Broadbased support for Samsung's petition for rehearing en banc in Apple injunction case

With an unusually strong dissent, Federal Circuit Chief Judge Sharon Prost practically invited Samsung to request a rehearing en banc (full-court review) of a 2-1 decision that would, unless overturned, pave the way for a permanent injunction for Apple against Samsung over patents covering limited aspects of some of countless smartphone features. Samsung accepted the de facto invitation and petitioned accordingly. On Monday, five amicus curiae briefs in support of Samsung's petition were filed. These amici include:

• the National Black Chamber of Commerce (which warns against the risks of African-American businesses being forced out of markets by patent-wielding incumbents);

• non-governmental organizations Public Knowledge and the Electronic Frontier Foundation (EFF), whose joint filing focuses on the majority opinion's holding that the public interest "nearly always" favors patentees seeking injunctions, which has these NGOs greatly concerned;

• innovation policy researchers Charles M. Davidson and Michael J. Santorelli of the Advanced Communications Law and Policy Institute of New York Law School, whose brief (filed in their individual capacities, not on behalf of their university) expresses profound concern over a potential "deluge of lawsuits seeking injunctive relief" that would stifle innovation;

• the Computer & Communications Industry Association (CCIA), whose members include, among others, Amazon, Intuit, Microsoft, Netflix, Sprint, and Yahoo; and

• a group of companies including Google, Facebook, eBay, ASUSTeK, HTC, Lenovo, Newegg, and Red Hat. (ASUSTeK, HTC and Lenovo compete directly with Samsung.)

Chief Judge Prost must be pleased that her dissent from the majority opinion has support in academia, NGOs, and industry.

Apple, however, has a particular problem with the brief filed by the Google-Facebook group. It has asked the Federal Circuit to reject the brief because the filers allegedly didn't meet and confer with Apple prior to filing and because Google should, in Apple's opinion, be treated as another party to the dispute lest its amicus brief constitute an end-run around page limits. I don't have an opinion on the procedural argument, and it doesn't seem overly important to me whether Google is a legitimate amicus curiae in this case, given that there is no way Apple could prevent all the other members of that group of companies from filing an amicus brief. Also, even if the court formally agreed with Apple, the circuit judges would get to see that brief anyway. By far and way the most important aspect of this brief is that it shows the support Samsung has in industry. That political weight would not be diminished by a potential rejection.

Here's the "Google et al." brief (this post continues below the document):

15-11-02 Google Facebook Et Al. Amicus Curiae Brief ISO en Banc by Florian Mueller

Just like Chief Judge Prost, these companies seek to defend the causal nexus standard the Federal Circuit established in its first three Apple v. Samsung injunction decisions. Part A of the brief explains why there is now an inconsistency that must be settled by means of a rehearing en banc. In the second half of their filing, these companies focus on their concerns as major high-tech companies. They refer to an analogy that came up in a previous Apple v. Samsung injunction-related ruling (and to Justice Kennedy's famous concurrent opinion in eBay v. MercExchange):

"To borrow from this Court's analogy in Apple III, if a laptop computer maker was required to change the design of its battery, cooling fan or screws (and the list goes on and on) every time it was found to infringe one of the thousands of patents covering minor features of its product, and was then forced to litigate whether its design-around complies with the injunction, the laptop maker would face the constant threat of coercive patent litigation."

Instead of injunctions, they propose cross-license agreements such as the one Google and SAP announced last week. They note that Apple has licensed the patents at issue, as the record of this case irrefutably shows.

There is a significant overlap between these amici and the membership of CCIA, but CCIA also has a number of very significant other members, such as the ones I listed further above. Here's CCIA's brief (this post continues below the document):

15-11-02 Apple v. Samsung CCIA Amicus ISO Petition for en Banc by Florian Mueller

I have repeatedly disagreed, but also agreed on more than one occasion, with CCIA. I agree this time around, with one exception:

"There is no dispute that patents are a critical part of protecting innovations."

There are industries in which that is the case, but in this industry, there's a constantly-growing number of companies and individuals who believe the patent system does more harm than good. CCIA notes that its member companies file for patents, and they probably didn't want to appear as an anti-patent group here. So they diplomatically chose to say something about information and communications technology (ICT) patents that is actually rather controversial in this industry. That tactical choice has nothing to do with the strength of CCIA's arguments for a rehearing, of course.

