Thursday, April 25, 2019

LG offered Nokia privateer Conversant less than 1% of the standard-essential patent license fees it demands--and even that turns out unwarranted

Privateering--the practice of large patent holders formally transferring patents to non-practicing entities that will assert them on their behalf (practically, those deals amount to agency-like arrangements in many cases)--is an issue that has been facing the mobile device industy for a number of years. Nokia and Ericsson are particularly active in that way.

A couple of particularly aggressive privateers--Unwired Planet (mostly fed by Ericsson) and Conversant (a Nokia patent assertion partner)--are parties to a UK Supreme Court proceeding I blogged about earlier this week. One of them, Conversant, was dealt a real blow last week by the Cour d'Appel de Paris--the appeals court for the Paris region, to which all patent rulings by the Tribunal de Grande Instance (TGI) de Paris are appealed. A panel of three appellate judges under Presiding Judge David Peyron ruled against Conversant's appeal of a TGI ruling on several standard-essential patent (SEP) assertions by Conversant (formerly known as Core Wireless) against LG Electronics (this post continues below the document):

19-04-16 French Appellate R... by on Scribd

Conversant's appeal related to a handful of patents. But for three of them, the appeals court held that Conversant failed to provide the information required to make an essentiality determination. While the appeals court declined to declare the French parts of the remaining three patents invalid, it also determined that EP0978210 on "connecting a multimode terminal to the network in a mobile communication system" nor EP0950330 on a "user terminal for mobile communications" are not standard-essential. With respect to EP'210, the court's claim construction is so narrow that the patent can be worked around by performing a measurement of signals periodically as opposed to only in situations of poor network coverage. In any event, the 3G/4G standard specifications say that such measurement should be performed, but also state that devices may simply not do so. EP'330 was found non-essential on two different grounds, either one of which would be sufficient on its own. There choice of high-level protocols (IPv4 and IPv6) is not explicitly required by the specifications of the telecommunications standard, and it's debatable whether IPv4 and IPv6 constitute alternative protocols as opposed to simply different versions of one protocol (the Internet Protocol = IP).

This French appeals court took the position that FRAND licensing obligations apply only to actually essential patents, not merely declared-essential ones. Courts in some other jurisdictions have taken a similar position, but there's an alternative approach according to which a patent holder's FRAND declaration applies to non-essential patents as well.

As a result of its holdings of non-essentiality, the French court declined to make a FRAND rate determination. What's interesting, however, is the enormous discrepancy between the parties' positions. Conversant was seeking a royalty based on the net sales price of an entire handset (the typical royalty base issue) amounting to 0.149% for 4G devices sold in the "principal markets" and 0.170% for 3G devices sold in such markets, with lower pecentages for China. Conversant claimed that this was consistent with Justice Birss's decision in the UK case Unwired Planet v. Huawei.

By contrast, LG offered (depending on markets and whether only 2G, the combination of 2G and 3G, or the whole package of 2G+3G+4G was implemented in a device) between 1.62 and 5.73 thousandths of a U.S. cent per device and per patent family. In order to make those numbers easier to understand, LG also calculated a dollar amount per one million devices from $16.2 to $57.3. Based on Conversant's own claim of owning 22 SEP families, this would in the most optimistic of all scenarios have amounted to 22 times $57.3 = $1,260.60 per one million devices.

Even if one assumed an average net sales price of only $100 per LG phone (which is a very low number), Conversant's own claim would amount to $0.149 per device, or $149K per one million devices--more than one hundred times the $1,260.60 per one million devices that LG offered.

Such discrepancies are not unheard of in the context of FRAND rate disputes. In April 2013, Judge James L. Robart of the United States District Court for the Western District of Washington awarded Motorola Mobility, in a FRAND case brought by Microsoft, less than one-twentieth of a percent of its original demand. Later that year, in the Northern District of Illinois, Judge James F. Holderman held that 19 WiFi patents belonging to a patent assertion entity named Innovatio IP Ventures were worth less than 10 U.S. cents per unit.

While Innovatio had hoped for a lot more than 10 cents per unit, the question is whether Conversant is ultimately going to get anything from the likes of Huawei and LG. Conversant's pathetic results in France are not going to impress the Supreme Court of the UK.

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Wednesday, April 24, 2019

Fair licensing terms for content to be focal point in transposition and application of EU Copyright Directive: statement by German government

On Monday of last week (April 15), the EU Council--the decision-making body in which the governments of the 28 EU member states cast their votes--adopted the arguably most controversial piece of EU legislation ever, the Directive on Copyright in the Digital Single Market, commonly referred to as the EU Copyright Directive. To do so about six weeks prior to EU Parliament elections was as arrorgant as it was unwise. While skepticism of the EU was traditionally more of a right-wing concern, the mostly left-leaning and mostly young people who opposed Article 13 (which became Article 17 and is generally known as the "upload filter" paragraph) could not have been more disappointed. They still say and write that they believe in "Europe," mostly because they fail to understand economic and other issues (see this Wall Street Journal article entitled "Incredible Shrinking Europe" on the EU's miserable economic failure), but they've lost a lot of their faith in the EU institutions.

If there had been a similar level of public debate and street protests across the EU as in Germany, Article 17 wouldn't have secured a qualified majority in the Council or a simple majority in the European Parliament. But for a mix of reasons I can't claim to have fully understood yet, concerns about overblocking of legitimate user-generated content were more of a luxury problem of the North than an issue that would also have mobilized people in the economically and technologically weaker South. Smartphone usage isn't lower in the South, but there are some discrepanices such as with respect to digital startup activity. Even France is far behind; Macron's "Startup Nation" is a case of all hat and no cattle, like pretty much everything he does and wants. He's a walking, talking failure, and the more he fails, the more he walks and talks. But he did get the Merkel administration to engage in a horse trade that also involved the Nord Stream 2 gas pipeline.

No political party will pay as dearly for this as the Social Democratic Party of Germany (SPD). In EU elections polls, its support among 18- to 24-year-old first-time voters was cut in half just during the month of March (toward the end of which the European Parliament adopted the proposed directive). What affects the SPD's reputation more than anything else is that YouTubers and other Article 17 opponents rightly accuse the party of hypocrisy: on the one hand, the SPD spoke out against upload filters; on the other hand, it's part of the government coalition that ultimately voted for them in the EU Council, where Germany has several times more voting weight than what would have been required, on top of nine other countries that opposed (also including abstentions, which have the same effect there as voting against).

In a futile attempt--so futile it just serves to underscore the growing disconnect between career politicians and voters in the Internet era--to mitigate the impact on this, the SPD-led Federal Ministry of Justice insisted on attaching a long-winded, legally non-binding declaration to the EU Council decision. That declaration didn't change public sentiment in Germany. For an example, a leading YouTuber, Herr Newstime, said it wasn't worth the paper it's written on. However, the purpose of this post is to take a more analytical approach to that declaration since it will have some political weight and even potentially influence legal interpretations of the new directive going forward.

The EU Council's English translation of the German government's statement is the final part of this updated Council document. Such non-binding declarations can serve multiple purposes:

  • to voice dissent;

  • to apologize for doing something unpopular, such as by emphasizing one's good intentions in a bad context;

  • to make political demands and take positions that are indirectly related to the measure in question;

  • to propose certain aspects of national implementations of the directive (EU directives must be transposed into national law by the member states, giving them some--though limited-wiggle room); and

  • to influence the future interpretation of the text by courts of law.

The German government did a mix of all of that with its April 15 statement. What's most relevant here is that the German government makes multiple references to the need for copyright holders (without making a distinction there between collecting societes, which due to their market power often fall under antitrust rules, and individual right holders) to be cooperative and reasonable in their royalty demands. Otherwise, platforms would face a very difficult situation given the directive's utterly unreasonable "best efforts" requirement with respect to licensing--a term that reflects the unbalanced nature of what the EU institutions, under the negative influence of French thought leadership, came up with. The many U.S. lawyers reading this blog (a majority of the readership) would almost certainly advise their clients against ever committing to "best efforts" in any contractual provision...

