Apple and Qualcomm settle their antitrust/FRAND/patent dispute: clash of California tech giants is amicably resolved

Opening statements in the Apple, Foxconn et al. v. Qualcomm antitrust trial in San Diego (Southern District of California) were ongoing when CNBC broke the news of a settlement. A little later it was confirmed by Apple's newsroom: All pending lawsuits between Apple and Qualcomm, and Apple's contract manufacturers and Qualcomm, have been dismissed.

There is a new patent license agreement as well as a new chipset supply deal in place. In other words, California's two mobile hardware giants--Apple from the North, Qualcomm from the South--are working together again. An amicable resolution of a dispute that last more than two years and was a bit acrimonious at times.

Cravath Swaine & Moore's Evan Chesler finished his opening statement (with only about 20 minutes left at the time the settlement became known). Counsel talked to Judge Curiel privately, and he then explained the situation to the jury. He also invited jurors to his chambers to thank them personally for everything.

A trial that could have lasted, if one includes jury deliberations, 1.5 months or more has therefore ended after only 1.5 days.

This would have been a huge and extremely difficult case for the jury to decide. As always, I congratulate both parties on their deal, and in this case I think either side would have had to take quite some risk by letting a jury render a verdict on complex commercial and partly technical issues.

Even though it ultimately didn't matter anymore what counsel said today, I really was impressed by Fish & Richardson's Ruffin Cordell's opening statement. One of the best explainers I ever got to listen to in a courtroom. I must admit I hadn't heard of him before, but probably will again, sooner or later.

The terms of Apple's new deal with Qualcomm haven't been disclosed other than money flowing from Apple to Qualcomm, not the other way round (which could have happened after the trial in theory). Analysts will probably soon claim to know the exact numbers. We won't know whether they're right until something surfaces in future litigation.

In the immediate aftermath of this settlement, the question is what this means for the FTC v. Qualcomm case that went to trial in January. Judge Lucy H. Koh of the United States District Court for the Northern District of California might rule anytime now. Or that case might get settled, too.

The Federal Trade Commission of the United States deserves respect. What's obvious (and therefore not a question of respect or a lack thereof) is that there's now less of a national interest in that antitrust case than before. However, I have consistently said that the case is about important issues, not just particular companies. It could be that the FTC, whose primary job is to prevent consumer harm, decides to carry on regardless. Or they might settle in the short term. We'll see what happens.

Standard-essential patents (SEPs) and FRAND licensing terms have been and will remain a key focus of this blog, of course. And, more generally, patent infringement remedies.

By the way, live tweets from the courtroom were allowed again today.

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Common sense against Qualcomm: Apple stresses smartphone functionality also works without modem chip--over WiFi--but Qualcomm wants royalties on entire device

I'm typing this while Fish & Richardson's Ruffin Cordell is still delivering Apple's opening statement in the Apple v. Qualcomm antitrust trial here in San Diego (Southern District of California). There are two key points made in the first half of the statement that are going to make things hard for Qualcomm to persuade the jury of its own story:

• Mr. Cordell made a point that is very obvious: why would Qualcomm impose gag clauses with multi-billion dollar penalties attached on its customers if it had nothing to hide? The fact that Qualcomm insisted on contract terms that would make it economically irresponsible under most circumstances for companies to ask competition enforcement agencies for help indeed speaks volumes. It's about covering up misdeeds.

  It will be hard for Qualcomm to explain this away. It's not just that companies entering into business agreements with other companies want some peace of mind. They don't want to sign a contract one day and be sued the next day. But government agencies in charge of antitrust enforcement don't just cause one company a lot of grief because another company asks them for it. They perform their own analysis, generally starting with a first plausibility check, followed by what some call "preliminary investigations" if there's enough smoke to suspect fire, and things get real only if those agencies reach independent conclusions. As for independence there certainly is no such agency in the world that would be in Apple's pocket because the United States is just too large an economy and too well-respected a democracy for one company to control the government and in other countries Apple is just a foreign entity.

  So if Qualcomm had had a clear conscience, it would never have had to worry about a customer like Apple potentially complaining to independent government agencies because the agencies would just decline to investigate, or they would take a short look and stop wasting their time. Only someone who really has something to hide and, as a result, something to fear would do that. That Qualcomm had something to hide and therefore something (antitrust charges) to fear is evidenced by the battlemap chart I showed you in yesterday's post on the start of this trial (jury selection). In the aggregate, Qualcomm has been fined to the tune of many billions of dollars by regulators on multiple continents, which I once called the "Antitrust Grand Slam."

• The next context in which common sense complicates things for Qualcomm is the question of the royalty base. Qualcomm's royalty is based on the entire device. There is a cap now ($400), but it's dozens of times higher than the market value of a modem chips. So Qualcomm collects royalties--as Qualcomm told the IRS--on the whole enchilada because it's "humongously more lucrative." But this means they charge for parts of the product they don't actually make any technical contribution to.

  The key term is "royalty base": What is the 100% basis against which whatever reasonable royalty percentage should be applied? Is the 100% a $1,000 phone? A hypothetical $400 phone? Or should it be a baseband processor (also called modem chip, or modem processor, or baseband chip)--which Qualcomm itself sells at $20 per unit and others sell at $10 or less?

  If Apple wins the royalty-base part, it's within striking distance of convincing the jury of Qualcomm's terms being unreasonable. They have other ways, such as (what came up later in the opening argument) a comparison between what Qualcomm collects per unit vs. other companies like Ericsson that may hold even more standard-essential patents. But what I think may have the greatest persuasive impact here is the following point Mr. Cordell made:

  A smartphone is a mobile computer, with conventional telephone functionality representing just a limited part of it. But most of that smartphone functionality--such as playing computer games, listening to music, watching or recording videos--works over WiFi, too! And if something works over WiFi (in fact, many of those apps work better over WiFi than over cellular networks, which are slower and less stable in general), then there's no plausible basis on which a cellular SEP holder can collect a royalty on the commercial value of the related computing functionality.

  Mr. Cordell announced that Apple would get back to this point throughout the trial. I can see why. They won't have to talk about this every trial day, but when testimony--people confirming that everything works over WiFi (in fact, I quite often make WiFi calls where people call me on a cellular number or I call them)--shows to the jury that the very largest part of the value of an iPhone is not dependent on Qualcomm's modem chip technology, Qualcomm is going to have a problem persuading the jury of the opposite.

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Apple v. Qualcomm trial kicks off in San Diego: jury of nine selected, live tweets disallowed

Today was Day One of the Apple, Foxconn et al. v. Qualcomm trial in San Diego (Southern District of California). Formally, there are two cases, which the court combined under the official caption In re Qualcomm litigation. The reason for two cases existing technically is that a few months after Apple sued Qualcomm in January 2017, Qualcomm sued Apple's four contract manufacturers (Foxconn, Wistron, Pegatron, and Compal), who counterclaimed. The contract manufacturers' counterclaims became the economically biggest issue in the case, amounting to approximately $9 billion, which could be tripled (as a damages enhancement) to $27 billion. Qualcomm is seeking damages of up to $15 billion according to Reuters.

United States District Judge Gonzalo P. Curiel is presiding over the trial. In one of his most important pretrial decisions, Judge Curiel agreed with Apple and its contract manufacturers that this is indeed primarily an antitrust/FRAND case, which Qualcomm sought to portray as a contract dispute in the first place so it could argue that contracts must be complied with, period (a principle that is very important but just doesn't outweigh antitrust considerations as serious as here). Somewhat ironically one might say Qualcomm already faces too many antitrust cases in the U.S. and on a couple of other continents that it would rather reduce than inflate the number of pending antitrust matters. The following smartphone patents battlemap, which I created about six months ago, shows the pressure Qualcomm is facing from antitrust agencies in multiple jurisidctions as well as some other cases (click on the image to enlarge; this post continues below the image):

The cases most closely related to the one being tried in San Diego as we speak are the U.S. Federal Trade Commission's antitrust lawsuit against Qualcomm in the Northern District of California (where Judge Koh might rule anytime now, given that the trial took place in January) and a consumer lawsuit alleging that 250 million Americans who bought smartphone over the last roughly eight years overpaid to the tune of $5 billion (an average of $20 per consumer) because of Qualcomm's accused business practices. Qualcomm appealed Judge Koh's certification of the consumer class action, but let's stay focused on the San Diego case (the real San Diego case, i.e. the antitrust case, as opposed to a patent infringement case that is a sideshow).

