Huawei is allegedly adamant about receiving 1.5% of Samsung's smartphone sales as a patent royalty

As I mentioned a month ago, Samsung had a deadline last week for its response to Huawei's Ninth Circuit appeal lodged with the Federal Circuit against the antisuit (actually, just anti-enforcement) injunction Judge William H. Orrick upheld in the Northern District of California in late June. The U.S. district court will hold a trial in December, and the purpose of the injunction is to bar Huawei from leveraging two Chinese patent injunctions (granted by the Shenzhen Intermediate People's Court) before Judge Orrick has the chance to adjudicate a related claim.

Like in the court below, Quinn Emanuel, as counsel for Samsung, is defending the Microsoft v. Motorola it once sought to prevent as Motorola's counsel, while Sidley, then counsel for Microsoft, is trying hard (but not convincingly so far) to distinguish one case from the other.

With either party having filed one brief (Huawei will file a reply at its earliest opportunity since it would like the Federal Circuit to decide sooner rather than later), it all looks like a total rehash of the district court proceedings. The one and only Yogi Berra would have said: "It's déjà vu all over again."

However, Samsung's responsive brief is still interesting from two angles. One, it sheds some additional light on the history of licensing negotiations between the parties. Two, it's interesting to watch how Samsung's lawyers position the anti-enforcement injunction as merely thwarting Huawei's plans to frustrate the forthcoming San Francisco trial (as opposed to putting U.S. law about Chinese law).

Here's the filing first (this post continues below the document):

18-08-27 Samsung Appellate Brief by Florian Mueller on Scribd

Samsung alleges that Huawei has made only token concessions and engaged in some structural maneuvering, but never went down (at least not to any meaningful degree) from its initial 1.5% royalty demand:

"Although Samsung considered different license structures and made significant concessions on royalty terms, Huawei inexplicably ping-ponged back and forth between different types of licenses, while woodenly clinging to its demand that Samsung pay its so-called 'standard' royalty rate of 1.5% of the sales price of smartphones and other devices that employ the standards in question. As discovery has shown, even with the modest concessions Huawei has offered, its demands are unreasonable and discriminatory because they exceed any valuation that is recognized as appropriate in the industry as well as terms Huawei extended to others, [...]

Huawei's original 1.5% demand was previously mentioned in the Chinese court ruling. It's also what I remember from Huawei's dispute with ZTE. Samsung's appellate brief explains why it's an excessive royalty rate:

"In August 2011, Huawei approached Samsung seeking a cross-license to the parties' respective 3G and 4G SEP portfolios. [...] By that time, Huawei had announced to the industry that it would demand a 'standard' one-way royalty of 1.5% of the sale price of devices like smartphones and tablets for its LTE/4G SEPs. [...] The industry consensus, however, was that the aggregate royalty burden for all such SEPs should be a single-digit percentage, approximately 6-8%. [...] Huawei's demand thus amounted to 18-25% of the aggregate rate for all SEPs owned by every firm. Huawei has never justified that demand; in particular it does not contend that it holds a corresponding proportionate share of total industry SEPs, and it does not contend that any other smartphone manufacturer has accepted that rate in a negotiated license."

Apparently, the discrepancy between Huawei's share of wireless SEPs and the aggregate royalty burden deemed reasonable in the industry didn't dissuade the Chinese court from granting Huawei injunctive relief--but the appeals court in Guangdong may still reach a different conclusion.

Interestingly, Samsung's position changed a lot. Initially it expected Huawei to be a net payer under the deal; later it proposed a royalty-free cross-license, and about three years ago Samsung even signaled a willingness to be the net payer:

"During the course of negotiations Samsung made reasonable offers to Huawei in the hopes of reaching a resolution. Samsung originally proposed that Huawei make a balancing payment due to Samsung's larger and stronger patent portfolio [...], then later proposed a royalty-free cross license [...], and then compromised further in July 2015 by offering to pay Huawei a net royalty fee [...]. That offer was based on an existing royalty rate set by the Guangdong High Court of China at Huawei's request in a case involving a portfolio of Chinese SEPs owned by InterDigital. [...] Huawei refused these offers."

I remember that a Chinese court had held that InterDigital was entitled to SEP royalties far below what InterDigital was seeking then and Huawei is seeking now. But that's the problem when a company is licensor in some cases and licensee in others: once the shoe is on the other foot, the positions one used to take and sometimes even the victories one scored in a different context backfire. Just like Huawei's U.S. counsel from the Sidley firm is now struggling to distinguish Huawei v. Samsung from what may have been by far the most important triumph of the firm in connection with patent enforcement.

