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Apple Wins in Part in Apple v Samsung - Non-Jury Issues to be Briefed Separately and More on the FRAND Game~pj
Thursday, September 13 2012 @ 01:40 PM EDT

Remember I told you that Apple was angling to be able to talk more than Samsung in its latest motion? Well, it failed. They both get the same number of pages, which is the alternative relief Samsung had asked for. But it won in a bigger way, in that what Apple got is the opportunity to argue any equitable issues separately, in a separate motion from the one motion each side had been told by the judge it could file. Samsung can file a motion too. So two new motions will be briefed.

And now you know why lawyers don't just say, "Oh, OK, Your Honor, whatever you say." They keep trying as long as the judge keeps changing her mind and saying yes. So there is a new schedule, but the bottom line is there is going to be another motion from each, Apple's to cover waiver, equitable estoppel, unclean hands, and unfair competition claims, the FRAND claims, and Samsung to cover indefiniteness. And whatever else these clever lawyers can think up. But each must do it in 12 pages, with the opposition the same, and then the reply a maximum of 7 pages. They will both reach the maximum pages, I'm sure.

So Apple gets to argue some FRAND issues. Would you like to know what that is really all about? You may find these statements to Congress [PDF] in July helpful, in that you see both sides, first the American Antitrust Institute and then Google. Google's letter begins on page 14. I'd like to show you what Google has to say, because it's mind-blowing. It has to do with the Microsoft-Nokia licensing of some patents to non-practicing entity MOSAID. As Google presents it, there is a dirty game afoot. The part about Microsoft/Nokia/MOSAID begins on page 24 of the PDF. I'll do that part for you as text.

Here's the order, first:

1965 - Filed & Entered: 09/12/2012
Order on Motion for Miscellaneous Relief
Docket Text: Order by Hon. Lucy H. Koh granting in part [1956] Motion Regarding Schedule for Briefing of Non-Jury Claims.(lhklc3S, COURT STAFF) (Filed on 9/12/2012)
Here it is as text:



APPLE INC., a California corporation,

Plaintiff and Counterdefendant,


a Korean corporation;
a New York corporation; and

a Delaware limited liability company,

Defendants and Counterclaimants.


Case No.: 11-CV-01846-LHK


(re: dkt. #1956)


On September 4, 2012, Apple filed a Motion Regarding Schedule for Briefing of Non-Jury Claims, requesting that the Court set a briefing schedule for additional non-jury issues to be decided under Federal Rule of Civil Procedure 52(a), namely Apple’s claims of waiver, equitable estoppel, unclean hands, and unfair competition. ECF No. 1956. On September 9, 2012, Samsung filed an opposition to Apple’s motion, arguing that: (1) the Court’s August 28, 2012 Scheduling Order requires Apple to raise any equitable claims in its Rule 50 motion and forecloses any additional briefing; (2) Apple’s equitable claims are moot or will be mooted by the Court’s rulings on the parties’ Rule 50 motions; and (3) if Apple is granted additional briefing on its non-jury claims, then Samsung should also be granted additional briefing on its non-jury claims, namely indefiniteness of the ’163 Patent and Apple’s design patents. ECF No. 1961. Apple filed a reply on September 10, 2012. ECF No. 1962. The Court’s August 28, 2012 Order set forth a briefing schedule on all motions that the parties had thus far identified they intended to bring. It did not foreclose the parties from bringing separate motions on equitable issues and issues of law not presented to the jury at trial. Accordingly, Apple’s motion is GRANTED in part. The Court sets the following briefing schedule on the parties’ respective motions on all outstanding non-jury issues:

Filing Deadline
Apple's motion on all non-jury claims,
including waiver, equitable estoppel,
unclean hands, and unfair competition
(max. 12 pages)
September 21, 2012
Samsung's opposition (max 12 pages) October 5, 2012
Apple's reply (max. 7 pages) October 12, 2012
Hearing December 6, 2012, at 1:30 p.m.

Filing Deadline
Samsung's motion on all non-jury
claims including indefiniteness (max.
12 pages)
September 21, 2012
Apple's opposition (max 12 pages) October 5, 2012
Samsung's reply (max. 7 pages) October 12, 2012
Hearing December 6, 2012, at 1:30 p.m.


Dated: September 12, 2012

United States District Judge

If you'd like to read Apple's FRAND claims, you can find them in this Apple filing [PDF], beginning on page 27.

