Neonode provided key prior art against Apple's slide-to-unlock patent and is now suing Apple in Texas over swipe-to-open and QuickPath swipe typing features in latest iPhones

The Neonode N1m smartphone didn't get much traction in the marketplace (with only a tiny number of units being sold in Sweden at the time), but it predated Apple's slide-to-unlock patent application, which is why it served as a key prior art reference in various disputes between Apple and Android device makers Samsung and Motorola Mobility. In a nutshell, the problem plaguing Apple's slide-to-unlock patent was that Apple itself had not invented slide to unlock per se, but merely the visual presentation ("slide-to-unlock image").

The Federal Court of Justice of Germany (the highest court to hear patent infringement and validity cases in that country) determined that the Neonode N1m rendered Apple's slide-to-unlock patent non-novel. Prior to the five judges on that panel, ten other European judges had reached more or less the same conclusion.

Neonode had filed for some patents of its own, and a U.S. legal entity brought a patent infringement complaint against Apple yesterday in the Western District of Texas (this post continues below the document):

20-06-08 Neonode v. Apple C... by Florian Mueller on Scribd

The patents-in-suit are

• U.S. Patent No. 8,095,879 on a "user interface for mobile handheld computer unit" and

• U.S. Patent No. 8,812,993 on a "user interface" (how descriptive!).

Neonode's complaint is pretty detailed. It summarizes the instances in Apple's previous U.S. litigations against Android device makers in which Neonode's prior art came up. It mentions that Apple declined to conclude a deal with Neonode involving the patents. And it details how the swipe-to-open and swipe typing (QuickPath) features in the latest iPhones (X and 11) and iPads allegedly infringe those patents.

Apple presumably had its reasons to reject Neonode's demands. Let's see how this infringement case unfolds. But after seeing the Neonode prior art mentioned in various Apple-Android disputes over the years, this is an ironic blast from the past.

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Today is the 10th anniversary of the launch of FOSS Patents--and here's a Microsoft patent threat from 2004 no one reported before

Ten years ago to the day, the first FOSS Patents blog post went live. (In the table of contents on the right side you can also find an entry for January 2010, but that one was added subsequently--and backdated so the contact form would be listed behind all of the actual content.)

When I talk to readers at courthouses or on other occasions, I realize most people don't even know what the "FOSS" stands for. That means Free and Open Source Software, a "politically and philosophically correct" term that describes both persuasions of the same movement. At the outset, the idea was indeed to focus on patent threats and assertions against open-source programs such as Linux. I always viewed the Open Invention Network (OIN) very skeptically as it appeared to part of the problem to a several times greater extent than it was part of the solution. And I was aware of some threats no one had reported on at the time. In fact, there is one that I hadn't written about in the more than 16 years since it was made, but with so much water under the bridge by now--and with Microsoft being a member in good standing of the open-source community these days--I'm going to reveal it on this occasion:

In early 2004, Microsoft's patent licensing department contacted MySQL AB, the originally Finnish-Swedish and, at that time, heavily Americanized open-sourced database company (whose CEO I was advising at the time). What Linux was in comparison to Windows, MySQL was to Oracle, Microsoft SQL Server, and IBM Db2. The term isn't used much anymore, but back then the "LAMP Stack" meant Linux, the Apache webserver, the MySQL database, and one of the P languages (mostly PHP, with a few people using Perl, or even Python): an open-source technology stack powering more websites than any other comparable configuration. MySQL had risen to popularity alongside Linux. It was a symbiotic relationship. Microsoft, of course, favored Windows + Internet Information Server + SQL Server + Visual Studio (C# or Visual Basic).

What Microsoft--and again, the Microsoft of then is not the Microsoft of now when it comes to these types of issues--told MySQL (a company that had received tens of millions of dollars of venture funding while Microsoft already had roughly 10,000 times greater resources) was that they claimed to hold a patent that covered functionality at the very core of the MySQL database engine. From a software development perspective, a database engine is a relatively monolithic (as opposed to modular) thing. If someone asserted a patent against the basic architecture of your engine, it could mean that you have to almost start all over. You'd lose years.

Microsoft was clear about its demand: a 2% royalty on MySQL's (tiny) sales. Two things were not clear, however: whether Microsoft had an agenda to actually start a patent war against open source and, particularly, the LAMP Stack, so that an initial royalty agreement would not have been an amicable resolution of an IP issue but could have been the beginning of the end for MySQL and LAMP; and Microsoft declined to disclose that mysterious killer patent.

The concern I just outlined--that Microsoft would wage an all-out patent war against open source--was not merely paranoia. A Microsoft exec in charge of corporate strategy at the time had told some Silicon Valley venture investors a year or two before that "if it comes to worst with open source, [they'd] just use some of [their] patents." So what was presented as a shakedown might have been a concealed attempt at a shutdown.

Microsoft was the only company at the time to have an issue with Linux; the rest of the industry viewed Linux as a chance of liberation from Microsoft dominance. When it came to MySQL, however, two other major patent holders--IBM and Oracle--potentially had just the same strategic motivation to attack the successful startup, as those companies were pro-Linux, but faced a disruptive-innovation threat from MySQL. While that would have been a gigantic violation of antitrust law, one of MySQL's founders even feared that Microsoft, IBM and Oracle might have agreed to launch near-simultaneous patent attacks on them. And they had only a very few patents (from a smaller startup they had acquired)--likely of zero retaliatory value.

MySQL didn't accede to Microsoft's demand, and Microsoft never stepped up the pressure or sued. Part of the reason may very well have been (and in my view, most likely has been) that there were two things going on in the EU that Microsoft had to be cautious about. The European Commission going after Microsoft for its conduct in some other conduct; and the EU's legislative bodies (Council and Parliament) were working on a Directive for the Patentability of Computer-Implemented Inventions, i.e., software patents directive. Concerns by the open-source community played an important role in the political debate.

At some point MySQL was seriously considering making Microsoft's patent royalty demand public. We had already prepared a press release, and it was going to be centered around an open letter to EU policy-makers urging them to abolish software patents in Europe (though that wouldn't have solved the problem for MySQL anywhere else, and it actually generated most of its revenues in the U.S. anyway). We didn't escalate the conflict, and ultimately that was better for everyone involved.

Oddly, about five years later Microsoft actually tried to defend MySQL's independence. Oracle was in the process of acquiring Sun Microsystems, which had acquired MySQL the previous year for $1 billion. While Sun wanted MySQL's business to grow, there were reasons to assume Oracle simply wanted to control it so as to eliminate a competitive threat. Microsoft and SAP (even though mostly concerned about Java in the beginning) were the two large complainants, and MySQL's founder, Michael "Monty" Widenius, was the third complainant, with help from me. So MySQL's founder and I ended up in an alliance with Redmond about five years after we had thought Microsoft would potentially use patents to destroy it.

If not for that old Microsoft patent threat against MySQL--16 years under wraps--, I might never have gotten involved with patent policy in the first place. And I had it very much in mind when I launched FOSS Patents. At that time, I already knew that Microsoft wasn't necessarily a foe (as the Oracle-Sun merger review showed). In fact, I felt that some FOSS people, maybe because they received funding from the likes of IBM and Oracle, weren't being fair: they turned a blind eye to some other large tech companies' (especially their financial backers') questionable patent dealings and pro-software-patent lobbying, but even when Microsoft had good intentions in specific areas, they looked at whatever Microsoft did or announced like Sherlock Holmes with a magnifier glass and, if all else failed, simply made up concerns that weren't warranted. Part of the FOSS Patents agenda was to focus more on companies whose patent abuse got less attention, but "deserved" more. The first big story here was the second post ever: on an IBM threat against an open-source mainframe emulator.

This blog's focus evolved dynamically. In fact, just about four weeks before I launched FOSS Patents, Apple had filed its first patent infringement complaint against an Android device maker (HTC). Android became the most heavily-attacked piece of open-source software that year as Oracle sued Google (a case that later became only a copyright dispute as Oracle's patents failed in court), Microsoft sued Motorola, Motorola sued Apple (which countersued using largely the same patents as against HTC), and the following year Apple sued Samsung.

Of the roughly 2,300 FOSS Patents posts I've written to date (also, there were a few guests posts), roughly 63% (1,456 posts) went live in the years 2011-2013, the three years in which the "smartphone patent wars" were raging on a very large scale. By 2014 they had already subsided, and in 2014 various disputes came to a partial or complete end.

With those Android companies countersuing, my litigation reporting simply had a mobile focus (and occasionally even gaming consoles). If I had anticipated that, I'd have named the blog "Mobile Patents" or "Phone Patents."

Actually, "FRAND Patents" would have made even more sense. I already took a clear position against injunctions over standard-essential patents in 2010. And a few years later, a Research In Motion/BlackBerry lawyer accused me, after a Mannheim trial, of having "devalued" SEPs and that companies were cutting back on their standardization activities (obviously not true, as we all know now with the benefit of 2020 hindsight).

More recently, this blog has almost been an "automotive" blog, only because car makers are currently the ones that SEP holders like Nokia primarily seek to prey on.

So there's probably no point in ever renaming a blog, much less when it is as well-known as this one. I'm very grateful for having so many loyal readers, and a number of highly important people in the industry as well as in the judiciary, executive and (to a lesser degree) legislative branches of government. I really am.

There's one thing I had envisioned for the 10th anniversary that I haven't found the time for: a redesign. This blog still uses the "Blogspot" platform's original blog layout. Blogspot became Google's "Blogger" service, and undoubtedly supports more fashionable layouts. However, since I have manually entered and edited all the HTML tags here from the outset, it's a bit risky to switch to a newer layout (I ran a test and the result looked awkward)--I or someone I'd pay for it might have to go over 2,000+ posts and make countless manual adjustments. Nevertheless, it may happen later this year--certainly sometime before the potential 20th anniversary :-)

There were times when I was seriously considering discontinuing this blog, or handing it to some other organization, such as an IP-focused publishing company. But in recent years there have been some really exciting developments--and I've found a way to keep blogging while continuing to run an app development company (I'll have a new game to announce this summer).

Some of you encouraged me to keep going--even some who have rather different positions on SEPs or on patent policy in general. Thanks for that, too. I'll keep sharing my honest observations and opinions with all of you for quite some more time!

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Component-level patent licensing and pricing has always served the PC industry well--only trolls and other SEP abusers deviate from the norm

Back in November I made a call for input regarding cases in which standard-essential patent (SEP) holders displayed the kind of behavior vis-à-vis the PC industry that we see from certain wireless patent holders with respect to smartphones and cars.

I mentioned one such example: Motorola Mobility's demand that Microsoft pay a 2.25% royalty on the end product, explicitly defined as a computer (not the Windows operating system), for implementing a video codec standard in Windows. Motorola abandoned that position in the course of litigation, but a demand letter taking that insane position had entered the public record before.

In response to my call for input, only a few other examples have been reported to me, and they confirm that it's basically just patent trolls and companies who for whatever reason behave like trolls:

• The other such case I previously reported on is In re Innovatio: Innovatio "sued numerous coffee shops, hotels, restaurants, supermarkets, large retailers, transportation companies, and other commercial users of wireless internet technology located throughout the United States." So it was a case of a patent troll going against commercial end users, though the patents in question were implemented in a WiFi chip. While Innovatio wanted an average royalty of $3.39 per access point, the district court awarded less than ten cents per WiFi chip.

• Alcatel-Lucent, which was later acquired by Nokia, sued PC makers Dell and Gateway, though the component at issue was Microsoft Windows: the MP3 standard was implemented in Windows. Microsoft intervened and ultimately resolved the issue.

• Finally, Ericsson v. D-Link. Ericsson took the position that it was not required to offer a FRAND license to 802.11 chip makers (e.g., Intel, Broadcom, Qualcomm Atheros) because their products did not "fully" comply with 802.11n (only an end product could fully comply according to Ericsson's position, which is what we nowadays hear from Nokia in connection with cars). According to Ericsson, the 802.11n chips alone were not "fully compliant" with the 802.11n standard and therefore not entitled to a FRAND offer.

  Furthermore, there was testimony that in 1997-99, Lucent proposed their technology to the IEEE and suggested that their royalty should be 5% of the entire end product (not of the 802.11 component).

Those cases aside, it has always been the norm in the PC industry that patents are licensed at the ocmponent level, and that component makers are free to sell to any PC maker, any hardware distributor, any retailer, or any end user. There aren't just wireless standards. Codec standards were already mentioned above. But there's a variety of other standards such as graphics adapter standards (VGA etc.), PC bus standards, local area network standards, and random access memory standards.

No one in the PC industry--apart from rare exceptions such as the ones stated further above--ever argued that their patents on memory chips or on display standards all of a sudden became more valuable because of some added value or technological progress in other areas. No one said memory chip patents were worth more only because of a faster CPU--or a larger monitor.

The primary reason for this is simply that most PC components have been and continue to be sold not only to PC makers like Dell but also as separate parts through retailers. You can buy all PC parts separately and assemble your own PC at home; you can also add memory chips or replace a graphics adapter with a better one. That applies to desktop PCs. With portable computers it doesn't work like that. But the PC industry started with desktops, and any differences in how/where/by whom the pieces are put together never had an impact on licensing.

There are some striking parallels between cars and PCs: highly modular products. Nokia argues that it should get a per-unit SEP royalty from Daimler that is several times higher than what it gets from smartphone makers (even though end users typically use their smartphone for many more hours per day than the cellular communications functionality of their cars)--and its arguments comes down to saying that SEPs have always (which is not even true, as there are notable exceptions) been licensed at the end-product level in the smartphone industry. But that doesn't mean it makes sense for smartphones. It's circular logic to claim that a demand is resaonable because some people have been making it for some time.

A smartphone--or the comparable functionality of a car--is internally just as modular as a PC. It's just not possible to go and buy a case from this vendor, a graphics chip from another, and memory from yet another. All of that has practical reasons that are unrelated to the way standards are implemented, and the way SEPs should be licensed.

Making patents in one field of technology more expensive based on the value of everything else that's in the device (even if one can't practically "plug and play" or self-assemble like in the PC segment) is economically unsustainable. And it's easy to explain why: let's focus on only five of the many components of a smartphone:

• W for "wireless connectivity" (which in reality is more diverse: cellular, WiFi, Bluetooth, NFC...)

• P for "processor (CPU)"

• M for "memory"

• O for "operating system" (though there's also a multitude of apps)

• D for "display"

So cellular SEPs are part of W. That W component can be found in a cheap phone ("dumbphone"), in a high-end smartphone, or in a car. A car is not even the limit: it could be an airplane or it could be installed in a building. W always does the same; should there be a difference in terms of what features of a standard are actually used, then there might be price differentiation, but no one has provided a real-world example and cars certainly don't use any features of those standards that a smartphone wouldn't use as well.

