RIM recognizes strength of Nokia's patent portfolio and signs up for a new license

BlackBerry maker Research In Motion (RIM) has agreed to make a one-time payment as well as ongoing payments to Nokia for a license to the latter's patent portfolio. Since August I had reported on various Nokia v. RIM hearings at the Munich I Regional Court, most of which went pretty well for Nokia, as well as on Nokia's recent arbitration win, which appeared to entitle Nokia to sales bans against RIM's WiFi-implementing products due to the terms of an earlier license agreement that was up for renewal.

The announcement is unambiguous that money is flowing from Canada to Finland, and only in that direction. Once again, Nokia emerges the definitive winner of a patent dispute, as it did against Apple in June 2011.

The agreement apparently covers standard-essential patents (SEPs) as well as certain non-standard-essential ones. In the SEP context, there was no indication of a licensing issue with cellular patents, only about WiFi (WLAN) due to expiration of a related agreement. Now that Nokia and RIM have a new deal in place, all of the pending litigations (the ones to enforce the WiFi SEP-related arbitration ruling as well as various infringement actions over non-SEPs) will be withdrawn immediately.

When Nokia filed its infringement actions against RIM in May 2012, it also sued HTC and ViewSonic. I have also reported on some of the related hearings and trials, including a Mannheim trial that took place a week ago over a patent assertion against the Google Play app and content store. The fact that RIM has settled increases the likelihood of HTC and ViewSonic also opting to respect Nokia's intellectual property. Actually, HTC and Nokia can work together quite well when they want to: they have been closely coordinating for some time their defense against patent monetizer IPCom.

Presumably, Nokia is interested in license deals with the wider Android ecosystem, but HTC and ViewSonic are the first two Android device makers Nokia has sued, so once one or both of those companies sign up, Nokia will be able to accelerate its licensing program. I'm also wondering whether ASUS has meanwhile taken a license to Nokia's patents, at least to Nokia's SEPs. Six months ago it became known that the Nexus 7 tablet, which ASUS builds for Google, may infringe Nokia IP. License deals aren't always announced, so maybe Nokia and ASUS have reached an agreement without making any noise about it.

Android device makers have already taken at least 17 royalty-bearing licenses to third-party patents (16 companies licensed from Microsoft, and HTC's deal with Apple). Nokia is also going to sign many such agreements. And even though RIM lost the fight with Nokia, it might increasingly look to assert its own patent portfolio against Android device makers with weaker portfolios. RIM definitely needs the money and large shareholders probably pressure management to monetize its patent portfolio. By collecting royalties from even weaker rivals, RIM could refinance some if not all of the costs of the Nokia deal.

Google clearly takes Nokia's patents very seriously. It is an intervenor in the ITC investigation of Nokia's complaint against HTC, and in at least four German Nokia lawsuits (over Google Play and Google Talk), and Google's director of litigation personally flew to Germany to attend a couple of court hearings and a trial.

With RIM having chosen licensing over litigation, it's up to HTC, ViewSonic and other Android device makers to follow suit. Nokia's royalty demands are apparently quite reasonable. Otherwise it wouldn't have done dozens of deals, including the settlements with Apple and RIM.

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Apple gives notice of appeal of order denying injunction: decisive hearing in a few months?

On early Thursday afternoon local time, Apple gave notice of appeal of Judge Koh's order entered at the beginning of the week and denying Apple's motion for a permanent injunction against Samsung. There was no doubt that Apple would appeal. There was also no doubt that it would do so as quickly as possible in order to keep up the pressure on Samsung to take a royalty-bearing license with an anti-cloning provision.

The notice itself is just a notice, and the substantive issues here will only be addressed in an opening brief. We're still a few months away from that one, and under normal timelines probably about a year from a decision by the United States Court of Appeals for the Federal Circuit on this new appeal. While preliminary injunction requests are adjudged rather quickly, this here is an appeal from a final ruling on a permanent injunction.

But if we change the perspective and think about this not just in terms of case numbers (11-cv-01846 being the number of first Apple v. Samsung case in the Northern District of California and 12-cv-00630 being the number of the second one) but in terms of substance, then the most important hearing, which is the rehearing that Apple may get on the standard for injunctive relief (in connection with the Galaxy Nexus preliminary injunction), could already take place in a very few months. And if it does take place and if the full bench of the Federal Circuit modifies that ruling, then Judge Koh's denial of injunctive relief would suddenly be based in no small part -- and in some very crucial areas -- on an obsolete and overly strict "causal nexus" requirement (hard evidence that irreparable harm is caused by the infringement of specific patent claims as opposed to infringing products). I don't mean to say that the ruling is a house of cards, but Judge Koh applied the "causal nexus" part of the Galaxy Nexus appeals ruling extremely strictly and very much to Apple's disadvantage, so if that basis is modified, the entire house on top of it may have to be rebuilt as well.