In one of the strongest signs of there truly being one or more antitrust issues with Qualcomm's business practices, the company has for some time insisted that those entering into certain agreements with Qualcomm were not allowed to complain to antitrust regulators (theoretically, they had that option, but at a high cost due to an immediate termination of rebates and even a clawback of past kickback payments). Judge Curiel found no contract violation of that kind by Apple, a decision that is worth a few billion dollars to Apple.

Today a jury of nine was selected, which means that up to three jurors could drop out (the trial might take about a month, though there are only four trial days scheduled for this week and three for each of the following weeks until jury deliberations begin) and they could still reach a verdict under the district court's Local Rules.

There were some funny situations and remarks, but nothing specific happened today besides jury selection (and, which is unusual for a district court on the West Coast, a decision that no electronic devices with an active online connection could be used inside the courtroom, which is why live tweets didn't continue after the lunch break). Opening arguments will be delivered tomorrow, and that's when the trial really begins.

On the eve of opening arguments, it makes sense to reflect on what this dispute is--and what it is not--about in high-level, philosophical, moral terms. The questions the jury will have to answer are unrelated to Qualcomm's history of innovation in cellular communications. Not only would no one doubt that Qualcomm succeeded a few decades ago with a courageous and ambitious bet on a technique called code division multiple access (CDMA), but it's also clear that Qualcomm has continued to invest heavily in research and development. No one claims they stopped innovating altogether. The dispute is all about whether they went, and are going, too far in their rent-seeking (and governmental agencies--antitrust enforcers--around the globe have so far found that it's the case, imposing fines that in the aggregate amount to several billion dollars).

If all that Qualcomm had done since its initial success had been to keep innovating, and if there hadn't been any issues, then those competition watchdogs would have focused on other companies and this San Diego trial wouldn't have started because Apple would never have brought the underlying complaint.

Both Apple and Qualcomm are innovative in fundamentally different ways, respects, and fields of technology (though Apple is now also creating many jobs in San Diego for chipset engineers). Some will consider one of them more innovative than the other, but it's an apples-to-bananas comparison. There are two key differences, however:

• Qualcomm's patent royalty demands relate to entire mobile devices, including various components (such as more memory or larger screens) that are functionally unrelated to the layer of technology at which Qualcomm is innovative.

• As a consumer I can always use an Android device instead of an iOS gadget. But either way I'll pay the Qualcomm patent tax (ironically, the IRS described itself as Qualcomm's "silent partner," literally).

That patent tax is artifically inflated by means of such practices as royalties on repairs, royalties on royalties (meaning that the royalty base for a royalty includes among other components the royalty), and interest on interest). They charge royalties separately from the prices of the chipsets they sell, though the longstanding judicial doctrine of patent exhaustion says that after you've sold a product you can't assert your own patents against it later.

What's under attack (not only in this particular trial but in a host of cases as shown in the battlemap further above) is not Qualcomm's business model in its entirety, but certain problematic practices. Qualcomm will have a bright future either way. It will continue to create jobs. It will continue to rake in huge profits. It may, however, have to make some adjustments so as to ensure an allocation of resources that will work best for the economy and for society. This is a story à suivre.

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Final pretrial conference order in Apple, Foxconn et al. v. Qualcomm (Southern District of California)

There were two developments yesterday in connection with Qualcomm's antitrust issues.

First, the EU General Court (which used to be call the European Court of First Instance) handed down a judgment that upholds the entirety of the European Commission's March 31, 2017 decision that Qualcomm would incur a daily fine of 580,000 euros for non-compliance with two information requests after specified dates (May 12, 2017 for one of them, and May 26, 2017 for the other). The EU General Court already denied in July 2017 a Qualcomm motion to stay the order, as I mentioned in this post. Apparently Qualcomm then had to comply (though it still appealed the decision), and the investigation of Qualcomm's exclusivity arrangements and predatory pricing further to a complaint by Icera, a once-European semiconductor company acquired by Nvidia (and shut down later).

At first sight one may wonder why Qualcomm would be accused of overcharging in one context and of predatory pricing in another, but the two theories can be reconciled: Qualcomm's supra-FRAND royalties enable the company to impose a tax on everyone and to sell chipsets, especially in the low-end segment, at a lower cost than Qualcomm could if it contented itself with FRAND royalties. It's one of the ways Qualcomm benefits from a business model that flies in the face of all we know about the concept of patent exhaustion.

Second, we're five days away from the start of the Apple & Contract Manufacturers v. Qualcomm antitrust and (secondarily) contract dispute in the Southern District of California. Judge Gonzalo P. Curiel (whom Judge James L. Robart, known for two groundbreaking SEP-related rulings, holds in the highest regard), has entered a final pretrial conference order (this post continues below the 262-page document):

19-04-09 Final Apple Foxcon... by on Scribd

This is a long document and I've mostly published it here as reference material for the upcoming trial. I haven't fully digested it yet, but it reflects the judge's prior categorization of the case as primarily an antitrust/FRAND and only secondarily a contract dispute.

The way the defenses to the parties' different claims are presented is consistent with what Apple had proposed: to list the defenses after each claim. Qualcomm had argued it would have been more efficient to discuss the defenses just once (and then apply them to multiple claims).

What both parties appear to be fine with is that the judge will interpret some disputed contract terms after the presentation of evidence, but before jury deliberations.

Don't be puzzled by the official date of the order. It came down on April 9, but with retroactive (ex tunc) effect.

There's probably something more in that long document that's worth talking about, and I'll take a closer look between now and the start of the trial on Monday.

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San Diego judge: Apple, Foxconn et al. v. Qualcomm is primarily an antitrust dispute as Apple says, not just a contract case as Qualcomm claims

More than a month ago I described, based on some key pretrial filings, the contours of the Apple-Qualcomm dispute, which will go to trial on April 15, as follows: "Apple emphasizes antitrust, FRAND, patent exhaustion -- Qualcomm says contracts are contracts"

It's about "framing," and it affects the structure of the trial (who gets to present what type of testimony first) as well as that of the jury instructions and verdict form. It's obvious that Qualcomm's attorneys would have preferred to avoid the situation in San Diego (in the Apple & contract manufacturers case) that it experienced in January in San Jose, where the FTC initially gained control over the center of the chessboard and never really relinquished it, with Qualcomm being left with little more than a last line of defense (evidence of actual anticompetitive harm). Qualcomm scored some points, but probably not enough (quantitatively and qualitatively speaking) to prevent the FTC from prevailing on at least one or two key claims (we're all still waiting for Judge Lucy H. Koh's ruling).

After a hearing held on Thursday by Judge Gonzalo P. Curiel of the United States District Court for the Southern District of California, Qualcomm faces an increased risk of a San Jose-like experience in San Diego, with the only structural difference that makes the outcome harder to predict being the involvement of a jury, while the FTC trial was a bench trial (before a judge without a jury).

At the Thursday hearing, Judge Curiel made an explicit reference to the FTC case, describing Judge Koh's partial summary judgment on Qualcomm's obligations to license standard-essential patents to rival chipset makers based on two U.S. standard-setting organizations' FRAND licensing declarations as "a very well-written decision" in which "she thoroughly addressed all of the facts and questions that were raised there." Listening to Judge Curiel saying so must have caused Qualcomm's attorneys significant discomfort. That was an "in your face" moment even though the contract interpretation questions underlying the referenced decision won't directly resolve any of the fundamental issues in the San Diego case. The contexts of the cases overlap to a huge extent, and even though Qualcomm avoided a patent-specific patent exhaustion analysis in the San Diego case (by a successful motion to dismiss some claims and by mooting others through a Super Sack covenant not to sue--yeah, not to sue, not just Qualcomm's preferred commitment "to sue last"), Judge Koh's summary judgment ruling strongly supports Apple's general assertion of patent exhaustion.