Now let's assume we have the SEP holders in the W area demand an extra $20 not because of an increase in the value of the W part in its own right, but because of everything else around it.

On that same basis, anyone holding SEPs on memory standards, display standards, the standards implemented by an operating system (such as video codecs), or standards closely related to the CPU (such as data bus standards) could also demand more money just based on all the other components, including but not limited to the wireless part.

SEP holders of the W kind would want 10% of W+P+M+O+D. If the OEM acceded to those demands instead of insisting on a reasonable royalty based on the value of the relevant component, the price would have to be raised to maintain the same level of profitability (or any profitability at all). SEP holders of the P, M, O, and D kinds would then also want higher royalties. Each and every time the OEM accepts this, and increases the price of the end product accordingly, you get another round of successive rate increases. That's economic mayhem with prices spiraling to the sky.

If each of the five categories of SEP holders wanted 5% of the end-product price, it would mean 25% in total. So at some point--sustainable or not--the spiral would stop. But it would never stop if everyone argued "use-based pricing" as long as technology improves here, there, and everywhere, or gets incorporated into a bigger end product. Theoretically, the fact that a single (unless totally negligible) app becomes available on an app store could trigger a round of "use-based" price increases across all fields of technology.

In this simplified hypothetical example, we're talking about only a smartphone. But a car is way more multifunctional than a smartphone, which further exacerbates the problem I just described.

The only solution is to license patents in the supply chain, and to use the smallest salable patent-practicing unit (SSPPU) for the royalty base. That doesn't mean that the ways in which a given technology--such as wireless connectivity--actually gets used don't matter. But in the market for PC components, graphics cards didn't become more expensive only because a software company released a new word processor that offered some exciting functionality. A word processor without a screen won't work; but the screen is still just a screen, regardless of the incremental functionality of a word processor. Those who make the screens (or hold patents essential to screen-related standards such as video cable standards) must content themselves with the fact that the incremental functionality achieved by others generates additional sales. Incremental volume is a benefit. That sounds simple, and it actually is--because otherwise, with "use-based pricing," you get the spiral I described further above unless technological development grinds to a halt, which might just happen in that case.

In the PC space, modularity wasn't merely an architectural, technological reality. The way those components were sold and optionally assembled by anybody made it easy to see. But that doesn't mean that other technology stacks aren't modular, too. The modular commercial model of the PC industry is the (only) appropriate one for smartphones and connected cars.

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Qualcomm files appeal to avoid potential $5 billion payout to 250 million American smartphone buyers (1.2 billion transactions)

On Thursday I thought Munich, where Qualcomm just lost a case against Apple (and, by extension, Intel), was going to be the venue where the cellular chipset maker would file its first appeal in a litigation between private parties that is part of the current globe-spanning host of lawsuits. But it turns out that on the same day Qualcomm filed a petition to the Ninth Circuit appealing Judge Lucy H. Koh's recent class certification (this post continues below the document):

18-10-11 Qualcomm Petition ... by on Scribd

In its third question presented for review, Qualcomm describes this consumer class that was certified in the Northern District of California--up to 250 million people and, according to Qualcomm's estimate, approximately 1.2 billion claims (since people, on average, bought multiple smartphones during the roughly 8-year period the claims relate to)--as "quite likely the biggest class action in history."

That may be true with respect to membership size. It certainly isn't in economic terms since the $4.99 billion demand Qualcomm is facing (Law.com's Scott Graham found out) is dwarfed by the $206 billion tobacco settlement in 1998 or the $20 billion Gulf of Mexico oil spill settlement in 2016. Still, $5 billion is a very significant number, which would amount to approximately $20, on average, per class member. The exact amount per member would obviously depend on the particular smartphone purchases made by each consumer. It would be the amount of each buyer's overpayment due to Qualcomm's practices (which regulators on three continents have already held to be anticompetitive), possibly enhanced by a factor of up to three. Just imagine how many people--outside of its own organization and apart from its shareholders--Qualcomm would make happy with such an involuntary gift...

One of the reasons for which Qualcomm wants the United States Court of Appeal for the Ninth Circuit to overturn Judge Koh's class certification is plain feasibility. Qualcomm argues, as it did (unsuccessfully) in San Jose, that the consumer plaintiffs "provided no plan whatsoever to process, verify, and administer more than one billion claims—a herculean task for any claims administrator." However, Qualcomm does mention that an attorney declaration submitted to the district court said that effective notice could be provided to 70% of all members of the class (approximately 175 million people).

My answer to this has two parts, neither of which Qualcomm will want to hear:

• A $5 billion payout justifies, and effectively pays for, a whole lot of administrative effort.

• Technology--Qualcomm knows a thing or two about it--can work wonders. In the Internet Age you can handle classes that appeared unmanageable decades ago. That's a major reason for which I'm underwhelmed by Qualcomm's citation to a 1983 Second Circuit decision. Times have changed since then. That was in the middle of Ronald Reagan's first presidential term, and most of us used to listen to vinyl records since the compact disc had just been released the year before (and nowadays music is streamed and downloaded for the most part).

  The Ninth Circuit is particularly aware of technological progress due to the cases it gets.

But manageability is not the first point Qualcomm raises. Its petition argues that Judge Koh shouldn't have applied California law to this decision since two dozen other states don't allow indirect purchaser claims on antitrust grounds; it also takes aim at the consumer plaintiffs' damages model; and argues that "large numbers of consumers" are included in the class definition but, in Qualcomm's view, "suffered no antitrust impact."

I'll wait for plaintiffs' responsive brief before looking more closely at those issues. At first sight it appears that Judge Koh had taken everything into account.

On the subject of Judge Koh's decision-making, she's just decided to take under submission (decide in writing without an oral hearing) all pretrial motions pending in FTC v. Qualcomm, including the FTC's motion for partial summary judgment regarding Qualcomm's obligation to extend FRAND licenses to rival chipset makers.

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Qualcomm now facing 232.8 million to 250 million adversaries in the Northern District of California

The number of plaintiffs suing Qualcomm in the United States District Court for the Northern District of California has just increased by a factor of roughly a quarter billion--from one (the Federal Trade Commission) to approximately 250 million (the FTC plus all U.S. smartphone purchasers since February 11, 2011)--due to a single court order certifying a class with the following definition:

"All natural persons and entities in the United States who purchased, paid for, and/or provided reimbursement for some or all of the purchase price for all UMTS, CDMA (including CDMAone and cdma2000) and/or LTE cellular phones ('Relevant Cellular Phones') for their own use and not for resale from February 11, 2011, through the present (the 'Class Period') in the United States. This class excludes (a) Defendant, its officers, directors, management, employees, subsidiaries, and affiliates; (b) all federal and state governmental entities; (c) all persons or entities who purchased Relevant Cellular Phones for purposes of resale; and (d) any judges or justices involved in this action and any members of their immediate families or their staff."

If they were all just seeking a few cents per person, that would be much less of a problem. But they seek, besides injunctive relief against Qualcomm's conduct, to be compensated for having been overcharged whenever they bought a smartphone in the U.S. during the relevant period. A report by the plaintiffs' licensing expert "found that the incremental overcharge for each of these five OEMs ranged from 1.13% to 3.84% of the total cost of the device." Maybe some more specific numbers will become known during the further proceedings, but it already appears to be a safe assumption that this is about many billions of dollars (as is Apple's lawsuit in the Southern District of California).

