More than a month ago I described, based on some key pretrial filings, the contours of the Apple-Qualcomm dispute, which will go to trial on April 15, as follows: "Apple emphasizes antitrust, FRAND, patent exhaustion -- Qualcomm says contracts are contracts"
It's about "framing," and it affects the structure of the trial (who gets to present what type of testimony first) as well as that of the jury instructions and verdict form. It's obvious that Qualcomm's attorneys would have preferred to avoid the situation in San Diego (in the Apple & contract manufacturers case) that it experienced in January in San Jose, where the FTC initially gained control over the center of the chessboard and never really relinquished it, with Qualcomm being left with little more than a last line of defense (evidence of actual anticompetitive harm). Qualcomm scored some points, but probably not enough (quantitatively and qualitatively speaking) to prevent the FTC from prevailing on at least one or two key claims (we're all still waiting for Judge Lucy H. Koh's ruling).
After a hearing held on Thursday by Judge Gonzalo P. Curiel of the United States District Court for the Southern District of California, Qualcomm faces an increased risk of a San Jose-like experience in San Diego, with the only structural difference that makes the outcome harder to predict being the involvement of a jury, while the FTC trial was a bench trial (before a judge without a jury).
At the Thursday hearing, Judge Curiel made an explicit reference to the FTC case, describing Judge Koh's partial summary judgment on Qualcomm's obligations to license standard-essential patents to rival chipset makers based on two U.S. standard-setting organizations' FRAND licensing declarations as "a very well-written decision" in which "she thoroughly addressed all of the facts and questions that were raised there." Listening to Judge Curiel saying so must have caused Qualcomm's attorneys significant discomfort. That was an "in your face" moment even though the contract interpretation questions underlying the referenced decision won't directly resolve any of the fundamental issues in the San Diego case. The contexts of the cases overlap to a huge extent, and even though Qualcomm avoided a patent-specific patent exhaustion analysis in the San Diego case (by a successful motion to dismiss some claims and by mooting others through a Super Sack covenant not to sue--yeah, not to sue, not just Qualcomm's preferred commitment "to sue last"), Judge Koh's summary judgment ruling strongly supports Apple's general assertion of patent exhaustion.
The Thursday hearing's focus wasn't on component-level licensing. It was originally supposed to be about various motions, and Judge Curiel made it clear that all those Rule 44.1 motions relating to questions under French law (governing the ETSI FRAND declaration) were basically summary judgment motions in disguise and he'd need more time to rule on them. What he was able to decide right at the hearing, however, is that a motion Qualcomm brought, according to a sworn declaration by Apple, without any advance warning had no merit and was, therefore, given short shrift in terms of an outright denial before Apple even filed an opposition brief.
That most recent motion was related to an earlier one in which Qualcomm argued that, after the summary judgment Apple obtained two weeks ago against a certain set of breach-of-contract claims (to the effect of Qualcomm now being virtually certain to owe Apple about a billion dollars in kickbacks and being unable, absent a successful appeal, to claw back billions of dollars it paid before), Apple no longer had any claims--much less any claims related to that particular Business Cooperation and Patent Agreement (BCPA)--for the jury to hear and decide. Only the issues between Qualcomm and Apple's contract manufacturers would have been jury-triable as per Qualcomm's representation. The surprise motion then built on that other motion and argued that Qualcomm should get to present its contract claims first. Anything that Apple was still pursuing would just have been for the judge to decide (bench trial).
Simply put, Qualcomm's envisioned trial playbook would have been to tell the jury
that there are some contracts between Qualcomm and those four contract manufacturers;
that the contract manufacturers owe Qualcomm tons of money under those contracts;
that they stopped paying and should be ordered to finally cough up the money, with a potential enhancement of damages (they wouldn't want to tell that one to the jury) and interest on interest on top; and
evil Apple told the contract manufacturers to stop paying for no reason.
But that's not how the judge views the case, and it's especially not how the judge would allow the case to be presented to the jury, because that distorted perspective misses the point.
Judge Curiel made it clear that (in slightly different words) lawyers get paid for gamesmanship like this, but the court's function is to focus on the issues and not to accomodate gamesmanship.
As for the BCPA-related evidence, Judge Curiel does agree that it would be prejudicial to Qualcomm if Apple could tell the jury about the court's summary judgment on the payment obligations and the impossible clawback under that agreement. Also, the contract manufacturers won't be allowed to introduce evidence regarding antitrust investigations in some other jurisdictions. But the judge denied that earlier motion in other respects, so the jury will see and hear about the BCPA. Judge Curiel reached this conclusion by focusing on commercial realities, not on mere formalities such as whether or not the contract manufacturers were, in the strictest sense, parties to the BCPA. With Qualcomm's web of contracts (where the contract manufacturers buy the chips and pay the patent royalties, but Apple offsets those patent royalties and Qualcomm then promised go give Apple some de facto rebates contingent upon certain types of behavior) being characterized by cross-references and interdependencies as became clear at the FTC trial, the court takes a holistic and business-minded approach.
The recent surprise motion was then denied because Qualcomm's representation of the case as being first and foremost a contract (not antitrust/FRAND) dispute fails, in Judge Curiel's opinion, the "primary purpose" test. Here, again, Judge Curiel made it clear that he had "a duty to look beyond the pleadings to determine the actual interests of the parties." I always like it when judges decline invitations to narrow their focus on formalistic-legalistic considerations. There are questions that are purely questions of law, but in those high-profile, high-stakes commercial disputes, a court would fail to see the forest amid the trees without really asking the question of "what's the gist." Judge Curiel described that gist as follows:
Here, there is not one scintilla of a doubt that the primary dispute relates to the claim that Qualcomm has designed a business model for chipsets that has allowed it to create and maintain a monopoly. This is an anticompetitive conduct case, first and foremost. Apple and the CMs [= contract manufacturers] are aligned on that claim due to their relationship in the production, manufacture of Apple iPhones and iPads. This alignment is seen in many ways, including the Apple and Qualcomm contracts that follow up on the CM agreements."
Against that background, the judge said one would put the cart before the horse by focusing on the individual contracts beteen Qualcomm and each of the contract manufacturers as the starting point of the analysis: "It would present the case to the jury in an illogical, disjointed, and disorganized manner and would likely lead to confusion."
The court has yet to decide on the jury instructions and the verdict form. Judge Curiel sees a lot of "cherry picking" and isn't inclined to agree with either party on what the jury should be told, but he'll need some time to decide on what to do in that regard. In strategic terms, however, Apple is now in a stronger position with a view to jury instructions and verdict form as well: the judge agrees with Apple, and disagrees with Qualcomm, on the gist of the case and the proper order of presentation at trial.
In closing I'd like to mention that I was interviewed on the Qualcomm antitrust and patent cases by The Capitol Forum for about one hour on Monday. The conference call was accessible to The Capitol Forum's subscribers, but a transcript and a podcast will be made available to the general public soon.
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