Meanwhile, Samsung's counsel is making a lot of effort to describe the anti-enforcement injunction as no big deal. That's necessary because of the international comity considerations involved: it's about a U.S. court having enjoined a Chinese company (that elected to file a case in San Francisco), not about a U.S. court putting itself above a Chinese court, or putting U.S. law above Chinese law. As Samsung's brief puts it, the U.S. district court merely sought to "protect its own jurisdiction to decide the controversy now before it" and to "ensur[e] that the U.S. case can also proceed unimpeded."

I'd be surprised if comity considerations played out in Huawei's favor.

If Ninth Circuit didn't control this case, the question of whether all of the Supreme Court's Winter preliminary injunction factors must be analyzed would be more interesting, but only slightly so since Judge Orrick addressed them in his denial of Huawei's motion to alter judgment. Given that the Ninth Circuit has consistently (apart from maybe one clause in one sentence of a long ruling) and repeatedly held that the traditional preliminary injunction factors are replaced by the Gallo test, it's probably going to be hard for Huawei to persuade the Federal Circuit judges to depart from established Ninth Circuit law--especially since such departure probably wouldn't even make a difference.

The Federal Circuit encouraged Huawei not to exhaust the deadline for its reply brief. The appeals court did so when Huawei wanted the case to be put on a faster track. I guess we'll see a reply in the coming days, and then the Federal Circuit will hold a hearing pretty soon, but as Samsung's brief notes, "this appeal could be argued and decided before any injunction in China becomes enforceable." That's because Huawei will be able to enforce the Shenzhen injunctions only if the Guangdong appeals court rules in its favor, too.

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Federal Trade Commission may open up the wireless chipset market even prior to Qualcomm trial: motion for partial summary judgment

Four months prior to the FTC v. Qualcomm antitrust bench trial in the Northern District of California, the U.S. Federal Trade Commission has brought a motion for partial summary judgment that has the potential to make a far greater contribution to fair competition in the wireless baseband chipset market than the procedural context (a pretrial motion) suggests. The FTC is asking Judge Lucy Koh to hold that, under certain (F)RAND licensing obligations it entered into when it participated in wireless standard-setting, Qualcomm must license its CDMA, UMTS and 4G/LTE standard-essential patents (SEPs) to rival chipset makers (such as Intel).

This is an unusual situation in which a summary judgment motion is legally extremely simple, yet has the potential for truly transformative impact on the marketplace. In most situations where a party is seeking a game changer, reasonably tricky question of law and/or fact are involved. Here, the FTC is just seeking clarification that Qualcomm's FRAND licensing commitments say what they say. But if Judge Koh agreed with the FTC and reminded Qualcomm of its obligations,

• Intel (and likely others, such as MediaTek and Samsung's Exynos division) would immediately ask for a license to Qualcomm's wireless standard-essential patents on FRAND terms,

• Qualcomm would have to content itself with royalties representing a FRAND percentage of baseband chipset prices (as opposed to a percentage of the price of an entire mobile device),

• Qualcomm's leverage would be reduced because (as the FTC notes) Qualcomm couldn't threaten with a chipset supply disruption while negotiating with competitors,

• due to patent exhaustion, Qualcomm wouldn't be able to "double-dip" by collecting license fees from its licensees' customers (the device makers), and

• those who would still buy Qualcomm's baseband processors could decline to pay royalties in excess of what baseband chipset makers are required to pay (anything else would be discriminatory).

A number of problems would be solved, and prices would come down. Consumers would benefit. Competitors would benefit. Device makers (especially in the premium segment) would benefit. But Qualcomm would have to get used to doing business on FRAND terms, at long last. It could still make a ton of money, but obviously less than before.

Hypothetically speaking, if the FTC achieved the above with its motion for partial summary judgment (which I believe it will), but subsequently failed to make further headway at the January 2019 bench trial (which is not a prediction), it would have accomplished a great deal. In that hypothetical scenario, it would actually have achieved far more than with the average consent decree. The trial might not even take place: after such a strategic breakthrough for the FTC, Qualcomm would be under significant pressure to settle.

After assessing the potential impact of this motion, let's take a look at the basis on which the FTC is trying to make such tremendous headway (this post continues below the document):

18-08-30 FTC Motion for Partial Summary Judgment Against Qualcomm by Florian Mueller on Scribd

In a legal sense, the motion is as narrowly tailored as it could be. The FTC's broader case against Qualcomm's policies, including the "no-license-no-chips" approach, targets a host of issues and their anticompetitive effects. The above motion for partial summary judgment, however, does not even raise a single antitrust issue in a strict sense: it's exclusive about Qualcomm's contractual obligations to license rival chipset makers. And it's not about the entirety of Qualcomm's contractual licensing commitments: it's just about Qualcomm's obligations and third-party beneficiaries' rights emanating from Qualcomm's FRAND licensing promises to two U.S. standard-setting organizations, the Telecommunications Industry Association (TIA) and the Alliance for Telecommunications Industry Solutions (ATIS).

In other wireless SEP cases, the commitments that patent holders made to the European Telecommunications Standards Institute (ETSI) are front and center. Here, the FTC is trying to eliminate the need to make a determination in San Jose under French law. Qualcomm presented expert reports according to which it allegedly, under French law, doesn't have to extend SEP licenses to other wireless chipset makers. The FTC completely disagrees, but if Qualcomm's commitments to U.S. standards bodies cover the standards at issue in the case (CDMA, UMTS, 4G/LTE), Judge Koh won't even have to dig into a foreign country's law under Rule 44.1.

A duty to deal, under antitrust law, would also require Qualcomm to extend SEP licenses to rival chipset makers. Here, too, the FTC believes it has a stronge case: but the motion for partial summary judgment does not involve an antitrust-based duty to deal; at this point, it's just about Qualcomm's existing contractual obligations. By contrast, it involves a lot more on a court's part to determine that a duty to deal exists on antitrust grounds.

Technically, if Qualcomm has an obligation on one legal basis (its commitments to TIA and ATIS), and if the court confirms that this is the case, that's all it takes for good things (more competition in the baseband chip set market) to happen. The FTC's motion has the potential to streamline and simplify a very critical part of the case. As the motion explains, Qualcomm's commitments to TIA and ATIS can be interpreted under California contract law (which is particularly clear here, given Qualcomm's legal domicile in San Diego). That's much easier for Judge Koh than to form an opinion based on expert reports on what a certain term may or may not mean in French in light of a wealth of contract law rulings made by courts in that country over the last decades. Why do so if there are U.S. standard-setting organizations that adopted the standards in questions (no matter how important ETSI was in the creation of certain standards)?

Qualcomm's commitment to both TIA and ATIS undoubtedly require it to license all comers. The official guidelines to TIA's IPR policy even explicitly state that "[a]n example of conduct that would constitute discrimination is a willingness to license all applicants except for competitors of the licensor" (which is obvious, but it helps that the obvious has been stated this unambiguously).

The name of the game is contract interpretation. The motion per se doesn't even require the court to find Qualcomm in breach of those commitments (which would involve factual questions relating to Qualcomm's interactions with the likes of Intel).

Long passages of the motion have been redacted out, which is why the context of the following isn't clear, but it's interesting nonetheless: in 2014, Judge Koh herself held in GPNE Corp. v. Apple "as a matter of law that in [that] case, the baseband processor [was] the proper smallest salable patent-practicing unit." It will be hard for Qualcomm to distinguish the FTC's case from that one should the royalty base have to be determined in the further proceedings (certainly not necessary for deciding this motion).

The FTC has made a smart tactical choice by requesting a ruling on this pivotal question. Things aren't looking good for Qualcomm anyway (also considering what Judge Koh stated in her dismissal without prejudice of a motion brought by consumers), but if the FTC prevails on this motion (which I believe it very probably will; at a mimimum, it would score this strategic victory at trial), Qualcomm will have to admit that the noose is tightening around the most problematic aspects of its business model.

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Consumers' motion to bar Qualcomm from enforcing a U.S. import ban against Intel-powered iPhones deemed premature by Judge Koh

A day before an originally-scheduled-then-canceled hearing on a motion by a group of class-action consumers to enjoin Qualcomm from enforcing a hypothetical ITC exclusion order (i.e., a U.S. import ban) against Intel-powered iPhones, Judge Koh has denied the motion without prejudice. One might also say: with an invitation to try again later.

More than a month ago, I analyzed Qualcomm's opposition and plaintiffs' reply brief, and wrote that "Qualcomm's timing-related arguments appear[ed] potentially more interesting to me than the other points it [made]." And indeed, timing was outcome-determinative, for the time being: Judge Lucy Koh of the United States District Court for the Northern District of California based her decision on the Supreme Court's 2013 holding in Clapper, a case in which Amnesty International and others expressed fears over the federal government, under the Foreign Intelligence Surveillance Act (FISA), intercepting communications between U.S. citizens and foreigners in ways that would infringe on some people's constitutional rights. In Clapper, the Supreme Court declined to see "certainly impending" injury in a "highly attenuated" chain of possibilities, given that multiple decisions that could go either way had to go one particular way (in each case) in order for the alleged injury to materialize. To the Supreme Court, this was just "too speculative," and Judge Koh identified parallels with the consumer motion against Qualcomm, given that even if Qualcomm prevailed on the merits of one or more patents-in-suit, the ITC might not grant the exclusion order (broad except that it's limited to Intel-powered iPhones, which does raise competition concerns) in the form Qualcomm is seeking, that the ITC decision would be appealable, and the President could veto it.

Timing is key, and these consumer plaintiffs, regardless of all the good and strong points they made on the merits, have failed to convince the judge that now was the appropriate time for their motion. The primary reason for which I concluded last month that Qualcomm had a point on timing was that only one thing had changed since last year (when Qualcomm brought the ITC complaint): the ITC held a hearing at which the ITC staff states its opinion that one valid Qualcomm patent was infringed by the iPhone, and the Administrative Law Judge (ALJ) might adopt the staff recommendation (which is, however, not binding on him). If not for this non-binding (even if frequently adopted) recommendation, plaintiffs could have brought an antisuit motion about a year earlier, calling into question that there was the sense of urgency justifying a preliminary injunction.

The only footnote makes it even clearer that this order is an invitation to try again later if necessary (i.e., in the event that everything does play out the way plaintiffs fear, including that there wouldn't even be a presidential veto):

"At this time, no Plaintiff has stated that he or she intends to purchase one of the accused Apple devices in the future; thus, it is not clear that Plaintiffs have an injury sufficient to seek to enjoin enforcement of a forward-looking exclusion or cease-and-desist order. [...] Plaintiffs would not be subject to any shortage of cellphones or incremental increase in the retail price of a cellphone that could result from Qualcomm's enforcement of such an order if no Plaintiff plans to buy at least one of the accused Apple devices."

To me, this sounds like some guidance for a future retry. While I agree with Judge Koh on everything else, I think this is an overly rigid standard: as long as those consumers intend to buy any smartphone in the near term, they'll be affected by what Qualcomm is doing here, and the iPhone is roughly half of the U.S. smartphone market anyway. But it's one of the most surmountable hurdles one could imagine. The attorneys representing those consumers are now aware of what they should do differently next time, and it won't be hard for them to obtain one or more declarations according to which someone intends to purchase an iPhone.

What does the order indicate for the event that a renewed motion becomes necessary in the future? And for the FTC v. Qualcomm bench trial that will take place in a few months? Things aren't going well for Qualcomm, even though it escaped an antisuit injunction for now (this post continues below the document):

18-08-29 Order Denying Antisuit Injunction Against Qualcomm by Florian Mueller on Scribd

14 months after Judge Koh's world-class order denying Qualcomm's motion to dismiss the FTC's antitrust complaint, her positions on the (anti-)competitive dynamics at issue haven't changed. If anything, they've firmed up, and we're now a whole lot closer to the antitrust bench trial, so Qualcomm is running out of time and opportunities to change Judge Koh'S views.

I said "firmed up" in light of Judge Koh's express holding that plaintiffs have a point regarding consumer harm:

"[...] Plaintiffs cite to an American Consumer Institute Center for Citizen Research report, which estimates that an exclusion order would ban 29.3 million Apple smartphones and create a shortage that 'will result in a $47 average price increase per unit sold.' [...] While the Court agrees that this report identifies concrete harms that would be felt by consumers, the report assumes that the ITC will issue Qualcomm’s proposed exclusion order without exemptions. [...] At this time, Plaintiffs' claim of an imminent injury is too speculative."

As the order recalls, Judge Koh dismissed plaintiffs' pursuit of damages. But that doesn't mean that there isn't harm. There is, or at least there would be in the event of a U.S. import ban.

