalty demands are exorbitant) would, based on litigation statistics, likely consist of mostly invalid and/or non-infringed patents.

Motorola built the first mobile phone. But even Motorola's litigation results were very disappointing. The search for a valid patent that can't be worked around (a truly standard-essential patent can't, but participants in standard-setting overdeclare) is the search for a needle in haystack, or for the Holy Grail.

If Qualcomm believed in its patents, why did it provide a covenant not to sue to Apple over a bunch of them just to avoid an adjudication of Apple's declaratory-judgment claims in the Southern District of California under the Super Sack doctrine? In the San Diego case, the motivation may have been to avoid any decision on the sensitive (for Qualcomm) subject of patent exhaustion. Still, a patent holder doesn't exude confidence by ducking declaratory judgment.

On the #ftcqcom Twitter thread, someone repeatedly posted new institutions of inter partes reviews (IPRs) by the Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (USPTO) relating to Qualcomm patents. Over the course of the last 8 days, PTAB instituted reviews of a total of 19 (nineteen!) {Update] 21 (twenty-one!) [/Update] Qualcomm patents challenged by Apple.

Such reviews are instituted only if a substantive question of patentability has been raised. Under the recent SAS decision by the Supreme Court (I didn't like the outcome but expressed my respect for Justice Gorsuch's principled approach), this means that even if only a single claim warranted a review, all challenged claims must be adjudicated.

On Unified Patents' website, one can run a search for PTAB institutions against Qualcomm during the relevant period and access further details. There's presumably no overlap with the 34 patents Professor Andrews looked at, but statistically any set of patents faces these issues when challenged in litigation. Qualcomm can theoretically defend each and every claim on review, but its statistically very unlikely. The dreamer expert talked about 34 patents as if one couldn't doubt their validity and essentiality. If Qualcomm asserted them in litigation, the professor would get a reality check of the most sobering kind. In my observation, about 90% of all wireless patents asserted in litigation fail.

As Judge Posner already explained in Apple v. Motorola, the compensation a SEP holder is entitled to comes down to the incremental value of an invention over the next best alternative at the time of standard-setting. Even if some of Qualcomm's techniques, such as for carrier aggregation (using multiple segments of spectrum), were adopted, the alternative wouldn't have been "nothing," but something else (and there's no indication Professor Andrews discussed this incremental value other than presumably just relying on the patent specification and the prior art it cites).

Through cross-examination, the FTC got Professor Andrews to confirm that he hadn't performed any valuation nor any comparison with other companies' patents. That should be enough to render his testimony irrelevant. But I'm sure Judge Koh, with her extensive patent-related expertise, views a set of 34 non-litigated patents with a healthy dose of skepticism, like anyone with experience in that field would.

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