Google and HTC do everything in their power to hide from the general public the terms of a questionable patent deal that, according to an ITC judge, apparently failed to give HTC the right to sue Apple over the patents involved. My previous posts on this issue (1, 2, 3) were based solely on headlines of (otherwise) sealed filings. Fortunately, those headlines were more descriptive than the average headline and good enough to have a rough idea of what was going on. But the details of HTC's "lack of standing" were unknown.
Meanwhile, public redacted versions of Judge Pender's initial determination, HTC's petition for a review of that decision by the Commission (the ITC's leadership) and Apple's opposition brief have become available. Those documents are heavily-redacted, but I've analyzed them in order to glean as much information as possible about the terms of the Google-HTC patent deal. There are some helpful clues.
Judge Pender's decision was based on an overall assessment of the effects that the terms of the patent deal (which consists of a pretty straightforward Assignment but also a complicated Patent Purchase Agreement, which defines HTC's obligations and trumps the Assignment in any conflict) have on HTC's ability to commercialize and enforce those patents. Apple, claims that Google's patents are simply on loan to HTC "in order to sue Apple, while retaining the key patent rights for Google", and supports both the judge's approach and the result he arrived at, and opposes HTC's emphasis on certain language according to which Google appeared to assign all right, title and interest in the relevant patents.
Not only are Apple and the judge in agreement on HTC's lack of standing but the ITC staff (the Office of Unfair Import Investigations), which participates in many ITC investigations as a third party, considered the deal to be (in Judge Pender's summary of the staff's position) "nothing more than a creative attempt to thread the needle of legal precedent so as to confer standing on HTC to assert Google's patents" and "HTC’s rights in the Google Patents [to be] so encumbered as to render them illusory". The staff acknowledged that the deal "comes close to conferring standing", but found that it "ultimately fails given, inter alia, the expansive rights retained by Google, and the apparent intentions of Google and HTC" (still quoting from Judge Pender's summary, not from an original filing by the ITC staff). In other words, there were some smart lawyers at work, but even they couldn't completely conceal the actual deal structure, which presumably speaks volumes.
In my analysis of the heavily-redacted material, I attached more importance to what the judge said than what the parties claimed (because he's impartial, though judges can also err or have a bias or even be "activists"). Concerning the nature and structure of the deal, I trusted Apple a little more than HTC because, as Judge Pender notes, "HTC has prevented Apple, the Staff, and [the judge] from testing its arguments through discovery into the parties' negotiations over the Agreement by asserting [redacted] with Google and producing only heavily redacted emails excising any discussion of the parties' intent" (which suggests that HTC is afraid of the evidence). Also, HTC withheld the Patent Purchase Agreement for five months. But Apple also has an agenda, of course.
Apple claims that one of the effects of the rights Google retained is that it "can pull the rug out from under any infringement lawsuit HTC contemplates or launches". I have concluded from the set of documents I reviewed that Google must have retained some kind of right to grant to third parties licenses to the patents it "sold" to HTC, and I suspect, based on certain passages, that those licenses aren't straightforward licenses (agreements that say "I allow you to use these patents") but come down to a covenant on HTC's part not to sue certain parties -- a circle of parties that depends in some way on what Google does. There's one sentence in one of the filings that explains that a license and a covenant not to sue are two different ways to formalize the same thing: to authorize someone to use something.
In this context, the initial determination and the parties' pleadings make extensive reference to a Federal Circuit decision, Speedplay v. Bebop. One of the key holdings in Speedplay was that "Speedplay can render [two co-owners'] right [to sue for infringement] nugatory by granting the alleged infringer a royalty-free sublicense". HTC disputes that Speedplay has any relevance here, and it emphasizes that the outcome in that case was that the plaintiff had standing. But the judge's decision and Apple's brief essentially say that the key take-away from Speedplay is that someone's right to sue an infringer is illusory if there's someone else who can simply bail out any defendant by virtue of an "unfettered right to sublicense". It's pretty clear that this is one of the rights Google has retained.
There's no clue in the redacted versions of those documents as to how a third party could get help from Google if it's sued by HTC. I think it's not impermissibly speculative to assume that Google wanted to ensure HTC couldn't sue other Android adopters (and possibly also other kinds of Google partners). There are references to Google's "Affiliates" in contexts that suggest those are third parties and not affiliated entities from a corporate law point of view. There would be no problem if companies that received a license from Google in the past continued to have one: that's the way these deals work. But if HTC had to enter into a covenant not to sue that can benefit future parties that are not even identifiable by the time of the Google-HTC deal (for example, future Android adopters), then it weakens HTC's legal position in ways that arm's-length patent deals between parties don't.
One way to look at HTC's ability to sue is to ask which parties HTC cannot sue. Apparently, it cannot sue parties whom Google provides with whatever they need to be protected from lawsuits brought by HTC. The other way to look at it is to ask which parties HTC can sue. Apple argues that HTC's ability to sue is limited to Apple as the only target: "To date, that [part of the deal] means that HTC must indulge infringement by all entities save Apple." Apple describes one of the restrictions imposed on HTC in the following way: "If HTC licenses the patents, it must [redacted]."
I haven't been able to verify that Apple is really the only company on this planet that HTC could sue under the agreement as of today, but I also haven't found anything in the public part of HTC's petition that renders Apple's theory implausible. I mentioned before that HTC didn't even want the ITC to see the relevant parts of its related correspondence with Google. That correspondence may show pretty clearly that the whole idea behind the deal was to provide HTC with what it needed to sue Apple, and everything else was more of a smokescreen to circumvent applicable caselaw on standing in patent litigation.
Besides the right to sue, the right to sell something on to a third paty is another key characteristic of a true sale. The Google-HTC agreement undoubtedly defines some obligations on HTC's part in that case -- I don't know whether it must pay Google something, but there's no question that it must pass all of the encumbrances under the deal with Google on to a third party. In Apple's opinion, this would make it hard to "find a willing buyer for the patents". I gleaned from Judge Pender's ruling that Google may not have a straightforward veto right but that the net effect of what the parties agreed upon amounts to one. There appears to be some kind of "penalties" (according to Apple) and possibly other negative implications of a sale that is not to Google's liking.
Another item that clearly added to the judge's impression that this deal is not a true sale is that the agreement refers to irreparable harm to Google that could result from "HTC's preexisting licensing relationships". It's not clear what exactly is meant, but in this context the judge concluded that "HTC's right to freely license is illusory".
In an effort to defend the deal and to claim that there's a perfectly acceptable motivation behind it (even though HTC and Google didn't allow the ITC to look at the related evidence), HTC develops some kind of theory centered around the idea that companies do all sorts of deals in order to defend themselves in the ongoing "smartphone wars". HTC points to high-value transactions and apparently tries to explain that it accepted various restrictions imposed by Google just to get patents that can place it "in a more defensible and safer position in the market" in light of "aggressive intellectual property holders such as Apple" and "as the smartphone players continue to aggressively attempt to license their portfolios". In this regard, HTC says the deal it struck with Google "would appear quite attractive".
The final paragraph of HTC's petition for review is quite defensive. While HTC continues to assert that it has standing, it tries to somehow keep the door open to the possibility of curing the (vehemently-denied) deficiencies of the agreement by having Google join as a co-plaintiff: "In the alternative, should another person or persons be identified who would perfect standing, to permit HTC the opportunity to join such other person or persons as co-complainants to this investigation."
Thus far, the Commmission has not decided whether to review the dismissal of those five Google patents due to lack of standing.
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