The Thursday hearing's focus wasn't on component-level licensing. It was originally supposed to be about various motions, and Judge Curiel made it clear that all those Rule 44.1 motions relating to questions under French law (governing the ETSI FRAND declaration) were basically summary judgment motions in disguise and he'd need more time to rule on them. What he was able to decide right at the hearing, however, is that a motion Qualcomm brought, according to a sworn declaration by Apple, without any advance warning had no merit and was, therefore, given short shrift in terms of an outright denial before Apple even filed an opposition brief.

That most recent motion was related to an earlier one in which Qualcomm argued that, after the summary judgment Apple obtained two weeks ago against a certain set of breach-of-contract claims (to the effect of Qualcomm now being virtually certain to owe Apple about a billion dollars in kickbacks and being unable, absent a successful appeal, to claw back billions of dollars it paid before), Apple no longer had any claims--much less any claims related to that particular Business Cooperation and Patent Agreement (BCPA)--for the jury to hear and decide. Only the issues between Qualcomm and Apple's contract manufacturers would have been jury-triable as per Qualcomm's representation. The surprise motion then built on that other motion and argued that Qualcomm should get to present its contract claims first. Anything that Apple was still pursuing would just have been for the judge to decide (bench trial).

Simply put, Qualcomm's envisioned trial playbook would have been to tell the jury

• that there are some contracts between Qualcomm and those four contract manufacturers;

• that the contract manufacturers owe Qualcomm tons of money under those contracts;

• that they stopped paying and should be ordered to finally cough up the money, with a potential enhancement of damages (they wouldn't want to tell that one to the jury) and interest on interest on top; and

• evil Apple told the contract manufacturers to stop paying for no reason.

But that's not how the judge views the case, and it's especially not how the judge would allow the case to be presented to the jury, because that distorted perspective misses the point.

Judge Curiel made it clear that (in slightly different words) lawyers get paid for gamesmanship like this, but the court's function is to focus on the issues and not to accomodate gamesmanship.

As for the BCPA-related evidence, Judge Curiel does agree that it would be prejudicial to Qualcomm if Apple could tell the jury about the court's summary judgment on the payment obligations and the impossible clawback under that agreement. Also, the contract manufacturers won't be allowed to introduce evidence regarding antitrust investigations in some other jurisdictions. But the judge denied that earlier motion in other respects, so the jury will see and hear about the BCPA. Judge Curiel reached this conclusion by focusing on commercial realities, not on mere formalities such as whether or not the contract manufacturers were, in the strictest sense, parties to the BCPA. With Qualcomm's web of contracts (where the contract manufacturers buy the chips and pay the patent royalties, but Apple offsets those patent royalties and Qualcomm then promised go give Apple some de facto rebates contingent upon certain types of behavior) being characterized by cross-references and interdependencies as became clear at the FTC trial, the court takes a holistic and business-minded approach.

The recent surprise motion was then denied because Qualcomm's representation of the case as being first and foremost a contract (not antitrust/FRAND) dispute fails, in Judge Curiel's opinion, the "primary purpose" test. Here, again, Judge Curiel made it clear that he had "a duty to look beyond the pleadings to determine the actual interests of the parties." I always like it when judges decline invitations to narrow their focus on formalistic-legalistic considerations. There are questions that are purely questions of law, but in those high-profile, high-stakes commercial disputes, a court would fail to see the forest amid the trees without really asking the question of "what's the gist." Judge Curiel described that gist as follows:

Here, there is not one scintilla of a doubt that the primary dispute relates to the claim that Qualcomm has designed a business model for chipsets that has allowed it to create and maintain a monopoly. This is an anticompetitive conduct case, first and foremost. Apple and the CMs [= contract manufacturers] are aligned on that claim due to their relationship in the production, manufacture of Apple iPhones and iPads. This alignment is seen in many ways, including the Apple and Qualcomm contracts that follow up on the CM agreements."

Against that background, the judge said one would put the cart before the horse by focusing on the individual contracts beteen Qualcomm and each of the contract manufacturers as the starting point of the analysis: "It would present the case to the jury in an illogical, disjointed, and disorganized manner and would likely lead to confusion."

The court has yet to decide on the jury instructions and the verdict form. Judge Curiel sees a lot of "cherry picking" and isn't inclined to agree with either party on what the jury should be told, but he'll need some time to decide on what to do in that regard. In strategic terms, however, Apple is now in a stronger position with a view to jury instructions and verdict form as well: the judge agrees with Apple, and disagrees with Qualcomm, on the gist of the case and the proper order of presentation at trial.

In closing I'd like to mention that I was interviewed on the Qualcomm antitrust and patent cases by The Capitol Forum for about one hour on Monday. The conference call was accessible to The Capitol Forum's subscribers, but a transcript and a podcast will be made available to the general public soon.

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Qualcomm can't leverage Chinese bogeyman or allege misuse of its trade secrets by Apple in upcoming antitrust and contract trial: pretrial rulings

Judge Gonzalo P. Curiel just entered a minute order summarizing various rulings on Apple's, its contract manufacturers', and Qualcomm's motions in limine (pretrial motions to exclude testimony, evidence, or argument). The rulings came down orally at yesterday's motion hearing as the order indicates.

While those decisions can have major impact on what the parties to a dispute can say or show at trial time, rulings on motions in limine are typically much less important than summary judgment orders, and a very important summary judgment was published yesterday but dated March 12 (Tuesday): under that one, Qualcomm has lost the opportunity (barring a successful appeal) to claw back billions of dollars from Apple, and it's now apparently a foregone conclusion that Apple is entitled to an extra $1 billion in payments under a Business Cooperation and Patent Agreement (BCPA). And in other news today a jury verdict (in Qualcomm's favor) came down in a sideshow case involving a very small amount of money compared to what's really at stake between the parties.

But there are tens of billions of dollars at stake in the trial that will start on April 15 (with Apple placing the emphasis on antitrust and FRAND arguments, while Qualcomm puts certain contracts front and center), so even the decisions on various motions in limine are worth looking at (even if not in great detail because there's so many of them). Relatively speaking, even those "MILs" are strategically more important than today's verdict in a case that is not even about a tenth of a percent of the big antitrust/FRAND/contract case.

It's important to consider that even if a motion in limine is denied, counsel may still successfully object (at trial time) to some of the related testimony, evidence, or argument.

Qualcomm's five motions in limine

1. This Qualcomm motion has been denied, so Apple and the contract manufacturers remain free to present testimony and argument concerning "royalty stacking." This relates to the problem of numerous patent holders owning patents that have been declared to be essential to a given wireless industry standard, and if each and every one of those patent holders made Qualcomm-like demands on a per-patent basis, the aggregate royalty burden would be impossible for anyone to shoulder on a commercially viable basis.

2. This one was granted, so Qualcomm has managed to preclude Apple from presenting evidence of its PR strategy, such as discussions between Qualcomm and its PR agents. But the motion made it clear in its first footnote that it "[did] not seek to exclude statements that Qualcomm has made to the press."

3. The court deferred judgment on whether to exclude hearsay evidence from unretained experts. The related Qualcomm motion said: "Apple's exhibit list includes four expert papers by Karl Heinz Rosenbrock or Friedhelm Hillebrand regarding the Intellectual Property Rights Policy ('IPR Policy') of the European Telecommunication Standards Institute ('ETSI') (the 'Expert Papers')."

4. Qualcomm's motion to exclude evidence of certain standard-essential patent (SEP) disclosures has been denied. This is about Apple saying certain disclosures by Qualcomm (of essential patents) to two U.S. standard-setting organizations, ATIS and TIA, weren't timely. This blog first mentioned them in connection with the summary judgment the FTC requested and actually obtained in the Northern District of California regarding licenses to rival chipset makers.

5. Qualcomm's second successful motion in limine achieved the exclusion of certain transcripts of what companies that aren't parties to the Apple & Contract Manufacturers v. Qualcomm case in San Diego said at various investigative hearings held by the United States Federal Trade Commission (FTC). According to the motion, "[t]he witnesses who testified at these hearings included representatives from Samsung, Intel, Motorola, MediaTek and Huawei, among other companies." Qualcomm complained that using those transcripts would be unfair because "Qualcomm had no opportunity to attend the hearings and cross-examine the witnesses" (unlike at the later stages of the FTC v. Qualcomm proceedings).

