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The HTC-Apple Agreement Mostly Revealed ~pj Updated 2Xs
Thursday, December 06 2012 @ 05:07 AM EST

We finally get to see the HTC-Apple License Agreement [PDF]. Most of it. There is a lot redacted still. I've only had time for a quick read through, but I'll tell you what stands out so far, subject to further analysis and/or correction after I have time to read it more carefully.

Apple and HTC chose what to redact (see Declaration of Robert Becher), and it's a lot. But we learn enough, despite their efforts, to know that it's a cross-license and a settlement of all the 52 litigations and various administrative actions then pending around the world. The "Payments" section is redacted, of course, but the plural means both paid something, as in crossing out a lot of the others' need to pay, and only HTC is listed as paying any royalties going forward. The other thing we learn is that Apple did not license its design patents, which isn't what Samsung was probably hoping it had done. But the rest of Apple's patents are licensed, which ought to matter in the Apple v. Samsung injunction analysis. There are some HTC utility patents excluded as well (see p. 4 and Ex. G of the agreement, p. 141 of the PDF), if I've read it right, the ones on loan from Google, I believe, and Apple reserves to itself all other IP it owns, like trade dress rights. All the litigation is dismissed mostly without prejudice, because one or the other might violate the agreement, but otherwise they agree to drop their disputes and basically leave each other alone.

The hearing on Apple and Samsung's various post-verdict motions is today, and Groklaw has made plans to be there. So whatever we learn, we'll let you know. No doubt this agreement will come up. HTC plans to be there and will be urgently asking the court to say that their proposed redactions are OK (see Exhibit A). HTC wants to defend the redactions in person, so a lawyer from Finnegan flew to San Jose to be there today at the hearing. My question is this: how do we know if HTC violated the GPL license if we can't read more than they are showing the public?

Here are the filings:

2182 - Filed & Entered: 12/05/2012 Administrative Motion to File Under Seal Docket Text: Administrative Motion to File Under Seal Declaration of Robert J. Becher Regarding Samsung's Submission of HTC Settlement Agreement in Support of Opposition to Apple's Motion for Permanent Injunction and Damages Enhancement filed by Samsung Electronics America, Inc.(a New York corporation), Samsung Electronics Co. Ltd., Samsung Telecommunications America, LLC. (Attachments: # (1) Declaration of Robert J. Becher in Support of Samsung's Administrative Motion to File Documents Under Seal, # (2) Exhibit A to the Becher Declaration in Support of Samsung's Administrative Motion to File Documents Under Seal, # (3) Proposed Order Granting Samsung's Administrative Motion to File Documents Under Seal, # (4) Declaration of Robert J. Becher Regarding Samsung's Submission of HTC Settlement Agreement in Support of Opposition to Apple's Motion for Permanent Injunction and Damages Enhancement, # (5) Exhibit 1 to the Becher Declaration Regarding Samsung's Submission of HTC Settlement Agreement in Support of Opposition to Apple's Motion for Permanent Injunction and Damages Enhancement)(Maroulis, Victoria) (Filed on 12/5/2012)

2183 - Filed & Entered: 12/05/2012
Administrative Motion to File Under Seal Supplemental Declaration of Stephen Gray in Support of Samsung's Opposition to Apple's Motion for Permanent Injunction and Damages Enhancement filed by Samsung Electronics Co. Ltd.. (Attachments: # (1) Administrative Request for Leave to File, # (2) Supplemental Declaration of Stephen Gray in Support of Samsung's Opposition to Apple's Motion for Permanent Injunction and Damages Enhancement, # (3) [Proposed] Order Granting Administrative Request for Leave to File, # (4) [Proposed] Order Granting Administrative Motion to File Under Seal)(Maroulis, Victoria) (Filed on 12/5/2012)

2184 Filed & Entered: 12/05/2012
CERTIFICATE OF SERVICE by Samsung Electronics Co. Ltd. re [2183] Administrative Motion to File Under Seal Supplemental Declaration of Stephen Gray in Support of Samsung's Opposition to Apple's Motion for Permanent Injunction and Damages Enhancement (Maroulis, Victoria) (Filed on 12/5/2012)

