JURIST Guest Columnists Rodney R. Sweetland, III and Michael G. McManus, both of Duane Morris, discuss the ongoing patent dispute between Apple and Google...
he US Court of Appeals for the Federal Circuit January 10
, 2014 decision
(PDF) affirming the US International Trade Commission's ("ITC") finding of no infringement of Google (Motorola) patents by Apple is a reminder of the fundamental rivalry between the Android and iOS operating systems. Although the international Apple versus Samsung patent dispute has garnered more media attention, the head-to-head war between Apple and Google may ultimately be the longer and more legally significant (more precedent-setting) battle.
In recent history, the most substantial litigation between the two operating systems has been by Apple against Android handset manufacturers HTC and Samsung. Apple was ultimately able to force HTC to take a license after having obtained a December 19, 2011 exclusion order (PDF) against it in the ITC. Dissatisfied by HTC's noncompliance with the exclusion order, Apple brought an enforcement action against HTC at the ITC on June 4, 2012. The parties settled in a November 20, 2013 joint motion to terminate.
Apple appears to be winning the battles against Samsung, but not the war. The inability by Apple to obtain an injunction or exclusion order against Samsung on a core functionality presages continuing litigation.
While Apple has been targeting its Android users, Google has used suits by its Motorola division to counter Apple in defense of those users. Google obtained Motorola, with its ostensibly vast and pioneering patent portfolio in the handset space, in 2012. It paid $12.5 billion for those patents, as well as Motorola's struggling handset business and existing suits against Apple. Google has not yet garnered any benefit against Apple from the pre or post-purchase litigation.
The most significant legal development from litigation between Apple and Motorola, the effect of FRAND (fair, reasonable, and non-discriminatory) commitments and obligations to Standard Setting Organizations, derive from litigation in the federal district courts for the Western District of Wisconsin and Northern District of Illinois. Those cases are currently on appeal. The tortured procedural history of the disputes are instructive of themselves, separate and apart from the legal principals which are emerging.
In the first of the two consolidated appeals, Apple filed an infringement action against Motorola in the Western District of Wisconsin in October 2010. Motorola filed infringement counterclaims on patents that had been declared standards essential. In December 2011, the case was transferred to the Northern District of Illinois to Seventh Circuit Judge and patent critic Richard A. Posner, sitting by designation. Judge Barbara Crabb of the Western District of Wisconsin informed (PDF) the parties: "[A] kind judge in Chicago who enjoys trying patent cases has offered to take over the pretrial and trial work in this case, with the one condition that if there is a trial, it take place in Chicago."
In an Opinion and Order of June 22, 2012, Judge Posner granted summary judgment against both parties. With respect to Motorola, he ruled that injunctions were not available for standard-essential patents (SEP) and that Motorola had not presented a framework for calculating damages for a FRAND-encumbered patent. In dismissing Apple's claims, he ruled, among other things, that Apple's damages methodology did not meet the Daubert standard; and that without damages Apple could not obtain an injunction. Oral argument in the Federal Circuit was held in this matter on September 11, 2013. A decision, thus, is imminent. This will be the first definitive FRAND decision by the Federal Circuit.
The second of the two consolidated appeals arises from an action in the ITC. In October of 2010 Motorola filed a case against Apple in that forum on several patents, including two SEP's. Motorola lost before the ITC, then again on appeal in the January 14, 2014 Federal Circuit decision. Before the hearing, however, Apple had filed counterclaims against Motorola. These counterclaims included allegations of antitrust violations, breach of contract, equitable estoppel, tortious interference and declaratory judgment based upon Motorola's failure to satisfy its FRAND licensing commitments. There were no infringement counterclaims by Apple.
Under its enabling statute the ITC does not conduct trials of counterclaims. Instead, when a counterclaim is filed, the filing party removes it to an appropriate venue of its choosing. Apple removed its counterclaims against Apple to the Western District of Wisconsin, where it was assigned to Crabb. In an extensive opinion of August 10, 2012, she dismissed Motorola's antitrust and tortious interference claims with prejudice based upon an inability to prove damages. Significantly for Apple, however, she found that Apple was a third-party beneficiary of Motorola's binding FRAND obligations.