So what could happen procedurally in this scenario of a standard that would make an injunction more available to Apple than the original (pre-rehearing) Galaxy Nexus ruling? It would probably be an unprecedented situation that you have two injunction cases, involving the same two parties and therefore partly the same business issues (product categories, competitive dynamics etc.), pending at the Federal Circuit at the same time, with one case being possibly reheard by the full court and another case just starting now after Apple's Thursday notice. This is rare because in most cases there would be some consolidation of two appeals, or one would be finished before the next one starts. Rehearings en banc are also very rare: in most of the recent years, the Federal Circuit granted only one. So the combination of two somewhat-overlapping appeals and a rehearing en banc is a very special situation, and the law, including procedural law, usually finds a way to adjust to new circumstances while complying with existing rules and general principles.

Theoretically, the Federal Circuit could accelerate the new appeal if a rehearing of the Nexus appeal works out in Apple's favor. But this is a fairly high-level court and an extremely busy one. So this is less likely. What I could imagine, however, is that Apple finds a way to have Judge Koh reconsider her denial after a fundamental change of the applicable case law on injunctive relief. She can't reconsider a case over which she doesn't have jurisdiction while it's before the appeals court, but there's a procedural option for this: a limited remand of the case for the purpose of reconsideration. Samsung also got a limited remand to have the Galaxy Tab 10.1 injunction dissolved (yes, there have already been three Apple-Samsung injunction appeals: Galaxy Tab 10.1 preliminary injunction, Galaxy Nexus preliminary injunction, and now the permanent injunction multi-product case that went to trial in the summer). Apple has experts who know far more about civil procedure than I do, and they can figure out a way, but generally speaking, if Judge Koh's denial loses its legal basis due to a rehearing and modified decision in the closely-related Galaxy Nexus case, Apple is not going to sit around for another six or nine months or whatever until the appeal of the permanent injunction case is resolved on a regular schedule. It will at least try to speed things up, and that's what I wanted to highlight.

This is not speculative: there can be no doubt that Apple will try something if it wins a modified Galaxy Nexus decision with respect to the "causal nexus" requirement. And it's a fact that Apple, also on Thursday, wrote a letter to the Federal Circuit, showing Judge Koh's ruling and claiming that it confirms the need for a rehearing en banc.

I'm not saying that Apple will get a new shot at a U.S. permanent injunction against Samsung in a few months, but I did want to point out that things could work out more quickly than usually because of the unusual circumstance that a denial of an injunction is based on a ruling that appeared final but now suddenly appears to be, at least potentially, in flux, given that a rehearing en banc is now far more likely (or: far less unlikely) than it normally is.

Obviously, there are also ways in which Samsung's position could be strengthened with respect to particular intellectual property rights. For example, Apple's patents-in-suit might face ever bigger validity problems in the meantime. Samsung could also prevail on some of its Rule 50 (overrule-the-jury) requests and have one or more liability findings overturned. But all of this is about one patent (or trade dress) at a time, while Apple has the opportunity to achieve a fundamental breakthrough by lowering the standard for injunctive relief as compared to the Galaxy Nexus ruling (which doesn't necessarily mean a low standard, just not the unbelievably high one as it currently stands).

Now that I've talked about possible paths and permutations that others haven't even started to address, let me remind you of something closely related on which I reported in late August (without much pick-up elsewhere): Apple and Samsung still have some "back-burner" patents-in-suit: patents that were dropped before the summer trial but with the right to reassert them later. The injunctive-relief question is very key to what may or may not happen to them. Apple at some point voiced the idea of reasserting some or all of those patents only for the purpose of winning injunctions. They were prepared to forego damages in order to avoid the need for another jury trial (and because the first trial already resulted in fairly high damages on certain products, so high that at some point Apple will hardly be able to increase that amount to any significant degree). As long as the current framework stands, with the "causal nexus" requirement in its current form and applied extremely strictly by Judge Koh, there's also no point in seeking injunctions: even if Apple prevailed on some liability counts, it would be told that Samsung is allowed to continue to infringe (except that Samsung would always have to pay ongoing royalties for post-judgment use for valid rights it is found to infringe, and such per-unit running royalties could also be strategically useful to Apple). At some point something will have to happen with those back-burner patents, or if we still don't see Apple reassert them in 2013, then it will be likely that Apple decided to focus on the patents it's asserting in the second California litigation, which is scheduled to go to trial in March 2014. I'm sure that the availability of injunctive relief (or at least Apple's expectations as to what the availability will be in the near term, after the next related decision by the Federal Circuit) is going to play a key role in Apple's decision-making on the back-burner patents.

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European Commission to issue Statement of Objections against Samsung over FRAND SEPs

Samsung will soon receive a Statement of Objections from the European Commission over its suspected abuse of FRAND-pledged standard-essential patents against Apple. And as I'll explain further below (click here to go to that part directly if wou you wish), Google undoubtedly faces the very same measure, with the only major difference being that there could always be a comprehensive EU-Google settlement that also covers its search engine while Samsung's case is only about SEPs at this stage. (They recently got fined by the EU as part of a display technology cartel.)

The moral of the story: Don't mess with Brussels. Especially not with FRAND-pledged standard-essential patents while European Commission Vice President Joaquín Almunia is in charge of competition enforcement for the 27-member bloc with more than 500 million inhabitants and the world's largest single market.