2185 - Filed & Entered: 12/05/2012
NOTICE of Appearance Samsung Electronics America, Inc.(a New York corporation), Samsung Electronics Co. Ltd., Samsung Telecommunications America, LLC Notice of Appearance of Scott B. Kidman (Maroulis, Victoria) (Filed on 12/5/2012)

2186 - Filed & Entered: 12/05/2012
RESPONSE (re [2182] Administrative Motion to File Under Seal Declaration of Robert J. Becher Regarding Samsung's Submission of HTC Settlement Agreement in Support of Opposition to Apple's Motion for Permanent Injunction and Damages Enhancement ) filed byHTC Corporation, HTC America Inc., S3G Graphics Co. LTD.. (Attachments: # (1) Declaration of Vincent Lam)(Mosko, Scott) (Filed on 12/5/2012)

I'll get the exhibits for the other filings added later.

HTC's filing [PDF] says that the redactions it wants "concern pricing terms, royalty rates, or the process by which the royalty unit is calculated that, if publicly disclosed, would place HTC at a competitive disadvantage." More on that:

The redactions made to the HTC/Apple Agreement are consistent with the above analysis provided by the Court. The HTC/Apple Agreement resolved a lengthy series of patent litigation matters between HTC and Apple, and embodies the parties’ private commercial resolution. (Lam Dec., ¶ 3). HTC negotiated in good faith the confidential license terms here at issue, which HTC believes contain confidential information that HTC regards as highly valuable proprietary information. Disclosure of those terms—such as prices, conditions of use, forbearance and restrictions—would place HTC at an unfair competitive disadvantage by unveiling the blueprint of specific technical and financial conditions under which HTC does business in the market for smartphone technology. (Id., at ¶¶ 3 - 6). As a matter of public policy, and in the interests of promoting judicial economy and to promote settlements, HTC should not be penalized for reaching a settlement of its hard-fought litigation with Apple by having its confidential business information disclosed to its competitors and opponents in the smartphone market. If this agreement is publicly filed, the current redactions should remain in any such filing.

In particular, as established in the Lam Dec., sections 6, 8, and 11 of the HTC/Apple Agreement, and Exhibits B, C and D thereto, disclose confidential pricing of the royalty terms of the license and settlement agreement. (Lam Dec., ¶ 5). In addition, portions of section 1 of the agreement disclose the manner in which a royalty unit is defined and the process by which the financial terms are to be calculated. This information sets forth the confidential business structure negotiated for and achieved by the license and settlement. Such confidential financial information constitutes HTC’s trade secrets. (Lam Dec., ¶ 6). This is precisely the concern that In Re Electronic Arts addressed. Moreover, HTC had an expectation of privacy in these terms as Apple agreed to maintain them in confidence and HTC is no longer in litigation with Apple. (Lam Dec., ¶ 3). Public disclosure of these details would cause HTC irreparable harm and unfairly put it at a competitive disadvantage in future negotiations or dealings with its competitors and opponents in the market. (Lam Dec., ¶¶ 5,6; Dkt. No. 1629 at 21; In re Elect Arts, Inc., at 569-70). HTC is currently a party in more than 50 United states patent litigation cases (Lam Dec., ¶ 6). Indeed, if HTC’s current and future opponents knew the details redacted in this agreement, HTC would be substantially and unfairly disadvantaged in its attempts to negotiate any resolution.

According to Samsung and Judge Grewal, the HTC/Apple Agreement has limited relevance in this case. Samsung only contends that this agreement is proof that Apple was willing and in fact has entered into license agreements concerning at least some of the patents at issue in this case. Samsung asserts these facts in opposition to Apple’s motion for permanent injunction. (Dkt. No. 2144). Hence the terms and details HTC has redacted are irrelevant to this case. Accordingly, no legitimate public interest exists for making those terms publicly available. MMI, Inc. v. Baja, Inc., 743 F. Supp. 2d 1101, 1106 (D. Ariz. 2010). Importantly, HTC does not seek to redact the patents Apple has licensed to HTC, nor the fact of the license. (Lam Dec., ¶ 4).

