Wednesday, January 26, 2022

Apple's appellate forum strategy against Ericsson: Federal Circuit rather than Fifth Circuit for review of FRAND determination

This is a follow-up with some additional thoughts on the intra-venue fight between Apple and Ericsson over their respective FRAND actions in the Eastern District of Texas (on top of whether they should litigate infringement matters in the Eastern or the Western District, with Apple actually wanting neither but preferring the Northern District of California, just that it has no promising pathway to get there).

For a quick recap (for details and links that take you to the relevant complaints and motions, may I refer you to the post I just linked to),

  • Ericsson brought FRAND claims last year (initially just seeking a blessing of its own licensing offers, and with its most recently-proposed first amended complaint additionally attacking Apple's negotiation conduct);

  • Apple wants those thrown out,

  • but brought its own FRAND action in E.D. Tex.,

  • which additionally comes with declaratory judgment claims relating to three Ericsson 5G SEPs;

  • Ericsson defends its own FRAND case and

  • wants Apple's thrown out or wants the FRAND claims severed from the patent-specific DJ claims and consolidated into its case.

Apple's course of action did nothing to accelerate the process, but at this stage the court is probably going to resolve both motions to dismiss at the same time. There are, however, two questions of strategic importance involved, the answers to which depend on the outcome of that fight over the two competing E.D. Tex. FRAND actions:

  1. Who will be the plaintiff/counterclaim-defendant and who will be the defendant/counterclaimant? Right now either party wants to be the plaintiff. Especially in a jury trial, it can be a major advantage to be the plaintiff. I remember Qualcomm trying to convince Judge Curiel in the Southern District of California that it (the chipmaker)--not Apple, the original plaintiff--should get to make its case to the jury first. There are psychological reasons, though the defendant who is also a counterclaimant will get to reply in support of its counterclaims and, therefore, has the last word in that sense.

  2. After the previous post it came to my mind that Ericsson's proposal to sever the DJ claims has to do with appellate jurisdiction. I'll share my thoughts on that aspect below:

It would be unprecedented for an Ericsson v. Apple dispute to reach that stage, but Ericsson's disputes with TCL and HTC did get there. It could happen in the Apple case, too.

By pretty much randomly attacking three Ericsson SEPs with DJ claims, Apple can't achieve anything meaningful other than injecting claims into the case that would make the entire case subject to appellate jurisdiction by the Federal Circuit. Without the presence of such claims, the case would go up to the Fifth Circuit. And while Apple would prefer the Northern District of California at the trial stage, I believe it wouldn't even want to be in the Ninth Circuit at the appellate stage in light of FTC v. Qualcomm.

It's not like Ericsson would have to be afraid of the Federal Circuit, which is reasonably patentee-friendly, but the Fifth Circuit is more likely to affirm an E.D. Tex. ruling in Ericsson's favor, while the Federal Circuit has slashed damages awards coming out of E.D. Tex. on various occasions and might be inclined to also deem a lower SEP royalty rate (than whatever E.D. Tex. determines) appropriate.

If the case got appealed to the Federal Circuit, it would theoretically have to apply Fifth Circuit law (including the Ericsson-HTC decision) wherever applicable. However, the Federal Circuit has a reputation for very much prioritizing its own case law. When it comes to FRAND licensing issues, that would be a mix of SEP-specific decisions and, more generally, its application of the Georgia-Pacific factors to patent damages. Again, that's not necessarily bad for Ericsson, but it is more likely to get a better outcome in the Fifth Circuit.

Judge Gilstrap has some leeway here if he decides to separate the FRAND claims from the DJ Claims. He, too, knows how the Fifth Circuit has treated him versus what happened to some of his decisions in the Federal Circuit. If he dismissed Apple's separate case, Apple could appeal the dismissal to the Federal Circuit because of the presence of some patent DJ claims, but if the only issue before the Federal Circuit is whether Apple's claims were compulsory counterclaims to Ericsson's earlier-filed FRAND action, that wouldn't really be an appeal out of which Apple could get a lot of mileage, especially not if Ericsson's own FRAND case goes forward in the meantime (as would Ericsson's various infringement actions around the globe).

Severance of those claims would be justified. Ericsson's SEP portfolio is huge and whether those three patents are actually essential is not the answer to the real questions in that dispute. In the Apple v. Qualcomm case in the Southern District of California that I mentioned further above, Apple also brought DJ claims (two rounds of a dozen patents each). Qualcomm solved the problem by simply giving up on one set of patents (which Judge Curiel figured out was total gamesmanship, but legally possible) and the court did not let Apple challenge another set of patents. It's a "gambit" to sacrifice patents with respect to one implementer, but Ericsson might do what Qualcomm did--if it has to, as Judge Gilstrap might simply consolidate the two FRAND cases and keep those DJ claims on a separate track (where Ericsson could then safely bring compulsory counterclaims of infringement). Apple could then try to bring some DJ (counter)claims, but the court might not even grant Apple leave for such a tactically motivated amendment that just inflates the case.

Just for the avoidance of confusion, this here is really just about appellate jurisdiction over the mutual FRAND claims. Any infringement cases, including ITC investigations, or PTAB IPR decisions (Apple has started to challenge various Ericsson patents through IPR petitions) would have to be appealed to the Federal Circuit anyway.

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