In Ericsson's ITC cases, judges allow Apple to broaden scope of 'patent misuse' defense when standard-essential patents are involved: problematic precedent

The ITC has been grappling for a long time with how to adjudicate FRAND arguments in disputes involving standard-essential patents (SEP). Initially, the U.S. trade agency with quasi-judicial powers was practically unreceptive to FRAND defenses, but then came the Obama Administration's 2013 veto--on public-interest grounds--of an import ban Samsung had won against Apple.

I don't have good news for those who want the ITC to be able to carry out its duties in an efficient and predictable manner. While the Ericsson-Apple dispute is still at an early stage (none of the cases has gone to trial, called "evidentiary hearing" at the ITC), a couple of Administrative Law Judges (ALJs) have handed down decisions that will embolden deep-pocketed, sophisticated defendants like Apple to shoehorn FRAND and other SEP-specific arguments into various affirmative defenses as opposed to limiting those arguments to their public-interest argument.

Fortunately for complainants, it's not as prejudicial in the ITC as in federal court when a motion to dismiss or a motion to strike is denied. There won't be a jury. But allowing defendants to waste trial time--and thereby to force a complainant to do so as well--on defenses that could easily be disposed of at an early stage is undesirable for the agency and for SEP holders dealing with unwilling licensees.

Just a few days ago, IPWatchdog published an interesting article that was inspired by Ericsson's ongoing enforcement of a preliminary 5G SEP injunction against Apple in Latin America: From SEPs to Discovery, Colombia is Getting More Patent Friendly. I'm sure that the vast majority of Washington policy makers don't want the Republic of Colombia to beat the District of Columbia when it comes to SEP enforcement. And, again, it's not like something immensely terrible had already happened at the ITC, but there is reason for concern that affirmative defenses like "patent misuse" and "unclean hands" may be used for exactly the kind of FRAND argument that should be relegated to the public-interest analysis. The Commission, the agency's top-level decision-making body, may have to do something about this worrying trend.

The current situation in the Ericsson v. Apple cases is that

• Apple will be allowed to argue at the February 2023 trial in the SEP case that Ericsson "has engaged in a continuing anticompetitive scheme" (which is simply an allegation of FRAND abuse styled as an unclean hands defense) and that Ericsson's allegedly non-FRAND royalty demands constitute patent misuse, and

• in a non-SEP case Apple will be allowed to claim that Ericsson is engaging in patent misuse by seeking a U.S. import ban over non-SEPS in order to extract supra-FRAND royalties from Apple on its SEPs.

The SEP case was recently reassigned to ALJ Bryan F. Moore, who yesterday ruled on Ericsson's motion to strike various affirmative defenses. The Office of Unfair Import Investigations (OUII, or commonly referred to as "the ITC staff") largely supported that Ericsson motion, though even the staff didn't recommend throwing out Apple's unclean hands defense. Here's the order (I'll comment further below):

https://www.documentcloud.org/documents/22171387-22-08-22-itc-1299-order-granting-in-part-ericsson-m2strike-defenses

ALJ Moore concurred with both Ericsson and the ITC staff on Apple's equitable estoppel and waiver defense as well as on a theory according to which Ericsson had failed to obtain the conssent and/or participation of unnamed co-inventors. He disagreed with Ericsson--but not with the staff--on the unclean hands defense. On patent misuse, the ALJ rejected both Ericsson's and the staff's arguments, and kept Apple's defense alive.

Toward the bottom of page 6 of the order (and continuing on the following page), ALJ Moore acknowledges the following:

"I agree that consideration of FRAND-related argument should be limited to the public interest phase of the investigation, and that these arguments are not cognizable equitable defenses to allegations of patent infringement."