We're now basically going to have to talk about FRAND (fair, reasonable and non-discriminatory) licensing terms in the copyright context. The "ND" part will be officially part of the equation whenever right holders have a dominant market position; in all other cases, it will effectively be considered as part of what terms are fair and reasonable.

These are the various references the German statement makes to fair and reasonable licensing terms and generally cooperative behavior by copyright holders:

  • In paragraph 9: "For all other uses platforms should acquire licences, if available relatively easily and for a fair tariff." (emphasis added)

  • In paragraph 10: "Workable solutions for obtaining licences must be found. Although requirements which are unreasonable in practice cannot be imposed on platforms, it is necessary to ensure that efforts to obtain licences are combined with fair offers of remuneration." (emphases added)

    The final part ("are combined with...") is an awkward wording for saying that right holders must also do their part and make fair offers, but to the EU Council's translators' credit, this is a context in which it's better to stay close to the original text than to take the libertie necessary to phrase it more elegantly.

  • In paragraph 11: "the obligation to conclude contracts on reasonable terms" (emphasis added)

Those are, effectively, references to a FRAND licensing framework. Note that it's not just about royalty amounts but also about the overall terms and conditions, including accessibility ("available relatively easily").

Instead of stressing this now, the German government should have blocked the directive in the Council until a FRAND licensing requirement would have been incorporated into Article 17 (formerly known as Article 13), but at least they're aware of the problem the EU has potentially created and they're trying to address it--better late than never.

Below I'll finally go over the statement paragraph by paragraph and analyze it from a political as well as a legal angle.

1. The German Federal Government agrees with the proposed Directive on copyright and related rights in the Digital Single Market (hereinafter: ‘the Directive’) in the version set out in the trilogue compromise of 13 February 2019, because the reform as a whole achieves urgently needed adjustments to the outdated European legal framework, such as the provisions on text and data mining, out-of-commerce works and contract law for performers.

COMMENT: This is just apologetic. It's another way of saying "we know Article 17 sucks, but everything else is so great and couldn't possibly have been delayed." The reference to provisions on text and data mining is ridiculous, given that the EU directive leaves a lot to be desired in that area, too (which like Article 17 will further weaken Europe in the digital economy, where the EU already is a big-time failure).

2. At the same time, the German Federal Government regrets that it was not possible to agree on a concept for the copyright responsibility of upload platforms that could be broadly supported by all parties. There is widespread consensus that creatives should participate in the exploitation of their content through upload platforms. However, in particular the obligation provided for in Article 17 of the Directive to ensure the permanent ‘stay down’ of protected content and the algorithm-based solutions (‘upload filters’) likely to be used in this context have met with serious reservations and widespread criticism from the German public. The vote in the European Parliament on 26 March 2019 also revealed the huge gulf between supporters and critics.

COMMENT: Here they acknowledge that it's an unpopular measure and seek to make the rest of Europe aware of the fact that this part is going to be problematic. But judges are unlikely to give consideration to public sentiment: their job is to interpret the text as it stands, not to legislate from the bench.

3. The focus of our efforts is on performers, authors and ultimately all creatives who naturally make use of the new tools that digitisation and connectivity provide for creative work. The German Federal Government is of course not questioning the need to protect creative work on the internet, and to ensure creatives receive appropriate remuneration for such work.

COMMENT: That third paragraph is meant to placate the lobbying entities representing artists and performers (though most of the time they actually represent publishers rather than individual creators).

4. Under Article 17(10), the European Commission is required to conduct a dialogue with all interest groups concerned in order to develop guidelines for the application of Article 17. The provision explicitly calls for a balance to be maintained between fundamental rights and the possibility of using protected content on upload platforms within the framework of legal authorisations. The German Federal Government therefore assumes that this dialogue is based on a spirit of guaranteeing appropriate remuneration for creatives, preventing ‘upload filters’ wherever possible, ensuring freedom of expression and safeguarding user rights. The German Federal Government assumes that uniform implementation throughout the Union will be agreed on in this dialogue, because fragmentary implementation with 27 national variants would not be compatible with the principles of a European Digital Single Market. On the basis of this declaration, the German Federal Government will participate in this dialogue.

COMMENT: The only positive aspect of that fourth paragraph is that the German government promises to go into the further EU process (working with the Commission to develop implementation guidelines) on the basis of its April 15 declaration. And by expressing concern over divergent national implementations they acknowledge that Article 17 is too vague (although it is, if one includes the relevant recitals, almost as long as the original version of the U.S. Constitution...). Other than that, that paragraph adds nothing new, nor does it influence future interpretation.

5. Where technical solutions are used at all in that connection, the data protection requirements of the General Data Protection Regulation must be adhered to and the EU should encourage the development of open-source technologies with open interfaces (APIs). Open-source software guarantees transparency, while open interfaces ensure interoperability andstandardisation. This can prevent market-dominant platforms from further consolidating their market power by means of their established filtering technology. At the same time, the EU must develop concepts that counteract a de facto copyright register in the hands of dominant platforms by means of public, transparent notification procedures.

COMMENT: The fifth paragraph was obviously inspired by a prior statement by Germany's Federal Commissioner for Data Protection and Freedom of Information, Ulrich Kelber. However, it's hard to see how this part of the government's statement would have any real-world impact. They can "encourage" platforms to use open-source software, but they won't be able to impose such a requirement--and Internet companies generally make their own technology choices (which quite often are open-source solutions) regardless of what some European governments "encourage" them to select. It's a pointless paragraph.

6. First of all, the requirements laid down in Article 2(6) of the Directive must be addressed and clarified, since the rules are aimed solely at those market-dominant platforms which make large quantities of copyright-protected uploads accessible and which base their commercial business model on such a practice, i.e. services such as YouTube or Facebook. At the same time, we will make it clear that services such as Wikipedia, university repositories, blogs and forums, software platforms such as Github, special-interest offers without any connection to the creative industry, messenger services such as WhatsApp, sales portals or cloud services are not platforms within the meaning of Article 17. In addition, we will ensure an exemption for start-ups.

COMMENT: That paragraph is the most nonsensical one in the whole statement. I wonder how anyone can write something so obviously stupid with a straight face. Exceptions like Wikipedia and Github are already in the directive, and the "exemption for start-ups" mentioned at the end of that sixth paragraph exists as well, but is far too narrow a carve-out to be useful.

7. Furthermore, it is clear that upload platforms should continue to be available as free, uncensored communication channels for civil society in the future. Article 17 (7) and (8) stipulate in that connection that protective measures for upload platforms must not impede the permitted use of protected content. We are particularly committed to this because upload platforms are also a springboard for creatives, enabling them to reach a worldwide audience without a publisher or a label.

COMMENT: This merely states a motivation for ensuring that overblocking of legitimate user-generated content should be prevented, without proposing any particular solution. Roughly as stupid and pointless as the previous paragraph.

8. The aim must be to make the ‘uploadfilter’ instrument largely superfluous. Each permanent ‘stay down’ mechanism (‘uploadfilter’) must comply with the principle of proportionality. Procedural guarantees, in particular, could be considered, for example when users notify that they are lawfully uploading content from third parties. In these cases the deletion could not be performed automatically, but only after a check by a person. At the same time, the proprietorship of any content that has to be removed should be sufficiently proven, unless the information comes from a ‘trusted flagger’. In all events the platforms must guarantee easy access to a complaint mechanism for solving contentious cases effectively and as rapidly as possible.

COMMENT: The idea of users being allowed to indicate that they are convinced of their content being lawful is not bad. However, the practical issue is going to be that platforms are rarely sued by users who wish to publish content (it does happen, particularly in Germany, but rarely) and face much more of a threat from right holders. The eighth paragraph makes a valid point, but a workable situation is not in sight.

