Huawei asks China's patent office to confirm Xiaomi infringes patents, but administrative process is more similar to mediation than to litigation

There are reports from China that the country's State Intellectual Property Office (SIPO) has accepted Huawei's requests to determine that Xiaomi infringes four select patents. Two of them are 4G/LTE standard-essential patents (SEPs) while the other two are non-SEPs on panoramic images (a camera feature) and screen locking.

Apparently those petitions were filed on January 17, 2023.

The same reports quote Xiaomi as saying that the two parties are "actively negotiating" a patent license agreement, and that both Huawei and Xiaomi believe in IP and licensing. Xiaomi describes this proceeding as an alternative dispute resolution mechanism: it's an administrative proceeding that may help the parties reach an agreement.

In other words, they're not embroiled in litigation. This is not a case of Huawei seeking an injunction against Xiaomi. There always is a risk that if negotiations fail, enforcement actions will begin. For now, the most likely outcome is that they will reach an agreement on the terms of a patent license agreement, also considering that another major Chinese smartphone maker--OPPO--worked out a deal with Huawei last year (an agreement that apparently also involved an exclusive license to certain patents, three of which OPPO is now asserting against Nokia in its latest German countersuits).

Huawei's patent licensing program is wildly successful. Without ever having defined IP licensing as a strategic business area, Huawei has become a net licensor. Xiaomi must be the biggest unlicensed user of Huawei's patents at this stage. Several other major smartphone makers are known to have a license.

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OPPO asserting patents from Huawei against Nokia in Germany while Indian court notes OPPO's rejection of Nokia's recent arbitration proposal

Approximately 20 months after Nokia sued OPPO, the two companies' positions appear to be further apart than ever. Time is on OPPO's side, however:

• Nokia's financials are affected by not getting any patent royalties from OPPO (and Vivo, a dispute on which I provided an update a few days ago).

• A Chinese court in Chongqing will in the not too distant future make a FRAND determination that Nokia seems to try hard to avoid: Nokia's strategy is to gain leverage in the meantime, which is why Nokia obtained a preliminary injunction in Brazil (I mentioned this latest escalation of the dispute on LinkedIn).

• At some point OPPO may beat Nokia at its own game and get decisive leverage from an injunction--not because that was OPPO's original idea, but as a result of a protracted dispute.

It became known about a week ago--as I mentioned on LinkedIn first--that OPPO brought three additional patent assertions against Nokia in January. They all involve patents that belong to Huawei but have been exclusively licensed to OPPO, which is sufficient to confer standing in Germany. These are the patents-in-suit:

• EP3386131 on an "information transmission method and device"

• EP2863570 on a "method, user equipment, and base station evolved node for determining precoding matrix indicator"

• EP3582567 on an "indication method and device for physical resource block (prb) grid"

With respect to the last one of those patents, the Mannheim Regional Court has confirmed that OPPO amended an existing complaint to assert that patent. The other two patents are being asserted in Munich.

Nokia issued a statement, the first sentence of which holds this strategy against OPPO's own portfolio:

"The fact that OPPO has had to resort to using another company’s patents to bring these actions against us significantly undermines OPPO’s arguments on the strength of its own 5G patent portfolio."

I believe the reason OPPO is asserting those Huawei patents is not that it doesn't have confidence in the value of its own patents. The primary benefit that OPPO gets out of this strategy is that it adds an element of unpredictability. Unlike assignments, exclusive licenses are not registered. No one knows what exclusively-licensed patents (and from whom) OPPO may assert in the next countersuit. As for the value of the portfolio for FRAND purposes, the courts will have to consider exclusively-licensed patents just like homegrown patents or assets that were reassigned to OPPO.

I understand what Nokia wants to say, but German patent cases are not like U.S. jury trials, where psychological elements can impact the outcome. The German judges will just look at those patents in terms of whether they're valid and infringed.

In December, Huawei signed patent cross-license agreement with both OPPO and Nokia.

There is an indication now that Nokia wants more--potentially a whole lot more--from OPPO than under the previous (2018-2021) license agreement. As IAM was first to report (paywalled), Nokia made an arbitration proposal in India, but the court noted that OPPO is going to decline. The first provision of that proposal--as quoted by the Delhi High Court--is the following:

"Oppo pays the same amount as under the 2018 Agreement directly to Nokia as an interim payment. This interim payment will obviously will not be reflective of the full FRAND rate for the new licence agreement."

In November, the Indian court denied a Nokia motion to force OPPO to make such interim payments. The passage from Nokia's proposal that I just quoted is probably not the only reason why OPPO is unreceptive to the idea. But if OPPO accepted that one, it would imply that Nokia is now entitled to a higher royalty rate.

Nokia's proposal would have involved a stay of all pending litigation around the world while arbitration would be taking place in Hong Kong or Singapore. Contrary to de-escalation, however, Nokia obtained a preliminary injunction in Brazil as I mentioned further above.

What represents far more of a contradiction is that Nokia makes an arbitration proposal in 2023, but in 2022 Nokia told a UK court that "it was now too late to arbitrate this dispute given the passage of time since 1 July 2021 and the substantial investments made by the parties in litigation in the national courts."

In an IAM interview, OPPO's IP chief Adler Feng stressed that OPPO wanted to start mediation even before Nokia's first 2021 lawsuit against OPPO. And he pointed to a passage from a UK court ruling that I had also quoted in November 2021 and according to which "the Chongqing Court, if and when it rules on royalty rates, will do so justly."

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USPTO-WIPO agreement on resolution of SEP disputes won't truly 'enhance the efficiency of licensing of standard[-]essential patents'--institutional self-importance meets Big Tech's SEP devaluation agenda

Normally, neither the World Intellectual Property Organization (WIPO) nor the United States Patent & Trademark Office (USPTO) should advance a patent devaluation agenda. It's plainly inconsistent with those institutions' mandates. But yesterday the USPTO and WIPO issued a press release on an agreement "to partner on dispute resolution efforts related to standard[-]essential patents" that I don't view favorably at this stage.

When President Biden appointed Kathi Vidal, a patent litigator known for her Big Tech ties, to head the USPTO, there was widespread concern in the IP community that she might take initiatives that benefit infringers rather than innovators. With respect to PTAB inter partes reviews, it's too early to tell. With the stroke of a pen she undid some of her predecessor's PTAB rules favoring discretionary denials. We'll see what comes out of the current decision-making process, and it's important that stakeholders on both sides of the debate accept her invitation to submit amicus briefs.

With respect to standard-essential patents (SEPs), three of the Biden Administration's agencies (DOJ, USPTO, NIST) refrained from adopting a policy statement that was heavily criticized by SEP holders (or reinstating an older policy position of that kind). The question is now what the USPTO's partnership with WIPO means.

It could be that in the end it's just bureaucratic activism: governmental agencies like to draw attention to their work on a hot-button issue regardless of whether such work will actually have much of an effect. But there is also the possibility that Director Vidal is indeed pursuing a SEP devaluation agenda, while WIPO just has a "business development" objective with respect to its alternative dispute resolution (ADR) services. As I'll discuss in a moment, it looks like WIPO's SEP ADR initiative isn't going too well.

The press release quotes Director Vidal as saying that "SEP policy is an international issue of international importance." That is correct: SEP licenses are typically global portfolio licenses.

Given that WIPO and the USPTO agree on the international dimension of SEP policy, antisuit injunctions and antisuit damages motions should actually be the number one item on their list. Instead, they leave the heavy lifting to the courts. Case in point, later today (Thursday) Judge Rodney Gilstrap of the United States District Court for the Eastern District of Texas will hold an Ericsson v. Apple motion hearing on Apple's request for an antisuit damages order as the iPhone maker is currently unable to sell 5G devices in Colombia due to a SEP injunction obtained by Ericsson.

There is nothing in the USPTO-WIPO announcement to specificially suggest that WIPO and the USPTO seek to "enhance the efficiency of licensing of standard essential patents" (a quote from Director Vidal's statement) in a balanced fashion. To increase the efficiency of SEP licensing, one needs to tackle the problem of hold-out, which is widespread, and of outlier cases of hold-up. But this is all that the announcement says about the scope of the five-year agreement:

• Cooperate on activities that will lend efficiency and effectiveness to the resolution of disputed standard essential patent matters by leveraging existing WIPO Arbitration and Mediation Center and USPTO resources, and

• Engage in stakeholder outreach to raise awareness of the services provided by the WIPO Arbitration and Mediation Center through joint USPTO-WIPO programs.

