Apple's workaround for German fake injunction--Qualcomm-based variants of iPhone 7 and iPhone 8--exacerbates Qualcomm's antitrust woes

At the end of my shareholder-value-focused analysis of Qualcomm's $1.5 billion deposit for the immediate enforcement of a Germany-wide patent injunction against the iPhone 7 and the iPhone 8, I predicted it was going to be "a Pyrrhic victory." By now it's clear that "Pyrrhic victory" is a euphemism. It's a total disaster for Qualcomm, actually. A waste of money; zero leverage over Apple (which as of today is again selling all iPhone models in Germany without restrictions); zero proof of patent portfolio strength; a significant risk of additional EU antitrust problems because it underpins a complaint by Apple that had already given rise to preliminary investigations by the European Commission's Directorate-General for Competition (DG COMP); and adverse effects on Qualcomm's reputation in U.S. and Asian competition circles.

I wouldn't normally call a formally-enforceable injunction a "fake injunction," especially since I try to disagree respectfully. However, there's an accumulation of reasons for which I can't help but use strong and harsh terminology:

• There was no real infringement finding. Instead, the court ruled on a procedural, but agnostic (as to the actual allegation) basis, presenting Qorvo (the maker of the accused chip) with the choice between suffering the consequences of an injunction or giving up technical secrets in a highly competitive industry segment. Qorvo was more than willing to share those secrets with the court, the court-appointed expert, and counsel for both parties; but Qualcomm's lawyers walked back on a protective order the very same firm (Quinn Emanuel) had negotiated with a view to the presentation of Qorvo's chipset schematics in Munich.

• Even an agnostic ruling could be right, but this one is almost certainly a miscarriage of justice. Both the ITC and the United States District Court for the Southern District of California (Qualcomm's home court) had all the evidence on the table and determined that there is no infringement. The San Diego ruling is particularly meaningful for two reasons (not even counting geographic considerations). One, it was a summary judgment, so Judge Sabraw considered this such an extremely clear case that there was no factual dispute to put before a jury (despite all the deference juries enjoy under the Constitution). Two, the decision was based on precisely the #1 non-infringement argument raised by Apple's lawyers in Munich (absence of an offset current).

• What adds insult to injury is that the envelope-tracker patent in question is likely invalid.

It was unfortunately necessary to repeat all of the above because otherwise one could mistakenly see an admission of "guilt" (in terms of infringement) in the fact that Apple is, as of today, shipping a workaround--now confirmed by media reports based on official statements by Apple and Intel, while last week it was a credible but unconfirmed scoop for WinFuture.de.

This is a workaround for a patent that is almost certainly not infringed anyway, and likely invalid. The whole purpose is to keep selling (or to resume selling the iPhone 7 and iPhone 8 in the German Apple Stores) and to moot any potential enforcement dispute. Earlier this week it became known that Apple has also modified iOS to be unaffected by a potential U.S. import ban despite still having reasonably good chances of avoiding a finding of a violation anyway.

I asked someone at the Apple Store in downtown Munich and was told that they'd have the iPhone 7 and iPhone 8 on sale again in the store by early next week, and that those models can already be ordered again on Apple's German online store. Indeed, my first tweet about this new development included two screenshots from the German Apple online store (this post continues below the tweet):

#iPhone 7 and iPhone 8 available again on #Apple‘s German online store. Using #Qualcomm baseband chips only in those devices to work around $QCOM‘s Munich injunction. Removal of #Intel chips raises #antitrust issues. Complaint with @EU_Competition is pending. pic.twitter.com/d1b8uCOi6B

— Florian Mueller (@FOSSpatents) February 14, 2019

There still is a possibility of the injunction being lifted by the Oberlandesgericht München (Munich Higher Regional Court). I asked the appeals court earlier this week whether they had any news about Apple's motion to stay enforcement. The answer was that the court had just received a convoluted filing (they didn't say from which party) and was studying it.

A stay would help to restore sanity with respect to the defendant's dilemma (give up your secrets or your adversary will be rewarded for obstruction of justice). But availability is no longer an issue, unless Qualcomm were to try to cut off its supply of Qualcomm baseband chipsets to Apple's contract manufacturers: the new variants come with Qualcomm, not Intel, baseband chips.

Intel points out that there's no patent issue relating to its chips--and that's not even because it's a fake injunction. The reason is that no Intel chip was accused of infringement in the first place. It was about a Qorvo envelope tracker. So why would Apple replace Intel's baseband chipset with a Qualcomm product? That's because the envelope tracker is technically tightly integrated with the baseband chip. The envelope tracker plays a key role in efficient power management with respect to the radio frequenty (RF) signal. For a certain range of amplitudes, an amplifier is usually activated (but not for all other amplitudes where it isn't needed). So it's key not to activate the amplifier all the time, but only as needed. However, when the battery is running empty, then it's actually the lesser evil to drain more power from the battery. Since the amplified signal is the RF signal, an envelope tracker isn't just a component for which a drop-in replacement works; it's too closely related to the baseband chip, which generates the RF signal.

This leads us to the antitrust issue I mentioned further above:

• Apple's lawyers had told the courts in Munich and Mannheim (the two German venues where Qualcomm is suing them) about Qualcomm's "grand evil scheme" of trying to force Intel--its only competitor in the relevant segment--out of the market by forcing Apple back into the Qualcomm fold through the enforcement of injunctive relief over patents.

• Apple told the EU Commission the same, and that complaint gave rise to preliminary investigations. In another context, the Commission had already fined Qualcomm, and its efforts to keep/force Intel out of the market were key.

With what has happened now, Apple's warnings against the potential anticompetitive effects of Qualcomm's enforcement of patent injunctions have been validated. Indeed, the only practical alternative that Apple apparently had was to use Qualcomm chips again, which means Intel loses some potential sales. Obviously, the impact on Intel is limited as long as it's just about Germany and even there just about the iPhone 7 and the iPhone 8. But Qualcomm wanted and still wants to make far greater impact with its patent injunctions.

In fact, Qualcomm has continued to escalate the dispute with Apple (which is to some extent about getting leverage over Apple, but the effect of Apple buying Qualcomm chips again would harm Intel and, ultimately, consumers). Some more German Qualcomm v. Apple patent infringement lawsuits will be decided this year:

• The Munich I Regional Court will hold a first hearing over an antenna patent on March 28.

• The Mannheim Regional Court has postponed a ruling date from February 19 (next week's Tuesday) to February 26 (one week later). That patent is likely invalid.

• I've also found out from the Mannheim court that three Qualcomm v. Apple trials have been scheduled for May 28, July 9, and October 8.

The contempt proceedings in Munich are going to be much less interesting now.