9. In addition, the use of protected content on upload platforms for criticism or reviews, for caricatures, parodies or pastiches, or even in the context of the ‘quotation barrier’, is permitted and free of charge. In such cases the rightholder does not suffer any economic loss anyway. For all other uses platforms should acquire licences, if available relatively easily and for a fair tariff. We will examine how the fair participation of creatives in this licence revenue can be guaranteed through direct payment claims, including in those cases where the label, publisher or producer have the exclusive rights. It is also necessary to guarantee an appropriate remuneration for any new content created on upload platforms and used for commercial purposes. Above all, the proceeds from uses on upload platforms that are desired for political reasons must also reach the creatives themselves.

COMMENT: This is the first one of the three paragraphs that make reference to FRAND licensing terms. Most of the emphasis here is on how to ensure that payments reach individual creators as opposed to just their publishers. However, the EU Copyright Directive generally weakens creators vis-à-vis publishers. Also, it won't be easy to avoid double recovery in this context.

10. Article 17 aims to monetise the use of protected content on upload platforms and to ensure appropriate and fair remuneration for authors and performers. The German Federal Government shares this goal. In the European compromise, licensing is the method chosen to achieve this. Article 17(4) provides that, in order to fulfil their responsibilities, upload platforms must have ‘made best efforts’ to obtain licences. This will be crucial in the implementation of this provision. Workable solutions for obtaining licences must be found. Although requirements which are unreasonable in practice cannot be imposed on platforms, it is necessary to ensure that efforts to obtain licences are combined with fair offers of remuneration.

COMMENT: The tenth paragraph is the very best, most useful and most meaningful paragraph; maybe it would have been better if the German government had just made a short and focused statement consisting mostly of this one instead of hiding such a gem in a longwinded, mostly meaningless statement.

11. In order to resolve this issue – of how licences can, as far as possible, be concluded for all content on upload platforms – copyright law provides for many other mechanisms besides ‘traditional’ individual licensing (e.g. exceptions and limitations, possibly combined with remuneration rights; the option of converting exclusive rights into remuneration rights; the obligation to conclude contracts on reasonable terms; and the involvement of associations of creative artists such as collecting societies).

COMMMENT: The open-ended nature of this 11th paragraph shows that the German government either hasn't fully analyzed the feasibility of different approaches or hasn't been able to reach an internal agreement on which way to go. The reference to "exceptions and limitations" is consistent with a position paper put forward by the digital policy experts of the Christian Democratic Union (Merkel's party). However, the SPD appeared to be unconvinced of its compatibility with EU law, which is understandable since EU law provides for only a limited set of limitations to and exceptions from copyright law.

12. The Federal Government will examine all of these models. Should it appear that the implementation has led to a restriction of freedom of expression or should the guidelines set out above encounter obstacles in EU law, the Federal Government will work to ensure that the shortcomings identified in EU copyright law are corrected.

COMMENT: This vague promise of amending the directive reflects a significant degree of uncertainty as to what the ultimate impact will be. However, the EU is not particularly good at admitting mistakes. Typically, it just blames citizens. Nevertheless, the EU Copyright Directive could be an exception where a legislative initiative to amend the bill may be taken relatively soon. There are politicians who have spoken out in favor, including the Free Democratic Party's top-listed candidate Nicola Beer--and the FDP is reasonably likely to be part of a post-Merkel government. Also, Manfred Weber, a politician from the CDU' sister party (the Christian Social Union) and the European People Party's candidate for the presidency of the EU Commission, also stated in a recent TV interview that he, in his potential capacity as Commission president, would push for a legislative amendment should "censorship" occur as a result of Article 17.

All in all, the German government's statement isn't too bad. There's a lot of nonsense in it that just distracts from the more interesting and relevant parts. But I do like the references to fair and reasonable licensing terms and easy access to such licenses, as well as the commitment to look for ways to obviate upload filters to the greatest extent possible--and while I'm not too hopeful about that, I do appreciate the fact that the statement leaves the door open to a near-term amendment.

I do not plan to comment on the further process (transposition into national laws and subsequent litigation) on this blog. Since February I've blogged about the EU copyright reform process on various occasions because it was the most interesting and important legislative process concerning intellectual property in many years, but the focus of FOSS Patents will remain on patents and antitrust, and copyright only to the extent it is asserted against mobile device makers or app developers. I may, however, set up a separate copyright blog at some point.

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Tuesday, April 23, 2019

Supreme Court of the UK grants Huawei's petition to appeal lower court's claim to global FRAND jurisdiction in Unwired Planet case

Generally, the UK enjoys an excellent reputation as a jurisdiction for patent infringement and validity cases. But no UK patent ruling has ever been even remotely as controversial as Justice Colin Birss's 2017 holding in Unwired Planet v. Huawei that an injunction should issue against an implementer of a standard-essential patent (SEP) who declines to take a global portfolio license from a patent holder (in this case, a privateer asserting mostly former Ericsson patents). Justice Birss's fundamentally flawed thinking was that only because SEP holders and SEP implementers in practice typically agree on worldwide portfolio licenses, Huawei was an unwilling licensee because it refused to take a worldwide portfolio license in order to avert a UK injunction over a single SEP deemed valid and infringed--never mind that Huawei generates only a tiny percentage of its global sales (maybe 1% or so) in the UK.

There's nothing wrong with companies agreeing on all sorts of things voluntarily. The problem here is that Justice Birss's approach would effectively force companies (unless they can just forego UK revenues for some time) to let a UK court set a global FRAND rate (in order to determine whether a company is or is not a willing licensee). Under that line of reasoning, UK courts would assume jurisdiction over, U.S., German or even Vietnamese patents, without being equipped to actually assess whether the courts in those jurisdictions would, under applicable national law, deem a given patent valid and infringed (or what they would consider a FRAND royalty under their antitrust or contract laws).

While the name of the England & Wales High Court (EWHC) suggests otherwise, it's actually the lowest court for UK patent cases. But, shockingly, the Court of Appeal of England & Wales upheld Justice Birss's global FRAND determination in October 2018.

Huawei filed a petition to appeal with the Supreme Court of the United Kingdom. Such a PTA is the same in the UK as a petition for writ of certiorari (colloquially, "cert petition") filed with the U.S. Supreme Court. It's not a given that the highest court of the land will take a look at a case.

In this particular case, I was very optimistic, simply because the question of extraterritorial jurisdiction is the proverbial issue for a country's top court to consider. And indeed, on April 11, the Supreme Court of the UK granted Huawei's petition, as the court's press office confirmed to me today (click on the image to enlarge; this post continues below the image):

The really important issue here is the one that first came up in Unwired Planet v. Huawei. But the Supreme Court of the UK decided, for good reason, to treat the Conversant Wireless cases (defendants: Huawei and ZTE) as related cases for the purposes of a Supreme Court review. The whole package has now been granted cert.

About a week before the Supreme Court of the UK made this decision, a former judge of the UK Court of Appeal who has meanwhile been appointed to the UK Supreme Court, Lord Kitchin, defended the decisions of the two lower courts at a Munich conference (where Judge James L. Robart of the United States District Court for the Western District of Washington noted that U.S. courts simply don't rule on foreign patents, citing one case in which a U.S. district court declined to do so even though both parties asked for a determination involving a foreign patent.

Lord Kitchin is not among the three Supreme Court judges hearing the case now. Chances are, however, that the "evangelism" he conducted at the Munich conference may also take place in London, in whatever shape or form.

The Supreme Court will likely hold a hearing in the fourth quarter.

I'm going to follow the Supreme Court proceedings closely and will also try to attend the hearing. This is about an extremely important FRAND-related issue. I hope the UK, as a patent jurisdiction, will regain everyone's total respect when all is said and done in this context.

