DOJ downgrades Delrahim letter to IEEE on standard-essential patents: inter-agency rapprochement with FTC on SEP enforcement?

The language of diplomacy and other governmental communications is very nuanced, like the British Queen's spokespersons saying she's "not amused" when she's actually outraged. The Antitrust Division of the United States Department of Justice ("DOJ-ATR") has taken this concept to a higher level. In what could be described as a digital form of body language, the Biden Administration's DOJ has unequivocally dissociated itself from the Trump Administration's position on standard-essential patent (SEP) enforcement without saying or writing a single word: just by relegating a link to a document (with the PDF remaining in the same place as before) to a long list of links that is, for the most part, merely an archive. Parts of that archive are little more than the dustbin of DOJ-ATR history.

Look at it this way: if a colleague of yours had a picture of her sweetheart on his desk, but all of a sudden decided to put it into a dark storage room, wouldn't that tell you something?

On September 10, 2020, less than two months before the election Donald Trump lost, Qualcomm-aligned Antitrust Assistant Attorney General Makan Delrahim tried to use his remaining time in office--he was going to leave anyway, and he knew what the polls said--tried to deal one final blow to net licensees of SEPs. He supplemented, updated, and appended the DOJ-ATR's 2015 Business Review Letter (BRL) to the Institute of Electrical and Electronics Engineers (IEEE). An IEEE standard all of us use in our everyday lives is WiFi (IEEE 802.11). IEEE has been a strategically important forum at the forefront of how standard-setting organizations could set more specific rules governing SEP enforcement than, for example, ETSI, whose FRAND pledges (which must be interpreted under French law wherever in the world they are enforced) come with a lack of clarity that is fully intended (though some interpretations are still clearly less reasonable than others).

Mr. Delrahim's BRL 2.0 was meant to make the IEEE change course by giving companies like Qualcomm--which in all fairness is a tremendous WiFi innovator--ammunition for IEEE-internal discussions. Qualcomm executives publicly predicted on various occasions that the IEEE was going to make its rules more patentee-friendly under pressure from the federal government. Last month, MLex's Khushita Vasant reported on a recent clash between Qualcomm, Apple, Huawei, and other companies at an IEEE patent policy meeting. It was a clash between the progressives like Apple--who wanted to continue on the path of setting implementer-friendly rules--and those seeking a revision, led by Qualcomm.

What I mentioned at the start of this post obviously doesn't apply to the Trump Administration. Mr. Delrahim's letter to IEEE suggested that the Obama Administration's 2015 BRL to IEEE had been misinterpreted. But Mr. Delrahim also disparaged his predecessor's work by claiming that "[t]he Department's assessment in 2015 of the 'direction' of U.S. law interpreting FRAND commitments on royalty rates and damages assessments was not well-supported and has not proven accurate."

In late March, I was wondering whether the DOJ and the FTC would continue to fundamentally disagree on the application of antitrust law to SEP abuse, given that the FTC didn't seek a Supreme Court review of the Ninth Circuit's FTC v. Qualcomm ruling and mentioned its coordination with the DOJ. But that was just a question, not speculation. Also, the Solicitor General would have had to represent the FTC before the Supreme court, not DOJ-ATR.

Apparently, the Biden Administration is inclined to undo at least some of Mr. Delrahim's SEP policy initiatives. The full extent will become clearer with time. But it's already certain that change has come to DOJ-ATR.

Currently, DOJ-ATR is being run by Acting Assistant Attorney General Richard Powers. Just like we've recently seen quadruple-antisuit injunctions, which I abbreviate as A4SIs and others as AAAASIs, Mr. Powers has a quadruple-A title: he's the Antitrust Acting Assistant Attorney General. What an alphabet soup.

Mr. Powers could have done his own "update" to the 2020 Delrahim letter. That update could simply have stated that the 2020 letter was an aberration, and the 2015 letter was in full force and effect again. But doing so would have required a communication style closer to that of the Trump Administration.

That's where the hierarchical structure of the DOJ-ATR website came in handy. There's one section where one can find the currently valid BRLs. From that one, Mr. Delrahim's letter has been silently removed. His letter to the Avanci patent pool is still there, and it remains to be seen what--if anything--will change in that context. But the 2020 IEEE letter is no longer there. The 2015 BRL to IEEE can still be found on that page. That makes it the one that currently counts.

The original and now-restored BRL tends to strengthen those favoring component-level SEP licensing.

The Delrahim letter to IEEE is now on the page listing "comments to state and other organizations". That page is hidden deep down in the hierarchical structure of the DOJ-ATR website. The dark storage room I mentioned further above.

This move has been clearly interpreted by the tech industry. Cisco's Senior Director, Antitrust and Competition, Gil Ohana, replied to a tweet of mine that this marked the "end of an error":

The end of an error.

— Gil Ohana (@Gilohana) April 15, 2021

A nice wordplay. Few people in California would refer to the Trump years as an "era" not only because #45's reelection bid failed but also for substantive reasons.

But let's also be realistic that there'll be a lof of wrangling over SEP issue now. The downgrade of the Delrahim letter to IEEE is a significant first step.

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Caltech seeks to extend billion-dollar patent win over Apple, Broadcom to Microsoft: new lawsuit in Western District of Texas over Surface, Xbox

According to a patent infringement complaint filed on Friday, Microsoft--famously headquartered in Redmond, WA--has offices at 10900 Stonelake Boulevard, Austin, TX, USA 78759 and 401 East Sonterra Boulevard, San Antonio, TX. Those offices don't seem to be very large, but the per-square-foot cost of doing business there could be staggering: both these places are in the Western District of Texas, the most attractive venue for U.S. patent plaintiffs even ahead of the Eastern District of the same state.

The Western District has displaced the Eastern District. Waco-based Judge Alan Albright is no less patentee-friendly (an understatement) than Judge Gilstrap, but many major tech companies from the West Coast have additional operations in the Austin area, while the Eastern District is rural and easy to avoid. For example, you won't find any Apple Store in the Eastern District by now (though some are just across the border of the federal judiciary district). A certain presence by a defendant is, however, what it makes it easy for patent plaintiffs to avoid that their cases get transferred out of their chosen district under the Supreme Court's TC Heartland case law (PDF).

The California Institute of Technology ("Caltech") is now suing Microsoft in Waco, claiming that the Microsoft Surface portable computers and the Xbox gaming console infringe a handful of WiFi-related--but apparently not standard-essential--patents (this post continues below the document):

21-03-19 Caltech v. Microso... by Florian Mueller

The Caltech v. Microsoft complaint immediately brings two spectacular (or, from the perspective of true innovators, shocking) patent damages verdicts to mind:

• this month's $2.175 billion verdict in VLSI v. Intel in the Western District, and

• last year's $1.1 billion verdict against Apple and Broadcom in the Central District of California (Los Angeles) ($838 million against Apple, $270 million against its supplier Broadcom), which Apple and Broadcom are appealing. The three patents underlying that damages verdict are among the five patents-in-suit in the new Microsoft case.

