EPICSSON: Apple makes public interest statement in Ericsson patent case that supports Epic's antitrust market definition

Only two weeks after I said that Apple was facing an "Epicsson" dilemma because of contradictory positions in connection with app distribution on the one hand (30% "app tax") and standard-essential patents (SEPs) on the other hand (spending only about 1-2% of its sales on patent licenses but complaining about "royalty stacking"), Apple has submitted to the United States International Trade Commission a public interest statement that says the following:

"In any event, none of Ericsson's licensees [smartphone makers like Samsung] can manufacture any 'like' product because none offer products with Apple's iOS operating system."

What Apple is telling the ITC there is this: even if patent infringements are identified, the iPhone can't be banned because it's a product category of its own. There's nothing else quite like it. Android smartphones may also be smartphones, but they are not iPhones, so they are not "like" articles (which would count as a potential replacement under the ITC's rules).

In the Epic Games v. Apple App Store antitrust case, however, Apple argued that there was a broad market for game distribution. So, according to Apple, if Fortnite wasn't available on the iPhone, who cares? It could still be played on an Xbox, a Windows PC, or a Samsung phone.

The district court didn't adopt that same market definition, but it did reject--as did Apple--Epic's single-brand market definition, according to which there is a foremarket (mobile operating systems) and an aftermarket (app distribution for the iPhone). Single-brand markets are a rare exception, but this is such a case.

Interestingly, when the question is whether iPhone imports could be excluded from the U.S. market (limited exclusion order, or colloquially "import ban"), Apple itself advances a single-brand market definition, claiming that the iPhone is a product category and Android phones are not capable of replacing any supply shortages or disruptions affecting the iPhone.

Apple's statement in that public interest statement is conclusory. Apple considers it a simple and undeniable truth that the iPhone is in a product category of its own. "Like articles" for the ITC's purposes means products that can substitute for a product that might be banned. The absence of further detail does not make Apple's position any more consistent. Apple wants to have its cake and eat it: when it's opportune, it says Android phones can't replace iPhones; but when Apple has to defend itself against antitrust allegations, it argues that users could just play a game like Fortnite on an Android phone.

The 35 state attorneys-general supporting Epic against Apple do not discuss Epic's proposed single-brand market definition (which I nevertheless consider the most important issue on appeal). The Electronic Frontier Foundation (whose amicus curiae brief I discussed in the same post as the state AG's filing) does advocate the single-brand market definition. And in its totally pro-Epic filing, the Biden Administration doesn't address the entire set of requirements for a single-brand market under Kodak/Newcal, but supports Epic with respect to the first step of that analysis, saying that even though iOS is not sold or licensed separately, there can be an operating system market. That position, too, is validated by what Apple just told the ITC: a phone with a different operating system is not an alternative product.

Apple is now a self-declared monopolist. Not a confessed abuser of a monopoly. But Apple has said that other smartphones are no substitutes for the iPhone--which goes beyond Epic's theory that Apple faces competition in the operating system foremarket but not the app distribution aftermarket. If Apple doesn't even face competition in the foremarket, the case is pretty simple. Now if only Apple could tell the same to all the regulators investigating App Store cases around the globe, or the courts in which Apple is facing antitrust litigation over its App Store practices (such as the United States Court of Appeals for the Ninth Circuit), that would save time and conserve resources--and the much-needed remedies (#OpentheAppStore) could be put in place sooner than otherwise.

Here's Apple's public interest statement (statements containing the same key passage were also filed in connection with two other Ericsson ITC complaints):

22-02-01 ITC-3595 Apple Pub... by Florian Mueller

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Microsoft's Shared Innovation Initiative and its evolving approach to intellectual property rights

Microsoft has announced a "new IP strategy for a new era of shared innovation," giving customers ownership of new patents and design rights resulting from their collaboration with Microsoft, with Microsoft merely getting a license to use those technologies for the improvements of certain "platform technologies" such as Azure, Office, and Windows. Microsoft is even willing to support contributions to open source projects at a customer's request.

I haven't done any consulting for Microsoft in more than four years, and even while I was doing some work for them (such as on standard-essential patents), I never received any confidential information about their strategies or the terms of their license agreements. Whatever I know, I know from publicly-accessible court filings, one of which indicated that Samsung at some point paid north of $1 billion in Android patent royalties to Microsoft during a 12-month period.