I already said this before. In the Apple-Samsung context I wrote in a standard-essential Samsung v. Apple patent trial report on October 19:

"Others before [Samsung's counsel] have made the mistake of underestimating the European Commission's resolve and agility in times of need. A Statement of Objections requires a fair amount of legal work and a vote by the commissioners, but if a solid legal theory based on a robust body of evidence is in place, swift action is possible and has happened before, contrary to a stereotype of a huge bureaucracy that takes its time and always looks for the path of least resistance."

Reuters, Bloomberg and IDG report that at today's press conference, the Vice President, who left no doubt whatsoever, in multiple public speeches during the course of this year, about the emphasis he and his staff place on the need to fight and prevent FRAND SEP abuse, announced that Europe's top competition agency is soon going to adopt such a Statement of Objections (briefly and commonly referred to as an "SO" in the antitrust community, which I'm a part of) against Samsung.

After news broke two days ago (Tuesday, December 18, 2012) of Samsung's unilateral withdrawal of all SEP-based injunction requests against Apple in Europe, I wrote this blog post entitled "Win for the EU: Samsung drops all requests for standards-based sales bans against Apple in Europe". Please excuse this see-I-told-you-so part, but it's inevitable because at a time when the bulk of all reports misstated the scope of (and motivation behind) Samsung's withdrawals (referring to withdrawals of entire lawsuits, while it was only a withdrawal of one remedy with respect to one class of patents), this blog provided some rapid analysis that has been validated within a record time of about 48 hours:

• I pointed out the limited scope of the withdrawal (Samsung is still suing Apple in Europe, still seeking injunctions based on non-SEPs, and still seeking monetary compensation with a view to SEPs) and the fact that it precisely matched the core concerns of the European Commission and was, since there were no signs of a settlement (no joint announcement, no concessions on Apple's part), clearly attributable to the EU's efforts. Samsung suggested it was suddenly viewing SEP injunctions as an issue for consumers (with doesn't match with the fact that it is still pursuing such injunctions on three other continents).

  Some reporters made use of my clarification of the scope. CNET was particularly quick to add my comment to its article..

• I noted that "[t]he next step for the European Commission would have been (without a firm deadline under the law) to issue a Statement of Objections (SO)" and clarified that it was "unclear at [that] point" whether there was a deal in place under which the withdrawals would take care of the EU antitrust investigation. Let me quote a whole paragraph from two days ago:

  "What's unclear at this point is whether Samsung has a gentlemen's agreement with the European Commission that the antitrust investigation will be dropped (without remedies, or maybe with only soft remedies) if it withdraws its European requests for injunctions (again, it does not have to, and apparently has not, withdraw its pursuit of FRAND compensation). If there is such an agreement, then the European Commission will soon comment favorably on Samsung's announcement and close the case. If there is no such agreement, then the investigation may continue and Samsung may still be fined, but it would certainly be in much better shape than if it had carried on with its enforcement, especially in Germany."

  The Commission didn't welcome it as a solution but merely took note and stressed that its investigations were ongoing (for example, the New York Times quoted a Commission spokesman). With today's announcement we know that these investigations are not merely ongoing but entering the next stage. An SO is always a formal requirement before sanctions (with a hearing taking place in between).

• The New York Times article I just linked to also quoted me as saying that "[i]t's not just that the plot is thickening; in my view, there can be no other plausible view than that there is pressure from Brussels". Under the now-validated headline that "Samsung's Apple Action May Not Be Quite So Selfless", the Wall Street Journal pointed to my Tuesday blog post and quoted me (from a telephone interview) as saying that "I attended these [Mannheim Apple v. Samsung SEP] trials, there was a lot of argument in court with the judge over a possible European intervention in the case". (The quote at the start of the article about Samsung possibly underestimating the Commission's speed and resolve was from one of the related trial reports.) I was also quoted on the reasons for Samsung's unilateral but not completely voluntary action by the Guardian and other media. I can't list them all here, but you can see that at least three leading English-speaking newspapers quoted my theories. By contrast, there were numerous analyst comments that came up with theories that have not only been proven wrong today but were demonstrably unrealistic even before today's EU announcement. For example, any theories of this meaning a settlement made no sense in light of the fact that there was no joint Apple-Samsung announcement and no deal under which Apple would have made concessions. It also made no sense in light of the limited scope. And at least one commentator even believed that there was a factual connection between Judge Koh's denial of a U.S. preliminary injunction against Samsung over non-SEPs and Samsung's announcement a few hours later of the European withdrawal of SEP lawsuits because Samsung thought it couldn't win its European lawsuits after the U.S. ruling. A U.S. non-SEP case and an EU SEP case are so unrelated that anyone who knows the subject could see that someone was making a connection where there wasn't one. Many reporters saw that there was no likely connection. In particular, the Los Angeles Times, which talked to me about both the U.S. lawsuit and the EU situation and quoted me on the U.S. part of the story, accurately noted that "[s]everal observers [...] said the timing was probably a coincidence and not a sign that either side is about to call a truce or push for a settlement".

