Apple has won a strategically important modification to a recent dismissal of a FRAND contract lawsuit in the Western District of Wisconsin. As per an order entered late on Wednesday, the district court's final ruling, which was originally stated in a minute order as a dismissal with prejudice, has been modified so as to be a dismissal without prejudice as far as the claims Apple wanted to take to trial are concerned. This was key to enable Apple to preserve its FRAND defenses against Google's (Motorola Mobility's) ongoing or future infringement actions over standard-essential patents (SEPs).
Keeping the full range of its FRAND defenses alive against Google's Motorola Mobility even though its FRAND contract claims and estoppel theories temporarily (based on the aforementioned minute order) appeared to have been dismissed with prejudice, is a noteworthy success for Apple's outside counsel from three firms (Covington & Burling, Tensegrity Law Group, and Wisconsin-based CETRA).
The Wisconsin FRAND dispute between Apple and wholly-owned Google subsidiary Motorola Mobility, which started when Apple brought counterclaims in the spring of 2011 to an ITC complaint involving standard-essential patents, was a rollercoaster ride and serves to confirm that no one is ever beaten unless he gives up the fight. A trial was supposed to take place earlier this month, and until the week before the scheduled date, Apple was on the winning track, but then Motorola's litigators from Quinn Emanuel brilliantly drew the court's attention to Apple's unwillingness to commit to a license deal on court-ordered terms. Apple wanted the court to order Google (Motorola) to make an offer, but it also wanted to reserve the right to decline the offer unless the per-unit license fee was going to be $1 or less. Judge Barbara Crabb, the federal judge presiding over this lawsuit, then doubted that a trial would serve a useful purpose under these circumstances. In an effort to salvage the trial and put all the blame on Google, Apple proposed that the trial result in a cross-license, or at least define key parameters for an SEP license Apple would grant to Motorola in the future. But this was too complicated and too late, and after a hearing, the trial got canceled on November 5.
Three days later I discovered that Apple and Google were still fighting over the nature of the dismissal, and that Judge Crabb had agreed to think about this issue some more. During the November 5 hearing as well the briefing process on prejudice, Google proposed arbitration over the parties' FRAND issues, and Apple reacted favorably in a formal sense, but the parties disagreed on various key parameters. An exchange of letters between Apple and Google was filed with the court and highlighted some of the contentious issues. I also doubt that Apple would want to accept Google's proposal of "baseball arbitration", an all-or-nothing gamble that has more to do with gamesmanship than with a serious resolution of a FRAND royalty rate dispute. (Even in baseball it isn't done the way Google apparently would like it to work in the FRAND context because of rules protecting players who are forced to renew, just like an implementer of a FRAND standard is forced to take a license to truly essential patents.)
Judge Crabb has meanwhile taken her time to arrive at a well-considered decision on prejudice. She decided to uphold prejudice only with respect to those of Apple's claims that were dismissed at the summary judgment stage. Apple did not even make an argument at this stage that the relevant dismissals should be without prejudice. The theories underlying those claims were based on antitrust and tortious interference with contracts. As far as contracts are concerned, Apple is nevertheless still pursuing a Qualcomm-related patent exhaustion action in the Southern District of California, which is entirely unaffected by the Wisconsin dismissal. The dismissal of the antitrust claims was only a question of damages, with Judge Crabb holding that under the Noerr-Pennington doctrine, Apple's cost of defending itself against Motorola's infringement actions in the many millions of dollars does not count as antitrust damage. This does not clear Google of the abuse allegations themselves, and has no effect on the Federal Trade Commission's ability to take Google to task over its SEP-related conduct. Also, Apple is obviously free to appeal.
But Judge Crabb agreed with Apple that a dismissal with prejudice can't relate to claims that weren't adjudged on their merits. These relate to Apple's claims for equitable estoppel (a key defense theory in the FRAND context), breach of contract, and declaratory judgment. The dismissal was based only on a holding that Apple wasn't entitled to extraordinary injunctive relief (in the form of ordering specific performance, i.e., ordering Motorola to make an offer on particular terms) and to discretionary declaratory relief (discretionary meaning that the court can make the requested declarations but can also find, as it did in this case, that this would not be a good use of judicial resources). Apple pointed to multiple decisions according to which dismissals that are not based on the merits of a claim must be without prejudice. Judge Crabb now states that "[u]nder different circumstances, it may be appropriate for a court to entertain Apple's requests for declaratory relief and consider the merits of Apple's claims", mentioning as a particularly important example that "it may be appropriate for a court to consider Apple's arguments [as defenses and/or counterclaims] in the context of a patent infringement suit".
Simply put, Apple's seemingly-arrogant conduct in Wisconsin does not result in a situation in which Google would get away with FRAND abuse. That would have been an unintended consequence of the dismissal, and Judge Crabb's latest and final order resolves this issue.
Toward the end of the order, Judge Crabb makes reference to the parties' discussion of a possible arbitration proceeding, noting that "they have disagreements about the scope and form of the arbitration". Judge Crabb then says that "the possibility that this dispute can be resolved through binding arbitration is another reason" for a dismissal without prejudice because "[a] dismissal with prejudice could inhibit the parties' efforts at resolving their disputes through binding arbitration". There's no further explanation and it's not clear to me what is meant, given that the parties could always have agreed to put issues before an arbitration tribunal regardless of any dismissal with prejudice. If Judge Crabb meant (and I'm not suggesting that this is the reason, just speaking hypothetically) that a dismissal with prejudice would have been too much of an encouragement for Google to keep on suing Apple for SEP infringement (without having to overcome at least certain FRAND defenses and fend off certain FRAND counterclaims), then I would agree that this would indeed have made arbitration less likely to happen (and it's difficult enough to work out even under the current circumstances).
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