Qualcomm's motions in limine had a pretty good hit rate (two out of five, and a third one may still succeed), but the impact is limited. Maybe there was something in the correspondence between Qualcomm and its PR companies that jurors might deem incriminating in some way, but I doubt it would have been absolutely damning. As for the investigative hearings, the fact that Qualcomm's lawyers weren't able to cross-examine those witnesses was a strong procedural argument for Qualcomm to make. However, the three SEP-specific motions in limine (#1, #3, #4) have been denied or deferred. And that's where the beef really is.

Apple and the contract manufacturers' 13 joint motions in limine

1. Judge Curiel granted the motion to exclude testimony and argument regarding Apple non-SEP litigation. This is about positions Apple took in its dispute with Samsung over non-standard-essential patents. No one bashed Apple harder for its damages claims in one Samsung case than I did, but that's an old story and really doesn't have a bearing on what a FRAND royalty rate should be.

2. Because of the denial of the related motion in limine, Qualcomm can still present certain fact witness testimony regarding the relative value of its portfolio. In their motion, Apple and the contract manufacturers had argued that "[t]hese and other Qualcomm fact witnesses have no basis to testify about the relative strength of Qualcomm's patents because these witnesses have no personal knowledge of other companies' patents." I'm sure they're going to raise this issue on cross-examination, just to minimize the weight any such testimony will be given.

3. Qualcomm also remains free to present evidence or argument that Apple and the contract manufacturers allegedly make, use, offer to sell, sell, or import Qualcomm's patented technology. The fact that Qualcomm may say so doesn't mean it can prove large-scale infringement.

4. The fourth motion in limine by Apple and its contract manufacturers has been granted in part and denied in part. The part that was granted appears very important: Qualcomm's allegations of Apple having misused Qualcomm's trade secrets or confidential information. There is a case pending under California state law, but so far nothing really appears to have come out of all those allegations, and they won't even be part of the big San Diego case. What Qualcomm will, however be allowed to say is that Apple has actually hired, or tried to hire, some Qualcomm employees. With Apple having set up shop in San Diego and recruiting wireless chipset engineers there, it's not really a secret--and not even 1% as incriminating as those--as of yet totally unproven--trade secret allegations.

5. Qualcomm will be allowed to prsent some evidence regarding Apple's financial strength. Also, Apple would have preferred to separate the question of punitive damages through a bifurcation of the trial, which won't happen.

6. Qualcomm can and likely will point to the fact that Apple has indemnification arrangements with its contract manufacturers (which is the normal course of business anyway).

7. Apple prevailed on a motion in limine related to a totally unspecified contract with someone as well as its revenue sharing model for App Store purchases (as an app developer I have direct experience with that part), and its "MFi" program, which according to the motion "gives developers rights to traemarks, trade secrets, technical specifications, licenses to NEPs, and access to design components from vendors."

8. A motion related to a 2015 Apple-Samsung meeting has been deemed moot.

9. The huge Chinese bogeyman that was part of Qualcomm's PR strategy around the January FTC trial won't resurface at next month's trial. Judge Curiel granted a motion by Apple and its contract manufacturers to exclude evidence or argument that competitors who will benefit from the remedies sought are in Asia (last time I checked, Intel was still in California...) or portraying Qualcomm as an asset to U.S. national security (no patent can ever be an asset to national security since patents are published).

10. Likewise, Judge Curiel agreed with Apple that some other antitrust cases involving either Apple or Qualcomm competitors like Intel over totally unrelated issues aren't relevant here.

11. The parties stipulated that Apple and the contract manufacturers' motion to exclude evidence of Qualcomm's corporate character (such as how nice, generous, benevolent or whatever Qualcomm would like to be considered) was moot.

12. Apple and the contract manufacturers didn't achieve a wholesale exclusion of "approximately, 92,438 pages of documents Qualcomm has produced since the cutoff [date in this case]" on top of "[m]ore than 18 million documents totaling over 08 million pages" already in the case. The denied motion argued that there was "a deliberate effort by Qualcomm to produce documents about events that have taken place after the fact discovery cutoff." This sounds like something that may give rise to various case-by-case objections later on.

13. Granted in part and denied in part. Apple won the exclusion of deposition testimony of French law professor Bénédicte Fauvarque-Cosson regarding the interpretation of the ETSI FRAND declaration under French law (also served as an expert witness for Qualcomm in the FTC case, but wasn't made use of in the end) and former Bosch IP executive Dr. Bertram Huber (who sat across me at a 2004 government roundtable on patent policy) won't be allowed to give "improper testimony about legal conclusion," but he will be free to talk about the history or intent of the ETSI intellectual property rights policy.

Contract manufacturers' (without Apple involved) two motions in limine

1. (No. 14) This was basically withdrawn and related to whether Qualcomm could tell the jury that the damage award might be enhanced by a factor of up to three.

2. (No. 15) The court denied a motion relating to evidence Qualcomm may present regarding a pass-on of damages (by the contract manufacturers to Apple).

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Contours of Apple-Qualcomm dispute: Apple emphasizes antitrust, FRAND, patent exhaustion -- Qualcomm says contracts are contracts

On April 15, the Apple & contract manufacturers v. Qualcomm trial will start in San Diego (Southern District of California), and the stakes are high.

This is a key month for pretrial filings. I've gleaned from the parties' joint pretrial brief on disputed contract terms that Qualcomm charges a 5% patent royalty on iPhone repairs performed by Foxconn and wants an extra $1.3 billion from three of Apple's four contract manufacturers as a late "processing and handling" charge. Beyond the joint pretrial brief, the parties have also filed literally dozens of motions, and yesterday (Saturday) they filed a total of more than 1,100 pages (!) relating to, and including, their proposed jury instructions and verdict forms.

It's obviously impossible to discuss everything in detail. The purpose of this post is to provide a bird's-eye view of the parties' priorities in the upcoming trial. Those priorities are reflected by what Apple writes about its plans for its case-in-chief, by what the parties would like to go into or be kept out of the jury instructions, and by their preferences for the order of items on the jury form as well as what should be put before a jury in the first place (as opposed to being decided by the judge).

I've uploaded some key documents and will share my observations below the list:

1. Apple and its contract manufacturers' position statement

2. Qualcomm's position statement

3. joint proposed jury instructions

4. Apple and its contract manufacturers' proposed verdict form

5. Qualcomm's proposed verdict form

The most fundamental difference is that Apple and its contract manufacturers place the emphasis on antitrust claims and FRAND licensing issues, while Qualcomm would like to focus the judge and the jury primarily on the contracts it has, or used to have, in place with the parties. In legal Latin, one could sum up Qualcomm's mantra as "pacta sunt servanda" (contracts must be fulfilled). I don't remember seeing that phrase in those documents, but that's the philosophy. While this sounds clear and logical, it's actually not that simple when antitrust issues come into play. Antitrust law always trumps contract law, provided that there is an antitrust violation.

The freedom of parties to define contract terms freely is important. Even very important. But it's not absolute. Contract terms can be unenforceable as a matter of contract law, or due to other laws, such as competition laws. That's why professionally-written contracts almost always come with a salving clause that states what to do if a court of law holds one or more clauses of a contract invalid or unenforceable. If "pacta sunt servanda" was a self-sufficient answer, a salving clause wouldn't be needed because everything would be valid and enforceable.

Not only can clauses be held invalid or unenforceable but there can also be restrictions based on, for instance, reasonableness principles.

Apple has now announced in its position statement that it will begin its case-in-chief (which will be the first case-in-chief since Apple brought the original complaint) with antitrust and FRAND matters. There's nothing Qualcomm can do about that. But Qualcomm would at least like to structure the jury instructions and proposed verdict form in a way that downplays the importance of antitrust and FRAND claims, and draws the jury's attention primarily to the contract terms Qualcomm imposed on the plaintiffs (and some of which Qualcomm says have been breached).

The importance of psychological considerations is underscored by Apple objecting to Qualcomm's proposals that always list Qualcomm first when the jury, on the verdict form, has to find whom it found for. Apple says as plaintiff it should come first. While such details can also make a difference, there are some more substantive disagreements.

Both parties assert affirmative defenses, but Apple and its contract manufacturers

• propose to let the jury indicate its decision on the various affirmative defenses right after finding on a claim, and

• lists affirmative defenses that Qualcomm believes should not be put before the jury.

