Thursday, March 31, 2022

Philips, Xiaomi settle standard-essential patent dispute: interesting questions involving FRAND transparency, French jurisdiction, ETSI responsibility left for another day

A standard-essential patent (SEP) dispute between Philips and Xiaomi that started in 2020--and which also involved the European Telecommunications Standards Institute (ETSI)--has been put to rest. Mr. Justice Mellor of the London-based High Court of Justice entered a consent order last week as a result of "the Claimant and the Defendants having agreed to settle the proceedings on the basis of a confidential agreement dated 11 March 2022."

Arguably, the parties remain adverse to each other, but only indirectly so: Philips is one of the founding shareholders of the Access Advance video codec patent pool. While Philips's co-founders are among the HEVC Advance plaintiffs suing Xiaomi over HEVC (H.265) patents, Access Advance's pool management fees are rumored to be exorbitant (like 40%). But Xiaomi is already licensed to a large chunk of HEVC Advance patents, such as Samsung's H.265 patents. That's another story.

The primary reason this blog hasn't written much about Xiaomi's cases is that it hasn't had a large-scale high-profile dispute so far, despite being one of the world's top three smartphone makers. Relatively speaking, the spat with Philips may have been its largest one to date, with complaints brought in multiple jurisdictions. What I hear from industry sources is that Xiaomi has a business-oriented approach to licensing. For example, Sisvel president Mattia Fogliacco declared himself "impressed with the professional and effective approach of Xiaomi's licensing team." I'll take his word for it.

Haier, which took four years to make Sisvel a FRAND counteroffer, is not representative of China's leading technology companies. Companies like Huawei, Xiaomi, and OPPO (which is currently defending against Nokia) have substantial patent holdings of their own because they invest heavily in R&D, sometimes filling the vacuum left by certain European companies such as Philips. Whether their positions are FRAND must be looked at on a case-by-case basis, of course.

While there were no signs of hold-out by Xiaomi, Philips had a distinct preference for leverage from injunctions over judicial FRAND determinations and for opacity over transparency.

I'm genuinely disappointed that three really interesting legal issues raised by Xiaomi in that dispute won't come to judgment now, though I expect them to resurface in other cases:

  1. Is an implementer a willing licensee if it takes the position that there already is a license agreement in place under French law (the law governing the ETSI FRAND pledge) with just some blanks (essentially, the license fee) to be filled out by means of judicial determination?

    Xiaomi was ready to discontinue all other litigation in order to let the Tribunal judiciaire de Paris set the terms. Philips, however, was pursuing injunctions in multiple jurisdictions. The London-based High Court bought Philips's allegation that the French proceedings would take ten years or so, but it was actually Philips itself that delayed them through a jurisdictional challenge including an interlocutory appeal. For whatever reason, Philips had no faith in that neutral jurisdiction.

    In the FRAND context, we all say "willing licensee" all the time. But what we mean in almost every case is that someone is "willing to become a licensee." Very interestingly, Xiaomi wasn't merely prepared to take a license: it said a license agreement was already in place. That position intuitively sounds like a "willing licensee" in the narrowest sense of the term. As a result of the settlement, we won't know how this would have played out.

    Xiaomi might have had any number of valid reasons for seeking a Chinese FRAND determination. Instead, it chose to go to France. But it takes two to tango.

    Philips's aversion to the French proceeding and the notion of a license agreement already being in place is typical. In the U.S. part of its dispute with Thales, Philips prefers an ITC exclusion order (with a preliminary decision scheduled for tomorrow) over a FRAND determination in Delaware, though Philips argues that Thales isn't sincere and may or may not have a point.

    It strikes me as odd that not only Philips but also a UK judge thought it made more sense to resolve a question of French contract law in the UK when there was already a French proceeding pending.

  2. Xiaomi named ETSI as a co-defendant, arguing that ETSI had a responsibility here. Thales--arguably the most important technology company in France--is doing the same now, which is going to get interesting.

    While we're on the subject of ETSI: Philips objected to Xiaomi's membership in ETSI, despite Xiaomi holding tens of thousands of patents and being a major wireless device maker. As a result, the question of Xiaomi's admission had to be escalated to ETSI's General Assembly. A childish kind of retaliation by Philips if you ask me. Xiaomi won the vote (I don't even want to think about what would have happened in the other event).

  3. Transparency in connection with the "ND" in FRAND was a major issue. Philips doggedly tried to prevent Xiaomi's licensing team from seeing any comparable license agreements. At most, Philips would have accepted that Xiaomi's in-house litigators could see those contracts, but Philips wanted to erect a Chinese wall inside a Chinese company: Xiaomi's litigators wouldn't have been allowed to tell their licensing colleagues or join in negotiations.

    That issue came up in Munich, where it even reached the appeals court (with no decision prior to the settlement), the Netherlands, the UK, and possibly elsewhere. It was like the most extreme position anyone has ever taken on a "confidentiality club." I know that other industry players were watching those developments with profound concern.

    That obstruction of informed negotiations also suggests to me that Philips was just seeking to unilaterally impose its terms.

From the outside it looks like Xiaomi was raising interesting legal questions in good faith. Neither did Xiaomi cave nor were there any signs of delay tactics. The fact that Philips lost two of its patents-in-suit in Germany (in one nullity proceeding it gave up, and in another there had already been a negative preliminary opinion) shows that the right of a defendant--under Huawei v. ZTE--to challenge the essentiality and validity of the SEPs in question is an important one. To exercise that right reasonably does not constitute hold-out.

Just as I'm about to finish this post, I can see that Juve Patent has already reported on the settlement. Their article lists the lawyers involved, with Simmons & Simmons interestingly having represented Xiaomi in three jurisdictions (UK, Netherlands, Germany). That firm has done similar work for Samsung. And when I read Munich-based Simmons & Simmons partner Dr. Thomas Gniadek's name, I was instantly reminded of his work--as a Bardehle Pagenberg associate at the time--on Microsoft's behalf against Motorola Mobility. For more information on the parties' outside counsel, let me just refer you to Juve Patent. Their focus is on the business of law, while mine is on the impact of the law on business, which sometimes makes us complementary.

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Munich court schedules five additional Ericsson v. Apple patent infringement hearings: one for September, four for November 2022

This is an update to March 9 post on German Ericsson v. Apple hearing and trial dates. In that one, I wrote that there was a lot more going on, but the only first hearing date I was able to report was the following one:

  • September 14, 2022 (morning): case no. 21 O 517/22 over EP2220848 on "mobile access to internet-based application with reduced polling"

I am now in a position to report five other first-hearing dates (Munich trials always involve a first hearing followed after several months by a second hearing, which is a full trial leading to a decision). All of those cases will also be heard by the Munich I Regional Court's 21st Civil Chamber (Presiding Judge: Dr. Georg Werner):

  • September 14, 2022 (afternoon): case no. 21 O 515/22 over EP3119141 on a "technique for performing a random access procedure over a radio interface"

  • November 23, 2022 (morning): case no. 21 O 2922/22 over EP2991430 on "uplink scrambling during random access"

  • November 23, 2022 (afternoon): case no. 21 O 2925/22 over EP2712236 on a "method and arrangement in a telecommunication system for neighbour cell measurements"

  • November 30, 2022 (morning): case no. 21 O 2926/22 over EP3618547 on a "method and apparatus for identifying and using radio resources in a wireless communication network"

  • November 30, 2022 (afternoon): case no. 21 O 2927/22 over EP3245744 on "codebook subset restriction signaling"

The same panel of judges held a Nokia v. OPPO/OPPO v. Nokia FRAND hearing last week, which I didn't attend, but I read Juve Patent report this week and shared my observations yesterday. I wish to reiterate that there is no reason to be concerned about standard-essential patent (SEP) plaintiffs' chances in Munich. It's still a great venue for that purpose (as is Mannheim). However, the Federal Court of Justice of Germany made it clear in Sisvel v. Haier II that a certain symmetry is a requirement for what some call the "FRAND dance" to lead to the conclusion of a license agreement. Negotiations are dynamic, not static, and the court wants both parties to make their contribution throughout the course of the proceedings (i.e., until and including the trial).