• Now that I'm about to deactivate my see-I-told-you-so mode (even though it's an efficient way to simply explain what's going on and what was previously misunderstood by some), I'd also like to remind everyone that in early November 2011, when it became known that the European Commission was conducting informal, preliminary investigations, I pointed out that the Commission's confirmation of questionnaires being sent to Samsung and Apple didn't mean that Apple was a target. Instead, I said from the get-go that Apple was a victim or witness in this. At the time, major news agencies including Bloomberg and Reuters added my commentary to their articles. Now, more than a year later, the EU is about to issue an SO against Samsung, and there's still no sign of investigations of wrongdoing by Apple. (I don't blame reporters for the fact that in that case, the first EU statement was potentially misleading, but for me it was easy to interpret it correctly in November 2011 because the scope of the preliminary investigations was, according to the EU statement, about wireless standards, over which Apple never sued anyone).

OK. No more "See I Told You So" in this post. But now I'll point out to what might happen next.

Google (Motorola Mobility) standing next in line

The European Commission clarified today that Samsung's withdrawal is not enough: the fact that it may have harmed competition is enough to issue an SO and to possibly order fines regardless. Vice President Almunia said: "The [requests for] injunctions in the Apple-Samsung case were launched; it was not only a threat." Don't forget that there's another large company out there that must take note of this: Google, the owner and micromanager of Motorola Mobility. Motorola Mobility went even further in the pursuit of injunctions than Samsung because it actually won some against Apple and Microsoft in Germany (Samsung had not yet won anything, though it was pursuing this aggressively in a handful of EU member states), and it was temporarily even enforcing one against Apple (because of the intervention of an appeals court, only for about a day or so, but it wanted to do this for as long as possible). Google (Motorola) continues to try everything it can to fight a U.S. anti-enforcement injunction that prevented it from enforcing a couple of German H.264 SEP injunctions against Microsoft.

Given these hard facts, I predict that Google (Motorola) will, unless there's a comprehensive antitrust settlement with Google that also involves antitrust issues concerning its search engine, also receive an SO, not long after or maybe simultaneously with Samsung.

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Apple criticizes timing of Samsung's new patent attack on FaceTime videotelephony software

Shortly before midnight local time on Wednesday, Apple has filed a response to a Samsung motion to amend its infringement contentions in the second California litigation between the two, in which different patents and certain newer products are at issue than in the first California case that went to trial in the summer.

Apple has attached to its responsive brief the original and the amended versions of Samsung's original infringement contentions based on U.S. Patent No. 5,579,239 on a "remote video transmission system", a patent that was not filed by Samsung but just acquired in October 2011 from a group of U.S. inventors who lived in Oklahoma when they applied for this patent almost 19 years ago. The timing suggests that Samsung bought this patent in response to Apple's infringement actions, which started about six months prior to this purchase.

It appears highly unlikely to me that Samsung will win and get to enforce an injunction against Apple over this patent. Their second California litigation currently has a March 2014 trial date. The court won't grant an injunction prior to clarifying liability, which requires a trial because Samsung is also seeking damages.

Samsung already asserted the '239 patent in its counterclaims in the second Calfornia action. That second California lawsuit started in February 2012, and Samsung brought its counterclaims in April 2012. But Samsung did not specifically accuse the FaceTime videoconferencing app of infringement. I have run a full-text search for FaceTime over the original infringement contentions, and the result is negative. But the new infringement contentions mention FaceTime a lot and even show screenshots (from Apple's website). For example, in connection with the "host computer" claim limitation, Samsung alleges that "[a]dditionally [to iTunes], Facetime allows the iPhone 5 to act as a host computer". Another example: in the context of "means for exchanging data with said host unit", Samsung's lawyers write that "Apple's software, such as Quicktime and Facetime, works in conjunction with that computer interface(s) and the circuit to allow a host unit to receive data from an iPhone 5 and transmit it to playback unit for playback unit." And yet another example (there would be more, but I'll focus on a few) is that Samsung's document says the use of FaceTime on the iPhone enables the transmission of video calls over cellular frequencies (click on the image to enlarge):

To explain the procedural background of this, Apple's response is not an outright opposition to Samsung's motion. About a month ago, Magistrate Judge Paul S. Grewal warned Apple not to waste everyone's time and resources by opposing other infringement allegations that Samsung may still bring at this stage under the Northern District of California's permissive rules governing such amendments. Apple's response shows that the company heeds Judge Grewal's guidance, but its non-opposition is conditioned upon Samsung likewise refraining from opposing Apple's most recent proposed additions to the lawsuit, which include the Galaxy Note II and a handful of other recently-launched Samsung gadgets. Since there is no stipulation in place between the parties concerning mutual non-opposition, Apple's filing discusses, as a matter of precaution, reasons for which the court might find that Samsung has failed to show good cause for its latest amendments. In this context, Apple writes the following about the FaceTime accusation:

"For U.S. Patent No. 5,579,239 (''239 patent'), Samsung has expanded its original '239 patent infringement contentions to identify the FaceTime application ('app') as a 'means for capturing, digitizing, and compressing” and a 'means for exchanging data with the host unit.' [...] Samsung has also expanded its infringement contentions for 'means for storing' in the 'mobile remote unit' to identify RAM in addition to the NAND memory. [...] FaceTime and RAM were available in the Apple devices accused in Samsung's original contentions, and therefore could have been accused in June 2012. But Samsung chose not to, and has yet to identify any good cause for not doing so."

If Judge Grewal agred that there is no good cause for a belated infringement accusation, he could deny that part of Samsung's motion even if Samsung didn't oppose Apple's amendments (in which case Apple wouldn't formally oppose Samsung's). The court is always the gatekeeper.

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Tentatively invalid: the most valuable multitouch patent asserted by Apple at Samsung trial

A couple of hours ago Samsung proudly informed Judge Koh of the fact that the United States Patent and Trademark Office (USPTO) has tentatively rejected, in a first Office action dated December 29 (mailing date), all 21 claims of U.S. Patent No. 7,844,915, which I consider to be essential to the pinch-to-zoom feature. In the Apple v. Samsung case that went to trial in the summer (and in which Judge Koh just denied an Apple motion for a permanent injunction), claim 8 of the '915 patent is at issue. In fact, Apple itself declared it the commercially most valuable one of the three multitouch software patents-in-suit, demanding a per-unit royalty for future (post-judgment) use of $3.10 while the other two software patents-in-suit are each valued at $2.02 per unit. While Samsung claims to have a workaround in place for this patent, there's a dispute between the parties over whether that new implementation of the same feature still infringes.

In October, the USPTO already issued a first Office action tentatively rejecting the '381 "rubber-banding" ("overscroll bounce") patent. This means that two of the three software patents-in-suit from the first Apple v. Samsung case in California have been tentatively rejected at this stage. The highest-profile tentative rejection of an Apple patent by the USPTO became known two weeks ago and affected the '949 patent, referred to by Apple's own lawyers as "the [Steve] Jobs patent", which is at issue in the ITC investigation of Apple' complaint against Samsung. A few days later Apple filed a letter with the ITC, downplaying the significance of that (or any other) first Office action.

Since the spring of 2011 I have been saying till I was blue in the face that first Office actions are non-final. But that does not mean that they are meaningless. These are ex parte reexaminations (triggered by a request, which can be and in each of these cases was filed anonymously (by a law firm not disclosing any client), for which the hurdle is (even after last year's patent reform bill) that the request must raise a substantial new questoin for patentability. While statistic have shown that some patent examiners working for the Central Reexamination Division simply issue a first Office action rejecting all challenged claims in order to have the patent holder do most of the work of vetting/rebutting the invalidity contentions, there are also cases in which all claims are affirmed right away (in an Action Closing Prosecution) or in which only some of the challenged claims are tenatively rejected. And statistical analysis, while it is valuable in some ways, is never a substitute for a case-specific analysis of the merits.

Here, some of the rejections are based on rather far-fetched theories, such as combinations of up to three prior art references. But claim 8, which is the one that matters in the first California Apple v. Samsung case, has been tentatively rejected on two different grounds: it's presently considered invalid for anticipation (non-novelty) by one prior art reference as well as obviousness (novel but not inventive) in light of a combination of two prior art references. Apple needs to overcome both invalidity theories and even a third one: even if it successfully countered the anticipation theory, it would then also have to establish non-obviousness over the prior art reference previously deemed to have anticipated the '915 patent.

The prior art references underlying the anticipation theory is U.S. Patent No, 7,724,242 on a "touch driven method and apparatus to integrate and display multiple image layers forming alternate depictions of same subject matter". It doesn't specifically claim the pinch-to-zoom gesture as far as I can see, but it doesn't have to do that in order to serve as prior art, given that the '915 patent is only about one part (though an essential one) of the internal steps required to make pinch-to-zoom work. The other two prior art references (over the combination of which the '915 patent is deemed obvious) are the publication of a Japanese patent application (Japanese Pub. No. 2000-163031A, "Nomura") and this 1991 paper, entitled "The Automatic Recognition of Gestures" and authored by Dean Harris Rubine (Carnegie Mellon University). An obviousness theory based on two prior art references requires some explanation (such as commonly a teaching, suggestion or motivation) as to why a person of ordinary skill in the art would actually consider combining knowledge from two references.

Of the three Apple multitouch software patents that have given rise to tentative rejections in the form of first Office action, I believe the '915 patent is most likely to have some surviving claims when all is said and done, but claim 8 is now under more pressure than some other claims.

Depending on how long this process goes, we will at some point also hear about procedural steps (including reconsiderations, appeals etc.) in which some of the tentative rejections are retracted. It will take time, but it will happen. There will be some back-and-forth and some roller coaster rides, and in the meantime, tentative rejections don't affect the enforceability of a patent claim. Also, next year a number of key smartphone patents will go to trial at the German Federal Patent Court, which adjudicates all nullity (invalidation) actions in that jurisdiction. In Europe, reexamination by the patent office cannot be requested at a late stage. For patents granted by the European Patent Office there's a nine-month window to file an opposition, and subsequently patents need to be challenged in court (currently on a country-by-country basis with potentially inconsistent decisions, until a unitary patent court system is put in place in a few years). Some Apple multitouch patents have already been declared invalid by a UK court (with respect to that jurisdiction).

