Sunday, December 19, 2021

Apple's new complaint in Texas alleges Ericsson breached its FRAND commitment, but Apple's allegations have serious plausibility problems

Yesterday I reported on Apple's motion to dismiss a FRAND complaint Ericsson had brought in the Eastern District of Texas in October. Meanwhile I've also found out about a complaint Apple itself brought in the same district against Ericsson (this post continues below the document):

21-12-17 Apple FRAND Compla... by Florian Mueller

What Apple wants the United States District Court for the Eastern District of Texas to do is to declare that Ericsson--not Apple--breached its FRAND obligation, and to hold that a couple of Ericsson 5G patents are not standard-essential (nor infringed by Apple for any other reason). If Apple had decided to file an answer to Ericsson's complaint, it would have brought those claims as counterclaims. But Apple elected to bring a motion to dismiss instead of an answer (though it will have to answer if its motion to dismiss doesn't make the case go away). Therefore, Apple filed its own separate complaint, but it's clear that if both parties' claims survived any motions to dismiss, Apple's case would be consolidated into Ericssion's.

Apple is being consistent by saying that most of its own claims should be dismissed just like Ericsson's claims that they're modeled after, but should the court let Ericsson's case go forward, then the related claims by Apple also need to be adjudged.

I've read Apple's complaint, and have formed an opinion except on the technical questions of whether or not particular patents are essential. Apple's complaint is more about narrative than facts, more of a blame game than a meritorious action. For example, by alleging that Ericsson filed suit in Texas within six minutes of making Apple a licensing offer, Apple tries to make Ericsson look bad, like saying "look how litigious they are." But the very same complaint by Apple makes it clear that Apple has rejected, and was always going to reject, Ericsson's $5G/unit demand. And Apple's complaint itself states that the relevant licensing offer stated Ericsson's public position on reasonable royalties, which Apple has clearly disagreed with.

It's hard to see how Ericsson would breach a license agreement by taking legal action concerning a renewal, which means a potential new license agreement (as opposed to suing Apple over the infringement of patents while a license agreement is in force). And it's just absurd to allege that Ericsson breached its FRAND commitment that way. A narrative devoid of substance.

More than once, Apple's complaint argues that despite the transition from 4G to 5G, Apple should now get more favorable terms than in the past, and Apple's argument for a reduction is that it now holds five times as many cellular SEPs (mostly thanks to acquiring such patents, particularly from Intel) than it did last time. Sorry, but that's not an argument I can take seriously, and I don't think Judge Gilstrap will be impressed either. 5G rates will be higher in this industry than 4G rates used to be. Apple may not like that, but that's where the market is going. In that regard, Apple is merely being ignorant of a reality it doesn't like. But the crazy part is that Apple, with its huge volume (in $$ as well as units) compared to Ericsson, simply can't gain any non-negligible leverage form its own SEPs in light of the disparity I just mentioned. If Apple negotiated a cross-license with e.g. Samsung, then that might be a valid point. Not so here. Ericsson has negligible exposure compared to Apple.

As always, Apple tells its story of breakthrough innovations, and while Apple's impact on this industry is a fact, it's also clear that Apple is known for squeezing suppliers, taxing and tyrannizing app developers, and generally abusing its market power more shamelessly and ruthlessly than any company in this industry except, possibly, Google. I've said it on other occasions that what got Microsoft into antitrust trouble two decades ago was almost nothing compared to what Apple has been doing for more than ten years, and which is getting worse (such as Apple's power and money grab styled as a privacy initiative).

The CMA, which is the UK's competition authority, published a report on Tuesday that says Apple and Google hold a "vice-like" grip over the mobile ecosystem. The CMA might have confused "vice" for "vise." But it has a point for sure.

Apple is also known for paying ridiculously low standard-essential patent (SEP) royalties in the aggregate. While Apple has over and over again warned against "royalty stacking" (when the grand total of all SEP royalties paid by an implementer on a given product is so high it has serious economic implications), its own low royalty costs show that a new term needs to be coined to describe the opposite of royalty-stacking (I'll gives this some thought).

There's more that I could say about non sequitur arguments made by Apple, but that's for another day. Let me share just one more observation for now: Apple tries hard to distinguish its case from HTC v. Ericsson because the Fifth Circuit (the appeals court for, inter alia, the federal district courts in the Great State of Texas) sided with Ericsson in that important case, and that precedent bodes well for Ericsson's case against Apple.

Share with other professionals via LinkedIn: