Thursday, April 6, 2017

Further briefing on Apple v. Samsung design patent damages, no transfer of Apple v. Qualcomm

Procedural decisions relating to two major Apple cases have come down this week. With respect to design patent damages in Apple v. Samsung, Apple did not get its preferred way forward (affirmance of prior damages verdict and an immediate re-retrial necessitated by the Federal Circuit's dismissal of Apple's trade dress claims), but the United States Judicial Panel on Multidistrict Litigation has granted Apple's wish that its contract, patent and antitrust action against Qualcomm be kept separate from a long list of (consumer) antitrust cases related to the FTC's mid-January complaint against Qualcomm.

There isn't much to say right now about the Apple v. Samsung design patents case. In a case management order handed down on Tuesday, Judge Lucy Koh disagreed with Apple's most aggressive suggestions, which would have cut the remand proceedings short (after the Federal Circuit decided that the district court should take a closer look at the record in light of the December Supreme Court ruling). I'm not surprised and I doubt Apple itself was.

The retrial proceedings remain stayed for now, and further briefing has been ordered with respect to Apple's argument that Samsung waived its arguments about what the "article of manufacture" (with respect to which Apple could seek a disgorgement of infringer's profits) should be. Filings are due on April 21 and May 5, and a hearing will be held on June 15. I'll follow the process and comment on the parties' detailed arguments. So far, my impression is that the court could easily decide either way, but what would be in the interest of justice is that Samsung gets the chance to make its "article of manufacture" case before a new jury (a jury would be needed in any event for the re-retrial, so justice would be available at almost no incremental cost here). That said, the waiver argument does present a significant hurdle for Samsung to overcome, so this is now going to be a very important phase for that litigation, which will "celebrate" its sixth anniversary in a few days.

In connection with Qualcomm's alleged FRAND violations and allegedly anticompetitive conduct, both Apple and Samsung are on the receiving end, and it's hard to tell which of the two is suffering to a greater extent. It's totally unknown what royalties Qualcomm has been collecting from Samsung, but there are court filings indicating that the amount in dispute between Apple and Qualcomm must be huge, and it's unlikely Samsung got much sweeter deal terms for its devices. Unlike Apple, Samsung is also in the components business, and it recently became known that Qualcomm allegedly prevented Samsung from selling its Exynos wireless chip--or at least its CDMA-compatible versions--to third parties. It would actually make a lot of sense for Samsung to bring its own case against Qualcomm, but maybe Samsung hopes that the earlier-filed FTC and Apple cases will pave the way in the meantime.

At a minimum, Samsung will presumably have to provide witnesses in one or more Qualcomm cases. The aforementioned multidistrict litigation (MDL) panel decision notes that the Northern District of California "also will be convenient for the third parties and witnesses based in Asia (where a number of foreign government investigations of Qualcomm's licensing practices have been conducted or are underway)."

The MDL panel has concluded that various consumer cases brought against Qualcomm should be consolidated with the FTC action in the Northern District of California because of "share[d] factual questions" and in order to avoid duplicative discovery, inconsistent pretrial rulings, and a waste of resources. The FTC case stays in the Northern District of California. The law governing the MDL panel's work shields antitrust cases brought by the FTC (or the DoJ) from venue transfers, and the FTC didn't want to go down to Southern California.

In the Northern District, Judge Koh is also in charge of FTC v. Qualcomm (and will then be handling all the cases merged into that one). The MDL panel decision notes Judge Koh's "multidistrict litigation experience and the ability to steer this complicated litigation on an efficient and prudent course." By now, Judge Koh has a much higher profile than at the outset of Apple v. Samsung, not only because of that particular case but even more so because then-President Obama nominated her for the Ninth Circuit and Hillary Clinton had her on a shortlist of potential Supreme Court nominees.

The two Samsung cases are far from the only Apple cases Judge Koh has already presided over, but Apple v. Qualcomm won't be among them since the MDL panel left it in Southern California:

"We are persuaded that Apple’s action, listed on Schedule B, should be excluded from this MDL. Although Apple asserts antitrust claims similar to those asserted by plaintiffs in the actions listed on Schedule A, it also asserts unique contract and patent claims against Qualcomm. Apple allegedly entered into a rebate program in order to ameliorate the effects of Qualcomm's anticompetitive conduct. Apple seeks nearly $1 billion in unpaid rebates that were allegedly withheld by Qualcomm in retaliation for Apple's responding to requests for information by certain foreign antitrust regulators. Apple also claims that certain of Qualcomm's patents are either not essential or not licensed on FRAND terms. While Apple will seek to obtain some of the same documentary and testimonial evidence relating to Qualcomm's licensing practices as the class plaintiffs, we are convinced that any common discovery can be coordinated among the parties and the involved courts, whereas inclusion of Apple’s action in the MDL could significantly complicate the proceedings and cause delay or other inefficiencies."