The second bullet point is laughable: the stakeholders on both sides of the SEP licensing negotiation table are sufficiently sophisticated to know that WIPO offers arbitration and mediation services. This is not like teaching traffic rules to children.

Toward the end of the press release, WIPO Director General Daren Tang promotes WIPO's ADR services. On WIPO's website I found the following information:

"In recent years, the WIPO Arbitration and Mediation Center (the 'WIPO Center') has administered some 55 WIPO mediation cases relating to FRAND licensing negotiations."

Interestingly, they're not saying anything about SEP arbitration proceedings. The key difference is that arbitration will result in a decision, while mediation is just an attempt to bring parties together. The "Summary of WIPO FRAND ADR case examples" is also just about mediation, and WIPO can't even claim that its mediation efforts actually resolved a single dispute. The first example just "prompted renewed licensing negotiations" between a patent pool and implementers, half of which were Asian companies. The second one is that "IP courts in China have referred ten ICT patent infringement cases to WIPO Mediation. Seven of those cases involved claimants from Europe." And then "a large Asian manufacturer submitted a unilateral request to WIPO Mediation concerning its SEP infringement litigation against a large European SEP holder"

If this was the track record of a private mediator, he or she would find it hard to be hired again.

There are reasons to suspect here that it's not really SEP holders who expect WIPO's ADR services to be of any help to them. It's more like some players on the implementer side hope to be deemed willing licensees based on their requests for WIPO ADR.

Hopefully I'm just being too skeptical and this is more than a scheme to facilitate hold-out and devalue SEPs. In the short term, I actually think an initiative like LIFT--which was announced this week-- is more likely to enhance the efficiency of SEP licensing. Gustav Brismark and Bowman Heiden discussed it in an IAM article, Building incentives to overcome the SEP licensing prisoner’s dilemma (paywalled).

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Ericsson, Apple agree on former Eastern District of Texas Chief Judge David Folsom for mediation of 5G patent licensing dispute

This may be one of my shortest blog posts ever, but I have two pieces of news to share regarding the Ericsson v. Apple 5G patent licensing dispute:

• I'm not aware of what exactly Chief Judge Rodney Gilstrap said at the Wednesday case management conference, but a docket entry states that he has decided to consolidate Apple's and Ericsson's dueling FRAND cases for the purpose of pretrial proceedings. The cases are scheduled to go to trial in June and July 2023. Either party still wants at least parts of the other party's complaint dismissed, and Apple is still fighting hard to give the Federal Circuit--not the Fifth Circuit--appellate jurisdiction.

• Judge Gilstrap gave the parties a few days to agree on a mediator. Otherwise he'd have appointed one, but no need for that: Apple and Ericsson almost promptly agreed to appoint a predecessor of Judge Gilstrap as Chief Judge of the Eastern District of Texas, David Folsom, as their mediator. Judge Folsom retired from the bench in 2012 and is now a Jackson Walker partner and based in Texarkana (the one on the Texan side of the state border).

  Court-ordered mediation rarely results in settlements of such high-stakes global disputes. Those cases do get settled, but what drives settlements of that kind is usually not that a judge referred the parties to mediation. That's why no one should expect a miracle from former Chief Judge Folsom. Maybe he can get them to agree at least on how to structure their two overlapping actions in the Eastern District.

Last week I published an overview of the key deadlines in the three Ericsson v. Apple ITC cases, the first one of which is presently scheduled to go to trial (called "evidentiary hearing") in the first half of November. I previously listed various German Ericsson-Apple hearing and trial dates. I haven't yet found out about when certain courts in Brazil and the Netherlands will hear Ericsson's preliminary injunction motions.

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Ericsson wants to arbitrate FRAND royalties for its standard-essential patent portfolio on a tilted playing field, Samsung filing with Federal Circuit shows

Samsung asked the Federal Circuit to expedite the appeal of Ericsson's anti-antisuit injunction from the Eastern District of Texas. Ericsson's counsel then put enormous effort into an opposition filing, considering that this is only about a briefing schedule and not yet about the actual appellate decision. Yesterday, Samsung replied to Ericsson's opposition brief (this post continues below the document):

21-02-08 Samsung Reply ISO ... by Florian Mueller

The interesting part is not the continued bickering over the schedule. Granted, Samsung's lawyers did a very good job making a boring secondary matter almost entertaining to read--I would truly regard that as an accomplishment. But there's one aspect of this filing that ignited my interest: Samsung's reply to Ericsson's suggestion that Samsung should simply have accepted Ericsson's proposal to resolve their FRAND royalty dispute through arbitration.

I'm a longstanding critic of the notion that arbitration is the answer to SEP disputes. It's not hard to see why policy makers, competition enforcers, and at times even judges would rather refer parties to arbitration, just so they wouldn't have to deal with the intricacies of SEP licensing. Unlike the other popular alternative dispute resolution method, mediation, arbitration is sure to yield a result. But as Apple explained in a court filing almost a decade ago, arbitration gravitates toward the middle between both parties' demands while courts are more likely to enter "sharp" rulings. The way I always explain this to people is that if you're an implementer of a standard and you're dealing with a SEP holder asking for $5 per unit when $0.50 might be more accurate, you can't counterbalance that demand in arbitration: even if you proposed $0.01, the middle would still be $2.50, and negative royalties are obviously a non-starter. And that's not the only issue.

That is not to say arbitration could never be fair. It depends on the parameters.

The parameters that Ericsson proposed to Samsung (you can find the proposed Arbitration Agreement on pages 21-24 of the PDF shown above) leave a lot to be desired, and Samsung's reply brief highlights the key issues that Samsung raised, subsequently to which Ericsson didn't make a better proposal for how to go about arbitration:

1. In Section 3, Scope of the Arbitration, the approach to the FRAND determination is set forth as follows:

   "The Arbitral Tribunal shall resolve the Disputed Terms by deciding the license terms and conditions that the Parties may respectively impose without violating their commitments to license their relevant standard essential patents on fair, reasonable, and non-discriminatory 'FRAND' terms and conditions." (emphasis in original)

   Samsung has a far larger product business than Ericsson. Therefore, its exposure to Ericsson's patents is greater than Ericsson's exposure to Samsung's patents, and Ericsson will be a net licensor as a result of this cross-license. That's why Ericsson proposes that the arbitration panel set the highest rate possible within the FRAND range. What the sentence quoted above says is that the arbitrators should set the maximum royalty rate that wouldn't be an outright FRAND violation, while a fair approach to arbitration would mean to determine the most reasonable point within the FRAND range, which is never the maximum.

   The practical effect of a "maximum non-violating" royalty rate would be that Ericsson would merely have to raise some doubt about a certain demand being an outright violation, and would get away with it. So, practically speaking, the outcome would almost certainly be supra-FRAND.

2. The next paragraph looks reasonable at first sight, but isn't when viewed in context:

   "With the exception of the preceding paragraph, nothing herein shall restrict the ability of the Parties from presenting any evidence or making any arguments in the arbitration, including without limitation arguments regarding validity, essentiality, infringement or the value of the patents to be licensed under the Final Complete GPLA (as defined below)."

   It's one thing that you're not barred from presenting evidence or making arguments. It's another whether it actually produces an effect. As Samsung told Ericsson in a November 1, 2020 letter (pages 25-27 of the PDF shown above), "it is unreasonable to expect an arbitrator to rule upon all potentially relevant validity and infringement issues in such a proceeding." And the overall structure of Ericsson's proposed arbitration agreement is such that payments would be due, without providing for potential adjustments to the royalties based on subsequent findings of invalidity and/or non-infringement.

3. Samsung told Ericsson an arbitrator shouldn't have to "dictate a range of terms for a bsuiness deal between the parties." Instead, Samsung, argues, the parties should negotiate as many terms of an agreement as possible and then, possibly, proceed to arbitration of "a reasonable scope of disputed issues."

4. Interestingly, the just-expired Ericsson-Samsung cross-license agreement provided for arbitration under JAMS rules, so Samsung is surprised that Ericsson wants to set the terms of a new agreement under a different set of rules.

