Last week, both Apple and Samsung filed their initial submissions in response to the U.S. International Trade Commission’s March 13 order for additional briefing in In the Matter of Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Table Computers (Inv. No. 337-TA-794). In a post last Friday, we discussed the submission by the ITC’s Office of Unfair Import Investigations. After the jump, we’ll give an overview of the positions set forth in the parties’ respective briefs. It will not be a surprise to anyone following the smartphone wars or standard-essential patent issues that Apple and Samsung vehemently disagree over nearly everything having to do with the standard-essential patent and FRAND issues in this case.
Samsung’s Brief [Link]
Similar to OUII’s brief, Samsung’s brief emphasizes the balance between the public interest in enforcing intellectual property rights and the competition in industry. Samsung asserts that any exclusion order would be limited to a small subset of devices — “only some of Apple’s iPhone 4 and iPad 2 devices” that comply with the ETSI UMTS standard. Although Samsung has redacted many of the specific market share figures, it’s obvious that Samsung is stressing that the effect of an exclusion order on the U.S. market for smartphones and tablets will be minimal. Samsung points to many alternatives for the accused infringing products, including products from competitors and later generations of Apple products. Samsung thus claims that these facts weigh in favor of granting an exclusion order.
As for the FRAND and SEP issues, Samsung once again paints Apple as an unwilling licensee. Samsung claims that over the past few years, it has worked diligently and “has made repeated offers to Apple for a license to its declared-essential UMTS patents,” to no avail. (Again, many of the licensing particulars are redacted as confidential). Samsung claims that its “licensing goal is to avoid litigation and obtain patent peace,” and that its conduct has been completely consistent with its FRAND obligations under the ETSI patent policy. But Samsung asserts that “Apple has no demonstrated that it has any genuine interest in negotiating a license to Samsung’s declared-essential UMTS patents.”
Samsung notes that the terms of its FRAND offer would not be affected by the ITC’s decision to issue (or not issue) an exclusion order here. Samsung argues that the Georgia-Pacific factors are generally not applicable to FRAND licensing discussions. In particular, Samsung distinguishes the “hypothetical negotiation” context of G-P with the situation here, where actual negotiations have occurred. That being said, Samsung claims that G-P Factors 1 and 2 (the royalties received by patenteee for the patent-in-suit and royalties paid by licensee for comparable patents, respectively) support Samsung’s offered 2.4% royalty rate for its UMTS-essential portfolio.
Apple’s Brief [Link]
Apple, on the other hand, argues that competitive conditions in the U.S. weigh in favor of no exclusion order issuing in this case. Apple points to two national carriers (AT&T and T-Mobile) and two regional carriers in Alaska and Texas that would allegedly be adversely affected by an exclusion order. Apple also argues that the iPhone 4 and iPad 2 models are important entry-level products for U.S. consumers in their respective markets. In the instance that the ITC decides to issue an exclusion order, Apple echoes the OUII’s argument that any exclusion order be delayed and tailored to allow vendors to switch to non-infringing alternatives. Apple also claims that an exception should be made for service, repair, and replacements for existing products.
But the main thrust of Apple’s brief relates to its claim that the public interest precludes issuance of an exclusion order due to FRAND and SEP-related issues — and may actually require a remand for further inquiry into factual issues. Apple argues that Samsung has repeatedly breach its FRAND obligations — first, by filing this complaint without making any offer specific to its declared-essential, FRAND-encumbered portfolio (or the patent at issue); second, by offering an “extreme demand” of 2.4% of the end-product price for its FRAND patents; and third, by making a different (confidential) offer this past December (which Apple contends was made because Samsung was sued by Ericsson over standard-essential patents). Apple argues that in order to determine whether Samsung’s changing positions are compliant with its FRAND obligations, the Commission should remand the case back to the administrative law judge for further proceedings.
Consistent with its filings and comments made in countless cases, Apple argues here that the proper methodology for determining FRAND terms leads to the conclusion that FRAND royalties should be minimal — and that Samsung’s demands were inconsistent with its FRAND obligations. Apple asserts that when Samsung’s SEP portfolio has been tested in litigation, it has failed 90% of the time (of the 28 declared-essential SEPs Samsung has asserted against Apple in other cases, 25 were either withdrawn or found invalid/not infringed). Apple reiterates its position that the appropriate royalty base for FRAND-encumbered patents should be the component containing the standardized functionality, while the appropriate royalty rate should be account for the aggregate royalty burden if all SEP holders took the same approach. And Apple argues that because of the non-discrimination requirement this same royalty should be available to all implementers.
Applying its FRAND principles to the patent-at-issue here, Apple argues that the accused functionality includes only 0.0000375% of the UMTS standard — and that Samsung’s patent covers only a fraction of that portion of the standard. Apple claims that ex ante (at the time of the standard-setting process), no reasonable party would pay significant royalties for such a patent. Apple claims that the FRAND royalty should be a near-zero amount.
Apple does agree with Samsung, however, in taking the position that the Georgia-Pacific factors are not necessarily applicable to the determination of a FRAND royalty. But in a chart on pp. 40-41 of its brief (and the ensuing pages), Apple sets forth its positions regarding potential relevance of the G-P factors to a FRAND determination. Apple argues that regardless of whether Georgia-Pacific applies, the same conclusion should be reached — FRAND royalties for Samsung’s essential patents are minimal and far below what Samsung has offered.