Let's look now at the FRAND statements. The AAI is essentially pushing in the same direction as Microsoft and Apple:

It is not uncommon for SSOs to require that any participant in a standard- setting process who owns a patent that reads on the proposed standard has an obligation to identify the patent and/or agree to license it on a fair, reasonable, and non-discriminatory basis. Europeans abbreviate this as a FRAND commitment, Americans as “RAND”, or increasingly as “F/RAND”. As a first step in clarifying the concept, we propose recognizing that all three abbreviations have essentially the same general meaning and can all therefore be referred to as “FRAND”.

Unfortunately, FRAND has no agreed-upon minimal meaning, which leads to expensive, drawn out, and largely unnecessary litigation. AAI calls attention to the following areas in which the provision of a minimal standard meaning would resolve many of the problems of SEPs: unreasonable price; other unreasonable conditions; assuring that subsequent owners are bound by prior owners’ commitments; arbitration of disputes; and limitations on the use of injunctions.

I'll just mention in passing that RAND terms exclude the GPL. Just saying that the AAI might think about that. RAND and FRAND do not mean the same thing, unless you think the word "fair" has no meaning not already expressed by the word "reasonable".

As for Google, take a look at this part of its letter, the part about MOSAID:

B. Firms Should Not Evade Their FRAND Obligations by Transfers to NPEs

As the FTC recognized in N-Data, a firm that acquires a patent subject to a FRAND commitment may violate Section 5 of the FTC Act if it knowingly breaches the FRAND commitments of its transferor or predecessor-in-interest and such repudiation was not anticipated before the market-wide adoption of the standard. Similar logic applies where firms make explicit promises not to stack royalties on their portfolio of SEPs and then split up the portfolio of SEPs among NPEs who seek royalties in violation of the transferor’s anti-royalty stacking pledge. For example, a firm that pledges that it will not seek more than x% royalties for its portfolio of SEPs no matter how many standards are licensed should not be permitted to sell its portfolio to NPEs— or anybody else—who then seek x% for each standard that is licensed, if the transaction poses the requisite threat of anticompetitive effects. This is especially true where the transferor maintains an ownership interest in the royalties collected by the transferee.

Consider, for example, the case of Nokia, which in 2010 announced that it would license its SEPs for no more than 2% of the sales price of a licensee’s end-user device “irrespective of the number of wireless standards deployed in such a device.” 31 In other words, Nokia committed itself to a royalty cap of 2% and no royalty stacking. This pledge, like others before it, was plainly designed to induce the adoption of Nokia’s technology. By providing a legally binding commitment on which implementers justifiably thought they could rely for protection, Nokia convinced implementers that they could safely manufacture products reading on Nokia’s IPR.

In September of 2011, Nokia transferred more than 1,200 SEPs declared essential to GSM, UMTS/WCDMA and LTE to an NPE named MOSAID Technologies Inc. 32 Because NPEs are immune from counter-suit and have no interest in cross- licensing or maintaining a good reputation before SSOs, they frequently charge royalties that are well in excess of the amount needed to incentivise innovation. Indeed, by some accounts the aggregate direct costs of patent assertion by NPEs amounted to $29 billion in 2011. 33

Implementers who adopted Nokia’s technology in reliance on Nokia’s 2% royalty cap/no-royalty-stacking commitment now face the disturbing prospect of having to pay whatever royalty rate MOSAID decides to charge. And all signs point to MOSAID charging a lot. According to MOSAID, the acquired patents represent “one of the strongest standards-essential wireless portfolios on the planet,” and will generate licensing fees on “$500 billion in mobile device revenues” over the next five years. 34 Indeed, Microsoft, which curiously has an ownership interest in the transferred Nokia patents, claims that this transaction “unlocks the considerable value” of the Nokia patents, which provides rather clear evidence that Nokia and Microsoft believe that MOSAID will be able to charge more for these patents than Nokia could prior to the transfer. 35 Even more disconcerting, manufacturers who refuse to accede to MOSAID’s royalty demands may have their products enjoined from entering the country under Section 337. 36

The MOSAID agreement harms implementers and consumers—and raises Nokia’s and Microsoft’s rivals’ costs—for two distinct reasons. First, the agreement enables Nokia to evade its 2% licensing commitments by outsourcing its patents to an agent with a greater incentive and ability to assert those patents aggressively. MOSAID is required to “monetize the Assigned Patents and to maximize the Royalty.” 37 MOSAID also must meet “royalty milestones” payable to Nokia and Microsoft, otherwise it must pay the difference through short fall payments. If the payments are not made, Nokia and Microsoft may force MOSAID to assign the patents to a third party. And, perhaps most flagrantly, MOSAID officials have confirmed that MOSAID will retain one third of the revenue generated by the transferred patents, leaving Nokia and Microsoft to share in the remaining two thirds. 38 Thus, Nokia maintains a direct, ongoing financial stake in these patents and can derive royalties in excess of its 2% commitment.