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Microsoft to Google: standard-essential patent licensing 'is not a rug bazaar'

Late on Monday, at around the same time that Judge Koh denied Apple an injunction against Samsung, Microsoft and wholly-owned Google subsidiary Motorola Mobility filed their post-trial briefs in the FRAND contract action in the Western District of Washington. They also submitted their proposed findings of fact and conclusions of law. I wanted to take the time (despite all the Apple-Samsung action yesterday) to identify the most interesting parts of those filings. There was some media coverage of Motorola's proposal of a $100-125 million annual royalty cap for its H.264 (video codec) patents, but the fact that Motorola, roughly two years after some aggressive demand letters that gave rise to this litigation, concedes that there could be a cap is something I already wrote about in October. The amount of such a cap wasn't known at the time. Also, I covered Microsoft's consistent position on the proper royalty rate last month.

When I first blogged about Motorola's new-found acceptance of the notion of an annual royalty cap, I presented my theory as to the underlying strategy. I believe Google (Motorola Mobility) was just looking for a way to distance itself from the original demand, which actually amounted to $4 billion a year (or more), arguing that the original letter was just an initial offer and the amount, at the end of a negotiation, would have been much lower. I don't think that would be a credible story, especially since the initial demand letters came with a clear ultimatum, but Google knows that the next stage after the FRAND rate-setting phase will be a breach-of-contract trial and it's desperately looking for ways to defend Motorola's October 2010 letters. If it dropped its 2.25% position and said, for example, that 1% is the proper rate, then it would be a straightforward thing for a jury to determine that someone who asks for 2.25 times of what he himself believes he's entitled to (let alone what the court thinks he should really get) took a blatantly unreasonable position and breached a FRAND contract. So the name of the game is for Motorola to somehow make up a story of its position today being consistent with the demands it communicated two years ago, even though today's demands are but a very small fraction of the original one. I don't think this will work, but Google is trying because in the alternative it would concede a breach, with all that it entails.

Toward the end, Microsoft's post-trial brief starts to look past the current stage and on to the breach-of-contract issue:

"Microsoft submits that a demand exceeding the upper bound of what is actually [F]RAND would presumptively violate the duty of good faith and fair dealing, as the very purpose of the [F]RAND commitment is to make non-discriminatory offers that anyone can accept, especially where, as here, the patent holder is concurrently seeking injunctive relief and has an incentive to forestall the consummation of a license. Any offer above the high end of [F]RAND would require proof of extenuating circumstances to establish that the offer was legitimately made in good faith."

This is a proposed course of action for determing breach, and since the current stage is still about determing a range (and a point), it's already relevant to the impending decision. The above paragraph basically says: there's a FRAND range from $x (low end) to $y (high end), and for every dollar and cent in excess of $y, you had better come up with a really good excuse that you demanded this differential of $z without knowing that you were outside the permissible range -- and absent a sufficient excuse, you've committed a breach.

Further below, that paragraph clarifies that FRAND royalties "must be equally available to all" regardless of "posture or needs", and then says this, which made me smile:

"It is not a rug bazaar."

To me this analogy looks very much like an allusion to Google's (Motorola's) position that the proper way to determine a FRAND royalty is to attempt to assess, based on the Georgia-Pacific factors, what the outcome of a negotiation between the parties would have been. Google (Motorola) wants that approach because it apparently believes that this is its best chance to somehow capture hold-up value of standard-essential patents (compensation in excess of a FRAND rate).

Microsoft's counterproposal has consistently been to look at what the outcome of multilateral ex-ante pool rate negotiations would have been. (Even if one looks at post-standardization pool rates, they're tiny compared to Motorola's demands, so the ex-ante perspective, even though it's the most accurate point of comparison, isn't even necessary to conclude that Motorola asked for a huge multiple of a FRAND rate.)

Google (Motorola) has consistently rejected pool rates and argues that the MPEG LA AVC/H.264 pool was basically just formed to bring (or keep) royalties down, for the benefit of large H.264 implementers like Microsoft. Microsoft's post-trial brief highlights a major plausibility problem that Motorola's claim has:

"No fewer than four of the licensor participants in that pool (Dolby Laboratories, Electronics and Telecommunications Institute (ETRI), Fraunhofer-Gesellschaft, and Columbia University) derive 'most or all of their relevant revenue from licensing, as opposed to making and selling products' -- meaning that they have no 'royalty exposure' [to minimize] or need to 'maximize freedom of operation.' [...] While some pools may aim to minimize royalty payments, the MPEG LA H.264 pool is different. It could not have attracted ETRI and the other similarly-situated licensors unless its royalty rates generated respectable returns."

The list of MPEG LA H.264 patent licensors is available on the Internet. All four of the entities mentioned by Microsoft as examples of revenue-oriented, non-implementing patent holders appear on that list.