5. Finally, Samsung criticizes that "Ericsson's proposal does not provide any mechanism for appeal." In this context, Samsung stresses that 5G "is relatively new" (thus no precedent yet). Samsung's rejection of Ericsson's arbitration proposal doesn't say so explicitly, but between the lines it appears to indicate that Ericsson should have to prove the strength especially of its 5G patents in arbitration or in court.

The transparency of U.S. litigation often proves helpful. Those two exhibits to Samsung's filing (Ericsson's proposal and Samsung's response) are now publicly accessible, and those dealing professionally with the question of SEP disputes can see what "willingness to arbitrate" means in many cases: it means that SEP holders want to tilt the playing field in their favor. That's why it's key not to allow SEP holders to enforce injunctions only because an implementer declined to arbitrate. Arbitration can work, but only if both parties define some specific questions that arbitration should answer, and the parameters under which the arbitration proceeds.

The proposal Samsung disagreed with--despite Ericsson threatening with renewed litigation--would have resulted in a supra-FRAND royalty rate with no adjustments based on invalidity or non-essentiality findings.

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250 million consumers v. Qualcomm: trial in 2019 no longer realistic

Only two things worked out well for Qualcomm on the litigation front this year: the Lasinski cross-examination and the fact that the United States Court of Appeals for the Ninth Circuit allowed Qualcomm's interlocutory appeal of Judge Lucy H. Koh's certification of a class of up to 250 million consumers suing Qualcomm for a partial refund of what those people paid for their smartphones (seeking $5 billion in total, or roughly $20 on average per person who bought a smartphone in the U.S. during the relevant period, which started in March 2011).

Other than that, the first month and a half of this year have been a near-total disaster for Qualcomm, especially since its Chinese and German injunctions appear to have been worked around and some of Qualcomm's offensive cases have recently failed.

The Ninth Circuit has set the following schedule for the interlocutory appeal of class certification:

• Mediation Questionnaire due on 02/06/2019.

• Transcript ordered by 02/22/2019. Transcript due 03/25/2019.

• Appellant Qualcomm Incorporated opening brief due 05/03/2019.

• Appellees' answering brief due 06/03/2019.

• Appellant's optional reply brief is due 21 days after service of the answering brief.

If the related trial, originally scheduled for June, ever takes place, it won't happen this year, realistically. Judge Koh put the related pretrial proceedings on hold in January. After briefing, the Ninth Circuit will have to schedule a hearing, and then make a decision. This is all going to take time.

Theoretically, if both parties wanted to accelerate things, they could save time, but in the current situation that's not foreseeable. What they need more than anything else so they can even determine their preferred pace is (i) Judge Koh's ruling on the FTC's complaint (which the consumer class action is directly related to) and (ii) the Supreme Court's Apple v. Pepper (App Store commission case) opinion. I believe the FTC is going to score at least a partial victory over Qualcomm and that Apple is going to lose the App Store case (not referring to the case as a whole, just to the question before the Supreme Court), and then it will depend on the reasoning (the Supreme Court may decide Apple v. Pepper in consumers' favor with or without overruling the Illinois Brick doctrine).

For Qualcomm, the class action is a pain in the neck for at least four reasons:

• With so many people being potentially entitled to a partial refund of what they paid for their phones, even a seemingly small per-class-member amount would still result in a sizable total payout.

• Any payout, unless the amount was just laughable relative to the size of the class, would stigmatize Qualcomm forever as a company that owed consumers money for indirectly overcharging them.

• As long as there's a class action connected to the FTC case, a settlement would have to be run by Judge Koh. And at this stage there is no indication that Qualcomm can even settle with the FTC on the terms it wants.

• The consumer class can bring all sorts of motions that Qualcomm doesn't like, such as the antisuit motion that Judge Koh dismissed without prejudice only for timing reasons last year (timing was, by the way, described by this blog as the relatively most interesting argument Qualcomm had raised against that motion).

The problem with the schedule for mediation is that it will take place at a time when Judge Koh may still be working on her FTC v. Qualcomm opinion, and even though the Supreme Court held the Apple v. Pepper hearing in November, it may also need more time, especially since different justices appear to have different preferences for how to achieve the result that all of them but the Chief Justice appear to consider to be the right one.

All things considered, I'd be surprised if mediation succeeded under these circumstances.

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Apple, Samsung trying to put patent dispute behind them through mediation

After last week's Apple v. Samsung damages verdict (largely over design patents) in the Northern District of California, counsel for both parties told Judge Koh that they were both willing to put an end to their long-running dispute, which started with a complaint filed by Apple in April 2011 and quickly escalated into a global dispute with filings in ten countries.

Late on Thursday, Samsung filed an administrative motion asking Judge Koh to keep a joint notice regarding alternative dispute resolution out of the public eye (this post continues below the document):

18-05-31 Samsung Motion to File Under Seal ADR Notice by Florian Mueller on Scribd

All that one can learn from the public filing is that there is a "forthcoming mediation." It's unclear whether a judge or a private mediator will try to work out a settlement.

What's furthermore unclear (and no one may know at this stage) is whether the parties will try to resolve both California cases (the one that went to re-retrial in May, and a second one that turned into a roller coaster) or just the first one.

High-profile smartphone disputes between handset and platform makers (unlike litigation brought by non-practicing entities or increasingly-"trollified" former phone makers such as Nokia and Ericsson) haven't recently resulted in license agreements. Instead, parties just dropped pending cases but reserved all options for bringing new complaints anytime, with some license agreements--or covenants not to sue--of extremely limited scope possibly having been part of some of those confidential deals. I would expect the same if Apple and Samsung finally called a truce. Apple obviously isn't going to extend a design patent license to Samsung; the result might involve a license (or a convenant not to sue with the practical effect of a license) to a few software patents, though some have expired and others have been worked around. But by and large the question is just whether Apple will withdraw any pending claims. And, even if this works out now at long last, no one knows when hostilities might flare up again.

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Judge sends Apple, Samsung to mediation with Nov. 15 deadline -- #1 problem: Apple's self-righteousness

On Monday, Judge Lucy Koh of the United States District Court for the Northern District of California received a joint ADR (Alternative Dispute Resolution) statement from Apple and Samsung, which is not publicly accessible. Further to that statement, Judge Koh referred the parties to mediation before Magistrate Judge Spero, which was the common ground of the positions they stated on ADR earlier this month. As per the parties' suggestion, that settlement effort will have a November 15 deadline.

More than a year after Apple and Samsung dropped all lawsuits against each other in jurisdictions outside the U.S. (i.e., numerous neutral jurisdictions as well as Samsung's country, Korea), it's time they also put aside the U.S. part of their dispute. I've always said that Apple should get something, but the longer this dispute has taken, the clearer it has become that Apple's leverage is limited, and let's not forget that Apple at some point needs a license, on FRAND terms obviously, to Samsung's standard-essential patents. Apple's iPhone patents are not nearly as great as its products, and even though Apple also has far better lawyers than patents, Apple's litigation would have gone nowhere if not for certain peculiarities of the U.S. patent system such as jury trials, which are statistically biased in favor of domestic companies suing foreign rivals (see Xenophobia in American Courts).

There isn't really much to gain for Apple. At this stage, if Apple wanted to really make a strong statement about its iPhone-related intellectual property, it would have to sue major Chinese companies such as Huawei, ZTE, and Xiaomi. But as far as I know, while Apple is paying standard-essential patent royalties to Chinese patent holders, no Chinese company is paying Apple anything for building iPhone-like Android-based smartphones.

A settlement on undisclosed terms, no matter what speculation it might trigger, would be a face-saving exit strategy for both Apple and Samsung, especially since they've had a commercial relationship for a long time and could somehow mix the patent settlement with some new commercial agreement (a structure that I've seen in connection with a couple of Microsoft patent cases).

As I've already said this month, a settlement at this stage would make Apple look stronger than it could have expected at any time since the spring 2014 trial. While I could see reasons for Samsung and its allies (such as Google) to push for Supreme Court clarification of one or more key issues, there's no reason why Samsung couldn't or shouldn't simply do a deal with Apple that makes business sense.

My primary concern about the prospects for a settlement at this stage is that, in my observation, Apple has become self-righteous beyond imagination and potentially even a bit too emotional about this matter.

Any reasonable person in the civilized world has a simple definition for theft: you take something you don't rightfully own. And if you take money by collecting a damages award over half a dozen patents, even though the most valuable software patent of them is a zombie patent by now and a key design patent has also been deemed invalid (for lack of inventiveness) by the very patent office that once granted it, then you are not a thief in a legal sense because you merely take advantage of a broken patent system, but in moral terms, you still take what's not rightfully yours.