CCIA's brief is very focused. The concern is all about outsized, undue leverage for patent holders over high-tech companies that build highly multifunctional products. It's a concise and convincing brief that has drawn my attention to a brand-new academic paper I wasn't previously aware of:

"The majority's 'new and lower causal nexus appears disconnected from the reality of multicomponent devices. It fails to appreciate that even those most innovative technology products are made up of countless small advances, not a few pioneering ones.' Bernard Chao, Causation and Harm in a Multicomponent World at 9 (U. Denv. Sturm C. of Law Legal Studies Research Paper Series, Working Paper No. 15-56, Oct. 27, 2015), http://ssrn.com/abstract=2681204"

The five amicus briefs nicely complement each other. There are, of course, overlaps (for example, the thrust of the two filings from industry is very similar). But each of these filings raises issues and arguments that increase the likelihood of a rehearing. I'm optimistic about the prospects of this, and we'll likely see even more amicus brief activity if the rehearing is indeed granted.

Apple will likely also get some support for its opposition to Samsung's petition, including, if the not too distant past is any indication, from Ericsson, a company that would not hesitate to leverage a patentee-friendly final decision in Apple v. Samsung against Apple...

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Google, Facebook, HP, others warn a company could lose its entire profits due to a single patented icon

Yesterday Apple responded to Samsung's petition for a full-court review of an appeals court ruling upholding hundreds of millions of dollars in design patent damages (this post continues below the document):

15-07-20 Apple Response to Motion for Rehearing by Florian Mueller

I have no problem with what Apple's filing says, at least none that I would have been able to identify without a lot of research, but I do have a huge problem with what it does not say. For a truly great company like Apple the objective should not merely be to defend a favorable ruling but also to advocate good interpretations of the law and good policies. Regrettably, Apple's filing doesn't even try to justify why anyone--potentially even including Apple, not in the Samsung case but in whatever future context--should be liable for the totality of their profits for infringing only a single design patent with a product that could theoretically infringe multiple design patents (thus resulting in multiple disgorgements of entire profits, which would at some point ruin everyone, even Apple), not to mention thousands of technical patents, copyrights, trade secrets, etc.

Apple argues that this smartphone case has different characteristics than Samsung's hypothetical example of a disgorgement of total profits could affect the manufacturer of a car only because of a cupholder infringing a design patent. According to Apple, the design patents at issue cover the "iconic" look of the iPhone. But Apple's legal argument is that there is no room in the statute for any kind of apportionment, and on that basis, the cupholder example would apply. Of course, it would still be up to a jury to decide, but based on Apple's proposed and supported interpretation of the law, the judge presiding over a cupholder design patent trial wouldn't have a choice but to instruct the jury that a total, unapportioned disgorgement of profits is possible under the law.

Apple can do better than that. In the standard-essential patents context, Apple consistently advocates the "smallest saleable unit" approach. Sure, SEPs are utility (technical) patents and design patents fall under a special rule. Therefore, Apple is not inconsistent on the law, but it is inconsistent in terms of the policies it promotes.

A request for a rehearing is a long shot, generally speaking and even more so after a unanimous panel opinion. That's why Apple's opposition to Samsung's petition is more likely than not to succeed, and Apple's lawyers just focused on what they believe will dissuade the Federal Circuit from taking another look at this matter. For most companies in the world, a few hundred million dollars in design patent damages would be a huge opportunity. But Apple could afford to take a more strategic perspective. It wants design patents to be strong and that makes sense. However, I'm convinced that all companies with a focus on making products (as opposed to patent enforcement) should be able to agree that the possibility of multiple disgorgements of entire infringer's profits is absurd and dangerous.

I'm sure there's consensus across the industry on this, but at this procedural stage it's probably much harder for Samsung to drum up support in the form of amicus curiae briefs than it would be in the event that the petition is granted or, especially, if it brought a petition for writ of certiorari (request for Supreme Court review). Still, several advocacy groups as well as a number of high-profile industry players, notably including not only Google (a Samsung partner) but also Facebook, HP and eBay (among others), have chimed in. Here's the brief that the group including (among others) Google, Facebook and HP filed (this post continues below the document):

