With a delay of one day, I finally get to report on Apple's latest lawsuit, which is even more recent than the second federal complaint against Samsung with the motion for a preliminary injunction against the Galaxy Nexus. There's just too much going on these days, and contrary to popular misbelief (which I've seen on Twitter), I do sleep. Yesterday I spent most of the day in Mannheim for a ruling and a trial (at which Apple also presented a new lawsuit, formally an extension to an existing one and practically just a transfer over from Munich). But obviously, a U.S. lawsuit aimed to impact German litigation is of particular interest to me since I monitor litigation in both countries (U.S. litigation via the Internet, German litigation by attending public court sessions).
This lawsuit here is different from the previous ones. It's an "antisuit lawsuit". It aims to prevent litigation and curb abuse that would, if proven, by outrageous beyond belief.
I have uploaded the complaint to Scribd.
I have now had the chance to analyze Apple's complaint in detail and can explain what it's about. Let me say beforehand that this is a very serious issue, and it could have major impact. Beyond presenting a good chance that Motorola will in the not too distant future be effectively precluded from enforcing its baseband patents against the iPhone 4S (and Apple products to be released in the near term), this could further increase the likelihood of serious antitrust trouble for Google-MMI in Europe and, in a worst-case scenario, it could reflect very unfavorably on Google-MMI's credibility in certain important circles.
Can a U.S. court help Apple with this even across borders, and can it act fast enough to prevent a disaster?
Apple's complaint emphasizes MMI's actions in Mannheim (including the ongoing Karlsruhe appeal) but also refers to Motorola's offensive claims in a litigation that was recently transferred to Illinois.
The Motorola-Qualcomm agreement at the heart of Apple's antisuit lawsuit will be under U.S. law. Apple brought its antisuit lawsuit in the Southern District of California, which is where Qualcomm is based. Whether that's also the forum agreed upon between Motorola and Qualcomm is another question (Apple's complaint says that venue is proper in San Diego "pursuant to
a license between Qualcomm, Inc. and Motorola at issue in this action"), but at the least this venue makes sense because any third-party witnesses would be Qualcomm officials, most or all of whom live there.
If Apple as a third-party beneficiary has certain rights due to the Motorola-Qualcomm patent license agreement, a U.S. court can enter judgment on those rights and take action against breach of contract even if such breach occurs outside the United States. I have over the years been a party to, or an adviser to a party to, U.S. agreements that stipulated obligations in other countries than the United States.
Apple's complaint brings claims under five counts and, on that basis, nine prayers for relief (requests for court orders). What works in Apple's favor is that even the, relatively speaking, softest one of those remedies (declaratory judgment) would have all of the effect I outlined further above. It would probably be enough to put MMI on the losing end. If any of the other claims succeed, such as the one for damages, Google can already make room in its balance sheet for what could be multi-billion dollar damages. If the iPhone 4S got blocked in Germany on an illegal basis for even just a couple of quarters, Apple's resulting damages claim would likely exceed those of Oracle in its actions against Google and SAP combined.
Yes, Google-MMI is playing with fire here if it's true that patent exhaustion is a valid defense in Apple's favor.
I will discuss Apple's claims and prayers for relief, as well as its factual representations made in the complaint, in more detail further below. Basically, it's about declaratory judgment, an antisuit injunction, and potentially about substantial damages.
It's hard to tell how quickly this U.S. litigation could have impact on litigations such as the ones in Germany. My initial analysis is that this case won't require a lot of fact discovery. There are just three kinds of issues that need to be resolved to determine that Motorola's litigation and enforcment activities with baseband patents against the iPhone 4S are unlawful:
Is Apple an intended third-party beneficiary pursuant to the Motorola-Qualcomm agreement? Once the agreement is on the table, Apple might win this one on summary judgment.
Did Motorola have the right to terminate the agreement with respect to Apple as a third-party beneficiary?
Apple's complaint says that Qualcomm sides with Cupertino on this one. MMI can try to complicate this issue by arguing over whether Apple was a patent aggressor. However, this may again be eligible for summary judgment early in the process if the agreement is such that even the most favorable interpretation of MMI's factual representations don't tip the scales. Also, MMI's termination with respect to Apple appears to a clear violation of the "ND" (non-discriminatory) in "FRAND", and that's a question of antitrust law. If the court finds that MMI's termination was illegal just based on one of the two possible grounds (the language of the contract or the FRAND issues involved), summary judgment in Apple's favor could be entered.