So far, Qualcomm has clearly failed to prove the value of its patent portfolio. An agnostic decision by one court that is clearly outweighed by two facts-based non-infringement findings in other venues won't impress anyone. Nor will some Chinese software patent injunctions that have apparently been worked around by way of an iOS upgrade. Qualcomm wants a 3.25% royalty for its standard-essential patents (with the royalty being the device price, but capped at $400), and another 1.75% (thus a total of 5.0%) if its non-SEPs are included. The royalty demand for its cellular SEPs will be history once it's determined (in FTC v. Qualcomm) that Qualcomm actually must license (in general, and not only based on two specific FRAND declarations, which has already been decided) its cellular SEPs to rival chipset makers. In that case, even device makers with their own chip divisions could seek chipset-level licenses, and it would be hard for Qualcomm to get more than a $1 per-unit royalty or so on a $10 component. And as for Qualcomm's non-SEPs, all those enforcement efforts against Apple have made noise, but have failed to deliver a proof of concept. 1.75%, capped at $7 per unit, is a lot for a patent royalty--in fact, it even makes a host of workarounds the smarter choice.

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Apple has already defeated Qualcomm's first ITC complaint with a workaround in iOS 12.1 and later, blessed by Qualcomm's CTO

Qualcomm's patent enforcement campaign against Apple, which started in the spring of 2017, has produced some headlines but no real results. What Qualcomm wanted was to gain leverage over Apple well in advance of the Apple & contract manufacturers v. Qualcomm trial that will take place in San Diego in April. Qualcomm furthermore wanted to demonstrate the strength of its patent portfolio to the industry at large. But it has failed to achieve the former (practically zero leverage over Apple), and with respect to the latter, the very opposite is the case: the longer Qualcomm keeps litigating against Apple without real results, the less its royalty demands for non-standard-essential patents (a premium of 1.75% as Qualcomm charges 5% for its entire portfolio vs. 3.25% for only its standard-essential patents) will be accepted by the rest of the industry going forward.

On Friday, Dr. Ron Katznelson, a former Professor of Electrical Engineering at the University of California in Qualcomm's home town of San Diego, told the United States International Trade Commission (USITC, or just ITC) in a public-interest statement that there are dozens of alternative technologies to the asserted claim 31 of U.S. Patent No. 9,535,490 on "power[-]saving techniques in computing devices." That's the one Qualcomm patent an Administrative Law Judge (ALJ) deemed Apple to infringe, though the ALJ recommended (for public-interest considerations) that no import ban be ordered.

Dr. Katznelson was right. Qualcomm's sole remaining patent-in-suit in the investigation of its first ITC complaint against Apple is apparently as useful as having a fence on only one side of a property: anybody can just walk around it.

Today I downloaded the public redacted version of Apple's brief on review and remedy. It's Apple's response to the ITC's nine technical questions (any one of the first eight of which could be answered in a way that would singlehandedly overturn the finding of a violation) as well as the U.S. trade agency's five public-interest questions. In the middle of that document, Apple tells the ITC that it has already implemented a workaround for the '490 patent in all iOS versions since iOS 12.1 (this post continues below the document with further information on Apple's workaround):

19-02-08 Apple Brief on Rev... by on Scribd

The relevant passage starts on page 29 based on the page numbering at the bottom of each page, or page 35 based on the page numbering of the PDF viewer. Amazingly, Qualcomm's Chief Technology Officer Dr. James Thompson himself had blessed that workaround beforehand:

"Qualcomm's presentation at the hearing crystallized its theories regarding the scope and coverage of claim 31 of the ’490 patent. Against that backdrop, Apple recently changed its software (i.e., iOS) to remove the functionality that Qualcomm has accused of infringing claim 31, by implementing a design change that Qualcomm's own witnesses conceded would fall outside the scope of the patent. Thus, although Apple's Accused '490 Products with Intel baseband chipsets and the previous software do not infringe, products implementing the software change (included in iOS versions 12.1 and later) leave no doubt on that score."

"[...] [L]ate in the hearing and in post-hearing briefing, Qualcomm and its Chief Technology Officer James Thompson began suggesting that design-around options were readily available, including specifically for the '490 patent. With regard to claim 31 of the '490 patent, Qualcomm argued that removing the accused functionality would be 'relatively simple' [...] and that Apple and Intel could avoid any infringement of claim 31 by 'simply remov[ing]' the accused uplink (UL) / downlink (DL) synchronization feature in response to an exclusion order."

"[...] This fall, after the close of the hearing record, Apple implemented a new software-based design for its Accused '490 Products that removed the accused UL/DL synchronization feature that Qualcomm emphasized could be 'simply remove[d]' to avoid infringement of the '490 patent. To be clear, the pre-change versions also do not infringe the '490 patent, and thus there is no legal need to 'design around' it. But to moot any possible allegation of infringement from Qualcomm, Apple changed its products to do precisely what Qualcomm’s own witnesses testified would not infringe the '490 patent."

Apple asks the ITC for six months just so there's enough time for an official determination of non-infringement in all iOS versions since 12.1. Otherwise there would be a risk of customs officers mistakenly seizing non-infringing iPhones at the border.

There's no way that Qualcomm could credibly dispute Apple's workaround theory: Qualcomm's own CTO blessed this approach beforehand. Now it's too late. No government agency or judge is going to be persuaded by an after-the-fact about-face on Qualcomm's part. The workaround is in place, so even if Qualcomm obtained an import ban, it would be absolutely ineffectual.

In order to gain leverage, Qualcomm needs to prevail on a patent (by proving infringement while preventing Apple and Intel from proving invalidity) that is not exhausted, not licensed, and can't be easily worked around. Qualcomm has been unable to do so. There's every reason to believe Apple has worked around two Qualcomm software patents asserted in China; there are credible reports that a German workaround (for a Munich injunction that is most likely a fake injunction, a miscarriage of justice) is going to ship in a few weeks; and now it's official that Qualcomm's first ITC complaint against Apple has been a total waste of time and money. (Qualcomm's second ITC complaint is in even worse shape, by the way--the ITC staff identified no violation whatsoever.)

When Qualcomm brought that first ITC complaint in the spring of 2017, it published an infographic designed to stress the "vital" importance of the claimed "inventions" protected by the six Qualcomm patents-in-suit. But this is what's left of it--nothing (click on the image to enlarge; this post continues below the image):

Qualcomm dropped three of the six patents before the evidentiary hearing (the ITC equivalent of a trial). That's actually quite normal: the ITC expects complainants to narrow their case. But the idea is that complainants focus on strong patents, and the three that Qualcomm chose to continue to assert were anything but strong. The ALJ held that two of them weren't infringed, and the Commission (the six-member decision-making body at the top of the ITC) affirmed those findings by denying a Qualcomm petition for a review. Instead, the Commission granted Apple's petition for a review of the finding of a violation of the '490 patent. But even if the final ruling upheld the ALJ's finding of a violation, and if the Commission then ordered an import ban against ALJ Pender's recommendation, Qualcomm would still have lost the case for all practical intents and purposes. An import ban against products Apple isn't even importing anymore before the final ruling comes down is worthless.

