Tuesday, August 30, 2011

Apple reinforces its FRAND counterclaims against Samsung (and Motorola Mobility)

In late July I blogged about Apple's FRAND defense against some of Samsung's patents-in-suit. In that post I also explained the concept of FRAND and the role FRAND licensing plays in connection with industry standards.

The fact that FRAND commitments restrict the ways in which a patent holder can leverage standards-essential patents in disputes with competitors is also important to consider in the context of Google's proposed acquisition of Motorola Mobility (MMI). Most of MMI's patents aren't particularly strong. Yesterday, M-CAM founder and CEO Dr. David Martin simply called them "crap" on Bloomberg TV (shortly after 3:00 in this video). And the relatively best ones MMI has -- which wasn't discussed on Bloomberg -- are subject to FRAND commitments. Standards-essential patents can be great parking meters to collect limited amounts of money, but they just aren't nuclear warheads and won't protect Android.

The limitations of FRAND were raised again in a brief filed yesterday by Apple with the United States District Court for the Northern District of California in opposition to a Samsung motion to dismiss and strike Apple's FRAND-related counterclaims. In that pleading, Apple also makes reference to its FRAND-related claims against MMI.

Apple accuses Samsung of "serial standard-setting abuses", "deceiving standards-setting organizations", and having "perpetrated" "anticompetitive ambush"

Apple's lawyers use strong words for Samsung's behavior to which Apple's FRAND counterclaims relate. Not only do they want to stress that those counterclaims are highly relevant to the case but they also try to convince the court that Samsung's alleged misconduct is outrageous and against the public interest.

Here are some examples of the accusations Apple hurls at Samsung in this regard:

  • "Samsung's serial standard-setting abuses [...] inflict continuing harm on consumers, competition, and Apple alike."

  • "Samsung's Subversion of the Standardization Process"

  • "Samsung has unlawfully acquired monopoly power in markets for the technologies purportedly covered by patents which Samsung claims are essential to industry standards ('declared essential patents') by deceiving standards-setting organizations ('SSOs')."

  • "Having obtained this ill-gotten monopoly power, Samsung has engaged in a relentless campaign of illegal and abusive assertions of its declared-essential patents to try to coerce Apple into tolerating Samsung's continuing imitation of [the iPhone and the iPad]."

  • "[The rules of a standard-setting organization] are designed to protect the telecommunications industry from the sort of anticompetitive ambush Samsung has perpetrated here."

While Apple's objectives are clear, I do agree that it's in the public interest to prevent any abuse of standards-essential patents and I support, in principle, every litigant who make reasonable (including reasonably aggressive) efforts to ensure that FRAND commitments are honored. That is my position regardless of the names of the companies involved.

For example, I also watched with some concern Nokia's assertion of standards-essential patents against Apple.

Comparison between Samsung's and Nokia's approaches to FRAND-committed patents

According to Apple's representations, Nokia sought to leverage FRAND-committed patents to force Apple into a cross-licensing agreement. However, the way Nokia used those standards patents in its dispute with Apple wasn't nearly as objectionable as what Samsung and Motorola Mobility are doing now:

  • Nokia made a clear distinction between FRAND-committed and unencumbered patents. Nokia referred to the latter group as "implementation patents" (as opposed to "standards patents") and used only such unencumbered patents at the ITC and in lawsuits in which Nokia requested unconditional injunctions. With respect to standards-related patents, Nokia asked the court to determine an appropriate level of FRAND compensation, and asked for a subsequent "permanent injunction preventing further infringement" only "until and unless Apple pays Nokia such FRAND compensation" for the past and in the future. By contrast, Samsung and Motorola try to shut Apple's products down on the basis of allegedly standards-essential patents, seeking injunctions and (in MMI's case) an ITC import ban regardless of whether Apple might be willing to pay FRAND royalties. Contrary to making a clear distinction as Nokia did, Samsung and Motorola simply lump standards-related and unencumbered patents together as if all patents were the same.

  • Apple never accused Nokia of deceiving standard-setting organizations. Basically, Apple and Nokia just had a commercial dispute over the demands that an owner of FRAND-committed patents is allowed to make, but Nokia was transparent at all stages.

  • Apple says Samsung sued before making a FRAND licensing offer. By contrast, there was no dispute between Apple and Nokia over the fact that Nokia made an offer (in fact, two alternative offers, though Apple didn't accept any of them).

Back to Apple's latest filing in Apple v. Samsung.

Apple's arguments against Samsung's motion to dismiss and strike Apple's FRAND counterclaims

Samsung's motion to dismiss and strike Apple's FRAND counterclaims argued that Apple is "unfairly maximiz[ing] the burden on Samsung" by raising those issues. Samsung calls them "non-patent counterclaims" and argues that Apple can just raise some of those arguments as defenses and doesn't have to ask the court for declaratory judgment.