But in the end he does not limit FRAND-related argument to the public-interest part. Instead, his order opens the floodgates to FRAND arguments under the unclean hands and patent misuse labels. Those affirmative defenses are supposed to apply to egregious types of conduct that patent holders would otherwise get away with. I just find it inconsistent to say that FRAND is for the public-interest phase only and then to allow FRAND arguments under different labels. It effectively means Apple gets multiple bites at the apple, though realistically those equitable defenses won't succeed anyway.

On top of that, ALJ Cameron Elliot allowed in one of the two non-SEP cases that Apple can make a SEP-related argument in a non-SEP case only because Ericsson is simultaneously asserting SEPs and non-SEPs, which is pretty common.

If the ITC continues on that path, one can only encourage SEP holders to primarily bet on foreign venues such as Munich and Mannheim, Barcelona (an up-and-coming patent enforcement forum), or Bogotá.

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Nokia privateer Conversant can't enforce SEP against standards-compliant Apple products due to Nokia's late disclosure: inequitable conduct

Conversant, previously known under other names such as Core Wireless, may very well be the wireless SEP privateer with the highest failure rate in litigation. And it's probably because Nokia sold them weak patents, more so than I would attribute this lack of success to the work performed by Conversant's litigators.

Last month Conversant lost a French appeal, and it became known that LG had offered Conversant less than 1% of what it wanted. Conversant has also been grossly unsuccessful against Apple in the U.S., with dozens of patent assertions having failed. They're now increasingly looking to the UK as a last resort, attempting to leverage the England & Wales High Court's and UK Court of Appeal's decisions in favor of global portfolio rate-setting--but Huawei and ZTE may get that precedent overturned as the UK Supreme Court granted their petitions to appeal (the UK equivalent of a cert petition) last month.

Conversant's latest failure in its U.S. litigation campaign against Apple reflects highly unfavorably on Nokia's behavior as a participant in standard-setting processes. On Friday (May 10, 2019), U.S. Magistrate Judge Nathanael M. Cousins granted--on remand from the Federal Circuit--an Apple motion to hold U.S. Patent No. 6,477,151 on "packet radio telephone services" unenforceable against Apple products practicing the (fairly old) GPRS (General Packet Radio Service) data communications standard related to GSM (this post continues below the document):

19-05-10 Order Holding Late... by on Scribd

Judge Cousins is in charge of discovery and similar matters in the FTC v. Qualcomm antitrust case Judge Lucy H. Koh is presiding over. Here, however, he's himself presiding over a Conversant v. Apple case, and there is a Qualcomm connection because of an old Qualcomm v. Broadcom case in which "Qualcomm's manipulation of its intellectual property made its nondisclosure [of a patent to the standard-setting organization until after its litigation against Broadcom began] particularly exceptional and therefore egregious."

Judge Cousins's order analyzes Nokia's misconduct with respect to the '151 patent for the purpose of determining (as the Federal Circuit instructed him to do on remand) "whether Nokia or [Conversant] inequitably benefited from Nokia's failure to disclose [the '151 patent to ETSI on a timely basis], or whether Nokia's conduct was sufficiently egregious to justify finding implied waiver without regard to any benefit that Nokia or [Conversant] may have obtained as a result of that misconduct." In other words, the question here is whether Nokia's inequitable conduct was just inequitable conduct or whether it was as outrageous as what Qualcomm did back in the day. Of course, Conversant (and, by extension, Nokia) would have preferred for the court not to identify any wrongdoing, but that wasn't realistically going to happen based on what the Federal Circuit had already stated in its decision to remand. For an example, the Federal Circuit had written that Nokia "had a duty to disclose its IPR no later than June 1998 [and] its later disclosure was clearly untimely and not sufficient to cure the earlier breach of its duty."

While the fact that Nokia disclosed its IPR to ETSI (the leading wireless standard-setting organization) four years later than it actually had to gave Judge Cousins pause, but ultimately he found that Nokia had not done much: it basically had just failed to disclose in time, as opposed to Qualcomm, which in Judge Cousins's words had "conspired to 'extend' its pre-existing patents, which, in the words of its own employees, covered 'almost exclusively' different material."