Caltech is trying to get the best of both worlds: while leveraging its victory in L.A. (though I wish Apple and Broadcom luck on appeal and don't expect the verdict to be upheld, at least not in full), Caltech transparently attempts to benefit from the Waco patent bonanza.

Caltech is being represented by Quinn Emanuel and a small local firm, Mann Tindel Thompson. Quinn Emanuel is more often seen representing plaintiffs against Apple than against Microsoft, but this blog reported on various cases in which QE worked for Motorola against Microsoft, including the case in which Judge Robart's famous antisuit injunction came down.

I'll follow developments in the Western District more closely now, given that it's the world's #1 hotspot for patent damages just like Munich is the world's #1 venue for patent injunctions.

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Two more weeks until the single most important court ruling in the (short) history of the IoT industry: component-level SEP licensing

Originally, the Dusseldorf Regional Court had scheduled its Nokia v. Daimler ruling (with implications for a spin-off from that case, the Huawei v. Nokia case that resulted from the severance of Huawei's third-party counterclaims) for today. But for court-internal reasons, the ruling date has been pushed back by two weeks.

The Internet of Things industry should pay close attention on November 26, 2020. No judicial decision to date has been of comparable importance to the "I" in "IoT."

There's no IoT without an Internet connection. Apart from a small subset of IoT devices that will be just fine with a BlueTooth connection, some kind of WiFi or cellular (such as 4G/LTE) connectivity is a hard requirement. That's where you have to deal with thousands of allegedly standard-essential patents (SEPs)--a challenge even for large and sophisticated organizations, and nothing short of a nightmare for small and medium-sized IoT companies, especially startups.

At a Brussels conference I organized about a year ago, young and innovative IoT companies like AirTies (from Turkey) and Kamstrup (from Denmark) discussed the problem of SEP licensing from their perspective. The problem they face is that SEP holders (particularly trolls, of which are many--and they get fed with patents by the likes of Nokia and Ericsson) are at least as unwilling to extend exhaustive component-level SEP licenses to the IoT industry's suppliers as they are in the automotive context. Their calculus is always that they can maximize their leverage by going after end-product makers, such as companies that produce smart meters (such as Kamstrup). They make outrageous demands, sometimes listing dozens or even hundreds of patents that one can relatively easily identify as being technologically unrelated to the standard they claim they're essential to.

A defendant like Daimler can afford to be defended by a world-class litigation like Quinn Emanuel--and nevertheless got hit by four SEP injunctions just over these past few months. The average IoT company can only dream of hiring QE, and will find it hard to pay even for the initial analysis (not even in-depth!) of claim charts. Actually, they might not even be provided with claim charts as the Federal Court of Justice of Germany abolished that requirement this year in Sisvel v. Haier (contrary to how the Court of Justice of the EU's Huawei v. ZTE guidance should be applied)...

It's simply a fact that IoT startups can't handle SEP licensing themselves, so their suppliers (such as baseband chipset makers) must do the job and then provide a fully-licensed product. That's what patent exhaustion is all about.

The Dusseldorf court's widely expected referral to the CJEU of key legal questions related to component-level SEP licensing can be a game changer to the benefit of the IoT industry. It doesn't matter that Nokia v. Daimler is an automotive case. While it's not incorrect to refer to that kind of dispute as a "connected vehicle case," Nokia's SEPs aren't specific to self-driving cars or collision prevention. It's basic wireless communications technology. The legal questions are the same, but the problem is an even more pressing one for the IoT sector.

I've quickly drawn up a couple of charts to explain how the IoT industry's SEP licensing problems relate to those of the automotive sector. This is particularly important with a view to a Berlin roundtable next week to discuss a Qualcomm proposal that I believe neither the European Commission nor the German government can support without throwing IoT under the bus.

In a nutshell, Qualcomm, Nokia, and other SEP holders pursuing similar licensing tactics would still prefer to license their patents only at the end-product level (i.e., to Daimler, Volkswagen etc.), but not least with a view to the Dusseldorf court's upcoming referral to the CJEU they're now talking about tier 1: the automotive industry's direct suppliers. Telematics control units (TCUs) are tier 1 products from the automotive industry's perspective (the higher the number, the higher up in the supply chain). TCUs contain network access devices (NADs; tier 2), and those rely on a baseband chipset (tier 3). Here's the "nesting" of one product inside another as a simple chart (click on the image to enlarge; thist post continues below the image):

Baseband chipsets are relevant to the automotive industry just like they are to IoT products with cellular connectivity. At the level of the NAD (automotive tier 2), however, there's already some differentiation: NADs designed to be used in cars come with certain automotive-specific functionality that no IoT product needs. And TCUs are definitely just an automotive thing. It wouldn't be an economical choice to incorporate TCUs into non-automotive IoT products, and it would be a waste of space (on top of money).

This second chart shows three scenarios: two types of IoT products (with and without NADs, but again, NADs for IoT are not the same as NADs for cars), and the automotive supply chain (click on the image to enlarge; this post continues below the image):

For the reasons explained further above, end-product licensing is absolutely not a viable option for small and medium-sized IoT companies. And as the above chart shows, TCU-level licensing (tier 1) as proposed by Nokia this fall and, as I mentioned, by Qualcomm wouldn't work either. At a minimum, licenses would have to be available at the NAD level, and then the royalty would have to be commensurate with what a patented invention adds to the commercial value of that component as opposed to that of the end product.

If the top EU court holds that all levels of the supply chain are entitled to an exhaustive component-level license on FRAND terms, the problem will be solved for IoT, at least in the European market with potential repercussions around the globe.

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Over WiFi-related patents, L.A. jury awards Caltech $838 million from Apple, $270 million from Broadcom

A Los Angeles jury just awarded the California Institute of Technology (Caltech) $838 million from Apple and $270 million from Broadcom--a total of approximately $1.1 billion--over patents related to the WiFi standard (IEEE 802.11).

WiFi is just a limited part of the technology in a smartphone, and there are numerous patents allegedly essential to that standard as well as non-essential patents with some connection to WiFi. It wouldn't be possible to profitably make phones if one extrapolated a royalty of $1.40 per iPhone--which appears to have been the outcome--to the totality of patents potentially implemented in such a highly complex and multifunctional device.

Based on the complaint as well as Apple and Broadcom's answer to the complaint, I haven't found an indication that the patents are subject to a FRAND licensing commitment. They might cover efficiency gains related to the actual implementation of the standard. I'll update this post, or do a follow-up post, once I've found out.

This is the biggest WiFi damages verdict to my knowledge. Apple and Broadcom have announced their intent to appeal, so we'll see how much of that amount is ultimately awarded. Those verdicts tend to get slashed later on.

The verdict form isn't available on the docket (case no. 2:16-cv-03714, Central District of California) yet.

In jury trials, but not on appeal, university trolls have two psychological advantages over other patent trolls:

• While conventional trolls have to come up with creative names like "American [Insert Something] Innovations," jurors intuitively associate universities with research and inventiveness.

• They can claim to pursue a greater good, as opposed to those greedy corporations infringing their patents, as if those university trolls were Robin Hood's patent-related equivalent.