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Wednesday, April 17, 2019

Prior to settlement, Apple got Qualcomm's German fake patent injunction lifted: appeals court deemed it likely flawed

Days before the sudden settlement between Apple and Qualcomm, a German appeals court had preliminarily annulled the latter's most significant courtroom victory over the former, as I found out today. After months of briefing and in-depth analysis, the Oberlandesgericht München (Munich Higher Regional Court) granted a motion by Apple to stay the enforcement of a Germany-wide patent injunction Qualcomm had obtained from the Landgericht München I (Munich Regional Court). Apple had worked around that injunction anyway, and its effects were as minimal as they were short-lived. But the implications for patent enforcement in Germany--a sizable market in which injunctions have so far (change may be coming soon) been granted as a near-automatic legal remedy.

Blogs are opinion platforms, and my outspokenness and willingness to make sometimes daring predictions position me as a particularly opinionated blogger on patent matters. In fact, patent professionals sometimes share my posts on LinkedIn saying that they disagree with my views but find useful information here--which is perfectly fine, and it would be a surprise if a former anti-software-patent campaigner's positions were perfectly congruent with those of people whose job it is to prosecute or enforce patents.

Nevertheless, I try hard to disagree respectfully when I disagree, and judges deserve particular respect for all intents and purposes. So only under the most egregious of circumstances would I refer to a decision as a "fake injunction," but I carefully chose that term for the injunction the Landgericht München I (Munich Regional Court) had granted to Qualcomm against Apple on December 20, 2018 on an agnostic basis, creating what I called a "defendant's dilemma": give up your secrets by letting a competitor's engineers learn about the inner workings of a chipset--or lose your case.

At first I just called it an "agnostic" injunction because the court had made clear (not only at the oral announcement of the ruling but also in a written press release) that the question of whether or not a Qorvo enveloper tracker chip in the iPhone 7, the iPhone 8 and the iPHone X actually infringed Qualcomm's patent-in-suit. The decision was based on the court's determination that Qualcomm's infringement assertion, though based on an inherently unreliable (as the court-appointed expert acknowledged) teardown report, was deemed more substantiated than Apple's denial. Apple had brought along the Qorvo engineer who designed the chip. Heroically, but in vain, Mr. Mike Kay waited on a hard wooden seat outside the courtroom for about 12 hours.

In early February, after a summary judgment ruling by a U.S. district judge here in San Diego (Judge Dana M. Sabraw) agreed with Apple's primary non-infringement contention (after looking at evidence and hearing testimony the Munich court never got to, and consistently with what the ITC found last year), I replaced "agnostic" with "counterfactual" or simply "fake." I did so despite truly (and still) considering Presiding Judge Dr. Matthias Zigann a leading German patent judge. And I harshly criticized, with words like "worse than the worst troll," Qualcomm (a great mobile tech innovator) and Quinn Emanuel's Dr. Marcus Grosch (a phenomenal patent litigator) for enforcing a fake injunction, which I considered unethical. Not only did Qualcomm enforce that injunction but they also obtained another one over allegedly deceptive advertising because Apple assured customers they'd still find the iPhone 7 and the iPhone 8 everywhere. That one also got lifted, but by the lower court itself (and a different panel of judges; not Judge Dr. Zigann's patent-specialized panel).

Now, after almost four months, there's justice. Apple's lead counsel in this action, Hoyng Rokh Monegier's Klaus Haft, who is regarded as one of Germany's best patent litigators, brought a motion back in December asking the appeals court, the Munich Higher Regional Court, to stay the enforcement of Qualcomm's injunction pending the appeal. That appeal won't be resolved anymore after yesterday's global settlement. But I've been able to receive official confirmation from a spokeswoman (an appellate judge in her main capacity) for the Munich Higher Regional Court that Mr. Haft's motion had been granted because Presiding Judge Konrad Retzer's panel of three appellate judges determined (on a preliminary basis since a final appellate opinion would require full-blown appellate proceedings) that the lower court had erred in three ways:

  • The lower court erroneously rejected Apple's infringement defense as insufficiently substantiated.

  • The lower court erroneously dismissed Apple's infringement defense (I would compare this to a successful motion to dismiss in a U.S. case, or a summary judgment to that effect).

  • The lower court erroneously deemed some of Apple's contentions to have been brought out of time. (On that basis, as I recall, the Munich I Regional Court denied Apple's motion to reopen the record, which would have allowed it to discuss new evidency and hear testimony on an additional trial day.)

Due to a workaround, the injunction had no more impact on consumers anyway--but other injunctions on a smilar "damned if you do, damned if you don't" basis could have harmed consumers and innovation. Sanity has been restored. That's excellent news.

There still are some patent-related issues with respect to which we need sanity. One of them is the question of global FRAND rate determinations by UK courts.

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Tuesday, April 16, 2019

Apple and Qualcomm settle their antitrust/FRAND/patent dispute: clash of California tech giants is amicably resolved

Opening statements in the Apple, Foxconn et al. v. Qualcomm antitrust trial in San Diego (Southern District of California) were ongoing when CNBC broke the news of a settlement. A little later it was confirmed by Apple's newsroom: All pending lawsuits between Apple and Qualcomm, and Apple's contract manufacturers and Qualcomm, have been dismissed.

There is a new patent license agreement as well as a new chipset supply deal in place. In other words, California's two mobile hardware giants--Apple from the North, Qualcomm from the South--are working together again. An amicable resolution of a dispute that last more than two years and was a bit acrimonious at times.

Cravath Swaine & Moore's Evan Chesler finished his opening statement (with only about 20 minutes left at the time the settlement became known). Counsel talked to Judge Curiel privately, and he then explained the situation to the jury. He also invited jurors to his chambers to thank them personally for everything.

A trial that could have lasted, if one includes jury deliberations, 1.5 months or more has therefore ended after only 1.5 days.

This would have been a huge and extremely difficult case for the jury to decide. As always, I congratulate both parties on their deal, and in this case I think either side would have had to take quite some risk by letting a jury render a verdict on complex commercial and partly technical issues.

Even though it ultimately didn't matter anymore what counsel said today, I really was impressed by Fish & Richardson's Ruffin Cordell's opening statement. One of the best explainers I ever got to listen to in a courtroom. I must admit I hadn't heard of him before, but probably will again, sooner or later.

The terms of Apple's new deal with Qualcomm haven't been disclosed other than money flowing from Apple to Qualcomm, not the other way round (which could have happened after the trial in theory). Analysts will probably soon claim to know the exact numbers. We won't know whether they're right until something surfaces in future litigation.

In the immediate aftermath of this settlement, the question is what this means for the FTC v. Qualcomm case that went to trial in January. Judge Lucy H. Koh of the United States District Court for the Northern District of California might rule anytime now. Or that case might get settled, too.

The Federal Trade Commission of the United States deserves respect. What's obvious (and therefore not a question of respect or a lack thereof) is that there's now less of a national interest in that antitrust case than before. However, I have consistently said that the case is about important issues, not just particular companies. It could be that the FTC, whose primary job is to prevent consumer harm, decides to carry on regardless. Or they might settle in the short term. We'll see what happens.

Standard-essential patents (SEPs) and FRAND licensing terms have been and will remain a key focus of this blog, of course. And, more generally, patent infringement remedies.

By the way, live tweets from the courtroom were allowed again today.

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Common sense against Qualcomm: Apple stresses smartphone functionality also works without modem chip--over WiFi--but Qualcomm wants royalties on entire device

I'm typing this while Fish & Richardson's Ruffin Cordell is still delivering Apple's opening statement in the Apple v. Qualcomm antitrust trial here in San Diego (Southern District of California). There are two key points made in the first half of the statement that are going to make things hard for Qualcomm to persuade the jury of its own story:

  • Mr. Cordell made a point that is very obvious: why would Qualcomm impose gag clauses with multi-billion dollar penalties attached on its customers if it had nothing to hide? The fact that Qualcomm insisted on contract terms that would make it economically irresponsible under most circumstances for companies to ask competition enforcement agencies for help indeed speaks volumes. It's about covering up misdeeds.