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

18-09-27 Order Granting Sma... by on Scribd

Qualcomm opposed class certification on different grounds. The fact that Qualcomm's opposition failed doesn't mean Qualcomm is more or less certain to lose on the merits. However, Judge Koh's order doesn't bode well for Qualcomm. There are some parallels between the above order and last year's order--by the same federal judge--denying Qualcomm's motion to dismiss the Federal Trade Commission's antitrust lawsuit; and last month's order denying without prejudice--and more or less an invitation to try again later, if necessary at all--a motion by these consumers seeking an antisuit (anti-enforcement) injunction against Qualcomm's pursuit of an ITC exclusion order (U.S. import ban). Coincidentally, a final initial determination by an Administrative Law Judge on Qualcomm's first ITC complaint against Apple is scheduled for today.

The way I read all three of those orders is that Judge Koh simply looks through all the smokescreens Qualcomm's world-class lawyers have produced so far. She'll hold a bench trial on ten days in January and thereafter she'll rule, but it's fair to say she's in the mainstream (among U.S. judges and also in the U.S. tech sector) with respect to the need to ensure access to standard-essential patents on fair, reasonable and non-discriminatory (FRAND) terms. On other occasions I've described Judge Koh as very patentee-friendly, at least in connection with invalidity questions. But there's no contradiction between generally favoring strong intellectual property rights and recognizing the risk of overleveraging and overcompensation when the value of a patent, or an entire portfolio, is not primarily in its contribution to the state of the art but in the market relevance of the industry standards at issue.

Qualcomm is currently opposing a summary judgment motion by the FTC that would have just the effect of opening up the wireless chipset market by reminding Qualcomm of obligations it once entered into when it made FRAND licensing declarations to two U.S. standard-setting bodies. The class certification order doesn't indicate how Judge Koh will rule on that one, but she does find that Qualcomm's overall behavior--a "grand evil scheme" according to German counsel for Apple--may entitle those class action plaintiffs (hundreds of millions of people) to damages payments. Here are some key quotes from the order that show the consumer class has a plausible case, starting with the extremely important issue of Qualcomm refusing to grant licenses to competing baseband chipset makers:

"[...] Plaintiffs set forth significant evidence that Qualcomm has adopted a uniform policy of refusing to offer exhaustive licenses for its cellular SEPs to competing modem chip manufacturers."

"[T]estimony and documents from both Apple and Intel confirm that, in the absence of Qualcomm's exclusivity payments, Apple likely would have started using Intel modem chips in Apple’s devices at an earlier date."

"[T]he extensive documentary evidence suggests that Qualcomm imposed an industry-wide above-FRAND royalty rate on OEMs."

The sheer size of the class that has now been certified raises the question of how a potential damages recovery could be handled in practice (should plaintiffs prevail, which presupposes at least some degree of success for the FTC at trial; the cases were consolidated). But Qualcomm's argument that it just wouldn't be manageable to make this work failed to convince Judge Koh. Class administrators estimate they can notify about 70% of all members of the class.

Interestingly, the laws of its home state of California are unfavorable to Qualcomm's interests. In many other states, indirect purchasers couldn't recover damages from an antitrust violator, and since Qualcomm doesn't sell directly to consumers, this here is about indirect damages (because of device makers passing Qualcomm's supra-FRAND prices and fees through, which Judge Koh finds plaintiffs may be able to prove at trial):

"[B]ased on the expert reports, the Court concludes that Plaintiffs have presented a methodology that supports a finding that evidence common to the class will be utilized in demonstrating impact to both direct and indirect purchasers."

If only 1% of all class action plaintiffs wanted to attend the January FTC v. Qualcomm trial, they could fill Stanford Stadium 50 times...

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Three angles to look at Google's Pixel phone: design patents, antitrust, copyright

I'll start with the design patents angle. You can also go directly to the antitrust and copyright sections.

1. Design patents

When I read an article on Pixel, the Android smartphone made by Google, shortly after its official presentation, I saw a picture and (being an iPhone user myself) thought it was an iPhone shown only for the purpose of describing Google's aspirations and illustrating the competitive environment. But no. The image showed a couple of Pixels. It wasn't the following picture, but a somewhat similar one (this post continues below the image):

Then I read about the range of choices and the price points, and they were very iPhone-like, too. Another iPhone characteristic: hardware and software are made by the same company.

As I follow the Apple v. Samsung design patent case, I was obviously thinking to myself: is Apple going to sue them? And meanwhile at least one website, FastCo.Design, has raised the question in an article that quotes design patent expert Professor Sarah Burstein saying it wouldn't be impossible to imagine Apple at least sending Google a letter. Professor Burstein notes that "[t]he official test is it has to look the same to an ordinary observer" as opposed to a requirement for a "precise line-by-line copy to infringe."

I personally wouldn't dare to predict how a jury would decide. Firstly one would have to know exactly which design patent(s) Apple would pick from its portfolio to assert. A design patent on a large button below the screen wouldn't work at all (as you can see on the photo above); others, however, might very well stand a chance of passing the "ordinary observer" test.

Two and a half years ago, Apple and Google withdrew all patent infringement lawsuits pending against each other but didn't extend a license to each other (cross-licenses practically never include design patents anyway). Google even has kept on seeking the invalidation of certain Apple patents in different jurisdictions.

I guess the appetite between the two parties for comprehensive patent litigation each other is nil. I can't see why that would have changed since the spring 2014 second-class settlement. But they could duke it out over design rights without escalation of the throwing-in-the-kitchen-sink kind.

Apple could just wait and see how the Pixel is received. There are reports of demand already having exceeded Google's expectations, though some planned shortage may sometimes also be part of the marketing plan. Even if true, Google is probably still not going to move quantities that would have a huge impact on Apple's business. Design rights could still be asserted later, but obviously the story to present to the judge and the jury would be weaker if Apple elected to sit by idly for some time. Also, in my observation Apple really views design rights as a matter of principle. About five years ago it even shut down a small iPad lookalike in Spain. That was, by the way, the first time I fundamentally disagreed with Apple on something (I thought the criminal case that resulted from Apple's complaint to customs authorities was over the top, and it was fortunately dismissed later).

Talking about disagreements with Apple in the context of design patents, I wish to clarify something here. There is no question about Apple's leadership in design. Now it looks (to some people, at least) like Microsoft is making its own kind of iMac, though it is technically quite different. My position on Apple understandably seeking to defend the uniqueness of its products has not changed over the years. However, the focus changed on appeal. The higher up you go, the more it's really about general rules that must work for all comparable cases. Maybe 5,000 years ago, or maybe even today in some tribal communities somewhere on this giant planet, kings or elders or priests may adjudicate disputes without being bound in any way to statutory law and/or case law. Then one can decide and opine whatever. But I have three problems with Apple's design patent enforcement when considering the implications and ramifications for others:

1. Unfortunately, this issue is not before the Supreme Court, but as a former NoSoftwarePatents campaigner and as an app developer I have a huge problem with design patents covering software in the form of non-physical screen designs (and layouts and elements thereof). Such patents should not exist. I believe copyright and trademark law would provide just the right level of protection in that area.

2. As the Dusseldorf Regional Court noted more than five years ago (when explaining why a decision came down for Apple and against Samsung), Apple's strength is "minimalistic design." It should be obvious to everyone that minimalistic design must be harder to protect with design patents because otherwise such patents would become overbroad. A design patent on a carpet design with a huge number of design elements is narrow; a design patent on a round button below a rectangular screen is overbroad. Breadth also has to do with functional elements: the alternative to rounded corners is damage to people's pockets.

