Four Qualcomm patent suits against Apple dismissed by Munich court, four others in zombie mode

This last day of January 2019 dealt another setback--technically, a set of setbacks--to Qualcomm as half of its patent infringement lawsuits against Apple's Spotlight search in Munich have been tossed and the other half is going down the tubes. On the legal front, this month as a whole has gone, for the most part, as if Qualcomm had set out to prove Murphy's law. A summary will be provided further below.

The Munich I Regional Court thankfully published a press release on its website (in German) regarding the decisions the 7th Civil Chamber under Presiding Judge Dr. Matthias Zigann announced today in Qualcomm's eight Spotlight cases.

It was already clear before today's announcement that some of those lawsuits were bound to be dismissed because there was no doubt at the hearing that a claim limitation (a "standby" feature for apps) wasn't practiced. I reported that fact after the trial and mentioned it again in my most recent post relating to this set of cases, which I wrote after the European Patent Office sided, in a preliminary opinion, with Apple and Intel (I should even say Intel and Apple because Intel was first to challenge those patents), represented by the patent attorneys of the Samson & Partner firm (which consistently delivers great work, and was on the winning side in another case today--involving totally different parties--as I'll mention at the end of this post).

These are eight cases because there are two cases for each of the four patents, always one against Apple Inc.--the U.S. HQ--and one against two European Apple entities. The older ones of the four patents-in-suit (too old to be challenged before the European Patent Office post-grant, but they are being challenged in the Federal Patent Court of Germany), EP1956806 and EP1955529, are not infringed--for the aforementioned reason (no "standby"). That disposes of four of the eight cases. Qualcomm can appeal, but the "standby" question appears to be an insurmountable hurdle for Qualcomm, and the EPO opinion on the other two patents, while neither final nor binding on the Federal Patent Court of Germany, strongly suggests that the entire patent family is doomed to be invalidated.

Non-infringement was successfully argued for Apple by Freshfields Bruckhaus Deringer's Prince Wolrad of Waldeck and Pyrmont.

Instead of outright ordering a stay of the other four cases (over the two younger patents the EPO deems invalid on a preliminary basis), the court made the procedural decision to give Qualcomm a chance---by way of a reopening of the proceedings--to respond to the EPO's preliminary findings of invalidity. That's because the EPO opinion came in so shortly (just about a week) before today's ruling date in the infringement cases.

Obviously the cases will be decided by the court, not by a blog, but I really view those four cases as "zombie cases": a quartet of dead men walking. No matter what Qualcomm will say (and Quinn Emanuel's Dr. Marcus Grosch won't leave a stone unturned; after all, he even salvaged a narrowed version of Motorola's infamous push notification patent by creatively crafting a cascade of amended claims), the EPO's preliminary position on revocation will bear enormous weight with the court unless a very clear legal error were to be identified. That's because the courts of law hearing infringement cases in Germany recognize that the EPO (which also applies to the Federal Patent Court of Germany) not only spends a lot of time evaluating validity challenges but also has technical expertise on board.

Also, the EPO's opposition hearings will take place later this year, so if the Munich I Regional Court allowed enforcement (which wouldn't matter because iOS 12 contains a workaround) but the EPO issued a final (though appealable) revocation decision later, it wouldn't look good, while the EPO's preliminary opinion justifies a stay of those four cases (short of a silver bullet on Qualcomm's part), and should the EPO change mind, Qualcomm wouldn't have lost much time for enforcement.

Getting back to the reference to Murphy's law further above, this is a summary of legal developments for Qualcomm during this month (it may read as if this had been authored by those shortsellers, but it's simply the way it is:

• The FTC v. Qualcomm antitrust trial in San Jose (Northern District of California) obviously towers above all other events. Closing arguments are rarely a surprise. The FTC's case was validated by testimony from the industry at large (American companies, companies from ally nations, and others). Qualcomm only had 2.5 companies on its side--Nokia (a failure in the handset business), Ericsson (another handset failure, and they just count as 0.5 here because they attacked the value of Qualcomm's patents and its practices, siding with Qualcomm only on the question of chipset-level licensing), and InterDigiTroll.

  Qualcomm's lead counsel delivered a very strong performance on Tuesday, but Judge Koh was looking almost exclusively at her documents, the real-time transcript, and her notes, so all the rhetoric and gestures bounced off of her like a tennis ball thrown incessantly at a stone wall.

• On January 15, the Mannheim Regional Court threw out a Qualcomm suit because it held that the iPhone doesn't infringe under a proper claim construction.

• Starting that same day (January 15), the Patent Trial and Appeal Board (PTAB) of the United States Patent & Trademark Office (USPTO) initiated inter partes reviews of 21 (twenty-one!) Qualcomm patents challenged by Apple. Such reviews are initiated only if a reasonably serious issue is raised.

• Then came the EPO opinion on two patents and, a week later, the related Munich decisions discussed above.

All that bad news is not counterbalanced by the symbolical victory that is a preliminary injunction in Germany, barring Apple from saying that the iPhone 7 and 8, against which Qualcomm secured a pair of injunctions in December (with the court ordering remedies while being agnostic as to the merits), remains available at more than 4,000 points of sale. But whether or not Apple is allowed to say it, there really doesn't appear to be an availability problem. On the Internet, those devices are just one Google search away from Apple's German online shop, and in the real world, I doubt there's any Apple Store from which people couldn't find the next point of sale (where those devices continue to be sold) in walking distance--in many cases, it will be like just crossing a street.

Headed for an antitrust defeat and failing to gain leverage from patent infringement actions against Apple and Intel, Qualcomm is trying to influence its fate out of court.

In other news, totally unrelated to Qualcomm, the Munich I Regional Court today rejected a complaint by Netlist against HP and SK hynix because it found no infringement. That case involves a standard-essential utility model, which is why I got interested in it. In my trial report I had already expressed my view that a rejection or stay appeared more likely than a victory for Netlist. I've already told some Qualcomm-aligned Twitter trolls that, in other words, my highest priority is to have a strong prediction record.

The utility model case was won by a Bardehle team led by Professor Peter Chrozciel and Dr. Anna Giedke as well as patent attorneys Dr. Georg Jacoby and Dr. Robert Baier from the Samson firm (mentioned further above for its accomplishments before the EPO against Qualcomm's Spotlight patents). In the United States, SK hynix is represented by Sidley Austin against Netlist. Sidley and Professor Chrocziel (at the time, with Freshfields) already worked together very successfully when representing Microsoft in the United States and Germany.

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When defending against standard-essential patents, beware of standard-essential utility models

While "standard-essential patents" (SEPs) is one of the most common terms in the tech sector, it would sometimes be more accurate and inclusive to refer to "standard-essential intellectual property rights" (SEIPRs). That collective term would include both SEPs and SEUMs: standard-essential utility models. Utility models are a German specialty, basically a second-class type of patent with a shorter term but instant registration (no substantive examination). This blog covered a utility model case years ago when Apple asserted a slide-to-unlock utility model against Samsung in Germany; that case got stayed over validity concerns and never went anywhere. Beyond German utility models, the collective term "SEIPRs" would cover any other IPRs that may exist in other jurisdictions and are like patents, but aren't called patents.

Yesterday I went to the Munich I Regional Court to watch a standard-essential utility model case, Netlist v. SK Hynix and HP, over German utility model no. DE2020100185017, which was derived last year, in preparation of this lawsuit as counsel for Netlist explained, from a pending European patent application, EP2454735 on a "system and method utilizing distributed byte-wise buffers on a memory module." From what I've been able to find out, this patent was declared essential to a JEDEC memory standard.

