Three weeks ago I reported on Apple's FRAND-related contract and antitrust counterclaims against HTC, which were removed from an ITC investigation to the United States District Court for the Eastern District of Virginia. At the time, only the legal concepts at the heart of Apple's counterclaims and a rough outline of the case-specific issues (Apple says that HTC and ADC, the company from which it acquired the two relevant and allegedly 4G/LTE-essential patents, failed to disclose those patents to standard-setting organizations and make a FRAND commitment) were known because Apple, out of an abundance of caution (ITC protective orders for confidential business information are very strict), requested that its entire counterclaims filing be sealed. But a competition watcher working for MLex, a great subscription-based service for antitrust issues, formally opposed the sealing of the document, and HTC has now made a redacted version available through a public filing.
The issues raised by Apple in this litigation validate lawmakers' and regulators' concerns over ITC import bans based on standard-essential patents (SEPs). In a nutshell, the story that Apple's counterclaims filing tells is that
ADC Telecommunications participated in various 4G/LTE standard-setting processes but never disclosed those two SEPs (thus never made a FRAND licensing promise) throughout the years,
- only to pitch them to HTC (and possibly other companies who declined or made lower bids) as a strategic weapon to threaten Apple with injunctions against its 4G/LTE-compatible products and force it into a cross-license agreement under which HTC would get a license to Apple's iPhone- and iPad-related non-standard-essential patents.
Apple says HTC's objective is "to delay, disrupt or eliminate Apple products from competing in the downstream markets and/or to attempt to extort Apple to give up its own valuable, patented technology on unique product features in unrelated technology markets". Allegedly, the relevant patents "were being offered to HTC to attempt to extort a license from Apple to its patents on unique proprietary features that were not related to standards". In order to thwart this scheme, Apple wants an injunction against HTC's assertion of those two 4G/LTE patents.
Apple believes that ADC and HTC set the price of the two patents ($75 million) just below one of the thresholds for a review of the transaction by U.S. antitrust authorities. In some transactions involving standard-essential patents that were notified, the U.S. Department of Justice conditioned clearance on FRAND-related commitments -- something that ADC and HTC wanted to avoid. Apple argues that the transaction value was nevertheless above at least one other threshold.
Apple says that "on May 25, 2012, HTC served responses to Apple's contention interrogatories, and for the first time specifically accused Apple of infringing the ADC patents based solely on the fact that Apple devices contain baseband chips that implement the LTE standard". I see company argue on the basis of specifications of standards (as opposed to the technical details of a particular implementation, which would have to be reverse-engineered) all the time in Germany. Apple is right that someone who does this implies that his patent is standard-essential: it's allegedly infringed by all implementations of the standard, obviating a reverse engineering effort.
The 4G/LTE standard was developed by the 3rd Generation Partnership Project (3GPP), whose "organizational partners" include six standards bodies such as ETSI and ATIS. "By virtue of its membership in one of the 3GPP organizational partners, a member company participates in 3GPP", Apple's filing says. If you're interested in further detail on this, here's how Apple's filing describes ADC's and later HTC's alleged efforts to hide the two SEPs at issue from the 3GPP:
"25. On information and belief, from at least 2000 to through at least 2005, ADC was a participant in the 3GPP standardization process through its membership in at least ETSI. ADC regularly sent a representative to 3GPP meetings. On information and belief, ADC continued as a member of ETSI even after its representatives ceased personal participation in 3GPP meetings. On information and belief, those individuals that participated in meetings included Tim Lock and Samuel Sida, who were employees of ADC Telecommunications Ltd., a subsidiary of ADC located in the United Kingdom. On information and belief, those ADC employees participated in 3GPP working group meetings, through ADC's membership in at least ETSI.
26. On information and belief, ADC and later HTC, as members of ETSI, have participated in 3GPP standard-setting working groups in formulating LTE standards. On information and belief, HTC began participating as a member of 3GPP in August 2008. HTC continues to participate in 3GPP meetings on continued standardization relevant to LTE. Early meetings in this process evaluated competing technologies for use in the standards, and sought to choose from among several options that could serve the functions to be standardized. On information and belief, ADC participated in meetings of working groups that specifically discussed technology for use in standards that later became known as the '36 Series.' The '36 Series' is an LTE standard that currently includes, among other requirements, TS 36.100, 101, 211, 212, 213, 221, 300, 321, 331 and 523, and relate to TR 25.892 (hereinafter individually and collectively referred to as the 'LTE Standard'). Work on new LTE standards continues to evolve from this earlier work. The working group originating work on the LTE Standard was setting the direction for the future development of standards for LTE compliant networks and products, which has continued and continues through the present time. On information and belief, had ADC disclosed its IPR either at the inception of this work when it actively attended meetings, or any time afterward when it was aware that the standards were under consideration, then either the working group, 3GPP, and ETSI or any or all of them, could have considered alternatives rather than the product specification chosen, or developed or modified the specifications to avoid the IPR now alleged to be essential, or ADC would have been required to commit to license on FRAND terms.
27. On information and belief, despite being an active member of 3GPP and ETSI at the time the standards for LTE were being developed, ADC failed to disclose the '219 and the '944 patents, or the patent applications that resulted in those patents, or any of the patents and patent applications or other IPR related to the '219 and '944 patents, at any time, even though its representatives in the process believed the '219 and '944 patents, or the related patents and patent applications, were Essential IPR and covered or may have covered all or part of the standards in development.
28. On information and belief, working groups began working on aspects of the LTE Standard at least since May 2005. The 36 Series LTE Standard, which implements technologies that are purportedly covered by the ’219 and ’944 patents, was frozen or 'locked in' by no later than December 2008. On information and belief, ADC knew the LTE Standard was in development even after it no longer actively attended meetings, and believed its IPR would block implementation of the standard, as the standard was brought to completion. Since then and to the present day, working groups continue to work on enhancements, which build on the previously adopted standard. HTC continues to participate in this work, but has not disclosed the '219 and '944 patents (or any of the related patents or patent applications) even though it now effectively alleges in this Investigation they are each essential to implementation of the LTE Standard.
Based on internal HTC documents and discovery obtained in the present [ITC] Investigation, [redacted]. Ultimately, ADC took no affirmative steps in response and continued to remain silent as to the existence of the '219 and '944 patents or their applications, or related patents and patent applications or IPRs, to the SSOs, notwithstanding ADC’s knowledge of the work on the LTE standard then in progress.
30. [redacted] Since commencing its participation in 3GPP and ETSI, HTC has disclosed certain IPR as Essential IPR to 3GPP and ETSI. For example, on March 22, 2012, HTC submitted to ETSI an 'IPR Information Statement and Licensing Declaration' disclosing a number of patent publications as Essential IPR for the LTE Series 36 standards. [redacted] This disclosure omitted the previously acquired ’219 and ’944 patents, [redacted] Since having acquired the '219 and '944 patents from ADC in April 2011, HTC has failed to disclose those purportedly essential patents to 3GPP and ETSI in any filing or working group meeting. HTC continues to participate in 3GPP working groups and other groups, including those that deal with evolution and expansion of standards relevant to LTE compliant networks and products."
HTC is going to deny all of this, but Apple made these allegations after it obtained a lot of information through the discovery of documents in the ITC investigation that gave rise to these counterclaims.
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