Dolby Laboratories is well-known for its ubiquitous noise-reduction system. Dolby is never shy to collect money. For example, when BlackBerry maker Research In Motion refused to pay what Dolby wanted to receive, it sued in the United States and in Germany (and then RIM backed down and paid up).

ETRI (of South Korea), Fraunhofer-Gesellschaft (of Germany) and Columbia University (of New York City) have other sources of funding (from governments and donators), but when they license their patents, they simply want to get paid at market rates (or above, but not below). They don't have or share the interests of companies building products implementing a given standard.

What I also considered noteworthy in Microsoft's brief is a statement that (I'm paraphrasing this now) the value of a standard is not just the value of the totality of all patents that read on it. There's more to it. Standards frequently include technology that was never patented, or that is no longer covered by patents because the relevant ones expired. Standard-setting involves contributions and efforts that aren't even patentable in the first place. In a world in which some patent holders make excessive royalty demands especially in connection with industry standards, it's important to remind patent holders of the limits of their intellectual property rights.

I wish I could also quote something really convincing from Google's (Motorola's) filings in this case. But for the reasons I explained above, Google (Motorola) is going in circles because it is forced to defend, at all costs, its original demand letters, and that tactical requirement unfortunately precludes it from making constructive and enlightening contributions to the FRAND discussion. It's really time for this FRAND dispute to come to an end. The rate-setting decision, which could come down anytime (though observers believe it's more likely in January than in Dcember), is going to be a key milestone.

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The most important Apple-Samsung decision left for Judge Koh: running royalties, not past damages

On Monday, Judge Koh denied Apple a permanent injunction against Samsung over the patents the jury had found infringed, but that does not mean that Samsung is free to infringe. Apart from the fact that I believe Apple will ultimately win some injunction on appeal (because patents are exclusionary rights under the Constitution and if Apple doesn't win one in this case, no patent holder in this industry ever will), there's an important consequence of the denial that I haven't seen addressed elsewhere, so I want to talk about it now.

Contrary to popular misbelief, the strategically most important issue now is not the one of whatever adjustments Judge Koh may make to the jury's billion-dollar damages award. Whether it goes up to $1.5 billion (Apple would love that) or down to $800 million is not going to change the situation between these two companies. In a way, even Samsung's withdrawal of its European SEP-based injunction requests is more important than the entire billion-dollar award because it wouldn't have taken Samsung too many months of blocking Apple's sales in a market like Germany to cause damage well in excess of a billion dollars. (There are steps Apple could have taken to avoid this, but those measures could also have been quite costly and, in the long run, might have resulted in licensing costs exceeding a true FRAND rate by far more than a billion dollars.)

The key issue remaining in Judge Koh's court now is about damages, but not about past damages. It's about future damages, more commonly referred to in legal documents and write-ups as "post-judgment royalties".

The denial of an injunction is not a determination that the future value of a patent is zero. Instead, the legal consequence is that the court must determine what the infringer needs to pay for future use of those patents. The court won't stop the infringement, but the infringement, if any still occurs going forward, must be compensated. The patent holder is always entitled to monetary compensation, which is a legal remedy (available under the law) as opposed to an equitable one (injunctions are in the discretion of the court).

Back in July I already reported on (among other things) the per-unit amounts that Apple wants to receive on an ongoing basis:

• $2.02 for the "overscroll bounce" (or "rubber-banding") '381 patent

• $3.10 for the "pinch-to-zoom API" '915 patent

• $2.02 for the "tap to zoom and navigate" '163 patent

• $24 for use of any of Apple's design patents or trade dress rights

From a practical point of view, we can forget about the last item ($24 for design patent or trade dress infringement). Samsung is not going to do that, not even if the cost was one tenth of that amount. Samsung benefited in the past from building iPhone/iPad lookalikes -- it no longer needs to do that.

For the three software patents, Samsung claims to have workarounds. I analyzed them in October and subsequently reported on Apple's claim that Samsung's purported workaround for the '915 patent isn't truly a workaround but just another act of infringement.

I believe the rubber-banding workaround is legally fine but it's just a throw-out (of a feature that's not just a visual effect but key to usability) and not a non-infringing implementation of comparable functionality. If it were just about this patent (and not about countless other patents Apple might assert over time, resulting in a huge aggregate cost), I actually believe that the $2.02 price would be worth paying because rubber-banding would palpably enhance the user experience of Samsung's phones. (Samsung hasn't implemented it for about a year because of various lawsuits around the world, but I'm sure it would love to re-implement it.) The cost to Samsung would, however, not be limited to whatever the court determines it has to pay Apple on a per-unit basis. There would also be the cost of having to maintain two different code trees (one for the U.S. and one for countries in which Apple has won or may win injunctions) for different jurisdictions. Also, the rubber-banding patent is under invalidation pressure in the U.S., so Samsung may ultimately get it for free anyway.

For tap-to-zoom, Samsung's workaround appears to solve the legal problem without any significant degradation of the user experience. The difference between the original implementation and the workaround is just what happens as a result of the next tap after the first tap-to-zoom operation. I'm not even sure Samsung would pay a few cents per unit to get to use that patent (unless Apple can really convince a court that the workaround isn't legally safe, but Samsung's non-infringement theory looks plausible to me).