I've been thinking a lot in recent weeks about why Apple, a company normally much more concerned about its reputation, is doing this. In a recent court filing, I found what might be a clue in this regard. Apple's lawyers mentioned that after last year's trial (in the second California Apple v. Samsung case), Samsung's lead counsel, John B. Quinn of Quinn Emanuel, said in public that after years of litigation, Apple still hadn't collected a penny.

My unsolicited advice to Apple would be: don't compromise your moral standards just because of what Samsung's trial counsel told the press.

I've tried to put myself in the shoes of Apple's lawyers. Such major trials are an enormous logistical effort for everyone involved. The lawyers get little sleep, yet have to concentrate on each and every detail and fight very hard day and night. Apple's lawyers did that in 2012 and got a billion-dollar award. They did it again for a 2013 limited damages retrial. And then again in early 2014 for that trial in the second case, which ended with a major disappointment for them because even a jury picked from Apple's backyard only awarded a small fraction of what Apple had demanded. After all this effort, it hurts to have nothing to show yet, and then Mr. Quinn put his fingers into that wound. It must have hurt.

No matter what Apple's lawyers may or may not do now, Steve Jobs's "thermonuclear war" on Android will always be remembered as an abject failure. Mr. Jobs simply overestimated the strength of his company's patents, as did so many other people.

The question is now: how can Apple at least lose like a winner? By trying to win like a loser (on an ethically problematic basis), it only makes things worse.

Apple appears very self-righteous. Only because Apple has believed all along that Samsung owes huge payments, Apple's patents aren't any more valid. At last year's trial, Apple's lead counsel argued that Apple just couldn't (for logistical reasons) assert 50 patents against Samsung in one case, it picked only a few. But Apple obviously picked the ones that its lawyers thought were going to be the strongest ones, and in the aggregate of two California cases and an ITC complaint, Apple has already asserted dozens of patents against Samsung, though not all of them until the bitter end. Maybe some people at Apple believe that since certain inefficiencies of the law (such as limits on how many patents a U.S. judge will let you take to a jury trial) can also affect a right holder, they can now seek to capitalize on a loophole for the monetization of zombie patents.

In Europe, it appears that not even one of all the patent claims Apple asserted against Android will stand. Slide-to-unlock, for example, has been deemed invalid by 15 different judges in three countries. Apple should realize that its complete failure in neutral jurisdictions is a major credibility and legitimacy issue. Taking advantage of structural flaws of the U.S. patent system, and protectionist tendencies of juries and possibly even certain "fanboy" judges, is not the answer.

If not for the emotional self-righteousness Apple has recently displayed, I would be very optimistic about a settlement.

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents and Google+.

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Apple and Samsung will try to avoid fourth California patent trial: court-moderated settlement talks

A little over a year ago, Apple and Samsung withdrew their pending claims against each other everywhere but in the United States. Now there is more hope than ever that even the U.S. part of their dispute may come to an amicable end. In a joint case management statement filed in the Northern District of California late on Friday by local time, both parties have responded favorably to Judge Koh's recent inquiry about their willingness to engage in yet another mediation effort.

Here's the document, from which I'll then quote the relevant statements on alternative dispute resolution:

15-09-11 Apple-Samsung Joint Case Management Statement by Florian Mueller

"Apple's Statement: The remaining issues to be tried to a jury are limited to the amount of damages that Samsung owes for its sales of five infringing products. Thus, as an alternative to a fourth trial, Apple would be willing to participate in binding, final, and non-appealable arbitration to calculate the final amounts owed to Apple for those five products, provided that such arbitration take place on a schedule that would conclude no later than December 31, 2015 and the Court's prior 'Groundhog Rules' apply to the arbitration. To the extent supplemental damages are not resolved by motion, Apple would be prepared to include those issues in the arbitration. Multiple prior efforts at private mediation have been unsuccessful. However in advance of and in addition to arbitration, Apple would also be willing to mediate again with Magistrate Judge Spero as ordered earlier in the case. If Samsung is unwilling to agree to this procedure, Apple requests that the Court schedule a trial for March pursuant to Apple's proposal above.

Samsung's Statement: Samsung is willing to engage in a mediation with the private mediator previously used by the parties or another mutually agreed upon private mediator. While Samsung suggests a mediation before a private mediator to avoid burdening the Court, Samsung is also willing to mediate with Magistrate Judge Spero. Samsung proposes that the mediation be completed by November 15, 2015."

The passages quoted above show different approaches. Apple talks about arbitration; Samsung doesn't. Samsung would have a preference for private mediation; Apple only mentions court-moderated mediation. But court-moderated mediation--in front of U.S. Magistrate Judge Joseph C. Spero, as in 2012--is the common ground between those two statements, and in that case, the court will set the rules, so Apple can't impose any conditio sine qua non of the kind it proposes for arbitration.

While arbitration would also have been just limited to a certain damages question, mediation can address anything that remains to be resolved between the parties. If mediation succeeds entirely, the whole dispute will go away. If it succeeds in part, it will at least be narrowed.

More than anything else, both parties need a face-saving exit strategy now. It would really be nice to avoid a situation in which Apple would behave like a sore loser (not a loser in legalistic terms, but in practical terms, given that its "thermonuclear war" on Android went nowhere) and kept trying to collect money over invalid patents, which could also set a terrible precedent (well, Apple's lawyers obviously argue this would just affirm the law as it stands) with a view to future cases in which patent trolls will do the same against operating companies including, but not limited to, Apple. It just wouldn't look good if Apple collected money on an ethically questionable basis, under circumstances that make it so needless and pointless given that Samsung had posted a billion-dollar bond anyway and Apple would get paid later with interest if it ultimately prevailed. Maybe this common ground in terms of court-moderated mediation will help avoid all of this. I'd be very, very happy for both parties if it worked out.

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Second Oracle v. Google trial most likely to take place between March and September 2016

Judge William H. Alsup of the United States District Court for the Northern District of California has just entered a case management and mediation order in the high-profile copyright litigation between Oracle, the Java right holder, and Google, which has been using Java in Android for about eight years without a license.

The trial date will be set at a later time and most likely be March 28, 2016 or September 12, 2016, but it could also be anytime in between. The parties had proposed dates in the spring of 2016.

The court would still like to avoid the need for a trial, which is understandable, and Judge Alsup has referred the parties to mediation before Magistrate Judge Paul S. Grewal, who already tried unsuccessfully (because of the circumstances) in 2011 to broker a settlement but concluded that this was one of those cases that just had to go to trial. I have seen media reports according to which both parties' counsel expressed skepticism about the fruitfulness of another near-term mediation effort, which didn't dissuade Judge Alsup from ordering the parties to meet at any rate. He can order them to meet, but he cannot order them to agree on any particular terms. It would be the biggest surprise for me in more than five years of smartphone patent litigation blogging if this mediation succeeded, and someone should propose Judge Grewal for the Nobel Peace Prize in that event (he'd deserve it more than some other winners in recent decades).

Oracle is allowed to bring a motion to supplement its complaint. Even Google doesn't deny that Oracle has the right to supplement its complaint so as to reflect what happened in all those years since the first trial. There is a disagreement, however, on what constitutes a supplemental complaint and on what would be an amended complaint. So we'll see some argument in the weeks ahead.

A motions process will also start now with respect to Google's position that Oracle should not be allowed to make a willfulness argument before the jury.

It's predictable that motion practice will soon also be needed with respect to the damages expert witness from the first trial, Dr. Kearl. Oracle says (and I think it's very obvious) that someone who took on work as an expert witness for a Google Android partner has a conflict of interests. Court-appointed expert witnesses must be absolutely neutral, so this should be a no-brainer. In all likelihood Dr. Kearl won't appear again, and while this is absolutely speculative (I have no information on anyone's plans other than what the public filing says), I believe a decision to let Dr. Kearl appear again, despite a conflict of interest that is beyond all doubt, might trigger an interlocutory appeal.

For now, however, Dr. Kearl still appears in the case management order in paragraph 8, which refers to the expert report on damages being furnished within 21 calender days of the last party expert report on damages.

Finally, the court tentatively (the order says "likely") plans to allow Google to still raise its equitable defenses at the trial. This could help Google and harm Oracle because the jury might confuse some of the argument and testimony relating to equitable defenses as having a bearing, even if only psychologically, on "fair use."