All in all, Nokia's "misconduct does not clearly and convincingly rise to the level of 'affirmative egregious misconduct' required," but misconduct it is, and the court then does find that "Nokia and Conversant have obtained ...] an unfair competitive advantage" in the sense of Conversant (and, by extension, Nokia) now trying to leverage the fact that the patent is standard-essential, which it might never have become if ETSI, prior to adopting the related technique, had been aware of the existence of this patent.

Judge Cousins wasn't persuaded by Conversant's argument that its FRAND licensing commitment rules out inequitable benefits.

The sanction here is that the United States District Court for the Northern District of California has granted Apple's motion for unenforceability on the basis of an implied waiver that now precludes Conversant from enforcing the '151 patents and any derivatives thereof against products practicing the GPRS standard, including the Apple products accused in that particular case.

Conversant can appeal this order, but since the Federal Circuit had already taken some pretty clear positions in its decision to remand the case to San Jose, it's not likely that the order granting Apple's motion would be reversed.

This will hopefully serve to discourage companies participating in standard-setting from similar misconduct. It's absolutely key that those sitting at the standard-development make timely disclosures of any intellectual property rights they hold that might read on certain techniques before those are formally adopted.

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Google emphasizes inequitable-conduct defense against Rockstar's search engine patents-in-suit

Late on Friday, Google filed its answer to one of the Rockstar "Halloween patent lawsuits": the one targeting Google's search engine core business. (Google is also a recently-added co-defendant in a case targeting Samsung's Android-based devices and trying to get Rockstar's lawsuits against Android device makers transferred from the Eastern District of Texas to the Northern District of California).

I've always made a distinction between Google's world-class defensive efforts and its pathetic counterattacks over Motorola's patents. Google's 88-page answer to the Rockstar/NetStar search engine patents complaint is remarkable: at a stage where most defendants basically just deny all of the allegations and vaguely state some affirmative defenses and counterclaims, Google goes into an unusual level of detail on its allegations of inequitable conduct by the Nortel employees who invented the search engine patents-in-suit and/or their lawyers during prosecution (i.e., the process that resulted in the grant of those patents). That level of detail is attributable to the fact that claims of inequitable conduct have to meet the heightened pleading standard for allegations of fraud.

Google's inequitable-conduct theories are based on allegations that the inventors and their patent attorneys violated their duty of candor and withheld from the United States Patent and Trademark Office certain prior art. While all of the patents-in-suit in the search engine case are from the same patent family and share the same title, there were different examiners at work, and Google alleges that prior art identified and considered by an examiner of one patent application wasn't disclosed to the examiner of some other patent applications. Google also asserts that false representations were made during prosecution.

I can't check on the merits of Google's inequitable-conduct allegations, but I do give Google's lawyers credit for pleading inequitable conduct in such a detailed form little more than two months after the original complaint. They clearly made an effort to discourage, or at least to enable their filing to survive, a motion to dismiss or strike.

Google also raises the usual defenses such as a denial of infringement.

But Google refrained from telling a "patent troll" and competitor conspiracy story in its answer to the complaint. It hints at some of that in a simultaneously-filed motion to transfer the case to the Northern District of California. That motion argues that some key witnesses are located in the Northern District of California, or at least closer to that one than to the Eastern District of Texas, and mentions that Apple and Microsoft employees involved with the Nortel patents auction would have to testify at trial. So the conspiracy theories will come up later, but Google's answer to the complaint focuses on patent-specific issues.

Finally, here's Google's answer to the Rockstar/NetStar search engine patents complaint:

14-01-10 Google Answer to Rockstar Search Patent Complaint by Florian Mueller

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Ericsson allowed to pursue hard-to-prove claim of inequitable conduct against Samsung at ITC trial

The week before Christmas Samsung brought an ITC complaint against Ericsson as the first part of its retaliation for Ericsson's previous patent assertions. There has since been some further escalation in this dispute.