An EPO patent examiner rejected the application, though Netlist is still trying to persuade the EPO to grant a patent. But in parallel to that effort, they quickly took out a utility model, with claim language drafted specifically for the purposes of the lawsuit against SK Hynix and HP, and sued in Munich.

The previous Munich trial I reported on took 12 hours; yesterday's trial took only about four. No would-be witness was sitting on the hard wooden seats outside.

Netlist's counsel in this action, Fieldfisher's Benjamin Grzimek, was mentioned on this blog about five years ago when Unwired Planet, an Ericsson privateer, sued a bunch of mobile device makers. A filing made by SK Hynix with the ITC suggests Netlist is also a patent assertion entity (unsurprising after I had noticed the extent to which they emphasize their patent infringement cases on their corporate website):

"Netlist does not design or manufacture JEDEC compliant DDR4 RDIMM or LRDIMM, and it never has. It does not compete with Respondents. And, Netlist freely admits that it made no technical contribution to any JEDEC standard. Others contributed the technologies JEDEC adopted into its standards, which JEDEC compliant products implement. Indeed, in years past when Netlist designed and sold memory modules, its business model was to sell non-JEDEC compliant memory modules; these are the products, according to Netlist, from which the patents arose. Tellingly, despite having litigated the patents and defended IPRs, Netlist did not even disclose four of the five patents asserted at the [ITC] hearing to JEDEC as potentially essential to the standard until years after the patents issued, and just months before filing its [ITC] complaint. All of this reflects a shift in Netlist's overall strategy. After operating at a loss for all but one year of its existence, Netlist now touts that '[t]he Company is focused on monetizing its patent portfolio' and that it 'plans to pursue an intellectual property-based licensing business in which it would generate revenue by selling or licensing its technology, and it intends to vigorously enforce its patent rights against infringers of such rights.'"

"Consistent with this strategy, Netlist has secured third-party funding for its litigation campaign against SK hynix, which is by no means limited to the two investigations in the ITC. Netlist recently announced that it 'obtained outside investment to finance the legal fees and costs of its legal action against SK hynix” from TR Global Funding V, LLC."

The defendants in the Munich utility model are represented by IP and antitrust litigators from Bardehle Pagenberg led by Professor Peter Chrocziel (who has been named German IP litigator of the year twice and was mentioned numerous times on this blog because of his past work for Microsoft and Apple), with rising star Dr. Anna Giedke arguing non-infringement for the most part. Interestingly, even though Bardehle has many patent attorneys itself, including some of the most well-known ones in Europe, two patent attorneys from Samson & Partner (another top-notch firm I mentioned often because of its work on behalf of Nokia and, such as in the pending Qualcomm cases, Apple) represented SK Hynix and HP yesterday: Dr. Georg Jacoby and Dr. Robert Baier. The involvement of Samson's patent attorneys doesn't imply anything negative for Bardehle's great patent attorneys; if anything, it speaks to the strength of Bardehle's litigation team.

The court will announce a decision at the end of January, and Presding Judge Dr. Matthias Zigann said at the end of the trial that he can't indicate an inclination before a post-trial conference with his two side judges. If I had to make a guess, I'd expect the case to be dismissed or stayed. Defendants made a pretty good "squeeze" case, where the asserted claim would either have to be construed too narrowly to support an infringement finding or, in the alternative, the claim would be too broad to be valid. A patent attorney from the Bosch Jehle firm, representing Netlist, showed a computer animation meant to distinguish the claimed invention from the prior art, but patent attorney Dr. Baier dismissed its core--the idea of taking CAS latency into account-as a "triviality" and, while Judge Dr. Zigann didn't say what he thought of it, I wouldn't bet on Netlist's chances here.

Judge Dr. Zigann noted at the start of the trial that the utility model and its underlying patent specification lack clarity. He explained that "the upside for you is that counsel can read anything into it; the downside is that so can the Court."

There are two important lessons to be learned:

1. Reference was made to a U.S. case in which one or more defendants sought or even obtained (at some point, however, that case got stayed by stipulation) a U.S. antisuit injunction barring Netlist from the enforcement of injunctive relief over SEPs--but if Netlist prevailed in the case tried by the Munich court yesterday, there would be an argument over whether an SEUM falls within the scope of that injunction. I believe SK Hynix and/or HP would have a strong case, given that this SEUM was simply derived from a pending SEP application. But there could be an enforcement dispute, and there would be a risk of a court saying that if they wanted to preclude Netlist from enforcing utility models, they should have requested a differently-worded antisuit injunction. And that could give Netlist leverage, even if perhaps only for a short period.

2. While utility models don't enjoy any presumption of validity (for lack of substantive examination), there can be situations in which a (final or non-final) rejection of the underlying patent application by the EPO actually suggests to a German court that the utility model is likely valid. In yesterday's case, that doesn't appear to be an issue. But there have been utility model cases in Germany in which an EPO examiner based a rejection on a theory that doesn't apply to German utility models. The differences between the two jurisdictions are limited and sometimes subtle, but there are some and they can prove outcome-determinative, resulting in a utility-model injunction while a patent couldn't be enforced.

Implementers of standards should always bear the additional risks arising from utility models in mind, especially when there is a threat of litigation, or already an ongoing one. You need an invalidation strategy that will not only work against a European patent or patent application, but also take down a utility model. And you shouldn't forget about utility models when crafting antisuit injunction motions.

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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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Dell, Ford, Google and HP file submissions to up the ante for patent trolls at the ITC

Google, HP, Ford and Dell have filed statements (which are not themselves publicly accessible, but which are referenced by a public filing by Nokia, Huawei and ZTE) in connection with an ITC investigation of a complaint by non-practicing entity InterDigital.

In parallel to a political debate and legislative process on U.S. patent reform, some companies are also trying to achieve fundamental change through amicus curiae briefs. As a general rule, you really need to change the law for major change. On key issues, limited progress -- moving the goalposts just a little bit in your preferred direction -- is all you can realistically hope to achieve if you raise a policy argument with a court.

One of the topics in the patent reform debate is the ITC's immense popularity with patent trolls. In the headline of a Wall Street Journal op-ed, a former ITC commissioner even referred to the U.S. trade agency as the "International Trolling Commission". Without a doubt, the ITC is under pressure and may see its jurisdiction over patent infringement cases restricted.

There are three ways in which lawmakers or the ITC itself could make it harder, or even impossible, for patent trolls to obtain ITC exclusion orders (import bans). Some argue that an eBay v. MercExchange type of equitable standard should be imported into the ITC's governing law. I don't consider this a promising approach because the ITC has only one remedy, which is a form of injunctive relief, but eBay is all about deciding whether legal remedies (monetary compensation) are sufficient or an injunction is warranted. Also, I believe that ITC exclusion orders are a special kind of remedy. The second approach would be centered around public interest considerations. I can see how this works for certain issues, such as FRAND-pledged standard-essential patents (SEPs), but doubt that it's an answer to the problem of rampant, increasingly industrialized patent trolling. The third approach is the ITC's domestic industry requirement (DIR): you don't have access to an exclusion order without proving that a domestic industry exists or is in the process of being created in the U.S. with respect to the asserted patent(s). And that's the one I'm going to focus on for the remainder of this post.

Just like Congress liberalized the DIR in 1988 by enabling complainants to satisfy it through the proof of licensing activities (as opposed to the manufacturing of products implementing the patents in question), it could again narrow it. It's like "Congress giveth, Congress taketh away". But at this point there doesn't seem to be momentum behind legislative change in that regard (for as much as I would prefer a stricter DIR over an attempt to make eBay work for the ITC). So some of the companies who are generally critical of the ITC, and particularly of the many ITC investigations instituted at the request of patent trolls, hope that ITC rulings and, especially, appellate opinions can result in a more exacting DIR. Unfortunately for them, this is a steep challenge because Section 337, the statute governing the ITC's unfair import investigations, defines the DIR very inclusively.