Second, the MOSAID agreement fosters royalty stacking by atomizing Nokia’s SEP portfolio. Even if MOSAID adhered to Nokia’s promise not to charge a royalty greater than 2%, that would still represent a 100% increase over the price that implementers expected to pay for a license when, relying on Nokia’s FRAND commitment, they decided to adopt the technology. Prior to Nokia’s transfer to MOSAID, manufacturers expected to pay 2% for a license to all of the patents in Nokia’s SEP portfolio. Now, even if MOSAID “honors” Nokia’s 2% undertaking, both MOSAID and Nokia can collect that 2% from alleged infringers. Implementers thus face the prospect of paying a 2% royalty for a license to Nokia’s (remaining) SEPs, and a further 2% royalty for a license to Nokia’s (transferred) SEPs. Especially in light of Nokia’s prior promises about limiting total per device royalties to "a modest single digit level,"39 that increase from 2 to 4% represents a significant -- and abusive -- repudiation of Nokia's commitments. And if this practice is allowed, there is potentially no limit to the degree to which a patentee like Nokia could divide its portfolio, leading to an ever more prohibitive royalty stack.

Nokia's repudiation of its FRAND commitments in this manner constitutes a clear violation of Section 5 of the FTC Act under the principles articulated in N-Data. As in N-Data, Nokia and MOSAID's conduct is inherently oppressive and coercive. Nokia and MOSAID's conduct threatens to raise prices for an entire industry and undermine the standard-setting process. Even more egregious than in N-Data, this is not a case where the repudiation is the mere unilateral decision of an opportunistic transferee or successor-in-interest. Rather, the abuse in the instant case is being effectuated by a joint scheme between the original FRAND-obligated licensor (Nokia) and a third party transferee (MOSAID) brought in to help the licensor creatively repudiate its FRAND obligations. This conduct should be condemned under Section 5.

31 Press Release, “Nokia Licensing Policy on Long Term Evolution and Service Architecture Evolution Essential Patents,” Internet Archive (WayBackMachine) (July 2010-October 2010), statement/nokia-licensing-policy-on-long-term-evolution-and-service-architecture-evolution-essential-patents (“Currently, we expect Nokia’s rate for devices that deploy LTE as the only wireless communication standard to be in a range of 1.5 percent from the sales price of an end-user device. However, a significant use of LTE is expected to be in connection with other wireless communication standards, such as GSM, UMTS and/or CDMA. When multiple wireless standards are used in the same end product, Nokia will follow similar principles in setting the royalty rate for Nokia patents essential to other standards. To avoid unfavorable effects of royalty stacking, Nokia will not charge royalties higher than 2.0 percent from the sales price of an end-user device for IPR that is essential to wireless communication standards irrespective of the number of wireless standards deployed in such a device.”).

32 See Press Release, “MOSAID Acquires 1,200 Nokia Standards-Essential Wireless Patents and 800 Wireless Implementation Patents”, MOSAID, Sept. 1, 2011, events/releases-2011/110901.php. According to MOSAID, the assigned portfolio contains 517 patents declared essential for 2G telecom standards, 925 for 3G and 169 for 4G. See Webcast, “MOSAID acquires 2,000 Nokia Wireless Patents”, MOSAID Technologies, Sep. 13, 2011, (at 2:10).

33 See James E. Bessen and Michael J. Meurer, The Direct Costs from NPE Disputes, Boston Univ. School of Law, Law and Economics Research Paper No. 12-34, June 28, 2012, available at

34 MOSAID, Annual and Special Meeting of Shareholders 19-26 (Sep. 22, 2011), available at corporate/investor-relations/AGM2011.pdf.

35 Mary Jo Foley, “Microsoft Weighs in on Mosaid-Nokia Patent Deal”, ZDNet, Sep. 2, 2011, http:// in-on-mosaid-nokia-patent-deal/10523.

36 Because the ITC has concluded that unproductive patent licensing alone may satisfy the domestic industry requirement of Section 337, MOSAID and other NPEs can receive exclusion orders banning the importation of products that they would likely not be able to enjoin were they to seek an injunction in district court—since it is unlikely that an NPE would satisfy the eBay factors. Certain Coaxial Cable Connectors and Components Thereof and Products Containing Same (“Coaxial Cables”), Inv. No. 337- TA-650, Comm’n Op. at 47-49 (April 14, 2010) (as cited in Veronica S. Ascarrunz, Common Issues in Proving Domestic Industry at the ITC: Using Non-Manufacturing Versus Manufacturing Activities, delivered at AIPLA Annual Meeting, October 20-22, 2011).