Qualcomm is represented against Apple by some of the very best law firms, and one might expect Qualcomm and its lawyers to be able to find some really strong patents among the roughly 100,000 non-standard-essential patents in that portfolio of 130,000 patents. But after almost two years of infringement litigation, leverage is not in sight for Qualcomm.

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Workarounds: When will the first mass media report on Apple v. Samsung II discuss the real issue?

The jury began its deliberations yesterday, and since it has not handed down a verdict on the same day, there is hope that it may be more thoughtful (or, at least, less thoughtless) than the 2012 jury.

Several reporters who watched the Apple v. Samsung II trial in San Jose, California provided excellent Twitter coverage right out of the courtroom under the #appsung hashtag (the #icourt hashtag, which was more popular during the 2012 trial, has become displaced). I want to thank them for their tweets, also on behalf of those of my Twitter followers who appreciated the #appsung tweets I retweeted. Real-time coverage was great, and asynchronous web reports also provided a really good account of what was said inside the courtroom, but -- with the greatest respect -- the articles on the trial that I saw could have done more to connect the dots between the courtroom action and some other important stuff that was, for various reasons including legal restrictions, not discussed in court, yet could have been easily identified by reporters.

I'll start with a simple example before I address a more fundamental issue. If you run a Google News search now for the combination of the keywords "Apple", "Samsung", and "reexamination", you will not find any article that discusses the reexamination history of two of Apple's five patents-in-suit (the '647 "quick links" and '172 "autocomplete" patents). Reexaminations by the United States Patent and Trademark Office do, however, result in plenty of publicly-accessible documents, and since I reported on those issues here on this blog, one didn't have to go the USPTO's Public Pair (Patent Application Information Retrieval) web portal to find out about this. In case of the '647 patent, it's less of an issue because Apple's ongoing appeal relates to other claims than the one asserted in California. But in the case of the '172 patent, it's absolutely essential information that the USPTO itself now has doubts about the validity of (among many others) the claim of this patent that Apple is asserting.

The jury was not told of the fact that the USPTO recognizes the existence of a substantial new question for the patentability of the asserted '172 claim because this is not a final decision, so this is considered evidence that would cause too much prejudice to Apple's case because the jury might not understand that this is not a final invalidity ruling. However, no such restrictions apply to the media covering the trial. Judge Koh found, on summary judgment, that this patent had been infringed. This means invalidity is Samsung's sole remaining defense. The general public, regardless of questionable rules that require a court to withhold key facts from a jury, has the right to know.

The most important objective, besides reciting what is said by whom inside the courtroom, should be to help the outside world understand what the case is really about, and what practical implications for companies and consumers its outcome may have. There is often a discrepancy between the two, and there is precedent for this in connection with the Apple-Samsung dispute:

When Apple obtained from the ITC (a U.S. government agency with quasijudicial competencies) a U.S. import ban against Samsung over the '949 "Steve Jobs patent" and a hardware patent in August 2013, numerous media reported. But few gave attention to the fact that the ITC had simultaneously cleared various designarounds (workarounds) presented by Samsung: noninfringing alternatives. The worst part here is -- a dramatic #fail in Twitter lingo -- that to the best of my knowledge there was never any mass media report that looked at the actual, practical effects of the import ban, which would have been possible for more than six months (!) now as it entered into effect in early October 2013.

The fact of the matter is that Apple's widely-reported U.S. import ban has had absolutely no business implications. No consumer has noticed any change. No product has disappeared from the marketplace as a result of the ruling ahead of the end of its natural lifecycle. No sales that Samsung could otherwise have made in the U.S. were lost.

It would have been difficult to predict this outcome with certainty when the ruling came down. The ITC's clearance of Samsung's workarounds was not very detailed (because Apple didn't bring specific infringement allegations against the workarounds but merely wanted the ITC to turn a blind eye to them at that procedural stage). But after the import ban entered into force in early October 2013, any effects would have had to become identifiable -- at the latest, whenever Samsung launched new products (ITC import bans are not limited to the products accused in an investigation).

It should have given a lot more people pause -- and was not the only reason but the most important reason for which I realized during the first quarter of this year that I had overestimated the leverage Apple could ever get out of its patent infringement suits against Android devices -- that even the formal enforcement of the patent Apple's own lawyers in the "Posner case" wanted to call the "Jobs patent" had no impact. None whatsoever.

History could now repeat itself in connection with the Apple v. Samsung II trial. What the parties' lawyers were allowed to discuss with the jury in the courtroom this month was only a subset of the real issues. Whatever the jury decides will be only a milestone but not the end of the proceedings.

The 2012 verdict has not had any business impact yet either: no money has changed hands yet (pending an appeal), and no injunction was granted, and if one had been ordered and had entered into force, then we would all have had to look at how good Samsung's workarounds were. For rubberbanding, the workaround was basically a "throwout", but this feature alone (the only one of which Apple has so far established its ownership in court) won't result in a global settlement. For the tap-to-zoom-and-navigate feature, the workaround is simply to leave out the "and navigate" part, which doesn't really matter. For the '915 pinch-to-zoom API patent, I had doubts about Samsung's alleged workaround, but this will probably never be clarified because the USPTO has since rejected the patent (Apple is still appealing that one and it will take time for reexamination to play out with all the appeals, but in the meantime Samsung's appeal of the "final judgment" in the first case will be adjudicated and is reasonably likely to result in a declaration of invalidity of the asserted claim of the '915 patent).

Back from 2012 to 2014. The whole jury trial, despite Apple's out-of-this-world damages claim, is not going to change anything in strategic terms unless Samsung is ultimately forced to modify its products in ways that reduce consumer demand. The question of which workarounds are legally above-board and commercially viable without any significant effect on demand is a rather complicated technical and legal one. I don't mean to blame mass media for not having a definitive answer to this, though to me after all of my patent litigation monitoring it's clear that it just take some "copying" on Samsung's part to deal with whatever issue Apple may prevail on in this case. But I do believe it's necessary for the media to pay attention to the workaround question -- one can raise and discuss a question without claiming to have a definitive answer -- after the verdict comes down, should there be any liability findings.

Those reporting and/or commenting on the verdict should keep a few workaround-related facts in mind that can be reasonably easily researched and understood:

• The verdict form itself reflects the fact that there are products in this case against which Apple is not even asserting its slide-to-unlock patent, such as the Note 2. Therefore, Samsung just needs to "copy" its own alternative slide-to-unlock implementations from those newer products to be legally safe. And there is no sign that those products were less in demand than the earlier ones that the jury might (without necessarily being unreasonable) find to have infringed the asserted patent claim a long time ago.