In January 2013, Dennis Crouch wrote on his PatentlyO blog that "NPEs [Non-Practicing Entities] Solidify Enforcement Jurisdiction at USITC". That post discussed the Federal Circuit's order denying a petition by Nokia for a rehearing of a decision relating to InterDigital's first ITC complaint against Nokia, holding that InterDigital satisfied the DIR. The following passage from the Federal Circuit's opinion supports PatentlyO's assessment:

"Under the clear intent of Congress and the most natural reading of the 1988 amendment, section 337 makes relief available to a party that has a substantial investment in exploitation of a patent through either engineering, research and development, or licensing. It is not necessary that the party manufacture the product that is protected by the patent, and it is not necessary that any other domestic party manufacture the protected article. As long as the patent covers the article that is the subject of the exclusion proceeding, and as long as the party seeking relief can show that it has a sufficiently substantial investment in the exploitation of the intellectual property to satisfy the domestic industry requirement of the statute, that party is entitled to seek relief under section 337."

Let's take a quick look at the relevant part of the statute:

(2) Subparagraphs [regarding import bans against infringing products] apply only if an industry in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established.

(3) For purposes of paragraph (2), an industry in the United States shall be considered to exist if there is in the United States, with respect to the articles protected by the patent, copyright, trademark, mask work, or design concerned --

(A) significant investment in plant and equipment;

(B) significant employment of labor or capital; or

(C) substantial investment in its exploitation, including engineering, research and development, or licensing.

I'll further enhance legibility now by replacing "patent, copyright, trademark, mask work, or design" with "IPR" (for "intellectual property right"):

(2) Subparagraphs [regarding import bans against infringing products] apply only if an industry in the United States, relating to the articles protected by the [IPR] concerned, exists or is in the process of being established.

(3) For purposes of paragraph (2), an industry in the United States shall be considered to exist if there is in the United States, with respect to the articles protected by the [IPR] concerned --

(A) significant investment in plant and equipment;

(B) significant employment of labor or capital; or

(C) substantial investment in its exploitation, including engineering, research and development, or licensing.

Item (C) is the one that patent trolls invoke -- in particular, the last item ("licensing"). For example, litigation expenses can constitute a substantial investment in licensing. Without litigation it's probably hard to satisfy the DIR on a licensing basis.

The structure of the statute has a major flaw. It lumps together all the criteria for satisfying the DIR through a product business with those that apply to a licensing business. It would have been better to have a clear set of criteria for product-based DIR arguments, and another set for licensing-based DIR theories. But the statute is what it is, and various companies are now arguing that even a non-practicing entity like InterDigital, which relies on licensing, must show "articles protected by the [asserted IPR(s)]". In the case of an NPE, such articles would be products made by licensees.

For product-based business, the DIR has an economic prong (investment, employment) and a technical prong (a showing that the products the investment and/or employment relate to actually implement an asserted patent). The statutory basis for the technical prong is the term "articles protected by the [IPR] concerned". Does this even make sense for licensing firms? Or should there be no technical prong at all in their case? That's the question the ITC recently asked parties and third-party stakeholders in connection with its ongoing review (which does not, at least not yet, involve FRAND issues) of a preliminary ruling clearing Nokia, Huawei and ZTE of infringement of various InterDigital patents. This is the Commission's request for input in its September 4, 2013 review notice:

"Please discuss, in light of the statutory language, legislative history, the Commission's prior decisions, and relevant court decisions, including InterDigital Commc'ns, LLC v. Int'l Trade Comm'n, 690 F.3d 1318 (Fed. Cir. 2012), and 707 F.3d 1295 (Fed. Cir. 2013), whether establishing a domestic industry based on licensing under 19 U.S.C. § 1337 (a)(3)(C) requires proof of 'articles protected by the patent' (i.e., a technical prong). If so, please identify and describe the evidence in the record that establishes articles protected by the asserted patents."

This question about whether there is any technical prong of the DIR for licensing-based businesses was interesting enough all by itself. But those advocating a strict, NPE-unfriendly DIR saw another invitation to make submissions to the ITC in last month's Federal Circuit opinion on Microsoft's appeal of certain unfavorable parts of the ITC ruling on its complaint against Motorola. On page 11 of that opinion, there's the following passage that stresses the need to show articles protected by an asserted IPR (and that these must be the ones that a domestic industry is established for):

There is no question about the substantiality of Microsoft's investment in its operating system or about the importance of that operating system to mobile phones on which it runs. But that is not enough under the statute. Section 337, though not requiring that an article protected by the patent be produced in the United States, unmistakably requires that the domestic company's substantial investments relate to actual 'articles protected by the patent.' 19 U.S.C. §§ 1337(a)(2), (3). A company seeking section 337 protection must therefore provide evidence that its substantial domestic investment—e.g.,in research and development—relates to an actual article that practices the patent, regardless of whether or not that article is manufactured domestically or abroad. InterDigital Commc'ns v. Int'l Trade Comm'n, 707 F.3d 1295, 1299, 1304 (Fed. Cir. 2013).

So there's the above passage, building on and citing to the earlier decision in the InterDigital case, and it emphasizes the reuqirement to show articles protected by an asserted patent. The respondents in the InterDigital investigation that is at the review stage -- Nokia, Huawei, and ZTE -- have tried to capitalize on this in their reply briefs. But I don't agree with them (not because I don't like what they want to achieve, but because I don't think they provide a compelling logic) that the Microsoft decision clarifies/modifies the InterDigital opinion to the effect that a licensing firm needs to show actual products. In the InterDigital opinion, the Federal Circuit actually declines to go into much detail on decisions relating to product-based DIR cases. I'm sure the reference in Microsoft to InterDigital is only about the part that clarified once again a domestic industry article doesn't have to be manufactured domestically but can also be imported.

Still, some companies now hope to up the ante for patent trolls by requiring them to show DIR products (and, even though InterDigital appears to suggest the opposite, those would obviously have to be other products than the accused devices). Nokia (which is in the future going to be more of a patent licensing firm than a product business), Huawei and ZTE try to defeat InterDigital's ITC complaint, in the event any of the preliminary findings on (non-)liability is reversed, just on the basis of the DIR.

In a reply brief (the public redacted version of which just became available this week) they also point to positions taken by third-party stakeholders that are allegedly consistent with their own opening brief on domestic industry:

"Respondents [Nokia, Huawei and ZTE] were also served with filings from non-parties Hewlett Packard, Dell, Ford and Google that address the domestic industry issue identified in the September 4 Notice. These submissions largely are consistent with the positions taken by Respondents in their initial brief."

Those submissions have actually not appeared on the ITC document system yet.

Now that briefing on the Commission's DIR-related review question is complete, it's clear that there are basically three positions: InterDigital argues that there is no technical prong and it also wants to have an extremely low hurdle as far as the economic prong is concerned. Respondents and third-party stakeholders opposing patent trolls' access to ITC exclusion orders want there to be a technical prong, which would not make it impossible for NPEs to win ITC cases, but it would be too late for InterDigital in this case and it might discourage some other NPEs from bringing ITC complaints. The Office of Unfair Import Investigations (commonly referred to as the "ITC staff"), which is participating in this investigation with respect to only two of the patents-in-suit and overall FRAND issues, has stated a position that is closer to InterDigital's -- no technical prong -- but still comes down to a more exacting standard: the ITC staff would like to see proof that a substantial investment in licensing relates to the asserted patents. The ITC staff says that InterDigital failed to provide such proof. Presumably InterDigital just argued based on licensing activities relating to its overall portfolio. The ITC staff wants a more granular showing of substantial investments relating to particular patents out of a large portfolio. It's not clear to me how this would work in practice.