   Here, again, it's important to make a distinction between Apple's non-legal merits as a design trendsetter and the problematic legal implications of the level of (over)protection Apple has been seeking.

   Taste per se isn't patentable.

3. Finally, even if something falls within the scope of patent-eligible subject matter, is not too broad to be valid, and an infringement is proven, then remedies must still be reasonable, not draconian. There's the eBay standard for injunctions and there are various principles governing damages determinations, including in many contexts (such as some in which I have always supported Apple) the smallest saleable unit approach. Apple has benefited from those standards on numerous occasions. Fortunately, the position with which it went into the recent Supreme Court hearing was already much more moderate than what it had told the district court and the Federal Circuit.

In some ways, it would be harder for Apple to go after Google now than it was to sue Samsung in 2011:

• Even prior to the Apple v. Samsung Supreme Court opinion (which will probably come down in December or January), the position taken by the DoJ and some of what the justices said at the hearing have made it crystal clear that the appropriate "article of manufacture" will have to be determined in future design patent cases if someone seeks a disgorgement of otherwise-unapportioned profits.

• In a dispute with Google itself, as opposed to Samsung as a Google proxy, Apple would not be able to benefit from a certain statistically-proven bias of U.S. juries against foreign companies. It would be Silicon Valley Giant v. Silicon Valley Giant. Like a duel on the 101.

• A disgorgement of infringer's profits would be further complicated by Google, with most of its business not being in hardware, being able to present to the jury all sorts of overhead and development costs as being related to the Pixel project.

A key lesson from Apple v. Samsung is that Apple suing someone for allegedly making iPhone (or iPad) lookalikes can actually have a positive marketing effect on the defendant, at least in some places. Far be it from me to impute such cynicism to Google, but I wouldn't be surprised if maybe the decision-makers who approved the Pixel project in this form, in addition to seeking legal advice on how to have the most defensible position under the circumstances, thought that a design lawsuit by Apple would be the best thing that could happen to them because it would make even more people aware of certain parallels between the Pixel and the iPhone. That, however, would probably hurt other Android device makers more than Apple.

I have no idea what Apple is doing, but should Apple take legal action in the U.S. or elsewhere, I could understand it. Still I wouldn't support software design patents, overbroad design patents, or draconian and devastating remedies, ever.

2. Antitrust

About six months ago, the European Commission sent a Statement of Objections (not a final decision but certainly something that puts recipients on the defensive) to Google over the way it controls the Android operating system and Android apps. While there are definitely some parts of the Commission's analysis that I agree with, such as market segmentation (very important in antitrust cases), there's a couple of things that make me (since I'll also release an Android app soon) a bit leary:

• The Commission mentions Google's "anti-fragmentation" efforts. If you talk to any Android app developer out there (and I've talked to a number as you might imagine), they'll tell you about how difficult fragmentation makes it to develop and test Android apps. Ever better tools become available all the time. But it remains a huge issue. On iOS (where I'll release my first app) some things are a lot easier just because there is no fragmentation (just a very limited range of different screen sizes and aspect ratios).

  What the Commission says in public about its concerns related to "anti-fragmentation" sounds more like a concern over anti-fragmentation serving as a pretext for curbing competition. To the extent that this really is the Commission's focus, I'm fine. But I need to know more about what the remedies (or Google's commitments to settle the case) would be and what impact they'd have on developers like me. I'd like the Commission to make it very clear that some anti-fragmentation efforts are very positive while others may be reasonably viewed as illegal restrictions on competition.

• I'd probably be a lot less concerned if the ones apparently funding the official complainants and sometimes acting as complainants themselves were Android device makers as opposed to certain enemies of Google (by the way, Apple does not seem to have any hand in this, at least to the best of my knowledge). At the same time, let's be realistic: it would really be hard for an officially-licensed Android device maker and Google partner to complain. I could imagine, however, that some of them may have told the Commission about certain problems they face when the Commission sent them questionnaires and interviewed them. In a different competition context in which I participated in a conference call with Commission officials and a software company, I noticed that a company was about ten times clearer and more accusatory than in public.

The EU Android case is about the search engine and about what others call an "essential facility" type of theory: device makers need Android, Google controls it and then imposes restrictions that protect its monopoly. It's not about Google competing with Android device makers. Not yet.

Psychologically, I don't believe the Pixel phone does anything to alleviate the Commission's concerns. It won't become an additional official concern anytime soon, but when the game master is a player himself, all sorts of issues come up. The big problem in sports-related competition law is that sports bodies set the rules (including the commercial rules) and usually also act as major commercial operators in the same field, competing with the clubs (and often unfairly). Google's Nexus phones didn't give rise to that concern; they were a showcase effort and Google partnered with a different manufacturer every year. But with the Pixel out there, the Android ecosystem looks more like a FIFA/UEFA type of setup than it used to (after Google divested Motorola Mobility's device business to Lenovo). I believe Google should, in light of the Pixel, give more flexibility to other Android device makers than before (while still ensuring that fragmentation won't make life even harder for developers like me).

3. Copyright

Finally, what might Oracle (which just filed an appeal against Judge Alsup's latest ruling) do?

The Pixel runs on Android Nougat. It integrates the Java APIs on an OpenJDK (i.e., GPL) basis. I'm not going to go into the merits and technical aspects of this now because this is already a long post. Suffice it to say that Oracle would have to overcome three hurdles when going after Google over the Pixel:

1. Copyrightability would have to be determined once again. My position on this one is well-known and I don't think it should be an issue, but there's no doubt Google would fight over it again and the findings from the other case wouldn't be law of the case in a new proceeding. Also, if the new case didn't involve patents, it would be appealable to the Ninth Circuit, which wouldn't be formally bound to however the Federal Circuit interpreted its law. Even another Supreme Court appeal over API copyrightability could happen (last time certiorari was denied, but that could also have been due to the stage of proceedings).

2. Fair use would come up again, too. Oracle knows by now that juries easily get confused about open source issues in this context, which favors alleged infringers.

3. Oracle would have to become a GPL enforcer and demand that Google release certain parts of Android on a GPL basis. The legal question would then be, for example, whether Google's key proprietary Android apps are derivative works of (even if only indirectly) OpenJDK. In order to get real leverage, Oracle would probably have to reach the level at which even Google's apps, or at least some other proprietary extensions of Android, would be demeed to fall under the copyleft rule.

I believe Oracle will do something sooner or later about Android Nougat, but my feeling is it will at least want to get the next Federal Circuit decision in the first Oracle v. Google case.

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Patent royalties may exceed $120 per smartphone, undermine industry profitability: working paper

A working paper by an Intel in-house counsel and two WilmerHale lawyers, The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones, has just been published (direct link to PDF). Intel Vice President and Associate General Counsel Ann Armstrong and WilmerHale's Joseph Mueller and Timothy Syrett have made an invaluable contribution to the debate over reasonable royalties and incentives for innovation in this field.

This first-rate paper finally answers the billion-dollar question everyone with an interest in smartphone patents has been asking for some time: the total licensing cost per device. The authors have thoroughly researched the licensing environment and highlight various key facts that should give policymakers, regulators and courts pause. They note that royalty stacking, "in which the cumulative demands of patent holders across the relevant technology or the device threaten to make it economically unviable to offer the product, [...] is not merely a theoretical concern" (as, by the way, the likes of Qualcomm allege). Based on publicly-available data, these competent authors "estimate potential patent royalties in excess of $120 on a hypothetical $400 smartphone--which is almost equal to the cost of [the] device's components" (estimated to be $120 to $150 in total based on figures published by Nomura Securities in reliance on Gartner data). They conclude that "those costs may be undermining industry profitability--and, in turn, diminishing incentives to invest and compete". I also believe that smartphone-related patent licensing costs, relating to standard-essential as well as non-standard-essential patents, must come down. Policymakers, antitrust enforcers and judges -- Judge Posner certainly did his best in this regard -- will hopefully bring those fees down in the years ahead.