Are there technical reasons for which any of MMI's patents-in-suit (particularly the baseband patent used in Germany) are actually infringed by other components of the iPhone 4S than Qualcomm's chip? This is the technical prong of patent exhaustion. There are cases in which it can be complicated. Knowing MMI's key patent in this field, I can't imagine that there's any reasonable doubt about technical patent exhaustion. Of the three hurdles that are between Apple and (at least) a declaratory judgment in its favor, this is the one that might best lend itself to muddying the water, but if the judge in San Diego looks at the facts, the conclusion may very well be that this here does not have to be put before a jury.
Apple's complaint does not request a jury trial. There are other issues beyond the three I mentioned above, such as damages, which probably have to be put before a jury if MMI insists. But if Apple can stop MMI's baseband patent attacks on the iPhone 4S quickly, I don't think it has a problem with waiting a little longer for the determination of damages.
Even if some more of the issues go to trial than Apple would like to, I think this is a case in which Apple may very well win an expedited schedule because of the undeniably exceptional sense of urgency.
The mere fact that Apple brought this action should give Google-MMI pause, though I'm not sure if it will have that effect. But at some point they may all see the writing on the wall. For example, just yesterday, European Commission Vice President Joaquín Almunia, who's in charge of EU competition enforcement, expressed concern over the strategic use of standard-essential patents that confer market power on their holders.
It's also possible that courts in countries like Germany might opt to stay any infringement claims and enforcement requests against the iPhone 4S as long as the San Diego court evaluates the questions Apple has raised. It would be the safest thing a judge could do outside the United States. Should any court in a country like Germany ban the iPhone 4S against Apple's patent exhaustion defense and a U.S. court later hold that an agreement under U.S. law was clearly violated by MMI (and, contrary to MMI's highly dubious assertion, had not been legally terminated with respect to Apple's rights), this would, at the least, be a big-time embarrassment. (This is, of course, totally hypothetical because so far the iPhone 4S has not been banned anywhere on this planet over a baseband patent, and even if it happened, Apple would still have to prove through its new lawsuit that those patent rights were exhausted.)
Qualcomm appears to be firmly on Apple's side
Even though Qualcomm may benefit from weak patent exhaustion defenses in other situations because it is a major patent holder who could do a lot of "double-dipping", it appears that it supports Apple, and I don't think that's just because Apple is a customer. I think it's most likely because MMI's discriminatory termination relating to only Apple is, quite probably, unjustifiable and ineffectual.
Look at these paragraphs:
39. On January 11, 2011, Mr. Kirk Dailey, Motorola's Corporate Vice President, Intellectual Property, sent a letter to Qualcomm, copying Apple, purporting "to terminate any and all license and covenant rights with respect to Apple, effective February 10, 2011 (30 days from the date of this letter)."
40. [...]
41. On April 25, 2011, Mr. Derek Aberle, Executive Vice President of Qualcomm and President of Qualcomm Technology Licensing responded to Motorola’s letter of January 11, 2011. Mr. Aberle disagreed with Motorola’s contention that it could invoke the Defensive Suspension Provision with respect to Apple. He noted that the Defensive Suspension provision did not entitle Motorola to terminate rights based on suits brought by Apple.
As I mentioned before, a termination with respect to one particular third-party beneficiary raises serious issues under the "ND" part of FRAND. Samsung, which is represented against Apple by the same lawyers in the United States, also tried to terminate with respect to Apple, and courts in Paris, France and Milan, Italy have recently determined that such termination was neither allowed under the agreement nor acceptable from a FRAND point of view. I read both rulings and attended the Paris court hearing at which the Qualcomm-Samsung agreement was discussed. Of course, the Qualcomm-Motorola could be different, but the FRAND issues are the same because they relate to commitments those patent holders made to ETSI.
The French finding is particularly meaningful because ETSI is based in France, and the related obligations must be interpreted under French law. The French court firmly ruled out that a company with a FRAND licensing obligation can grant a license and later terminate it with respect to one third-party beneficiary, given that ETSI's FRAND declaration requires the grant of irrevocable licenses to standard-essential patents.