37 These terms are indicated in documents filed by MOSAID with the Canadian Securities Administrators, which include redacted versions of a Confidential Share Purchase Agreement between Intellectual Property Asset Trust and MOSAID Technologies, Inc., Sept. 1, 2011, and a Confidential Royalty Participation Agreement between MOSAID Technologies Inc., Core Wireless Licensing S.a.r.l., Nokia Corp. and Microsoft Corp., Sept 1, 2011.

38 See Diana ben-Aaron, “Nokia Transfers Part of Patent Portfolio to Canada’s MOSAID”, Bloomberg, Sep. 1, 2011, 2011-09-01/mosaid-acquires-portfolio-of-nokia- patents-for-undisclosed-sum.

Lovely, eh? Let's assume it's exactly the way Google paints it, and the footnotes, if you look them up, confirm. So, "unlocking" the value of the patents by squirming out from under promises made so as to charge more, while simultaneously Microsoft is complaining to the world, as is Apple, that companies that developed the standards for the smartphone industry, Samsung and Motorola, are asking too much for *their* FRAND patents and shouldn't be allowed to seek injunctions against companies that refuse to pay. For example, in footnote 1, Nokia pledged not to ask more than 2%, and now wants more, according to this Google statement, but simultaneously its partner, Microsoft and Apple claim Motorola is trying to gouge their eyes out by asking for 2.25%. Huh? Google addresses that beginning on page 20 of the PDF:
Second, despite Apple’s complaints to the contrary, MMI’s request for a 2.25% royalty on the price of a handset, tablet or similar mobile device implementing MMI’s SEPs is well within industry norms of reasonableness. For example, MMI’s approach is quite similar to the licensing policies of Nokia (which charges 2% of the end-device implementing the standard), Alcatel-Lucent (which charges 2% of the end-device implementing the standard), Ericsson (which charges 1.50% of the price of the end-device implementing the standard) and Qualcomm (which charges 3.25% of the price of the end-device implementing the standard). 20

Significantly, MMI did not immediately seek an injunction against Apple. To the contrary, MMI spent more than three years attempting to negotiate with Apple, which categorically refused to make a counter-offer. 21 It was only after Apple began its patent war against the Android ecosystem, suing patent-poor HTC in an effort to leverage a settlement or adverse judgment against MMI and other Android OEMs and making clear that it had no intention of paying FRAND royalties unless sued, that MMI first sued Apple in both district court and the ITC. 22

Third, it is clear that neither Google nor MMI have taken actions prohibited by N-Data, Rambus or any other relevant precedents: they have not repudiated their FRAND obligations with respect to the patents in suit, nor have they increased the rates that they are seeking above that which SSO participants believed they would have to pay at the time they included MMI’s technology as part of the applicable standards. Thus, the basic condition necessary for patent hold-up as described in the FTC’s June 6, 2012 Statement on the Public Interest is simply not met: MMI has not sought “high royalty rates and other favorable terms, after a standard was adopted, that [it] could not credibly demand beforehand.”23

In sum, Microsoft and Apple are simply claiming that MMI’s initial requested royalty of 2.25% of the end-device implementing the standard is too high— notwithstanding the fact that MMI’s rate has been consistent and well-known in the industry for the last twenty years and is within the range of other similarly situated companies. Even though the conditions for hold-up are not present, both Microsoft and Apple can bring breach of contract actions against Google and MMI if they believe that MMI has not complied with its obligation to license the patents at FRAND rates. But those are contract claims, not antitrust claims, and we should be careful before converting a simple breach of contract claim into an antitrust claim.24 As a DOJ representative has explained, “[w]here genuine fraud, predation, or other objectively unreasonable conduct occurs, antitrust likely always will have a role in standard setting. But where conflict can be fairly characterized merely as a foreseeable disagreement over price, it would be odd and inefficient to federalize such disagreements through use of the antitrust laws and the imposition of treble damages.”25

20 See Eric Stasik, Royalty Rates and Licensing Strategies For Essential Patents On LTE (4G)Telecommunication Standards, les Nouvelles, 114-119, 116 Sep. 2010, available at http:// LESI-Royalty-Rates.pdf.

21 Roger Cheng, Apple to put iPads, iPhones back on shelves in Germany, ZDNet, Feb. 6, 2012, apple-to-put-ipads-iphones-back-on-shelves-in-germany/ 6342745 (“Motorola argued that it had approached Apple in 2007 with fair licensing terms and attempted to work out a deal for three years.”).

22 Id. (“Apple's refusal to negotiate in good faith, as well as their aggressive litigation campaign against Android, left Motorola Mobility with no option other than to seek to enforce the company's rights and patent portfolio . . .” ) (internal quotations omitted).

