Last week Qualcomm filed a breach-of-contract suit against Apple's four contract manufacturers, and the focus on injunctive relief made a motion for a preliminary injunction "particularly likely" as I wrote at the time, though I also pointed out that the hardest part here is going to be that Qualcomm must show irreparable harm. So I'm not surprised in the slightest that Qualcomm has followed up with a preliminary-injunction motion (asking the court to require the contract manufacturers to pay royalties again) and that most of the legal memorandum in support of that motion deals with the question of irreparable harm. The closest thing to a surprise is that this filing wasn't accompanied by a press release published on Qualcomm's website. They have, however, given a statement to CNET and other media.
Here's the filing, including all exhibits, some of which are really essential here (this post continues below the document):
17-05-24 Qualcomm Motion for Preliminary Injunction by Florian Mueller on Scribd
Despite the qualitative and quantitative efforts undertaken by Qualcomm to establish irreparable harm, I can see some serious issues here that weigh strongly against an injunction. Only two days after disagreeing with various aspects of Apple's opposition to Samsung's latest Supreme Court petition, one part of which is related to an injunction ruling in Apple's favor, I can't help but point out which parts of Qualcomm's preliminary-injunction motion are unconvincing at a closer look.
As long as Qualcomm doesn't grant patent licenses on FRAND terms to chipset makers such as Intel (which filed a great amicus brief in support of the FTC) and Samsung (whose brief is at a level with Intel's, with a different focus in part since Samsung is affected in two roles, not just one), it is acting in contravention of an obligation to license all comers. That is the root cause of this whole constantly-escalating dispute. Qualcomm's motion mentions complaints by Apple in the same district (Southern District of California) and "in the United Kingdom, China, Japan, and Taiwan." I was previously aware of some, but not all, of those complaints. But again, this wouldn't have happened if Qualcomm had licensed chipset makers on FRAND terms. Since Qualcomm must license "all comers" on FRAND terms, chipset makers are entitled to a license, but so are device makers like Apple. Contract manufacturers are being sued now only because they are in exactly the position of the value chain where Qualcomm apparently believes it can get the best deal.
Qualcomm places a whole lot of emphasis on what those contract manufacturers have done over an extended period of time: they apparently used to meet Qualcomm's demands. Those demands are now at issue. Exhibit 16 to Qualcomm's motion (pages 67 and 68 of the PDF) is a letter sent by Apple's general counsel, Bruce Sewell, to his counterpart at Qualcomm, Donald Rosenberg. In that letter, Apple states the following:
"Despite being just one of over a dozen companies that contributed to basic cellular standards, Qualcomm forces the contract manufacturers and Apple to pay many times more in royalty payments than all the other cellular patent licensors combined! This is grossly unfair and needs to be reviewed by the courts and appropriate antitrust agencies - activities which are now underway." (emphasis added)
Qualcomm's version of the story is that everyone was paying a fair amount of royalties and that the contract manufacturers are still doing so with respect to non-Apple products:
"[Qualcomm and Apple's contract manufacturers have a] long history of operating under the license agreements makes clear that the agreements are reasonable and supported by adequate consideration. As noted, as to non-Apple products, Defendants continue to perform under the same terms that apply to Apple products."
This is a non sequitur. Royalties can be supra-FRAND even if some parties have paid up for a century. The contract manufacturers are just pass-through entities here. If other customers haven't taken the same step as Apple, it still doesn't mean that the royalty level is right. Qualcomm's motion doesn't address what the attached letter by Apple's general counsel states. Here's another quote from that letter:
"We believe Qualcomm is charging the contract manufacturers, who in turn pass back to Apple and its customers, royalties based on an illegal manipulation of the market for cellular enabled chipsets."
If what Apple says is true and Qualcomm has illegally manipulated the market and has therefore been able to charge "many times more in royalt[ies] than all the other cellular patent licensors combined," then that's an issue that needs to be addressed. Above all, what needs to be addressed before an injunction can even be contemplated in Southern California is the totality of what the Federal Trade Commission is alleging in the Northern District of California. In the contract manufacturer case, the FTC case isn't mentioned at all (unless something went wrong with my full-text PDF search). The only related case Qualcomm has notified the court of is Apple v. Qualcomm, where Qualcomm brought counterclaims including one related to tortious interference. Between now and an injunction decision, the FTC's findings will have to be discussed since they're highly relevant. If we nevertheless assume now, for the remainder of the post and just for the sake of the argument, that Qualcomm is right and the contract manufacturers are withholding royalties that they owe Qualcomm, then there still are some fundamental flaws in Qualcomm's injunction request:
On page 18 of the memorandum (PDF page 23), Qualcomm cites various district and state court decisions that are unrelated to patent licenses. Unlike Richard Stallman, who calls it a "seductive mirage" to view patents, copyright, trademarks etc. as part of the same larger category of rights called intellectual property, I don't oppose the term when common aspects of otherwise disparate IPRs are meant. However, I've done a fair amount of copyright and trademark licensing over the decades, mostly involving software developers and distributors. When Qualcomm's cited decisions found that it was irreparable harm if unlicensed streaming threatened the businesses or at least diminished the value of distributorships of legitimate licensees, I can relate to that in connection with exclusive licenses (such as an exclusive territorial distribution license). The copyright and trademark licenses I negotiated in the past all involved territorial exclusivity, and infringements by third parties would have been terrible. However, Qualcomm entered into the obligation to grant FRAND licenses to its standard-essential patents to everyone. If courts protected exclusive licensees through injunctive relief, that's fundamentally different from this case.