The following passage is comparably bad news (though "old news" in light of last year's denial of a dismissal of the FTC complaint) for Qualcomm:

"Among SEP holders, Qualcomm garners an outsized share of licensing revenues paid by OEMs, and OEMs pay Qualcomm far more in royalties than OEMs pay other SEP licensors, even those with comparable portfolios of cellular SEPs. [...] Indeed, an analysis conducted by Qualcomm in 2015 showed that revenues from Qualcomm's licensing program were ''equivalent in size to the sum of ~12 companies with a form of technology licensing,' including leading cellular SEP licensors such as Ericsson, Nokia, and Interdigital.'"

This is as unsustainable as it is outrageous.

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Huawei, Qualcomm, and patent holders' three preferred ways to gain anticompetitive leverage

Over the last year and half, it turned out that Huawei's patent enforcement campaign against Samsung and Qualcomm's antitrust issues as well as the parallel patent infringement cases raise bigger and more interesting issues than any other smartphone patent disputes going on as we speak.

Qualcomm is just being Qualcomm: it's always leveraged its wireless standard-essential patents more aggressively than the rest of the industry (maybe even more than the rest combined). But now it has competition watchdogs from around the globe going after it; it's embroiled in cross-jurisdictional litigation with Apple (large parts of which are effectively an Intel-Qualcomm dispute in the first place, with Apple purportedly having decided to use Intel's instead of Qualcomm's baseband chips in new iPhones); and someone else (analysts believe Huawei) stopped paying royalties, too.

Huawei, however, has been undergoing a steady transformation for a while. The first time it took center stage as a patent enforcer was in 2012 when it went after fellow Chinese device maker ZTE--in Germany, where Huawei obtained an injunction it never elected to enforce and took the question of injunctions over standard-essential patents (SEPs) all the way up to the Court of Justice of the EU. But for about two years it's now been trying to coerce Samsung into a license agreement on terms that the Korean electronics giant considers utterly unreasonable according to court filings.

Both Huawei and Qualcomm have anticompetitive intentions. Huawei and Samsung are the two leading Android device makers, so any transfer of supra-FRAND royalties from one to the other would distort competition in the device market centered around Google's mobile operating system. Qualcomm is clinging to its business model where patents are leveraged to drive chip sales and chip sales are leveraged to the benefit of the patent licensing business. As I noted above, when Qualcomm enforces patents against Apple, it quite often looks almost like Apple is in the crosshairs as a proxy for Intel.

As I'm keeping an eye on Huawei and Qualcomm's patent-leveraging strategies, I'd like to highlight the three ways in which some aggressive patent holders are seeking undue, anticompetitive leverage in our times (in no particular order):

1. Chinese patent injunctions

In the original "anti-Android" smartphone patent wars, China didn't play a role yet. Even Apple and Samsung weren't suing each other there (just in about ten other countries before the dispute lost steam and, ultimately, settled out).

By now, China is a patent litigation hotbed. In October (2017) it became known that Qualcomm brought patent infringement claims against Apple in China, where the iPhone is manufactured and where Apple enjoys strong sales). In its home court, Huawei won a couple of patent injunctions against Samsung, but due to a U.S. antisuit (anti-enforcement in this case) injunction, it doesn't get to enforce them. Huawei is trying to overcome that roadblock through a Ninth Circuit appeal filed with the Federal Circuit, but the latter declined to shorten the time for Samsung's brief, which will be due on the 27th of this month.

2. United States International Trade Commission (ITC)

If Huawei had known in 2016 (when it started suing Samsung) that Presidents Clinton and Obama weren't going to get the next best thing to a joint third term, it might have given an ITC complaint against Samsung a try. It didn't, but Qualcomm has already brought two such complaints against Apple. In one of them, it may prevail on one patent, but its strategy of targeting iPhones incorporating Intel baseband chips raises serious antitrust and public-interest issues.

This Qualcomm scheme, like Huawei's Chinese scheme, may be thwarted by an antisuit (anti-enforcement, to be precise) injunction in the Northern District of California. An antisuit injunction motion was brought on behalf of consumers in an antitrust class action against Qualcomm. Judge Lucy Koh will hear the motion on the 30th of this month. She denied the parties' motion for a rescheduling, and in the same order indicated that she won't necessarily rule on the motion at the end of the hearing but may take it under advisement.