On the eve of trial, Apple filed a document with the court in which it stated that it would take a license from Motorola as long as the royalty did not exceed $1 per device for Motorola's Wi-Fi and cellular SEP's. This admission greatly disturbed Crabb, who wrote in a November 2, 2012 Opinion and Order that it appeared as if Apple were simply using the proceeding to generate a FRAND royalty rate that would be used as a bargaining chip in later negotiations. She expanded upon that decision in a November 8th ruling explaining her rationale for dismissing Apple's remaining claims. In essence, any ruling by her on FRAND rates would be an advisory opinion that would only be the starting point for negotiations between the parties, necessarily requiring a second trial if they were unable to agree. She later held that the dismissal was without prejudice.
Crabb's case is currently on appeal to the Federal Circuit. A date for oral argument has not been set.
Google is ramping up its organic portfolio to supplement the one it acquired from purchasing Motorola. According to figures by IFI Patent Claims Services, Google was granted 1,851 patent in 2013, a sixty percent increase from 2012. This increased patent activity will provide cannon fodder for its battles with Apple, but Apple already possesses a formidable array of patents and sheer numbers will not win the day for any player. Moreover, Apple has an ally in the form of a new combatant: the Rockstar Consortium.
Rockstar was formed by Apple, Microsoft, BlackBerry (Research In Motion), Sony and Ericsson to purchase the patents from the bankrupt telecommunications company Nortel. For $4.5 billion, Rockstar received approximately 4,000 patents, many of which may also be as foundational as the ones Google later acquired from Motorola.
On October 31, 2013, Rockstar filed infringement actions in the notoriously plaintiff-friendly Eastern District of Texas against Google, as well as Android hardware manufacturers such as Asus, HTC, Huawei, LG, Samsung, Pantech and ZTE. On December 23, Google brought a declaratory judgment suit against Rockstar in the Northern District of California for the same patents. On December 31, Rockstar moved to amend its October 31 complaint against Samsung individually to add Google as a codefendant. Accordingly, Apple's Rockstar proxy is creating a brier patch for Google.
As an NPE, Rockstar may engage in litigation against Google and other handset manufacturers in the Android ecosystem without fear of facing countersuits. At worst, Rockstar will face declaratory judgment litigation by Google against small components of Rockstar's very large portfolio, such as the one filed by Google on December 23rd.
The asymmetric threat posed by Apple proxy Rockstar to Google is illustrated by a declaratory judgment suit filed in the Delaware federal court on January 17th by a group of communications and cable companies. The gravamen of the complaint centers on allegations of attempts by Rockstar to enforce patents subject to RAND commitments or otherwise already licensed and exhausted, facilitated by misuse of confidentiality agreements and threats of serial litigation. It is the similar specter of serial litigation by Rockstar against Google that demonstrates the long-term danger faced by Google.
Notwithstanding Apple's apparent holding of the legal high ground, Android is enjoying overwhelming commercial success. According to statistics by International Data Corporation (IDC), eighty-one percent of worldwide shipments of smartphones in the Third Quarter of 2013 were devices using the Android operating system. That same source reports that Apple's market share of tablets was 29.6 percent. Market share does not tell the complete story because Apple's profit margins are higher, but the disparity is stark.
It remains an open question whether the strategic litigation will affect market share and, thus, the outcome of the Apple v. Google/iOS v. Android world telecommunications war. Apple has yet to obtain a decisive victory in the form of an injunction or exclusion order against a core Android feature common to all handset manufacturers. To date it has succeeded against only comparatively minor functionalities, the absence of which are highly unlikely to reduce consumer demand. Failure to land a knock-out blow in the courtroom means that Apple's fate will be determined in the market place. With the emerging dominance of Google's Android operating system Apple risks being consigned to a niche market segment, much as it was in the personal computer space by Microsoft's dominant Windows operating system.
Rodney R. Sweetland, III and Michael G. McManus are co-chairs of the ITC Section 337 practice of Duane Morris LLP and partners in its Washington, D.C. office.
Suggested citation: Rodney R. Sweetland, III and Michael G. McManus, Apple v. Google: The Other World War, JURIST - Sidebar, Jan. 27, 2014, http://jurist.org/sidebar/2014/01/sweetland-mcmanus-google-apple.php.
This article was prepared for publication by Michael Muha, an associate editor with JURIST's professional commentary service. Please direct any questions or comments to him at email@example.com