  (Should Apple prevail on slide-to-unlock to any extent, this would contrast with the fact that all ten European judges who looked at the European member of the same patent family did not deem the claimed invention patentworthy. But reports on U.S. lawsuits and rulings rarely ever refer to related international cases, so I don't have much hope that this fact would be highlighted anywhere else than on this blog.)

• On Friday, it didn't take long (after this blog was first to highlight the issue because I had been following the "Posner case" in detail over the years) before the appeals court ruling affirming Judge Posner's claim construction of the '647 patent was discussed everywhere, and that was good. Considering what a mess the Monday testimony and lawyer argument on the effect of the new claim construction was (because, frankly, both parties had previously hedged their bets as they didn't know what the appeals court would do), the jury is probably now very confused about it (and Judge Koh did the right thing by denying both parties' motions for judgment as a matter of law since there are reasonable arguments for and against infringement, for and against validity). But there can be no confusion about the fact that Judge Posner himself had outlined a workaround for the '647 patent based on his claim construction, which now also governs the California case:

  "[...] inventing around the '647 patent by reprogramming Motorola's smartphones to avoid at least one claim limitation, for example by simply creating copies of the code that performs structure detection and linking for each particular program rather than using a common code module for all programs, because if there is no common code there is no 'analyzer server,' as required by the patent claim."

• Apple itself has not claimed that its more recent products practice the other three asserted patent claims. It based its "practice" argument completely on past products, partly on prototypes that were never actually sold. I very much like the headline of this CNET article by Shara Tibken: "Samsung to jury: You can't copy iPhone features that aren't in the iPhone" That is a key message by Samsung based on everything I read about the trial and in the build-up to it. Copying is, however, just a question of what was done in the past. With a view to the future, the fact Apple itself does not even claim that its current products practice three of the asserted claims also means that Apple's own products provide blueprints for workarounds that are doing very well in the U.S. market.

Only because the nature of this lawsuit is backwards-oriented -- it's not even about last year's products but even older ones --, those who report and comment on the case and its implications don't have to be completely backwards-oriented, too. The real issue in this rapidly-evolving market is what effects the case will have going forward. The name of the game is whether a patent claim that proves valid and is held to have been infringed at some point in the past really gives its owner any strategic leverage.

Remember that here is an ITC import ban in force and effect over the vaunted "Steve Jobs patent", and so far its business impact has been zero (and Friday's appeals court ruling involving this patent in connection with another case does not provide any indication that the patent could not be worked around in the way in which Samsung has already worked around it). With the benefit of 2020 hindsight, there was much ado about nothing when the decision came down. This blog at least pointed out (in its headline, about 15 minutes after the ITC published its ruling) that workarounds were the key question.

No report on the upcoming jury verdict will be incorrect per se if it just talks about whatever findings of past infringement -- over pre-2013 products -- there may be. Workarounds are nevertheless the name of the game. For definitive clarity on workarounds, there must be injunctive relief (such as in the ITC case), it must be actually enforced, products must enter the market after enforcement begins, and there must not be an enforcement proceeding (in federal court, that would usually start with a contempt motion) that casts doubt on whether a workaround that is sold is legally acceptable (or, if there is an enforcement dispute, it must be adjudicated). That will take time. But the question of whether the verdict matters is a legitimate one the moment it comes down. And that question necessarily involves workarounds.

Even the reasonableness of a damages award cannot be assessed without looking at viable workarounds. If a patent can be worked around in ways that still allow a defendant to provide the relevant feature to consumers, it's worth much less than whatever responses a study, such as the Dr. Hauser conjoint survey, may elicit from respondents based on the alleged desirability of a particular feature. Ownership of a patent does not necessarily mean ownership of any particular feature. If that difference didn't exist, the Apple v. Samsung II trial would never have had to be held because Apple would have had enough leverage (possibly even prior to having to bring any litigation) long ago.

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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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Impact assessment of Apple's renewed motion for U.S. permanent injunction against Samsung

On November 18, 2013 the United States Court of Appeals for the Federal Circuit revived Apple's bid for a permanent patent injunction against Samsung's Android-based devices with respect to three multitouch software patents (rubber-banding, tap-to-zoom-and-navigate, and pinch-to-zoom API), while affirming Judge Lucy Koh's denial of injunctive relief with respect to the asserted design patents. An appellate opinion is not the end of the appellate proceedings, however. Samsung could have tried to delay the process through a petition for a rehearing (and, theoretically, a petition for writ of certiorari with the Supreme Court). But Samsung didn't do any of that, and as a result, the Federal Circuit yesterday (December 26, 2013) issued the formal mandate to the United States District Court for the Northern District of California (Judge Koh's court).

Still on the same day, Apple brought (as it had announced in a motion following the recent damages retrial) a renewed motion for a permanent injunction, requesting that another injunction hearing be held as early as January 30, 2014 (this post continues below the document):

13-12-26 Renewed Apple Motion for Permanent Injunction Against Samsung by Florian Mueller

The fact that Samsung -- a notorious "staller" of Apple's patent infringement lawsuits -- refrained from exhausting all options to delay the process shows that it's not scared to death by the prospect of Apple obtaining an injunction on remand. On a similar note, the fact that Apple did not keep on fighting for an injunction over its design patents also indicates its strategic priorities.

The underlying issue -- what the proper standard for a "causal nexus" between a proven infringement and an alleged irreparable harm to the prevailing right holder should be -- is and remains extremely important, and Apple made some headway in this regard. This matters, but mostly with a view to a future Apple request for an injunction over whatever patents it may prevail on at the trial in its second California litigation with Samsung (scheduled to begin on March 31, 2014), where some more impactful patents are at issue.

It's important to focus on the asserted patents, not the accused products. Obviously, the products that are named in an April 2011 lawsuit (such as the Galaxy S II) are no longer commercially relevant. But Apple is seeking an injunction that would also cover "any other product not more than colorably different from an Infringing Product as to a feature found to infringe" (which is consistent with the Federal Circuit's TiVo v. EchoStar opinion).

Here's my patent-by-patent take on the parameters and potential impact of the remand proceedings:

• The '163 tap-to-zoom-and-navigate patent is too narrow to have any practical commercial relevance. As I explained in my October 2012 workaround analysis, it does not cover all tap-to-zoom functionality: it applies only if the user can, after using tap-to-zoom, bring a different section of a document to the center with another tap. The enforcement of an injunction over this particular aspect of Apple's tap-to-zoom gesture wouldn't be noticed by Samsung's customers, at least not to the extent that anyone's purchasing decisions would be affected in the slightest.