On another note, The Recorder reports (for subscribers only) that lawyers from Morrison & Foerster and Boies, Schiller & Flexner are still working for Oracle on this matter, but Orrick, Herrington & Sutcliffe, whose appellate team (led by Joshua Rosenkranz) had achieved the reversal of the non-copyrightable ruling as well as favorable guidance on what is or is not fair use, now has the lead. The two most recent filings by Oracle had been signed by Orrick's Annette Hurst, a top-notch copyright expert. The Recorder also says she has a key role but mentions (in the first place) Peter Bicks, a commercial litigation attorney who has apparently had spectacular successes at jury trials in many different parts of the United States. Based on Mr. Bicks's background I now venture to guess that he will probably be the lead trial counsel.

Here's the case management order:

15-07-31 Oracle v. Google Case Management and Mediation Order by Florian Mueller

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Apple, Samsung lawyers blame each other for failure to settle patent dispute: court filing

On Monday, the Korea Times, citing unnamed sources "directly involved with the matter", reported that "Samsung has recently resumed working-level discussions with Apple and the key issue is how to dismiss all lawsuits". The sources also recognized that "[s]ome more time will be needed to fix terms of details such as royalty payments in return for using patents owned by each before reaching a full agreement". But the goal is apparently to agree on a ceasefire comparable to the truce Apple and Google (Motorola) announced on Friday, which does not shield Google's hardware partners, such as Samsung, from Apple's patent assertions (and does not even shield Google itself from the Rockstar lawsuits).

Later on Monday, a joint court filing by Apple and Samsung informed Judge Lucy Koh of the status of the parties' Alternative Dispute Resolution (ADR, i.e., mediation) efforts. After the recent verdict, Judge Koh had asked the parties to make another attempt to settle their patent spat and requested information on the status of those efforts.

It's key to bear in mind that the parties' court filing, including the attached correspondence between counsel that was apparently written for no other purpose than the blame game that is now taking place in front of the judge, relates only to ADR with the help of a mediator (which the parties tried before, more than once in fact). This is separate from the working-level discussions the Korea Times reported on. Working-level discussions can take place anytime, but the parties wouldn't tell the judge about those informal talks. Judge Koh wants them to make another formal mediation effort. And so far they can't agree on that one. But they are probably talking nonetheless, just not in a formal ADR setting. They can settle without ADR.

Apple wants assurances that its participation in an ADR effort wouldn't be held against it in court (as evidence of its willingness to license), while Samsung would be available for ADR "without seeking to impose any comparable conditions upon Apple". Samsung notes that "Apple has repeatedly used its prelitigation meetings with Samsung during trial to support its arguments".

Samsung's letter exudes confidence. In response to claims by Apple that Samsung "has now lost three jury trials and an ITC proceeding", Samsung's counsel highlights that Apple has also been found to infringe a Samsung patent, that "each verdict was far less than the amounts sought by Apple", and sums it all up by saying that "Apple has nothing to show for its years of litigation and hundreds of millions of dollars spent on attorneys' fees" -- which is true if you consider that the only feature (that end users would recognize and define as a feature) Apple has proved to own is rubberbanding.

Apple points to statements by Samsung's lead counsel in the recent trial, John Quinn, to the media. I quoted some of those statements in a recent post in which I outlined three possible ways forward for Apple ("the good, the bad and the ugly"). I'm sure Apple is genuinely outraged because Mr. Quinn brought up a painful subject: remedies. Apple hasn't been able to enforce any remedies against Samsung yet in connection with the trials that have been held in the U.S., and while Samsung exaggerates when it claims that Apple will get nothing at all in the end, I think it is realistic to expect significant reductions of those damages awards on appeal (and the award from the first case probably won't be able to stand because yet another trial will be needed if any key liability finding falls, which the one over the '915 pinch-to-zoom API patent very probably will). I do, however, agree with Apple that the "jihadist" statement was over the top.

Apple's part of the joint submission repeats the usual allegation of Samsung being unrepentant infringers, interpreting Mr. Quinn's statements to the media as an indication that "Samsung has no interest in stopping its use of Apple's patents or compensating Apple for past infringement" and alleging that "Samsung has adopted a business model that prohibits early or even timely resolution of any dispute involving intellectual property infringement".

I have said before that Apple is entitled to compensation for past design patent infringement. But as far as Apple's utility (i.e., technical) patents are concerned, it's increasingly unlikely that Samsung will ever pay any noteworthy amount of money for those. Further above I quoted Apple's statement that Samsung had "lost [...] an ITC proceeding". That is true only in formal terms, but from a business point of view, Samsung won the ITC case over Apple's complaint because the ITC cleared Samsung's workarounds. The import ban has been in force since October without any business impact (most people just don't know because there was lots of media coverage when the ruling came down, but no follow-up on the fact that end users don't even notice any change as a result of Samsung's ITC-approved workaround). If even the so-called "Steve Jobs patent" doesn't have impact, isn't it about time that Apple looked for an exit strategy from a war it apparently can't win?

For a long time I believed that Apple's primary problem was that the process (including appeals) is slow. Until August or September of last year, there were reasons to believe that Apple would get some decisive leverage. An appellate hearing on injunctive relief appeared to have gone well for Apple, the U.S. import ban had been ordered (and its impactlessness wasn't clear until it took effect in a legal sense but had no commercial effect), a German court appeared inclined to support Apple's "copying" allegation. But none of that worked out for Apple later. And while the patents Apple is asserting in the case that went to trial this year appeared stronger than the ones at issue in the first case, the patent claims Apple ultimately took to trial weren't frightening: Apple did not even claim to practice three of those five claims in its current products, which shows that one can deliver certain features without infringing on those patent claims. Apple's out-of-this-world damages claim in the second trial was a sign of despair more than anything else.

I still believe, as I told the Korea Times on Monday, that an Apple-Samsung settlement is now more likely than ever, and I would be surprised if this pointless litigation continued beyond the summer. "Boy have we patented it" was probably the biggest error, by far and away, of Steve Jobs's second tenure as CEO of Apple. If his successor hadn't realized it, he wouldn't have agreed on a ceasefire with Google.

Here's the joint Apple-Samsung court filing on ADR:

14-05-19 Apple-Samsung Joint Submission on ADR by Florian Mueller

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Apple, Samsung confirm failure of settlement effort in early February but keep talking

In January, Apple and Samsung informed Judge Lucy Koh, the federal district judge presiding over two patent infringement cases between them in the Northern District of California, that they were going to have settlement talks, with the help of a mutually agreed-upon mediator and involving both companies' CEOs, no later than on February 19. The proposal was made because the court urged the parties to explore a settlement ahead of their next trial scheduled to begin on March 31 in San Jose.

Media reports from Korea recently indicated that the CEOs, accompanied by senior in-house counsel, had indeed held a meeting, but that an agreement was not reached. Late on Friday by California time, a joint report by Apple and Samsung's counsel to Judge Koh confirms that "[t]he parties [with their delegations headed by Apple CEO Tim Cook and Samsung CEO IT and Mobile Communications JK Shin] attended a full-day negotiation session with the mediator during the first week in February" and that they "did not reach an agreement at that session". But the report also confirms that the lines of communication haven't broken down: "Since that session, one or more of the foregoing party representatives has spoken with the mediator numerous times in order to progress the settlement efforts. For example, Apple representatives held telephonic conference calls with the mediator more than six times after the mediation. Samsung representatives held telephonic conference calls and other communications with the mediator more than four times after the mediation."

Apple and Samsung "remain willing to work through the mediator jointly selected by the parties". But it appears to me that they need more guidance from courts, in the U.S. and elsewhere, before this global dispute can end in a cross-license agreement involving the "anti-cloning" provision Apple apparently and understandably insists on. Guidance will have to come from the U.S. but probably needs to come from more than one country. For example, there should be a ruling in the foreseeable future on the parties' Australian litigation. Apple's offensive claims went to trial last year; Samsung's FRAND-related claims will be tried soon.

Here's Apple and Samsung's joint filing:

14-02-21 Apple-Samsung Joint Report Re. Status of Settlement Discussions by Florian Mueller

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CEO-level Apple-Samsung settlement discussions to take place within six weeks

In September 2011, Oracle CEO Larry Ellison and Google CEO Larry Page met for court-ordered "mediation" talks. While I don't doubt the good intentions of the CEOs and other participants in those meetings, it's a fact that more than 27 months later, their Android-Java copyright dispute is still ongoing. The trial court erroneously sided with Google in 2012, but it's pretty clear now that the United States Court of Appeals for the Federal Circuit will reverse and remand.