Apple's claims and prayers for relief
These are the five counts of Apple's complaint:
Breach of contract:
That question raises the three questions I outlined further above, plus, if Apple wins and MMI insists, a subsequent damages trial.
Declaratory judgment that Apple is authorized to use Qualcomm components under a covenant not to sue:
While this is a different kind of claim, I believe it raises the same issues as the first count.
Declaratory judgment that Motorola's patent rights are exhausted:
This again involves the same issues as the first two counts. This particular declaration by the court would probably be the most straightforward one for Apple's defense in Germany, though any of the first two counts might also do the job.
Permanent equitable injunction:
This would bar MMI from bringing new actions against Apple products with a Qualcomm chip over baseband patents. An injunction always comes with a higher hurdle than declaratory judgment, but if the court finds MMI's conduct clearly outrageous, this can happen. Note that judges -- not juries -- decide on injunctive relief.
Permanent anti-suit injunction:
While the fourth count relates to new actions, this one would bar MMI from continuing ongoing ones. I believe that if Apple wins on the fourth count, it will probably also prevail on the fifth.
The prayers for relief turn Apple's claims into requests for court decisions. For declaratory judgment and injunctive relief, they simply mirror the related claims. Furthermore, Apple asks for "all available damages for [MMI's alleged] breach of contract", another order to tell Motorola to comply with its agreement, and a reimbursement of Apple's attorneys' fees and costs, as well as anything else the court "may deem proper".
The publicly-filed complaint does not come with all of the exhibits that Apple presented under seal. As I pointed out above, while there are reasons that make it likely that Motorola's situation concerning Qualcomm is materially consistent with the one Samsung faces, this isn't certain from the outside. MMI is innocent until proven guilty, but my gut feeling is that Apple will at least get some important mileage out of this action.
In connection with "innocent until proven guilty", let me state clearly that companies are, of course, entitled to interpret contracts very much in their favor and claim rights that they don't actually have, even if their interpretations are long shots. However, in this case we're talking about an issue that has two aspects: the contractual one and the FRAND issue. I, for my part, cannot imagine (regardless of whatever the agreement may say) a clearer case of discriminatory conduct than Samsung's and Motorola's terminations of their Qualcomm agreements with respect to Apple as a customers given that their obligations from an ETSI point of view are clear and the court of first instance that hears all French patent cases nationwide has taken an unequivocal position on this one. And a clear case of FRAND abuse would go way beyond -- I repeat and underscore, way beyond -- the most ridiculous interpretations of an agreement.
Revelations concerning German enforcement timeline
In this section of a recent blog post, I discussed Apple's iterative approach to MMI's enforcement of a baseband patent and stated the facts and dates that I was able to glean from a few documents that I found in the United States as well as in Germany. All of those facts were accurate, but based on Apple's new antisuit lawsuit, I can add some more precision.
January 12, 2012 is the day on which Motorola, according to Apple's complaint, "for the first time alleged in the Higher Regional Court of Karlsruhe, Germany, that the iPhone 4S is subject to the Mannheim District Court's cease and desist order".
Five days later, Apple brought its Qualcomm-related discovery motion in Southern California. The January 12, 2012 date of that motion was known, but not that Apple followed up within five days of Motorola's infringement contention in the enforcement proceedings in Germany.
I also knew that Apple won this discovery motion on January 25, 2012. A new factoid is that only a day later, Qualcomm "communicated to Apple its willingness to provide Apple’s U.S. and German outside counsel with copies of the license agreements between Qualcomm and Motorola, so that Apple could submit those agreements to the German court". This quick follow-up suggests that Qualcomm wants to help. It could alternative have tried to delay this in different ways.
I didn't previously know that Motorola waited until January 30, 2012 to "initiate[] enforcement of the [Mannheim] cease and desist order by sending a letter to Apple's German counsel indicating that it had deposited an amount of EUR 100,000,000 with the local court in Mannheim in order to obtain enforceability of the District Court's cease and desist order, and EUR 50,000 to obtain enforceability of the District Court's Order for an accounting [sic]". Apple tempoarily removed products from its German online store during the night of Thursday, February 2, 2012 to Friday, February 3, 2012.
Furthermore, I now know that Motorola has until February 17 (this coming Friday) to respond to Apple's second motion for suspension of enforcement.
Patent lawsuit monitoring sometimes feels like a puzzle game.
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