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Call for input: do you know of any cases in the PC industry in which SEP holders refused to license component makers or based their royalties on the end product?

What you find in the headline is not meant to be a rhetorical question. While I'm personally unaware of any case in the personal computer industry (with just one exception that I'll state in a moment) in which a standard-essential patent (SEP) holder insisted on the end product (desktop computer or laptop) being the royalty base and/or refused to grant an exhaustive license to component makers, I can't rule out that there have been such cases in that huge and decades-old industry. That's why I'm asking for your help. Input from readers has previously been very helpful, such as in connection with privateering (patent transfers from to non-producing entities).

My focus is on mobile devices, and I've looked at PC-related patent litigation only when countersuits targeting personal computers were brought in retaliation for mobile patent suits. In one such case, an absurd letter by Motorola Mobility to Microsoft entered the public record: Motorola wanted 2.25% per unit from Microsoft and explicitly stated that "the royalty is calculated based on the price of the end product (e.g., each Xbox 360 product, each PC/laptop, each smartphone, etc.) and not on component software (e.g., Xbox 360 system software, Windows 7 software, Windows Phone 7 software, etc.)." To put this into perspective, on most PCs that royalty rate would have been roughly at a level with Microsoft's entire income from selling a Windows OEM license. Motorola made that outlandish demand in a letter, but limited its royalty demand to 2.25% of the selling price of Windows in Judge James L. Robart's now-famous FRAND case as well as in a similar proceeding (that led nowhere before the parties withdrew all pending claims) before the Mannheim Regional Court. Motorola even denied the undeniable later on--apparently they realized they had been a bit too crazy, fortunately just temporarily.

Video codec patents are one example of a category of SEPs for which patentees could theoretically have insisted that the royalty base should be the end product. Graphics and memory standards are another example.

What about WiFi? All I know is that I've bought WiFi cards for several desktop PCs in a row, just because it's always a nice fallback when there's an issue with a landline or a router. I can just get a connection via a smartphone with tethering--and in many places, other options exist. Obviously, when I bought those cards for roughly $40-50 each, there was no way any WiFi patent holder could have collected a royalty based on the total cost of the related PC. I paid my $40-50 for that component regardless of whether I plugged it into a $500 or a $5,000 computer. Apparently, the companies that made the WiFi cards I bought were fully--and exhaustively--licensed. It's the same situation when you buy an additional or larger memory chip or a new graphics adapter and just install such components yourself.

Today's smartphones are handheld PCs. If there really is no example (other than a letter Motorola distanced itself from) of SEP holders having treated the PC industry the way they're now trying to treat the mobile device and automotive industries, then that would expose the likes of Qualcomm, Nokia, and Ericsson as total outliers in the wider technology industry.

In case you do know of any cases, please fill out the contact form. I protect my sources unless you request--in writing--to be named. What I'm primarily looking for is verifiable information, such as publicly accessible court filings. If you have unverifiable information that you nevertheless consider highly pertinent, please let me know, too--but I may then have to follow up with you to get a better idea.

Thanks in advance for your help! I will publish the results of this call for input on this blog, in a future post.

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Nokia wins German patent injunction against all HTC Android devices including the One series

The New Year's Eve fireworks kicked off a day early at the Munich I Regional Court, where Judge Dr. Matthias Zigann just handed Nokia a Germany-wide patent injunction against all HTC Android devices (including the One series) that infringe EP1148681 on a "method for transferring resource information" by allowing end users to connect two HTC devices directly over NFC or Bluetooth (but not over WiFi or the Internet) to transfer resource information such as a URL. The patent is not standard-essential, meaning that Nokia does not have any FRAND licensing obligations.

HTC can and undoubtedly will appeal this ruling. But in the meantime, unless HTC manages to convince the appeals court right away that it is more likely than not to succeed with its appeal (a reasonably high hurdle), Nokia can enforce this injunction (including a recall of infringing devices from resellers and commercial users) on a provisional basis by posting a 400 million euro ($550 million) bond or giving security to the same amount. This is a permanent -- not preliminary -- injunction following an early first hearing held in October 2012 and a full trial held a few months ago (which I did not attend). But enforcement is provisional until all appeals are exhausted.

Nokia has enough cash to be able to afford the provisional enforcement of this injunction. The purpose of the bond is just to enable HTC to recover wrongful-enforcement damages should it prevail at the end of the proceedings and Nokia's financial condition deteriorate. At that stage, HTC would have to prove any damages it claims, and since it could always just remove the patented feature from its devices, it would have to convince the court (in that scenario) that it lost a certain amount of sales because of the reduced marketability of its products to German consumers. This is hardly going to deter Nokia from enforcement. Nokia has issued numerous statements since the start of its multijurisdictional infringement litigation campaign against HTC (in May 2012) that it seeks to put an end to HTC's alleged -- and repeatedly-proven -- infringement of Nokia's intellectual property.

Google realized during the course of this litigation that this Nokia patent is of concern to the entire Android ecosystem. (Earlier today I found out that Nokia is also in Android-related patent licensing discussions with Google's Motorola Mobility.) In addition to HTC's nullity complaint (invalidation action) challenging this patent before the Federal Patent Court of Germany, Google also brought a nullity complaint -- but too late to be considered by the Munich I Regional Court in connection with HTC's motion to stay the case pending those nullity cases. Under German law, a lawsuit is "rechtshängig" (pending) only after the complaint has been served by the court (which doesn't act before receiving an advance on court fees) on the defendant. Google acted too late, which is typical: it took Google (under a different CEO, though) quite long before it started to respond to the infringement actions brought against Android by Apple, Microsoft and other patent holders. Once again, it acted too late. Google's nullity complaint appears to involve additional invalidity contentions and may ultimately succeed -- but it wasn't legally pending at the time of the infringement trial, and the court found that HTC's declaration of its intent to add the same additional invalidity theories and prior art references to its own (pending) complaint was also too little, too late.

Originally, Nokia was alleging that a transfer of resource information over WiFi also fell within the scope of the patent-in-suit. It withdrew that part of the complaint ahead of the ruling. Since NFC and Bluetooth played a far greater role in this case at any rate, the court exercised its discretion to impose 100% of the court fees and of the recoverable part of Nokia's legal fees on HTC.

Ten days ago, Nokia won another Munich injunction against HTC, from a different panel of judges. Today's injunction was issued by the 7th Civil Chamber (Presiding Judge: Dr. Matthias Zigann), while the pre-Christmas ruling was handed down by the 21st Civil Chamber (Presiding Judge: Andreas Mueller). The earlier one did not relate to the HTC One according to a statement by HTC. In March Nokia had already won an injunction from another German court, the Mannheim Regional Court, but HTC simply removed a certain power-saving feature from its devices and kept selling its products in Germany. All three German Nokia injunctions against HTC were won by lawyers from the Dusseldorf office of the Bird & Bird firm.

Another Nokia v. HTC decision by Judge Dr. Zigann's court is scheduled for January 9, 2014.

Nokia is suing HTC in seven countries (U.S., UK, Germany, France, Italy, Netherlands, Japan) on three continents (North America, Europe, Asia).