There are various reasons for which the Nokia-OPPO dispute can safely be assumed to have unique fact pattern. Nokia isn't Ericsson (despite certain structural similarities that do exist); and OPPO is very much unlike Apple in so many respects. FRAND is one of the most fact-intensive questions one can imagine. Also, Ericsson has an effort underway in the United States that may get its royalty rate approved by a court of law before the Munich court will even have to decide on whether to grant or deny an injunction. Should the court in Texas find, after a one-week or two-week trial, that Ericsson's conduct was compliant with its FRAND licensing obligations, that would make it very hard for Apple to dissuade courts anywhere else, and much less in Germany, from granting injunctions. That is one of various structural differences between Nokia v. OPPO and Ericsson v. Apple. Let's not compare apples to oppos.

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Hold-up or hold-out? Philips, Thales accuse each other of abusive tactics in standard-essential patent dispute before Federal Circuit, ITC, courts in Delaware and Paris

It almost appears to be a ritual in standard-essential patent (SEP) disputes that the patent holder faults the implementer for hold-out while the accusation flying in the other direction is hold-up. They can't both be right at the same time. On a case-by-case basis, I try to deduce from publicly available information which of the two is more likely in its right to blame the other side, also factoring in what I've previously learned about certain parties' behavior.

When Thales and Philips are the parties, I frankly have reservations concerning either one. Thales is pursuing an ill-conceived antitrust case in Munich over automotive SEP licensing. You can't blame a patent pool for offering a certain license but not another as long as it doesn't contractually prevent its licensors from entering into whatever bilateral license they wish to grant. As for Philips, I've clearly seen a pattern of hold-up from that organization in more than one context, and its positions on patent enforcement always seem oblivious to the fact that even Philips is still making products (though it's lost market share in some product categories and exited other segments, such as mobile phones).

The two companies are now entangled in an interesting cross-jurisdictional web of partly interdependent SEP cases:

  • Philips is seeking an exclusion order (import ban) from the ITC, with ALJ David Shaw's final initial determination due tomorrow, April 1. "Final" isn't "final-final": the truly final ITC determination is made by the Commission, the trade agency's top decision-making body, and even that one is appealable to the Federal Circuit.

    Thales--along with its Gemalto and Cinterion subsidiaries--is not the only respondent to that ITC complaint, which also targeted (back in December 2020) Thales's competitors Telit, Quectel, CalAmp, Xirgo, and Laird.

    The accused Thales products appear to be identity/security components used in various products, even including airplanes, and implement cellular standards, especially 3G and 4G.

  • There's a case in the United States District Court of Delaware where apparently both Thales and Philips agreed that the court should set a global FRAND rate for a license agreement between them. Thales says Philips should just let the Delaware court do its job instead of seeking leverage from the ITC in orer to unilaterally impose its preferred terms on Thales.

  • The Delaware court denied a Thales motion for a U.S.-internal antisuit injunction (an instrument of which some United States Senators are, or pretend to be, blissfully ignorant) that would bar Philips from enforcing a U.S. import ban. But Thales appealed that decision. The preliminary-injunction appeal has been fully briefed and will be heard in the coming months.

    It's just laughable that ACT | The App(le) Association filed an amicus curiae brief in support of the appeal--as if small app developers cared about a U.S. import ban on telecommunications modules incorporated into airplanes and similar products. And three other Thales amici--Honda, Continental, and u-blox--first failed to file mandatory paper copies of their brief and then even their paper vesion was out of compliance with the appeals court's rules. But those stories don't mean that the appeal itself doesn't raise interesting questions. I haven't formed an opinion on the merits yet as I just downloaded the documents from the Federal Circuit docket this morning.

  • Either party would be interested in arbitration, but they disagree on the parameters, with Thales insisting on its rights under the ECJ's Huawei v. ZTE case law to challenge the essentiality and validity of Philips's declared-essential patents.

  • Meanwhile, Thales has become the third party--following in the footsteps of TCL and Xiaomi--to name the European Telecommunications Standards Institute (ETSI) as a co-defendant in a FRAND antitrust case primarily targeting Philips. Philips filed the original complaint with the Tribunal juidiciare de Paris and an ex parte motion for the seizure of documents from a French Philips patent licensing executive (Sophie Pasquier), along with (obviously unofficial) English translations, with the ITC in late December, arguing that this was an attack on the U.S. case (as the seized documents also include communication between Philips and its U.S. outside counsel in the Thales dispute) with the help of a foreign court--and which Philip characterizes as typical of a party engaging in hold-out.

    For now, Thales is seeking €13.5 million from Philips--an antitrust damages claim based on U.S. litigation expenses. But the amount will go up should Philips actually obtain and enforce an ITC import ban. Thales criticizes ETSI for not having sanctioned Philips for its alleged FRAND breaches, and is seeking nominal damages (€1) from the standard-setting organization.

    I haven't formed an opinion on the merits of the French case either, for the same reason that I have yet to fully understand the parties' arguments in the Federal Circuit.

For now, let me just show you Philips's 272-page filing with the ITC that includes documents from the French case and English translations thereof:

21-12-23 Philips Motion to ... by Florian Mueller

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Wednesday, March 30, 2022

Neo Wireless expanding patent enforcement campaign to automotive: actions filed against Ford, Honda, VW, Nissan, GM, Tesla, Toyota with five U.S. district courts

This is the third standard-essential patent (SEP) post in a row. The previous ones discussed patent assertions by some unnamed MPEG LA licensors against their former partner Samsung and some rather interesting developments surrounding Nokia v. OPPO/OPPO v. Nokia.

Non-practicing entity Neo Wireless LLC put itself on the map of U.S. patent litigation through its mid-January filings against Apple, LG, and Dell. As Apple Insider reported, the infringement allegations in the complaint against Apple alleged that Neo Wireless held patents essential to the 4G/LTE and NR/5G cellular telecommunications standards.

Neo has now filed a slew of lawsuits against car makers:

  • Eastern District of Texas

    • General Motors Company

    • Tesla

    • Toyota

  • Eastern District of Tennessee: Volkswagen Group

  • Middle District of Tennessee: Nissan

  • Southern District of Ohio: Honda

  • Western District of Missouri: Ford Motor Company

The Eastern District of Texas has tremendous expertise in adjudicating patent disputes; the other districts--with the greatest respect--don't. It will be interesting to see whether any venue transfer motions will succeed and/or whether any of those cases will get consolidated.

Neo is not an Avanci licensor, and will likely seek damages that on a per-patent basis dwarf the cost of Avanci license. Some automakers already have that problem with Intellectual Ventures, which is asserting a mix of standard-essential and non-standard-essential patents (1, 2).

Only one of the defendants is a publicly-known Avanci licensee: Volkswagen. Tesla has been rumored to be one ever since multiple enforcement actions by Avanci licensors were withdrawn near-simultaneously in different jurisdictions. The other defendants are presumably among the companies Member of the European Parliament Alfred Sant had in mind when he asked the European Commission three questions concerning the distortion of competition because of some car makers having taken an Avanci license while their competitors from outside of Europe largely haven't.

The asserted patents largely overlap between the different cases, but are not always the same. For example, four of the six patents-in-suit against Toyota are also among the five patents asserted against Apple, but two are not.

The claimed inventions were apparently made by Chinese individuals, but Neo Wireless is a U.S. entity. There was or is another company named Neocific that temporarily owned some or all of those patents.

Finally, here are two sample complaints: the E.D. Tex. one against Toyota and the W.D. Mo. lawsuit against Ford.

