Apple joins Intel in suing Softbank-owned Fortress for anticompetitive patent abuse through web of trollish subsidiaries

Last month, Intel brought an antitrust complaint in the Northern District of California over Softbank-owned Fortress Investment's patent aggregation, obfuscation, and litigation tactics. Fortress's web of hyperaggressive patent assertion entities includes a huge and growing number of legal entities, some of whom have such names as Uniloc (which sued Apple 25 times and Google even 35 times), VLSI, DSS, Inventergy (which threatened an alleged infringer with an "IP bloodbath"), IXI, Seven Networks, and KIP CR (the CR in that name stands for "crossroads").

The good news for the trolls is that Intel withdrew its complaint. The bad news for them--but excellent news for product-focused companies who feel that enough is enough--is that the complaint came back with a vengeance as Intel and Apple made a joint filing yesterday as Reuters's Stephen Nellis was first to report (this post continues below the document):

19-11-20 Intel-Apple Antitr... by Florian Mueller on Scribd

In terms of the claims and prayers for relief, what's changed is mostly that Apple alleges FRAND violations. Uniloc is mostly or exclusively asserting--against Apple--standard-essential patents (SEPs) that previously belonged to Philips. (I've just recently become aware of a Philips patent licensing tactic in the LED segment that raises some very serious questions as well.)

The new complaint states some numbers I hadn't seen in the original one. For an example, there are estimates that tens of billions of dollars have been invested in patent litigation, and "the largest litigation investor reported having investments of $2.8 billion in 2019."

The amounts that some Fortress trolls are seeking from Apple are shocking. For an example, "VLSI claims up to $7.1 billion in connection with eight patents in the California Action and multiple billions of dollars in damages in the Delaware I Action." And that's just a small and limited part of the overall litigation activity by Fortress-controlled companies against Apple. Another group of Fortress entities, Uniloc, is seeking damages from Apple in the range of $2.6 billion to %5.1 billion from only 4 (!) of the 25 aforementioned Uniloc v. Apple cases as you can see on pages 30 and 31 of the complaint. According to Apple, "Uniloc "simply adopted the amounts that Apple sought from Samsung in litigation for Apple's patents." What Apple means is what Uniloc wants on a per-unit basis. I've criticized Apple very strongly for some of its damages claims against Samsung, but even if one agreed with what Apple wanted from Samsung at the time, it just wouldn't make sense to copy and paste an amount when it's about completely unrelated patents.

The fact that Apple has thrown its weight behind the case--in addition to Intel, which took the initiative last month--has several effects:

• Intel's complaint already mentioned the cases against Apple, but having the target of dozens of the relevant cases directly involved raises the profile of the problem.

• While most Silicon Valley jurors will likely have heard of Intel, Apple is more of a household brand.

• It would presumably have been difficult for Intel to make some of the FRAND breach arguments that Apple, as a target of SEP assertions by Softbank, has brought in the joint complaint.

• With both Intel and Apple based on the outskirts of San Jose, it should be easiser this time to keep the case in San Jose (where the complaint was filed) rather than having it reassigned within the district to San Francisco.

Now I only wish Google--another target of dozens of Fortress-funded patent lawsuits--could also join so the industry presents a united front to those industrialized patent trolls. But even if Google elected to stay on the sidelines, the combination of Intel and Apple will put Fortress and--by extension--Softbank under serious pressure.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

Intel antitrust lawsuit takes aim at Softbank-owned Fortress Investment's patent aggregation, obfuscation, and litigation tactics

As this week draws to a close, I realize that the most important IP topic of the week was the role of financial engineering behind some of the most aggressive patent transfers and assertions. Huawei's counsel in the Unwired Planet v. Huawei case told the Supreme Court of the UK that Unwired's aggressive attempts to monetize former Ericsson patents amounted to "leveraged financial engineering." Earlier in the week, Intel filed an antitrust and unfair competition complaint in the Northern District of California against Fortress Investment and three of its subsidiaries (two of which are patent assertion entities named VLSI Technology and DSS Technology Management). Fortress Investment was in free fall until it was acquired by Japan's Softbank for $3.3 billion in 2017.