Pages 161 to 164 of the PDF contain a declaration signed by Qualcomm's licensing chief Alex Rogers. The fact that he signed it in "Brussels, Belgium" is probably attributable to developments in the European Commission investigation of Qualcomm's conduct. At least that's far more likely than licensing negotiations. Anway, Mr. Rogers's declaration is meant to support Qualcomm's claim of irreparable harm (unless the court orders Apple's licensees to pay up again), and it's a bit weak in terms of being speculative. The ninth paragraph alleges "a significant competitive imbalance" that Apple and its contract manufacturers have allegedly created because Apple's competitors "are paying to use Qualcomm's valuable intellectual property under their respective license agreements, while Apple and Defendants are not." However, there really isn't any sign of Apple gaining market share this way. Also, Qualcomm itself asserts all the time that Apple has agreed to hold the contract manufacturers harmless, so Apple can't just assume that it won't ever pay Qualcomm anything. Anyway, Apple hasn't lowered its prices or done anything else so far (such as offering more value at the same price) that would have competitive impact. The tenth paragraph contains a double "may":
"[O]ther licensees may use Defendants' non-payment as leverage to improperly argue that they may also decline to pay under their respective agreements [...]" (emphases added)
The eleventh paragraph contains a "may" and a "could":
"Defendants' continued non-payment of royalties also may harm Qualcomm's ability to enter into new agreements. [...] [A] prospective licensee could claim it is disadvantageous to sign a license agreement with Qualcomm." (emphases added)
But the legal standard cited by Qualcomm requires a plaintiff to show that he is likely to suffer irreparable harm (absent a preliminary injunction).
Qualcomm argues that non-payment of royalties means "less cash on hand for ongoing research and development." But Apple makes a similar claim in the aforementioned letter:
"The more Apple innovates with unique features[,] the more money Qualcomm collects for no reason, and the more expensive it becomes for Apple to fund these innovations."
So it's not enough for Qualcomm to claim that more cash in the bank (where it already has north of a billion dollars anyway) is going to result in less research and development. The question is whether the same applies to Apple in some way, and then, if the court has to determine which effect is worse (the one on Qualcomm's R&D or the one on Apple's R&D), then it also must be considered whether Qualcomm's royalties are within or outside the FRAND ballpark. The same district court in Southern California will make a FRAND determination as to at least some Qualcomm patents at Apple's request. It seems highly ambitious that Qualcomm now wants to convince the court in connection with a preliminary-injunction motion that it's going to prevail in that other (huge) case.
The last paragraph of Apple's April 25 letter is heavily-redacted. In that paragraph, Apple stresses that it doesn't want a free ride and never did. Apple states its willingness to pay a FRAND royalty. It then "specifically refer[s]" Qualcomm to an attachment to an offer it made in January and says it "believe[s] this action show [Apple's] commitment to apy FRAND royalties once the amount is finally determined by the courts on a [FRAND] basis." I don't know what exactly Apple attached to its offer, but maybe we'll find out more about it in the process. I'm curious because an offer may already (dependent on its specifics) be sufficient to show that Apple is a willing licensee, but if Apple stresses in its letter to Qualcomm that there's something important beyond the offer, then (unless Apple overstates the importance of that one) it may be something important.
Apple's request for a FRAND rate-setting decision by the court predates Qualcomm's suit against the contract manufacturers, so apart from substantive and logical considerations, there would also be a procedural reason here to make the FRAND determination, or at least serious headway in that regard, before Qualcomm can obtain an injunction based on the assumption of its royalties always having been FRAND.
A part of Qualcomm's argument that I haven't understood so far is its reference to "the risk of an unenforceable judgment against foreign Defendants." In its own counterclaim against Apple and also in its filings in the contract manufacturer case, Qualcomm points to Apple's commitment to indemnify the contract manufacturers. So I can't see why Qualcomm wouldn't ultimately get paid.
Qualcomm argues that "[i]f [it] were limited to an award of backward-looking money damages (the legal remedy), Qualcomm would be forced to file a new suit (or amend its complaint) each and every quarter." Actually, that's what supplemental damages are for.
I'd like to compare this case, at a high level, to the Apple v. Samsung case in connection with which I agree with Federal Circuit Chief Judge Prost that Apple wasn't entitled to an injunction. In that other case, Apple has a decision on the merits in its favor (an undeniable fact though I disagree with that one, as does Chief Judge Prost, and would like to see it overturned). Here, Qualcomm hasn't yet proven that a single one of its patents is valid and infringed. Its claim is based entirely on the contract. It will be interesting to see what the contract manufacturers will say in their opposition to this motion about the contract terms.
As for the connection between this and the Apple v. Samsung case, it's worth noting that Qualcomm, though Quinn Emanuel (Samsung's counsel against Apple) is among the three world-class firms representing Qualcomm here, cites to a Federal Circuit decision on the public interest in protecting IP from 1996 (really old) and another one from the Northern District of California, but not to the Federal Circuit's 2015 opinion in Apple v. Samsung, which held that "the public interest nearly always weighs in favor of protecting property rights in the absence of countervailing factors, especially when the patentee practices his inventions." Maybe that's because of the pending cert petition: this holding could (and I hope will) still be overturned.
Qualcomm is undertaking a long shot here. It wants injunctive relief in a case that is only about money, and it wants a preliminary injunction despite the need to address various related issues in earlier-filed cases (FTC v. Qualcomm in the Northern District of California and Apple v. Qualcomm in the Southern District of California). Qualcomm has to give it a try, but the outside world doesn't have to believe in its chances.
The dispute is still escalating, and presumably the next level of escalation will be reached when Qualcomm brings the ITC complaint (request for U.S. import ban) it announced several weeks ago...
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