Late on Friday, Motorola Mobility filed its annual report with the SEC. The following important passage starts on page 37 and ends on page 38:
On February 17, 2012, the Company received a letter from the European Commission, Competition Directorate-General, (the 'Commission') notifying it that the Commission has received a complaint against Motorola Mobility, Inc. ('MMI') by Apple, Inc. ('Apple') regarding the enforcement of MMI's standards-essential patents against Apple allegedly in breach of MMI's FRAND commitments. Apple's complaint seeks the Commission's intervention with respect to standards-essential patents.
Earlier this week, the Commission had cleared Google's proposed acquisition of MMI, but it simultaneously clarified that this was only because it did not believe the merger would make things worse. Even greater clarity was provided by a parallel statement by European Commission Vice President Joaquín Almunia, who pointed out (in other words) that merger clearance shouldn't be misunderstood as the wholesale approval of a company's past (let alone future) actions.
Apple has a three-tiered approach to MMI's conduct:
It is trying to reach a point at which German courts won't allow any further enforcement of injunctions against Apple based on MMI's standard-essential patents (SEPs). Apple has repeatedly amended a proposal to MMI for taking a FRAND license to its SEPs. The problem is that German courts, especially in one part of the country, continually try to move the goalposts in favor of FRAND abusers and against the public interest in true innovation (SEPs are just a matter of market power, not of huge technological advance) and competition.
It's not acceptable for Apple (and it wouldn't be good for the economy and society at large) to let FRAND-hostile judges in only one EU member state (albeit the largest one) make the whole idea of FRAND fail. There are some other policy areas in which many European countries look to Germany for guidance and where that's probably a good idea. But when it comes to case law on a FRAND defense against injunctive relief, "Made in Germany" doesn't stand for quality. Instead, it stands for anticompetitive dogmatism favoring even invalid patents over the public interest.
Apple has recently brought an "antisuit lawsuit" against MMI in the Southern District of California. That one is about patent exhaustion and only relates to Apple products incorporating Qualcomm chips. Antitrust plays a role to the extent that MMI's attempt to terminate its patent license agreement with Qualcomm with respect to Apple as a third-party beneficiary looks like a fairly clear violation of the "ND" ("non-discriminatory") part of FRAND.
Patent exhaustion raises difficult questions and those vary between jurisdictions. It has served Apple well against Samsung (especially in French and Italian courts), and it may work here, but MMI's approach to its past FRAND commitments must be addressed at the regulatory level regardless of whether patent exhaustion may make the issue moot with a view to the iPhone 4S and future Apple products. Also, MMI doesn't use only baseband-related SEPs: H.264 and WiFi are other standards at issue, and patent exhaustion can never solve all such problems.
Now we know that Apple also brought a formal EU antitrust complaint against Motorola. There were no formal complaints (though presumably a fair amount of informal correspondence) on the table when the EU recently launched a full-blown investigation against Samsung. If Samsung's conduct warrants an investigation, so does MMI's in my view. I watch the litigation activity of both companies and differences are only gradual. One difference is simply that MMI has won an injunction based on an SEP, something that Samsung has so far failed to get, but if Samsung keeps asserting such patents, it will eventually also win one somewhere, I'm sure.
Apple isn't the only company that is facing MMI's aggressive quest for injunctive relief based on SEPs. A wholly-owned MMI subsidiary, General Instrument Corp., is suing Microsoft over patents allegedly essential to the H.264 video codec standard. At a trial earlier this month, it turned out that an official MMI court filing explains the value of a single SEP with the analogy of a bullet in a gun ("it only takes one bullet to kill") in the context of bank robbery.
I have no idea if Microsoft will also lodge a formal antitrust complaint against MMI with the European Commission. Microsoft brought a formal EU antitrust complaint only once so far: against Google's conduct in the online search and advertising market (in March 2011, at a time when an investigation was already ongoing). Even if Microsoft doesn't complain, Apple will certainly point the Commission to publicly-known facts about MMI's actions against Microsoft.
Motorola will now have to respond to the complaint. I am sure that Brussels will take the time it needs to understand the issue, but time is of the essence because of what's already going on, so I think a decision on whether or not MMI will be formally investigated is only a few months away. While I can't second-guess the Commission, I monitor those lawsuits and evaluate the information that surfaces in them, and on that basis, I think formal investigations are reasonably likely here.
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