23 os/2012/06/1206ftcgamingconsole.pdf.

24 “The use of conventional antitrust language in drafting a complaint will not extend the reach of the Sherman Act to wrongs not germane to that act, even though such wrongs be actionable under state law.” Parmelee Transp. Co. v. Keeshin, 292 F.2d 794, 804 (7th Cir. 1961).

25 Gerald F. Masoudi, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice, “Objective Standards and the Antitrust Analysis of SDO and Patent Pool Conduct,” October 11, 2007.

Treble damages. So that's it. Sometimes the world's corruption makes one retch. Do you expect Congress to act on this letter? I don't either. But at least we know now, and we can buy products from companies whose business practices don't make us want to throw up.

Microsoft will surely go down in history for its long history of competing every which way but straight, don't you think? Who can take pride in working on a scheme like this one? What does a man tell his family he does at work? Maybe it's like the mob. The wives and kiddies think they're in the construction business.

I know. There is no mob. And this scheme is just Google's imagination.

Here's what Google says the complaints about charging too much for FRAND patents is really about, starting on page 17 of the PDF:

It is no accident that the firms that are petitioning the government to alter that successful status quo were not significant participants in the development of the standards in question. To the contrary, both Apple and Microsoft are dominant providers of proprietary operating systems who have invested little time and money in contributing cellular standard essential patents.13 Their clear incentive is to minimize the amount of money they pay to those who have invested billions in building open telecommunication protocols while maximizing the amount they can charge users of their own proprietary operating systems. These efforts, like prior rejected efforts to change ETSI’s IPR policy to disfavor innovative SEP holders, threaten innovation and the ability of SSOs to incorporate robust technologies.14

13 In this context it is worth noting that Apple’s November 11, 2011 letter to ETSI only commits Apple to not seeking injunctions on cellular standard essential patents and further permits Apple to seek injunctions even on those patents if the patentee seeks more than Apple wants to pay. In other words, it is nothing more than a promise not to seek an injunction if Apple gets what it wants.

14 Recently, certain ETSI members proposed a change to ETSI’s IPR policy to write “numeric proportionality” into the definition of FRAND – meaning that FRAND rates would be dependent on the share of declared SEPs owned by a firm – but ETSI rejected this proposal. Damien Geradin & Anne Layne-Farrar, The Logic and Limits of Ex Ante Competition in a Standard-Setting Environment, 3 Competition Pol. I’ntl 79, 88 (2007), available at tiedostot/Geradin.Helsingfors.pdf. Standard setting experts recognize that IPR policy changes such as this “would be a demotivator for innovation” and would distort the standard setting process. Damien Geradin, Standardization and Technological Innovation: Some Reflections on Ex-Ante Licensing, FRAND, and the Proper Means to Reward Innovators, ISSN 1572-4042, at 14-15 (June 2006), available at institutes-and-research-groups/tilec/publications/ discussionpapers/2006-017.pdf.

Is this nauseating scheme what FOSSPatents is "advising" Microsoft on, I can't help but wonder? From Microsoft's history, I'm sure they could come up with such a plan all by themselves. But why would anyone want to help them? I know, he'll write that it's about some other corner of the strategy. But if you help them, you are helping. Every corner of this story gets darker and uglier, does it not?

I do see, now, why Nokia doesn't seem to care one whit what kind of stupid decisions and mistakes it makes about its smartphones. That is more theater than real business. The money will be coming from another source in these ugly and hypocritical patent dreams.

Does Apple still look like a cool company to you? I confess, I craved a new iPod Touch after watching the event yesterday. It's like having a pocket-sized iPad. So I started to wobble in my determination not to buy from Apple as long as they pursue their smartphone war. But not now, not after reading this. I gave up buying Microsoft products when I found their business practices repulsive; I can do the same with Apple. I want to buy products from companies whose business practices I admire. Or lowering the bar a bit, practices I'm not ashamed to support. Why is that so hard?

What I see from all this is that the proprietary side knows now it can't beat Open Source fair and square in the marketplace. It requires a tilted playing field, and even with patents, which already tilt the field their way usually, it can't win unless it tilts the FRAND patent landscape too, because otherwise in the smartphone market they will lose. They are already losing.

You might try opening up. Human beings crave freedom. It's in our DNA, and you might try giving customers what they naturally crave. Then you wouldn't have to act like this.

To the board of Nokia, including folks I know and like very much: to paraphrase Bob Dylan, what is a nice person like you doing in a place like this? And what are *you* telling your wife and children you do all day for Nokia?

No. Really.

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