Saturday, June 4, 2022

Qualcomm says Apple coerced 'low-ball agreements' with standard-essential patent holders; Qualcomm, Nokia, Ericsson take aim at Apple's SEP devaluation agenda

This post is closely related to the final part of the previous post, European and German patent stats confirm China has taken lead over U.S. in digital communications patent filings: Huawei, Ericsson lead the pack; OPPO ahead of Nokia; Apple is nowhere. On some other occasion I'll also comment on the latest evidence of Apple engaging in highly abusive self-preferencing, which is that Apple--after imposing restrictions and requirements on iOS in-app advertisements under a pro-privacy pretext--now encourages its users to allow tracking within Apple's apps while forcing third-party app makers to scare users away from granting such permission. Suffice it to say for now that EU competition chief Margrethe Vestager had warned Apple against precisely that behavior in this very context.

On May 9, the feedback and consultation period for the European Commission's "new framework for standard-essential patents" initiative ended. Meanwhile the Commission has published the feedback it received. This blog reported on the mid-February start of the feedback period and reminded its readers of the deadline when it was approaching fast.

In their submissions to the European Commission's DG GROW, Qualcomm and Nokia call out Apple (and some of its allies in this context) on its stated goal of devaluing SEPs. Nokia's submission actually recognizes that Apple, as a result of having acquired Intel's baseband chipset division, at least makes some technical contributions to standardization, which is more than digital giants Amazon, Google, and Facebook can say, or even the world's largest network equipment maker, Cisco. Those other companies sent delegates to a June 28-July 2, 2021 3GPP workshop regarding Release 18 of the 5G standard, but made zero technical contributions. In multi-player computer games, such behavior is called "lurking." Nokia suspects those companies (some of which actually pretend to be big-time O-RAN supporters, but not really contributing to that standard-setting effort either) merely wnated "to observe, to learn how to implement and use the technology, but they did not contribute to its development." Apple sent more delegates (34) than Nokia (19) and almost as many as Ericsson, but made only about half as many technical contributions as Nokia, which in turn made fewer than Ericsson.

Nokia goes on to explain that "Apple's recent contributions [...] must be put into perspective." They are "largely handset related and not related to network equipment." Second, Apple has traditionally kept its chipsets proprietary, so whatever it develops won't e put to use in mobile network equipment. Also:

"Apple does not need to rely upon FRAND licensing revenue to support its participation in standards development. Instead, it can count on its massive profits generated by its closed ecosystem, the lock-in it has with its customers, and its app store monopoly to fund its standards participation. This is a luxury that other contributors do not have."

I may not deem every Nokia declared-essential patent truly essential, and just this week I expressed serious doubts about the validity of a Nokia non-SEP. But I increasingly find myself in agreement with Nokia on certain policy issues, such as the following sentence from Nokia's submission to the EC regarding Apple and its friends' efforts to devalue SEPs:

"Most large tech companies like Amazon, Apple, Cisco, and Google chose not to invest in developing mobile networks and standards. They profit significantly from sales of products that implement and use the standards developed largely by others. To keep their input costs for their products as low as possible, they, and their sponsored lobbying groups like the Fair Standards Alliance, ACT | The App Association, IP2Innovate and Save Our Standards to push for regulations and policies intended to devalue SEPs."

Not only does Nokia name some--not even all--of those Apple-funded SEP devaluation fronts, but its latest submission to the EU also points out that Apple--just at about the time that the original iPhone was introduced--"sponsored" the frequently-cited Lemley & Shapiro paper on SEPs.

In its footnote 34, Nokia rightly notes it's "interesting to compare the 15%-30% that Apple and Google charge for access to their app stores with the percentages that are actually paid to license the mobile standards." In the same footnote, Nokia explains that one can deduce from the findings of fact and conclusions of law in FTC v. Qualcomm that "the total SEP royalty that Apple pays for its iPhones is less than $15 per phone." That court document states that Apple was paying Qualcomm $7.50 per phone, which was more than to all other SEP holders combined.

This leads us to Qualcomm's feedback to the Commission, an exceptionally well-crafted position paper that urges the EU not to adopt policies that would deviate "from the guidance provided by EU courts." In particular, Qualcomm warns agains unintended consequences: if "[u]ncertainty or lack of balance in the policy framework faciliate[] hold-out[,] [...] the corresponding devaluing of technologies protected by SEPs also undermines the ability of EU firms to invest in the R&D needed to compete for global leadership in 5G and future generations of wireless technologies, AI, and other critical and emerging technologies that are or will be standardized."

When Apple and Qualcomm settled three years ago, Qualcomm's lead counsel, Cravath's Evan Chesler, presented an Apple-internal document in his opening statement that clearly stated the strategic objective of devaluing SEPs. Qualcomm's submission to the EU now discusses the history of Apple's SEP devaluation effort. Shortly after settling its first dispute with Nokia (2009-2011), "Apple began a campaign to devalue other cellular SEPs," which "was later joined by a host of other implementers seeking to reduce the cost of SEP licenses."