3. German patent injunctions

Germany is still a top three patent infringement jurisdiction and the undisputed #1 in Europe.

Whatever the reason may be, Huawei is not--or not yet--known to be going after Samsung in Germany, but Qualcomm is actively seeking to gain leverage in Mannheim and Munich. There are currently six-week school vacations in the relevant states, Baden-Wurttemberg and Bavaria, but in the middle of September, just days before the late-September start of the 2018 Oktoberfest, Qualcomm and Apple will square off in Mannheim (September 18) and Munich (two days later). And there'll be more to come, including but not limited to another Mannheim trial in early October.

Not only, but particularly in Germany, the current hiatus is the quiet before a scheduled set of storms.

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Qualcomm's own experts concede Intel's baseband chipsets are good for innovation and pricing

At this stage, the Northern District of California is a standard-essential patent (SEP) litigation hotbed. The previous post was about Huawei's shrinking case against Samsung, but there are some extremely interesting developments in a consumer class lawsuit against Qualcomm, related to FTC v. Qualcomm. Late last month, the consumer plaintiffs brought a motion to bar Qualcomm from enforcing a potential U.S. import ban against certain (in practical terms, Intel-powered) iPhones. Qualcomm filed its opposition brief on July 12 (this post continues below the document):

18-07-12 Qualcomm's Opposition to Consumers' PI Motion by Florian Mueller on Scribd

Qualcomm's legal arguments against the motion involve timing (the same consumer plaintiffs had filed a public interest statement with the ITC a long time ago, thus they knew about the ITC case, but waited until recently to thwart Qualcomm's pursuit of an exclusion order, i.e., U.S. import ban), standing (whether those consumers are harmed or not), the preliminary injunction factors, whether an ITC case involving non-SEPs has a bearing on an antitrust case involving SEPs, the ability of a district court (under the All Writs Act) to prevent an ITC plaintiff from enforcing an exclusion order, and the Noerr-Pennington doctrine, according to which litigation does not constitute an antitrust violation in its own right. In similar contexts in recent years, U.S. courts have consistently not deemed the enforcement of injunctions to be covered by Noerr-Pennington. The difference between SEPs and non-SEPs is also at issue (but hasn't been addressed yet by a court of law) in Qualcomm's German cases against Apple, but the heart of the issue is not a FRAND licensing commitment and the related rights of third-party beneficiaries: it's all about forcing competitors like Intel out of a market.

Qualcomm's timing-related arguments appear potentially more interesting to me than the other points it makes, but Qualcomm does contradict itself in that context. Qualcomm says:

"Here, any possible injury to Plaintiffs depends upon an attenuated chain of events transpiring. The exclusion order must issue, the presidential review period must pass, the investigation must result in actual exclusion of the accused iPhones, and the exclusion order must leave Apple with no reasonable opportunity to 'design around' the patents at issue. Such an attenuated 'chain of inferences' cannot confer standing."

Apart from the fact that everything on that list is precisely what Qualcomm is pursuing (it naturally wants to prevail, it would seek to dissuade the Trump Administration from a veto, and it seeks leverage from patents that it hopes cannot be designed around, at least not without incurring a prohibitive cost), Qualcomm itself blames those consumers in the timing context for not having brought their motion for a preliminary antisuit injunction a year ago--but consumers argue that there was a possibility at the time of Qualcomm's case not making any headway, and only now that the ITC staff has lately recommended (at the ITC hearing) to hold Apple in violation of one Qualcomm patent, there was a clear and present danger of anticompetitive effects and, therefore, consumers believe their motion was warranted.

From an industry point of view, the consumers' reply brief contains some very interesting quotes from the aforementioned ITC hearing, showing that even Qualcomm's own expert witnesses had no way of denying that Intel's efforts to compete with Qualcomm in the mobile baseband chipset market are good for innovation and choice (this post continues below the document):

18-07-19 Consumers' Reply in Support of PI Motion by Florian Mueller on Scribd

The most interesting passages of the reply brief are about the question of whether the fact that Intel is at least trying hard to compete with Qualcomm in the mobile baseband chipset market benefits consumers. At the recent ITC hearing, ITC staff lawyer Lisa Murray said:

"If Intel is taken out of the 5G race, this would slow the pace of U.S. innovation."

That assessment, which is actually just common sense, will serve as a silver bullet in the further proceedings.