Qualcomm generally seeks to minimize what the jury will be told. Affirmative defenses are a key part of that, but it goes beyond. Apple would even like the jury to take advisory positions on certain matters to be decided by the court, which Qualcomm opposes. Typically, such disagreements are always just about how a party believes the jury will view the parties' conduct (good guys vs. bad guys) if it hears about certain defenses and claims. In another California FRAND case, Huawei unsuccessfully sought to avoid that Samsung could present its FRAND breach case to a San Francisco jury next September. And one of the ways in which Judge Alsup (who's not involved with the Apple-Qualcomm dispute) disadvantaged Oracle against Google was that he allowed Google to raise open-source arguments that jurors apparently conflated with the actual "fair use" factors. Back to Apple-Qualcomm, it appears that Qualcomm simply wants the focus to be on what the contract say, and anything that calls the language of the contracts into question or limits its relevance is undesirable from Qualcomm's view, be it an antitrust issue, FRAND licensing obligations, or affirmative defenses.

In one of its numerous motions in limine, Qualcomm doesn't want Apple to refer to chipset-level licensing (smallest salable patent-practicing unit). That's the most interesting issue in FTC v. Qualcomm. It's also key to Apple & contract manufacturers v. Qualcomm because nothing has a greater potential impact on a FRAND determination than the identification of the royalty base.

Another question is almost as important as the parties' disagreement on whether the case is primarily about antitrust and FRAND or about contracts: the question of whether it's a patent case to some degree. It's not a patent infringement case in a strict sense as Qualcomm, in its efforts to avoid an exhaustion finding, waived its rights related to various patents and got some declaratory-judgment claims thrown out by the court. Qualcomm's "exhaustophobia" is quite extreme. Therefore, Qualcomm also brought a motion in limine regarding any references to patent exhaustion, and more generally, it just doesn't want Apple to dispute that Qualcomm's patents are valid and infringed.

In other words, Qualcomm wants to tell the San Diego jury in the Apple case, as it told Judge Koh last month in the FTC case, that it owns 130K patents and believes those are worth a 5% royalty (3.25% for standard-essential patents and 1.75% for non-SEPs).

But as I wrote ten days ago, Qualcomm's infringement lawsuits against Apple haven't really delivered results, after almost two years, that support Qualcomm's royalty demands. Many of those patent assertions have been unsuccessful (obviously, at this stage everything can still be appealed), and even the ones that have succeeded have just resulted in injunctions that could be worked around (one of which is based on an agnostic ruling that is contradicted by two facts-based U.S. decisions involving a patent from the same patent family).

By contrast, at this stage Nokia's assertions of SEPs and mostly non-SEPs against HTC (a huge number of patents in the end) resulted in a settlement under which HTC met Nokia's royalty demands; BlackBerry had caved even earlier. Last time, Apple settled with Nokia pretty quickly, presaumably to focus on the Qualcomm dispute. Ericsson typically achieves settlement before its assertions even go to trial. Nokia and Ericsson are two patent holders in this industry that are reasonably comparable to Qualcomm, with the most important difference apparently being that their royalty demands are substantially lower, thus licensees are more likely to accept them. (Otherwise Apple would probably not have done a deal with Nokia in order to focus on Qualcomm.)

Whether it's about Qualcomm's portfolio or anyone else's, it just doesn't make sense to assume that an entire portfolio consists of valid and infringed patents when discussing reasonable royalties. But Qualcomm argues it owns so many patents that it could just enter into a Super Sack non-assertion covenant with respect to some patents Apple sought to challenge in the San Diego case, just to get rid of the related declaratory-judgment claims.

Qualcomm is not the only one to seek royalties based on portfolio size rather than actual proof of an infringement of valid patents. However, so far no one has gone as far as Qualcomm has in its efforts to avoid any determination on the merits sought by the other party.

Just like in that Munich case in which an apparently non-infringing Qorvo chip was successfull accused by Qualcomm by preventing the court from analyzing the hard facts, Qualcomm favors agnosticism (in this case, with respect to whether the patents in its portfolio are valid, infringed, and not exhausted) over analysis.

There are obviously reasons why the parties had to file north of 1,000 pages on a Saturday just to tell Judge Gonzalo P. Curiel about their disagreements on jury instructions and the verdict form. However, they may still be able to narrow the issues the court must rule on. They explained that they made the filings yesterday to meet the deadline, but efforts are continuing to reach an agreement on at least some questions. That is another reason for which I believe this is not the time to go into too much detail on those filings. For now, what's key is to know the countours of the clash.

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Qualcomm demands an extra $1.3 billion from Foxconn, Pegatron, Wistron: exorbitant late "processing" charge

Qualcomm's collection of a 5% patent royalty on iPhone repairs performed by Foxconn is not the only absurdity that Apple, its contract manufacturers and Qualcomm's joint pretrial brief revealed last week. How about a potentially record-setting administrative charge of more than $1.3 billion for the "processing and handling" of late payments?

You can find the PDF in the previous post (which I just linked to). Here's a passage related to the late "processing" charge:

"Qualcomm agreed these late charges were 'administrative' to 'defray' 'costs in processing and handling.' Thus, the intent and scope of the provision expressly excludes compensating for any time-value of money and disclaims using fees to encourage (or coerce) timely performance.

"Yet Qualcomm has demanded that Foxconn, Pegatron, and Wistron pay $1.3 billion in late charges, a number disconnected from any 'processing and handling' expense Qualcomm could have incurred (much less foreseen) as a result of any possible late payment. Qualcomm's late 'processing' charge--1.5%/month of any disputed amount, compounding--increases dramatically with the amount of the tardy payment and with the passage of time." (emphasis in original)

On the same page, attorneys for Apple and its contract manufacturers argue that "[t]his is an illegal, unenforceable liquidated damages penalty barred by Cal. Civ. Code § 1671(b)." (again, emphasis in original)

What Qualcomm is charging here is colloquially called "interest on interest" related to the contract manufacturer's cessation of royalty payments on the products they make for Apple in the spring of 2017. We know Qualcomm recently claimed that $7 billion in royalties that Qualcomm wants have not been paid. Apple and its contract manufacturers claim that they actually overpaid in the past because Qualcomm extracted supra-FRAND royalties. But even if we assumed, just for the sake of the argument, that Qualcomm had indeed been owed another $7 billion since the spring of 2017, a $1.3 billion surcharge on a $7 billion amount is huge. It's almost 20% of the amount allegedly owed!

It's obviously not the kind of amount that Qualcomm could realistically claim it incurred in administrative costs. Processing a few royalty payments that come in late is not a lot of work. If that truly resulted in a billion-dollar cost, Qualcomm would be the most expensive bureaucracy in the world, and couldn't exist because, in that case, any employee's travel expense report would also cost a billion or so to process.

The effect of "interest on interest" is huge if new interest is added every month. And if this dispute, including appeals, took several more years, then the ultimate claim on that basis would dwarf the current demand of more than $1.3 billion.

Including the potential of treble damages, the Apple & contract manufacturers v. Qualcomm trial will roughly be about either side seeking approximately $30 billion from the other, the differential between the two extreme scenarios therefore being on the order of $60 billion. That's the proverbial high-stakes trial, and relative to that amount, the $1.3 billion late "processing and handling" charge is just a limited part of the overall dispute. However, just like those patent royalties charged on iPhone repairs (which probably represent a very small amount of the overall royalty demand), it's the utter unreasonableness of the underlying "logic" that is so striking here.

The biggest problem with that unreasonableness is not that Qualcomm wants this. The problem is that Qualcomm has been able to impose contract terms that it can interpret that way in the first place. Those terms are very unusual, and that's also what we heard last month at the FTC v. Qualcomm antitrust trial.

Of course, Qualcomm can and does pay expert witnesses who testify that such terms and conditions are simply a "market outcome" and claim that their "you can't argue with success" logic is stronger than what, for an example, Professor Carl Shapiro (Berkeley) told us about bargaining power and the normal splitting of gains from engaging in a transaction. But when some contract terms are so far out of the ordinary in business, something must have gone terribly wrong. Better late than never to fix the issue.

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Patently absurd: did you know Qualcomm charges a 5% wireless patent royalty on iPhone repairs?