In Apple v. Samsung, the same court -- the United States District Court for the Northern District of California -- didn't formally order the parties to show up for talks, but that's because the presiding judge in this case, Judge Lucy Koh, doesn't have Judge William Alsup's heavy-handed case management style. But based on what I read in her orders (just this week she referenced the court's efforts to bring the parties to the table) and in journalists' hearing reports, she created a situation in which both parties had to be constructive so as not to alienate her. In the Oracle-Google case, not showing up for those talks would have been an act of contempt of court; in Apple-Samsung, it would have been the same thing just without formal sanctions. And no one wants to alienate the presiding judge, much less when another trial is scheduled to begin on March 31. So Apple and Samsung will hold meetings in front of a mediator they agreed upon, and the parties' delegations will be headed by their CEOs and additionally consist of three or four in-house counsel per party (no outside counsel).

The hard and soft powers of a court have one important limit, however: while courts can order or urge parties (including their CEOs) to participate in such talks, they cannot force them to settle on any particular set of terms. If companies can agree on mutually acceptable terms, they can and will do so without pressure from a court. And the CEOs of these companies meet and talk all the time anyway. That doesn't mean to say that no settlement meeting between them would ever be fruitful: at some point even this dispute will without a doubt be settled. It's just that bringing them to the table is the easy part. In international diplomacy it certainly means something if high-level politicians from countries that don't talk directly, or not at a high level, agree to meet. President Barack Obama's handshake with Cuba's President Raul Castro at the Nelson Mandela memorial service, no matter how accidental, was unusual and could mean something. Apple and Samsung have business relationships in many areas and share some strategic interests even in the fields in which they compete. Getting them to shake hands and sit down means nothing per se. (But again, at some point they will agree.)

It's obvious that the court would like to avoid the effort of another major trial. These parties just had a limited damages retrial late last year. It would be the third Apple-Samsung trial in less than two years. While smaller companies would probably be very interested in avoiding the cost of another trial, legal fees are not a strategic issue in this case. Even publicity doesn't matter because Samsung has had to face allegations of "copying" before and is nevertheless doing extremely well. The parties' analysis will be centered around an impact assessment of what the outcome of that second trial (including post-trial injunction motions) could be.

After the recent Federal Circuit ruling in Apple's favor, Apple's access to injunctive relief is way better than it appeared after the original denial of its injunction request following the first Samsung trial. Still there is a "causal nexus" requirement to meet, and even in a dispute between these companies, injunctions won't automatically follow from infringement findings in the U.S. the way they do in Germany. I guess Samsung and its lawyers are going to look at the patents Apple is asserting at the upcoming trial. Those are potentially more impactful than the design and user interface stuff asserted at the 2012 trial (where I believe Apple was more interested in winning something than in dealing a decisive blow to Samsung at that stage). But if Samsung's engineers and lawyers have a viable workaround strategy in place just in the event that Apple prevails and obtains an injunction, then Samsung has only a limited incentive to settle. I don't know what Samsung's workaround plans are (some workarounds may, in fact, already have been implemented), and even if I knew those plans, I still wouldn't know how strongly Samsung believes in their viability in legal and commercial terms. This is the most important question relevant to the prospects of a pre-trial settlement.

A few years ago, companies of this profile generally settled their disputes out of court ahead of a trial. There was much more fear that the impact of a lost patent trial (and post-trial injunctions) could be devastating. By now many industry players -- even including late entrants such as HTC, which has evolved into an experienced and sophisticated litigant -- are much less scared by a patent infringement suit than they used to be. They know that most patents in this industry are actually invalid as granted, and the patent claims that are ultimately found valid are generally much less powerful while the broader ones rarely survive. In most disputes it still makes sense for parties to agree on licensing -- but more and more companies choose litigation over licensing until the latter is really cheap (and "cheap" is not just a question of money in a dispute like Apple-Samsung but very much a question of non-monetary terms such as "anti-cloning" provisions).

If they don't settle and have to hold a second trial, then my prediction of the most likely outcome is that Apple will again win something, Samsung will again lose something, but the real impact will only be clear after an injunction issues and the viability of Samsung's workarounds is addressed in one or more contempt proceedings. In other words, it may take time to find out to what extent Apple has the upper hand.

Here's the notice Apple and Samsung's counsel filed with the court to announce this pre-trial mediation effort:

14-01-08 Apple-Samsung Proposal Re Pre-March 2014 Settlement Discussions by Florian Mueller

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Judge Koh will hold hearing on Apple's renewed injunction bid against Samsung on January 30

Last week Samsung requested an extension of time for its answer to Apple's post-appeal renewed motion for a permanent injunction and permission to conduct discovery relating to more recent settlement talks between the parties. Apple opposed this, and Judge Lucy Koh, the federal judge presiding over two Apple v. Samsung cases in the Northern District of California, issued an order late on Tuesday by local time that confirms the injunction hearing will be held on January 30, the date proposed by Apple, and Samsung won't get to depose an Apple witnesses on settlement talks:

14-01-07 Order on Apple v. Samsung Permanent Injunction Briefing by Florian Mueller

For an asessment of the potential impact of the injunction sought by Apple, please check out my related post.

I felt that Samsung's discovery request wasn't unreasonable. While settlement talks enjoy some degree of protection under Federal Rule of Evidence 408, previous negotiations between the parties have also been considered by the court in this litigation. Samsung had pointed Judge Koh to the Federal Circuit's reference to differences between licenses Apple extended to other parties in the past and the "current situation". Judge Koh appears to think that Samsung overstated what the Federal Circuit said:

"Although the above-quoted passage makes clear that the Federal Circuit expects this Court on remand to analyze whether the circumstances surrounding Apple's prior licenses or offers to license shed light on whether legal relief would adequately compensate Apple for Samsung's infringement of the patents-in-suit, the Circuit's opinion simply does not address the propriety of allowing additional discovery into ongoing, Court-encouraged settlement discussions between the parties."

The above is correct: the appellate opinion did not say what kind of discovery would have to be conducted on remand. Neither did the appeals court remand the case with an instruction to immediately enter a permament injunction. Basically, the Federal Circuit felt that Judge Koh's analysis of Apple's entitlement to an injunction had prematurely arrived at a negative conclusion, and it wants the district court to pick up the thread where it left off last time -- back in 2012, that is. That's why I didn't think it was necessarily unreasonable for Samsung to request additional discovery, but the following passage in Judge Koh's order suggests that Apple hasn't made any licensing offers to Samsung of the kind that really could be outcome-determinative in the injunction context:

"More generally, Samsung has failed to establish that its need for discovery of Apple's licensing discussions with Samsung justifies further delay in resolving Apple's request for permanent injunctive relief. Samsung, as a party to its settlement discussions with Apple, surely is already aware of any 'key' concessions Apple made to Samsung during those discussions. Nothing in the record, including Samsung's motion, suggests that further discovery would be fruitful."

If Samsung's lawyers weren't able to convince the court of Apple having made major concessions over the course of the last year, then I guess Apple's position hasn't really changed that much. And if that is so, then a deposition of an Apple witness probably wouldn't bring to light, or shed light on, any facts that have a bearing on Apple's entitlement to injunctive relief.

Samsung now has to file its opposition to Apple's renewed motion for an injunction on Thursday (January 9). Apple may reply within a week. The hearing will go forward on January 30. A hearing had previously been scheduled for that day to discuss the parties' post-trial motions following the recent retrial. The question of injunctive relief will be another -- and strategically even more important -- item on the agenda for that hearing.

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LG agrees to pay Vertical Computer Systems for another Android patent license

Not all patent license deals are announced, but before today, 21 royalty-bearing Android patent license agreements (20 agreements between Microsoft and Android device makers as well as the Apple-HTC license) had become publicly known. The 22nd deal was announced today in the form of a mediation report in connection with a case pending in the Eastern District of Texas (where Apple yesterday won a jury trial over an infringement allegation by Wi-LAN).