15-07-01 Dell HP Google Facebook EBay Et Al. Brief by Florian Mueller

The greatest strength of that amicus brief is that it provides examples that, under Judge Koh's and the Federal Circuit panel's reasoning, would all result in a potential disgorgement of unapportioned infringer's profits. It mentions the numerous components in a "smart television" set, and notes that the aspects that could be covered by design patents include "even the shape of a single icon within an application." This example comes up again in connection with "[s]oftware products and online platforms":

"A design patent may cover the appearance of a single feature of a graphical user interface, such as the shape of an icon. That feature [...] may appear only during a particular use of the product, on one screen display among hundreds, but the panel's decision could allow the owner of the design patent to receive all profits generated by the product or platform, even if the infringing element was largely insignificant to the user and it was the thousands of other features [...] that drove the demand generating those profits."

The largest "online platforms" are Google and Facebook, and just imagine how crazy it would be if, for example, a single icon in a submenu of the Facebook settings was covered by a design patent and someone then collected the totality of Facebook's profits because of a jury being told by a judge that this was allowed under the law.

I'm more on the conservative side and that's why I don't blame Apple for arguing that courts should interpret the law as it stands and not legislate from the bench based on a prediction of what lawmakers would decide if they looked at an issue again. Nor would I (or did I) blame the Federal Circuit panel for having said the same. But the respect in which I disagree with Apple and the panel is that when a rigid interpretation of a law is so clearly ridiculous under today's circumstances, the courts should at least make an effort to find ways to interpret it reasonably. CCIA, an industry group whose members include Samsung and several of its amici, had made one proposal for how to thread the needle, and the panel opinion had not even addressed it, at least not specifically. CCIA has also filed an amicus brief and I still believe this is worthy of consideration, be it by the Federal Circuit or the Supreme Court.

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Companies worth $1 trillion are suing others over Android's alleged patent infringement

On Friday it became discoverable that Fujifilm, a Japanese company, has sued Google subsidiary Motorola Mobility for Android's alleged infringement of four of its patents. So far, Fujifilm has mostly played a defensive role in patent litigation, bringing declaratory judgment actions or countersuits. But after trying unsuccessfully since April 2011 to work out a license deal, it became the eighth company with a multi-billion dollar market capitalization to assert intellectual property rights against Android in court.

I have looked at Fujifilm's complaint, and it describes the scope of its four asserted patents in extremely broad terms. If Fujifilm really believes to have monopolized, for one particularly outrageous example, the idea of "a telephone that can communicate with other devices (e.g., a computer) over a path other than the telephone network", such as over WiFi, then its demands may have been out of line and Motorola Mobility may have been forced to take its chances in litigation. It's very likely that those patents will be narrowed dramatically, if not invalidated in their entirety, during the course of litigation. But it's too early to talk too much about the merits of this lawsuit. Claim construction and summary judgment will provide some more clarity between now and a possible trial.

What I'm more interested in at this stage is a certain phenomenon. Android continues to be an IP infringement lawsuit magnet not just with respect to troll lawsuits (the trolls sue everyone including Apple) but, more importantly, lawsuits from large publicly-traded industry players. Apart from reactive or preemptive lawsuits brought by Android device makers against Apple, the only large companies to have sued Apple in recent years are Eastman Kodak and Nokia. Apple and Nokia settled more than a year ago. That's it. But eight large publicly-traded companies are currently embroiled in litigation with Android companies (be it Google or its device maker partners) over Android's alleged infringement of intellectual property rights. Seven of those companies have brought patent infringement claims; one of them, eBay, has asserted trade secrets, a different kind of intellectual property right.

If I exclude eBay (which closed on Friday with a market capitalization of $51.58 billion), the other seven large companies (all of whom assert patents, and a couple of them additionally other categories of IP) have a collective market capitalization, based on Friday's closing, of $1.06 trillion. Here's a list of those companies in chronological order of each company's first patent infringement lawsuit targeting Android:

• Apple (AAPL): $565.68 billion

• Oracle (ORCL): $144.42 billion

• Microsoft (MSFT): $246.9 billion

• Gemalto (PINK:GTOMY): $6.52 billion

• British Telecom (BT): $27.02 billion

• Nokia (NOK): $6.89 billion

• Fujifilm (PINK:FUJIY): $8.47 billion

By comparison, Google's market capitalization is $188 billion.