22-03-29 Neo Wireless LLC v... by Florian Mueller

22-03-29 Neo Wireless LLC v... by Florian Mueller

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Nokia v. OPPO/OPPO v. Nokia standard-essential patent dispute: 'new approach to FRAND' and/or novel fact pattern? Munich, Mannheim set to remain attractive venues

Two days ago I read with interest one of my two favorite Juve Patent articles to date, which is excellent courtroom reporting though I'd like to nuance its headline: "Munich Regional Court takes new approach to FRAND"

The article discusses a March 23 FRAND hearing conducted by the Munich I Regional Court's 21st Civil Chamber in the two-way standard-essential patent (SEP) dispute between Nokia and OPPO. The public part lasted only 30 minutes; then the courtroom was sealed. But what Presiding Judge Dr. Georg Werner explained at the outset of the hearing was remarkable. To the extent that Juve Patent interprets this as "redefin[ing] the court's [early 2020] FRAND guidelines" in light of the subsequent Sisvel v. Haier II decision by the Federal Court of Justice, I would agree. But far be it from me to characterize such adaptation as an about-face or sea change.

There are different reasons for which a judicial pendulum may appear to be swinging in a new direction:

  • new legislation (not so here: last year's German patent bill has had zero impact so far, and will likely never play a role in a SEP case)

  • new appellate case law (Sisvel v. Haier II was decided in late 2020)

  • judicial realization of a disbalance

  • new circumstances warranting a seemingly new approach

It is not uncommon for the last two factors to coincide: a new situation in a case may prove a catalyst and represent an opportunity for adjustment that was previously contemplated, but for which the time wasn't right.

In January, I wrote that "2022's most interesting patent enforcement" question would be the one of "how to raise a successful FRAND defense in Munich and Mannheim under Sisvel v. Haier" short of a § 315 (judicial royalty determination in case of continued disagreement) defense. I essentially looked at the last two of the factors stated above:

Vintage year 2021 and 2022 SEP cases in Munich and Mannheim will raise important new questions and have the potential to lead to more nuanced outcomes. That is so because cases that have been decided so far in the Sisvel v. Haier era--starting with the two Sisvel v. Haier cases themselves--presented fact patterns characterized either by implementers' reliance on a strictly sequential application of the ECJ's Huawei v. ZTE guidance or by defiance, ignorance, sometimes maybe terrible advice. Now we're going to see what happens when reasonably sophisticated defendants who benefit from realistic advice go out of their way to comply with German SEP case law during the entire course of negotiations. That wasn't the case before as far as I can tell.

The passage I just highlighted--during the entire course of negotiations--referred to Sisvel v. Haier II. The decision reaffirmed and reinforced Sisvel v. Haier I and had the same outcome (which Haier has no one to blame for but itself), but it also provided clarification in two important respects:

  • Not only does the implementer have an obligation to play a constructive role in terms of offers and explanations, but so does the patentee (just that Haier was deemed so utterly unreasonable that the FRANDliness of Sisvel's actions didn't even have to be reached).

  • Negotiations aren't static: it's a process, and either party has a duty to act constructively at all stages. Juve Patent summarizes one of Judge Dr. Werner's key points as follows: "[The parties] must [] demonstrate to the court that they are actively seeking a licence until the end of the oral hearing."

Sisvel v. Haier II was one of those decisions where a party--in that case, the defendant--lost but in which a standard was laid out under which others might fare better. Such decisions are nevertheless instructive. They can shape the law even for generations. They open doors, enabling others to enter the promised land while showing to the losing party "what might have been." As a matter of fact, two of the attorneys who according to Juve Patent are involved with Nokia v. OPPO wrote last year that Sisvel v. Haier II "is to be welcomed in its entirety" as much-needed clarification.

Some of the key facts in Nokia v. OPPO/OPPO v. Nokia are sealed. However, whatever little is publicly known at least makes it clear that OPPO is the opposite (pun intended) of Haier, and at least makes it a possibility that even a generally patentee-friendly court is having second thoughts about certain aspects of FRAND. I can see the following characteristics that may distinguish this dispute from high-profile German SEP cases of recent:

  • It is publicly known that the parties' previous license agreement was in force and effect for three years, and Nokia sued immediately upon expiration. It is not illegitimate to sue right away: Ericsson did the same against Apple (after the expiration of a seven-year agreement though). But when the previous license agreement was so young, why should it be so difficult to renew? Why would at least one of the parties--whichever one it may be--be reluctant to renew on materially the same terms?

    To put those three years into perspective, it took Haier about four years just to make a counteroffer.

  • It is a two-way dispute. Past losers like Haier and Daimler were SEP have-nots. OPPO is not. It is regarded as one of the world's major 5G SEP holders. A 2019 Ericsson press release anounced an initial cross-license agreement.

    The way courts in at least Germany and the UK apply Huawei v. ZTE is that a licensing offer is analyzed in light of common industry practice. Therefore, the courts say you must take a global portfolio license (possibly even a patent pool license in some cases) as opposed to licensing only a patent-in-suit. It is then a corollary to consider a cross-license the relevant commercial practice in a case like this. In that case, either party finds itself in a situation where the shoe is suddenly on the other foot.

    Sometimes parties are consistent. For example, in the second Apple v. Samsung trial in the Northern District of California, Apple accused Samsung of asking for ridiculously low damages amounts for its own patents (all trial patents were non-SEPs, but a "reasonable royalty" damages theory is the next best thing to FRAND) in order to sandbag the jury's perspective on what Apple should be entitled to (and indeed Apple got only about 5% of what it asked for).

    But there are also cases where parties apply dual standards, or where someone at least claims this to be the case: Ericsson and Apple accuse each other of asking too much for their own patents while offering too little for the other side's patents. The FRAND analysis becomes more complex when it's not only a two-way street in terms of both parties having to act constructively all the time but when you have a parallel two-way street where each party is coming from the other direction. Who's fair and what's fair in such a scenario?

  • Unless there are some new patent assertions that haven't surfaced, it looks like Nokia has yet to assert a single true 5G SEP. Many 5G SEPs could still be opposed before the EPO, as I noted in my commentary on OPPO's patents-in-suit (which are 5G patents).

If a court adjusts to a new fact pattern, it isn't necessarily deviating: stare decisis (which isn't even a binding principle in Germany, unlike in Common Law jurisdictions) doesn't mean to fail to distinguish.

I expect Munich and Mannheim (where a Nokia v. OPPO trial was originally scheduled for yesterday but postponed on short notice as one of the judges called in sick) to remain just as popular among SEP holders. I wouldn't discourage any patentee from suing there. If you get into trouble in one of those courts, who's going to help you then? Dusseldorf with its propensity to make ECJ referrals of FRAND issues and a recent decision against the Access Advance pool? The Hague, where reasonableness is considered in very holistic terms? London, where the judges will set a rate before you get to enforce an injunction? Maybe you have to fix the problem yourself and just behave differently. Then you'll get the leverage you're seeking over unwilling licensees, and there'll be no better place in the world than Munich or Mannheim.

I hope to find out more about what exactly makes the Nokia-OPPO-Nokia "round trip" a potential landmark dispute. Presiding Judge Dr. Holger Kircher of the Mannheim Regional Court's Second Civil Chamber delivers the rhetorically most brilliant summaries at the outset of each of his trials. When the Nokia v. OPPO trial that got postponed this week finally takes place, his introductory remarks may shed some light on what is quite so special about this one.

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Monday, March 28, 2022

MPEG LA contributors file HEVC patent suits against Samsung, making it potentially the first ex-licensor ever to be sued by a patent pool for becoming an unwilling licensee

The MPEG LA patent pool firm just announced the filing of patent infringement actions against Samsung.