Here's the deal: LG Electronics settled a case brought by Vertical Computer Systems in November 2010. The terms weren't disclosed, but it's a very safe assumption that Vertical did not let LG off the hook without money changing hands. Here's the official mediation report (this post continues below the document):

13-10-24 Vertical Computer Systems - LG Settlement by Florian Mueller

Vertical sued Samsung (with which its negotiations are at an "impasse" according to another mediatin report) and LG over two patents covering a "system and method for generating websites in an arbitrary object framework". This is obviously a software patent family, and the infringement allegations were about Android. It appears that claim construction went fairly well for Vertical (but I haven't analyzed this in detail because I focus on litigation between large operating companies).

A trial was scheduled for early May 2014. If Samsung doesn't settle in the meantime, then that trial will go forward in little more than six months.

Unless things change during the course of further litigation including appeals, Vertical may have quite some growth opportunity in Android patent licensing.

As I explained when I first reported on this case, Vertical is not a troll. Patent licensing is of increasing importance to its business, though. Yesterday Vertical announced the impending issuance of another patent, U.S. Patent No. 8,578,266 on a "Method and System for Providing a Framework for Processing Markup Language Documents".

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For disparate reasons, Apple and Qualcomm raise concerns about arbitration of FRAND terms

This is my third post in a row on the two dozen submissions the competition enforcers at the Federal Trade Commission received in connection with the proposed Google and Motorola Mobility decision and consent order. I previously reported on Apple and Microsoft's criticism of Google's conduct and Qualcomm's thinly-veiled threat to duke it out in court with the FTC should its own pursuit of injuntions based on standard-essential patents (SEPs) come under antitrust scrutiny. What I don't want to spend time on is a bunch of filings that just reiterate the usual pro-injunction talking points previously filed with the ITC (for example, BlackBerry's submission consist almost entirely of copies of two letters to the ITC). I'm primarily interested in submissions that make new arguments or raise new issues.

Under the envisioned FTC-Google consent decree one of the things an implementer of a FRAND standard can do to fend off injunction requests is to trigger binding arbitration of the royalty rate and other relevant terms of a SEP license agreement. Even though the FTC held Google (Motorola Mobility) to have acted anticompetitively, the proposed consent decree imposes requirements on the conduct of innocent implementers unless they opt out of the potential benefits of the antitrust deal. They must do something, and initiating arbitration is one option, the other being a FRAND determination action in federal court.

Many people associate with the word "arbitration" something far more peaceful and helpful than it actually is. Arbitration isn't superior over litigation in all respects -- it has its specific advantages and drawbacks. Even if parties "agree" to arbitrate, it's merely a procedural agreement, irrespectively of which they could still be light years apart on the substance of a dispute. A few months ago, Apple and Google discussed the possibility of having their FRAND dispute resolved through arbitration, and this led some commentators to believe that a settlement was near. There are probably many thousands of lawsuits pending right now in federal and state courts in which no one is even contemplating arbitration, yet many of the parties to those disputes are considerably closer to a settlement than Apple and Google were last year when they explored this possibility. If judges (or regulators) encourage arbitration, they often do so simply because it disposes of cases they otherwise have to rule on. This doesn't make arbitration a panacea.

It's interesting to see that Apple and Qualcomm, while standing on opposite sides of the FRAND debate, are both somewhat uncomfortable and fear that arbitration could result in non-FRAND terms. They both own SEPs and need SEP licenses from others, but Apple is clearly focused on building products that add tremendous value on top of industry standards while Qualcomm derives a large part of its revenue from SEP licensing and depends on SEPs in its product business. Therefore, Apple is more concerned about arbitration resulting in royalties and other terms that are too onerous on licensees, while Qualcomm is worried about ways in which willing licensees might game the system and benefit exceedingly from the arbitration option the FTC envisions. It's no secret that I'm much closer to Apple's positions on FRAND than Qualcomm's, but both companies express concerns about arbitration that are worth thinking about.

The path to a FRAND determination is very important -- more than important enough to talk about it, and starting with the next paragraph I will summarize the concerns raised by Apple and Qualcomm. But in the greater scheme of things the parameters of arbitration are not the most important issue relating to the FTC-Google deal. The circumstances under which injunctive relief is available are the most important part of this. An injunction can cause more consumer harm than unfairly high or low royalties -- and an injunction, or sometimes just a credible threat of one, provides a SEP holder with the leverage to become "the dictator of the royalties", which is more than he'll ever be in any reasonably-conducted arbitration. In terms of priorities, I continue to believe that the "defensive use" exception, a recipe for mayhem, should be the first and foremost issue for the FTC to reconsider, especially in light of what's happening between Ericsson and Samsung on the one hand and between HTC and Nokia on the other hand. Microsoft's submission focuses on this concern, while other filings place the emphasis on corporate interests that are not closely related to consumer interests. That said, if arbitration results in unfair terms, that's also a bad thing for consumers, though not as directly as a sales or import ban.

Qualcomm would be much less worried about the FTC-Google settlement if the Commission did not suggest that the process outlined in the consent order should serve as a generally applicable model. Qualcomm's concern is that others are going to follow that process in their dealings with it. It concedes that implementers of standards can raise FRAND defenses, but it wants to be able to pursue an injunction from the start rather than having to go through a FRAND determination process first. It wants leverage. It wants to be the dictator of the royalties rather than have others set royalty rates and other contract terms. And it doesn't want defendants to delay the conclusion of a license agreement.

Section IV of Qualcomm's submission (starting on page 14) addresses "arbitration vs. litigation". Once again, Qualcomm opposes the "general applicability" of the FTC-Google settlement, and it expresses fears that "foreign regulators" might also look at this as a template or guideline. The regulatory agency Qualcomm is presumably thinking of in the first place is the European Commission's Directorate-General for Competition (DG COMP).

Qualcomm notes that "a FRAND licensing commitment to ETSI (or to other SSOs relevant to the cellular industry) does not contain any agreement to arbitrate future disputes, or any waiver of the fundamental and statutory right of recourse to courts of law". In Qualcomm's opinion, "an arbitration requirement should not be made a routine component of [antitrust] remedies". And these are Qualcomm's specific concerns about arbitration:

1. Qualcomm says that arbitration "tends to result in 'split the baby' outcomes in an effort to find the middle ground, rather than make sharper decisions clearly favoring the position of one side over the other, even if that may be the right result". I agree. I believe Apple is also concerned that, for example, an unjustifiable 2.25% royalty demand by Google countered with a FRAND rate that is only a fraction of that amount could lead an arbitration tribunal to arrive at a royalty in the 1% range. A middle ground it would be, but not a FRAND rate. Qualcomm would probably go into arbitration with a demand that is far more realistic, relative to the strength of its portfolio, than what Google's Motorola has asked for -- and Qualcomm would not want to see a reasonable demand cut in half by the arbitrators. Qualcomm warns that "if arbitration looms over a negotiation, then both parties have a perverse incentive to exaggerate their demands, to increase the gap, in the hopes that by asking for a high-ball (or low-ball) result, the final 'middle ground' ruling from the arbitrator will be at an attractive point". In principle, I agree with Qualcomm, except that I believe that in most cases this will benefit SEP holders. Qualcomm is a special case because it really owns a huge SEP portfolio. It simply can't exaggerate the way that companies with far weaker SEP portfolios, such as Google or Samsung, have done in some ongoing litigations. If Qualcomm wanted to exaggerate by the same factors as Samsung and Motorola, it would have to ask for double-digit, if not triple-digit percentages. For example, a 20% demand by Qualcomm would be much more easily identified as unrealistic than Samsung's 2.4% or Motorola's 2.25% positions, even though a 20% royalty for Qualcomm would be less of a relative exaggeration than Motorola's 2.25%.

   While Qualcomm is right that arbitration has a proclivity for a "middle ground", this is also a problem, even if not to the same extent on average, in litigation. I recently heard Judge Voss of the Mannheim Regional Court mention that in his experience court-appointed damages experts in Germany almost always arrive at figures in the 2% to 5% range -- which is also way too high in most cases given the huge number of patents that need to be licensed to build a wireless device.