Apple, however, stresses the need to obtain clarification from the court on Samsung's standards-related obligations. If Apple only raised FRAND-related defenses, there's a possibility that the court would never decide on those particular issues. The court may conclude that some other defenses (such as patent invalidty or non-infringement) has already succeeded, and in that event a court decision wouldn't necessarily go into detail on those standards-related issues.

Samsung argues that Apple has failed to state a sufficiently specific claim especially in connection with Apple's allegations that Samsung's behavior is a violation of antitrust laws. Apple's brief reinforces those accusations with different legal arguments and representations of fact, and also points out that Samsung itself has alleged that some other companies' purported failure to honor standards-related licensing obligations constituted unlawful anticompetitive conduct:

"Samsung's contention that Apple has failed to allege valid antitrust and related counterclaims is particularly remarkable given its own extensive history of asserting worldwide that similar standard-setting abuses violate antitrust and related laws. For example, Samsung argued to the Federal Trade Commission that another company’s (Rambus) failure 'to disclose its patent rights” and “other misleading conduct” led an SSO to standardize its technologies and convey monopoly power, and that Rambus should be barred from enforcing its patent rights as a result of its “antitrust violations.”1 In related private litigation, Samsung alleged that Rambus’s subversion of the standard-setting process violated the California Unfair Competition Law (UCL) because it 'violat[ed]' 'federal and state antitrust laws.' Similarly, in a complaint in the United Kingdom, Samsung alleged that Ericsson violated both Articles 81 and 82 of the EC Treaty – the EU analogues to Sections 1 and 2 of the Sherman Act – by failing to fulfill its promises to the European Telecommunications Standards Institute ('ETSI'), the standards body significantly responsible for the promulgation of the UMTS standard, to license on FRAND terms patents it claimed were essential to UMTS. Again, in a complaint against InterDigital, Samsung alleged that '[w]ithout certain rules,' SSOs 'would be illegal trusts,' and '[t]o prevent patent owners from imposing monopolistic royalties,” SSOs “condition the standardization of proprietary technology upon the patent owner’s promise to make the technology available to the public . . . on [FRAND] terms.'"

I quoted the above in detail because it shows how often those FRAND issues come up in such disputes. There are many more cases -- the passage quoted above only talks about some involving Samsung.

Among the legal arguments Apple makes to counter Samsung's motion, I believe one of them is particularly important. Samsung basically tried to portray all standard-setting activity as "procompetitive". It's true that antitrust regulators have repeatedly highlighted the contribution that industry standards can make to a healthy competitive environment. However, that doesn't mean that all standard-setting-related behavior is necessarily above board. Apple explains that a standard-setting process becomes anticompetitive even if there are many honest participants -- it takes only one patent holder to bring about anticompetitive effects. In Apple's view, a patent holder who made a false FRAND licensing promise commits monopoly abuse regardless of what all other contributors to the same standards do:

"What is relevant is that Samsung's misconduct rendered the concerted activity anticompetitive in fact."

Reference to Apple's FRAND lawsuit against Motorola Mobility

In connection with its theory of anticompetitive misconduct, Apple also quotes this sentence from a recent court order in a federal lawsuit (Western District of Wisconsin, Apple v. Motorola Mobility, case no. 11-CV-178):

"By making false commitments that led to the establishment of worldwide standards incorporating its own patents and eliminating competing alternative technologies, Motorola [Mobility] has become a gatekeeper, accruing the power to harm or eliminate competition in the relevant markets if it so desires."

I have looked up that document, and after that quoted sentence, which is in the middle of a summary of Apple's factual allegations (even though that particular sentence isn't recognizable as a quote when taken out of context), the judge says:

"These allegations imply that Motorola engaged in anticompetitive conduct and has achieved monopoly power."

It's important to consider the context. This was not a ruling that definitively found MMI to have committed an antitrust violation. The order merely denied a motion by MMI to dismiss Apple's case. Therefore, the angle from which the judge looked at the matter at this stage was limited to whether Apple had properly pleaded a competition case against MMI. The court could still arrive at a different conclusion later, especially if facts have to be established by a jury. So the quoted passages just say that Apple's accusations made sense per se. Still, the Wisconsin-based federal court's denial of MMI's motion to dismiss shows what kind of legal trouble companies can get into if they try to abuse their standards-essential patents in such patent disputes.

Apple brought a FRAND lawsuit against MMI because seven (!) of the 18 patents MMI is asserting against Apple in the United States were previously declared essential (by MMI itself) to industry standards (the '223, '697, '712, '230, '193, '559 and '898 patents). Even though this means that the ways in which MMI can use those patents are clearly restricted, there have been completely off-base claims by some people that the 18 patents MMI is asserting against Apple are so powerful that they can protect Android as a whole (including other OEMs, such as Samsung, HTC and LG) and are basically the reason for which Google offered $12.5 billion. Those who make such claims would be well-advised to take a look at the actual lawsuits and download some of the documents from the related court dockets. That might have an eye-opening effect on some people, but it takes a lot more time and analysis than just issuing statements that blow the strategic value of MMI's patents completely out of proportion. Googlorola won't help Samsung, as I explained before.

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