The patents-in-suit have been declared essential to the HEVC (High Efficiency Video Coding) standard, also known as H.265. The complaints were filed with the Dusseldorf Regional Court, a prime venue for video codec patents that dealt MPEG LA rival Access Advance a major setback in late 2021, but MPEG LA has consistently succeeded there. The same patent litigator-patent attorney duo is representing MPEG LA's enforcing licensors again: Axel Verhauwen of Krieger Mes and Gottfried Schuell ("Schüll" in German) of Cohausz & Florack.

Today's announcement is so very interesting not only because of Samsung's significance as a consumer electronics giant but also because of Samsung's history with MPEG LA. As the announcement mentions, "Samsung Electronics Co. Ltd. was both Licensor and Licensee to MPEG LA’s HEVC Patent Portfolio License from Fall 2014 until terminating in March 2020, but Samsung has continued to offer products including smartphones, tablets and televisions in Germany that use patent protected HEVC methods without license since termination." The German lawsuits target that entity's German subsidiary Samsung Electronics GmbH.

In April 2017, Samsung joined Access Advance's HEVC pool named HEVC Advance (in fact, the entire company was named Access Advance at the time). A few years later, or about two years ago as we speak, it then terminated its MPEG LA contract.

It seems that even Xiaomi, which took an MPEG LA license in January 2020, is licensed to Samsung's HEVC patents as a result of its own MPEG LA license. This is important with a view to Access Advance's duplicative-royalty policy.

In order for Xiaomi not to be licensed, Samsung's contribution of patents to the MEPG LA pool would have had to end even sooner than its license agreement as an implementer. Today's announcement says Samsung terminated in March 2020. MPEG LA's HEVC licensor page is also pretty clear:

"*Terminated. For as long as they continue to be a Licensee, those Licensees who entered the HEVC Patent Portfolio License before a Licensor’s termination are covered under all HEVC Essential Patents that the terminated Licensor and its Affiliates presently or in the future has the right to license or sublicense, but coverage is not available to Licensees who enter the HEVC Patent Portfolio License after the Licensor’s termination date. Please see the addendum to the Attachment 1 (Click here) for specific termination dates."

The PDF accessible via the "Click here" link states:

Samsung Electronics Co., Ltd.

(terminated March 27, 2020)

Given that Xiaomi is the closest competitor to Samsung among Android device makers in various respects, the question of whether Xiaomi has access to Samsung's patents on FRAND terms is key.

Today's MPEG LA press release is the first announcement of a major SEP enforcement action against Samsung since the dispute with Ericsson that settled about a year ago.

Actually, MPEG LA's terms favor large-scale implementers like Samsung, especially by virtue of royalty caps. It is hard to tell why Samsung didn't simply renew its license with MPEG LA. Maybe we'll learn more about it as a result of the infringement actions that have been brought.

I'm not aware of any other case in which a former contributor to a pool later got sued by that pool for a refusal to take a license. It may indeed be the first one of its kind. It is another example of the hot mess that is HEVC patent licensing (and that VVC patent licensing threatens to become unless the industry at large finds a better way forward).

Industry rumor has it that Samsung and Nokia have yet to agree on the terms of a renewal. There have been some Nokia-Samsung announcements in recent years, but there's no reason to assume they involved Nokia's cellular SEP portfolio. Should Nokia have to sue Samsung (as it is presently suing OPPO and Vivo), that would be a dispute orders of magnitude larger than MPEG LA's cases. Nokia does not believe in royalty caps, let's put it that way.

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Has anyone ever seen an ANALOG mobile gaming transaction? Asking for the Epic Games v. Apple judge...

While Judge Yvonne Gonzalez Rogers ("YGR") of the United States District Court for the Northern District of California had some great moments during the Epic Games v. Apple bench trial she was presiding over (especially when grilling Tim Cook), and while one must respect some of her findings and holdings even if one disagrees with the result, the market definition part of her ruling does not deserve any deference. I do respect her, but in one of the most important cases for innovation and competition, she made some unbelievably bad mistakes. The closer one looks at it, the worse that pivotal part of the ruling looks.

It was actually because of a Freudian slip by Apple's lawyers (who inadvertently conceded that iOS does compete with Android, which means Epic has a point that there is such a thing as a smartphone operating system market even though iOS is not licensed or sold separately from iPhones) that I took another look at the market definition part of Epic v. Apple at this stage. I had previously read the judgment twice, but when I re-read it with the right focus, I discovered flaws that are beyond imagination.

I previously identified one sentence as factually and legally nonsensical, and I actually think that's a semi-diplomatic way to put it. To my own surprise, I only now realized that there was an elephant in the room I had failed to notice before. That gem is called digital mobile gaming transactions. The word "digital" is nonsensical here. It's not just one term of many. It's the central term because it's the judge's misguided market definition.

All mobile gaming transactions are digital.

All smartphones are digital. All mobile phones sold today are digital.

30 years ago I bought an analog mobile phone (from Philips if I recall correctly) and had it installed in my Pontiac GTA. The analog mobile phone standard was 1G. Starting with 2G (GSM), it all went digital a few years later.

There were no games for analog mobile phones. You could place and receive calls.

There are, however, non-digital games. Playing chess on a physical chessboard is not digital. That's why Apple proposed a market definition of "digital game transactions." But the moment you insert "mobile" (to exclude consoles), "digital" becomes superfluous.

Why is a redundancy so bad?

In the end, a redundancy is just a waste. I have redundancies in my blog posts all the time. So do other writers. But a judge presiding over an antitrust case and making the single most crucial determination--identifying the relevant market--would normally strive to get it right. She'd normally try to be precise and concise, asking herself why a particular word is part of the definition and why other words would be left out.

Market definition in antitrust is like claim construction in patent cases. It's where you define a pattern you later have to match (or prove that the other party fails to match). It's central.

The sentence in which the determination of the relevant market is stated is this--and it comes with another major flaw:

"Ultimately, after evaluating the trial evidence, the Court finds that the relevant market here is digital mobile gaming transactions, not gaming generally and not Apple's own internal operating systems related to the App Store." (emphasis in original)

I only hope the United States Court of Appeals for the Ninth Circuit will see that something is fundamentally wrong with the market definition part of the Epic Games v. Apple decision, and will then exercise its powers as an appeals court and fix the problem. Should the Ninth Circuit not do so, I hope Epic will petition the Supreme Court.

The second fundamental flaw in that sentence is the part "and not Apple's own internal operating systems related to the App Store." It starts with the fact that iOS is an operating system, it's Apple's iPhone operating system, and the plural makes no sense. Epic nowhere argued that there was a second Apple-developed operating system (like a secret cloud OS developed by Apple).

Let me quote this from yesterday's post (right, that is a redundancy, too):

Maybe she thought that what Epic meant to be a competitive foremarket (the judge herself wrote that "[c]onsumers should be able to choose between the type of ecosystems," i.e., she acknowledges users may choose between iOS and Android phones) was already an aftermarket: she might have suspected Epic of focusing on smartphone operating systems because then Apple has a 100% market share among operating systems for iPhones. In that case, phones would have been the foremarket, operating systems the aftermarket, and app distribution and in-app payments would have been aftermarkets of the operating system market, i.e., second-degree aftermarkets.

That impression is reinforced by the passage I quoted. That's where she says this:

  • The court finds the market is "digital [sic] mobile operating systems];

  • disagrees with Apple that it's all (digital) games; and

  • equally disagrees with Epic that it's "Apple's own internal operating systems related to the App Store."

So once again she alleges that Epic's single-brand market definition was about iOS. But a single-brand market has a foremarket and an aftermarket, and it is actually the power in the aftermarket that matters (but it depends on whether an abuse of that power comes with a cost in the foremarket). The foremarket is competitive, and that's why Epic said it's smartphone operating systems: instead of an iPhone with iOS, you can buy some other phone with Android.

The more I look at this, the more it seems Judge YGR seriously thought that Epic's foremarket definition came down to saying that Apple has market power in the operating system market because if you buy an iPhone, you get iOS. But that was never the idea. The idea was that when you get an iOS phone (i.e., the iPhone) instead of an Android phone, you can transact only via the App Store in the relevant context.