In the U.S., the ITC, a trade agency with quasi-judicial powers, is currently reviewing a preliminary ruling that held HTC to infringe two Nokia hardware patents. Google, Verizon and Sprint, as well as other parties, have asked the ITC not to issue an import ban, citing public interest grounds, or to at least give HTC 12 months to modify the products it imports into the U.S. market. But Nokia argues that the ITC has already ordered import bans against smartphone and tablet computer makers with far greater market share, and counters arguments that injunctive relief should not issue against multifunctional products over patents covering single, minor features by saying that if the feature is minor, HTC should simply remove it.

In the UK, Nokia recently won an injunction, which was stayed by an appeals court for the duration of the appellate proceedings. The hurdle for such a stay is substantially lower in the UK than in Germany, where an infringement holding generally entitles patentees to injunctive relief without any equitable discretion.

Nokia's patent enforcement against HTC clearly has momentum now. The injunctions it has won so far have not given it decisive leverage. And it could be that HTC will decide to simply remove the resource transfer feature in Germany. But sooner or later, HTC will end up sending patent royalty checks to Finland.

So far Nokia's enforcement focuses on devices rather than the Android platform or Google's services, but a Nokia v. HTC lawsuit in Dusseldorf, Germany, involves Google Maps and Google Navigation, two services that are key to Google's overall strategy.

[Update] Nokia has released a statement, suggesting that HTC make it its first New Year's Resolution for 2014 to stop infringing:

"Nokia is pleased that the Regional Court in Munich, Germany has today ruled that any HTC product using Bluetooth or NFC connections infringes Nokia's patent EP 1 148 681, which covers the transfer of network resource information between mobile devices.

This judgment enables Nokia to enforce an injunction against the import and sale of all infringing HTC products in Germany, as well as to obtain damages for past infringement. This follows another ruling from the same court ten days earlier, which found that HTC products infringed Nokia's USB patent EP 1 246 071 and granting Nokia right to an injunction and damages against products infringing that patent.

Nokia began its actions against HTC in 2012, with the aim of ending HTC's unauthorised use of Nokia's proprietary innovations and has asserted more than 50 patents against HTC. During 2013, Nokia believes it has demonstrated beyond doubt the extent to which HTC has been free riding on Nokia technologies, with HTC found to infringe seven Nokia patents in venues including the Regional Courts in Mannheim and Munich, Germany, the UK High Court and the US International Trade Commission. HTC’s first New Year’s resolution for 2014 should be to stop this free riding and compete fairly in the market."

[/Update]

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India's antitrust authority investigates Ericsson's royalty demands for standard-essential patents

I wasn't going to do any other post this week than a preview on next week's Oracle v. Google Android-Java appellate hearing (and something very brief on an Apple v. Samsung order), but I just found out about a development important enough to interrupt my week off for a moment. The Competition Commission of India, the country's antitrust authority, has launched formal investigations of Ericsson's royalty demands relating to FRAND-pledged standard-essential patents (SEPs) further to a complaint filed by Micromax, a major local Android device maker. Back in March I had already reported on the Ericsson v. Micromax dispute in India.

Here's the official order (this post continues below the document):

Competition Commission of India - Order Re. Ericsson by Florian Mueller

The final paragraph of the order clarifies that Ericsson still has every opportunity to convince the CCI during the course of the investigations that its behavior was not anticompetitive. But in the CCI's preliminary view it is "clear that the practices adopted by [Ericsson] were discriminatory as well as contrary to FRAND terms". In particular, the CCI raises the issue of the appropriate royalty base, a topic that antitrust regulators in the US and the EU have so far been reluctant to address but which is central to most SEP abuse schemes:

"The royalty rates being charged by [Ericsson] had no linkage to patented product, contrary to what is expected from a patent owner holding licences on FRAND terms. [Ericsson] seemed to be acting contrary to the FRAND terms by imposing royalties linked with cost of product of user for its patents. Refusal of OP to share commercial terms of FRAND licences with licensees similarly placed to [Micromax], fortified the accusations of [Micromax], regarding discriminatory commercial terms imposed by the OP. For the use of GSM chip in a phone costing Rs. 100, royalty would be Rs. 1.25 but if this GSM chip is used in a phone of Rs. 1000, royalty would be Rs. 12.5. Thus increase in the royalty for patent holder is without any contribution to the product of the licensee. Higher cost of a smartphone is due to various other softwares/technical facilities and applications provided by the manufacturer/licensee for which he had to pay royalties/charges to other patent holders/patent developers. Charging of two different license fees per unit phone for use of the same technology prima facie is discriminatory and also reflects excessive pricing vis-a-vis high cost phones."

It was time that an antitrust enforcement agency took a SEP holder to task over the issue of the appropriate royalty base.

The CCI's position is consistent with that of Judge Holderman in the Northern District of Illinois in an Innovatio WiFi patent case.

Ericsson is an increasingly aggressive enforcer of wireless SEPs (WiFi as well as cellular). Samsung also claims that Ericsson's demand are above FRAND levels, and Ericsson alleges that Samsung's demands are supra-FRAND. In February I reported on a Mannheim Ericsson v. Acer trial over WiFi SEPs.

Antitrust regulators have previously launched formal investigations of Samsung and Motorola Mobility's assertions of SEPs against Apple and (only by Google's Motorola) Microsoft. Most of these investigations are still ongoing.

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Judge certifies Microsoft's FRAND victory over Google, which goes forum-shopping on appeal

More than two months after a federal jury rendered (figuratively speaking) a guilty verdict against Google's Motorola Mobility for breach of a FRAND licensing commitment relating to its H.264 (video codec) and IEEE 802.11 (WiFi) standard-essential patents (SEPs) through the pursuit of injunctive relief against Microsoft, Judge James L. Robart of the United States District Court for the Western District of Washington has certified a partial final judgment (this post continues below the document):

13-11-12 Microsoft v. Motorola Rule 54(b) Judgment by Florian Mueller

Within three weeks of the trial, Judge Robart tossed the parties' post-trial motions (Google's was denied on the merits, and Microsoft's as moot). The following month both parties wanted a partial final judgment but disagreed on details. Technically, Judge Robart has granted Microsoft's motion for such judgment, but to the extent that Google's request for a very inclusive judgment was legitimate, the order clarifies that, for example, the groundbreaking FRAND determination is part of the subset of decisions reached in this case so far that can now be appealed.

Judge Robart declined to certify items on which he had not yet had to rule, such as defenses by Microsoft that may or may not be reached further down the road. The August 2013 (just before the trial) summary judgment ruling is included, but the December 1, 2012 summary judgment order against injunctive relief is not part of the package because the court reserved the right to change its position on that one under future circumstances.

A preliminary injunction barring Google's Motorola from the enforcement of a couple of German H.264 SEP injunctions had been affirmed by the United States Court of Appeal for the Ninth Circuit, which also denied Google's request for a rehearing.