The decision notes that Apple had a preference for keeping those cases separate, while Qualcomm wanted centralization. But as the passage quoted above says (at the end), Qualcomm's preferred course of action would have had the potential to complicate matters and cause delay. Does this mean Qualcomm is stalling?

It's too early to tell. It will take some other procedural move(s) before it becomes clear whether Qualcomm is trying to drag these antitrust cases out. For now it looks to me like Qualcomm's stance on centralization had more to do with how it believes it can maximize its chances of getting away unscathed. The panel decision says that Qualcomm wanted centralization only in the Southern District of California but otherwise asked "that Apple's action be excluded from the MDL." That looks very much like forum shopping and hoping for a home team advantage.

The Motley Fool has a story on this week's motion by Qualcomm to dismiss the FTC case. I agree with Evan Niu that Apple's case is the bigger one and share his assessment that Apple would "aggressively carry on" regardless of a dismissal or withdrawal of the FTC's case. But at least for now I wouldn't view the FTC case as skeptically as Mr. Niu does. It's true that now-Chairwoman Ohlhausen was the dissenter from the FTC's decision--just before President Trump's inauguration--to go after Qualcomm. I've previously seen dissents by Mrs. Ohlhausen in FRAND cases and I was disappointed in each case. I don't think her positions on FRAND are representative of what Republicans (since there will be some more Republican commissioners soon) generally believe should be done to curb abuse of standard-essential patents (SEPs). For example, Senator Mike Lee (R.-Utah) played a very proactive role a few years ago, and he's staunchly conservative. I wish Mrs. Ohlhausen had an exchange of FRAND views with Sen. Lee and other Republican lawmakers who share his views (he got a lot of support). There also isn't any indication on the Internet that combating SEP abuse is a leftist cause or ideological issue. Case in point, I've consistently taken pro-FRAND positions over the last ten years and I'm not aware of any other IP/tech law/antitrust blogger who would have linked to Rush Limbaugh's website several times or would have declared himself as clearly and early in support of then-candidate Donald Trump as I did.

It remains to be seen how vigorously the FTC will pursue the case. Regardless of elections and appointments, it's a fact that competition authorities often content themselves with minor cosmetic remedies. That is also a risk in this case. Qualcomm might make some vague and unhelpful promises to modify its conduct and then get away, but Apple is not going to be interested in anything purely symbolic. If Qualcomm wants to settle with Apple, there will be a substantial cost involved.

Here's Qualcomm's motion to dismiss the FTC case (this post continues below the document):

17-04-03 Qualcomm Motion to Dismiss FTC Case by Florian Mueller on Scribd

I doubt that Qualcomm will be able to get rid of the FTC case this way, but what is possible is that the FTC might have to amend its pleadings here and there. I may talk about it in more detail after the FTC has responded. Just a couple of observations for now:

  • Qualcomm argues in its motion that a FRAND violation isn't an antitrust violation until it actually causes exclusion, and then goes on to say the following:

    "Specifically, the Complaint does not allege that Qualcomm has ever sought to interfere with a competitor's business by asserting its standard-essential (or any other) patents against a competitor; that rival chip suppliers are unable to compete without a license from Qualcomm; or that the lack of a license has actually excluded any competitor from making sales in any relevant market. Instead, the Complaint alleges only that a license from Qualcomm would 'provide substantial benefits' to chip makers. But Qualcomm has no duty under the antitrust laws to assist its competitors."

    This here is the opposite of what the Korea Fair Trade Commission appears to have concluded with respect to Samsung's Exynos chips. It furthermore doesn't convince me since a patent holder doesn't have to actually litigate (which Qualcomm does from time to time at any rate) to cause exclusion. And if the FTC's case was centered around some actual litigation, Qualcomm would probably be making a Noerr-Pennington argument (saying that litigation cannot give rise to antitrust claims) as certain SEP abusers have in other cases...

  • Qualcomm appears to be trying to make the question of FRAND rate-setting an inevitable, indispensable aspect of the FTC case. Generally, regulatory agencies really struggle with rate-setting. They much prefer to leave those questions to litigation between companies. I remember from the early stages of my interest in FRAND/SEP issues that the European Commission's attempt toward the end of the last decade to do something about Qualcomm's business model and conduct (at the time, Nokia was the key complainant) got derailed in no small part because the Commission didn't feel it could make a FRAND rate determination.

The next key deadline in the various Qualcomm cases is this Friday: Qualcomm will then respond to Apple's San Diego complaint.

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