The first sentence of the passage of the judgment dealing with Epic's foremarket already gets it wrong:

"Before reviewing each of the proposed markets, the Court considers whether Apple's operating system should be viewed as a foremarket." (emphasis added)

A single product is never an antitrust market unless it is an aftermarket.

Elsewhere, the decision actually states correctly what Epic meant to be the foremarket:

"Epic Games constructs a framework to argue that there are three separate product markets at issue. In the foremarket, Epic Games identifies the product market as one for 'Smartphone Operating Systems.' Epic Games contends in turn that there are two derivative and relevant aftermarkets that flow from this initial foremarket, including the 'iOS App Distribution' market and 'iOS In-App Payment Solutions.' Epic Games logic flows as follows: the iOS in-app payment solutions market is an aftermarket of the iOS app distribution market which is further an aftermarket of the smartphone operating systems foremarket."

That part is spot-on. But if Judge YGR accurately summarized Epic's position as there being a Smartphone Operating Systems foremarket, why does she then--in the most critical contexts--argue that Epic meant only iOS, not iOS plus Android?

It's unbelievable what went wrong here. The court accurately portrayed Epic's position, only to then mischaracterize it where the actual decision is made.

Yes, there is no competition between Apple's iOS and someone else's iOS. There's only Apple's iOS. There's no other operating system for iPhones than iOS. All of that is true, but has nothing to do with what Epic meant. Epic meant that consumers can choose between Android and iOS devices, but once they've made the choice, they're locked in with respect to in-app transactions. There's competition before the device is bought; there's no competition in app distribution subsequently to that purchase.

Right before the factually and legally nonsensical sentence I discussed in the previous post, the decision says the following:

"Competition exists for smartphones which are more than just the operating system. Features such as battery life, durability, ease of use, cameras, and performance factor into the market. Consumers should be able to choose between the type of ecosystems and antitrust law should not artificially eliminate them."(emphasis added)

It's now clearer what she must have meant by "artificially eliminate": not in the sense of the court eliminating competition between smartphones (Epic's case never had the potential to do so), but of ignoring that the foremarket is competitive. Artificial elimination in terms of analyzing the issue as if something didn't exist. But a foremarket is always somewhat competitive. That's what Kodak says. For the sake of having yet another redundancy here, let me quote the Supreme Court's Kodak syllabus once again: "Kodak's theory that its lack of market power in the primary equipment market precludes-as a matter of law-the possibility of market power in the derivative aftermarkets rests on the factual assumption that if it raised its parts or service prices above competitive levels, potential customers would simply stop buying its equipment. Kodak's theory does not accurately describe actual market behavior [...]" (emphasis added)

Note that Kodak was not about Kodak's potential market power (at the relevant time) in cameras. It was about Kodak copiers. In that market, Kodak was much smaller than at the peak of its success in the camera market.

It's pretty clear now that Judge YGR thought Epic claimed Apple had market power in the foremarket because iOS is the only iPhone OS.

An antitrust plaintiff doesn't need a foremarket-aftermarket approach if there already is a monopoly in the foremarket...

What a terribly wrong basis to wrongly decide the most important question in the most important U.S. antitrust case in decades. And it could have been avoided by reading and understanding Kodak.

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Saturday, March 26, 2022

Single-brand market definition is the way to go in Epic Games v. Apple as Apple's blunder and a legally and factually nonsensical sentence by the district judge show

Yesterday I pointed out a major mistake by Apple's otherwise absolutely great lawyers: in their response to Epic Games' opening brief they conceded that iOS competes with Android on app (not just in-app purchasing) security, which simply validates Epic's proposal of a smartphone operating system foremarket (and two iOS-specific aftermarkets in which Apple then has a market share of 100%, i.e., total monopoly power). I wrote that I had more questions than answers because I had to look into this again. As a result, I am not only able to explain Apple's blunder more specifically but I also came to realize that one sentence in the foremarket-related part of the district court's judgment is complete and unbelievable nonsense.

A Ninth Circuit judge said during the FTC v. Qualcomm hearing two years ago that the house of cards (based on which Qualcomm was held liable for antitrust violations, and enjoined) began to fall. From my vantage point, the basis on which the district court sided with Apple as it decided the single most important question in the case--market definition--against Epic is so fundamentally flawed that "house of cards" would be a euphemism.

For app developers and users, only a single-brand market definition can really solve the problems we face with app taxes, self-preferencing, unreasonable restrictions on advertising, and unjustified rejections (short of new legislation, of course, which would establish different criteria than traditional antitrust law--but would come too late for Epic Games v. Apple).

There's a transparent reason--but unfortunately one that has nothing to do with proper administration of justice--for which Judge Yvonne Gonzalez Rogers, whose approach to the case I described as "extremely honest" in January, presumably never wanted to adopt a single-brand market definition. Already at the TRO/PI stage she expressed her discomfort with a decision in Epic v. Apple that might also affect console makers like Sony. She later faulted Epic for allegedly failing to distinguish the iOS app tax from similar regimes on gaming consoles. In other words, she was very afraid. Very afraid of setting a precedent with unintended consequences. Very afraid of opening the floodgates. At least she was being honest about it. But it was disappointing to see her ignore what she said toward the end of the trial and what Tim Cook couldn't deny, which is essentially that Apple competes for end users, not for developers.

It's understandable that she was wondering why Epic was complaining about Apple's 30% when Sony gets a lot more money from Epic on the same basis, with even tighter restrictions, yet chose to pick a fight with Apple rather than (its own small shareholder) Sony--though quite frankly it would even be legitimate if Epic first picked a fight it can afford in terms of lost revenues. Anyway, Epic didn't have that burden of addressing hypothetical future cases involving other platforms, and it might even have met it without having it in the first place. Her primary responsibility, however, was to correctly decide the case before her. The right approach would have been to let the Sonys and Nintendos of the world do the job of distinguishing their fact patterns from Apple's, as opposed to her developing a slippery slope argument and then buying it. She should have enough confidence in those sophisticated parties and in the judiciary that those other cases would be decided appropriately. In the single most important part--the one where she rejects Epic's market definition with a smartphone operating system foremarket--she wrote something reflective of a complete misconception:

"In essence, Epic Games ignores these marketplace realities [such as competition existing between smarpthones] because, as it presumably knows, Apple does not have market power in the smartphone market."

She then clarified the last part noting that "Apple only has 15 percent of global [smartphone] market share in 2020."

Why is that passage off-base? So very flawed in fact and law?

It's factually nonsensical because the iPhone's market share among smartphones and iOS's market share among smartphone operating systems are identical. (We can ignore the potential distinction between smartphones and tablets because one would obviously always compare apples to apples: whether we're talking about smartphones or about smartphones and tablets, Apple's market share as a device maker equals its market share as an operating system maker either way.)

It's legally nonsensical (even if we assume an alternative universe with different laws of nature so that Apple could have market power in smartphone operating systems while lacking it in phones) because Kodak and Newcal--the relevant single-brand market cases the district court also cited to--do not at all require market power in the foremarket. Much to the contrary, they're about a company facing competitive constraints in the foremarket but exercising monopoly power in the aftermarket. Competition in razors, but not in blades. Competition in cars, but not in spare parts. You can have a 0.1% market share in the foremarket and still 100% in the aftermarket, and we'll get to the standard further below, but even someone with a 0.1% market share in the foremarket could theoretically get into trouble with misconduct in the aftermarket.