• More than six months ago the United States Patent and Trademark Office (USPTO) affirmed the key claims, including the claim asserted in this action, of Apple's '381 rubber-banding ("overscroll bounce") patent. Samsung stopped providing that functionality to end users roughly two years ago, as a result of Apple's patent enforcement. If Apple was unable in any given major market to enforce this patent, I believe Samsung would re-enable the feature because it really does make a difference, in a subconscious but nevertheless important way (the overscroll effect avoids the situation in which the user instinctively feels that the device is not responding and presses harder) -- and it's a nice visual effect. This is again not the kind of feature that would influence purchasing decisions all by itself, but all other things being equal, I would certainly prefer a touch device that does have rubber-banding, and a multiplicity of such features would have an important effect on the user experience and the perceived quality of products (while even 100 patents of the '163 kind wouldn't really matter).

  With respect to rubber-banding, Apple certainly has a point when it says that "[a]bsent an injunction, Samsung could begin again to sell infringing products" (which is where the "colorably different" issue comes into play).

• The '915 pinch-to-zoom API patent raises the most interesting issues, and if Apple obtains a permanent injunction over this one, we may actually see a subsequent contempt proceeding in which Samsung would have to defend its purported workaround against claims by Apple that it is not a workaround but still an act of infringement.

  The scope of this patent may be just as narrow as that of the '163 patent if Samsung's workaround is indeed a workaround, a fact that is in dispute for the time being. Last year, Samsung claimed that it had a workaround in place that provided end users with the same functionality but nevertheless steered clear of infringement of the '915 patent. So people would get pinch-to-zoom in the form in which they know it, wouldn't notice anything, but the inner workings would somehow be non-infringing. It didn't really disclose what this workaround would look like, and Apple believed that Samsung was still going to infringe. In yesterday's motion, Apple says it still "believes that Samsung continues to infringe at least the '915 patent with its current products because Samsung has not disclosed a designaround that avoids infringement of that patent".

  Situations like these give rise to contempt proceedings after issuance of an injunction (which can also result in appeals). In that event there would be three types of outcomes. The court might clear Samsung's workarounds, in which case Apple's 915 patent would prove useless. The court might find that Samsung still infringes, in which case Samsung's alleged workaround would turn out to be futile and Samsung would actually have to remove the pinch-to-zoom feature from its products. Or the court might find that there could still be an infringement, but should there be one, it would be so very different from the infringement pattern established in this case that Apple would have to bring a new infringement lawsuit to go after that one.

  But we may never get there anyway because the validity of the '915 patent is so doubtful. An examiner at the USPTO's Central Reexamination Division has rejected all claims of this patent, and (also yesterday) Apple appealed that decision to the USPTO's Patent Trial and Appeal Board (PTAB):

  13-12-26 Apple Notice of Appeal to PTAB ('915 Reexam) by Florian Mueller

  Samsung simply said the opposite of the truth when it claimed last month that this appeal was Apple's only option left (in an attempt to have the limited damages retrial stayed in the midst of jury deliberations). I wrote in my commentary back then that "it's rather likely that an appeal will be necessary in the end", and it did prove necessary. It's just that, contrary to Samsung's representations at the time, Apple theoretically had other options to dissuade the examiner from rejecting the patent.

  By exhausting all appeals, Apple can keep the patent technically alive until at least mid-2017 (probably 2018). But at this stage, the patent is of highly dubious validity. If I were a judge having to decide on an injunction motion involving this patent, I would try hard to find a way to avoid that this probably-invalid patent does any harm to Samsung. And I guess Judge Koh will try, too. But her problem is that this is a motion for a permanent (post-trial) injunction, where there is no assessment of the likelihood of a particular outcome. Maybe she could try to somehow give consideration to the doubtful validity of the patent in the balance-of-hardships context, but again, it's difficult. Samsung does, however, have a pretty good chance of obtaining a stay -- and I am convinced that it is entitled to a stay over this patent.

  Theoretically, the proceedings could be stayed with respect to this patent even before an injunction issues. But then the whole case including the damages part would be stayed, and this would delay forever the appeal (on the merits) that last month's limited damages retrial was meant to pave the way for. So it would actually make more sense to grant Apple an injunction over this patent but to also grant a Samsung motion for a stay of its enforcement. This way there would be a final and appealable ruling on the merits, but unjust harm would be avoided.

  Judge Koh could grant an injunction and subsequently grant a Samsung motion for a stay of enforcement. This would not be illogical at all under the circumstances in this case. If Judge Koh denied a stay, Samsung could ask the Federal Circuit to grant one. Whoever grants Samsung a stay, I repeat that in my opinion it's absolutely entitled to one. An enforceable injuntion over the '915 patent at this stage would be nothing but outright injustice.

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Lost profits ineligible as damages theory for several Apple patents in Samsung retrial

Shortly after the start of the Apple v. Samsung limited damages retrial in the Northern District of California I concluded from various reports that "modesty and humility reign". The court "only" allowed Apple to present a damages claim of $380 million to the jury, slightly short of the corresponding portion of last year's award ($410 million), and Samsung is pretending contrition in an effort to propitiate the jury.

Apple's claim became publicly known only when the trial started. Before trial, it was just known that Samsung complained about Apple seeking "vastly greater" damages, allegedly "hundreds of millions" more than the year before. It was also discoverable that Samsung's pretrial motions had succeeded in part to constrain Apple's ability to seek damages. The quantitative impact was unclear, however.

Late on Friday, Judge Koh entered a motion on certain motions for judgment as a matter of law, and that order, in conjunction with a couple of previous decisions, suggests to me that the most important legal question on which Samsung prevailed (subject to an appeal) is about the underlying, hypothetical assumption of when Samsung would have begun to avoid infringement of the infringed patents: when actual infringement began or when it received notice of Apple's infringement claims. For example, the designaround period for the relevant design patents is considered to be one month. The question is when that month would begin.

The district court agreed with Samsung that Apple's claim of lost profits due to Samsung's infringement must be based on the assumption that Samsung's designaround efforts would have started when infringement began, not when Apple notified it of its infringement claims. On this basis, Apple can seek lost profits only with respect to the '915 pinch-to-zoom API patent, but not with respect to four other patents (two design patents, the rubber-banding '381 patent, and the tap-to-zoom-and-navigate '163 patent) that Samsung would have hypothetically worked around even before it had notice, i.e., before the relevant damages period.

I agree with Apple that this is not a logical choice, and it will be interesting to see what happens on appeal. Judge Koh believes that the case law is on Samsung's side, and I'll talk about the two relevant cases, Panduit and Grain Processing, in a moment. But it really is illogical. Why would someone work around a patent without actually seeing a need for it?