The paper does properly distinguish between royalty demands and actual royalty payments. Patent holders frequently have to lower their demands during the course of negotiation. Cross-licenses and "patent exhaustion arising from licensed sales by component suppliers" can also make a major difference, but the terms on which companies actually agree are usually kept confidential. Royalty demands sometimes surface in litigation.

The authors based their study entirely on public documents. They (especially the WilmerHale lawyers, who, among other things, defend Apple against Samsung's counterclaims) have obviously seen some confidential license agreements, but couldn't make use of any of that information for their working paper. They also don't speak for any particular company or firm. Apple just demanded a "reasonable royalty" of $40 per device from Samsung at the recent California trial, for five software patents. Now a paper authored in part by lawyers representing Apple against Samsung (with a defensive focus, but still) says that $120 per device for everyone's patents, -- hardware and software patents, standard-essential and non-standard-essential patents -- may be "diminishing incentives to invest and compete". This shows independent thinking and writing. I would not be surprised to see Samsung's lawyers quote certain key findings of this study in their U.S. litigations with Apple. The paper appears slightly Apple-friendly to me in the context of the design patents-related part of Apple v. Samsung, but within reason (I agree in principle with what it says about that). The study also notes that UI patents can typically be worked around, and "[a] truly distinctive and innovative user interface--as distinct from a copied or derivative design--may result in minimal or no royalty exposure".

One key characteristic of the study is that it analyzes licensing costs on a component-by-component (including software components) basis: cellular baseband chip, random access memory (different kinds), flash memory (different kinds), WiFi, Bluetooth, GPS, NFC, battery, power management, audio (different subcategories such as MP3), camera/video (non-standards-based as well as standards-based formats like JPEG and H.264), applications processor, operating system, other pre-installed software, SMS, MMS, email, W3C (royalty-free standards), UPnP (royalty-free), digital media sharing, USB, user interface, outer design (also an area in which the study notes that infringement can be easily avoided).

The study has a much broader focus than my own litigation monitoring in recent years. Its findings appear plausible to me, except that I believe the "operating system" part of the royalty stack is underestimated. No operating system patent holder ever told me what their demands or actual deal terms were, but a couple of years ago I downloaded a litigation-related document that was publicly accessible for less than a day on the ITC document system that mentioned a major operating system patent holder's royalty demands. Against that background I think the study published today is very conservative (to say the least) with respect to operating system patent licensing costs -- but this, if anything, reinforces the overall message.

This is not a policy paper per se, but it does raise and stress policy concerns, particularly about non-practicing entities (NPEs), colloquially often referred to as "patent trolls", and the growing problem of "privateering" (patent transfers from major operating companies to NPEs in order to hide behind others that will assert patents aggressively against the original patent holder's competitors). Certain patent holders' demands, tactics and positions are discussed as examples of factors that exacerbate the royalty-stacking problem. Those patent holders include Ericsson and, to a far greater extent, Nokia, a company that has sold patents to a number of NPEs in recent years and is itself increasinly turning into a patent assertion entity.

This paper is recommended reading for everyone with an interest in smartphone IP issues from a legal and/or economic point of view. It's particularly recommended reading for all those who could, through their actions and decisions, address at least parts of the problem this paper describes. I believe it will be quoted a lot in court documents and academic writings in the years ahead.

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1.65 billion euro patent licensing portion of Microsoft-Nokia deal validates Nokia's portfolio

I just received Nokia's announcement of its 5.44 billion euro all-cash transaction with Microsoft under which (once closed) "Microsoft will acquire substantially all of Nokia's Devices & Services business, including the Mobile Phones and Smart Devices business units as well as an industry-leading design team, operations including all Nokia Devices & Services production facilities, Devices & Services-related sales and marketing activities, and related support functions".

Given that there have recently been more and more reports of increasing Windows Phone market share in different parts of the world, and seeing at the same time that one of the problems facing BlackBerry is uncertainty about its future, this move makes a lot of sense because customers now know that Microsoft, which has demonstrated its long-term approach to such businesses, is increasing its commitment to the mobile devices business. I agree with what Gartner analyst Carolina Milanesi said on Twitter:

"Today's news puts at rest doubts expressed by some that Microsoft would walk away f[ro]m smartphones. If this isn't commitment not sure what is?"

In my first reaction I just want to focus, obviously, on the patent-related parts of this deal. The deal structure is the opposite of the Google-Motorola deal: Google acquired Motorola, according to what it told the world at the time, primarily for its patent portfolio and was just required to take over the product business as well because Motorola's then-CEO told Google that, stripped of its patents, the device business wouldn't be able to defend itself against patent-wielding rivals. Google grossly overpaid for Motorola's patents. It currently has only one enforceable patent injunction in place against Apple (in Germany) and none against Microsoft, and the one against Apple will be history long before the end of the year. By contrast, Microsoft merely licenses Nokia's patents, but the remaining Nokia company, which will keep the HERE mapping and location software (of which Microsoft is expected to become a top three customer) and the NSN infrastructure business, will still own them:

"Under the terms of the agreement, Microsoft will pay [...] EUR 1.65 billion to license Nokia's patents [...]"

"Nokia will retain its patent portfolio and will grant Microsoft a 10-year non-exclusive license to its patents at the time of the closing. Microsoft will grant Nokia reciprocal rights to use Microsoft patents in its HERE services. In addition, Nokia will grant Microsoft an option to extend this mutual patent agreement in perpetuity."

"As part of the transaction, Nokia will grant Microsoft a 10 year non-exclusive license to its patents as of the time of the closing, and Microsoft will grant Nokia reciprocal rights related to HERE services. In addition, Nokia will grant Microsoft an option to extend this mutual patent agreement to perpetuity. Of the total purchase price of EUR 5.44 billion, EUR 3.79 billion relates to the purchase of substantially all of the Devices & Services business, and EUR 1.65 billion relates to the mutual patent agreement and future option."

"As part of the transaction, Nokia is assigning to Microsoft its long-term patent licensing agreement with Qualcomm, as well as other licensing agreements."

A "strategic rationale" document provided by Microsoft and published by AllThingsD's John Paczkowski clarifies that 8,500 design patents are indeed acquired, but not Nokia's utility (technical) patents. Design patents are typically not licensed to third parties. Here are the two patent-related slides of Microsoft's rationale document (click on an image to enlarge; this post continues below the two screenshots):

The fact that Microsoft would pay EUR 1.65 billion (almost $2.2 billion at the current exchange rate) for a 10-year license (including the option for a future extension) is a boost for Nokia's patent monetization aspirations. And Nokia's patent monetization -- which I've been watching (particularly the related litigations) for some time now -- will obviously continue. Other prospective licensees will deal with a company that is financially strengthened by this deal and can point to yet another "blue chip" licensee that has recognized the value of Nokia's portfolio.

Obviously, Microsoft could also have acquired that whole patent portfolio. But Microsoft already has an extremely strong patent portfolio (it simply has the highest "hit rate" in court of any smartphone-related litigant and has convinced 20 Android device makers of the need to take a royalty-bearing license, 19 of them without any litigation). That's why Microsoft -- unlike Google, which owned hardly any patents when it announced the Motorola deal more than two years ago -- didn't have to shore up its portfolio.