The Supreme Court's Kodak syllabus says this: "Kodak's theory that its lack of market power in the primary equipment market precludes-as a matter of law-the possibility of market power in the derivative aftermarkets rests on the factual assumption that if it raised its parts or service prices above competitive levels, potential customers would simply stop buying its equipment. Kodak's theory does not accurately describe actual market behavior [...]" (emphasis added)

How could the judge get that part so very wrong? The psychological explanation--fear of ripple effects (Sony etc.)--is obvious just based on her own statements. The more difficult part is to figure out how she ever came to think that Epic's "proposed foremarket is entirely litigation driven [and] misconceived" (a gratuitous attack just like the passage I quoted further above). What did she suspect Epic was trying to gain? Maybe she thought that what Epic meant to be a competitive foremarket (the judge herself wrote that "[c]onsumers should be able to choose between the type of ecosystems," i.e., she acknowledges users may choose between iOS and Android phones) was already an aftermarket: she might have suspected Epic of focusing on smartphone operating systems because then Apple has a 100% market share among operating systems for iPhones. In that case, phones would have been the foremarket, operating systems the aftermarket, and app distribution and in-app payments would have been aftermarkets of the operating system market, i.e., second-degree aftermarkets.

The ruling reflects her predilection for what Apple's expert witnesses said as compared to Epic's. I don't mean to allege a bias in the sense that she preferred them because they were retained by Apple. Not at all. It may very well be that in her unbiased eyes Dr. Schmalensee simply came across as more competent and convincing than Dr. Evans (both actually co-authored a book on platforms a while ago). But what Dr. Schmalensee said about competition for smartphones extending beyond the operating system and involving features such as battery life, durability, camera resolution etc. was just a smokescreen that such a smart judge should never have been misled by.

It doesn't even matter in the foremarket-aftermarket context why a user chooses an iPhone, like camera resolution or battery life. The choice can be made because the user thinks Apple does a better job fighting climate change than its rivals and, therefore, wants to support Apple. I just returned a bunch of old devices to an Apple Store so they can recycle them, so I do appreciate their environmental protection efforts. The customer's choice can even be made erroneously with a drunk or vision-impaired person confusing an iPhone for a Samsung Galaxy. It's all irrelevant in the foremarket-aftermarket analysis. So what really is the standard? Why should Epic--on behalf of all of us--win the market definition part? And why did Apple, through a blunder, strengthen Epic's case?

What fortunately simplifies the analysis is that even Judge YGR found that Epic met three of the four criteria for an aftermarket. This means we need to focus only on the foremarket and the one factor relating to the aftermarket that the district court said Epic failed to satisfy.

Foremarket

As Epic and the DOJ explained in their submissions, the district judge was wrong when arguing that there cannot be "a market for something that is not licensed or sold to anyone." That passage, by the way, only makes sense if one inserts the word "separately." Otherwise it would be legally and factually crazy. Of course end users do get an iOS license, and iOS is sold--as part of a bundle. But I don't have to reinvent the wheel after Epic and DOJ already having addressed that part. I'm pretty confident the Ninth Circuit will agree, and the appeals court can say that even Apple's army of first-rate lawyers inadvertently conceded away the foremarket part:

"Apple's iOS also performs better in this respect [i.e., on security] than its 'main competitor' in the relevant market: Android."

I'll now make good on my promise to be more specific about Apple's mistake. The devil's advocate may ask: am I taking this out of context? Actually, Apple would have to take this out of context in order to explain away its concession...

The subhead of the section that contains the quoted sentence is: "Epic Did Not Prove Viable Less Restrictive Alternatives" That's where Apple claims (rightly or wrongly, doesn't matter here) that at this stage Epic's sole remaining proposal for a remaining less restrictive alternative (to the current setup where all iOS apps must be approved by Apple for App Store distribution, subject to developers accepting its app distribution terms) is a "notarization" program "whereby native iOS apps could run on iOS only if they have been 'notarized' by Apple."

Apple then makes two points why it considers this alternative unacceptable. The second one is that the current system makes it easier and more efficient for Apple to collect its compensation. It is in the context of the first argument that Apple said iOS competes with Android on security. Apple says that it "intentionally designed a more secure ecosystem for iOS by requiring human review of iOS apps" (emphasis in original) and first explains that iOS was always meant to be more secure than macOS. After the macOS security comparison, Apple then brings up Android:

"Apple's iOS also performs better in this respect than its 'main competitor' in the relevant market: Android. [...] Google, which charges the same headline commission rate as Apple while allowing sideloading and alternative stores, has 'higher malware rates' [showing a chart from the evidentiary record] Tellingly, Google has increasingly moved toward more robust human review on its Google Play store."

How could one try to reconcile that passage with Apple's support of the district court's opinion that there cannot be a smartphone operating system foremarket, and that the "relevant market" here is digital mobile gaming transactions?

To be fair, it would take Apple's statement out of context--and put it into the wrong context--if I claimed that Apple made this concession in the market definition context. It obviously stayed on message while discussing market definition. Apple also stayed on message in various other contexts--in all but this one (least restrictive alternatives).

The word "Android" has 54 occurrences in the district court's ruling and 12 occurrences in Apple's response to Epic's appeal. That's a total of 66 occurrences. There is only one--the one I just quoted again--where Android and iOS are described as competing products. In all other contexts, it's about Android devices, the Android ecosystem, or the (Android) Play Store, but not about Android as a competitor to iOS. It's not just a minor inconsistency. It's extremely revealing. It happened because the notion that there is no smartphone OS market is so contorted and contrived that sooner or later someone trying to stay on message ends up conceding the truth. The horse is now out of the barn.

Oddly, one could not even reconcile that iOS-and-Android-compete statement with Apple's position on market definition by rephrasing it as follows:

"Apple's iOS App Store also performs better in this respect [security] than its 'main competitor' in the relevant digital mobile gaming transactions market: Android the Google Play Store."

The modified version above would focus on the two app stores, and would explicitly mention that it's about how they compete on digital mobile gaming transactions. But it wouldn't make technical sense as Apple refers to "sideloading and alternative stores" in the very same paragraph as what makes iOS more secure. Architecturally, it is not the App Store that prevents sideloading and alternative stores. It's iOS which disallows everything to that effect but the App Store.

So if we rephrased Apple's blundered sentence like that, we'd just again be pointed to the fact that iOS and Android compete on security, with Apple arguing that a prohibition of sideloading and alternative stores is good for security (which Judge YGR doubted, at least during the trial, given that more competition might also lead to greater security).

To be clear, they're not talking about the security of IAP transactions via the App Store versus the security of IAP transactions via the Google Play Store. It's about iOS apps (which can't be downloaded from alternative stores or sideloaded) versus Android apps as sideloaded apps, or apps downloaded from third-party stores, would not undergo Apple's human app review. It's about the differentiation of iOS from Android, not the App Store from the Play Store.

Just one last point before I turn to the aftermarket part: Apple's blunder can even be interpreted as acknowledging that what drives in-app purchases on iOS is Apple's success in the foremarket. If users choose iOS devices for greater security (right or wrong), they then transact via the App Store, the only game in town. If it was about which app store they trust, Apple could still just compete with sideloading and third-party app stores, and those who value security could still choose the App Store over sideloading and third-party app stores for that very reason. Epic can be criticized for all sorts of things, but they've been consistent and clear that they stand ready to let an iOS version of their Epic Games Store compete with the App Store, just that Apple wants to avoid that kind of competition.

Aftermarket

The district judge took the position that she wouldn't even have to analyze an aftermarket because "there are no derivative markets" absent a foremarket. Nevertheless, she "addresse[d] the additional problems with Epic Games’ attempt to define the market with the confines of a single brand." While "three of the four indicators are fulfilled" even according to the decision, there's one aftermarket criterion the judge didn't see satisfied by Epic: "whether competition in the initial market suffices to discipline anticompetitive practices in the aftermarkets"

By blaming Epic for artificially alleging "market power" (through a smartphone OS rather than device market as the proposed foremarket), Judge YGR suggested a requirement that doesn't exist. In a proper foremarket, there are competitive constraints. They will be weaker in some cases and stronger in others, but there is at least some degree of competition. There can be a case A in which there's very little competition in the foremarket, but there may be dynamics that are sufficiently strong to ensure that a company exploiting its aftermarket monopoly will pay a price for this in terms of losing market share in the foremarket. Conversely, there can be a case B in which there's perfect competition in the foremarket, but there are no such dynamics, and therefore even a small player can subsequently exploit the aftermarket monopoly without losing market share in the foremarket.