As an anti-software-patent campaigner (2004/2005), I was profoundly worried about Microsoft using its patents against Linux and other free and open source (FOSS) software. A few years later, I realized three things:

1. In certain contexts (such as the i4i case), Microsoft actually took pro-defendant positions.

2. While I understand that many people disliked the idea of Microsoft charging patent license fees to Android device makers, there was no exclusionary use of patents. To the extent Microsoft sought injunctive relief, it merely wanted to bring Android OEMs to the negotiating table in order to reach a license agreement. Depending on the specific terms, licensing can also be anticompetitive, but by now we all know that none of this prevented Android from succeeding, and dozens of companies (many of which would have the resources and sophistication to defend themselves in court) chose licensing over litigation.

3. I considered many free and open source software activists hypocritical because they criticized Microsoft over almost anything it did in connection with open source while giving the rest of the industry a free pass and intentionally turning a blind eye to some other players' clearly abusive conduct. Just like other companies orchestrated antitrust complaints against Microsoft, Microsoft was in some cases proven and in other cases merely suspected to be behind initiatives targeting other large players. But if there were things that deserved to be criticized, who cares? In the information and communications technology sector, lobbying entities and NGOs that raise issues serve an important hygienic function, provided there really is fire and not just smoke.

During the "Smartphone Patent Wars" it happened for the first time that Microsoft faced the threat of injunctive relief as a result of litigation brought by another large corporation: Motorola Mobility. That kind of adversary, which at some point belonged to Google, wasn't just the kind of troll that you can pay to go away (and that usually won't satisfy the eBay standard for patent injunctions). "Googlorola" wanted to gain so much leverage over Microsoft that it would have been forced to cease and desist from all litigation against Android device makers. Even during the early stages of its dispute with Motorola, Microsoft still made an often-cited filing with the Federal Trade Commission in which it advocated, or at an absolute minimum appeared to advocate, injunctions over standard-essential patents (SEPs). But that changed not much later, and by now most major players, except for mostly failed businesses that increasingly rely on patent monetization, agree that SEP injunctions shouldn't be granted. Two years ago, Google joined the Fair Standards Alliance, which promotes SEP licensing on FRAND terms.

I had already done some work for Microsoft when I first took a clear "no SEP injunctions" position on this blog. I knew that Microsoft's standards group wasn't taking the same position at the time, but no one even tried to discourage me from voicing my position on this.

In recent years, Microsoft's IP-related positions and priorities have apparently evolved further.

The emphasis in announcements of patent license agreements between Microsoft and Android device makers appeared to shift to bundling deals: Microsoft was apparently very interested in getting companies to preinstall certain Microsoft Android apps, such as Skype. The derogatory term for this is "bloatware," and no one knows by how much Microsoft lowered those license fees, but analysts speculated that Android device makers saved a ton of money by bundling Microsoft's apps.

Meanwhile, Windows Phone has been discontinued, so Microsoft has surrendered to Apple and Google with respect to mobile operating systems. It still has the Windows desktop and server business, but its growth strategy is centered around apps and services. So far, Wall Street loves that new focus, but it remains to be seen over the years whether Microsoft can fend off competition in markets in which it won't have the benefit of making the underlying operating system. I don't mean to be negative, but the jury is still out on this.

The most surprising and--to me--most disappointing indication of Microsoft now being more interested in apps and services than in its own operating system platforms was when it filed an amicus curiae brief last year with Red Hat and HP, supporting Google against Oracle with respect to "fair use." Parasitic Red Hat and Oracle-obsessed HP had previously sided with Google on copyrightability; Microsoft hadn't. But with respect to "fair use" (which Android's use ofthe Java APIs isn't according to the United States Court of Appeals for the Federal Circuit), Microsoft actually sided with the weak-IP camp.

I don't understand why. Maybe Microsoft would like some more freedom with respect to its own use of the Java APIs (in some enterprise applications and on the Azure cloud); maybe Microsoft is more interested in a constructive relationship with Google (unlike Oracle, Microsoft stopped funding various industry groups accusing Google of abusing its search engine monopoly); maybe Microsoft wanted to curry favor with the open source community this way; or maybe Microsoft is interested in "balance of power" (the historic British take on continental European politics) and is afraid of Apple being or becoming too powerful, so it may not want Android's success to be compromised by the Java copyright situation.