In its February 2013 response to Samsung's ITC complaint, Ericsson asserted (as usual) multiple affirmative defenses, one of which is inequitable conduct by Samsung and its patent attorneys during the examination of the relevant patents-in-suit. Ericsson alleges that some of the named inventors of various Samsung patents had participated in standard-setting discussions where they saw technical documents that constitute relevant and eligible prior art but weren't disclosed to the patent office in connection with the patent applications. The withholding of prior art an inventor is aware of can constitute inequitable conduct. This is, however, hard to prove, and I wish to clarify that I will give Samsung the benefit of the doubt until it's proven guilty. I've previously said in other contexts that I don't agree with some of the ways in which Samsung asserts standard-essential patents (SEPs), but I don't believe Samsung has been engaging for many years in abusive conduct relating to standards and standard-setting.

Still, inequitable conduct of the alleged kind is an important issue because participants in standard-setting shouldn't simply file patents on what they see in the relevant discussions, or on modified concepts that don't represent significant technological progress over what others have already created and presented.

Inequitable conduct is hard to prove. I've seen statistics according to which such defenses succeed, on average, in only one of 250 cases. Not only is this defense difficult to prevail on but it's also subject to a heightened pleading standard in U.S. federal court, where allegations of fraudulent behavior must be laid out with greater particularity than other defenses.

In early April Samsung sought to benefit from a high pleading standard and brought a motion to strike Ericsson's inequitable conduct defense. In late April Administrative Law Judge (ALJ) E. James Gildea denied Samsung's motion. A public redacted version of his order became available yesterday (after the parties had the chance to request redactions).

Judge Gildea notes in his order that "inequitable conduct defenses may only rarely be successful on the merits" (clarifying immediately in a footnote that he "takes no position at this time with respect to the inequitable conduct defenses asserted in this Investigation"). But "it is up to the parties to determine where they would prefer to focus their time and effort". In other words, if Ericsson wants to try what is statistically a long shot, it's free to do so -- it simply has to know whether this is an exceptional case in which this kind of defense can succeed.

Judge Gildea's order takes note of the heightened pleading standard in federal court and of how other ALJs at the ITC have held defendants to a rather high standard, but he decided the way he deems appropriate. This means some clarification of the standard is needed, and maybe Samsung will ask the Commission, the six-member decision-making body at the top of the U.S. trade agency, to review Judge Gildea's ruling. It's a denial "without prejudice to Samsung's ability to raise the issue in another manner after discovery on the issue has moved forward".

The role of standardization documents (technical proposals etc.) in patent examination is increasingly important. Some patent offices appear to make certain efforts to cooperate more closely with standard-setting organizations, or at least they are giving consideration to this possibility. Recently a Samsung SEP case against Apple in Mannheim, Germany, was stayed because of doubts that the patent-in-suit was valid, and a standardization-related document was the key prior art reference at the trial, at which the presiding judge indicated he'd like patent offices to pay closer attention to standard-setting documents when examining patent applications related to cellular standards.

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Facebook exposes Yahoo allegation of fraudulent patent application as bogus

I normally don't report on Yahoo v. Facebook on this blog, with only one exception so far. This post is a second exception because something that just happened in that case is nothing short of astonishing from the point of view of a patent litigation watcher and represents a major embarrassment not only for Yahoo but to an even greater extent for Quinn Emanuel, a top-notch law firm that Google and leading Android device makers (Samsung, Motorola, HTC) rely on all the time. I have repeatedly expressed my admiration for the work QE does for the Android camp in the United States and in Germany, though I disagree with its approach to standard-essential patents (which has already resulted in formal EU antitrust investigations of two of its clients). But what I just learned about looks like a big-time blunder.

Yahoo claimed that two of the ten patents over which Facebook brought counterclaims against Yahoo were unenforceable due to "inequitable conduct" (i.e., fraud) in connection with a patent application from which those two patents were derived.