The Lam declaration says this:
The HTC/Apple Agreement provides for a cross-license and settlement of fifty-two (52) cases in the United States and outside the United States. The details of the financial and other consideration and royalty terms represent valuable HTC trade secrets and provide a blueprint of confidential proprietary information used in HTC’s business, the public disclosure of which would irreparably harm HTC. HTC holds these terms in strict confidence: indeed, before Apple’s production of the HTC/Apple Agreement in this case, no more than ten persons at HTC, including top business leaders and their immediate counsel, had access to this information. Further, HTC and Apple expressly agreed to keep these details confidential and HTC had an expectation that these details would remain private. See HTC/Apple Agreement §13.9. HTC reasonably relied on the confidentiality of its business agreement with Apple when entering its settlement—at a time it could have continued litigating its disputes with Apple in the United States International Trade Commission and the United States District Courts.

4. In HTC’s view, the entire Agreement is highly confidential. In particular, HTC believes that public disclosure of confidential financial information as found in specific sections of the HTC/Apple Agreement identified below, and public disclosure of the royalty terms as found in specific sections of the HTC/Apple Agreement also identified below would impose particular harm. Recognizing the Court’s concerns that documents filed with the Court should be publicly disclosed to the extent that such disclosure does not harm third parties, the redactions made in the document attached to the Declaration of Robert Becher at Docket No. 2182-4, do not include any part of sections 2 and 3 of the HTC/Apple Agreement which discloses the patent license grants and covenants. Nor do the redactions include the identity of the patents licensed or many other provisions of the HTC/Apple Agreement. The limited redactions include only the detailed financial, royalty and license information that remain highly confidential to the parties signing this Agreement. HTC submits that the public does not have a legitimate interest in obtaining further information about this private arrangement, especially since, to my understanding, the limited redactions are not relevant (and have not been argued to be relevant) to the current dispute between Apple and Samsung. I understand that the relevance of this agreement is limited to the fact that a license was granted. In deference to the Court, HTC has narrowly tailored the redactions. I specifically address below the reasons for our redactions.

5. Sections 6, 8.5(b)(i)-(iv), 11, and Exhibits B, C and D to the HTC/Apple Agreement, identify the royalty terms and determination of when and how the royalty will be calculated, bank account details and the like. These confidential royalty terms constitute trade secrets that would cause HTC irreparable harm if publicly disclosed. Additionally, these are financial details that competitors do not disclose to each other and would place HTC at a significant competitive disadvantage if disclosed.

6. Sections 1.12(a)-(y), 1.17, 1.18, 1.19 and 1.21 of the HTC/Apple Agreement identify the particulars of the manner in which a unit is deemed a royalty bearing unit and is inextricably tied to the financial payment terms. Details of the components, features, and other parameters that constitute the royalty base are likewise highly confidential commercial terms. These terms were in fact the product of considerable negotiation and compromise between HTC and Apple and HTC considers these details highly proprietary business information. Public disclosure of these details would likewise reveal information that would place HTC at a competitive disadvantage with smartphone market competitors and in future negotiations with other interested entities in the marketplace. Indeed, HTC is currently involved in over 50 United States patent litigations and patent license negotiations. The disclosure of the redacted terms would place HTC in a disadvantage in these matters as well as future matters that may arise. Further, these details do not appear to bear on the resolution of the issues in this case (and neither Samsung nor Apple have argued otherwise). Therefore, I do not believe that the public has any interest warranting publication of these competition-sensitive and confidentially maintained business arrangements disclosed in our private license and settlement agreement.

Well, they do bear on something. If Apple (with Microsoft and Nokia) are specifically working to destroy or hinder Android by making it cost more, the public cares. Patent license royalties matter in that context. It also matters if any of the terms touch on GPL v2 code. The preamble of v2 states: "...we have made it clear that any patent must be licensed for everyone's free use or not licensed at all." And the terms include:
7. If, as a consequence of a court judgment or allegation of patent infringement or for any other reason (not limited to patent issues), conditions are imposed on you (whether by court order, agreement or otherwise) that contradict the conditions of this License, they do not excuse you from the conditions of this License. If you cannot distribute so as to satisfy simultaneously your obligations under this License and any other pertinent obligations, then as a consequence you may not distribute the Program at all. For example, if a patent license would not permit royalty-free redistribution of the Program by all those who receive copies directly or indirectly through you, then the only way you could satisfy both it and this License would be to refrain entirely from distribution of the Program.