    It will be hard for Qualcomm to explain this away. It's not just that companies entering into business agreements with other companies want some peace of mind. They don't want to sign a contract one day and be sued the next day. But government agencies in charge of antitrust enforcement don't just cause one company a lot of grief because another company asks them for it. They perform their own analysis, generally starting with a first plausibility check, followed by what some call "preliminary investigations" if there's enough smoke to suspect fire, and things get real only if those agencies reach independent conclusions. As for independence there certainly is no such agency in the world that would be in Apple's pocket because the United States is just too large an economy and too well-respected a democracy for one company to control the government and in other countries Apple is just a foreign entity.

    So if Qualcomm had had a clear conscience, it would never have had to worry about a customer like Apple potentially complaining to independent government agencies because the agencies would just decline to investigate, or they would take a short look and stop wasting their time. Only someone who really has something to hide and, as a result, something to fear would do that. That Qualcomm had something to hide and therefore something (antitrust charges) to fear is evidenced by the battlemap chart I showed you in yesterday's post on the start of this trial (jury selection). In the aggregate, Qualcomm has been fined to the tune of many billions of dollars by regulators on multiple continents, which I once called the "Antitrust Grand Slam."

  • The next context in which common sense complicates things for Qualcomm is the question of the royalty base. Qualcomm's royalty is based on the entire device. There is a cap now ($400), but it's dozens of times higher than the market value of a modem chips. So Qualcomm collects royalties--as Qualcomm told the IRS--on the whole enchilada because it's "humongously more lucrative." But this means they charge for parts of the product they don't actually make any technical contribution to.

    The key term is "royalty base": What is the 100% basis against which whatever reasonable royalty percentage should be applied? Is the 100% a $1,000 phone? A hypothetical $400 phone? Or should it be a baseband processor (also called modem chip, or modem processor, or baseband chip)--which Qualcomm itself sells at $20 per unit and others sell at $10 or less?

    If Apple wins the royalty-base part, it's within striking distance of convincing the jury of Qualcomm's terms being unreasonable. They have other ways, such as (what came up later in the opening argument) a comparison between what Qualcomm collects per unit vs. other companies like Ericsson that may hold even more standard-essential patents. But what I think may have the greatest persuasive impact here is the following point Mr. Cordell made:

    A smartphone is a mobile computer, with conventional telephone functionality representing just a limited part of it. But most of that smartphone functionality--such as playing computer games, listening to music, watching or recording videos--works over WiFi, too! And if something works over WiFi (in fact, many of those apps work better over WiFi than over cellular networks, which are slower and less stable in general), then there's no plausible basis on which a cellular SEP holder can collect a royalty on the commercial value of the related computing functionality.

    Mr. Cordell announced that Apple would get back to this point throughout the trial. I can see why. They won't have to talk about this every trial day, but when testimony--people confirming that everything works over WiFi (in fact, I quite often make WiFi calls where people call me on a cellular number or I call them)--shows to the jury that the very largest part of the value of an iPhone is not dependent on Qualcomm's modem chip technology, Qualcomm is going to have a problem persuading the jury of the opposite.

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Apple v. Qualcomm trial kicks off in San Diego: jury of nine selected, live tweets disallowed

Today was Day One of the Apple, Foxconn et al. v. Qualcomm trial in San Diego (Southern District of California). Formally, there are two cases, which the court combined under the official caption In re Qualcomm litigation. The reason for two cases existing technically is that a few months after Apple sued Qualcomm in January 2017, Qualcomm sued Apple's four contract manufacturers (Foxconn, Wistron, Pegatron, and Compal), who counterclaimed. The contract manufacturers' counterclaims became the economically biggest issue in the case, amounting to approximately $9 billion, which could be tripled (as a damages enhancement) to $27 billion. Qualcomm is seeking damages of up to $15 billion according to Reuters.

United States District Judge Gonzalo P. Curiel is presiding over the trial. In one of his most important pretrial decisions, Judge Curiel agreed with Apple and its contract manufacturers that this is indeed primarily an antitrust/FRAND case, which Qualcomm sought to portray as a contract dispute in the first place so it could argue that contracts must be complied with, period (a principle that is very important but just doesn't outweigh antitrust considerations as serious as here). Somewhat ironically one might say Qualcomm already faces too many antitrust cases in the U.S. and on a couple of other continents that it would rather reduce than inflate the number of pending antitrust matters. The following smartphone patents battlemap, which I created about six months ago, shows the pressure Qualcomm is facing from antitrust agencies in multiple jurisidctions as well as some other cases (click on the image to enlarge; this post continues below the image):

The cases most closely related to the one being tried in San Diego as we speak are the U.S. Federal Trade Commission's antitrust lawsuit against Qualcomm in the Northern District of California (where Judge Koh might rule anytime now, given that the trial took place in January) and a consumer lawsuit alleging that 250 million Americans who bought smartphone over the last roughly eight years overpaid to the tune of $5 billion (an average of $20 per consumer) because of Qualcomm's accused business practices. Qualcomm appealed Judge Koh's certification of the consumer class action, but let's stay focused on the San Diego case (the real San Diego case, i.e. the antitrust case, as opposed to a patent infringement case that is a sideshow).

In one of the strongest signs of there truly being one or more antitrust issues with Qualcomm's business practices, the company has for some time insisted that those entering into certain agreements with Qualcomm were not allowed to complain to antitrust regulators (theoretically, they had that option, but at a high cost due to an immediate termination of rebates and even a clawback of past kickback payments). Judge Curiel found no contract violation of that kind by Apple, a decision that is worth a few billion dollars to Apple.

Today a jury of nine was selected, which means that up to three jurors could drop out (the trial might take about a month, though there are only four trial days scheduled for this week and three for each of the following weeks until jury deliberations begin) and they could still reach a verdict under the district court's Local Rules.

There were some funny situations and remarks, but nothing specific happened today besides jury selection (and, which is unusual for a district court on the West Coast, a decision that no electronic devices with an active online connection could be used inside the courtroom, which is why live tweets didn't continue after the lunch break). Opening arguments will be delivered tomorrow, and that's when the trial really begins.

On the eve of opening arguments, it makes sense to reflect on what this dispute is--and what it is not--about in high-level, philosophical, moral terms. The questions the jury will have to answer are unrelated to Qualcomm's history of innovation in cellular communications. Not only would no one doubt that Qualcomm succeeded a few decades ago with a courageous and ambitious bet on a technique called code division multiple access (CDMA), but it's also clear that Qualcomm has continued to invest heavily in research and development. No one claims they stopped innovating altogether. The dispute is all about whether they went, and are going, too far in their rent-seeking (and governmental agencies--antitrust enforcers--around the globe have so far found that it's the case, imposing fines that in the aggregate amount to several billion dollars).

If all that Qualcomm had done since its initial success had been to keep innovating, and if there hadn't been any issues, then those competition watchdogs would have focused on other companies and this San Diego trial wouldn't have started because Apple would never have brought the underlying complaint.

Both Apple and Qualcomm are innovative in fundamentally different ways, respects, and fields of technology (though Apple is now also creating many jobs in San Diego for chipset engineers). Some will consider one of them more innovative than the other, but it's an apples-to-bananas comparison. There are two key differences, however:

That patent tax is artifically inflated by means of such practices as royalties on repairs, royalties on royalties (meaning that the royalty base for a royalty includes among other components the royalty), and interest on interest). They charge royalties separately from the prices of the chipsets they sell, though the longstanding judicial doctrine of patent exhaustion says that after you've sold a product you can't assert your own patents against it later.