But even Qualcomm's own expert witnesses in the ITC proceedings felt forced to concede that Intel's competing baseband chipsets make an important difference:

• One Qualcomm expert conceded that the Intel-based iPhone "is the only top-tier phone that currently uses a competing company's chip."

• A Qualcomm expert also agreed that the "two premium chipset providers based right here in the U.S. are Qualcomm and Intel" and that "every top-echelon smartphone that could potentially serve as a consumer substitute for iPhones blocked from the U.S. uses Qualcomm’s modem chip, with the exception of some Samsung phones that use chips built in-house."

• And here comes the most impressive passage from the expert witness testimony:

  "Q. In fact, you agree that having Intel as a competitor in that market is good for competition; correct? A. I do agree. Q. Having Intel as a competitor in that premium chipset market is good for quality of chipsets; correct? A. Generally competition is good, yeah. Q. And competition from Intel in particular is good; correct? A. Yes. Q. It's good for pricing; correct? A. Yes. Q. It's good for innovation; correct? A. Yes. Q. Good for innovation as we move into 5G; right? A. Yes. Q. Which is an absolutely critical market for the country as a whole; correct? A. Certainly for Qualcomm, yeah. We believe it is, yeah. Q. And it's good to have Qualcomm in that market; right? A. Yeah, that's right. Q. And it's good to have Intel there too? A. Yes. Q. It's good for the public? A. I agree. Q. Good for the public interest? A. I agree."

  "Good for the public interest" to have not only Qualcomm but also Intel in that market--quite an important concession.

• One last quote:

  "Two companies competing in this premium baseband chipset market in the U.S. is better than one monopolist for the public interest; correct? A. Well, as a general proposition, yes."

Unlike Samsung, Intel supplies other companies with its baseband chipsets and would like to sell to as many customers as possible, with Apple being its key reference customer. The consumers' reply brief notes that "only the AT&T Samsung Galaxy S6 devices contain an Exynos System-on-a-Chip" (Exynos is Samsung's mobile chipset brand), while "[t]he Verizon and Sprint Samsung devices contain Qualcomm chips."

In light of all of that, it's not hard to see why Qualcomm would like to force Intel out of the market as soon as possible. But what follows from the above admissions by Qualcomm's own expert witnesses is that this would be bad for innovation and harm consumers in two respects (less innovation and higher prices).

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"Huawei, I shrunk the case": scope of December patent trial against Samsung whittled down

This week in Huawei v. Samsung delivered two more setbacks for the Chinese Android device maker and increasingly aggressive patent enforcer (I don't want to call them a "patent bully" just yet, though it may be an appropriate label at a later stage).

First, the trial that Judge William H. Orrick will preside over in the Northern District of California in December is going to be far narrower, and potentially less impactful, than Huawei had hoped. As I had noted toward the end of this recent post, Huawei previously informed of the court of its willingness to withdraw its request for a declaratory judgment on worldwide FRAND licensing terms to its standard-essential patents, subject to an agreement with Samsung on the specifics. That agreement has indeed materialized, suggesting that Huawei saw a high risk of Judge Orrick throwing out the claim (whose dismissal Samsung was already formally seeking) at any rate. Instead of having to make a decision, Judge Orrick merely had to grant the parties' stipulation of a dismissal that is formally without prejudice, allowing Huawei to try again, but only in a different case and not for at least nine months (this post continues below the document):

18-07-18 Stipulated Dismissal of Huawei-Samsung FRAND Claim by Florian Mueller on Scribd

Just last month, Huawei's offensive case already got narrowed as Judge Orrick, in a matter involving the Supreme Court's recent SAS ruling, stayed two patent infringement claims. So all that's left for the December trial is a bunch of patent infringement claims and the question of a potential breach of a FRAND licensing commitment. Huawei portrays Samsung as an unwilling licensee, and Samsung argues that Huawei's demands are unreasonable and that there hasn't been enough progress of the give-and-take kind.

The second thing that didn't go too well for Huawei this week was its attempt to expedite its Ninth Circuit appeal before the Federal Circuit of the antisuit (more specifically, anti-injunction-enforcement) injunction Samsung obtained three months ago. Huawei was using two procedural attack vectors in parallel, seeking a reconsideration of Judge Orrick's decision in district court while pursuing the aforementioned appeal in Washington, D.C.--but the Federal Circuit told Huawei it should firstly await resolution of its motion in San Francisco. After Judge Orrick's decision to uphold the injunction, Huawei informed the Federal Circuit, which then resumed the proceedings, and Huawei, before even filing an opening brief that isn't publicly accessible yet, brought an emergency motion to expedite the appeal.