My guess is that if the Commission, the six-member decision-making body at the top of the ITC, reaches the domestic industry question at all instead of just throwing out InterDigital's complaint for failure to prove infringements of valid patents, it will rule more or less consistently with InterDigital's position. Maybe it will agree with the staff that the economic prong, which would be the only relevant prong for NPEs, must be satisfied on a patent-by-patent basis. But I doubt that it will agree with the likes of Google. Companies like Google will, however, continue to lobby Congress for a reform of overall patent law and also the statute governing the ITC.

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Federal judge determines 19 WiFi patents are worth a FRAND rate of less than 10 cents per unit

A redacted version of the second U.S. FRAND royalty determination has just been published today. Judge James L. Robart in Seattle (Western District of Washington) pioneered this field with his 207-page rate-setting opinion in Microsoft v. Motorola, awarding the Google subsidiary less than one-twentieth of a percent of what it initially demanded. Now Judge James F. Holderman in Chicago (Northern District of Illinois) has largely adopted Judge Robart's approach, and in at least one respect -- the royalty base -- he actually took a licensee-friendlier approach, focusing completely on the price of WiFi chipsets because the patent holder failed to convince him of a royalty based on the price of an entire end product.

The numerical outcome is that Innovatio IP Ventures, LLC, a patent assertion entity that "has sued numerous coffee shops, hotels, restaurants, supermarkets, large retailers, transportation companies, and other commercial users of wireless internet technology located throughout the United States", is deemed entitled to a per-unit royalty of "9.56 cents for each Wi-Fi chip used or sold by the Manufacturers in the United States, subject to the terms of the patents, the applicable statute of limitations, and a finding of infringement" for a license to its portfolio of 19 patents essential to the IEEE 802.11 (WiFi) standard. This is a win for the manufacturers whose products are actually at issue in this case -- Cisco Systems, Motorola Solutions (not to be confused with Google-owned Motorola Mobility, which was spun off of Motorola, which then called itself Motorola Solutions), SonicWALL, Netgear, and Hewlett-Packard -- against this patent troll: according to the order, "Innovatio's proposed method, for example, [would have] result[ed] in royalties on average of approximately $3.39 per access point, $4.72 per laptop, up to $16.17 per tablet, and up to $36.90 per inventory tracking device (such as a bar code scanners)." Based on the non-weighted average of those four examples of $15.30, this means Innovatio got less than a percent of what it wanted. The experts who defended Innovatio's excessive demand included Berkeley Professor David J. Teece, whom I mentioned earlier today because of his work for Samsung and who (in)famously wrote on Motorola Mobility's behalf that it only takes one bullet to kill someone with a standard-essential patent (SEP).

Toward the end, Judge Holderman's ruling explains why the 9.56 cents per unit Innovatio is (subject to the conditions quoted further above) entitled to "is approximately three times Judge Robart's [F]RAND rate of 3.471 cents per unit". There's a reason for this difference:

"Judge Robart concluded that Motorola's patents were only of minimal value to the standard, [...] whereas the court here has found that Innovatio's patents are of moderate to moderate-high importance to the standard. A multiplier of about three is a reasonable difference between the two royalties to account for the greater importance of lnnovatio's patents to the 802.11 standard."

Judge Holderman also compares the number he arrived at with a jury award in Ericsson v. D-Link in the Eastern District of Texas. After finding three of Ericsson's 802.11n SEPs infringed, the jury awarded damages of $10.1 million. On that basis, the court held that Ericsson was entitled to 15 cents per unit as an ongoing future royalty. While that Texas case is less relevant (also because the jury just rendered a verdict without explaining any particular FRAND rate-setting methodology), the numbers nevertheless show that WiFi patents are worth a whole lot less than what some WiFi SEP holders demand.

There's a clear and strong trend in U.S. courts toward rationality in connection with SEP royalty rates. Conversely, irrational demands fail consistently these days. Last month, Chief Judge Rader of the Federal Circuit told Google's Motorola Mobility that its demand with respect a cellular SEP was "crazy". That was the appellate hearing on Judge Posner's dismissal of a two-way Apple-Motorola lawsuit in -- what a coincidence -- Judge Holderman's district.

Seattle is in the Ninth Circuit, Chicago in the Seventh Circuit, and all patent infringement cases are appealed to the Federal Circuit. From the West Coast to the Midwest to the East Coast, and apparently also including the trolls' favorite district, SEP holders get but tiny fractions of out-of-this world royalty demands. They will all have to become more reasonable now. Will they? Not sure.

It's also clear that Judge Robart's ruling becomes ever more influential. In the Innovatio case, the parties disagreed on a lot of things, but no party proposed a different approach than Judge Robart's -- they just disputed its application to this case. Germany has so far adjudged SEP cases by the Orange Book (the related ruling is called Orange-Book-Standard). In U.S. courts, the 207-page "Robart Book" is now the gold standard for FRAND determinations, which doesn't mean that there can't be further improvements, such as in connection with the appropriate royalty base, which show that Judge Holderman thought these issues through very independently.

Finally, here's the public version of Judge Holderman's FRAND determination:

13-10-03 Innovatio v. Mult. Def. WiFi Patents FRAND Determination by Florian Mueller

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Smartphone patent foes, other tech firms jointly urge Europe to prevent rise of abusive litigation

An impressive, diverse coalition of technology companies (even including a couple of major European non-IT companies such as adidas and Deutsche Post DHL) has sent an open letter to European decision-makers expressing concern over two aspects of the latest draft of the rules of procedure for Europe's future Unified Patent Court (UPC) that could create "significant opportunities for abuse" -- not only, but also, by patent assertion entities (PAEs), often referred to as "patent trolls". These two aspects -- bifurcation coupled with easy access to injunctions -- are problematic characteristics of the current patent litigation reality in Germany (which the letter doesn't say, but it's a fact) that could affect the whole of Europe once the UPC begins its work and adjudicates patent infringement lawsuits seeking Europe-wide remedies (which German courts presently cannot do).

The letter to the governments of EU Member States, the European Parliament, the European Commission and the Preparatory Committee of the UPC was first published and reported on by the New York Times and warns that the envisioned framework would give PAEs "substantial bargaining power to force excessive settlements from companies", which "would, in all likelihood, lead to a rise of abusive litigation before the UPC". The letter notes that "PAEs have already begun to set up shop in several European countries, drawn by the potential for siphoning more revenue from European companies".

The tech coalition's letter comes a few days before an October 1 deadline for stakeholder submissions to the Preparatory Committee.

Not only do the signatories collectively represent a huge share of global IT innovation but it's even more remarkable that there is a consensus on these concerns even among companies that typically disagree on patent policy and have litigation pending against each other in the U.S. and Europe. The three most important ongoing smartphone patent disputes are Apple v. Samsung, Microsoft v. (Google's) Motorola, and Apple v. (Google's) Motorola (I'm not counting Oracle v. Google here because it's strictly a copyright case on appeal). Four of the parties to those disputes -- Apple, Google, Microsoft, and Samsung -- are among the signatories. While Apple and Microsoft generally promote strong IP protection except for combating the abuse of standard-essential patents (SEPs), Google and Samsung jointly oppose Apple's pursuit of injunctive relief over non-SEPs in the U.S. but aggressively leverage their SEPs. In the U.S. patent reform debate, Microsoft's focus is on transparency in ownership and the recovery of legal fees, while Google pursues a broader anti-software-patent agenda. But in the context of the UPC's rules of procedure, they all agree and have united to urge Europe to prevent major damage to innovation and the economy at large. They are joined by other tech players like BlackBerry, Bull, Cisco, the European Semiconductor Industry Association (ESIA), HP, Intel, SFIB (a French IT industry association), Yahoo, and major carriers (Deutsche Telekom, Telecom Italia) and -- didn't I just mention the economy at large? -- two companies that are primarily users, not makers, of IT: adidas (which has been sued by numerous patent trolls including Lodsys in the U.S.) and Deutsche Post DHL.