While the Federal Circuit has jurisdiction over all patent infringement cases, patent-related contract matters are a matter of state contract laws, and district court decisions are appealed to the regional circuits. That's why Google itself appealed the preliminary injunction case to the Ninth Circuit, not the Federal Circuit. But the Ninth Circuit backed Judge Robart all the way -- not only in the narrow context that was put before it but it also indicated in an obiter dictum that Judge Robart's approach to this matter generally made sense.

After last year's rather sobering experience, Google doesn't want to return to the Ninth Circuit on this matter if it can avoid it. The burnt child dreads the fire. Google being Google (i.e., utterly self-contradictory in the patent litigation context), it has now changed its preference and, all of a sudden, feels that this is a patent infringement case (some patent infringement claims were consolidated into this action later) over which the Federal Circuit has jurisdiction. Here's Google's notice of appeal (click on the image to enlarge or read the text below the image):

NOTICE IS HEREBY GIVEN that Motorola, Inc., Motorola Mobility, Inc. and General Instrument Corporation (collectively, "Motorola"), Defendants and Plaintiffs/Counterclaim Defendants in the above-captioned case, appeal to the United States Court of Appeals for the Federal Circuit from the Federal Rule of Civil Procedure 54(b) Judgment of the District Court entered on November 12, 2013 (Dkt. 932) and all other orders or rulings merged or incorporated therein.

The notice of appeal was filed shortly after the final judgment. (Due to the time difference between Seattle and where I live, I saw both only this morning, but this is the first case in which I've seen a notice of appeal filed on the same day as the judgment it relates to.) Apparently, Google isn't sure that Microsoft will agree with its choice of appeals court, and it may somehow hope that being first to file could make a difference. Maybe it will help Google in psychological terms, but from a legal point of view, this is really about substance, not timing. The earlier-filed appeal here has a huge credibility problem because Google itself chose to file its previous appeal from this litigation to the Ninth Circuit. This, too, doesn't matter in legal terms, because jurisdiction depends on substance.

If it turned out that the Federal Circuit has jurisdiction, then it would also have had jurisdiction over the previous appeal (at least I can't see a difference for the time being). This could become a mess. There are jurisdictions (such as Germany) in which a lack of jurisdiction is rendered irrelevant if both parties show up at the decisive hearing without bringing an objection based on jurisdiction. That doesn't seem to be the case in the United States, however.

There are patent infringement claims in the same consolidated case, but the partial final judgment is on totally separate contract issues. It's too early for me to take a position on who's right or wrong. I'll follow the further process and report on the arguments the parties are going to make.

Even if Google won this potential fight over appellate jurisdiction, it might not gain anything in the end from this opportunistic behavior, which is commonly referred to as "forum shopping". I can see why Google thinks it has nothing to lose by eschewing the Ninth Circuit, but two months ago Chief Judge Rader of the Federal Circuit repeatedly called Google's royalty demands from Apple "crazy" -- and that assessment related to one of Motorola's cellular SEPs, which Judge Robart actually considered, relatively speaking, much more valuable than the video codec and WiFi SEPs at issue in the Microsoft case...

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Google makes 'defensive suspension' argument in FRAND contract dispute with Microsoft

In one week from today, the Microsoft v. Motorola breach-of-FRAND-contract trial in the Western District of Washington will start. And one week ago, Judge James Robart, the federal judge presiding over this case, handed down a summary judgment ruling that slightly narrowed the issues to be put before the jury. In that order he requested further briefing on one subissue: the bearing of Motorola's refusal to conclude a FRAND license agreement with Marvell, the maker of the chipset used in Microsoft's Xbox that implements the IEEE 802.11 (WiFi, or WLAN) standard. Microsoft argues that Motorola had an obligation to extend such a standard-essential patent (SEP) license to Marvell. Had it complied with it, Microsoft says it would have been licensed by extension, under the theory of patent exhaustion, an affirmative defense to infringement. Google's Motorola would like this theory thrown out before trial.

The parties filed their responses to the request for further briefing late on Friday. For most of us it will be totally sufficient to know (when the trial starts) what Judge Robart decides. I don't want to go into too much detail on a subitem. There is, however, an issue of transcendental importance that Motorola raises in its Marvell-related brief: defensive suspension. This one may very well come up repeatedly; in fact, it has already come up before, as I'll discuss in a moment. Besides arguing that patent exhaustion would not apply due to the territoriality principle (which is also a frequently-reoccurring issue, also in connection with Samsung's SEP assertions against Apple) and saying that only Marvell, not Microsoft, has standing in this context, Google also says that it would depend on the "specific terms" of a Motorola-Marvell agreement whether such a license would bar Motorola from bringing IEEE 802.11 SEP infringement claims against Microsoft's Xbox. In this context, Motorola places particular emphasis on the notion of a defensive-suspension clause (click on the image to enlarge or read the text below the image):

"Defensive suspension provisions are common in patent license agreements, including [F]RAND agreements. Indeed, Microsoft itself has acknowledged that '[w]hile there is no exhaustive lift of traditional [F]RAND licensing terms, in addition to a possible compensation element, such terms may include a field-of-use restrictions, reciprocity, non-sublicensability, defensive suspension and other common patent licensing considerations.' [...] Under Microsoft's own logic, Motorola and Marvell could have agreed to a defensive suspension clause under which Marvell may have been barred from selling licensed chipsets to Microsoft after Microsoft initiated litigation against Motorola. [...] Likewise, Motorola and Marvell could have agreed to other provisions allowing for termination of Microsoft's pass-through rights under certain circumstances. Thus, the scope of Microsoft's pass-through rights under a Motorola-Marvell license agreement depends on what terms Motorola and Marvell would have agreed to."

Apple has experienced this with Motorola and Samsung. Both sent termination notices to chipset makers at some point, saying that Apple is no longer a third-party beneficiary and, thus, no longer licensed by extension. In December 2011, a French court rejected Samsung's argument based on termination with respect to Apple as a third-party beneficiary, noting among other things that the ETSI FRAND licensing commitment, which was the relevant one in that case, requires SEP holders to extend irrevocable licenses. About a month later an Italian court adopted the French reasoning. As a result, Samsung failed to win French and Italian preliminary injunctions against the iPhone 4S.

In the paragraph I quoted further above, Motorola is effectively saying that it could have played the same game with Microsoft even if it had extended a license to Marvell.

Irrespectively of whether a FRAND licensing pledge contains the word "irrevocable", Motorola's argument that assertions of non-SEPs (in this case, Microsoft's October 1, 2010 complaints) entitle a SEP holder to defensive suspension must be rejected because, in conjunction with Motorola's stance on SEP-based injunctions, the net effect would be that anyone holding SEPs could get away with any infringement of non-SEPs simply by shutting down the non-SEP holder's products.