In its lawsuit filed on Monday (October 21, 2019), Intel alleges antitrust violations

• either in the market for patents for high-tech consumer and enterprise electronic devices and components or software therein and processed used to manufacture them

• or, in the narrower alternative, in the market for licenses to Fortress's aggregate portfolio.

Antitrust analysis generally starts with market definition. There must be a market in which someone has a dominant position and acts abusively.

Intel isn't saying that investments in patent licensing firms or large-scale acquisitions of patents by patent assertion entities would always be illegal, or that trollish litigation tactics raise competition concerns. The first couple of pages of the complaint discuss the policy implications of patent assertion entities (PAEs) at a generic level, but the specific case is about certain structural and behavioral characteristics of Fortress's industrial-scale patent acquisition and assertion business model.

Citing to what network technology company Sonus Network alleged in a case against one of Fortress's numerous shell companies, Inventergy, the complaint quotes that particular entity's CEO as telling Sonus that "Fortress[,] does not settle" in litigation and, in the absence of a license deal palatable to Fortress, Sonus would face "an IP bloodbath." The flowery language of that threat does not per se constitute an antitrust violation, and the complaint doesn't say or suggest so. It merely serves to illustrate how little Fortress's business model has to do with innovation and to what extent the business model is simply to create, and capitalize on, a patent reign of terror. Case in point, a particularly well-known Fortress entity, Uniloc, previously caught my attention because it shows up in the RPX Daily Litigation Alert very often as they've brought dozens of lawsuits against Apple and Google, as well as other defendants.

Fortress apparently sets up and shuts down patent assertion entities at an unusually high frequency. They transfer patents between them, sometimes as a result of subsidiaries being unable to meet their payment obligations to the holding company. Similarly, they just dismiss complaints in one venue to refile somewhere else. And when patent claims are found invalid, they sometimes come up with many dozens of amended claims that allegedly don't have any more merit (as they just add some meaningless terms to the claim language), but enable them to keep suing forever.

Again, vexatious and oppressive litigation tactics don't in and of themselves constitute anticompetitive conduct. The point I found particularly interesting from an antitrust angle is that Intel explains how Fortress systematically acquires, through different subsidiaries, patents covering alternative techniques so as to make it practically impossible to work around all of those patents without Fortress being able to allege (whether with or, more likely, without merit) some infringement(s) at any rate. I couldn't find the term "patent thicket" in the complaint, but that's the one that came to my mind when I read the related passage:

"23. Further, aggregating a massive portfolio of electronics patents allows Fortress and its PAEs to amass a range of patents that are both substitutes for and complements to one another. When a firm wants to build an electronic device, such as a smartphone, there are many ways to do so. Each alternative requires multiple technologies. However, the alternatives do not require the same combination of technologies. For example, Alternative 1 might require technologies A, B and C, while Alternative 2 might require technologies D, E and F. The technologies used for Alternative 1 (A, B and C) are complements: they are each needed to create the device using Alternative 1. Similarly, the technologies used for Alternative 2 (D, E, and F) are economic complements. The technologies comprising Alternative 1 are also a substitute for the technologies comprising Alternative 2, because the bundle of technologies used in Alternative 1 can be used as a substitute for the bundle of technologies used in Alternative 2.

"24. There are many possible permutations of complement and substitute technologies for electronics patents. For instance, Alternative 3 might require technologies A, C and D. In that scenario, the technologies bundled in Alternative 3 are a substitute for the technologies bundled in Alternatives 1 and 2 respectively; A, C, and D are complements in the production of Alternative 3; and technology D is a substitute for technology B. Technologies can thus be both substitutes and complements. If Alternative 4 used technologies A, B, and D, then B and D are complements for Alternative 4, and substituting D for B changes Alternative 1 to Alternative 3."