As a Europe-based litigation watcher with a cross-jurisdictional perspective and a former activist in EU patent policy, I totally agree with these companies. Almost five months ago I already highlighted "the risk of Europe becoming the new Eldorado for NPEs/PAEs/trolls" and warned against focusing the whole patent reform debate exclusively on the U.S. while there also what I described as "the European threat". It would be a mistake of enormous proportions to think that patent trolls are and will remain exclusively a U.S. problem. The way litigation in general works in the U.S. (such as the "American Rule" of no recovery of legal fees except under narrow circumstances) creates some opportunities for trolls, but with respect to the two concerns of this coalition of tech companies over the UPC, the German framework -- which, again, would affect the whole of Europe based on the proposed rules of procedure -- has terrible shortcomings in areas in which defendants in U.S. patent cases are actually in better shape. In the U.S., there is a full invalidity defense in all patent infringement proceedings -- not so over here, where bifurcation, a concept I've blogged about and criticized before, typically results in infringement rulings long before adjudication of parallel nullity (invalidation) complaints, creating an opening for the enforcement of improperly-issued patents, potentially for several years (way too long for most defendants to refuse to settle). And those infringement rulings -- which makes bifurcation so bad, but also constitutes a major problem in its own right -- almost always represent injunctions, i.e., sales bans.

Good patent policy has to take into consideration the practical implications for businesses and the tactical situation that defendants face at different junctures. It's not enough to just put procedures in place that theoretically result in a correct result after four or five years (when all appeals have been exhausted) because most lawsuits don't reach that point. It's of the utmost importance to prevent holders of dubious patents from having undue leverage at the stages at which a vast majority of patent infringement cases are settled. Uncertainty is a recipe for undue leverage. Europe's decision-makers have to ensure that there is enough legal certainty along the way that defendants won't be forced to settle on unreasonable terms.

The stakes are high for Europe and for the officials who ultimately have to ratify the UPC's rules of procedure. If they adopt a framework now -- at a point at which far-reaching patent reforms are being debated in the U.S. -- that invites abusive patent litigants (trolls and others) to capitalize on the shortcomings of these rules, they won't be able to say that they didn't know, much less after today's remarkable letter. Frankly, it's not that hard to increase legal certainty in the areas highlighted by this tech industry coalition. If you want to have bifurcation at all, you can at least ensure that stays of infringement cases pending separate invalidation actions are reasonably available -- more widely than in Germany. And for injunctive relief you can also provide the judges of the future UPC with some guidance as to which factors to take into consideration at the remedies stage (it would even be possible to indicate the weight certain factors should have).

I'm going to talk more about the UPC subject in the months ahead. In the final part of this initial reaction to the open letter I just want to show an example of how the combination of bifurcation (with an exceedingly high standard for stays) and automatic access to injunctive relief can hurt consumers. In February 2012 Motorola Mobility (a few months before the closing of its acquisition by Google) won a German injunction against Apple over a push notification patent. It enforced immediately, resulting in Apple's forced deactivation of the feature (for Germany-based users) in late February 2012. That was 19 months ago -- that's a year and half plus one month. And according to Apple's tech support website, the feature is still unavailable, though I expect it to be re-enabled rather shortly since an appeals court, finally, lifted this injunction earlier this month (in order for enforcement to actually end, Apple must firstly post a bond and do some paperwork, which can take a few weeks) because a preliminary ruling by Germany's Federal Patent Court (which will in a few hours hold a hearing on a multi-touch patent Apple enforced against Motorola) indicated that this patent is dead in the water. In the meantime, a UK court had held its key claim invalid for four (!) independent reasons, the Mannheim court that originally granted the injunction had stayed a case in which Microsoft had to defend itself against it, and the appeals court had already stayed the appellate proceedings back in April, also over doubts concerning the validity of the patent. The appellate hearing took place almost six months ago, and the court made clear that it has serious doubts about whether this patent should ever have been granted -- but as of the time of publishing this post, German Apple users are still deprived of this feature. Why? Because the German approach is that a patent right is vitiated pretty much entirely if its owner can't enforce an injunction (in other words, there's an underlying assumption of irreparable harm to the patentee), while premature enforcement of an improperly-granted injunction can always be addressed in a subsequent lawsuit over enforcement damages (so there's an underlying assumption that monetary compensation is almost always adequate to make the victims of illegitimate enforcement whole) -- but it would be much better policy to consider sales bans to cause irreparable harm in many cases and then to weigh such harm against other considerations.

I have harshly criticized Google for its trollish enforcement of Motorola's push notification patent. This undermines Google's credibility in the U.S. patent reform debate where it (directly and through lobbying fronts) uses "trolls" as a pretext for its push for a general weakening of IP enforcement while its own behavior shows that operating companies can behave trollishly as well. But I applaud Google for promoting in the EU context a reasonable balance. The fact that it urges policy makers here to prevent all patent holders, including Google itself, from doing in the future on a Europe-wide basis what Google has been doing recently in Germany is really positive and enhances the credibility of this tech coalition.

Now it's up to policy-makers to heed these concerns and act accordingly.

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Qualcomm and BlackBerry back Google against Judge Posner and Apple on FRAND patents

Nine months after Judge Posner's dismissal of a two-way Apple-Motorola lawsuit in Chicago, the appellate proceedings before the Federal Circuit have reached the stage at which the focus is on the most important part of his decision -- the one relating to FRAND-pledged standard-essential patents (SEPs). The first companies to submit amicus curiae briefs in support of Judge Posner's FRAND ruling favoring Apple were Intel and Microsoft, as I reported yesterday. Subsequently Apple also received support from a group of four law professors with a particular focus on IP and competition issues and from BSA | The Software Alliance (previously known as the "Business Software Alliance", hence BSA). Google's defense of SEP-based injunctions is backed by Qualcomm and the BlackBerry company (Research In Motion, which is now doing business as "BlackBerry" and not only selling products under that brand). BlackBerry claims to support neither party, meaning that only one (!) amicus brief in support of Google's anti-FRAND position was filed in a formal sense (versus four in Apple's favor), but BlackBerry's motion for leave (discussed and published further below) indicates that it's Google-aligned in the SEP context.

Below I'll provide a quick overview of the new filings. Judge Posner and Apple's pro-FRAND positions clearly have much more broadbased support than Google's SEP abuser-friendly stance. With the greatest respect, Microsoft and Intel's filing outweigh the Qualcomm and BlackBerry submissions, and with its broadbased membership the BSA undoubtedly has massive weight. What's particularly interesting is that Cisco and HP, which are clearly on the pro-FRAND side, have afforded the luxury to focus in their submission (which they made last year together with a number of other companies) on the question of damages (for SEPs as well as non-SEPs) because they apparently knew that there wasn't going to be a shortage of support for Judge Posner and Apple on the issue of injunctive relief.