Defensive suspension may be fair, reasonable and non-discriminatory under narrow circumstances involving mutual SEP assertions. The only such circumstance that I can think of right now is a scenario in which SEP holder A licenses chipset maker C, but C has a customer B, who also holds patents essential to the same standard, and sues A. In that case, defensive suspension is the only way that enables A to bring about a FRAND license agreement with a reciprocity clause. Even in that scenario, I don't think injunctive relief should be available to either party over its SEPs (one of the reasons being that consumers would be harmed even if two companies agreed that they wanted to duke it out this way). But if A and B ask a court to determine a FRAND rate, then it would be fair to perform a valuation of both parties' portfolios and identify the net payer (and the amount of a net payment). This would greatly reduce (or almost eliminate) the risk of A ending up paying a much higher royalty, relative to objective patent value, than B, only because B benefits from A's agreement with C while B may be awarded a higher royalty in court. If both portfolios are evaluated by the same court, then that court will (at least it should, and normally it would) apply consistent standards to the valuation of both portfolios.

Motorola has recently made a spurious argument in this contract dispute about Microsoft allegedly having sought and enforced injunctive relief over FRAND-pledged SEPs, but it's only a distraction. Motorola didn't even raise FRAND defenses. If a given patent is subject to some FRAND licensing promise in a certain context, it still isn't necessarily available to all comers on FRAND terms for all kinds of use. Motorola wasn't entitled to FRAND licenses to any of Microsoft's SEPs-in-suit, which is why it didn't raise a FRAND/licensing defense in the related infringement proceedings (before the ITC and the Mannheim Regional Court, where Motorola's counsel did not even contradict when the judge said that a particular file system patent didn't have the exclusionary effect of a standard-essential patent). All that Google (Motorola) wants to achieve here is to muddy the water to the extent that a jury could get confused.

At any rate, even Motorola never argued that Microsoft asserted any WiFi-essential patents against it. Defensive suspension is only acceptable in order to bring about reciprocity, and reciprocity should be limited to the same standard. That's not just my opinion but also the way the FTC defined reciprocity in its proposed Google-Motorola consent order ("relevant standards", not just any standards).

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Google refuses $7 million in patent royalties from Microsoft, prefers to keep $100 million bond

Microsoft and Google's Motorola are preparing for a breach-of-contract trial scheduled to commence in late August, but they also have some clean-up to do with respect to last year's anti-enforcement preliminary injunction that barred Motorola Mobility from enforcing a set of German permanent, provisionally-enforceable injunctions relating to two H.264 standard-essential patents (SEPs) and in late November 2012 was replaced by a summary judgment ruling denying injunctive relief.

In order to enforce the U.S. anti-enforcement injunction Microsoft had to post a $100 million bond to ensure that even in the (no matter how inconceivable) scenario of a Microsoft bankruptcy Google's Motorola would be made whole. Microsoft had even offered Motorola a $300 million bond and indicated a potential willingness to increase the amount, but Motorola wanted to ban Windows and the Xbox in Germany rather than receive security for royalties, so the court had to decide, and Judge James Robart felt that a $100 million bond was easily adequate. That bond was posted on April 13, 2012.

In the meantime, a FRAND royalty determination has been made, finding Google entitled to a few million (not several billion) dollars. A letter Microsoft filed with the court late on Tuesday shows that on June 5, 2013 Microsoft's counsel told Google's (Motorola's) counsel that "Microsoft is prepared to remit to Motorola immediately the approximately $6.8 million that represents the 'to date' sum that would be due under [F]RAND licenses at the royalty identified in the Court's April 19, 2013 ruling subject to Motorola releasing the [$100 million] bond currently in place" and politely asked to be advised as to Motorola's position. Yesterday's letter to the court now states that "Motorola did not accept the tender, and has indicated that it would oppose Microsoft's current request to release the bond".

The letter also says that Microsoft "has undertaken to make future royalty payments that arise based on the same [rate-setting] rulings".

From a purely commercial point of view it would actually make far more sense for Google to accept Microsoft's payments. It's better to physically receive money than to have merely a bond, especially when the debtor's ability to pay is beyond reasonable doubt anyway.

Having been unable to reach an agreement with Google, Microsoft now requests that the court order the release of the $100 million bond, which Microsoft says "is unnecessary to secure Microsoft's payment", given that its amount "far exceeds any sum that could ever be due to Motorola under [Judge Robart's rate-setting] Order". If Motorola still refuses to accept its royalty payment, "the bond should be reduced to reflect the actual sums due under the Court's April 19, 2013 [rate-setting] order".

It will be interesting to see how Google seeks to justify a $100 million bond under these circumstances. I guess it just wants to preserve the record for an appeal and avoid doing anything that looks like recognizing that it's entitled to only a small royalty amount. I don't want to speculate on other possible motives.

Microsoft presumably has to pay a considerable amount of ongoing bank charges for a bond of this magnitude. It's not a lot compared to the commercial implications of the wider patent dispute with Google, but too much for any responsible company to leave on the table. Microsoft routinely seeks adjustments of bonds. Last November the Munich Higher Regional Court brokered an agreement between Microsoft and Motorola, further to a Microsoft motion for reduction, that lowered a bond or deposit from 242 million euros ($308 million) to 18.5 million euros ($23.6 million), less than 8% of the original figure. That one related to Microsoft's enforcement of an injunction it had won in May 2012 over a multi-part text messaging layer patent. Tomorrow morning the same appeals court will hold a hearing on a Microsoft motion for reduction of a bond relating to its enforcement of another injunction it won against Motorola in Munich, based on a soft input panel patent.

If you're interested in the full text of Microsoft's letter to the Seattle-based court concerning the $100 million bond, you can view it here or on Scribd:

13-06-18 Microsoft Letter Re. Release of $100 Million Bond

Google (Motorola) will get to respond tomorrow, and Microsoft can reply to Google's answer on Monday. In parallel, Motorola raised a discovery issue, which is on the same briefing schedule. The court will hear argument on both issues over the phone on Tuesday (June 25, 2013).

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Federal judge bars holder of standard-essential patents from enforcing ITC exclusion order

An unprecedented decision came down yesterday in the Northern District of California, where a federal judge granted an implementer of the IEEE 802.11 (WiFi, or WLAN) standard a preliminary injunction against enforcement of a potential ITC exclusion order based on standard-essential patents (SEPs). The implementer is RealTek Semiconductor; the patent holder is Agere, which was spun off of Lucent in 2000 and acquired by Taiwanese integrated circuit designer and supplier LSI, another party to this action, in 2001.

In a decision strongly inspired by Judge James Robart's anti-enforcement injunction (concerning a German SEP injunction) in Microsoft v. Motorola in Seattle and its affirmance by the United States Court of Appeals for the Ninth Circuit (this circuit also includes California), San Jose-based Senior District Judge Ronald Whyte granted a preliminary injunction based on a summary judgment finding in RealTek's favor on Realtek's allegation that LSI and Agere breached their FRAND licensing obligation by seeking an ITC exclusion order without previously offering a license on FRAND terms.