Another allegation is that Fortress requires companies to license numerous patents deemed meritless (so weak that they "never would have been asserted by their former owners") in order to license those that are not that weak. Package deals are common in many industries, and the allegation here is very much about Fortress's patent aggregation strategies. It's not about aggregation of the efficient kind where licensees would be presented with a one-stop solution: while the Fortress web of companies as a whole engages in large-scale patent aggregation, companies face royalty demands from numerous Fortress companies and are never offered a deal covering the patents held by all Fortress entities.

According to Intel's complaint, "Fortress and its PAEs foreclose the possibility—which existed before aggregation—that litigation can be an economic alternative to licensing patents." In other words, Fortress allegedly bases its monetization strategy in no small part on the nuisance value of meritless patent lawsuits that result in what I would call hard (i.e., legal fees) and soft (i.e., distraction of employees) costs to those forced to defend against Fortress's infringement actions.

The complaint mentions the following Fortress PAEs--note that any of those PAEs may itself have spawned numerous companies (in the U.S. as well as abroad):

• VLSI Technologies allegedly discussed three alternative ways of helping NXP maximize its income from a part of its patent portfolio: Financing, Privateering, and Corporate Carve Out (an acquisition of a copany division along with its patents). Guess what--the chosen route was Privateering. Two years ago, VLSI asserted eight former NXP patents "against virtually every one of Intel's microprocessors ever sold since 2011" and sought $7.1 billion. That first case got stayed when PTAB IPRs were instituted against six of the patents-in-suit. Thereafter, VLSI brought a couple of Delaware cases, at least one of which also involved a multi-billion-dollar damages claim. But with injunctions not being realistically available in the U.S. (except from the ITC in the form of import bans), VLSI is also suing Intel in China.

• DSS sued Intel as one of various defendants (electronics companies as well as retailers like Wal-Mart). Intel settled earlier this year, but presumably on very favorable terms as the patent claims-in-suit had been declared invalid by the PTAB.

• Uniloc's dozens of lawsuits were mentioned above. To be precise, various Uniloc entities have so far sued Apple 25 times in the U.S. (Eastern and Western Districts of Texas), apparently mostly or exclusively over cellular standard-essential patents acquired from Philips, and over the course of only three months brought a total of 35 lawsuits against Google. That's 60 just between Apple and Google--and there have been more than 70 other Unioc infringement suits already.

• Inventergy acquired many hundreds of patents from companies like Nokia, Panasonic, and Huawei, then sued Apple, HTC, and ZTE in the District of New Jersey and is seeking an ITC exclusion order (import ban).

• IXI sued Samsung, BlackBerry, and Apple.

• Seven Networks sued ZTE, Samsung, and Google, and apparently got those three companies to settle before also suing Apple.

• KIP CR (= Crossroads) P1 has sued a number of companies including Huawei and Oracle. That entity even challenged the constitutionality of PTAB IPRs, but the Supreme Court denied that cert petition.

This problem is undoubtedly a whole lot bigger and more severe--and, therefore, more harmful to industry and consumers--than conventional "patent trolling." It will be interesting to see what else comes to light in the course of this litigation. Finally, here's the complaint:

19-10-21 Intel Antitrust Co... by Florian Mueller on Scribd

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

Qualcomm forced to offer commitments in order to obtain EU clearance of NXP deal

There have been strong indications that the European Commission's Directorate-General for Competition (DG COMP) has serious concerns about the potentially anti-competitive effects of Qualcomm's proposed acquisition of NXP Semiconductors. By now, there can be no doubt about that: the Commission's website states that Qualcomm submitted commitments four days ago. No one offers commitments if unconditional clearance is achievable.

Typically, companies discuss such proposed commitments with the Commission beforehand. If the Commission believes the commitments might be useful, it puts them to a market test, giving stakeholders an opportunity to comment. Here, there is no official confirmation--just rumors--of an ongoing market test.