It's predictable that the markets will continue to speculate about potential M&A transactions involving the businesses and assets Nokia retains, including its patent licensing business and the related portfolio. I'm not going to engage in any such speculation, but assuming for the sake of the argument that a third party subsequently acquired Nokia's patent portfolio, I guess it wouldn't change anything in strategic terms for Microsoft. If someone bought those patents and stepped up enforcement, Microsoft and, by extension, Microsoft's customers (to the extent that they redistribute Microsoft technologies) wouldn't have to worry about it.

In closing I'd like to point to another structural difference between the Google-Motorola deal on the one hand and the Microsoft-Nokia deal on the other hand. The "Googlorola" break-up fee was $2.5 billion, reflecting desperation as well as concerns over antitrust approval. By contrast, today's announcement says that "[t]he transaction is subject to potential purchase price adjustments, protecting both Nokia and Microsoft, and a USD 750 million termination fee payable by Microsoft to Nokia in the event that the transaction fails to receive necessary regulatory clearances", which is a pretty standard level for such a fee, especially relative to deal size, while, compared to transaction value as well as in absolute terms, the Google-Motorola fee was extraordinarily high. There can be no doubt that today's deal is one of the most pro-competitive M&A deals in the history of the information and communications technology industry: consumers, wireless carriers, app developers and other stakeholders don't want the smartphone business to become a duopoly.

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ViewSonic (which Nokia is suing in the US and Germany) exits the European smartphone market

Germany's most widely-read IT news site, Heise online, reported a few hours ago (here's the article, in German) that ViewSonic, a hardware company headquartered in California that (among other things) builds Android-based wireless devices, has decided to leave the European smartphone market. According to the Heise article, ViewSonic's PR department clarified that three Android-based smartphones shown at the 2012 Mobile World Congress in Barcelona won't be launched in Europe. The report cites a spokeswoman for ViewSonic who said that a "change of strategy" has occurred, and ViewSonic plans to focus in Europe on projectors, monitors, audiovisual information systems and cloud-based products.

The Android device market is clearly overcrowded. Only Samsung is making serious money in the short term. Some consolidation is going to be inevitable, and some device makers may increasingly look for other platforms.

ViewSonic's decision has tactical implications for its patent dispute with Nokia. In May 2012 Nokia sued HTC, ViewSonic and RIM over a number of patents. RIM has meanwhile agreed to pay Nokia for its intellectual property, while HTC and ViewSonic are still defending themselves in the United States and Germany. In the U.S., Nokia has an ITC complaint as well as a couple of federal lawsuits (in Delaware) pending against HTC, but it's suing ViewSonic only in Delaware, where the earliest realistic trial date based on current schedules is more than two years away. In Germany, Nokia may very well win some decisions against ViewSonic this year, but if ViewSonic no longer sells any Android-based gadgets in this country, the leverage Nokia can get in practical terms is limited to damages for past infringement. Injunctions would affect ViewSonic only if it changed mind again at some point and decided to re-enter the European smartphone market.

ViewSonic already defended itself against Nokia's patent assertion at a couple of first hearings held by the Munich I Regional Court (in Munich, second hearings are trials), such as one in November over a text message-related patent, which has a May 2013 trial date. If damages for past infringement are the only strategic issue for ViewSonic in the German market, and considering that ViewSonic's sales in Germany have never been huge, the stakes are minimal and ViewSonic may determine that the cost of defending itself in multiple German patent actions is unjustifiably high, unless it receives stealth funding from Google. I'm not saying that this is the case, but if ViewSonic continues to spend millions and millions of euros defending itself against Nokia's German cases, then the "cui bono?" question of why it's doing so if it has actually given up the market must be asked. If ViewSonic simply surrendered in Germany (except for a dispute over the amount of past damages), it would weaken the position of other Android device makers who may defend themselves against the same Nokia patents in the future, not in a strict legal sense but in a psychological one.

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ITC judge wants Samsung to post a bond of 88% of its U.S. smartphone sales due to Apple patent case

An October 24, 2012 preliminary ruling that held Samsung to infringe four Apple patents could have more drastic consequences for Samsung's U.S. business than previously known. Late on Friday, a public redacted version of the full-length version of Judge Pender's initial determination and recommendation on remedy and bond entered the ITC's electronic document system. If the U.S. trade agency affirms the judge's findings of violations (which the ITC staff supports across the board) and adopts his recommended remedies, Samsung faces the following draconian combination of sanctions:

• a U.S. import ban that would enter into effect after the 60-day Presidential review period following a final ITC decision,

• a simultaneous cease-and-desist order that would prohibit the sale of any commercially significant quantities of the imported infringing accused products in the United States (this remedy was denied against HTC), and

• the requirement to post a bond of 88% of the value of all mobile phones, 32.5% of the value of all media players, and 37.6% of the value of all tablet computers found to infringe Apple's patents-in-suit during the Presidential review period.

By comparison, Samsung argued that a 4.9% royalty rate was a more appropriate bond amount. Judge Pender adopted Apple's proposed methodology and rates, based on a "price differential analysis". The ITC staff supports that approach in principle and is fine with the bond rates for tablets and media players, but says that the 88% rate for mobile phones is based on too high a price differential between the two companies' products because Samsung sells significant quantities of phones at a much lower price point, such as $200 (compared to a $600 non-subsidized iPhone), and the ITC staff believes that those lower-cost phones don't really compete with Apple's offerings and shouldn't be taken into account for the purpose of a price differential analysis. But Judge Pender points to an internal Samsung presentation according to which the U.S. mobile phone market was "becoming a Two Horse Race Between Apple & Samsung" and which suggested a strategy of undercutting Apple.

Judge Pender notes that Samsung claimed a price differential analysis is not adequate and warns Samsung that if it "continues to press" this argument, he would recommend to raise the bond rate to 100% for all infringing products sold during the 60-day Presidential review period.

The judge's recommendations are all subject to a review by the Commission, the six-member decision-making body at the top of the ITC.

While all of this looks like a potential worst-case scenario for Samsung, the picture is not that bleak. Judge Pender cleared various Samsung designarounds, and if those designarounds are not only legally safe but also technically adequate and commercially viable, Samsung can keep importing and selling. Even the initial determination does not explain why the designaround products don't infringe: it appears that Samsung presented them and Apple did not dispute Samsung's non-infringement claims on the merits but just opposed the adjudication of the designarounds on procedural grounds. Reexaminations are another opportunity for Samsung. While they take time (a lot more time than ITC investigations), Apple's winning patents are under pressure. A first Office action by the USPTO tentatively rejected all claims of the "Steve Jobs" touchscreen heuristics patent, which is at issue in this ITC investigation, and recently an anonymous reexamination request against another patent-in-suit (one that covers translucent images) became known.

If those mysterious designarounds enable Samsung to continue to do well in the U.S. market, an ITC order based on Judge Pender's recommendations could still create logistical complications for its U.S. business. For example, during the short Presidential review period, it might have to post a bond even on products that already have been designed around the patents-in-suit. Also, customs officers may hold up shipments of designaround products until they are certain that an exclusion order doesn't apply to them. And Samsung is worried that this could also affect other electronic media devices, including televisions, laptops, non-smartphone mobile phons, cameras and camcorders, or standalone components, even though Apple did not accuse any of those kinds of products of infringement. It wants some "special guidance" to be given to customs, but Judge Pender is against that proposal.