2. Qualcomm furthermore dislikes the notion of cherrypicking of FRAND terms by implementers. The proposed FTC consent decree is designed to limit the scope of arbitration or litigation. Therefore, willing licensees can request arbitration or court determination with respect to only those terms the parties can't agree on. Qualcomm recognizes that this is "a well meant attempt to narrow issues in dispute", but believes it's better to assess the reasonableness of a license agreement as a whole than to create an incentive for implementers to play the following kind of game:

   "Picture, for example, a licensing negotiation in which the prospective licensee has indicated that it would be willing to bear unusual risk in the form of a large, one-time, up-front payment if by doing so it could enjoy a lower running royalty rate. Responding in good faith, the SEP-holder makes a good faith offer including the requested low running royalty rate and a large, one-time, up-front fee. Under the process laid out in the [proposed FTC-Google decision and consent order], upon receipt of a licensing offer from the SEP-holder, the licensee could seek arbitration of the up-front fee alone, thereby locking in the running royalty rate, as well as any or all of the other terms of the agreement--the very terms through which compromises are often reached in a private negotiation. The result is that arbitration would become a tool that infringers could use to seek better terms, without any risk of having to compromise on other terms."

   I consider the above a valid point, though I disagree with what Qualcomm subsequently goes on to say: Qualcomm raises these concerns to argue that the best framework is designed to "get to yes" as quickly as possible, and Qualcomm wants this to happen with the threat of an injunction hanging above an implementer's head. And once again I think that Qualcomm's concern cuts both ways. Pre-arbitration (or pre-litigation) posturing by SEP holders is at least as much of a possibility as pre-arbitration posturing by willing licensees, even though licensees have the unilateral option to initiate arbitration.

3. Qualcomm's third point in this context is one I don't consider valid in the slightest. Qualcomm basically says that implementers of standards could get the best possible result for their purposes from arbitration and still improve the deal terms by subsequently asserting non-SEPs (which are typically not subject to such rules) against the SEP holder (unless the SEP holder is a non-practicing entity, of course), and then get terms for a "whole-portfolio license" (relating to the parties' SEPs as well as non-SEPs) that result in a reduction of the royalties paid for the SEPs involved.

   While the outcome that Qualcomm describes can of course correspond to what happens in certain cases, I don't see why this would be relevant from an antitrust point of view as long as there is no abuse of non-SEPs. The objective here, in the FTC-Google and wider SEP context, is to ensure that SEPs aren't leveraged anticompetitively to force companies to give away their non-SEPs or license them at rates that are too low. That's because SEPs always raise antitrust issues and come with a FRAND licensing obligation, while non-SEPs don't. Non-SEPs can be worked around, while SEPs cannot. If a SEP holder believes that a cross-licensing counterpart is demanding too much for its non-SEPs (such as a massive reduction of SEP royalties), the solution is to walk out on the deal and work around the non-SEPs involved. Qualcomm implies that SEP holders are generally entitled to whole-portfolio cross-licenses. But they are not. Patents are a property right, but SEPs come with particular obligations, for good reasons.

   From an innovation policy point of view it's absolutely correct and desirable to distinguish between encumbered patents (SEPs and a few others) and unencumbered ones. Anybody can get leverage from SEPs by simply sitting at the standard-setting table and doing a deal with the other participants. In this context I'd like to point to a very interesting empirical study conducted by three European researchers (Rudi Bekkers, René Bongard and Alessandro Nuvolari) on "the determinants of essential patent claims in compatibility standards". Their key finding is that "the involvement in the standardization process is a stronger determinant than the technical value ('merit') of the patent". I've watched many SEP assertions and I've been consistently underwhelmed by the technological merits of the SEPs-in-suit.

4. I agree with Qualcomm on the next item:

   "Fourth, it is worth noting that arbitration is not an inherently superior dispute-resolution mechanism compared to litigation. Experience teaches that it is not always faster, and not always cheaper. Often, the primary benefit that drives parties to choose arbitration is confidentiality--a benefit that does not appear to be pertinent to the Commission's concerns. The {proposed consent decree] structure, of course, does not mandate arbitration; it merely requires Google to offer binding arbitration. But where arbitration is likely to be the more efficient route and both parties are acting in good faith, SEP owners and implementers will always be free to elect arbitration, so the efficiencies of arbitration, if any, are always within reach."

5. Qualcomm's fifth and final point is that the proposed deal structure, if it becomes a generally applicable model, results in a shift to a "rate-regulation regime". While Qualcomm is right that the parties understand their own businesses better than arbitrators (or judges and court-appointed experts, for that matter), the problem in a growing number of FRAND negotiations is not lack of knowledge and insight but simply that certain SEP holders make prohibitive demands. Arbitration or court determination of FRAND terms are preferable over a might-makes-right regime in which the threat of lethal SEP-based injunctions determines the outcome.

Apple's arbitration-related concerns are perfectly complementary to those raised by Qualcomm:

1. Apple's primary concern is that "Google may try to frustrate the arbitration process, cause it to fail in whole or in part, and then seek injunctions upon the claim that it complied with its duties under the Decision and Order". Apple's submission provides specific examples of how Google could derail arbitration in order to later claim that it was willing to arbitrate, but Apple (or any other party) was not a willing licensee because it rejected some of Google's preconditions for arbitration:

   "Arbitration could fail at the outset because the parties are unable to agree on the terms or scope of arbitration. For example, Google might seek to condition its Offer to Arbitrate in unacceptable ways, e.g., through 'creative' interpretations of 'field of use' in Section I.D.4.a or by limiting the scope (and not just individual terms) of the Relevant Licensing Agreement in Section III. Alternatively, in line with the discussion above, Google may decline to participate in an arbitration where it has the usual burden of proof on the question of infringement or another issue."

   Apple's proposed solution is to "include a process to resolve an impasse and require the arbitration to go forward", and to ensure that Google can't benefit from undermining the arbitration process: it should never be allowed to seek an injunction even if arbitration fails.

   This is Apple's priority in connection with arbitration. It additionally makes some other constructive suggestions, which I'll discuss in the remainder of this post.

2. Apple proposes a "representative set" approach. I previously reported that Apple highlights Samsung and Google's dismal litigation track record with their multijurisdictional SEP assertions. Apple stresses that a SEP holder must prove actual infringement of a valid patent just like any other patent holder. In order to avoid that an arbitration tribunal or court sets a portfolio rate based on an unjustified presumption of essentiality, Apple proposes that a "representative set" of patents from the portfolio in question be chosen and "tested for actual essentiality/infringement, validity, performance benefits of the technology for the accused product, and other issues (e.g., patent exhaustion)". Given that it's not feasible for courts or arbitration tribunals to analyze dozens or hundreds of SEPs in one proceeding, I think Apple's suggestion is a very pragmatic approach. Most declared-essential patents aren't both valid and truly essential, and even truly essential ones aren't infringed if a feature of a standard is optional and not actually implemented. All of these issues must be assessed in order to determine the fair market value of a SEP portfolio.

3. Apple wants licensees to be entitled "to meaningful discovery into the terms of the patent holder's other licenses, among other evidence critical to determining FRAND license terms in both arbitrations and declaratoryjudgment actions under the proposed framework". In the U.S. discovery goes quite far in federal court. Apple presumably wants to ensure that it will be equally productive in arbitration and in foreign jurisdictions.

4. By demanding a "transparent, reasoned decision by arbitrators" (though "transparent" doesn't rule out redactions of confidential business information), Apple proposes an approach that "will create a body of decisions", which is a good thing per se, but which runs counter to a key reason for which parties frequently elect arbitration: privacy. In a passage I quoted further above, Qualcomm says that "[o]ften, the primary benefit that drives parties to choose arbitration is confidentiality".

5. In light of the commercial significance of SEP licensing terms it's absolutely key in Apple's view to have access to a "substantive appellate review". Apple wants to ensure that arbitration rulings will be "subject to judicial review for errors of fact or law". From a rule-of-law point of view this makes sense, but it also makes arbitration less binding. Apple's submission doesn't specify a particular standard of review. What it says sounds like de novo.

6. Apple proposes, for the method of appointment of arbitrators, "that each party picks one arbitrator and the two appointed arbitrators pick a third arbitrator". This is the most common approach, and Apple wants it to be applied consistently.

7. Apple wants there to be competition between arbitration organizations and encourages the FTC to add more organizations to its list of qualified arbitration organizations. But there's always a problem with having courts, or arbitration organizations in this case, compete with each other: it may lead them to favor the interests of those who pick the court. In federal court, it's usually the patent holder who sues and picks a venue. In the FTC-Google consent decree context, implementers of standards would potentially benefit from more competition. The other suggestions that Apple makes are also in the public interest, but this one here, while not completely unreasonable, appears too self-serving.

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