Wednesday, November 30, 2022

Apple's biggest problem at next week's Ericsson FRAND trial in Texas: Qualcomm deal will be evaluated as comparable license agreement

I am still trying to find out what happened in Mannheim, where the court had originally scheduled the announcement of an Apple v. Ericsson ruling for yesterday (Tuesday, November 29). The response I received from a spokesman for the court (himself a judge, but not on this case) was that the court is not presently in a position to provide information on that case. The court's Second Civil Chamber was in session all day yesterday, so maybe I will hear something today.

There are no clear signs of the parties having settled. Therefore, it is still a possibility that next week's FRAND trial in the Eastern District of Texas (before Chief Judge Rodney Gilstrap) will go forward. Given the complexity of the case, it's difficult to describe it as an uphill battle for the iPhone maker, but it is fair to say that Judge Gilstrap's pretrial rulings have been significantly more positive for Ericsson. I already made that inference from the minutes of the pretrial hearing: there was no breach of the 2015 contract by Ericsson, and Ericsson is under zero legal obligation to license non-standard-essential patents (non-SEPs) to Apple. Apple can point to the fact that the 2015 agreement included non-SEPs, but that was simply a voluntary inclusion of additional IP and has nothing to do with what Ericsson "owes" Apple under its commitments to ETSI.

That Apple can mention non-SEPs (while not being able to claim an entitlement to a non-SEP license when a new agreement is negotiated) is one of the things I learned from Judge Gilstrap's order on numerous pretrial motions:

Ericsson v. Apple, case no,. 2:21-CV-00376-JRG, Eastern District of Texas: Order on Pretrial Motions and Motions In Limine

Another thing that is clearer now is how Apple's Count IV will be adjudicated. Apple wants the court to set a FRAND rate. But as Judge Gilstrap explains, "[t]he jury need only concern themselves as to the prior conduct between the parties and whether that conduct comports with FRAND and good faith" and "the Court will tell the jury that it will set a rate that is fair, reasonable, and non-discriminatory between the parties as to these patents at a later date and that the jury need not be concerned about what an appropriate rate is."

So there won't be a jury verdict that states a specific FRAND rate. But, of course, what the jury says about Ericsson's FRAND compliance will matter in various ways.

Having read Judge Gilstrap's order, the one part that strikes me as the biggest problem for Apple is that its motion in limine number two was denied--unsurprisingly so, but that doesn't make the problem any smaller:

[Apple]'s MIL 2

Exclude Reference to Apple-Qualcomm Negotiations, Litigations, And Agreements Because the Apple-Qualcomm Agreements Are Not Comparable.

The MIL was DENIED. (Dkt. No. 290 at 29:11–34:4.) The Court found that the comparability of licenses is a question for the jury.

Apple pays Qualcomm more than all other patent holders combined. At least that was the case a few years ago during the FTC v. Qualcomm litigation, where the U.S. government was challenging Qualcomm's licensing practices (but the appeals court determined that Qualcomm was free to charge patent royalties separately from, and as a precondition for, its chip sales). At the time, Apple was paying Qualcomm $7.50 per iPhone. I don't know what the rate under the 2019 settlement is, but Apple needed Qualcomm's 5G chips as we all learned later (because we can see that what was then Intel's chipset division and acquired by Apple shortly thereafter, still doesn't have a 5G chip ready that Apple could use. So, chances are that Apple is paying Qualcomm the same or a similar license fee as it did at the time--and Ericsson will presumably argue to the jury that its 5G patents are stronger than Qualcomm's. Even if the jury felt that Qualcomm's patents were gradually more valuable than Ericsson's, it's still hard to see why Ericsson couldn't just ask for $5 per iPhone.

Apple will argue that the Qualcomm agreement isn't comparable. But jurors will learn about the terms, and Ericsson will get to explain why the jury shouldn't buy Apple's attempts to distinguish one license agreement from the other, but focus on the rate.

Ericsson v. Apple is in no small part about the discrepancy between what Apple pays to Qualcomm versus what Apple pays everyone else.