Wednesday, February 20, 2019

Huaweiphobia is over the top, but San Francisco jury must and will hear Samsung's allegations of FRAND breach by Chinese device maker

There was a time when the high-end smartphone market was considered a "two-horse race" between Apple and Samsung. A duopoly is better than a monopoly, but I'm glad there's now a lot more competition in that segment. One company that has made and continues to make a particularly important competitive impact is China's Huawei. For my app development company, I've bought comparable numbers of phones and tablets from each of the three aforementioned device makers.

It's an undeniable fact that the Chinese government's influence over local companies is huge, though there have also been stories of U.S. intelligence agencies requiring backdoors, and of countries like China being comfortable with U.S. software products such as Microsoft Windows only after they are at least given the opportunity to inspect source code.

Recently there's been a whole lot of newscycles involving Huawei and whether the West can trust them in the slightest. The most absurd story will probably be told again and again in the months or even years ahead: that Huawei was the FTC's "star witness" in the recent Qualcomm trial and that the FTC's antitrust enforcement activities, which actually benefit American companies and especially American consumers, would compromise national security by stregthening Huawei at Qualcomm's expense, with implications for 5G. At least the Qualcomm-aligned Internet trolls who said so chose to make me part of their other conspiracy theory, which is that the FTC is in Apple's pocket, and not to Huawei, in which case they'd have labeled me as a walking-talking security threat to the United States...

Huawei's CEO gave an exclusive interview to the BBC in which he addressed some of the controversies surrounding Huawei. It's worth listening to.

For my part, I'm still unconvinced that the detention of Huawei's CFO was a good idea, and one of the things that make me skeptical is that it would have been easy for Huawei to engage in any concealed financial transactions with Iran through a place like Switzerland (rather than going via a U.S. bank, which appears too stupid to be true).

As for security threats, the U.S. Ambassador to Germany, Richard Grenell (the best #MAGA diplomat imaginable!), recently said, according to German media, that it's a threat to telecommunications networks when infrastructure vendors are under the control of foreign governments, and that's right, but what should the conclusion be? My recommendation is to take the same approach to China as Ronald Reagan did to the Soviets: "Trust, but verify." Note the important two-letter difference here between "verify" and "vilify!"

Yesterday I reported on Huawei's settlement with MPEG LA following the enforcement of injunctive relief in Germany and supported a call by many industry players for proportionate patent remedies in Europe.

The context in which I do take Huawei to task, no matter how much I admire and like that company, is the obligation to license standard-essential patents on FRAND terms. I like Samsung, too, and that didn't prevent me from calling for antitrust action against them many years back in a similar context. And while Apple hasn't sued anyone over a SEP yet (thus I haven't had the opportunity to remind them of their FRAND obligations), I lashed out at them when they described a $40 per-device damages claim over five software patents as a "reasonable royalty," given that "reasonable" is the "FR" part of "FRAND" (and the "ND" part wasn't put before the Apple v. Samsung jury because Judge Koh unfortunately didn't admit real-world license fees into the evidence).

At the moment, however, Huawei is, to my great dismay, the only one of the top three device makers to behave in ways that call its commitment to FRAND into question. It appears to make supra-FRAND demands and to seek leverage through Chinese patent injunctions, a trade war-like issue that I believe is underreported to almost the same extent that other Huawei issues are overstated.

On Monday, despite the public holiday (Presidents' Day), Judge William H. Orrick of the United States District Court for the Northern District of California decided that Samsung's allegation of Huawei having breached its FRAND licensing obligations will be put before a San Francisco Jury in September, which is precisely what the Chinese plaintiff sought to avoid by means of a motion to strike its Korean rival's jury demand. Here's Judge Orrick's order (this post continues below the document):

19-02-17 Order Denying Huaw... by on Scribd

In Judge Orrick's opinion, the constitutional right to a jury trial is so fundamental to the U.S. legal system that a separate bench trial (trial before only the judge, without a jury) for Samsung's FRAND breach claim would only have been warranted if there hadn't been any basis whatsoever for a jury trial. Here, however, Judge Orrick found that even if one limited Samsung's FRAND breach damages claim to a recovery of the costs related to expert witnesses, it would (in my words) be better than nothing and still stufficient to justify a jury demand.

For the most part, the September trial will be about patent infringement allegations. But based on Judge Orrick's decision, the jury will also hear what Samsung has to say about Huawei's overall conduct. While infringement and validity are issues that have nothing to do with a patent holder's behavior, there is a risk to Huawei that jurors will view Samsung as the "good guys" and Huawei as the "bad guys."

Huawei's royalty expert, Michael Lasinski, also testified for the FTC against Qualcomm last month, and an attorney representing Qualcomm basically destroyed him. Samsung doesn't need or ask for my advice, but if I were them, I'd try to bring in the same Cravath lawyer (unless that firm is precluded from doing work for Samsung) just for the FRAND economics part. The outcome of the cross-examination might be the same again. Cravath and Quinn Emanuel (Samsung's counsel in the Huawei case) are already working together against Apple, so they might as well against Huawei.

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