The short version, in one paragraph, is this: Yahoo alleged that the inventor and his patent attorney deceived the patent office by saying they provided, without ever actually providing, a sworn declaration by someone who should either have been named as another inventor or have declared under oath that he wasn't an inventor, even though he was erroneously listed as one at an early stage of the application process. But the fact of the matter is that this declaration was provided, and it had been in the record all the time -- Yahoo's lawyers alleged deception when they simply failed to do their job. Facebook obtained the record and provided it to the court, and in the process found out that nobody had even accessed (!) the record before.

Here are the details:

The relevant patents-in-suit are U.S. Patent No. 8,005,896 and U.S. Patent No. 8,150,913. Both cover a "system for controlled distribution of user profiles over a network and are continuations of U.S. Patent No. 7,003,546 on a "method and system for controlled distribution of contact information over a network". Facebook acquired the '896 and '913 patents as per an agreement dated February 1, 2012 (according to the assignment records).

The first of two elements of Yahoo's fraud theory is that the named inventor of those patents, Chris Chea, and/or his patent attorney, C. Douglass Thomas, intentionally failed to disclose a second inventor, Joseph Liauw. Yahoo's lawyers found out that Mr. Liauw was named as a second "independent inventor" in U.S. Provisional Patent Application No. 60/104311, but not in the subsequent patent application that resulted in in the grant of the '546 patent, from which the '896 and '913 patents were derived.

Yahoo's April 27 counter-counterclaims (counterclaims to Facebook's counterclaims) cite applicable statutory law, according to which an inventor's name can be dropped only on the basis of an affidavit (a sworn statement in writing, which in this case basically has to say that someone was originally named as an inventor due to an error), and state that "without an affidavit from Mr. Liauw, the '456 application could not have issued as a United States Patent". That's right -- but they did file that affidavit. It was in the record all the time. Yahoo notes that the inventor and his patent attorney had told the patent office that the required declaration was submitted in a copy from a prior application, and then alleges that "[t]his was false and deceptive, because no Oath or Declaration by Mr. Liauw was ever submitted". But Facebook has now shown that this declaration had been in the record all the time.

Here's the relevant passage from Yahoo's counter-counterclaims (red underlinings are mine; click on the image to enlarge it):

Facebook now brought a motion to strike (available here) the inequitable conduct claim, and as an exhibit to that motion, provided the complete "United States Patent File History", which includes, on page 123 of that PDF, the following document (click on the image to enlarge):

The affidavit was signed on June 1, 2001, and received by the USPTO on July 9, 2001. It was discoverable for a decade before Yahoo claimed "deceptive" conduct.

Why didn't Yahoo's lawyers find it? Because they apparently jumped the gun, accusing Facebook of fraud instead of requesting the relevant file history. Here's an interesting passage from a declaration filed in support of Facebook's motion by Cooley partner Heidi L. Keefe (red underlining is mine; click on the image to enlarge):

Nobody even requested the file history before Facebook's lawyers did so after Yahoo brought its allegation of "inequitable conduct"...

Oddly, Yahoo accused Facebook of not acting in good faith when it brought its own counterclaims:

"On information and belief, Facebook failed to perform a good faith investigation into its counterclaims prior to asserting them in retaliation against Yahoo! For example, as described more fully below, Facebook purchased and asserted patents tainted by inequitable conduct. Furthermore, Facebook asserted its newly-acquired patents against aspects of Yahoo!'s products for which there is little to no publicly-available information. Unless Facebook has unlawfully acquired Yahoo! confidential business information, Facebook could not have developed a good-faith basis for many of the infringement allegations in its counterclaims."

It now appears that Yahoo, not Facebook, "failed to perform a good faith investigation". And while Facebook may have had "little to no publicly-available information" to rely on in connection with how Yahoo's servers operate (a separate issue I'm not going to digress into here), the patent file history that Yahoo failed to look up was publicly-available (on request).

This is astonishing.

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