What's under attack (not only in this particular trial but in a host of cases as shown in the battlemap further above) is not Qualcomm's business model in its entirety, but certain problematic practices. Qualcomm will have a bright future either way. It will continue to create jobs. It will continue to rake in huge profits. It may, however, have to make some adjustments so as to ensure an allocation of resources that will work best for the economy and for society. This is a story à suivre.

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Thursday, April 11, 2019

Munich I Regional Court lifts Qualcomm's deceptive-advertising injunction against Apple (indirectly related to patent injunction)

After this week's news of an EU General Court ruling against Qualcomm (related to the European Commission's enforcement of compliance with a couple of antitrust information requests) I also checked again with the Munich I Regional Court, mostly because I was curious about Qualcomm's recent contempt motion against Apple, alleging non-compliance with the injunction Apple has meanwhile worked around. Please check out my mid-February post on that matter because it summarizes the unusual circumstances (procedural shenanigans) under which an agnostic patent injunction came down and explains the workaround, which involved replacing an Intel baseband processor with a Qualcomm chip even though the accused component was a Qorvo envelope tracker chip.

Not only did Qualcomm bring a contempt motion, which a spokeswoman for the court tells me hasn't been adjudicated yet, but in January it also became known (as I once mentioned in passing) that Qualcomm obtained a preliminary injunction from a different chamber (= panel of judges) of the same Munich court against Apple's public statements that the iPhone&nbsmp;7 and the iPhone 8 would remain widely available in Germany notwithstanding Qualcomm's enforcement.

Meanwhile the court has confirmed to me that the deceptive-advertising injunction was based in the UWG (Germany's unfair competition law). I also have a case number now (1 HK O 257/19; the "HK" means it's a commercial dispute). And I learned that just on Tuesday the court lifted the competition law-based injunction, but hasn't stated the reasons yet.

That one is a sideshow (deceptive advertising) of a sideshow (a fake patent injunction that had no serious impact), while the one that really matters is the Apple, Foxconn et al. v. Qualcomm antitrust case going to trial in San Diego on Monday over tens of billions of dollars. I still wanted to mention it because Qualcomm made some noise about this preliminary injunction when they obtained it, and by now it's an injunction that has ceased to be.

I wouldn't rule out at all that Qualcomm's pursuit of that injunction was driven by some emotions on top of PR considerations (though they are extremely PR-oriented, and very good at playing that game).

Qualcomm and its German lawyers--their lead counsel, Quinn Emanuel's Dr. Marcus Grosch, is really an amazing patent litigator--had fought very hard to win anything in Germany. Most of their German patent infringement cases against Apple went nowhere. Then, after several setbacks, they finally got one--though I consider it a highly illegitimate one, despite otherwise having great respect for the judge who handed it down and for counsel--and they thought it would give them leverage. They laid down more than $1.5 billion, an insane amount given that this case probably has an official value in dispute (based on which court fees are calculcated) somewhere in the range from 5 to 10, maybe 20, million euros (like the other German Qualcomm v. Apple cases). And then they saw that Apple removed those olders iPhones from its own German stores (for six weeks or so), but its major resellers (carriers like T-Mobile, Vodafone, and Telefónica/O2, but also retailers like MediaMarkt) just kept on selling as if nothing had happened, with some smaller resellers even mocking the injunction in their ads.

It's a typical situation where each side of a cube has a different color and if you stand on one side, it looks green, and from the other side it looks red. I just described Qualcomm and Quinn Emanuel's perspective. They probably were upset about Apple seemingly disrespecting the injunction. But then my perspective is that it should be beneath the likes of Qualcomm and Quinn Emanuel--two world-class Q's--to obtain and enforce (!) an agnostic patent injunction when professional judges in the U.S. actually agreed with what was Apple's primary non-infringement argument. QE has a tremendous reputation for vigorously representing clients, and there's not even the slightest indication of them having done anything illegal here, but it's highly likely that this was an egregious case of utterly abusive, wrongful patent enforcement.

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Wednesday, April 10, 2019

IRS described itself as Qualcomm's 'silent partner' in imposing patent tax on mobile device industry

Standard-essential patent (SEP) holders with ambitious monetization goals and aggressive tactics notoriously refuse to extend licenses to chipset makers. There's more than one reason for this, but besides the real reasons--the primary one of which is money--there are some cheap pretexts and excuses that they'll present when challenged. It's the next best thing to hypocrisy.

I do appreciate it, however, when those companies come clean and tell it like it is. Ericsson, thankfully and boastfully, created an entire slide deck that explains it's just about (more) money plus a reduced risk of retaliation. That was just disarmingly honest.

Toward the end of the FTC v. Qualcomm antitrust trial in January, a transcript of a 2012 interview conducted by the Internal Revenue Service (IRS) with some Qualcomm employees made it into the record over Qualcomm's lawyer's objections. Given how incriminating that document is from an antitrust point of view, and imagining how Judge Lucy H. Koh in the Northern District of California might view it especially in the strategically critical context of chipset-level licensing, it's easy to see why Qualcomm wouldn't want that transcript to be considered by any judge or jury in any dispute.

But it's great stuff and proves that Qualcomm, too, can be disarmingly honest in the right context. In a long interview with the IRS (the actual transcript spans 120 pages), they were just as forthcoming as Ericsson in the aforementioned slide deck. So here's the transcript, and I'll quote some passages and share some observations below:

19-01-28 Qualcomm IRS Inter... by on Scribd

After reading the transcript as a whole I've concluded that the IRS apparently conducted some sort of preliminary investigation of whether Qualcomm's corporate structure results in an underpayment of U.S. taxes due to (and this is not clear to me) either a violation of the arm's-length principle for inter-company charges between QTL and QCT (because of QTL, the licensing business, not charging a patent royalty to QCT, the chipset division) or because of the possibility of some revenues being taxed in foreign jurisdictions like China--or some combination. In any event, what matters here s what was said more so than why the interview took place, but I tried my best to figure out the context.

The IRS wasn't being hostile in that interview. They were just trying to understand Qualcomm's business and were appreciative of the information they got. The Qualcomm licensing executives they interviewed were just trying their best to explain that their decisions make economic sense and that, between the lines, there was no tax avoidance or tax-shifting scheme there.

In Judge Koh's courtroom in January, Qualcomm's attorneys also presented legitimate, if not even pro-competitive, business justifications for everything, even for the refusal to license rival chipset makers. But the story there was completely different from what they told the IRS. It was far-fetched stuff such as arguing that there'd be fewer licensees if you extend licenses only to device makers (and contract manufacturers)--but there's only a very few chipset makers in this space versus literally hundreds of device makers.

What they told the IRS, however, is the true story. It's also pretty consistent with Ericsson's slide deck. And, especially, common sense.

The revenue maximization part of that interview was already mentioned in January: "obviously the handset is humongously more ucrative for a bunch of -- a bunch of reasons."

In the vicinity of that statement (page 72 of the PDF document), Qualcomm explains that royalties on handsets accounted, at the time (and probably still), for 95% of their patent licensing revenue stream. Elsewhere they explain that the chipset opportunity was just in the 1% range. The remainder would then be attributable to base stations.

On page 74, Qualcomm's Mr. Blecker explains:

"Yeah, but if I would average royalty on all the handsets that we collect royalties on -- I don't remember what it is anymore, I used to know the number -- but if -- if it were ten dollars, for example, you couldn't charge a ten-dollar royalty on a chipset that cost five dollars, or six dollars, or seven dollars."

His colleague Fabian Gonell then noted that "[t]heorectically you could, but as a practical matter you can't. As a practical matter it's hard." Mr. Blecker then added that "it would be hard to convince a court that that was a fair royalty also."

Then, at the very bottom of that page of the transcript, the IRS's Mr. Howell essentially assures Qualcomm that they should just maximize their income because it's in the agency's interest:

"Right. No, we're your silent partner. We want for you to make a lot of money, for that to happen."

And then Qualcomm's Mr. Blecker stressed again that it's on the handset where the money is."