A real-world example shows how absurd this is. Which driver would accelerate way beyond a speed limit and then hit the brakes with full force for no reason? But if a driver is speeding and suddenly sees the flashing red light of a traffic enforcement camera (it's happened to me a few times, I admit), then the instinctive reaction is to hit the brakes, though it's too late anyway if your car (and not someone driving ahead of you) triggered it.

A 1978 Sixth Circuit case, Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., established the test for a lost profits damages model (reformatted):

1. demand for the patented product,

2. absence of acceptable noninfringing substitutes,

3. [the patent holder's] manufacturing and marketing capability to exploit the demand, and

4. the amount of the profit [the patent holder] would have made.

Panduit factor two is the issue here: the absence of workarounds/designarounds. The legal question is now how to reconcile this factor with the requirement of notice for a damages period to begin. Judge Koh's JMOL order describes the Federal Circuit's 1999 opinion in Grain Processing Corp. v. American Maize-Products Co. as "the starting point for the parties' dispute over whether a lost profits damages analysis must take into account the actions an infringer could have taken to design around the infringed patents starting at the point of first infringement (as opposed to the date of first notice, or any other date)".

Apple argues not only on the basis of logic but also interprets Grain Processing as saying that the designaround start date is a question of fact, i.e., for the jury to decide. And after the court barred Apple's damages expert from using different designaround start dates, Apple still wanted to tell the jury about its lost profits (in the form of lawyer argument, not an expert report), but the court granted an emergency motion by Samsung to preclude Apple from doing so.

There's no question that Grain Processing moved the goal posts in a way that now benefits Samsung, but the question is: to what extent? The key lesson from Grain Processing is (based not just on my reading of the opinion but also what various commentators say) that lost profits depended on a "but for inquiry" (what would the situation in the marketplace have been "but for" the infringement identified) and that this inquiry involves not only products that were actually sold at the time, but also hypothetical -- but available -- workarounds. What happened in the real world is measured against a counterfactual world.

Judge Koh says certain wordings in Grain Processing ("had [the infringer] not infringed", "absent the infringing product", or "with infringement factored out of the picture") imply that "reconstructing the hypothetical market requires one to factor out infringement entirely". This is followed by a passage on which I disagree with Judge Koh:

"In order to do this [factoring out infringement entirely] when considering whether an infringer would have been able to design around the patentee's intellectual property, one would have to start the inquiry as of the date of first infringement. While the facts of any given case might ultimately lead to the conclusion that the infringer would not have been able to begin to design around the patent starting on the date of first infringement, one would need to begin the analysis at the date of first infringement to avoid arbitrarily ignoring actions the infringer could have taken in lieu of infringing."

The problem I have with this is that the relevant wordings in Grain Processing -- as Judge Koh describes it, the need to take into account "actions the infringer could have taken in lieu of infringing" -- mean, if viewed in isolation, that an infringer chose a noninfringing alternative from the get-go. That would be even more infringer-friendly than Judge Koh's approach. I'm not saying that this is is necessarily the right conclusion. But it would be a more logical one that the assumption that someone goes ahead and infringes, only to make a U-turn during the same second that infringement begins. Why would Samsung have started to work on designarounds when actually shipping infringing products? Why not start right after releasing the infringing program code to manufacturing? To me, this is more arbitrary than it is logical.

I can see scenarios in which it makes sense not to allow for damages claims based on a lost profits model. For example, there's an infinite number of encryption algorithms out there. If a particular encryption technique is patented and infringed, but equally good or even superior alternatives were available, then I agree that the owner of the patented technique didn't really lose profits: the infringer, probably inadvertently, used the patented technique, but didn't have to. Even then I can't see why someone would implement a patented encryption algorithm, release a product, and the very moment that the product ships alter course and replace that implementation with a non-infringing one. I would like to see Apple raise this issue on appeal.

Apple complied with the pretrial orders not to present (neither through lawyer argument nor in the form of expert testimony) lost profits as a damages theory for the relevant patents (again, the key exception is the '915 patent). In yesterday's JMOL order, Judge Koh ruled that no reasonable jury can award Apple any lost profits with respect to those patents. But that decision was merely a formality. Things will really get interesting after the final judgment by the district court.

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Ericsson uses Samsung's designaround tactics from Apple case against Samsung at the ITC

The most interesting legal -- to be more specific, procedural -- question in the ITC investigation of Apple's complaint against Samsung was the adjudication of designaround products that Samsung, but not Apple, wanted to be investigated. Now Ericsson is using Samsung's own tactics against Samsung in its own defense against an ITC complaint filed by Samsung in December 2012. And Ericsson may very well succeed. A motion for summary determination was denied, but only because factual issues remained to be discussed at trial. Other than that it doesn't look too bad for Ericsson.

Samsung knew before that what goes around, comes around. And in litigation, things typically come around when the shoe is on the other foot.

Let's start with a quick recap of the Apple-Samsung ITC designaround story. In September 2012 it became discoverable for the first time that designarounds were a controversial issue in the ITC investigation of Apple's mid-2011 complaint against Samsung. The following month, an initial determination (preliminary ruling) by an ITC judge held Samsung to infringe four Apple patents, but cleared all of its designaround products of infringement. In its petition for a Commission review, Apple argued that the Administrative Law Judge lacked a legal basis for ruling on Samsung's designarounds, given that complainants, not respondents, determine the scope of a complaint. On August 9, 2013, the Commission (the six-member decision-making body at the top of the U.S. trade agency) upheld the preliminary ruling with respect to two of the four patents found infringed and also with respect to the judge's clearance of Samsung's designarounds. This month I found out that Apple has appealed the unfavorable parts of the ITC ruling, and when it files its opening brief we'll see whether or not it raises the designarounds issue on appeal.

Yesterday the public redacted version of a September 19, 2013 order by Administrative Law Judge E. James Gildea was filed on the ITC's electronic document system. This is the decision I mentioned further above: he denied an Ericsson motion to determine ahead of trial that Ericsson's designaround products don't infringe, but only because the legal standard for a summary determination (the ITC equivalent of a summary judgment in district court) is that the moving party must prevail even if all disputes facts are viewed in the light most favorable to the opposing party.

In footnote 1, Judge Gildea "notes that there is evidence that Samsung was made aware of the new designs prior to the close of fact discovery and that those new designs were available for inspection in the United States". The ITC would not adjudicate designarounds based merely on prototypes, let alone technical descriptions. There must be evidence of actual importation into the United States, and it looks like Ericsson does have such evidence, but Samsung still argues that "the new designs are not properly part of this [i]nvestigation because Ericsson has not shown that they wil be incorporated into any product for a United States customer". Samsung also disputes that Ericsson delivered any evidence of importation before the close of fact discovery, which Judge Gildea appears unconvinced of -- he's just not 100% convinced of Ericsson's position at this stage, which is why he denied summary judgment.