The FTC v. Qualcomm trial in San Jose just ended about three weeks ago, and we're already approaching the Apple & contract manufacturers v. Qualcomm trial in San Diego. On Saturday, Apple, its four contract manufacturers (Foxconn, Pegatron, Wistron, Compal) and Qualcomm filed a joint pretrial brief on disputed contract provisions. The 76-page document serves as a preview of various issues. There are so many issues that I wouldn't even know where to begin if one of them didn't stand out because it's

• extraordinarily absurd and

• one of the best examples of hidden costs that we--the consumers--don't know about until they surface in litigation. But whether or not we know about them, we're the ones to foot the bill at the end of the day.

Qualcomm wants a 5% patent royalty (with a $400 cap for the royalty base) on smartphones. 3.25% of that relates to standard-essential patents, though I haven't seen Qualcomm successfully enforce even one of those SEPs in all those years. The related dollar amount will be illusory the moment its wireless SEPs must be licensed at the chipset level. Another 1.75% relates to non-standard-essential patents, and after almost two years of non-SEP infringement litigaton against Apple, Qualcomm has no real leverage. News cycles aren't leverage.

So there's a problem with what they charge, but until I read this pretrial brief, I was unaware of there being another problem with the wide net they cast when actually collecting their royalties.

Apple and its contract manufacturers complain that when Qualcomm performs audits, it insists on getting its 5% on whatever Apple pays to a company like Foxconn: not only the device, but also any services, including repairs. I'll use Foxconn as the example here because I've been able to find articles on its iPhone repair capacity. Quite often, devices are repaired right at an Apple Store (such as an iPhone 7 Plus I took there a few months ago to get a new screen and battery). In that case, Qualcomm probably can't charge patent royalties because it doesn't have a direct agreement with Apple. But some devices are sent to China to be repaired there at a lower cost. And in that case, Qualcomm collects 5% of whatever a company like Foxconn charges Apple (click on the image to enlarge; this post continues below the image with the related text passage and further commentary):

Here's the text again:

"For example, assume Apple paid a [contract manufacturer like Foxconn] an extra $20 per iPhone to repair it should it break, or an extra $10 per phone to disassemble it for recycling at the end of its life. While these would be collateral transactions 'related to' the phone sale, they would not constitute 'consideration … for each Subscriber Unit'—the extra charges would be consideration for repair or recycling services that are not royalty bearing under the [Subscriber User License Agreement] definition of 'Selling Price.' Yet, Qualcomm would charge a royalty on these transactions notwithstanding that they are unrelated to Qualcomm's patents." (emphases added)

The last point--"unrelated to Qualcomm's patents"--is the issue here:

If Qualcomm held one or more patents on a machine used by Foxconn when repairing iPhones, and if the agreement between them and Foxconn was about revenue-sharing instead of a per-machine license fee, then it would be OK. There might be an argument then about whether those patents are valid or actually infringed, but at least the patents would be logically connected to a repair service.

In this case, however, we're talking about wireless communications patents, general circuitry patents, and software patents. None of that justifies another patent license fee only because a broken device is repaired.

If you repaired iPhones and an average patent troll tried to shake you down, arguing that you owe him a royalty on your income from repair services even though his patents are entirely unrelated to the activity of repairing those devices, you would decline to pay. If the troll insisted, you'd ask him which part of "no" he doesn't understand or, if all else fails, some might even flip him the bird. But you definitely wouldn't pay up!

So how can Qualcomm get away with this (and some other things)? How can they impose such contract terms when they actually have a FRAND (fair, reasonable and non-discriminatory) licensing obligation with respect to their SEPs, meaning that all terms must be FRAND, not just one or two?

They've clearly been extremely effective at leveraging their patents and their chipset business. As the example of a $1 royalty on a $20 iPhone repair shows, "extremely effective" is a euphemism for the situation. Qualcomm's leverage has created an absurd situations, and both the FTC lawsuit in San Jose and the San Diego action by Apple and its contract manufacturers are key parts of what's needed to fix the problem. It will presumably take more than those two cases, but in the short term those lawsuits are most likely to help--not just in the sense of helping those companies, but the industry at large, and consumers.

Finally, here's the long document:

19-02-16 Apple-Qualcomm Joi... by on Scribd

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Will Apple v. Qualcomm (April 15 in San Diego) be a $50 billion trial?

The FTC v. Qualcomm trial in a narrow sense (ten days of testimony) has just wrapped up, and closing arguments will be delivered later today. Not only has the underdog team--the FTC's litigation staff--had (and managed) to square off with multiple top-notch law firms but Qualcomm, through its allies and hacks, has intensified a barrage of opinion pieces in different media to pressure the competition enforcer to settle the case. Yesterday, the Wall Street Journal's website published an op-ed by star attorney Ted Olson (I first heard about him in connection with the dispute in 2000 over ever more recounts in Florida). He explains why it's a good thing that the FTC is pursuing this case.

Mr. Olson does disclose the fact that his law firm, Gibson Dunn, represents Apple's contract manufacturers in the San Diego Apple v. Qualcomm case. But all those Qualcomm puff pieces bashing the FTC weren't any more balanced. I'm not aware of anyone else right now who would express clear opinions on the issue in the case but also acknowledge when the other side has a point like I agreed with Qualcomm's 2017 motion to dismiss in part, found Qualcomm had a potential point in the timing of a consumer antisuit motion (which Judge Koh denied, for the time being, for that very reason), and in connection with the trial I concluded that part of MediaTek's testimony was useful to Qualcomm and that Qualcomm destroyed one of the FTC's three experts, Mr. Lasinski, whom I've criticized sharply. Also, I commented favorably on the testimony of a Qualcomm employee-expert, Mr. Casaccia, and gave Qualcomm unsolicited advice on who should be their lead counsel and deliver their closing argument.

I sincerely wish I could find someone who, unlike me (a FRAND advocate for 12 years), promotes maximum leverage for standard-essential patent holders, but who would also concede at least from time to time where the FTC has a point--and who would focus on the issues rather than a Chinese bogeyman or FTC-Apple conspiracy theories. Should I find such a counterpart, I'd really like to have a reasonable debate, which is impossible with trolls and hacks. Until then, I'll welcome the modest incremental balance the debate gains from contributions such as Mr. Olson's WSJ piece, knowing that he (described by IPWatchdog as "undoubtedly" one of the two most famous U.S. attorneys) is someone who even with his firm being involved in the wider dispute simply wouldn't have to take positions that aren't his own.

Mr. Olson's op-ed mentions that Apple's contract manufacturers (Foxconn, Wistron, Pegatron, Compal) are suing Qualcomm over $27 billion. I wasn't aware of that number, but googled it in this Yahoo Finance article and another place. Apparently, it's three times $9 billion: treble damages.

In October, Qualcomm's lead counsel in the San Diego case, Cravath chairman Evan Chesler, claimed "$7 billion in property damages" because of royalties not paid by Apple's contract manufacturers on devices made for Apple between the spring of 2017 and October 2018 (therefore, the actual number is likely already north of $8 billion, and may be even closer to $9 billion or $10 billion by the time of the mid-April trial). In a hypothetical scenario in which Qualcomm would get this amount, it might try to seek damages enhancements as well. Let's assume $8 billion (and I would almost guarantee Qualcomm will want more), and a hypothetical attempt by Qualcomm (whether meritorious or not) of treble damages, then the total amount of money at stake in the San Diego case is already more than $50 billion: that's the differential between the best-case scenario for Qualcomm (getting approximately $30 billion and not paying anything to Apple's contract manufacturers) and its worst-case scenario (paying $27 billion and getting nothing).

Those numbers dwarf the $1 billion in contractual payments Apple is seeking (which almost all of the original reports on this case focused on).

Even if one discounted all those numbers aggressively, the financial implications of that trial will probably represent an opportunity for event-driven investors.

In light of those quantities, it's also clear now why the extremely limited leverage Qualcomm gained from the enforcement of a pair of German patent injunctions (requiring Qualcomm to post bonds over more than $1.5 billion)--it's just symbolical--didn't make Apple cave.

The San Jose trial concluding today is/was "David vs. Goliath" (given the resource constraints of the FTC's litigation team). In San Diego there'll be a "Clash of Titans." Over tens of billions of dollars.

