At close of business on Tuesday, Magistrate Judge Paul S. Grewal granted in part a Samsung motion to compel Apple to provide certain additional information concerning licensing discussions involving the four patents over which it is seeking a preliminary injunction against the Galaxy Nexus smartphone. Apple will have to provide such information by noon local time on Thursday, an hour and a half before a hearing in Judge Lucy Koh's court.
Samsung's objective is to counter Apple's claim that it would be irreparably harmed by the continued sale of the allegedly-infringing Galaxy Nexus handset. If Judge Koh concluded that monetary damages would be sufficient to make Apple whole, the product will remain on sale even if any infringements are identified. A party's licensing activities can weigh against entry of an injunction but need not be outcome-determinative. Magistrate Judge Grewal's order cites two Federal Circuit decisions that reflect both the opportunity in this for Samsung and the important limitation that licensing is only one of various factors. In the 1995 case of Tech Med. Instr. v. New Image Inds., an offer of a license "suggest[ed] that any injury suffered by [the patent holder] would be compensable in damages assessed as part of the final judgment in the case". 13 years later, the Federal Circuit provided the following clarification in Acumed v. Stryker:
"While the fact that a patentee has previously chosen to license the patent may indicate that a reasonable royalty does compensate for an infringement, that is but one factor for the district court to consider."
Here's the text of Samsung's relevant interrogatory:
"For each of the APPLE PRELIMINARY INJUNCTION PATENTS, IDENTIFY any and all persons to whom YOU have ever licensed or offered to license, or persons who have requested to license, or to whom YOU have granted or offered to grant any other rights under the Patent, including the status of those requests and offers, whether continuing, successful or terminated, and IDENTIFY (by Bates number) all DOCUMENTS RELATED TO any such license, offer, request, or other grant of rights."
Apple provided some information in March and April, but Samsung kept complaining that this wasn't enough, and finally brought a motion to compel (on April 30). A motion hearing was held on Tuesday a few hours prior to the order. According to the order, the key issue to be decided at this stage was whether "Apple should be obliged to supplement its response to identify all requests for licenses of any of the four preliminary injunction patents, even if the request did not reference one of them specifically--for example, any requests to license an Apple patent portfolio that might include one of the four preliminary injunction patents". Apple argued that this supplemental information requested by Samsung is irrelevant to the preliminary injunction decision and would place undue burden on Apple. Magistrate Judge Grewal agreed with Samsung that the information is relevant but didn't consider it reasonable to have Apple collect and review data "from every possible source within its corporate structure". At the hearing, Samsung limited its request to "two Apple licensing department employees", which the court considered a reasonable compromise.
Magistrate Judge Grewal considers the requested supplemental information relevant for the following reason:
"The frequency and substance of any license requests, even if ultimately declined or ignored by Apple, sheds light both on how those outside of Apple value the preliminary injunction patents, as well as how Apple itself values them. This is more than conceptually pertinent to Apple's willingness to license the patents, because even a well-resourced party like Apple is subject to the microeconomic maxim that supply tends to increase as does price."
While I think it's fair that the court and Samsung's lawyers get access to this information, I disagree with Magistrate Judge Grewal's assumption that Apple's willingness to grant licenses is only a question of finding the right price. This is not just a question of resources but, even more so, of margins and long-term strategic value. Apple has the highest profit margins in the industry, and the highest long-term per-customer potential for revenues and profits. The opportunity cost to Apple from the sale of each and every Android device is huge -- in the short term and, even more so, in the long term. Given the huge discrepancy between Apple's margins (and long-term potential for selling additional products and services) and those of the rest of the industry, no one would be able to offset Apple's losses from allowing unfettered copying and still have a viable business of his own.
The way to get a license deal from Apple is to bring to the table some intellectual property that Apple needs but can't just license on a cash-only FRAND basis. In a scenario in which Apple really needs someone else's IP, Apple will have to consider all options to strike a deal, and potentially license its crown jewels to a third party. But in all other scenarios, no one can pay Apple a patent license fee high enough to make it a smart choice for Apple to authorize wholesale imitation and replication of its technologies.
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