If any portion of this section is held invalid or unenforceable under any particular circumstance, the balance of the section is intended to apply and the section as a whole is intended to apply in other circumstances.

It is not the purpose of this section to induce you to infringe any patents or other property right claims or to contest validity of any such claims; this section has the sole purpose of protecting the integrity of the free software distribution system, which is implemented by public license practices. Many people have made generous contributions to the wide range of software distributed through that system in reliance on consistent application of that system; it is up to the author/donor to decide if he or she is willing to distribute software through any other system and a licensee cannot impose that choice.

This section is intended to make thoroughly clear what is believed to be a consequence of the rest of this License.

The public definitely has an interest in that. Android runs on the Linux kernel, after all, so if HTC has violated the GPL license that allows it to use the Linux kernel, the public has a definite interest, and the kernel authors have a right to know about it, so they can take steps to remediate the problem. That's a legal problem and not one that HTC would have any right to keep hidden.

If you look at Exhibit A, the emails back and forth about the redactions, you see the urgency in the Finnegan email:

Dear Robert and Richard:

As noted, HTC is preparing an in-house declaration and short brief in support of the redactions. We propose that these be filed together with Samsung's filing of the redacted agreement. We feel strongly that we would like the opportunity to defend this in person. Accordingly, I am flying out today on a Virgin 5 pm (Eastern) flight and will be in San Jose later tonight. We ask that you file the proposed redacted agreement and also file, or we can at the same time separately file, HTC's justifications for the redactions at the end of the day, so that we can appear tomorrow if necessary to address any concerns the court may have. Thank you again for your consideration..

Best, Laura

Laura Masurovsky
Attorney at Law
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

Urgent indeed. The whole thread is hilarious, if you aren't HTC or an HTC lawyer. Here's what Apple thinks the judge's order [PDF] would allow to be redacted:
Paragraph 1.21
Paragraph 6.2(a)
Paragraphs 8.5(b) & 8.5(b)(i)
The phrase beginning with, “not . . .” and ending with “. . . unit” in the second row and rightmost column of Exhibit D.
The order says that the only allowed redactions are to be "the payment and royalty terms". But HTC wants more redacted, and so Apple "defers" to HTC. Maybe the judge will too. Even if she orders more released, it's a real possibility that we won't get to see or hear more until after an appeal by HTC, who seems to be the party with the deepest concern.

After HTC provided a "clean" redacted version, Quinn Emanuel sent this email:

Laura—Please provide a version with the bates as produced in this case and all the attachments that were provided to us. This is shorter than what was produced and filed.
Not to mention massively blacked out.

Apple can still sue HTC over what it terms any HTC "Cloned Products", which Exhibit A to the agreement defines -- Apple agrees not to sue for a year over them, but they agree they can seek arbitration, and then Apple can sue for an injunction if it's still not satisfied. And the arbitrators can offer "design alternatives" that HTC can use to fix a "Cloned Products" problem if either party asks. That means there could be plenty of disputes we'd never hear about. Arbitration is private. Maybe Apple is sick of the limelight.

On page 33, the section describing and defining what an "HTC Cloned Product" means, we see that it's about the ornamental features but more than just that, with Apple basically not wanting HTC products to look too much like Apple's due to copying. And it includes as Apple protected features not only ornamental but also functional features, what Apple defines as "The Distinctive Apple User Experience."

A "Cloned Feature" could be, according to Apple's example, "a specific graphical slider animation used" in a device "at the bottom of a display screen to implement a 'slide to unlock' feature". But if HTC used a different animation, such as "bubble slider", or an animation in a different location, it would be fine. But interestingly, it says "pinch to zoom" functionality would not be considered part of the Distinctive Apple User Experience. It has to be something Apple has introduced to the market first, not anything HTC or any third party has done first, and there must also be some way not to infringe the feature. So HTC has a license, but it has to not copy slavishly. I believe that was the agreement Microsoft has with Apple too.