The companies who claim that Google's Android infringes on their intellectual property are too diverse to believe in a conspiracy. And I repeat myself: apart from reactive or proactive countersuits from Android companies, Apple doesn't face much of a problem with big-company lawsuits. Does it do a better job at steering clear of infringement than Google does? Does it do a better job at working out license deals or non-aggression pacts with others in the industry? Honestly, I don't know what Apple does because they obviously don't tell the public what their dealings with other industry players are like. But whatever they do, they show that the commercial success of a platform is only one of the relevant factors. Android's IP issues are not simply a function of its market share. There must be some more fundamental problems.

Google's defensive abilities are admirable, but it can't fend off all of those assertions. I recently published a list of 11 Apple and Microsoft patents that courts in different jurisdictions ruled were both valid and infringed by Android.

As an Android user, I would like to see Google address those problems more effectively. When I look at public statements made by Google officials, it sometimes seems that the company is, at different levels, in a state of denial concerning Android's intellectual property issues. 11 months ago, Google announced its merger agreement with Motorola Mobility. By now, it becomes clearer and clearer that this acquisition is not the answer.

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Top five companies asserting IP against Android have collective market cap of $734 billion

While all of the major mobile platforms have to deal with widespread "trollish" activities, Android's intellectual property problems have a variety of unique characteristics.

There's no doubt that Android's popularity and its potential disruptive effect have contributed to the fact that 44 Android-related intellectual property lawsuits have been filed since March 2010. But it isn't all just attributable to Android's market share. It's only one reason, not the only one. There are also some Android-specific reasons for this mess, some of which have to do with Google's approach to other companies' intellectual property.

Other mobile platforms also face troll problems and, in a few cases, efforts by large players to levy a patent tax. Apple, for example, is embroiled in disputes with Eastman Kodak and Nokia that fall into the latter category. But in Android's case it's noticeable that a handful of sizable, publicly traded IT companies believe Google's software infringes on their intellectual property rights. The latest major player to make such assertions is eBay (including its wholly-owned PayPal subsidiary).

I have produced a chart that shows the market capitalizations (as per the closing of the relevant stock markets on Friday, May 27, 2011) of the top five right holders that have filed lawsuits over Android, and by comparison I also show the market caps of the top five companies they have sued so far:

There's also a PDF version available for download from Scribd. You can also share the graphic conveniently on Twitter via Twitpic.

The aggregate market cap of the top five right holders exceeds $734 billion, while the corresponding amount on the right side of the chart is less than half of that ($343 billion). Roughly half of the latter amount relates to Google itself, and those assertions are about what Google does more so than about what Google's partners do.

Only Oracle and eBay sue Google exclusively, and Gemalto sues Google as well as three Android device makers. But Apple's and Microsoft's assertions are also primarily attributable to Google's alleged infringements. Even in the Samsung case, which is in no small part about infringement of design-related rights, Apple asserts utility patents, all of which but one or two are related to Android in general. In other words, those device makers serve as "proxies."

From a strategic point of view, Google faces a bigger problem than the device makers. Samsung, HTC and LG are not exclusively committed to Android and also build phones running Windows Phone 7 and other platforms. Motorola Mobility has been rumored to be building a team to develop its own mobile operating system. So if Google cannot solve Android's intellectual property issues, its device makers could even abandon the platform at some point.

In the court of law, cases are (and should be) decided on how the judges and juries view their merits. A company with a minuscule market cap has the chance to beat an Apple. However, I thought it was nevertheless interesting to see to what extent Google's approach toward intellectual property rights has brought up major industry players against it. It wouldn't be possible to draw up a comparable chart for Apple's iOS, RIM's BlackBerry or Microsoft's Windows Phone. You can find troll attacks on any of them, but you won't find claims of intellectual property infringement by several players of the nature and stature you see on the left side in the chart shown above.

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eBay/PayPal paving the way for huge mobile payments patent suit against Google

As a consumer and from an industry point of view, I want healthy competition in the field of electronic (and increasingly mobile) payments. I personally like (and have been an early adopter of) a number of Google services. For example, Amazon just sent out my second Android-based smartphone (Samsung Galaxy S2). So I would really want Google to compete fiercely with e-payment powerhouse PayPal (a wholly owned eBay subsidiary) on the basis of honest, independent innovation.

Regrettably, a complaint filed by eBay/PayPal (with the Superior Court of the State of California for the county of Santa Clara) against Google contains indications -- unusually strong ones at this stage of a litigation -- that the search giant's just-announced Google Wallet mobile payment system was created on an apparently problematic basis.