Whatever the reason or combination of reasons may have been, I'd never have expected Microsoft to support Google against Oracle on "fair use." By way of contrast, the Federal Circuit concluded: "There is nothing fair about taking a copyrighted work verbatim and using it for the same purpose and function as the original in a competing platform." The "old" Microsoft--the Windows-centric one--would have been interested in reasonably strong protection of its intellectual property in APIs. The new Microsoft is apparently more interested in access to other companies' APIs.

I interpret yesterday's announcement of the Shared Innovation Innovative as an indication of Microsoft continuing to modify its approach to intellectual property. It's still far from advocating the abolition of software patents, but it appears to be trying hard to be part of the sharing economy in some other ways.

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Samsung paid Microsoft over $1 billion in Android patent royalties in 12-month period: court filing

When Microsoft filed its contract lawsuit against Samsung over Android patent royalties more than two months ago, I predicted that it "[wouldn't] be able to get everything sealed." And yesterday two key pieces of information about the Microsoft-Samsung patent license agreement came to light as Microsoft filed its amended complaint in public (you can find the document at the end of this post):

• The 2011 deal covers seven fiscal years (July 1 - June 30). The last fiscal year it covers will end on June 30, 2018.

• "For Fiscal Year 2 of the License Agreement [July 1, 2012 - June 30, 2013], Samsung reported to Microsoft [...] that Samsung owed over $1 billion in royalties under the Agreement. Microsoft agreed[.]"

  Paragraph 45 of the complaint states the precise number: $1,041,642,161.25 (and interest of $6,991,844.64 that Microsoft claims to be entitled to but Samsung hasn't paid)

So far, Samsung has not yet responded to Microsoft's position on what bearing Microsoft's acquisition of Nokia's mobile devices business has on this contract. Microsoft recalls, as no one would deny, that "[b]oth Microsoft and Samsung, which are highly sophisticated businesses, were represented by skilled counsel throughout the process of negotiating, draft, and executing the License Agreement." And these parties, according to the complaint, agreed to the following clause:

3.2 New Subsidiary License. If a Subsidiary or business unit/division is acquired by a Party after the Effective Date, the Subsidiary or business unit/division shall be deemed a Grantee under Section 3.1 and the License granted under Section 3.1 shall extend to such Subsidiary of business unit/division, but effective only as of the of the acquisition.

Microsoft concedes, however, that "[t]he License Agreement als contains an anti-assignment provision in Section 7.7 [...]," but says "the Nokia Acquisition is precisely the kind of transaction that is explicitly permitted." The dispute also appears to (at least potentially) involve a parallel Collaboration Agreement relating to Samsung's Windows-based devices.

I have a very conservative pacta sunt servanda approach, so I would never downplay the importance of what's at stake in that regard. However, rather than get bogged down in all sorts of contract law details, let's focus on the overarching strategic issues.

There's a non-party to this deal that is still at the center of the dispute: Google. About ten years ago, then-Microsoft CEO Steve Ballmer allegedly (according to a court filing) said this:

"F...ing Eric Schmidt is a f...ing p...y. I'm going to f...ing bury that guy, I have done it before, and I will do it again. I'm going to f...ing kill Google."

As of today, they're both doing well, and if anyone was now going to "bury" the other, Google would be far more likely to do it to Microsoft than the other way round ("far more likely" is an understatement). From a consumer point of view I regret that Google is still superdominant in the search engine business, but I have only myself to blame because every time I install a Windows computer, the first thing I do after the installation process is to set Google as my standard search engine for all browsers, even though I've never been disappointed with the results that Bing delivered on the few occasions on which I used it. (At least I know Google invests more money in very ambitious research projects that can make the world a better place than its rivals, probably more than all of its rivals combined.) Anyway, Google's core business is safe. Meanwhile, Google is actually becoming the new Microsoft in terms of the dominant operating system maker of the future -- just look at this chart:

(You can find more such statistics at Statista)

Google is making fast market share gains at Microsoft's expense, in a field of technology in which Microsoft filed tens of thousands of patents over the last 20 years (becauses it invested tens of billions of dollars in operating system R&D). I would have thought that Microsoft owned a patent thicket that would constitute a lethal entrance barrier even if a new entrant managed to get traction among app developers. I was wrong. I've admitted it before, especially in my October 1 blog post, in which I showed that only about 9% of 222 smartphone patent assertions (by Apple, Microsoft, Motorola, Nokia and Samsung combined, in the U.S., Germany, and the UK) had merit based on final or interim results:

Microsoft has, to put it diplomatically, not outperformed the others so far:

To be fair, Microsoft would also have a 9% "hit rate" in the above chart if a patent with respect to which the Federal Circuit reversed the final ITC ruling had not expired and if, despite some remaining issues on remand, Microsoft had prevailed. But if we look at it in terms of Microsoft patents that are presently (after four years of litigation) enforceable against Android devices, there's only one, and it covers the scheduling of meetings from a mobile device. I always try hard to apply the same standard to all companies (regardless of past or ongoing business relationships), and just like I wrote in the spring that the only feature of which Apple proved ownership in its first 49 months of Android litigation was rubberbanding, it's also a fact that Microsoft's Android patent enforcement is now in its 49th month and the aforementioned scheduling feature is the only one of which Microsoft has proved ownership in court so far. I repeat, so far: it remains to be seen what happens in the years ahead should Microsoft and Motorola not settle before some appeals are resolved and some infringement assertions are finally taken to trial in the Western District of Washington.

The impact of Apple and Microsoft's IP enforcement efforts was and is obviously not limited to the patents they successfully enforce in court. The fact that they do enforce from time to time (though they both haven't filed any new claims against Android devices in years) presumably does have an effect on other companies' decisions. It is very likely that certain features on which Apple and Microsoft hold patents were never incorporated into Android for fear of enforcement. But is Android lacking something today that I as a consumer would miss? No.

In my previous post I also showed the difference between Apple's exclusionary approach on the one hand and Microsoft's licensing focus on the other hand. Microsoft has announced a total of 27 Android/Chrome-related license deals and brought infringement lawsuits against only two device makers, while Apple has started three disputes and extended a license to only one Android device maker (HTC). The following chart shows the difference (click on the image to enlarge):

Unless Microsoft turns its litigation against Motorola around, one can't help but conclude that Microsoft's dealmaking capabilities are stronger than its claims that Android infringes many of its patents. Assuming for the sake of the argument that Microsoft is right and Samsung wants to get out of the existing license agreement, this certainly wouldn't be the case if Microsoft had proven against Motorola (and Barnes & Noble, though not much happened there before a strategic partnership also put the patent dispute to rest) that Android does indeed infringe on valid Microsoft patent claims to a huge extent. (By "huge extent" I obviously mean more than a meeting scheduler feature that I never used, at least not on any mobile device.)

License agreements and FRAND licensing commitments are, besides smart litigation tactics, also the reason for which Motorola hasn't been able to enforce any patent against Microsoft for even one second. It was a contract lawsuit in the Western District of Washington in which a temporary-restraining-order-turned-preliminary-injunction came down and prevented Motorola from enforcing two German H.264 (video codec) injunctions against Microsoft. I guess part of the reason for which Microsoft brought the present contract case against Samsung was so it could seek an "anti-suit injunction" again if Samsung started to enforce any of its patents against the former Nokia devices. Also, it was a contract-based defense (related to ActiveSync) that got Motorola's German synchronization patent case stayed (though Motorola was able to enforce the same patent against the email service of Apple's iCloud for 19 months).

Between Microsoft and Samsung, the amount of money that is at stake (I had no idea before how much it was, though I figured it wasn't chump change) makes a settlement very difficult on the one hand and a very logical outcome on the other hand. If Microsoft prevails on a pacta sunt servanda basis, Samsung will owe it many billions over the years, though this would certainly not contribute to Samsung's enthusiasm as a Windows device maker (think of the operating system market share chart). If, however, the license agreement does not apply anymore, Samsung may decide to simply fend off any Microsoft patent assertions against Android in court and pay Microsoft as much in Android patent royalties going forward as Motorola has paid over the last four years: nothing. (Or it would assert wireless patents against Microsoft's acquired Nokia devices and offset a large part of the royalty revenue stream.) The extreme outcomes are unlikely. A renegotiated license agreement is my best guess.

Finally, here's the amended complaint:

14-10-03 Amended Microsoft v. Samsung complaint.pdf by Florian Mueller

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