As I've said earlier in the process, the only meaningful remedy here would be an obligation for Qualcomm to extend licenses (obviously on fair, reasonable and non-discriminatory terms) to rival chipset makers. That would help Qualcomm's competitors and customers alike. With the licensed product being a chipset, the royalty base alone makes it very hard, if not practically impossible, for Qualcomm to charge anywhere near the license fees it appears to demand from device makers. But it would have been out of character for Qualcomm to propose such a commitment. I guess Qualcomm would rather walk out on the NXP deal, but I wish I turned out to have been wrong on the effectiveness of its proposed commitments, though merger remedies (other than a divestment of certain assets) are rarely helpful--in most cases they just look like they would ensure fair competition while they actually don't, either because they don't go far enough or because they lack specificity.

No matter whether Qualcomm's proposed merger remedies are helpful, the fact that Qualcomm apparently felt forced to offer any commitments in order to obtain clearance is the latest indication that regulators in different parts of the world are concerned about some aspects of Qualcomm's business model and practices.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

Merger review of Qualcomm-NXP: European Commission stops the clock AGAIN

The website of the European Commission's Directorate-General for Competition (DG COMP) indicates that the clock has been stopped for an unusual second time in the regulatory review of Qualcomm's proposed acquisition of NXP, which went into Phase II a few months back as it raises serious concerns. In fact, the previous suspension ended on August 16, 2017 (as I mentioned in a recent post), but just the next day--August 17--the deadline was suspended again.

Whatever the reason may be, it means that the deal still isn't ready to be cleared.

Are Qualcomm and/or NXP unwilling to provide information requested by the Commission? In a unilateral-conduct context, Qualcomm even went to court (and lost) because it didn't want to supply certain information. That could be what's happening in the merger control proceedings as well, but it's also possible that Qualcomm is paying the price for antagonizing DG COMP.

Are negotiations on potential commitments progressing slowly (and if so, is there much hope)? It's a mystery, but again, what's clear is that this deal is ever less likely to get unconditional clearance.

The fact that the EU has stopped the clock again apparently became discoverable only this week--the same week that a legal challenge by Qualcomm to a decision by the Korea Fair Trade Commission (KFTC) went nowhere.

Behind the scenes, the Qualcomm-NXP merger review could be one of the most interesting and significant merger review cases in EU history, but unfortunately those merger control proceedings are very opaque (unless someone leaks documents, which happened in some cases but isn't the norm). I haven't even been able to find out which European companies and organizations are opposing the deal. If you know something about this merger control case that I don't, please tell me via my contact form.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

EU investigations of Qualcomm have come out of hibernation this summer: will anything noteworthy happen?

The European Commission's Directorate-General for Competition--the 28-nation bloc's top antitrust agency--has been criticized on various occasions (on which it went after U.S. tech companies) that it focused more on the strategic interests of competitors of their investigation targets than on consumer harm, which is the central and paramount aspect of U.S. antitrust law. And more than once it has been alleged or insinuated that draconian fines or a certain order to collect taxes were driven, in no small part, by a desire to siphon off billion-dollar amounts from highly-innovative American companies.

It's not always easy, and in some contexts I'm not at all inclined in the first place, to defend DG COMP against such criticism, though it is definitely the most impactful division of an EU institution that is, in pretty much every other regard, little more than the EU Council's de facto secretariat.

The issues raised by Qualcomm's aggressive conduct are serious from a consumer point of view since every European consumer effectively pays a Qualcomm SEP (standard-essential patents) monopoly tax on every smartphone or other cellular device sold in the EU's Single Market. There may not be any significant European smartphone maker left, nor any European chipset maker (Infineon's mobile chips division was acquired by Intel, a Silicon Valley company, and might still be a European company if not for Qualcomm's behavior). But with more than 500 million consumers living in the EU, the European aspect of Qualcomm's patent licensing and other practices is very important nonetheless.