The complaint basically says that Google negotiated a partnership with PayPal but at a point when the two companies were allegedly very close to a formal agreement, Google poached PayPal's chief negotiator Osama Bedier and, at around that time or not much later, Stephanie Tilenius (now a senior vice president at Google) and some other key people, some or all of whom are now accused of stealing eBay/PayPal trade secrets.

Trade secrets are an intellectual property right. So are (among others) copyright, trademarks, and patents. In my opinion, the stage is set for a subsequent patent infringement suit by eBay/PayPal against Google. I don't know whether it will happen next week, next month, later this year or sometime next year, but having analyzed the situation and in light of certain parallels with the Skyhook v. Google dispute, I see a very high probability of patent assertions by eBay/PayPal. It would really be a highly logical thing to happen. I can see reasons why eBay/PayPal might still wait a little bit, possibly even a year or so, and I'll explain those possible reasons in more detail further below. The two most important possible reasons are that eBay/PayPal might want to previously make some headway with the first lawsuit (especially at the discovery stage) and that some eBay patent applications particularly relevant to Google Wallet may currently be under examination but issue in the near term.

In order to have the appropriate context for the patent dispute that I believe is now looming LARGE, let me firstly talk a little bit more about the trade secrets, breach-of-contract and unfair competition lawsuit that has already been filed.

eBay's and PayPal's complaint is, in and of itself, another "Skyhookgate" for Google

I mentioned Skyhook before and blogged about that dispute about three months ago. Skyhook had deals with Android device makers (particularly Motorola and Samsung) in place to ship their geopositioning software but it appears that Google (including Android chief Andy Rubin) then interfered and bullied those manufacturers so they dropped Skyhook's technology in favor of exclusively using Google Location Services.

Skyhook filed an unfair competition suit as well as a simultaneous patent infringement suit last September. Unfair competition is also the legal theory behind one of eBay's and PayPal's nine causes of action, and I already said that I'll talk about the patent aspect further below.

The Skyhook case was already quite interesting just based on the initial complaint and an early summary judgment motion because it is fundamentally about whether Android is "open" as in open source and open standards (which ever more observers have concluded it is not), but since Skyhook is a relatively small company, this matter got a great deal of attention only after 418 pages of documents came up in discovery, exposing Google's attitude and strategy.

It's possible that the controversy over mobile payments will also raise similar issues as the Skyhook case did. That might happen if some Android device makers opted to use a competing service, such as PayPal, and if Google then used what it calls its "club" to make device makers do what Google wants (its control over the Android trademark and certain closed-source components, particularly the Android Market client), then we'd have a perfect mirror image of the Skyhook case.

But even without the "openness" issue, eBay's and PayPal's lawsuit is already a bigger disaster for Google. The eBay/PayPal group is a much more powerful and famous plaintiff than Skyhoook, and this complaint makes Google and its leadership look ruthless and sleazy, compared to which it's a lesser evil to be accused of just being "not open" and heavy-handed (except in the eyes of genuine, unbiased and truly independent advocates of Free and Open Source Software, which are hard to find).

Paragraph 45 of eBay's and PayPal's complaint makes a high-ranking Google executive appear unbelievably thoughtless: apparently Google Senior Vice President Stephanie Tilenius poached a former PayPal colleague via a Facebook (!) message (which may have been read by any number of other PayPal folks) during a period for which she had, allegedly, an explicit contractual obligation not to do so.

Considering this early stage of the process, eBay's and PayPal's allegations are already amazingly detailed and specific. They don't just make vague assertions; they quote from particular messages (even email and text messages) and state particular dates on which certain things happened. They also describe how some confidential data was allegedly copied, in contravention of employment contracts, to a Dropbox account as well as a non-corporate email account.

Besides some PayPal-specific issues the complaint also restates the often-heard accusation of Google being a data hog that doesn't respect people's privacy, claiming that "Google Checkout is mostly a tool for acquiring customer information for the benefit of Google's other products and services", an accusation that appears very tough since Google probably wanted and still would like to make money with its Checkout service.