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After mixed Day 5 of FTC v. Qualcomm antitrust trial, irrelevant German ruling to be handed down later

[Update] The Mannheim Regional Court indeed threw out Qualcomm's complaint for non-infringement based on claim construction (the first of three possibilities I discussed further below). [/Update]

Day 5 of the FTC v. Qualcomm antitrust trial just concluded. It was the most eventful and interesting day of the first half of this bench trial. The morning and the early afternoon were a total disaster for Qualcomm, but toward the end Qualcomm had its strongest hour to date.

I usually write about these long and tiring trial days the next morning. I'll do so again, given that we learned some interesting numbers and other relevant facts, but here's a very short summary--and then I'll provide a preview of the Qualcomm v. Apple patent infringement ruling coming up in Mannheim at 9 AM local time there (midnight Pacific Time):

• The first witness this morning was Apple COO Jeff Williams. Some of what he said effectively nuanced what Qualcomm CEO Steve Mollenkopf said on Friday about Apple's alleged proposal to agree to exclusivity. Mr. Williams provided the court and trial watchers with interesting and credible information on various other issues. He was the first witness to be rudely interrupted by Keker van Nest & Peters' Eugene Paige, but in his low-key, friendly, unpretentious way drove all the important points home.

• The FTC staff then read into the record some testimony by an LG Electronics IP executive that showed, among other things, how Qualcomm bullied LG when it challenged in arbitration (which wasn't even remotely as threatening to Qualcomm's business model as a challenge in a court of law would have been) Qualcomm's licensing terms.

• Then came an FTC licensing expert, Richard Donaldson. Against his background of 31 years (!) of patent licensing work at Texas Instruments, and many years of consulting and expert testimony since he retired from TI, Mr. Donaldson explained how atypical the licensing terms Qualcomm imposes on licensees are, and he also explained that chipset-level licensing is as feasible as it is commercially viable.

  The aforementioned lawyer, Mr. Paige, cut off Mr. Donaldson's answers, and even though I think Mr. Donaldson could have given a tactically better answer to the question of whether TI sought to avoid the exhaustion of system-level (= device-level) patents through chipset licensing (he could have pointed out that this is a non-issue if a chip-level license deal involves only specified or otherwise clearly-defined chip-level patents), I think he dealt with Mr. Paige's onslaught very well. At some point Judge Lucy H. Koh intervened against those interuptions of the witness.

• After the lunch break (which was in the middle of Mr. Donaldson's testimony) Judge Koh came back to the issue of Mr. Paige's constant interruptions and told him not to cut off a witness "after two words." She called this "improper" (I couldn't agree more--it was extremely annoying) and warned that the next party to do so would lose two minutes of its trial time.

• The FTC played some testimony by Ericsson's licensing president Christina Petersson. While Ericsson is also very much into patent monetization, especially standard-essential patent (SEP) monetization, she said various things that seriously undermine some of Qualcomm's positions and defenses, such as with respect to Qualcomm's licensing terms being unusual (the only chipset-level outbound license deal Ericsson still has in place is with Qualcomm). Ericsson sought to position itself as a reasonable SEP licensor (I've repeatedly criticized Ericsson on this blog, but they're not the worst for sure) who understands every SEP holder has to consider he doesn't own the standard alone "in order for the system to work." In other words, Ericsson disagrees with Qualcomm's extreme demands because if everyone did that, the collective impact of royalty-stacking would be devastating. Ericsson even undermined Qualcomm's position with respect to chipset-level licensing, saying that despite the agreement it still has in place with Qualcomm, Ericsson continued to invest in research and development as well as standard-setting.

  With respect to LTE, Ericsson believes it has the strongest portfolio in the industry, with Qualcomm "definitively" weaker in Ericsson's opinion, and with some allegedly believing Nokia is also ahead of Qualcomm.

  We've now heard pretty much every significant industry player. No one is on Qualcomm's side in every respect. There are some who are 100% against Qualcomm, and some who at least disagree with Qualcomm on some key issues.

• Then came Michael Lasinski's testimony. He's another licensing expert testifying on the FTC's behalf. His background is impressive: a former president of the U.S. & Canada chapter of the Licensing Executives Society, and a former American Bar Association IP division chair. A couple of my Twitter followers immediately vouched for him when I mentioned him.

  After an otherwise awful day for Qualcomm, we saw a world-class performance by Cravath Swaine & Moore lawyer Gary A. Bornstein. He struck just the right balance between being assertive and respectful, and he managed to highlight a number of issues relating to Mr. Lasinski's methodologies. Question by question, Mr. Bornstein cornered Mr. Lasinski and forced him to concede limitations and shortcomings, and in one context even an outright contradiction. Mr. Bornstein won this fight by a wide margin, though Mr. Lasinski made a stronger showing initially than the other expert, Mr. Donaldson, on cross-examination.

  While the positions Qualcomm takes on economic expert testimony are way too demanding (no government agency or company in the world could possibly satisfy them), there are indications that Mr. Lasinski's analysis could be the, relatively speaking, weakest link in the FTC's chain. It remains to be seen tomorrow to what extent Professor Carl Shapiro's economic analysis renders those deficiencies less relevant.

• Apple contract manufacturer Wistron (which was spun off from Acer a long time ago) confirmed what others said about Qualcomm simply not making concessions on key licensing terms. He said they ended up agreeing on a huge upfront payment to Qualcomm, and in order to recoup that one as soon as possible, they couldn't work with other baseband chipset makers though there would been economically attractive options.

So there was a lot of shadow for Qualcomm, but also a silver lining for them with respect to Mr. Lasinski's methodologies.

After the first half of the trial (not counting the closing argument scheduled for February 1, 2019), I believe Qualcomm made the mistake of having too many cooks in the kitchen and partly the wrong cooks in certain places. The name of the game is not how many law firms you get involved. It's how effective they are, how "suitable to task" in tech lingo.

Cravath is Qualcomm's lead counsel against Apple, but the lead here in San Jose was given to Bob van Nest. Mr. van Nest himself has class and style, though he's primarily good at jury trials, and Judge Koh is the very opposite in terms of competence and professional coolness from a layperson jury. He's got a great reputation in this district, and Cravath is HQ'd in New York State.

But in retrospect I believe Qualcomm should have given Mr. Bornstein the lead here. He's been lead counsel in other high-profile antitrust cases. It seems to me that he's the smartest member of Qualcomm's trial team here, and generally all the Cravath lawyers here appear classier and more effective than the Keker van Nest lawyers apart from Mr. van Nest himself. There really is a very noticeable difference between one of the most reputable law firms in the country and a regional player good at misleading juries such as in the Oracle v. Google case, where they had a great jury strategy and benefited from a judge who made some key decisions against Oracle that the appeals court unanimously overruled in two different years. By contrast, even if Qualcomm loses (and I still think that's more likely than not to happen), I don't think anyone can blame Cravath.

The next news cycle related to Qualcomm's patents is only about six hours away. At midnight Pacific Time, or 9 AM Central European Time, the Mannheim Regional Court will announce decision, which can be a final judgment or a procedural order, on one of Qualcomm's German infringement lawsuits against Apple targeting Intel-powered iPhones. The patent-in-suit is EP2460270 on a "switch with improved biasing" ("biasing" in this context basically meaning that one voltage gets to control another).

I'm not going to stay up, or get up at midnight, for a nuisance lawsuit (which is all that this one is in practical terms), but I'm sure many will hear about the decision, so I'll quickly explain what may happen and why it's a pointless lawsuit in any event.

• If the court clears those iPhones of infringement, it will most likely be because the court, more or less sua sponte if I understood it correctly (I watched the trial a few months ago), developed a claim construction approach based on an unasserted parallel claim.

• The court might also stay the proceedings pending a parallel nullity action. The Swedish patent office provided an opinion according to which there's nothing inventive about that patent. And it did so on an independent basis, without any specific theory being presented to the examiner (just the prior art references).

• Even if the court refrains from deciding the case based on its great claim construction idea and also declines to attach weight to the Swedish patent examiner's analysis, and formally enters an injunction, so what? At trial it was undisputed between the parties, and mentioned in open court, that Pegatron, one of Apple's contract manufacturers, is licensed to the patent. So there wouldn't be any bottom-line impact on the availability of any iPhone model in Germany.