This is the first time for a United States district court to rule out the ITC's only remedy, at least in connection with SEPs. As I'll discuss further below, this also has implications for Apple's FRAND disputes, particularly with a view to the decision the ITC has scheduled for May 31 on Samsung's complaint against Apple. Here's Judge Whyte's landmark decision (this post continues below the document):

13-05-20 RealTek v. Agere Preliminary Injunction Against ITC Exclusion Order

The injunction binds LSI and Agere, which (unless they get this injunction lifted) cannot enforce or seek to enforce an exclusion order injunction pending a full FRAND trial, which will result in a rate-setting decision comparable to Judge Robart's recent Microsoft v. Motorola ruling. The ITC itself is free to continue its investigation. But if the ITC found in LSI and Agere's favor and granted "an exclusion order or injunctive relief" (the latter presumably referring to a cease-and-desist order, which the ITC can grant in addition to an import ban), the preliminary injunction would go into effect and LSI/Agere would face contempt sanctions in California should it actually enforce. Whether the ITC will continue the investigation under these circumstances or stay it (since the federal FRAND case, which RealTek brought in order to resolve its dispute with LSI and Agere over FRAND terms, is going to be dispositive of the whole dispute) remains to be seen. Absent a reversal of the injunction or the incredibly unlikely scenario of RealTek failing to take a license on court-determined terms, it would be a total waste of resources for the ITC to carry on with the investigation, but for institutional reasons it may decide to keep going anyway, anyhow.

LSI and Agere face a steep challenge with an appeal because the circumstances in this case are really extreme. While SEP holders like Samsung and Google's Motorola at least made formal licensing offers (even if lightyears outside of the FRAND ballpark), LSI and Agere prior to bringing an ITC complaint never made a formal licensing offer relating to the latest version of the relevant standard. They had made an offer (with an out-of-this-world 5% royalty demand) back in 2002 and 2003 with respect to the 802.11b standard, but nine years later simply sent RealTek a cease-and-desist order over the more recent versions of the standard (the most recent one is 802.11n, and LSI and Agere specifically claim to hold patents essential to 802.11e and 802.11g) and then filed an ITC complaint.

Two years ago, Judge Barbara Crabb in the Western District of Wisconsin had denied Apple a preliminary injunction against Motorola's pursuit of a SEP-based ITC exclusion order. And about a year ago, Microsoft was denied the kind of partial summary judgment (on breach of contract) RealTek just won. Judge Robart preferred to resolve the case step by step and set a FRAND rate (and range), which he did last month, prior to having a jury determine whether there's been a breach of contract, which will happen in August.

Even without a partial summary judgment ruling in Microsoft's favor on breach of contract, Judge Robart enjoined Motorola. In the Microsoft case it was key that the FRAND contract case had been brought in the United States approximately eight months before Motorola filed the related German lawsuits, and Motorola had offered, in a letter sent from Illinois to Washington State in 2010, a worldwide license covering its declared-essential H.264 and IEEE 802.11 patents, also listing the European counterparts of the relevant U.S. patents. In late November, after a rate-setting bench trial, Judge Robart dismissed Motorola's claim for SEP-based injunctive relief and simultaneously dissolved the preliminary injunction concerning enforcement in Germany, as he found that the summary judgment decision on injunctive relief was "in no way specific" to the U.S. patents at issue in that case, "so the dismissal of injunctive relief in [the summary judgment] order [took] the place of the court's prior anti-suit injunction that enjoined Motorola from enforcing an injunction in the German action". Judge Robart did not mention the ITC Xbox investigation in that decision, though there was a filing at some point in which Microsoft responded to a question by the judge about the status of the ITC proceedings. Google's Motorola withdrew all of its SEPs from that investigation, so the question of whether the summary judgment decision in Seattle also precluded Motorola from enforcing a SEP-based ITC import ban against Microsoft never had to be addressed. For diplomatic reasons ("comity of nations") it's actually harder for a court to bar enforcement of a foreign injunction, but there are also some interinstitutional considerations involved when district courts interfere, even if only indirectly by binding a party to a dispute, with an ITC investigation.

Considering the backing Judge Robart received from the Ninth Circuit in Microsoft v. Motorola, LSI and Agere face a reasonably steep challenge in persuading the same appeals court to reverse Judge Whyte's anti-enforcement injunction. Assuming that this preliminary injunction is upheld (or maybe never challenged, though this is less likely), patent holders facing similar requests in the future will definitely point to differences between their FRAND-related conduct and that of LSI/Agere. They will make prohibitive offers, which at least constitute offers in a formal sense, and they will make them with respect to the versions of the standard over which they seek -- and not too long before they seek -- an ITC import ban. The conduct of LSI/Agere described by Judge Whyte appears particularly outrageous and unsophisticated. But that doesn't mean this outlier will have been the last case in which a United States district court with a FRAND contract (and rate-setting) case before it precludes a patent holder from enforcing potential or actual ITC remedies. Companies that make blatantly unreasonable initial royalty demands may also lose a partial summary judgment decision over a breach-of-contract issue. Other judges may determine in other cases (with their unique circumstances) that they don't need a jury to make this kind of decision, or they may grant an expedited jury trial. If a district court arrives at a breach-of-contract finding before an ITC import ban enters into force, it can order a preliminary injunction of the kind Judge Whyte handed down yesterday. Some courts will do this, while others may decline to engage in a race with the ITC, as the United States District Court for the District of Delaware told Huawei and ZTE in a dispute with SEP-holding non-practicing entity InterDigital.

The ITC can't set FRAND rates and resolve contract disputes; it can merely grant or deny exclusion orders (and related cease-and-desist and bonding orders), and in that process it can adjudicate SEP-related defenses. Cases over FRAND-pledged SEPs really belong in the district courts except under the most egregious of circumstances (I could think of someone's refusal to pay a court-determined, non-appealable FRAND rate, or the importation of infringing goods from unidentifiable sources, which can only be stopped through seizure by customs officers), and Judge Whyte's ruling represents a major breakthrough in that regard.

Implications for the ITC investigation of Samsung's complaint against Apple

In mid-March the ITC postponed its final decision on Samsung's complaint against Apple once again, and the ruling date is now May 31 ( next week's Friday). When the extension was announced, the ITC also asked the parties and third-party stakeholders for input on various SEP-related questions. There were very strong indications that one Samsung SEP was found valid and infringed by Apple, and the ITC now has to think about remedies in light of FRAND. It came close to having to make similar decisions in other cases, but those were dismissed on their non-FRAND-specific merits, or settled. In the Samsung-Apple case the ITC will have to take a position on FRAND, and the breadth of its questions show that it's really trying to look at this hard from all angles. For institutional reasons the ITC probably won't want to deprive itself of jurisdiction over SEP infringement claims, but with more rulings of the kind Judge Whyte issued yesterday, that's what may inevitably happen over time.

Should the ITC grant Samsung an import ban, Apple could try to obtain a preliminary injunction against its enforcement. ITC import bans don't take effect for 60 days due to the Presidential Review period. Judge Lucy Koh is based in San Jose just like Judge Whyte. In December she declined to rule on Apple's FRAND defenses in the first federal Apple v. Samsung two-way lawsuit because she didn't see a need, given that Samsung had lost on the non-SEP-specific merits. She also denied Apple judgment as a matter of law on FRAND antitrust counter-counterclaims, but those aren't necessary to resolve the issue of injunctive relief. Should Samsung win an ITC import ban, then Apple's claim that it needed a ruling on its FRAND defenses for reasons transcending the California litigation would suddenly make a whole lot of sense. At the summer trial the court in California saw all the evidence and heard plenty of testimony concerning Samsung's original 2.4% royalty demand. There's enough in the record in the Northern District of California to determine quickly that Samsung isn't entitled to injunctive relief in any form, including that of an ITC exclusion and cease-and-desist order. Judge Koh has previously shown flexibility when new circumstances or new information warranted new decisions or modifications of previous plans.