On a related note, Reuters' Dan Levine yesterday reported on Apple's decision to drop, for the time being, any charges against the Samsung Galaxy S III mini in the parties' second California litigation (a case that is scheduled to go to trial in 2014), based on Samsung's representation that it does not sell the device in the U.S. and only for as long as Apple believes that this representation is still accurate. Apple's lawyers bought various units of the S III mini from U.S. retailers such as Amazon, but it appears that Samsung is not actively selling and marketing it in the United States, so whoever sells it has to take the initiative to source it from other countries. I don't know if Samsung had a particular market-specific reason for which it thought U.S. consumers would not be interested in the S III mini, or whether this strategy of saying "we make the product but sell it only in other countries" is, possibly in no small part, a response to Samsung's patent infringement issues in the dispute with Apple. Theoretically Apple could sue resellers over that device, but those are also customers of Apple's own products and it may not be worth the hassle for only one particular device.

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After series of German wins over Google, Microsoft signs up two local Android patent licensees

Microsoft just announced two royalty-bearing Android patent license deals with device makers operating in the German market: one with Swedish company EINS SE, which "manufactures Android tablets under the Cat brand in Germany" (here's an example on the German Amazon site), and another one with Hanover-based Hoeft & Wessel AG ("Höft & Wessel" in German; click here for the corporate website). Hanover ("Hannover" in German) is known in the computer industry for hosting the CeBIT trade show. According to the press release, Hoeft & Wessel "manufactures handheld devices and terminals for the public transportation, logistics and retail industries in Europe".

In accordance with industry customs, the announcements don't specify financial terms, but they do state explicitly that Microsoft will receive royalties for Android's use of its intellectual property.

Android device makers around the globe increasingly recognize that Google's mobile operating system makes extensive use of third-party intellectual property. Microsoft's license arrangements with Hoeft & Wessel and EINS SE are already the 16th and 17th Android-related patent license deal. I recently listed 15 other license deals, most of which were signed by Microsoft but the most recent one of which was Apple's settlement with HTC (which I described as a "lopsided" deal, with HTC being on the paying end, based on a review of a largely-unredacted copy of the agreement).

When I listed the 15 previous announcements I predicted that "there certainly will be lots of Android patent license deals in 2013". I actually believe that in 2013 alone there will be more royalty-bearing Android patent license deals than during the last three years (2010-2012). Not only will Microsoft continue to sign up licensees but Apple will also expect companies to respect its IP, and Nokia only started its related patent enforcement in May and will likely have a deal in place with HTC, ViewSonic and many others within about a year. And those three companies aren't the only ones looking for solutions to Android's infringement: even Ericsson's recent lawsuits against Samsung target "software and user interface technology" used by other Android OEMs as well.

The Android patent license agreements Microsoft announced before were signed with U.S. and Asian companies. Today's announcements show that Europe, which is a huge market for Android, is also included in Microsoft's technology-sharing program. Germany is the largest European market, and it's also a key patent litigation venue. Microsoft didn't actually choose to litigate in this country but was forced to countersue after Motorola was trying to take advantage of this jurisdiction's patentee-friendly (and not particularly FRAND-friendly) legal framework. Microsoft's countersuits in Germany have already resulted in injunctions against the now-Google-subsidiary over three patents: the first one over a multi-part text message layer patent in May, the second one over a file system patent in July, and the third one over an operating system-level soft input patent in September. Microsoft is slowly but surely continuing its German patent enforcement against Google.

Google's Motorola is the only major Android device maker not to have taken a license to Microsoft's numerous patents that read on its products. Samsung, HTC, LG and others have been paying Microsoft for some time, and chances are that Motorola would also have agreed to address Android's IP issues through a license agreement if it had not been acquired by Google, which now micromanages Motorola's litigations and negotiates settlements on its behalf. At a recent hearing held by an appeals court, Google's (Motorola's) lawyers said that their client lost four months of sales in Germany because of the need to work around Microsoft patents. If Motorola had simply licensed those patents, it would not have lost one day of market presence. And the four months that it lost won't have been the last period of absence from the marketplace if this dispute continues and Microsoft wins and enforces additional injunctions.

For Android device makers who unlike Google can't afford to stay out of the German market for an extended period of time, Microsoft's court victories over Google's own Motorola Mobility prove that litigation is not an advisable choice, while licensing is a viable way forward for large and small companies alike. I am absolutely convinced that it's only a matter of time that Google's Motorola Mobility will also enter into an Android patent license agreement with Microsoft. How much time? That will depend on Google's leadership.

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Apple requests U.S. preliminary injunction against the Samsung Galaxy S III smartphone

Late on Tuesday, Apple brought a motion, in its second California litigation against Samsung, "to supplement the record regarding Samsung's Galaxy S III product". Apple formally asks the court for permission to add the S III as another product targeted by Apple's motion for a preliminary injunction against the Galaxy Nexus, a smartphone Samsung co-developed with Google.

Apple made this move approximately 20 hours after I wrote about the Galaxy S III being "the obvious next target". In my blog post I speculated that Apple might bring a preliminary injunction motion against it, possibly after awaiting tomorrow's preliminary injunction hearing. Apple decided to forge ahead now. Apple is on the offensive against Android. Earlier this week it filed an ITC complaint requesting an immediate import ban of 29 allegedly-infringing HTC devices. There's an important overlap: the "data tapping" patent that Apple is seeking to enforce against HTC's current generation of products is one of two patents Apple is using against the S III.

Apple purchased the S III in the United Kingdom, where Samsung launched it on May 29. The U.S. launch date is June 21 -- precisely two weeks after the preliminary injunction hearing.

Apple's motion notes that "[a]ccording to press reports, Samsung has already sold over nine million preorders of the Galaxy S III; indeed, the Galaxy S III has been reported to be the most extensively preordered piece of consumer electronics in history."

While the preliminary injunction motion filed in February targets the Galaxy Nexus over four patents, Apple is still analyzing the S III's potential infringement of two of those patents (the new slide-to-unlock patent and the autocomplete patent), but in order to accelerate the process and facilitate the court's analysis, Apple "will limit its current request for preliminary relief against the Galaxy S III to the '604 [unified search, i.e., Siri] and '647 [data tapping] patents, because it is clear that infringement can be shown with respect to these patents based on the current record".

Here's the full text of Apple's motion:

12-06-05 Apple Motion on Galaxy S III

The exhibits show that Apple's counsel (from the firm of Gibson Dunn & Crutcher contacted Samsung's counsel (Quinn Emanuel) on Thursday (May 31) to discuss Apple's desire to include the S III among the accused products. Among other things, Apple asked Samsung to "confirm that it will not launch the Galaxy S III in the United States until the Court has ruled on Apple's preliminary injunction motion", but Samsung's counsel replied on Monday (June 4) that "Apple's pending Preliminary Injunction Motion will have no bearing on the release date of the Galaxy S III". Apple's request to include the S III will likely be a topic of discussion at tomorrow's hearing -- and for now I wouldn't hold my breath for the scheduled release date of the S III until Judge Koh has spoken out on this.

[Update] On Wedesday afternoon local time, Samsung replied to Apple's motion, arguing that it's too late to supplement the record for the motion that targeted the Nexus back in February and suggesting that a new preliminary injunction motion is needed: "If Apple wishes to seek an injunction against the Galaxy S III, the Court should require Apple to file a new motion and allow the parties to develop a full factual record on all four factors. Accordingly, the Court should reject Apple’s motion to amend its current notice of motion for a preliminary injunction." [/Update]

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