If you want to know why HTC might have felt tempted to put all this behind it, look at Exhibits F-1 and F-2 to the agreement, the list of all the lawsuits and ITC actions and everything else in the US and the UK and Germany etc. that now are over.

So now we know what Apple cares about most, and it's not the utility patents -- it wants to protect what it views as the "Distinctive Apple User Experience". That explains the emphasis on the design patents and why Apple went thermonuclear all over the world to defend what it evidently sees as its bread and butter -- it's why it thinks people buy its products.

Exhibit A, "Requirements for Cloned Product", listing the defenses HTC has to a claim of cloning has one paragraph that drew my eye:

Each of the following requirements must be satisfied in order for a particular HTC Android Mobile Communication Device to be considered a "Cloned Product" for purposes of Article 12:...

3. The Cloned Feature in the HTC Android Mobile Communications Device must have been created by HTC and not result from (i) any features or design elements provided to HTC as part of the Android Mobile OS or other third pary component or software (unless specifically selected, customized or modified by, or specifically at the request of or exclusively for, HTC to result in the Cloned Feature), (ii) requirements specified for the use of the Android Mobile OS or associated services or APIs by Google Inc., any of its Affiliates, or the Open Handset Alliance or any successor to any of the foregoing, (iii) requirements specified by a Carrier (in its role as such), (iv) requirements of Wireless Standards, or other standards where APPLE is a member and participates and has not withdrawn and objected to the specification, or any legal or regulatory requirements, (v) any features of design elements included in any HTC Android Mobile Communication Devises or Android Mobile OS that have been released prior to the Effective Date, (vi) any features or design elements included in any HTC Android Mobile Communication Devices for which APPLE does not provide an Initial Notice challenging the Cloned Feature within the time period specified in Section 12.3 or, if APPLE has provided such Initial Notice, have nonetheless not been found to be Cloned Features pursuant to Section 12.3; and (vii) any features or design elements substantially the same or minor variants of those under (v) or (vi) above which are included in any subsequent HTC Android Mobile Communication Device.

So Apple, I gather, will not hold HTC responsible for Android features HTC didn't create but just got from Google or the Open Handset Alliance.

Update: I think this article, a long interview with Tim Cook by BusinessWeek, confirms that it's the overall user experience that Apple feels is its claim to fame, worth suing to protect. A snip:

Cook: You look at what we are great at. There are many things. But the one thing we do, which I think no one else does, is integrate hardware, software, and services in such a way that most consumers begin to not differentiate anymore. They just care that the experience is fantastic....

Jony [Ive, senior vice president of industrial design], who I think has the best taste of anyone in the world and the best design skills, now has responsibility for the human interface. I mean, look at our products. (Cook reaches for his iPhone.) The face of this is the software, right? And the face of this iPad is the software. So it’s saying, Jony has done a remarkable job leading our hardware design, so let’s also have Jony responsible for the software and the look and feel of the software, not the underlying architecture and so forth, but the look and feel.

I don’t think there’s anybody in the world that has a better taste than he does. So I think he’s very special. He’s an original....

We already were—to use an industry phrase that I don’t like—best of breed. But it takes us to a whole new level. So that’s what it’s all about. I know there has been a lot written on that, but that’s really what’s behind it.

Q: What’s your relationship like with Jony Ive? What bonds you to him?

I love Jony. He’s an incredible guy, and I have a massive amount of respect for him. What bonds us? We both love Apple. We both want Apple to do great things. We both subscribe to the same principles. We believe in the simple, not the complex. We believe in collaboration. We both view Apple as here to make the best products in the world. So our values are the same.

If Apple had restricted itself to this, the world would have reacted very differently, I think to its legal maneuvers.

Update 2: Groklaw member jkrise notes in his comment another good reason why the public has an interest in knowing a bit more than HTC wishes to share:

I feel this information which is blacked out in the agreement can be crucial as well. If the 'allowed' HTC models have a similar look and feel to the trade dress which Apple seeks to protect, Samsung can claim similar relief, even if the judge rules infringement.

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