The broader picture is that Google's ethics and business practices are now at issue in an antitrust case in Texas, a full-blown European Commission investigation, the Skyhook dispute, antitrust complaints filed by two South Korean search engine companies in connection with Android, and now the eBay/PayPal complaint. According to Reuters, the Federal Trade Commission of the United States is seriously considering a broadbased antitrust investigation as well. It's generally noticeable that the competition law issues facing Google are increasingly related to its dealings in the mobile sector -- disproportionately much when considering that it represents just a fraction of Google's overall revenues, but less surprising when taking into account how much is at stake there.

Google's behavior makes many enemies in the industry

The way Google appears to deal with competitors and "partners" (such as Android device makers) as well as its frequent conflicts with intellectual property law are not only in sharp contrast with its "Don't Be Evil" meme but have also made Google a number of powerful enemies in recent years.

I saw that the world-class law firm of Orrick, Herrington & Sutcliffe represents eBay and PayPal against Google. Orrick did and maybe still does a fair amount of work in the past for Apple, Microsoft and Oracle. Those three players also have intellectual property issues with Android. Microsoft recently filed the first-ever antitrust complaint (note that "antitrust" in this context does not include "merger control" matters) in its history against Google (with the European Commission). Microsoft sued Google over a trade secrets issue (like eBay's and PayPal's case related to the poaching of an executive) years ago, and Google just hired the law firm that defended its behavior in that context (Keker & Van Nest) to now become the third law firm to defend Google against Oracle's patent and copyright infringement assertions.

Everyone knows that Google and Facebook are at loggerheads. It recently turned out that Facebook had hired a PR firm to propagate unfavorable information about Google. That revelation temporarily distracted from Google's own practices, but with eBay's and PayPal's complaint, the spotlight is again on "the Plex".

Apple, eBay, Facebook, Microsoft and Oracle are a pretty impressive group of five companies taking issue with Google. Then there's the possibly very complicated relationship between Google and Motorola. Like I said, Motorola was the first company to be bullied by Google out of a partnership with Skyhook, and rumors have recently been flying that Motorola is considering building its own mobile operating system to regain control.

Google is increasingly isolated. The relatively best friends it now has among major industry players are probably IBM and Red Hat. Those like the idea of exploiting open source the way Google does, and that's probably their common denominator.

eBay and PayPal will assert all relevant intellectual property rights, most likely also patents

When a company faces the situation eBay and PayPal describe in their complaint, i.e., employees join a competitor and allegedly use confidential information against their former employer, there are basically three kinds of causes of action (legal theories) that come into play:

• Contract law: employment agreements (including non-compete covenants) and related non-disclosure agreements and guidelines accepted by the employee. eBay and PayPal do make reference to them. Microsoft is currently doing so quite successfully against an employee who went to Salesforce. It's also possible that eBay and PayPal could obtain injunctions against one or more of their former employees now working for Google on mobile payments. Enforcing general non-compete clauses appears very difficult in California due to a ruling in 2008, but it could be that PayPal employees agreed to particular terms that are enforceable.

  There's significant leverage in the fact that such rights are asserted against the former employees. From a liability point of view they aren't necessarily fully covered by their new employers. eBay and PayPal assert breach of contract and other theories against two executives who joined Google (Osama Bedier and Stephanie Tilenius) and reserve the right to sue up to 50 (!) other individuals, who are currently referenced in the complaint by a placeholdder ("Does 1 through 50").

  Basically the courts have to draw a line: employees should have some choice to leave an employer and take a new job, but it depends on what their contracts say, how much overlap there is between the original job and the new one, and other circumstances. [Update] In its first official reaction to the complaint (quoted by, among others, CNN.com), Google tries to portray those employees' behavior as just a normal way to exercise their freedom to pick a new job: "Silicon Valley was built on the ability of individuals to use their knowledge and expertise to seek better employment opportunities, an idea recognized by both California law and public policy. We respect trade secrets, and will defend ourselves against these claims." [/Update]

  Generally it's easier to use those contractual rights to prevent further violations than to take action against what has already occurred. Damage claims can also be based on those theories, but competition law and, above all, intellectual property law can give (depending on the circumstances) the original employer much more leverage.

• Hiring employees from competitors for the purpose of using a competitor's confidential information can be deemed one of many manifestations of unfair competition. In the eBay/PayPal vs. Google case, the fact that someone was poached while negotiating with Google on PayPal's behalf looks particularly bad.