Before I go into detail, here's a list of links that take you directly to the different sections of this post:

• BSA | The Software Alliance (supports Judge Posner and Apple)

• Four law professors (support Judge Posner and Apple)

• Qualcomm (opposes Judge Posner, supports Google)

• BlackBerry (officially supports neither party, but clearly opposes Judge Posner and substantively sides with Google)

BSA | The Software Alliance supports Judge Posner and Apple

The headline of the BSA filing says that the organization supports Plaintiff-Appellant, which is Apple in this cross-appeal, even though Google is from a practical point of view the plaintiff and appellant with respect to the FRAND part of Judge Posner's ruling (Google is asserting SEPs and wants Judge Posner's ruling reversed as far as FRAND is concerned).

The BSA's members include (in alphabetical order) Adobe, Apple, Autodesk, Bentley Systems, CA technologies, CNC Software - Mastercam, IBM, Intel, Intuit, McAfee, Microsoft, Minitab, Oracle, Progress Software, PTC, Quest Software, Rosetta Stone, Siemens PLM Software, Symantec, TechSmith and The MathWorks. They collectively represent a high percentage of U.S. investment in software development, which dwarfs whatever Google and its Android hardware partners spend on software-related R&D.

Even if (which we won't know until the brief is public) a small minority of its members distanced itself from the organization on this issue, its support of FRAND reflects consensus in the software industry. The fact that Apple is itself a member of the BSA doesn't mean much. A group like this wouldn't take a position -- especially when such a fundamental issue is at stake -- only to please one of many members, albeit a large one. Google is a member of countless industry organizations but apparently wasn't able to drum up support from even one of them, which is not for a lack of mobilization (Google is usually pretty good at that) but because its positions on SEPs run counter to what benefits the industry at large (as well as the wider economy and, last not least, consumers).

Law professors support Judge Posner and Apple

Four law professors jointly filed an amicus curiae brief "in Support of Apple Inc. and Affirmance in Motorola, Inc.'s Cross-Appeal [i.e., the FRAND part of the case]":

• Professor Thomas F. Cotter (University of Minnesota Law Schoo)

  "Professor Cotter's principal research and teaching interests are in the fields of domestic and international intellectual property law, antitrust, and law and economics."

• Professor Shubha Ghosh (University of Wisconsin Law School)

  "He has authored over fifty scholarly articles and book chapters as well as several books in the fields of intellectual property, competition law and policy, international law, and legal theory." (Some of his writings focus on how to balance private intellectual property rights with the public interest in competition and innovation.)

• Assistant Professor A. Christal Sheppard (University of Nebraska College of Law)

  Her aresa of expertise also include the "Intersection of Intellectual Property and Antitrust". She interned with then-Judge Rader, who is now the Chief Judge of the Federal Circuit.

• Professor Katherine J. Strandburg (New York University School of Law)

  She, too, focuses on balancing IPRs with the public interest. That's what all four law professors who made this joint submission have in common. Interestingly, Professor Standburg is working on a publication entitled "Patent Fair Use 2.0".

Qualcomm opposes Judge Posner, supports Google

Qualcomm filed a brief "in Support of Reversal" of Judge Posner's FRAND decision. This is the world's largest SEP-centric company, and its use of SEPs has previously drawn antitrust scrutiny. Qualcomm's submissions on SEPs are usually the most aggressive ones, and once its filing in this case becomes publicly accessible, I'm sure we'll all see that no one contradicts Judge Posner in stronger terms than Qualcomm.

Qualcomm already threatened (between the lines, but clearly) the Federal Trade Commission with a judicial challenge if it applied its approach to the Google-Motorola SEP case more broadly.

Qualcomm already wanted to support Google (Motorola) against Apple through a filing it made with the ITC in December 2012, but its brief was full of Apple-bashing and Qualcomm's senior management decided to withdraw it, saying it had not been duly authorized. Apple is a major Qualcomm customer, but Qualcomm also does a lot of business with the Android ecosystem, and apart from any customer relationships, its business simply depends a whole lot on the enforceability of SEPs. It rarely has to enforce, but it wants to be able to threaten with strong enforcement.

BlackBerry officially supports neither party, but clearly opposes Judge Posner and substantively sides with Google)

This is the title of the BlackBerry submission:

BRIEF OF RESEARCH IN MOTION LIMITED AS AMICUS CURIAE IN SUPPORT OF NEITHER PARTY

The motion for leave to file that brief clarifies that Research In Motion is doing business as BlackBerry and subsequently refers to the company by that name. One sentence in the motion proves that a more proper description of BlackBerry's position would have been "[in] support of reversal":

"In BlackBerry’s view, however, that balance [between private and public interest in SEPs] would be threatened by a categorical rule against injunctions, such as that announced by the district court below."

In two filings with the ITC (1, 2), which it later also submitted to the FTC in connection with the envisioned Google consent decree, the BlackBerry company previously outlined its thinking on SEP-based injunctions. It described SEP injunctions as "procompetitive" if their purpose is to create a general stalemate in all patent litigation involving non-SEPs if the company with weaker non-SEPs can use its SEPs to block the non-SEP enforcer's sales. This is consistent with what Google's antitrust lawyers are saying all the time -- that the whole Google SEP problem wouldn't be there if Apple and Microsoft had never enforced non-SEPs.

No judge or authority has ever adopted RIM's proposal to condone SEP-based injunctions if they're part of a wider disputing involving non-SEPs. So far the FTC and the ITC as well as federal courts have looked at these issues separately. RIM is also unlikely to get support from the Federal Circuit. The Federal Circuit is pro-IP. It may ultimately agree with Judge Posner, Apple and others that the patent regime can only function if the pursuit of injunctions is limited by SEP-specific antitrust considerations. But I believe it won't ever agree with RIM that SEPs should be used to neutralize non-SEPS because that would be the end of patent enforcement among large players in this industry (all of whom have SEPs that they could use to reach the point of mutually assured destruction). BlackBerry's non-starter proposal would be tantamount not only to the end of patent enforcement among large players but also to the abolition of SEP-related antitrust law.

This is BlackBerry's motion (note that it's only a request for permission to file an amicus brief, but not the actual brief):

13-03-20 BlackBerry Motion for Leave to File Amicus Brief Against Judge Posner

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Cisco, HP, Walmart, others support Judge Posner, propose methodologies for patent damages

While I remain focused on mobile patent (and related competition) issues, I'm well aware that a Pennsylvania jury's shocking $1.2 billion damages verdict against chip maker Marvell (here's Marvell's statement) is the biggest patent litigation news during this last week of 2012. Theoretically that award could even be tripled for willfulness, in which case the damages award would exceed Marvell's market capitalization. I don't have an opinion on the details of that case, but just by looking at the numbers and considering the huge number of patentable inventions that go into a chip, I can't help but feel that it was an abdication of its discretion by the district court to allow Carnegie Mellon University to present its claims to the jury, which then supported them in their entirety -- because regardless of whatever CMU may have invented and whatever Marvell may have used, nobody in this industry could have a viable business in the United States if such damage awards were in line with the law.

Marvell's market cap is substantially below Samsung's quarterly profits. I already noted on Twitter that last summer's $1 billion verdict in Apple's favor against Samsung looks "kind of modest" now. Actually, it pales by comparison.