There are some other interesting statements in there. In particular, starting on page 25, Qualcomm explained to the IRS the doctrine of patent exhaustion, how it evolved, and how that evolution required Qualcomm to change its licensing terms so as to avoid exhaustion. They also explain how patent exhaustion is always something that adversaries in legal disputes might hold against them, so they have to be very careful to navigate around it.

Ideally they don't want to do business with other chipset makers at all, but sometimes it can't be avoided, such as because the other party may have patents that Qualcomm wants to license (and typically exhaustively so it can tell its customers that they're covered). Early on it would have been possible to make a covenant not to sue a chipset maker, but then the Federal Circuit held that a covenant not to sue was tantamount to a license for exhaustion purposes, so as to avoid double-dipping.

In response to that case law, Qualcomm then switched to a structure called a "covenant to sue last" (as I reported during the trial) or, more formally, a covenant to exhaust remedies, meaning that Qualcomm wouldn't sue a chipset maker unless it would have a problem to obtain and collect damages from the device makers who buy those chipsets. In other words, they'd have to sue a device maker first, and then the device maker would have to go bankrupt so they'd have a basis for suing the chipset maker--theoretically possible, but practically rather unlikely.

As I wrote further above, the question is what Judge Koh will think of everything that's in that transcript. Her ruling could come down any moment now. And I think she already sees through all those smokescreens. Sure, there are patents that are not implemented in a baseband chipset, such as user interface or antenna patents. And there are patents that are't embodied in a baseband chipset alone. But cellular standard-essential patents are, and that's what she's held in an unrelated case (GPNE Corp. v. Apple) and in her partial summary judgment in FTC v. Qualcomm, which both Judge Gonzalo P. Curiel in the Southern District of California (at a recent hearing) and Judge James L. Robart of the Western District of Washington (at a Munich conference last Friday) appear to like as well. That IRS interview transcript just validates Judge Koh's and her colleagues' thinking. It's just clear that it's just about Qualcomm not wanting to go to court or conduct arbitration and argue over the reasonable royalty on a chipset when the end product--a smartphone or tablet--can serve as a far higher royalty base to start from.

What's almost funny in that transcript is how those Qualcomm licensing executives--all of whom are lawyers--remind each other of not making definitive concessions regarding the law. For instance, each time one of says some kind of contract may be exhaustive, someone else says "may be," even when they're all convinced it's simply certain to be the case.

Finally, from a competition policy perspective it's also interesting to read what they say about a contract term under which they require rival chipset makers to disclose their customers and the number of units they ship to them. They concede in the interview that it's very helpful for them to obtain such information on a competitor's business, and they try to impose that term whenever and wherever they can, but sometimes they don't have enough leverage to get all that they want and may then focus on other contract terms.

Another problematic term that was also mentioned already in the FTC trial is that they get other chipset makers to promise not to sell chips to device makers that don't have a patent license from Qualcomm. Such a contract clause enables Qualcomm at least to threaten with the pursuit of an injunction against shipments by a chipset maker to an unlicensed device aker.

With their covenant-to-exhaust-remedies approach to rival chipset makers, they're basically trying to achieve anticompetitive goals with respect to those competitors--and to make the end products more expensive. For Qualcomm's self-declared "silent partner," the IRS, that's just fine: whatever makes them the most money. But in an antitrust and FRAND context, a different kind of analysis is performed...

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Final pretrial conference order in Apple, Foxconn et al. v. Qualcomm (Southern District of California)

There were two developments yesterday in connection with Qualcomm's antitrust issues.

First, the EU General Court (which used to be call the European Court of First Instance) handed down a judgment that upholds the entirety of the European Commission's March 31, 2017 decision that Qualcomm would incur a daily fine of 580,000 euros for non-compliance with two information requests after specified dates (May 12, 2017 for one of them, and May 26, 2017 for the other). The EU General Court already denied in July 2017 a Qualcomm motion to stay the order, as I mentioned in this post. Apparently Qualcomm then had to comply (though it still appealed the decision), and the investigation of Qualcomm's exclusivity arrangements and predatory pricing further to a complaint by Icera, a once-European semiconductor company acquired by Nvidia (and shut down later).

At first sight one may wonder why Qualcomm would be accused of overcharging in one context and of predatory pricing in another, but the two theories can be reconciled: Qualcomm's supra-FRAND royalties enable the company to impose a tax on everyone and to sell chipsets, especially in the low-end segment, at a lower cost than Qualcomm could if it contented itself with FRAND royalties. It's one of the ways Qualcomm benefits from a business model that flies in the face of all we know about the concept of patent exhaustion.

Second, we're five days away from the start of the Apple & Contract Manufacturers v. Qualcomm antitrust and (secondarily) contract dispute in the Southern District of California. Judge Gonzalo P. Curiel (whom Judge James L. Robart, known for two groundbreaking SEP-related rulings, holds in the highest regard), has entered a final pretrial conference order (this post continues below the 262-page document):

19-04-09 Final Apple Foxcon... by on Scribd

This is a long document and I've mostly published it here as reference material for the upcoming trial. I haven't fully digested it yet, but it reflects the judge's prior categorization of the case as primarily an antitrust/FRAND and only secondarily a contract dispute.

The way the defenses to the parties' different claims are presented is consistent with what Apple had proposed: to list the defenses after each claim. Qualcomm had argued it would have been more efficient to discuss the defenses just once (and then apply them to multiple claims).

What both parties appear to be fine with is that the judge will interpret some disputed contract terms after the presentation of evidence, but before jury deliberations.

Don't be puzzled by the official date of the order. It came down on April 9, but with retroactive (ex tunc) effect.

There's probably something more in that long document that's worth talking about, and I'll take a closer look between now and the start of the trial on Monday.

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Tuesday, April 9, 2019

Nokia is abusing standard-essential patents, Daimler and medium-sized supplier BURY Technologies allege in EU antitrust complaints

It is high time that the automotive industry stopped being the ideal target of shakedown attempts by standard-essential patent (SEP) holders due to its sheer size, the high prices of its end products, and its pacifist attitude. For a long time, car makers used to be on the sidelines of major disputes. They generally resolved any IP issues out of court, respecting exclusionary rights in some cases and cross-licensing (or simply refraining from hostilities) in many others. But times have changed, and with cars increasingly becoming smartphones on wheels, those car makers are no longer dealing with a herd of sheep when it comes to patent assertions but have entered a jungle teeming with predators. As a result, they must confront those challenges more decisively, lest they be eaten alive.

Against this backdrop I'd like to promote (not getting anything for it) an upcoming Munich conference hosted by the Bardehle Pagenberg firm: Automotive Patent wars -- To pay or not to pay: That is the question." on May 9.

SEP disputes raise antitrust issues, and that's what's now, finally, also happening in the automotive industry:

  • On March 29, Reuters reported on an EU antitrust complaint brought by Daimler against Nokia. The article quotes an official Daimler statement: "We want clarification on how essential patents for telecommunications standards are to be licensed in the automotive industry. Fair and non-discriminatory access to these standards for all users of the essential patents for telecommunications standards is a key prerequisite for the development of new products and services for connected driving." (emphasis added)

    The three words "for all users" are interesting. This wording at least makes it plausible that Daimler's complaint relates to Nokia's refusal to extend SEP licenses on FRAND terms to certain component suppliers. The motivation would obviously be for Nokia justify its royalty demands with the end price of an entire car, or substantial parts thereof.

  • What reinforces this impression is the subsequent filing of a complaint by a medium-sized company (that just employs about 2,300 people; a midget compared to Daimler) named BURY Technologies, but instead of burying the hatchet, they're throwing down another gauntlet to Nokia. Yesterday (Monday, April 8), BURY Technologies announced its EU antitrust complaint against Nokia, alleging that "the Finnish group had refused to grant licenses for mobile communications components from BURY."