By requiring Qualcomm to extend FRAND patent licenses to all comers, including rival chipset makers (even if those may typically be American and Asian corporations), the EU Commission could have a far greater positive impact than the fines it might impose on Qualcomm would suggest. Qualcomm's annual worldwide revenues are in the $25 billion range, so theoretically the EU could fine Qualcomm to the tune of $2.5 billion (10%), but more likely the amount would "only" be in the hundreds of millions (since 10% is the absolute maximum under EU law).

So by giving the Qualcomm matter(s) as much attention as other tech antitrust matters DG COMP is pursuing, and as much as other major competition agencies (such as the FTC and the KFTC) are giving their investigations of Qualcomm's unilateral conduct, the EU Commission could demonstrate that this is about principles of fair competition and consumer interests, not about being used by someone's competitors, and that revenue generation is not really the objective. However, should the EU just stay on the sidelines of the Qualcomm matter, some will compare such lack of follow-through against what's going on in some other cases.

There are two EU cases involving Qualcomm, but it's been quiet about them lately:

• In late June, the Commission stopped the clock in the Phase II merger review of Qualcomm's proposed acquisition of NXP, but restarted it two weeks ago (August 16). The new deadline for a decision (which, if the Commission stayed firm and Qualcomm didn't offer meaningful concessions, would be a decision to block the merger) is December 6.

• Further to a complaint by Icera, a once-European semiconductor company acquired by Nvidia and closed down later, DG COMP opened an investigation of Qualcomm's exclusivity arrangements and predatory pricing in July 2015 (technically, two parallel investigations) and issued Statements of Objection in December 2015. Since then there hasn't been any news. The narrow scope of those investigations hasn't been widened.

  Some delay was caused by Qualcomm's refusal to respond to a January&nbsp2017 information request by DG COMP. Qualcom argued it would cost millions of euros for "thousands of working hours" (in the aggregate of the effort made by up to 50 employees and external advisers) to comply. The EU Commission then ordered Qualcomm to produce the requested information lest it be fined more than half a million euros per day. Qualcomm took this matter to the EU General Court (formerly called the Court of First Instance), which upheld the Commission's order by decision of July 12 as Qualcomm failed to convince the judges it faced significant disruption of its business or other serious and irreparable harm.

In legal terms, and with respect to the professionals on the case teams, those are two separate matters. In practical terms, however, neither investigation exists in a vacuum. From a certain level up, the decision-makers are the same, and even below that level, people will be aware of what's going on in the other case. Qualcomm's unwillingness to cooperate with an information request does nothing to improve its relationship with the Commission--and this could also affect the merger review, which could turn into a bitter fight anytime now.

There is a potential overlap with respect to remedies, too. The most logical and most meaningful remedy would be a requirement to extend FRAND patent licenses to rival chipset makers. That wouldn't resuscitate Icera, but it would be unbelievably positive for consumers (though it would just be a reasonable interpretation of the relevant FRAND licensing promises). It's also what the FTC wants to see happen, and apparently the KFTC, too.

Hopefully there will be some positive EU developments to report in the coming months. If not, we can still talk about possible reasons then.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

Qualcomm's NXP deal raises chip- and patent-related concerns: in-depth review by European Commission

More than five years ago, Google's acquisition of Motorola Mobility was delayed significantly by merger reviews on both sides of the Atlantic and U.S. regulatory approval was subject to certain promises related to patent enforcement. At the time, Motorola Mobility (the acquisition target) was aggressively asserting FRAND-pledged standard-essential patents against Apple and Microsoft. Against that background of blatant FRAND abuse, competition enforcers weren't prepared to grant fast-track approval.

Qualcomm's planned $45 billion acquisition of NXP Semiconductors, a leader in NFC and secure elements (SE) chips, is now also undergoing an in-depth review by the European Commission and possibly also in other jurisdictions (though the deal surprisingly got fast-track clearance in the U.S.). I'm just in the process of trying to find out more about NXP's patent dealings. But it appears that, unlike in the Google-Motorola case, it's the acquirer's conduct that adds to concerns over what might happen post-transaction. That is even more problematic since the acquirer, not the acquisition target, will make the decisions post-transaction. The press release the Commission published late on Friday contains a few keywords that sound all too familiar in the ears of anyone following the current flurry of antitrust activity relating to Qualcomm:

• "bundling": Presumably this is about chips that might be the equivalent of having a baseband processor and an NFC/SE chipset in a single product. Bundling is a sensitive issue in the EU and the Microsoft Media Player case created some case law.