Samsung opposed this emergency motion, arguing that Huawei's procedural tactics had caused delay and pointing to the prejudicial effects of having to respond to a Huawei opening brief on a tight schedule, three months after the notice of appeal (meaning Huawei had plenty of time to prepare its argument) and while working hard on some motion practice in the district court case the appeal originated from. The Federal Circuit told Huawei to be patient and suggested that it could file its reply brief as soon as possible--ahead of the court's deadline--after Samsung has had the chance to react to the opening brief. The appeals court will then hold a hearing as soon as possible, but just like Judge Orrick, it doesn't accomodate all of Huawei's procedural preferences.

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Shareholder class actions against Qualcomm over frustrated Broadcom merger may turn on secrecy of CFIUS proceedings

Before we get to the actual topic of this post, a quick follow-up to the previous one: the Deseret News reports that President Trump has interviewed Senator Mike Lee, so the possibility of a FRAND-friendly Supreme Court Justice is real (though other candidates have been interviewed as well).

Last week, an interesting class action complaint was brought against Qualcomm in the Northern District of California by a group of consumers, with the class being defined broadly enough to include any U.S. smartphone buyer. I've run a couple of online searches and found that there's a whole bunch of other class lawsuits pending against Qualcomm, and they're all about Broadcom's acquisition of Qualcomm, which couldn't materialize after a presidential veto.

Many complaints were filed by small firms, but I've also found some complaints that were filed by firms with a strong track recordin securities litigation. Here's a particularly well-crafted complaint by the Pomerantz firm, which a United States District Judge called "some of the best lawyers in the United States, if not in the world" and which recently achieved the largest securities class action settlement in a decade as Petrobras coughed up $3 billion (this post continues below the document):

18 06 26 Jadhav Complaint by Florian Mueller on Scribd

I've also uploaded another complaint filed in the Southern District of California and a March complaint filed with the Delaware Chancery Court to Scribd. The Delaware complaint argued that Qualcomm's directors made an end-run around Delaware corporate law by seeking a presidential veto against a vote on the composition of Qualcomm's board.

Qualcomm's directors and officers now have to defend themselves against accusations that they "defrauded" the market by not disclosing their company's secret request that the Committee on Foreign Investment in the United States (CFIUS) preclude Broadcom from acquiring Qualcomm (and, on the way to that destination, getting deal-friendly board members voted in). Failure to disclose material information of this kind can constitute securities fraud and give rise to insider-trading claims.

One doesn't have to be an expert in securities law to understand that Qualcomm's request for a presidential veto was very significant. However, the fact that something very significant wasn't disclosed isn't necessarily sufficient. As a patent litigation watcher I obviously find it inconsistent that a company would publish an infographic to announce and promote a patent infringement complaint, but would remain silent about its volunary request that the CFIUS initiate an investigation into Broadcom's unsolicited takeover bid. But that's just a personal opinion.

Qualcomm hasn't filed its answer to the complaints yet. It has merely sought an extension, especially since a number of parallel actions need to be consolidated.

The most interesting legal question will be whether Qualcomm's leadership--which was undoubtedly pursuing an agenda of entrenchment--had a stronger obligation to protect the confidentiality of its CFIUS request (in the interest of the United States) than to inform actual or prospective shareholders.

The website of the Department of the Treasury says the following:

"Confidentiality

In reviewing a transaction, CFIUS considers national security matters and commercially sensitive information provided by the parties. By law, information filed with CFIUS is subject to strong confidentiality requirements that prohibit disclosure to the public. Accordingly, CFIUS does not disclose whether parties to any transaction have filed notices with CFIUS, nor does CFIUS disclose the results of any review. When a transaction is referred to the President, however, the decision of the President is announced publicly."

None of that says that Qualcomm couldn't have told shareholders of the mere fact that it made a request for a CFIUS review (aiming to obtain, as Qualcomm did, a presidential veto). However, courts may still prioritize the national security interests of the United States over the obligation of publicly-traded companies to disclose certain material information.

In the further process, the parties will have to find apposite cases. Also, the United States' federal government might support Qualcomm on this one in case the Trump Administration feels that companies secretly raising national security concerns should not have to fear shareholder lawsuits.

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