    The official press release refers to a "cartel complaint," which is just an incorrect translation of the German word "Kartellbeschwerde" (which broadly covers any complaint with a competition enforcement agency): it's not about Nokia having formed a cartel with others, but about unilateral conduct by Nokia as a SEP holder. It's not hard to imagine that a relatively small company just doesn't have a lot of expertise in the area of competition law.

    The fact that this complaint was filed in relatively short succession to Daimler's makes it fairly likely that there was some coordination behind the scenes, except that Daimler would know the difference between antitrust and cartels.

The question of component-level licensing is also the key issue in the FTC v. Qualcomm dispute in the Northern District of California. Just like one of the world's most famous FRAND judges, United States District Judge James L. Robart, I also think Judge Lucy H. Koh's FTC v. Qualcomm ruling could come down any moment. Daimler's and BURY Technologies' complaints over Nokia's conduct with the EU Commission show that this is a global issue, and Judge Koh has the potential here to be a global thought leader, like Judge Robart became one with respect to FRAND rate determinations (and in the U.S., with respect to antisuit injunctions against SEP abusers).

Having watched Nokia in litigation over many years (even going back to its first dispute with Apple), and the unfortunate (for Nokia and its stakeholders, though not for consumers) demise of its mobile device business that changed its attitude toward patent monetization, I'm not surprised that it apparently made demands that Daimler wasn't willing to meet without a fight. Daimler is also defending itself against Broadcom's German lawsuits (as is BMW).

With all that's going on, this blog may have to take a closer look at automotive patent cases going forward just because of a huge overlap with smartphone issues. For now, I really hope the European Commission will launch formal investigations of Daimler's and BURY Technologies' complaints. The best-case scenario would be for the U.S. to clarify the question of component-level licensing on the basis of a ruling by Judge Koh and for the European Commission to do so at the end of an antitrust investigation.

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Saturday, April 6, 2019

Macron's party names GAFA (Google, Amazon, Facebook, Apple) among Europe's largest rivals on global stage

It's election season in Europe, and that's the time when political priorities often crystallize. In a television appearance that is as stunning as it is telling, the top-listed candidate of French president Macron's party for the European Parliament elections, Nathalie Loiseau, practically declared war on four major U.S. tech companies by likening them to rival nations on the world stage for Europe to confront (this post continues below the tweet):

The statement was made on a popular political TV program in France, L'Émission politique, and subsequently Mrs. Loiseau retweeted a recording. Interestingly, the list of rivals she named on TV also included the United States, but she (or, more likely, her social media team) omitted the U.S. from the list in the tweet. The complete list of rivals is:

  • China,

  • the United States,

  • Russia, and

  • GAFA (Google, Amazon, Facebook, Apple).

The GAFA companies are U.S. companies, and the tech sector is a significant part of the U.S. ecoomy, so the fact that this group of companies is nevertheless additionally listed at a level with the three global superpowers says a lot.

What she says is that in the face of those challenges, "Europe has to make others respect it" (I purposely translated this fairly literally). It's a rather combative statement.

Just prior to the list of rivals she stresses that "there won't be a strong France without a strong Europe," and that's the problem. Macron ran on a pro-European platform, but his vision for Europe is one of putting French interests and the French school of thought first and demanding that the rest of Europe follow because he knows, as Mrs. Loiseau does, that France alone is too weak.

The idea of being stronger together than alone is shared by the political establishment across continental Europe. German politicians basically say the same. But there are different approaches, especially to economic policy and, by extension, IP policy: "social market economy" (the German policy goal, which is also shared by large parts of Central and Northern Europe, and the post-socialist transformation of the Eastern European economy is driven by similar ideas) vs. a statist (heavy-handed government), centralized system as the one favored by France.

Here are four key characteristics of the French economy:

  • The highest ratio of public spending to GDP of all EU Member States (56.5%),

  • a revolving door between government and large corporations (and not just the lobbying departments, like in Germany, but senior management),

  • a focus on "national champions," and

  • a weak SME (small and medium-sized enterprises) segment.

They even have a state-owned patent troll (France Brevets).

The French approach just isn't working in the Digital Age. There are exceptions, such as two French games companies that I highly respect: Ubisoft and, more recently, Voodoo, which focuses on "snackable" minigames and generates huge numbers of downloads. But Northern Europe is way stronger (even in interactive games).

In December, Gunnar Heinsohn, a professor emeritus who's both an ecoomist and a sociologist, published an article (in German) entitled "Why France is beyond salvation." The article mentions that South Korea is now filing almost twice as many international (PCT) patent applications per year as France, though its population size is about 25% less than that of France, and the average French IQ is only 98, with immigrants averaging only 92. According to the OECD, France has the least qualified immigrants of all 36 OECD nations. When TIMSS (Trends in International Mathematics and Science Study) was conducted for the first time, back in 1995, French students were ranked 13th in the world, but over the course of the next 20 years, France dropped by more than 20 ranks to #35, behind Qatar and Abu Dhabi. In light of all of those facts, Professor Heinsohn concludes that "it's over," and nothing can be done anymore to bring France back on track.

He could have pointed to additional facts. According to TIMMS, the performance of French students is below that of any other large EU member state. By comparison, in the UK's strongest region, Northern Ireland, 27% of all students are top math performers, more than ten times the percentage of France (2%). And based on what I hear from experts, the brain drain is massive, with a significant percentage of the best French engineers and scientists being hired by U.S. tech companies.

That is the backdrop against which Mrs. Loiseau wants Europe to make France stronger as it takes on tech giants. The alternative would be for France to focus on strengthening its own digital economy, but apart from the likes of Ubisoft and Voodoo, France is lost. Macron would like it to become a "Startup Nation," but Bloomberg and others have explained it's just not happening.

French politicians can't say so publicly, but since their country's failure in the digital economy is definitive, they're just interested in taxes and regulation. More than anything else, they'd like to get Europe to impose a Digital Tax. They won't ever stop pushing for it until they get it, but so far there's sufficient resistence. In terms of regulation, they want legislative measures as well as aggressive antitrust enforcement.

The EU Copyright Directive (officially: Directive on Copyright in the Digital Single Market) is a mix of (indirect) taxes and regulation: while Europe's market share among content-sharing platforms is extremely low (almost nothing but Spotify), the share of European creatives in the market for content consumed by European users is obviously far higher. Unfortunately, a liability regime that practically requires upload filters will cause a number of issues, and by now even the German coalition parties appear to realize that it was a big mistake to support the French proposal. Yesterday, Tiemo Woelken, a German social democratic MEP who opposes Article 13 (now Article 17; the "upload filter" paragraph), tweeted about a Reuters report according to which the German government is divided over the issue because Federal Minister of Justice Katarina Barley would like to attach a (legally non-binding) statement to the impending EU Council decision, according to which Germany would transpose the directive into national law without mandating upload filters, but Merkel's Christian Democratic Union/Christian Social Union opposes doing so. Technically, the German government would actually have to abstain as long as this disagreement isn't resolved, and an abstention would have the same effect in the EU Council as a No vote. Without Germany, there's no qualified majority as Italy, Poland, the Netherlands, Finland and Luxembourg already oppose the bill. We'll see what happens.

Brussels insiders expect that the next major digital policy battle in the EU will involve a replacement of the eCommerce directive (officially named Directive of the European Parliament and the Council on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market). The version that is currently in effect was promulgated in 2000. At the time, Google was two years old; Facebook was founded four years later, and it took another four years before Apple's App Store opened. It's foreseeable that EU politicians, with French parties at the forefront again, will try to seize this opportunity to further regulate the digital economy.

That's the wider context of Mrs. Loiseau's statement. It would lead too far now to go into detail on how the rest of Europe views this, but generally speaking, other southern European countries are pretty much on the same page, and in Germany the political establishment is fairly willing to support Macron as long as the negative effects on the German economy aren't too obvious.

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