By coincidence, Marvell's lead counsel, Quinn Emanuel's Kevin Johnson, was also on Samsung's team in the Apple trial. For a firm that claims on the front page of its website that its lawyers won 90% of the cases they tried, it must be almost disheartening to be on the receiving end of two billion-dollar patent damages verdicts within only four months of each other. Companies with a patent infringement problem should be realistic about how much a law firm can do for them. I don't know about the work QE did for Marvell, but what they have done and continue to do in the Apple-Samsung case is very impressive -- the problem is just that Samsung added its own design patent infringements (very costly under U.S. law) to Android's manyfold software patent infringements, and there was strong evidence of a strategy to copy Apple. There really is a lot of money at stake in Apple-Samsung: if Samsung could solve the whole Apple patent problem by paying a billion dollars, it would do so any day of the week. In the CMU-Marvell case, there's also a finding of willfulness, but again, the numbers just don't make the slightest sense. The Apple-Samsung award needs to be adjusted here and there, but the CMU-Marvell award must simply be tossed or slashed in order to protect the innovation economy against patent unreasonableness.

The cross-appeal of Judge Posner's Apple v. Motorola Mobility ruling is probably the best near-term opportunity for the Federal Circuit to address two pressing problems at once: the one of injunctive relief over FRAND-pledged standard-essential patents, and the one of reasonable patent damages (for SEPs as well as non-SEPs), a problem that this week's $1.2 billion lunacy highlights. I've always been much more interested in injunctive relief than damages questions because injunctions are the far more impactful remedy in disputes between major industry players. I've been opposing SEP-based injunctions for a couple of years, and I also focus on FRAND royalty calculation issues, but I'm still in the process of forming an opinion on how non-SEP damages should be calculated. Without a doubt, however, there's a need for improvement -- not only in the United States, by the way, even though the most spectacular patent damages awards tend to come down in that jurisdiction.

So without this representing a ringing and unconditional endorsement, but in light of the presently-heightened interest in patent damages and a need for constructive, rational debate, I wish to draw additional attention to a set of proposals that an interesting group of companies submitted to the Federal Circuit in the form of an amici curiae brief on the Posner appeal. Here's the document, and I'll talk briefly about the companies behind it and their proposals further below:

12-1548 Brief of Amici Curiae Altera Et Al.pdf

These are the "friends of the court" who submitted the brief:

• Altera Corporation (a maker of "custom logic solutions")

• Cisco Systems

• CME Group (Wikipedia: "CME Group Inc. [...] owns and operates large derivatives and futures exchanges in Chicago and New York City, as well as online trading platforms. It also owns the Dow Jones stock and financial indexes, and CME Clearing Services, which provides settlement and clearing of exchange trades.")

• Garmin (GPS navigation tools)

• Hewlett-Packard (HP)

• Logitech

• Nest Labs, a maker of learning thermostats that received a venture investment from Google (but states that "[n]either Google, Inc. nor Motorola Mobility, Inc. took any part in drafting this brief") and recently recruited Chip Lutton, Apple's former head of IP (who personally signed the brief)

• NewEgg (online computer hardware/software retailer)

• Rackspace Hosting

• Safeway (online grocer)

• SAS Institute (business software maker, also known for a landmark EU copyrightability case that I consider interesting but inapposite to the Oracle-Google API copyrightability dispute)

• Symantec

• Wal-mart Stores (dba "Walmart")

• Xilinx (integrated circuits)

You can read the details of their brief yourself, but let me highlight the fact that it advocates a fundamental departure from certain existing damages rules, in particular, the 15 Georgia-Pacific factors (by which Judge Posner also seems rather underwhelmed), which the briefs says "fail to provide meaningful guidance and are not a reliable methodology for calculating reasonable royalty damages", and the Entire Market Value Rule (EMVR), which Cisco and friends says "should presumptively be abolished". The brief is not anti-patent, but it's clearly the kind of submission companies make if they think that minor adjustments are insufficient and fundamental change is needed. Whether one agrees with this approach or not (again, I'm still learning and thinking about all of this), it definitely makes it an interesting read.

The Georgia-Pacific factors and the EMVR appear quite reasonable at first sight, but these amici curiae argue that "generalized methodologies currently used to calculate reasonable royalty damages lead to inconsistent and unreliable results because they are not sufficiently tied to the patent invention". The latter part of this shows what these companies would like to happen: they would like the courts to "focus on the value of the patented invention at the time of the design to a reasonable licensor and licensee", and wherever possible, such damages "should be capped at the incremental value of the patented invention over the next best alternative".

I don't think one can make an argument that the Georgia-Pacific factors or the EMVR are biased frameworks for patent damages. Theoretically, judges could use them as tools to prevent excessive damages claims to be presented to a jury, and in a perfect world with perfect juries, jurors could also apply those rules to the benefit of innovation. I believe Georgia-Pacific doesn't work well for FRAND royalties because simulating a negotiation between two parties would allow patentees to capture post-standardization hold-up value. Apart from that, this framework is not inherently unbalanced. There's something in it for everyone. It's even open-ended, a fact that Judge Posner has criticized. In the world in which we live, judges as well as (especially) juries are often misguided, even if they have the best intentions. These are complex cases that even industry experts with a strong business and technical background have a hard time figuring out. In light of that reality, the question must be whether a set of rules does or does not work -- a results-based approach. Something can be scientifically brilliant but not practicable. And that's what I believe the patent damages debate (including, as a subset with unique characteristics, the FRAND royalty debate) will mostly be about.

In this regard, it's important not to attach disproportionate weight to spectacular outliers like the CMU-Marvell verdict. This is a lunacy, it may be fixed by the district court itself in the post-trial proceedings, and if not, the Federal Circuit can still solve the problem. There are many patent trials in the U.S. every year, and one can't judge the system only by the outliers. That said, I have a lot of sympathy for those who look for rational ways to prevent those outliers from occurring in the first place.

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HTC countersues Apple over two U.S. patents it recently acquired from HP

The latest escalation in the "smartphone patent wars" is that HTC today brought infringement counterclaims against Apple in the Southern District of Florida over two patents it acquired from HP last December.

The litigation in which the Taiwanese device maker is asserting those two patents is a case that started in 2010 with a Motorola lawsuit against Apple, which later became consolidated with another action in the same district. Six of Apple's twelve infringement counterclaims in that consolidated action target not only Motorola Mobility but also HTC. HTC wants the case moved out of Miami, but its motion to transfer is still pending. In the meantime, HTC had to respond to Apple's counterclaims. In addition to the usual deny-everything-and-throw-in-the-kitchen-sink defenses, HTC also decided to hit back.

These are HTC's two counterclaims patents:

• U.S. Patent No. 7,571,221 on "installation of network services in an embedded network server"

  HP applied for this patent in 2002.

  HTC claims that Apple is infringing on this patent with devices "including but not limited to personal computers (such as the Mac Pro, MacBook Pro, MacBook Air, iMac, Mac Mini), mobile communications devices (such as the iPhone, iPhone 3G, iPhone 3GS, iPhone 4, iPhone 4S), and mobile computing devices (such as the iPod Touch, iPad, iPad 2, the new iPad)".

• U.S. Patent No. 7,120,684 on a "method and system for central management of a computer network"

  Texas-based Electronic Data Systems Corporation (EDS) applied for this patent in 2002. HP acquired it in 2009 and sold it on to HTC, simultaneously with the '221 patent, in December 2011.

  HTC alleges that Apple infringes this patent with "Apple Remote Desktop, Apple Profile Manager, and/or products and services that use Apple Remote Desktop and Apple Profile Manager".

HTC has been looking for opportunities to buy patents for the purpose of countersuits against Apple. HP is a patent-rich company that can sell some of its assets and still retain enough patents to defend itself against any attacks. For now I don't see any major strategic reason for HP to support HTC against Apple.

HTC just suffered a setback at the ITC, which threw out five patents HTC had acquired from Google. The publicly-available parts of certain documents suggest that the Google-HTC patent purchase agreement was more of a patent loan. I'm sure Apple's lawyers are going to look closely at the HP-HTC agreement, but HP may very well have assigned all right, title and interest in those two patents to HTC (if the price was right).