• But in most cases of this kind, companies will (as eBay and PayPal have) also bring intellectual property rights into play. If an infringement of such rights is proven, it is often possible to prevent an unfair competitor to continue to make use of some of that confidential information if it's of a technological nature.

  Intellectual property rights are diverse. If an employee actually copies source code and then incorporates it into a competitor's code base, that would (at least) constitute a copyright infringement. However, eBay and PayPal don't make any such assertion (at least at this stage). Instead, the kind of intellectual property they are explicitly asserting now is called a trade secret. It relates to information whose confidentiality companies protect. The world's most famous trade secret is the Coke recipe. And the very opposite of a trade secret, and in most fields of technology a more powerful device, is patent law. Let's now look at the role of those different IPRs in connection with eBay and PayPal.

Of those intellectual property rights, patents are, at least in connection with software (even if maybe not in a field like pharmaceuticals), often infringed inadvertently. Intentional infringement does happen, and if it happens, it can result in treble damages under U.S. law. But the way patents work is that everyone has the theoretical (even if not always practical) option to check on public patent registers (such as the USPTO database) and steer clear of infringement. There are too many patents to do that, but that doesn't give anyone the right to infringe a patent.

If you litigate, a patent dispute is fundamentally about whether the accused product or service practices what the asserted patent teaches (provided the patent is valid). Only if willful infringement is alleged, there's an additional need to evaluate whether the defendant acted intentionally or not.

With trade secrets, the question of how the information was misappropriated is an essential, indispensable part of the consideration. That makes it harder to prove. But in terms of a company's or a person's reputation, the alleged theft of trade secrets is "really bad stuff": there's no moral (even though not legal) excuse of inadvertent infringement. With patents, you're morally innocent until proven guilty (even if proven to infringe, with the possible consequences of an injunction or damage awards against you). With trade secrets, if a court rules against you, you're inevitably exposed as a convicted thief.

If eBay and PayPal can prove a misappropriation of trade secrets by people now working for Google -- or even before the end of the lawsuit at least achieve that strong indications for such misconduct show up in discovery --, then Google will have a terrible reputation as an infringer (in terms of an employer of infringers) in connection with Google Wallet. And at that point any patent infringement allegations would have even more weight.

Why eBay and PayPal may want to wait before they also assert patents

eBay and PayPal could also have tried to file two parallel lawsuits. The one they just filed is based on California state law. Trade secrets are recognized by U.S. federal law, but they aren't part of it, unlike patents. Patent disputes are filed with federal courts. In that case, the logical venue would be the U.S. District Court for the Northern District of California (where Oracle is suing Google). Maybe there will be a near-simultaneous patent suit these days. Perhaps eBay and PayPal wanted the public to initially focus on those breach-of-contract, trade secret and unfair competition issues, all of which deal with willful nasty behavior, which isn't always the case in connection with patents.

But eBay and PayPal are economically strong and can afford to wait. They may want to firstly make some headway with the first suit. There's also another reason for which I could imagine why they might want to wait with a patent suit:

This dispute is about rather recent technologies related to mobile payments. PayPal had filed for 11 now-granted U.S. patents before and shortly after being acquired by eBay, and eBay has 188 U.S. patents in its own name. But the patent examination process at the USPTO takes years. It's fairly possible that some of the technologies about which the "deserters" may have told Google and which are likely relevant to mobile payments were developed and patented just in recent years, and maybe some important patents could be issued during the next year or so and greatly enhance eBay's and PayPal's ability to make patent assertions against Google Wallet.

An obvious question is whether Google would be able to countersue eBay. While Google's own patent portfolio is relatively weak, it is yet bigger than eBay's patent holdings. Google apparently doesn't have any patents it can use against Oracle, and even if Google actually acquired Nortel's patents, it might not have any serious ammunition to use against a company that's mostly about enterprise software. But with eBay and PayPal it's possible that some of Google's patents (even certain search patents) might represent a credible counterthreat. That would be another reason for which eBay and PayPal might rather wait until they get particularly relevant patents (relevant in terms of mobile payments) granted.

While eBay's and PayPal's Santa Clara complaint does not mention the word "patent" even once, its paragraph 9 mentions eBay's "substantial intellectual property in [the field of online and mobile payments]". And that term does, as I explained, include patents. Also, I'm convinced that any settlement between Google and eBay/PayPal would certainly address patents as well. It wouldn't make sense to leave that question unaddressed.

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