In Epic Games v. Apple, there's a duopoly in the foremarket if we define it as smartphone operating systems. If we define it as smartphones, Apple's market share is the same. Epic had nothing to gain, contrary to what Judge YGR suspected. Much to the contrary, it is actually her market definition of digital mobile gaming transactions in which Apple has a higher market share thanks to the average purchasing power of its affluent customers than in the smartphone device or smartphone OS market.

The question in Epic Games v. Apple is, therefore, whether Apple will lose market share because of end users buying non-iOS devices as a result of treating developers the way it does. In order for that to happen, some developers would have to stop developing for iOS or some might invest less in iOS development. In that case, products competing with Apple's might become more attractive by virtue of a superior app offering.

There's no question that Apple could do things that would discourage iOS app development on a large scale. If it asked for the moon just for someone to be allowed to submit an app for App Store review, no one could afford it. But Apple won't do that, and it doesn't have to in order for there to be an aftermarket problem.

Judge YGR set the bar too high for Epic in this respect. I wish the DOJ had also addressed the aftermarket part, but it focused on the foremarket. After all, the DOJ clearly decided to go as far as it could in supporting Epic without reaching the point where its positions would inevitably, if adopted, enable Epic to win--in that case, the DOJ would have had to formally file in support of Epic and not "of neither party." But my hope is that the Ninth Circuit will easily identify the foremarket part of the decision as being off-base, also in light of the fact that Apple itself ended up describing iOS and Android (not just iPhone and Samsung phones) as competitors in the least-restrictive-alternative context, and that Epic's very strong aftermarket argument will then be given serious consideration.

Epic's brief convincingly explains that a shift in policy (i.e., the accused party exploited its aftermarket monopoly only later on) or definitive customer unawareness (of the challenged aftermarket business terms) are requirements that the district judge thought she had found in various other U.S. antitrust decisions but which aren't absolute requirements. If the appeals court agrees with Epic in that regard, the outcome-determinative question is then whether switching costs (between iOS and Android phones) create a certain degree of customer lock-in. Contrary to the decision that is being appealed, it doesn't take "nefarious" conduct by Apple to have a lock-in, and customer loyalty may very well be the result of great customer satisfication: it's all about whether Apple faces an indirect competitive constraint in the aftermarket because of what might happen in the foremarket. Even the district court's own judgment actually acknowledges various facts that the appeals court may consider a sufficient basis to conclude that Apple can act abusively toward app developers without losing market share. It's all about (the absence of) a feedback loop.

I'm already looking forward to the market definition part of Epic's reply brief as I believe Apple has actually weakened its position through its responsive brief.

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Friday, March 25, 2022

PUZZLING: Apple's response to Epic's appeal contradicts itself by first disputing, then conceding relevance of mobile operating system market

A few hours ago, Apple filed its response to Epic Games' Ninth Circuit appeal. The document has been published in many places, such as here.

Just a few quick observations. If you wish to go straight to the glaring contradiction I reference in my headline, you can just click on this anchor link.

  • It's a 135-page PDF, and federal appeals courts rarely get such lengthy submissions, but it admittedly has an even higher information density, or signal-to-noise ratio, than Epic's opening brief. This does not mean that I agree with how Apple portrays the facts and suggests legal conclusions. There's much in it that I completely reject. But the focus is definitely on substance (right or wrong) rather than rhetoric--to a noticeably greater degree than in Epic's case, parts of which read like a policy paper.

  • I previously already felt that Epic's realistic best-case scenario is a remand. That view has been reinforced. Apple has several paths to affirmance, and Epic has no convincing path to an outright reversal because it would overstep the limits of what an appeal can reasonably achieve. While I, as an app developer, would view a wholesale reversal as beneficial, I would still consider it a miscarriage of justice if it happened on that basis.

  • This also applies to the question of whether Apple's dealings with developers must be analyzed as concerted action (Section 1) or unilateral conduct (Section 2). I've previously disagreed with Epic and many of its amici on this one, even though it would be good for us app developers. Apple's appellate brief explains very well why this is a Section-2-only case. I concur 100% with that part.

  • Where Apple's positions are extreme (and its statements at least potentially misleading) is what implications the "clear error" standard of review has here. Apple points to the Ninth Circuit's 2020 citation to the Seventh Circuit's 1988 "dead fish" metaphor:

    "To be clearly erroneous, a decision must strike us as more than just maybe or probably wrong; it must, as one member of this court recently stated during oral argument, strike us as wrong with the force of a five week-old unrefrigerated dead fish....the decision must be dead wrong."

    A 2018 article published on the website of the Morrison Mahoney firm explains that the standard is indeed "formidable," yet "all hope is not lost." That article particularly stresses the "difficult demarcation, if any, between whether the issue for appeal is one of law or fact." It is a distinction that Apple's brief not only seeks to blur but almost appears to deny.

    In a way that is at least misleading, Apple makes it sound like Epic failed to prove all of the essential facts. But most if not all of the failures the district judge criticizes Epic for involve mixed questions of law and fact or even the ultimate legal conclusions (which of course always involve facts, but that doesn't mean the logic that led to the conclusions is reviewed for clear error).

    It is true that Epic has a problem with factual findings by Judge Yvonne Gonzalez Rogers that the appeals court may deem dispositive. Epic may also have had the weaker expert witnesses. Still, it's not like multiple factual findings would have to be deemed clearly erroneous in order for Epic to get at least a remand.

  • Apple's denial of market power is just wrong. It says that its effective App Store commission has only gone down, not up--conveniently ignoring the impact of Search Ads, and especially Tim Cook's testimony. Apple's CEO, quizzed by the judge, admitted that it was because of regulatory pressure and litigation, not competition, that Apple came up with, for example, the Small Business Program.

  • Now, finally the part of which I just don't understand how this happened. Like in so many antitrust cases, market definition is the key battle. The way to win such battles is to take positions that are both compelling and consistent. How in the world could it happen that Apple ended up contradicting itself in that critical area? I don't get it.

    I don't see much value or merit in Epic's case without a single-brand market definition. That's been my view for some time. That one depends on a foremarket and an aftermarket. Apple's appellate brief agrees with the district court's rejection of a "mobile operating systems" foremarket because "it is illogical to argue that there is a market for something that is not licensed or sold to anyone." That was a quote from the district court's judgment. Like Judge YGR, Apple says the foremarket would have to be phones, not operating systems. Let's not even talk about the fact that Apple makes not only phones but also tablets (and the same App Store serves both product categories). The key thing here is that Apple disputes the existence of a mobile operating system market because it doesn't license iOS to other OEMs or sell it separately to end users.

    But on page 82 of its brief (PDF page 97), Apple says this:

    "Apple's iOS also performs better in this respect [i.e., on security] than its 'main competitor' in the relevant market: Android."

    What? Android and iOS suddenly are the main competitors in the relevant market? RELEVANT MARKET? If there's any relevant market in which iOS competes with Android, that would be the mobile operating system market. In that case, the district court was wrong on the first part of its single-brand market analysis (and not only Epic but also the Biden DOJ and some others are right).

    It's almost insane. Was that passage a Freudian slip? But how can there be a Freudian slip in a document created by an army of lawyers (of which "only" nine are listed on the front page)?

    Sure, Apple does agree with the district court that there's a market for mobile game transactions: the relevant market. But the passage that has me completely puzzled talks about a mobile operating system market and overall app security. It talks about iOS competing with Android, not Apple with the likes of Samsung and Xiaomi.

