There is nothing like a worldwide patent battle between two evenly matched opponents to help tease out the limits of the law. Think Apple v. Samsung, which stretched our conception of patent remedies to the breaking point, for both injunctive relief or damages. Most notoriously, that dispute gave us the decision disapproving of the ITC’s granting of an exclusion order to Samsung because of Apple’s infringement of certain Samsung patents. At the time, the decision was vilified in some quarters for allegedly applying a double standard — since Apple’s exclusion order against certain Samsung phones was upheld — in favor of a “domestic” company (Apple) over a foreign (Samsung) one. At minimum, the whole saga was a resounding endorsement of the importance of an independent judiciary for the administration of justice.
Putting aside that the whole idea of “domestic” and “foreign” companies is a bit archaic when it comes to global manufacturers of complex customer staples like smartphones, the Apple-Samsung dispute did illustrate the challenges faced by an adjudicatory body like the ITC in our times. On the one hand, the ITC was constrained to issue its decisions on the merits of the patent claims placed before it by the parties. On the other, even though it had crafted a remedy well within its purview, the ultimate decision by the trade representative (and by extension, the president) only served to render its efforts as little more than an advisory opinion of little consequence. But that is what happens when a case is too big for both the courts and the administrative agencies tasked with handling patent disputes to handle. The limits of each adjudicative body’s powers are brought into sharp focus.
Right now, there is another case that is putting a similar strain on the legal system. And bringing in its wake another example of the limitations of the ITC when it comes to enforcement of the exclusion orders it issues. The case? It is the global patent dispute between uber-patent licensor Qualcomm and its former customer, Apple. Yes, Apple is again involved in a sprawling patent battle that is less important for the dollars at play than it is for cementing Apple’s status as the center of the technology universe. At stake is at least $7 billion in unpaid royalties Qualcomm argues it is due.
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By withholding royalties, Apple forced Qualcomm to sue, even though Qualcomm surely weighed the risk inherent in doing so. For example, any litigation setbacks would potentially carry a double cost: 1) added delay (at minimum) in collecting from Apple and 2) emboldening other holdouts among Qualcomm’s relatively small pool of potential licensees. For Qualcomm, incurring those costs could be disastrous, especially with respect to investor confidence and the company’s share price. (While litigation costs are a factor in the vast majority of cases, just one look at the legal rosters of both Qualcomm and Apple in these cases confirms that those costs are of no moment in this set of disputes.) Especially when you consider that the “licensing department” is Qualcomm’s actual profit center, making the margin for error in this endeavor much smaller on Qualcomm’s side than it is for Apple. Again, Apple could just pay royalties and be done with the dispute. But it has for now decided to invest instead in an attempt to break what it considers Qualcomm’s siege of the smartphone industry.
One of the key prongs of Qualcomm’s litigation efforts remains its attempts to exclude infringing products from being imported into the United States. To that end, it filed an ITC action against Apple, leading to the institution of an investigation against certain Apple smartphones on August 14, 2017. Because ITC actions move quickly, a confidential Initial Determination (the public version was recently made available) was issued by ALJ Thomas P. Bender on September 28, 2018. That decision contained both good and bad news for Qualcomm. The good news was that the ALJ found that Apple infringed a valid claim from Qualcomm’s ’490 patent. The bad news? The ALJ credited testimony from Apple’s chip supplier, Intel, that it would leave the “baseband chip market” if the ITC issued an exclusion order against Intel chipsets sold into the United States (installed in Apple phones). Fearing that consequence, and crediting as well testimony about national security concerns if the still-developing 5G wireless market was left solely in Qualcomm’s hands (as the only domestic participant in a global market), the ALJ recommended that the ITC grant no relief to Qualcomm based on Apple’s infringement. Instead, the ALJ suggested that Qualcomm seek money damages through the courts, rather than enjoy even a limited exclusion order or a cease-and-desist order. Once again, Apple was deemed too key to exclude, even when it was adjudged an infringer, just as it was in the Apple case.
Whether or not you think this incremental result is fair, it is important for us to consider as IP lawyers. Our guidance to clients can and should be directed by a frank assessment of the remedies available under the law. Those remedies often inform strategic decisions about how to proceed in litigation, from choice of forum on down. But as this decision illustrates, there are certain cases presenting such extraordinary circumstances that standard litigation operating procedure no longer applies. Unsurprisingly, those types of cases are invariably those of a complex nature, and by definition involve the highest of stakes.
Results like the one “achieved” by Qualcomm raise an open question whether existing legal processes are ill-suited to handle certain types of important disputes in today’s economy. Which suggests that legislators should perhaps be considering fixes for what amounts to a limited system. Or that parties should be taking a harder look at private resolution of disputes this involved. Perhaps Qualcomm was naive in thinking that it would be able to block importation of iPhones, a product that many consumers deem more worthy of their time and attention than anything else in the world. But Qualcomm has to try and keep trying to find vindication in the courts. Anything less would be catastrophic to the long-term prospects of its licensing business.
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Ultimately, we are likely a long way from this case settling, if only because the strategic objectives at play are too “noble” — on both sides of the case. Just like Apple v. Samsung was about marketing Apple’s innovative efforts to the public at the expense of a supposed copycat competitor, so is Qualcomm v. Apple ultimately about Apple’s refusal to continue paying for patent rights owned by a former supplier. Qualcomm’s attempt to collect money it believes it is owed based on its investment in its industry-leading patent estate and the technologies that underlie those patents is understandable. But paying or recovering money through these litigations won’t break either Apple or Qualcomm either way. At bottom, this dispute is about Apple’s attempt to break Qualcomm’s licensing dominance in technologies critical to the function of modern smartphones. And as long as Apple is politically deemed too key to exclude, trying to bring Apple to heel will remain a daunting challenge for even the most committed rival.
Please feel free to send comments or questions to me at [email protected] or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.
Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at [email protected] or follow him on Twitter: @gkroub.