When the initial determination is handed down, the ruling on designarounds will be a very interesting part to look at.

Here's the public version of the order:

13-09-19 ITC Order Denying Ericsson Motion Re. New Designs by Florian Mueller

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By posting a bond with the ITC, Samsung confirms its continued infringement of Apple's patents

The most important question in connection with the ITC ruling on Friday, ordering a limited exclusion order (vendor-specific U.S. import ban) against Samsung's Android-based devices infringing two Apple patents, is not whether Samsung will continue to be present on the U.S. market (no doubt about that) but the commercial impact, such as on the attractiveness of its products to consumers, its obligation to comply with the order will have. Against Apple's objections on procedural grounds, Samsung had persuaded the Administrative Law Judge to adjudicate certain "designaround products" it presented during the course of the investigation. Some unknown quantities of those were actually imported into the United States market. Judge Pender cleared those designarounds, and the Commission, the trade agency's highest-level decision-making body, supported the related findings. But even if a designaround is legally above board, it may very well -- and often does -- come with some degradations of functionality, performance, ease-of-use, stability, or security, to name but a few examples of adverse impact.

The ITC investigation had been going on for more than two years. The designarounds were presented a long time ago. If Samsung can work around those two Apple patents without any negative effects on its competitiveness, how come it has, according to Apple, continued importing infringing devices throughout the entire duration of the investigation? And how come it has just posted surety bonds with the ITC to ensure its continued right to import and/or sell such infringing devices during the 60-day Presidential review period?

The amount of those bonds is not known because only a redacted version of a letter from the ITC to Samsung's counsel, confirming receipt of those bonds (the sufficiency of which will be evaluated now), has become available so far (this post continues below the document):

13-08-13 Letter From ITC Secretary Barton to Samsung Counsel Re. Receipt of Bond

In its Friday ruling, the Commission "determined that excluded [emphasis mine] mobile phones, media players, and tablet computers may be imported and sold in the United States during the period of Presidential review (19 U.S.C. § 1337(j)) with the posting of a bond in the amount of 1.25 percent of the entered value". The word "sold" appears in that sentence because the Commission ordered not only an import ban but also a cease-and-desist order against the sale of already-imported devices. The purpose of the bond is to ensure that Apple may recover damages against this bond regardless of any future changes to Samsung's liquidity (a non-issue for the foreseeable future, but formally a bond is nevertheless required). Note that the bond applies only to excluded -- i.e., infringing -- products, not to non-infringing "designaround products", which were explicitly not excluded.

Absent a Presidential veto, for which there is no reason here because no standard-essential patents are involved, the exclusion order will enter into force in less than two months, and at that stage any shipments of infringing goods would be seized and the cease-and-desist order would have to be respected as far as already-imported goods are concerned. The bonding requirement is only for the period during which there might still be a veto (though, again, I don't think it will happen here).

In a Monday morning post, in which I discussed the overall state of the dispute between Apple and Samsung, I already said that the ITC has "banned all Samsung 'electronic digital media devices and components thereof' that infringe in the same way as certain exemplary investigated products do, regardless of their name or release date". There's been too much inaccurate, incompetent reporting (including commentary by financial analysts who failed to do their homework). I saw plenty of headlines on Twitter that said the ITC banned only older Samsung products. The ruling is not about old versus new. It's about infringing vs. non-infringing. If Samsung modifies a product that was investigated and found infringing so as to steer clear of infringement now (for example, new firmware could be designed to longer infringe the "Steve Jobs patent"), then the ban doesn't apply. But if a new product, such as the S4, infringed in the same way as an exemplary infringing product accused by Apple in this investigation, then the ban would apply unless Samsung could argue that the new product is licensed (so far, Apple has not extented a non-SEP license to Samsung) or no longer imported (but assembled in the United States, as Google submits with respect to the Moto X) or that it falls without the scope of the investigation, which is however defined (very broadly) by its title, "Certain Electronic Digital Media Devices and Components Thereof", and not by a few names of obsolete products.

There's another document that makes it easy for everyone to see the actual scope of the ban (this post continues below the document):

13-08-09 ITC Letter to Chief Steuart Re. Samsung Import Ban

That letter instructs U.S. Customs to hold shipments of infringing goods. The first sentence clearly refers to any "electronic digital media devices" that infringe any of the patent claims-in-suit:

"On August 9, 2013, the United States International Trade commission issued a limited exclusion order prohibiting Samsung [...] from importing into the United States electronic digital media devices that infringe one or more of [the patent claims-in-suit that the ITC deemed valid and infringed and that satisfied the domestic industry requirement]."

For now I can't rule out that Samsung's bonds don't amount to much. Maybe they just relate to a few products of which it isn't selling a lot of units now, but it didn't want to make any changes to those products toward the end of their lifecycle. Still, Samsung has known for well over two years that a U.S. import ban over the asserted Apple patents could issue, and the fact that it still hasn't ceased to import and/or sell products that infringe on those patents is at least a potential indication that Samsung would rather not have to work around the patents Apple successfully asserted. It's not clear yet whether Samsung's products imported into and sold in the U.S. will be equally attractive after the end of the Presidential review period as the ones it's been selling so far. Let's wait and see.

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ITC orders import ban against Samsung over two Apple patents -- how good are the workarounds?

Today the United States International Trade Commission (USITC, or just ITC) handed down its final ruling on Apple's July 2011 complaint against Samsung. Over the last few months the Commission, the U.S. trade agency's highest-level decision-making body, conducted a thorough review of two preliminary rulings by Administrative Law Judge (ALJ) Thomas B. Pender, and concluded that Samsung infringes the following two Apple patents, which it failed to prove invalid and with respect to which Apple established the existence of a domestic industry:

• U.S. Patent No. 7,479,949 on a "touch screen device, method, and graphical user interface for determining commands by applying heuristics" (which Apple wanted to call "the Jobs patent" in a trial in Judge Posner's court that never took place); this patent is under reexamination pressure; Apple also made headway with other multi-touch patents earlier this week when it won a remand to the ITC of its case against Google's Motorola Mobility

• U.S. Patent No. 7,912,501 on an "audio I/O headset plug and plug detection circuitry"

Judge Pender had found Samsung to infringe two more Apple patents: a design patent and a translucent images patent. The Commission disagreed with those parts of his decision.