• "tying": This is also a key issue in the U.S. FRAND abuse case. The FTC would want Qualcomm to offer its chipsets without requiring a patent license on devices that use other companies' chipsets, and as far as Qualcomm's own chipsets are concerned, patent exhaustion, which is stronger in the U.S. than ever after a recent Supreme Court decision, should take care of the licensing question.

  Intel raised the issue of a dual, mutually-reinforcing monopoly in a recent amicus brief. I had written about that kind of dynamic before. The worst-case scenario in the NXP context is now that Qualcomm might expand on its monopoly. A highly simplified way to put it would be that Qualcomm will go from a dual to triple or quadruple monopoly, forcing customers to buy chipsets of one kind if they want access to others, and/or designing its patent license terms (including "rebates") in such a way that companies will end up sourcing various types of chips from Qualcomm.

• "increased royalties for customers": Qualcomm is synonymous with out-of-this-world royalty rates. Last month I quoted an Apple letter (which Qualcomm had attached to a court filing) according to which "Qualcomm forces the contract manufacturers and Apple to pay many times more in royalty payments than all the other cellular patent licensors combined!"

  Why has Qualcomm been able to command such royalty levels? It's not just a matter of innovation. They do a lot of R&D, without a doubt, but without the two mutually reinforcing monopolies, even Qualcomm couldn't collect many times the amount of royalties of the rest of the industry combined. If Qualcomm now gets more leverage on both the chip side and the patent side because of the NXP deal, things will get even worse.

  Qualcomm already holds more NFC patents and applications than any other company such as Sony (#2) or Samsung (#3)--almost 1,000, or roughly 5.5% of the pool. After acquiring NXP, Qualcomm's position will go up to approximately 1,350 patents and applications, putting Qualcomm far ahead of the rest (almost twice as many as Samsung, for example). While consolidation of patent ownership positions is still preferable over Nokia- and Ericsson-style privateering, it does raise issues when a company is known to overcharge.

• "exclusion of competitors": NXP's competitors, just like Qualcomm's, are chipset makers. The only remedy that could address this concern would be that the combined company would have to license other chipset makers on FRAND terms.

While the nature of the concerns is familiar, the NXP deal involves different technologies than the other Qualcomm cases--and it affects additional industries. Mobile device makers will be affected since an increasing number of smartphones come with NFC. But NXP also appears to be a key supplier to automotive companies; otherwise the Commission's press release wouldn't "particularly" mention that industry. Even independently of its contemplated acquisition of NXP, Qualcomm is trying to position itself as a technology licensor to automotive companies such as in connection with wireless electric vehicle charging. Qualcomm's inductive charging road is impressive.

In Europe, automotive companies have a lot of political clout. Maybe some of them have, directly or indirectly (through trade associations and national governments) made the EU Commission's Directorate-General for Competition (DG COMP) aware of their industry-specific concerns.

Reuters reported on Friday that Qualcomm is confident it can address the EU's concerns. I'm sure that the EU doesn't want to block the deal if it can be avoided, but any remedies would really have to have teeth. Negotiations are likely going to continue. The next key juncture is when the Commission will have to decide whether to issue a Statement of Objections (SO), which it will likely begin drafting soon in case it needs to take that step. It's been almost eight years since the SO against Oracle's acquisition of Sun Microsystems (the only SO against a merger during that entire year). At the time, I was a consultant to a complainant. Now I'm just an app developer and blogger, and I don't know how much time I'll find to dig into the details of this process, so if you can support my efforts with information, please make use of the contact form here. I protect my sources, of course.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|