The tricky part is the pinch-to-zoom API patent. There's a dispute (and to the extent that information was disclosed at all, it appears to be genuine) over whether or not the workaround still infringes. Apple believes this should be the most expensive one of the three software patents. If the court sets a low per-unit fee (instead of the $3.10 Apple asks for), Samsung might actually prefer to just pay it rather than fight with Apple over whether the workaround is a workaround, but since Apple will appeal the denial of the injunction, Samsung cannot know whether at some point it may really want to defend the workaround, so it might just have to fight over this.

Compared to the billion-dollar award for past infringement, these amounts of a couple of dollars per patent per unit (sold in the U.S. market) don't look huge. But strategically they are, because they have a relevance to long-term competitiveness and possible per-unit royalty rates for a license to Apple's entire portfolio. By contrast, the billion-dollar award is of a non-reoccurring nature. Apple might get other billion-dollar awards, but as long as Samsung doesn't infringe any design patents or trade dresses (or trademarks, which are not presently at issue), the likelihood of another billion-dollar award is very, very low. It's not that expensive to infringe utility patents. It's really the design and trademark stuff that gets costly, and Samsung will most probably avoid that one in the future.

Let's assume Judge Koh awards Apple a per-unit royalty for actual future use (Samsung won't pay if it just works around) of about $1 on average for each of these patents. And Samsung may decide to pay this for only one or two patents but probably not all three of them. But it may feel forced (or be forced, if its purported workaround doesn't withstand scrutiny) to pay $1 or $2 per unit. Big deal? Not big, but scalable.

It would be scalable because Apple has many more patents in stock. It would take time, but Apple might enforce more and more patents, and then reach a point at which Samsung would pay $10 or $15 for its use of only a dozen Apple patents. The alternative would be a license deal with a reasonable per-unit royalty and the anti-cloning provision that matters such a great deal to Apple in these kinds of deals.

The billion-dollar award, even if affirmed more or less, would just be like a sunk cost to Samsung. Water under the bridge. They would pay it mostly for the design and trademark stuff. It would have little bearing on a settlement involving technical patents. Sure, there could be a deal where Samsung pays more up front and a lower royalty going forward, or where Apple says "we'll drop or reduce the damages claim for past infringement if you pay more on a per-unit basis", but it would merely be a bargaining chip.

There are different ways in which Judge Koh could determine the post-judgment royalties. Theoretically, the parties could agree (as part of a wider settlement or just as a stipulation covering this specific issue). Most likely, they won't. Apple will want what it asked for in the summer, and Samsung will offer a few cents per unit. So the court will have to decide. Most patent cases get settled long before this point, and especially before any of this gets decided on appeal, which is why the law isn't completely settled in this area. There are three distinct possibilities:

1. For the first one it's too late in this case: Judge Koh could have asked the jury to determine post-judgment per-unit royalties for the event that an infringement is identified but an injunction denied. This jury wasn't asked to decide this, and it won't reconvene in court.

2. Judge Koh could put the issue before a new jury. This would require a jury trial at which the parties would present and defend their positions on the appropriate royalty rates. It would be a significant (but not huge) drain on court resources (also on the parties' resources, but those are vast).

3. Judge Koh could make the determination herself. In this effort, she could attach more or less weight to the per-unit past damages amounts set by the jury. Samsung reverse-engineered the jury's per-product damages figures, but only to the extent that it's clear what the jury award for design patents (in total) and for software patents (in total). It's not clear how much value the jury attached to, for example, rubber-banding relative to pinch-to-zoom. The jury award was, on a per-unit basis, much less than what Apple asked for, but still a huge multiple of whatever Samsung would consider reasonable.

For post-judgment royalties, Apple might ask for an enhancement (such as a tripling) based on willfulness. While there are legal scholars who believe there is no basis for willfulness enhancements of running royalties, there are courts who have done this. If Apple could actually get triple post-judgment damages, then we'd be talking about several dollars per unit per patent. It would take Apple only a handful of successfully-enforced, willfully-infringed patents that Samsung would continue to infringe in order to get something on the order of a $15 per-unit royalty.

Scalable revenue streams are the primary business objective of companies like Apple. Apple would certainly prefer a deal with Samsung over protracted litigation, and if litigation continued, it would prefer (and will at some point win) injunctions over post-judgment royalties. But even in this worst-case scenario for Apple (worst case after a finding of liability; obviously, when a lawsuit starts, the worst case is that no infringement of any valid rights is identified in the first place), with an injunction being denied, there's still plenty of upside in it for Apple, and considerable risk to Samsung's competitiveness.

Now that Judge Koh has denied Apple's motion for a permanent injunction, one of the next steps for Apple is to file a motion for an award of post-judgment royalties. Apple's September 21 motion was only about damages enhancements for past infringement (also including the time between the jury trial and the final judgment). Apple may now await the outcome of the other post-trial rulings (the jury might still be overruled on some counts), but at that point it's going to demand post-judgment royalties, and it's entitled to them (except that the amount is yet to be determined).

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