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Google faces a double hurdle in what's left of its ITC case against Microsoft's Xbox

More than 27 months after Motorola filed an ITC complaint against Microsoft's Xbox gaming console, Google still hasn't won an import ban, but keeps pursuing one. On March 22, Administrative Law Judge David P. Shaw issued a preliminary ruling recommending the dismissal of the remainder of the complaint, and based on the detailed version of Judge David Shaw's remand initial determination that was published today, it's going to be fairly difficult for Google (Motorola Mobility's owner) to persuade the Comission (the six-member decision-making body at the top of the U.S. trade agency) to overrule Judge Shaw. At this point, only one patent -- a WiFi-related but not standard-essential one -- is still in the game. Google withdrew two WiFi standard-essential patents (SEPs) in October 2012 and two H.264 (video codec) SEPs in January 2013.

I realize that in my most recent post on this case (the one on Judge Shaw's remand initial determination) I had incorrectly stated that the sole remaining patent in this case is U.S. Patent No. 6,246,862 on a "sensor controlled user interface for portable communication device" -- but that's the patent in the Apple case. The sole remaining patent-in-suit in the Microsoft case is U.S. Patent No. 6,069,896 on a "capability addressable network and method therefor". This kind of oversight happens when you look up the wrong document and I apologize for it. Also, while I'm in autocorrect mode, in my post on the withdrawal of the two H.264 patents I originally said that Google would need a successful appeal to the Federal Circuit to bring the '896 patent back into the game. I correctly noted that the ALJ had found that patent infringed, and what happened is that the Commission did not adopt his infringement finding, but it didn't reverse it either. I apologize for this inaccuracy as well. The parallel Apple ITC case got me too confused, but I promise that it won't happen again in this context -- and that I'll try to avoid it in other cases as well.

Anyway, today the detailed version of Judge Shaw's remand initial determination ("RID") entered the public electronic record. Neither party requested any redactions of confidential business information. Otherwise it would have taken several more weeks for the RID to be published.

The RID sided with Microsoft for two separate reasons, any one of which would be sufficient on its own to fend off the remainder of Google's case. I'll explain.

The key problem for Google in this case is that Motorola, when it brought the complaint in late 2010, didn't anticipate the landmark Commission ruling on (now-HTC-subsidiary) S3 Graphics' complaint against Apple, in which the Commission clarified that method claims can only give rise to ITC exclusion orders (import bans) under special circumstances. That's because the ITC only has the authority to prohibit imports of goods if importation itself -- as opposed to post-importation use of the imported goods -- violates U.S. patent law. For product claims ("apparatus", "device" etc.), that's typically the case, but a method claim can only be infringed at the time a product crosses the border if it was manufactured in violation of a manufacturing-related method patent or if the importer is liable for indirect (induced or contributory) infringement. If Motorola's lawyers back in 2010 had interpreted the statute governing the ITC's patent infringement investigations ("Section 337") that way, they would probably have chosen different patent claims, or even entirely different patents. But they didn't, and they built their whole case on direct infringement theories, with indirect infringement being, at best, an afterthought. As a result, one of the two independent reasons for which Motorola's case must be dismissed in Judge Shaw's view is simply that it failed to develop an indirect-infringement theory at the appropriate stage of the proceedings:

"As noted by Microsoft, the administrative law judge previously found that Motorola had not shown that Microsoft's accused products indirectly infringe the asserted claims of the '896 patent. [...] The administrative law judge noted that Motorola's pre-hearing brief included only a single sentence on indirect infringement of the '896 patent. [...] The administrative law judge found that Motorola did not include, and has therefore waived, any argument that the accused products lack substantial noninfringing uses or that Microsoft intends others to infringe. [...]

Accordingly, the undersigned [judge] finds that there is no need for further analysis concerning indirect infringement. Indeed, even after being afforded a hearing to address the application of [the S3 Graphics ruling], Motorola was only able to presented indirect infringement evidence that could have been presented earlier."

If the RID had stopped there, Google would have lost only for procedural reasons, but Judge Shaw decided to address Motorola's arguments anyway, even though he deemed them waived, which makes it even harder for Motorola to win a favorable ruling because the Commission would have to overrule Judge Shaw procedurally and substantively:

"Nonetheless, in the event the Commission disagrees with the administrative law judge's findings in the underlying investigation on this issue, the undersigned provides the following analysis.

As discussed below, Motorola failed to show essential elements of both induced and contributory infringement. Motorola's induced infringement argument fails because Motorola has not established intent to cause infringement. Motorola's contributory infringement argument also falls short because it did not show that the accused 'components' are material parts of the claimed invention. Further, Motorola has not shown that these 'components' lack substantial noninfringing uses."

In connection with the intent that is required for a finding of induced infringement, the RID explains that the Kinect controller would not be affected by the import ban Google is seeking and, in fact, the marketing effort Microsoft puts behind the non-infringing Kinect is a key reason to deny intent to induce infringement by end users:

"The evidence shows that there is another way of controlling the Xbox 360 that is not accused of infringement: the Kinect accessory. Microsoft offers the Kinect accessory in certain packages with the Xbox 360 and advertises it on other packages that do not include the Kinect. [...].

The Kinect is a wired Xbox 360 accessory that is 'packed with an array of cameras and microphones that track users' movements and listen to their voices, allowing the Xbox to be controlled through speech and motion instead of a clunky game pad.' [...]

The evidence shows that Microsoft markets the use of Kinect as a way to control the Xbox without using a game pad — either wired or wireless. [...] Microsoft's inclusion and promotion of the Kinect (and 'controller-free' entertainment) weighs against Motorola's argument that Microsoft has specific intent to induce users to infringe."

With the ITC case not looking too promising for Google, it may at some point have to choose between continuing its pursuit of an import ban despite the challenges it faces and, in the alternative, focusing on its companion complaint in federal court. A district court could hold Microsoft liable for direct infringement of a method claim even if no infringement occurs at the time of importation. But the federal case is stayed pending resolution (including appeals) of the ITC investigation, and if and when it finally resumes, it will take a while before it goes to trial. And even if Google won an infringement finding, its commercial scale is likely limited if it just comes down to Microsoft's own use of the Xbox in connection with wireless controllers. In a patent dispute of this kind you really need infringement of reasonably massive scale to win a substantial amount of damages.

Google continues to get no leverage on the patent litigation front out of its $12.5 billion acquisition of Motorola Mobility. Later this month the ITC will rule on its complaint against Apple, and the sole remaining patent-in-suit in that case has already been found invalid twice by an administrative law judge.

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