    As you can see, I have more questions here than answers. It's not a habit of mine to scratch my head, but if I encounter more such contradictions in ultra-high-stakes high-profile contexts, who knows what habits I will ultimately develop...

    I reiterate my position that the appeals court should reverse on market definition and remand because a single-brand market would be a total game changer that would require reconsideration of virtually every issue in the case.

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Thursday, March 24, 2022

Ericsson making headway in 5G patent dispute in Texas: judge denies Apple's motion to dismiss, moves up FRAND trial to December, thwarts Apple's attempt to sidestep Fifth Circuit appeals court

In the renewed Ericsson v. Apple patent dispute, where the parties brought infringement claims after their last seven-year license agreement expired in mid-January, Chief Judge Rodney S. Gilstrap of the United States District Court for the Eastern District of Texas has entered an order that resolves multiple motions brought by Apple and Ericsson. The short version is that the case structure in the Eastern District is now identical to Ericsson's preferred way forward: it remains the plaintiff (instead of Apple taking the driver's seat), and appellate jurisdiction over the parties' FRAND claims remains with the United States Court of Appeals for the Fifth Circuit, where Ericsson (against HTC) as well as the Avanci patent pool (to which Ericsson contributes greatly) recently scored major victories in standard-essential patent (SEP) cases.

Apple's procedural gamesmanship, no matter how sophisticated its strategy and its execution were, didn't pan out at all. This structural outcome is totally consistent with my analysis and implied predictions. For example, I wrote:

"What can be said with certainty is that Apple faces more hurdles to get its preferred procedural outcome than Ericsson does."

Apple saw only one of its wishes granted by Judge Gilstrap, who moved up the now-unified FRAND trial--with Ericsson as plaintiff and Apple as defendant-counterclaimant, which Apple wanted the other way round--from June/July 2023 to December 5, 2022. Apple once proposed that particular trial date. However, at the time Apple made that proposal, it didn't envision that the case structure would be so unfavorable to its interests. Should Ericsson's 5G royalty demand be blessed at the December trial, with a formal judgment by the district court following in the first half of 2023, Apple would be confronted with that outcome in a variety of parallel proceedings, be it in the ITC (where one of Ericsson's three requests for a U.S. import ban involves 5G standard-essential patents and will be heard in February 2023) or overseas jurisdictions like Germany (where a series of Mannheim trials over Ericsson SEPs will begin in November) or the Netherlands.

There's still going to be an Apple v. Ericsson trial in the Eastern District starting July 10, 2023, but the only claims left in that separate action are Apple's declaratory judgment requests relating to three of Ericsson's countless SEPs. It wouldn't help Apple in any significant way even if it prevailed on those DJ claims all the way. What it really wanted to achieve was to give the Federal Circuit--not the Fifth Circuit--appellate jurisdiction, but in that case those claims would have had to become part of a unified FRAND case. A single patent infringement or validity claim in a case makes it subject to Federal Circuit appellate jurisdiction.

Apple and Ericsson had just agreed on one of Judge Gilstrap's predecessors as Chief Judge of the Eastern District of Texas, David Folsom, as a mediator of their dispute. By laying out the procedural way forward, Judge Gilstrap definitely ups the pressure on Apple to settle, but Apple being Apple...

The early procedural debate between Apple and Ericsson, which has been put to rest now at least with respect to their cases in the Eastern District, was interesting to watch. Apple, which a few years ago even moved a couple of its stores out of the Eastern District in order to be in a better position to have patent infringement cases transferred out of there, actually considered it the relatively most favorable forum in its global dispute with Ericsson--a lesser evil than the Western District of Texas and, especially, injunction-happy jurisdictions like the ITC or, particularly, certain foreign courts. It wasn't hard for Ericsson to debunk Apple's newfound love of the Eastern District. Ericsson also accused Apple of having wasted court and party resources by forcing unnecessary (duplicative) litigation.

Judge Gilstrap's order is very clear, and the way he reaches his conclusions is compelling. I had already commented in depth on the parties' filings (though I didn't even find time to comment on a last-minute attempt by Apple--on the eve of last week's case management hearing--to at least sidestep the Fifth Circuit's appellate jurisdiction). At this stage, may I just refer you to the actual order (which you find right below) and an early February post that contains a table comparing the parties' preferred ways forward and explanations of how either party sought to get there.

22-03-23 Order on Motions t... by Florian Mueller

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Tuesday, March 22, 2022

Nokia's Asian patent enforcement campaign against Vivo also extending to Indonesia: CNN

Nokia is currently suing two Chinese smartphone makers: OPPO (with a first Mannheim trial scheduled for next week) and Vivo. One key difference between the two is that OPPO also has a significant presence in Western Europe while Vivo's phone are sold in Asia for the most part. However, Vivo appears to have European aspirations as its sponsorship of UEFA's EURO soccer tournament shows.

On March 15, 2022, the Delhi High Court accepted (PDF) a couple of Nokia v. Vivo patent infringement actions. The next day the court noted (PDF) that one of the patents-in-suit is already being asserted in the same court against OPPO and reassigned it to the same judge (Ms. Justice Prathiba M. Singh). The overlapping patent-in-suit is Indian Patent No. 300066 (additional modulation information signaling for high speed downlink packet access; same patent family as EP2087626, which Nokia is asserting against OPPO in Mannheim).

Last week, IAM reported on a Chinese rate-setting case filed by Vivo against Nokia.

Also on Wednesday, CNN Indonesia reported on a case filed by Nokia against Vivo with the Central Jakatarta District Court over Indonesian Patent No. 000031184, which is from the same family as the aforementioned Indian Patent No. 300066 and European Patent EP2087626.

I'll try to find out more about this dispute as it unfolds. What's totally unclear so far is the history of licensing negotiations between the parties. This is the first high-profile patent assertion campaign against Vivo to my knowledge, suggesting that Vivo normally manages to work out license deals without any need for litigation.

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Monday, March 21, 2022

Apple App Store critics lose another key player as head of Epic-Spotify-Tinder Coalition for App Fairness gets hired away by major brewery only three months after Spotify's top lawyer left for Disney

App distribution on iOS must open up--the question is just how, when, and where. In the Netherlands, Apple has just set the stage for another round of litigation with antitrust authority ACM by way of a new proposal it submitted this morning. In the U.S., its response to the Epic Games v. Apple Ninth Circuit appeal is due on Thursday. And while Apple is standing its ground, its adversaries are two strategic thinkers down compared to where they stood a few months ago.

In December it became known that Horacio Gutierrez, a former Microsoft IP chief whom I've known for well over a decade, was leaving Spotify to become Disney's top lawyer. Horacio was an incredibly effective and persistent advocate of the cause to open up app distribution on iOS. At Disney he's now going to have other priorities. Disney's relationship with Apple is hugely better than Spotify's.

And a few hours ago, Meghan DiMuzio--the first Executive Director of the Coalition for App Fairness (whose key members are Epic, Spotify, and Tinder operator Match Group)--confirmed on LinkedIn that she "couldn’t be more excited to join [brewery giant] Anheuser Busch to lead their corporate reputation efforts."

Formally, she worked at Forbes Tate, a major lobbying firm that effectively runs the CAF for Epic, Spotify, and Match Group. Her deputy Hannah Ricketts--also a senior director at Forbes Tate--recently explained the CAF's position on Apple's efforts to avoid giving app developers viable alternatives to its 30% tax (I disagree at least with respect to the situation in the Netherlands):

The career changes by Horacio Gutierrez and now also Meghan DiMuzio definitely weaken the Coalition for App Fairness, and it seems that the CAF's backers don't do enough to keep their key players on the team. But even Apple has a brain-drain problem as its long-time head of litigation Noreen Krall left a few months ago--just shortly after Apple's remarkable post-trial victory over Epic.

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