HTC's counterclaims were brought by the Miami law firm of Carey Rodriguez Greenberg O'Keefe and San Francisco-based Keker & van Nest, which leads Google's defense against Oracle's intellectual property infringement claims.

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HP, Nokia and industry associations write to ITC supporting Apple and Microsoft against Google

Google's (Motorola's) pursuit of U.S. import bans against the iPhone, the iPad and the Xbox over standard-essential patents has large parts of the information and communications technology industry concerned. Simultaneously with the Federal Trade Commission's public interest statement asking the ITC to refrain from outright exclusion orders over standard-essential patents (full text available here), industry leaders including Hewlett-Packard and Nokia as well as influential industry organizations including the Business Software Alliance (BSA), the Retail Industry Leaders Association (RILA) and the Association for Competitive Technology (ACT) have submitted letters that advocate strong intellectual property enforcement but argue at the same time that import bans should not be ordered against implementers of standard-essential patents (SEPs).

Here's an overview of the public interest statements that have shown up on the ITC docket thus far:

• Hewlett-Packard:

  HP filed the same statement in connection with the investigation against Apple as well as the one against Microsoft, asking the ITC to "decline to issue an exclusion order in these investigations":

  "While the Commission has viewed enforcing patent rights as important public interest, these investigations involve unique facts that weigh heavily against (and indeed override) the issuance of an exclusion order in these cases. First, as a participant in a standards-setting body, the complainant previously would have pledged to license the standards-essential patents at issue in these investigations to the respondents on 'fair, reasonable, and non-discriminatory' ('FRAND') terms. Permitting the complainant now to use these patents as a weapon to block the importation of respondents’ products into the United States, merely because they implement the standards at issue, would thwart competition, stifle innovation, and result in higher prices for consumers--thereby causing precisely the harms that Congress directed Section 337 should not inflict."

  HP, which is not a party to any of the current smartphone and tablet computer patent disputes between large players, is a major patent holder. Among other things, it holds a number of wireless patents thanks to its acquisition of Palm and its own R&D efforts.

  In addition to the FRAND issue, HP also points to the ecosystems around Apple's iOS products and Microsoft's Xbox that would be affected.

  HP argues that holders of SEPs should sue in federal court instead of excluding devices from the U.S. market.

• Nokia:

  Nokia's letter in support of Apple is remarkable for several reasons. The companies are competitors. Nokia and Apple were suing each other for almost two years until they settled in June 2011, and part of the dispute was that Nokia wanted to be paid for Apple's use of its SEPs on FRAND terms. Unlike Motorola, Nokia asserted only non-standard-essential patents in its ITC complaint. Very recently, Apple and Nokia disagreed on the next SIM card standard (Apple's proposal was adopted by ETSI, after modifications). On that issue, Nokia was actually on Motorola's (and RIM's), not Apple's, side.

  As a long-standing participant in standard-setting processes overseen by ETSI, Nokia is well aware of the FRAND rules relating to the 3G-essential patents Motorola is trying to enforce against Apple at the ITC. Nokia explains the "FRAND bargain" in detail and sums it up as follows:

  "In return [for contributing IP to a FRAND standard], the patent holder is entitled to FRAND compensation, terms, and conditions from those who implement the standard and practice its essential, valid, and enforceable patents. But where a manufacturer is a willing licensee under such essential patents, the patent holder is not entitled to other remedies -- such as an injunction or an exclusion order -- that would bar implementers from the market. This is the FRAND bargain and obligation."

  Nokia warns against the costs that would result from allowing SEP holders to abuse their rights for the purpose of hold-up.

  Last week, Google filed an EU antitrust complaint against Microsoft and Nokia. In its initial reaction, Nokia said that it didn't understand Google's concern since anyone interested in a FRAND license to its SEPs should simply call and sign up, as dozens of companies already have.

• Verizon:

  Verizon also supports Apple, but it is generally against ITC import bans, whether or not FRAND-pledged SEPs are involved. It also supported Samsung against Apple in a federal lawsuit in California.

• Microsoft supports Apple:

  Microsoft filed a letter in support of Apple. Microsoft faces the same kinds of royalty demands and lawsuits from Motorola.

• Business Software Alliance (BSA):

  The BSA filed letters in both investigations (Apple and Microsoft). The organization's members include: Adobe, Apple, Autodesk, AVEVA, AVG, Bentley Systems, CA Technologies, CNC/Mastercam, Cadence, Compuware, Corel, Dell, Intel, Intuit, McAfee, Microsoft, Minitab, Progress Software, PTC, Quark, Quest Software, Rosetta Stone, Siemens PLM, Dassault Systemes SolidWorks, Sybase, Symantec, and The MathWorks.

  While the BSA is known for a clearly pro-intellectual-property stance and notes that its members "hold hundreds of thousands of patents around the world" and "participate widely in standards-setting organizations", it "believes that the public's interest will be best served if an exclusion order is not issued in this investigation or any other investigation resting on similar facts and circumstances" and concludes:

  "When a patentee makes a commitment to license its technology for FRAND terms during a standard setting process if that technology is made part of the standard, the patentee should be held to its promise. Allowing companies to circumvent their promises by using the Commission's sole remedy of an exclusion order would have a detrimental effect on internationally recognized standards systems. The ultimate result of a less robust standards system will be fewer choices for consumers, higher prices, and diminished innovation. Thus, the public's interest will be best served if an exclusion order is not issued in this investigation or any other investigation resting on similar facts and circumstances."

• Retail Industry Leaders Association (RILA):

  RILA's member companies include some of the world's most well-known retail chains ("more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad").

  RILA's letter "urges the Commission to carefully consider how granting owners of standard-essential patents exclusion orders pursuant to section 337 investigations could undermine the process to license such patents on fair, reasonable and non-discriminatory terms and standard setting more generally". RILA declares itself "a strong supporter of enforceable intellectual property rights" and of the possibility of ITC import bans against infringing goods, but "in the case of standard-essential patents in particular, complainants could transform [Section] 337 exclusion orders from shields into swords, and use the process to undermine the balance between compensation for use of the technology and the public interest that the FRAND regime seeks to achieve".

  According to RILA, "[i]t would be antithetical to the public interest, consumer choice and affordability to permit the use of exclusion orders to force companies selling standard-compliant products to license asserted patents on non-FRAND terms (e.g., artificially high royalties) in order to sell those products in the U.S. market".

• Association for Competitive Technology (ACT):

  While ACT has support from large companies including Microsoft, Oracle and eBay, most of its members are small and medium-sized technology creators.

  ACT advocates strong intellectual property rights in order to protect innovative entities against infringers. In this spirit, ACT also submitted a public interest statement contradicting Google's and HTC's public interest arguments against a ban of Android devices over non-standard-essential patents asserted by Apple.

  ACT's letter stresses the organization's concern for "mobile app" companies. ACT notes that technology standards are "critical for independent app developers and the public", and says its "members are deeply concerned about the impact of an exclusion order in a case where a patent is the subject of a commitment to license on 'Reasonable and Non-Discriminatory' terms as part of a standard". ACT's letter concludes with the following statement:

  "We submit that the public interest should preclude any issuance of an exclusion order for a RAND committed patent. The appropriate remedy for infringement of a patent subject to a RAND commitment is RAND royalties collected in district court."

It's possible that additional public interest statements have been filed, or will be filed, in these investigations. I have just reported on all those that have shown up in the public record by the time I published this post. So far, there hasn't been even one third-party public interest statement in support of Motorola's pursuit of injunctive relief. If I ever see one, I will certainly report on it.

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