An import ban has been ordered and will take effect at the end of the 60-day Presidential review period. Even though there may be expectations in South Korea that Samsung should benefit from a Presidential veto only because Apple just won one last Saturday, "me too" doesn't make sense here because standard-essential patents (SEPs) like the one over which the ITC wanted to grant Samsung an exclusion order come with FRAND (fair, reasonable and non-discriminatory) licensing obligations and can't be worked around without prohibitive switching costs, while non-SEPs are traditional exclusionary rights and, most importantly, can be worked around. In fact, Samsung presented to the ITC products that it said (and Judge Pender agreed) don't infringe. If legality is so readily available, a veto isn't warranted.

ITC import bans are not limited to the exemplary infringing products at issue in an investigation, which are typically rather old. They broadly prohibit any violations committed through the importation of infringing goods by a respondent. (In the case of Samsung's complaint against Apple, the ban is limited to older iPhones and iPads only because newer iDevices come with Qualcomm baseband chipsets, which Samsung affirmatively did not target in that case, but no such circumstance exists in Apple's offensive case.) Just like injunctions by federal courts, they do not cover workaround (or "designaround") products, i.e., products that don't come with a patented feature or implement it in a non-infringing manner. As I mentioned above in the veto context, Judge Pender also evaluated certain designaround products at Samsung's request, and held that these don't infringe the respective patents-in-suit. Apple argued that he had no legal basis to adjudicate those products, which Apple didn't accuse of infringement in this investigation. The announcement of the Commission ruling says that "[t]he orders [import ban and cease-and-desist] do not apply to the adjudicated design around products found not to infringe the asserted claims of the ’949 and the '501 patents as identified in the final [initial determination]."

The commercial impact of the import ban completely depends on the quality of Samsung's designarounds. It's one thing to avoid further infringement in a legal sense, which is always an option if the relevant patent isn't standard-essential. It's another to obey the law without an outright removal of functionality (in which case the term "workaround" is merely a euphemism for "throwout") or some more or less noticeable degradation of the user experience or performance, or incompatibilities with existing applications originally built on top of an infringing platform. Companies that have to respect an injunction (such as an import ban) always claim that their workarounds don't have a major (if any) negative impact on their products. Sometimes it's true; sometimes it's not. Sometimes they're not even right that their workarounds are legally above board. Again and again I'm surprised when commentators and analysts simply consider a patent injunction irrelevant because the convicted infringer says it has a workaround. No, it's not that simple. It depends. And any sophisticated company asserting a non-SEP knows that the other party can and, if necessary, will steer clear of infringement. They're not that stupid. Still they bring those lawsuits because forcing someone to work around is often strategically valuable. This is not about a total knock-out.

Samsung has sold at least some unknown quantities of the designaround products it presented to the ITC, but it's not known how many and how successfully. But it remains to be seen whether Samsung can comply with today's limited exclusion order in ways that don't make its Android-based smartphones and tablet computers less attractive. I'm not taking a position here on whether or not these workarounds come with a price. All I'm saying is that the commercial significance of the exclusion order depends on the viability of those workarounds, which cannot be assessed yet.

The lack of information on Samsung's workarounds also makes it difficult at this stage to assess the effect of today's decision on the prospects for a settlement of the wider, global dispute between these two players. There's no question that there will be a settlement at some point. What's unclear is whether the parties have enough guidance from the courts at this stage to reach an agreement. And sometimes it takes more than guidance: infringement can be a viable business strategy as long as right holders can't obtain meaningful remedies. For example, almost a year ago a jury found Samsung to infringe half a dozen intellectual property rights held by Apple, and the court didn't overturn any of these liability findings, but Apple has not yet received even one cent of damages (a limited damages retrial is scheduled for November) and was denied a permanent injunction. Based on how today's appellate hearing relating to that injunction request went, I believe Apple is clearly on the winning track, and the Federal Circuit's opinion on injunctive relief is going to be strategically more important for the wider Apple-Samsung dispute than any other issue or matter, including what was decided today. As I explained in the post I just linked to, the outcome of that appeal is also going to be key with a view to next year's second California trial, which involves more powerful patents. Still, today's ITC ruling is significant because it gives Apple additional leverage in the near term. All in all, today has been a good day for Apple, and the likelihood of Samsung accepting to settle on Apple's terms has definitely increased, though the dispute could also continue for another year or more (nobody knows).

Public interest

Remedies are usually a non-issue at the ITC. The ITC can't order damages, but it does order an import ban more or less every time that an infringement is identified. Public interest arguments were raised in the build-up to today's decision. In June I saw that the ITC staff (which participates in certain investigations as a third party and is not a decision-maker itself) rejected Google's public interest arguments against an import ban. Public interest submissions supporting Samsung -- some of them discouraging an import ban in general, while others just wanted to ensure that it would be "narrowly-tailored" -- were also made by politicians, carriers, and minority activists.

As I explained further above, the availability of workarounds/designarounds makes Apple's offensive ITC case against Samsung more than distinguishable from Samsung's offensive case.

In a submission to the Commission made a couple of months ago, Apple accused Samsung of lawless conduct:

"By the time the Commission issues its Final Determination, this Investigation will be nearly two years old. During this entire length of this Investigation, Samsung has continued importing electronic digital media devices that infringe Apple's Patents-at-Issue, and Samsung is still importing such infringing devices. During the entire length of this Investigation, Apple has been significantly harmed by these unabated unfair acts. Further delay in providing Apple relief would effectively subsidize Samsung’s continued infringement of Apple's intellectual property, thus creating perverse incentives for infringers, such as Samsung, and disincentives for companies that have committed to innovation through domestic investment in research and development, such as Apple. The Commission should therefore decline to tailor remedial orders to delay implementation and should instead provide for such orders to go into effect as soon as possible."

Two initial determinations reviewed

The procedural background of today's decision is slightly more complex than that of other final Commission rulings on ITC complaints. Usually there's an initial determination by the Adminstrative Law Judge in charge of the first stage of the investigation, followed by a Commission decision on whether to review the initial determination, which happens most of the time and culminates (typically after further briefing by the parties on specific review questions) in a final decision. There are also cases in which there's a remand after the first Commission review, and then another review after the judge's remand initial determination. What happened here is this: the October 2012 preliminary ruling was followed by a January 2013 order that did two things at once. The Commission said that the (original) initial determination would be reviewed in its entirety, but it didn't conduct that review immediately; instead, it also ordered a limited remand of certain infringement issues to the judge. These questions gave Apple the chance to broaden the infringement findings with respect to two patents that had already been found infringed. In April the related ruling (the remand initial determination) came down, finding Android's text selection feature to infringe two more claims of an Apple patent than previously identified. Shortly thereafter, both parties filed petitions for review of the remand initial determination (Samsung, because it disagrees with the supplemental infringement finding; and Apple, because it wanted to broaden its victory). In late May, the ITC then decided to conduct a thorough review of both the initial determination and the remand initial determination and asked the parties to comment on specific questions.

The final ruling was at some point scheduled for August 1 and then postponed by eight days.

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