Based on Apple-internal documents that showed up in its own dispute with Apple, Qualcomm notes that "Apple had a years-long strategy to hold out in SEP licensing, coerce favorable agreements, and then used those low-ball agreements as comparable licenses when holding out against Qualcomm." That is a very important allegation as it may explain why the likes of Ericsson, Nokia, and InterDigital have not yet renewed their SEP license agreements with Apple. At least the Ericsson-Apple agreement has expired, and I'll talk about their current litigation further below. But Nokia and InterDigital also appear to have a hard time working out reasonable license agreements with Apple short of having to enforce their rights in court. Those major SEP holders may simply be unwilling at this stage to renew those license agreements on low-ball terms. They'll want their fair share, and they now know Apple has so far paid greater SEP royalties to Qualcomm than to all others combined.

Qualcomm points to various examples of courts finding Apple an unwilling licensee, all the way up to the Optis and Unwired Planet v. Apple dispute in the UK, which will go to a FRAND trial shortly and where the court has already considered a hold-out tactic by Apple to constitute bad faith.

Page 10 of Qualcomm's submission connects the dots between the EU Commission's interest in understanding what could be done to help small and medium-sized IoT (Internet of Things) companies. I'll talk about IoT again when discussing, in one of my next posts, Apple's submission as well as those of Apple-funded organizations. Qualcomm is spot-on that there has been "a significant uptick in lobbying for SEP-devaluating rules by large implementers on the grounds that such rules are necessary to help SMEs (either in the smartphone industry or the IoT space)." In that context, Qualcomm specifically calls out ACT | The App Association (which I prefer to call "The Apple Association" as N.Y. attorney David Cohen dubbed them):

"For example, ACT | The App Association, which the New York Times reported is “an organization that claims to give 'a voice to small technology companies' but is funded by big technology companies, including Apple” claims that app developers have problems with cellular SEP licensing. That is false. App developers do not pay any royalties for cellular SEPs to Qualcomm or to any other similarly situated SEP holder that we are aware of."

ACT--in conjunction with other, largely Apple-funded lobbying organizations--runs a Save Our Standards campaign, and I've shown that they even organized an "interview" with one of their "members" about the challenges SMEs allegedly face with respect to SEP licensing, though the company in question clearly never needed a SEP license. The passage from Qualcomm's filing that I just quoted points to two articles via footnotes. The first one is a New York Times report on Apple's settlement of a developer class action on terms that benefit only Apple and the lawyers involved (as Elon Musk just noted on Twitter, in class actions the attorneys are typically the actual plaintiffs, not the "puppets" they find to "masquerade as such"). The NYT described ACT as "an organization that claims to give 'a voice to small technology companies' but is funded by big technology companies, including Apple." The second external source Qualcomm's filing points to is a FOSS Patents post from October 2021 about ACT, and specifically to a passage in which I explained that small app developers generally don't implement SEPs.

Apple appears to be very uncomfortable about Ericsson trying to bring the truth about its SEP devaluation campaign to light. While Ericsson's submission to the European Commission doesn't mention organizations like ACT, it's worth noting that Ericsson brought a motion to compel last week in its Eastern District of Texas FRAND litigation with Apple:

Ericsson asks Chief Judge Rodney S. Gilstrap of the United States District Court for the Eastern District of Texas "to compel Apple to immediately present a corporate representative to identify witnesses with knowledge" particularly of Apple's SEP devaluation efforts and alliances. I must say that I was really surprised when I saw that motion, simply because Apple had so far portrayed itself as the party with the stronger interest in the swift resolution of that E.D. Tex. FRAND dispute. But Apple may have something to hide in certain contexts. It's interesting to see that Ericsson has already identified fact witnesses on every one of the notice topics, and Apple has done so with respect to such easy topics as "who evaluated benefits from the 5G standard and executed the 5G launch," but rather interestingly, by the time of Ericsson's motion Apple had failed to identify witnesses concerning the following issues:

  • "The identity of all third parties with whom the company communicates regarding SEP licensing practices generally" (Ericsson Notice Top 8 / Apple Notice Topic 10)

  • "Identity of all third parties with whom the company has negotiated with about SEP licenses." (Ericsson Notice Topic 9 / Apple Notice Topic 11)

  • "Employees or agents involved in evaluating the performance of Apple’s App Store, including 5G’s impact on certain apps or the App Store overall, revenue, and the calculation of Apple’s 30% fee." (Ericsson Notice Topic 14)

  • "Employees or agents involved in company’s participation and/or membership in, direct or indirect funding of, or communications with groups involved in SEP lobbying." (Ericsson Notice Topic 17 / Apple Notice Topic 17)

  • "All party FRAND litigation, regulatory, or enforcement proceedings." (Ericsson Notice Topic 18 / Apple Notice Topic 21; to be fair, Ericsson's tabled also says Ericsson itself hadn't identified individuals in this context yet)

When it comes to ACT | The App(le) Association, there's a clear overlap between Apple's SEP devaluation efforts and its App Store monopoly abuse, which ACT seeks to defend, claiming to speak for the very victims of Apple's conduct.

We'll see how Apple responds to that motion to compel. Maybe Apple will finally provide fact witnesses so as to moot the motion. But it's quite telling what questions Apple would rather evade.

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