At close of business on Thursday, the United States International Trade Commission (USITC, or just ITC) handed down its final ruling on InterDigital's July 2011 complaint against Nokia, Huawei, and ZTE. The Commission, the six-member decision-making body at the top of the U.S. trade agency with quasijudicial powers, affirmed the bottom line -- a finding of no violation whatsoever by these three defendants -- of a June 2013 preliminary ruling by an Administrative Law Judge (ALJ).
Two aspects of the ITC's announcement make things even worse for the infamous standard-essential patent (SEP) troll:
To the extent that the Commission overruled the ALJ at all, it apparently adopted narrower claim constructions. InterDigital's official statement calls the ITC's claim constructions "extremely disappointing" and vows to appeal.
For a ruling with respect to a fourth defendant, Korea's LG Electronics, the ITC set a February 17, 2014 target date, suggesting that it's pretty much a no-brainer to dismiss InterDigital's claims against LG. InterDigital's assertions against LG (a fourth defendant the troll tried to add a little later) were referred to mediation in a decision reversed by the Federal Circuit, resulting in a remand. Recently there have been some filings in which the Office of Unfair Import Investigations (OUII, commonly referred to as the "ITC staff"), LG and InterDigital made proposals for the procedural implications of the remand. The fact that InterDigital's patents-in-suit have now been held by the ITC not to be standard-essential, LG is presumably in the clear as well. (Even if it wasn't, it could easily work around those patents-in-suit that weren't deemed invalid anyway.)
InterDigital is far from the only company suing over allegedly-essential patents that turn out to be invalid or, if valid, too narrow to be truly essential. The failure rate of SEP assertions by the likes of Samsung and Google's Motorola Mobility is also sky high, though InterDigital is particularly bad. Many SEP holders including InterDigital and the two aforementioned companies seek to benefit from overdeclaration: they declare their own patents essential during the standardization process but courts of law and other fora (such as the ITC) overwhelmingly reach other conclusions. Nevertheless those SEP holders demand royalties based on the assumption that pretty much all of their declared-essential patents are actually essential to practicing a standard.
The only way to prevent that overdeclaration gets rewarded is to fight SEP hold-up. Those who argue that SEP disputes should be referred to opaque arbitration proceedings (or else the SEP holder should be free to seek injunctions, including ITC import bans) are wrong because it's absolutely key that courts and other public fora construe the claims of allegedly-essential patents and make (in)validity determinations. If the parties to this ITC investigation (and possibly any other parties, but let's just focus on those now) had all agreed to separate arbitration proceedings, InterDigital could have tried in four separate cases (Nokia, Huawei, ZTE, LG) to argue that the related patents are valid and actually essential. In arbitration, no final, public and binding determination would have been made -- there's only an assessment, and the result of that assessment would and could have been used only in the arbitration proceeding in which it was performed.
InterDigital's hold-up strategy raises another issue, and I guess that's why it is (and in my view, absolutely should be) in antitrust trouble in China: while its U.S. patent assertions are weak, as yesterday's decision once again shows, its patent holdings are even weaker in the rest of the world. So InterDigital tries to leverage the threat of a U.S. import ban (which is much less of a threat since the Presidential veto in the Samsung-Apple case) in order to extract worldwide supra-FRAND royalties as Nokia and Huawei told the ITC earlier this year. If this is the reason (or one of the reasons) for which Chinese antitrust regulators are investigating InterDigital, then I totally agree with the Chinese. No antitrust enforcer should tolerate that a SEP holder distorts competitions in country C (here, China) by threatening to exclude a defendant (here, Huawei or ZTE) from a market U (here, the U.S.) unless the defendant accedes to the SEP holder's royalty demands on a global basis. I think the European Commission should also take action against InterDigital because it's trying to distort competition in Europe in the same way as it is doing with respect to China.
Earlier this week InterDigital claimed that its executives couldn't go to a meeting in China because antitrust regulators didn't guarantee that they wouldn't be arrested. I don't know what China's competition enforcers told InterDigital's local counsel, but I doubt that InterDigital benefits in any way from telling this story (true or untrue). There is an increasing number of people in all parts of the world, especially in the U.S., who actually would like patent trolls to be sent to jail (whether or not they say so explicitly). And while I personally feel that InterDigital should simply be fined (but at a substantial level that really hurts) for its extortionate practices, it's the case not only in China but also pretty much everywhere else that antitrust offenders can go to jail -- the question is just how bad their conduct must be, and in terms of how this harms competition and innovation, InterDigital's attempt to leverage its U.S. patents (should those ever give it much leverage) in order to impose excessive royalties in China or Europe is very bad.
Yesterday's ITC decision wasn't too surprising. In October I already highlighted the fact that the ITC didn't want to receive any public interest submissions on FRAND issues and concluded from it that the ITC, at that stage, didn't see a need to discuss FRAND here because of InterDigital's inability to prevail on liability. If InterDigital had won a liability finding in its favor, the ITC would have had to request a new round of submissions in light of the aforementioned Presidential veto in the Samsung case.
InterDigital can and will keep on suing (for example, it brought another ITC complaint against Nokia, Huawei, ZTE and Samsung earlier this year). The only other option it has is to lower its demands to levels reflective of the apparent weakness of its portfolio. Nokia's wireless devices will soon belong to Microsoft, which has already shown in its dispute with Google's Motorola Mobility that it doesn't bow to SEP-based extortion. Huawei and ZTE are pretty tough in this regard as well, and while InterDigital fails to win anything in the U.S., its Chinese antitrust problem may get worse. LG is a pretty aggressive SEP monetizer, but it has much stronger patents than InterDigital and won't overpay either. InterDigital is asserting some of the same patents that have just failed against Samsung in that newer ITC case I just mentioned. Samsung won't be frightened.
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