Among various strong points, the weakest point Mr. Bornstein made in his cross-examination of Mr. Lasinski related to a hypothetical question they had asked him in early 2018 about whether he'd consider Qualcomm's non-SEPs more valuable if Qualcomm obtained injunctions against Apple in foreign courts. We know that some injunctions have come down: two in China (over two patents), and two in Munich, Germany (over the same patent in both Munich cases, just targeting different Apple entities). The problem with Mr. Bornstein's attempt to leverage those decisions now is that those injunctions still don't give Qualcomm any serious leverage.

The Chinese patents-in-suit have, according to Aple, been worked around by iOS 12. We'll have to wait until it becomes clearer whether the Chinese court agrees, but given that those are non-standard-essential software patents, it's perfectly plausible.

The Munich decision affects only 3% of Apple's German sales of the iPhone 7 and of the iPhone 8: direct sales to end users through its 15 retail stores and its German online store. Even those 3% of the sales of the two oldest iPhone generations on sale in a market that generally isn't huge for Apple (significant, but far from substantial) aren't really lost because some will buy other iPhone models instead and others will simply buy those iPhone models from resellers.

Anyone can see on the Internet that the "enjoined" iPhone models are still widely available in Germany.

Even the best-case outcome of the Mannheim case up for a decision in about six hours would fall short of the minimal impact of the Munich injunction: the worst-case scenario for Apple, based on what was said at trial (and in the court's preliminary opinion militated against an antitrust issue int his case), would simply be that all German iPhones (of the affected generations) would have to be manufactured by Pegatron.

Another Mannheim decision is scheduled for February 19, 2019 in a case in which the court strongly suggested to Qualcomm to stipulate to a stay given serious doubts about the validity of the asserted claim.

In between those two Mannheim decisions, the Munich I Regional Court will rule (on January 31) on a bunch of lawsuits related to a patent family that Qualcomm is asserting against Apple's Spotlight search. iOS 12 contains a workaround based on what was discussed at trial.

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Overview of references to other industry players on first day of FTC v. Qualcomm trial

This is the second follow-up to Day One of the FTC v. Qualcomm antitrust trial in the Northern District of California. Various companies were mentioned in the parties' opening statements and the testimony heard and evidence presented on Friday.

Microsoft: In a pre-emptive strike against Qualcomm's argument that prices for wireless devices and services are coming down (thus, Qualcomm says, there is no anticompetitive harm), the FTC recalled that prices (of personal computers) were also coming down at the time of the Microsoft antitrust case, yet antitrust law applied.

Samsung: Interestingly, both opening statements announced testimony from Samsung that would support their positions. The FTC named Samsung among roughly half a dozen companies whose testimony would prove that Qualcomm received supra-FRAND royalties by exercising its "no license-no chips" leverage. But Qualcomm's counsel said Samsung would confirm that licensing negotiations resulting in last year's new agreement between the two companies "were fair." I saw media reports before the trial that said the FTC had Samsung's support, a claim based on a (really great) amicus curiae brief submitted by Samsung in 2017 in support of the FTC's opposition to Qualcomm's motion to dismiss the complaint. However, at the time Samsung was also an active party to the Korean antitrust investigation, from which it withdrew after the aforementioned new deal (LG just joined instead). The relationship between Samsung and Qualcomm is complex and multifaceted (see this infographic). So let's wait and hear from them.

Apple: One of the four types of behavior the FTC seeks to address is the exclusive deal Qualcomm used to have in place with the iPhone maker. Apple, too, is one of the companies the FTC says will testify that Qualcomm extracted supra-FRAND license fees. We learned on Friday that Apple allegedly referred to Qualcomm by the code name of "Eureka" in some internal documents and that Qualcomm was worried about Apple "whittling away" at its business model, potentially through seeking a judicial FRAND rate determination.

Pegatron: This is one of Apple's contract manufacturers, and the FTC said its testimony would prove that supra-FRAND patent royalties were extracted because of the "no license-no chips" leverage. Qualcomm's patent enforcement campaign against Apple is not at issue (it started well after the FTC complaint), but it's worth noting that Pegatron's name repeatedly came up in connection with Qualcomm's patent suits against Apple in Germany and China. There are some patents that Pegatron is licensed to, while other Apple contract manufacturers are not. Those license agreements have "capture periods" and Pegatron apparently has a license to some patents that are too young to fall inside some other contract manufacturers' capture periods. According to what I learned in the Munich court on December 20, the envelope tracker patent that is now being enforced in Germany is not covered.

Lenovo / Motorola Mobility: Some of what Lenovo's Ira Blumberg said in vieotaped testimony shown on Friday was mentioned in another post. I'd like to add here that Mr. Blumberg sometimes gave answers that amounted to unsolicited legal conclusions. For an example, when asked about why Qualcomm received such high patent royalties from the industry at large, he attributed it to them being "wildly successful in their illegal activity." For that reason, he believes Qualcomm's license agreements are all "tainted" and can't serve to show that its royalty rates are fair. As for Qualcomm's alleged "no license-no chips" threats, Mr. Blumberg said Qualcomm had made it clear that it would view Lenovo's contemplated termination of a license agreement "as a hostile act" that it "would not receive kindly." Also, when asked why Lenovo didn't switch to a contract manufacturing model, he said they weren't aware of the option until they acquired Motorola Mobility's wireless device business, and their old Qualcomm contract wouldn't have given them this option anyway.

MediaTek: Step by step the relevance of that company to the FTC case becomes clearer. On Friday, it was actually Lenovo's testimony that shed some more light on it. Apparently Lenovo does, or at least in 2013 did, buy chips from Qualcomm for high-end devices but from MediaTek for mid-range and lower-end devices. MediaTek had an agreement in place with Qualcomm, and Lenovo originally thought it was a license agreement that would also benefit MediaTek's customers, but under that contract MediaTek was "not authorized" to sell its chipsets to device makers that didn't have a license agreement with Qualcomm. Therefore, the worst-case scnario for Lenovo was that, after terminating or not renewing its license agreement with Qualcomm, it would neither get any more chips from Qualcomm for higher-end phones nor any from MediaTek, given that Qualcomm would have been in a position to enjoin MediaTek from supplying chips to an unlicensed Lenovo.

Huawei: Videotaped testimony by Huawei's senior legal counsel Nancy Yu was shown on Friday, and I reported on it yesterday. Here I just wanted to add that Qualcomm's counsel attacked the FTC's licensing expert, Michael Lasinski, for his methodology and complained that Mr. Lasinski is not "neutral" but testifies regularly for Huawei, and his company allegedly advises Huawei in licensing negotiations with Qualcomm. While the alleged business relationship with Huawei would (if the assertions are correct, and I assume they are) preclude Mr. Lasinski from testifying as a court-appointed expert, he's just going to testify on the FTC's behalf here. It's hard to imagine that the FTC could possibly have found an expert in this field who wouldn't have, or wouldn't have had, some sort of relationship with one or more industry players. As far as Huawei is concerned, they're actually not just a licensee, but also a rather aggressive licensor as their dispute with Samsung (pending in the same district) shows. Interestingly, a Sidley Austin lawyer represented Huawei on Friday (he appeared in connection with a sealing matter), and that's the same firm that's asserting patents against Samsung on Huawei's behalf.

Mr. van Nest (Qualcomm's lead counsel in this case) also claimed "Huawei had an extremely favorable license to begin with, sponsored in effect by the Chinese government."

ZTE: The other major Chinese device maker to be mentioned on Friday is ZTE. Apparently some document shows that ZTE viewed so-called "strategic funds" from Qualcomm as simply a reduction (rebate) of patent royalties.

Intel: According to Qualcomm's lead counsel, it would be "nuts" to think that companies like Intel at any point in time lacked the resources to compete with Qualcomm in the baseband chipset market. Qualcomm intends to present some evidence according to which Intel thought they were spending about the same amount of money on baseband chipset development as Qualcomm, but making less headway. Mr. van Nest claims Intel dropped out of the CDMA chipset business for that reason, and as a result wasn't ready to supply such chips when Apple needed them in 2013. Intel has filed amicus briefs, public interest statements etc. in various cases, and its representations about why it couldn't compete with Qualcomm more effectively sooner sound different. We'll need to hear both sides, as always.

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