Opinion

Alison Frankel

The weird proviso in Apple’s e-books settlement

Alison Frankel
Jun 17, 2014 19:55 UTC

There’s a very unusual sentence near the beginning of the letter that class action lawyer Steve Berman of Hagens Berman Sobol Shapiro sent Monday to U.S. District Judge Denise Cote of Manhattan. Cote is presiding over the consolidated antitrust litigation in which the Justice Department, 33 U.S. states and territories and a class of book purchasers have accused Apple of conspiring with publishers to fix e-book prices. A year ago, after a bench trial of the Justice Department’s case, Cote found Apple liable for violating federal antitrust law. Since then, the company has been pursuing an appeal of the liability decision at the 2nd U.S. Circuit Court of Appeals while continuing to battle with the states and private plaintiffs in Cote’s courtroom.

Berman’s letter on Monday informed the judge that Apple has agreed to a binding settlement with the consumer class and the states. But there’s a catch, he wrote: “Any payment to be made by Apple under the settlement agreement will be contingent on the outcome of that appeal.”

What? The whole point of settlements is to eliminate uncertainty for both sides. Yet according to Berman’s letter, this deal hinges on the uncertain outcome of Apple’s appeal to the 2nd Circuit. That didn’t make any sense to me. Almost all of the leverage in this case right now belongs to the class and the state AGs. Apple’s liability under federal antitrust law has already been established in the Justice trial, and Cote ruled earlier this month that her liability opinion also puts Apple on the hook under the laws of the 24 states that are seeking penalties. The only issue to be decided at the second e-books trial, which was scheduled to begin on Aug. 25, was how much Apple would have to pay — and the consumers and state AGs had experts who said Apple owed them as much as $840 million, even before the trebling available under federal antitrust law.

Apple’s only bargaining chip was the possibility that its lawyers at Gibson, Dunn & Crutcher would win the company’s appeal of Cote’s liability decision from the Justice case. So why, I wondered, would the state AGs and Berman — one of the most experienced antitrust class action lawyers in the country — agree to a deal that appears to undercut their bargaining power and inflate Apple’s leverage?

I don’t think they did. I have a feeling that when the states and Hagens Berman file their memo of understanding with Apple, sometime in the next 30 days, we’re going to see a new kind of settlement structure — one that’s tailored to the peculiar circumstances of this case, in which money damages claims by the states and class action plaintiffs live or die with Apple’s appeal in the separate, but intertwined, Justice proceeding.

Lesson from the smartphone wars: Litigation is not a business plan

Alison Frankel
May 19, 2014 19:55 UTC

After almost five years of suing each other in courts in the United States and Europe over patents on mobile devices, Apple and Google abruptly announced Friday night that they’ve called a ceasefire: They’re dropping all of the litigation. They’re not even making a deal to cross-license one another’s IP, just declaring a truce and walking away.

Apple has not yet settled with Samsung, the device manufacturer that most successfully employs Google’s Android operating system, so the two companies haven’t entirely resolved their dispute; evidence from the recently concluded patent infringement trial between Apple and Samsung in San Jose, Calif., revealed that Google is paying at least part of Samsung’s defense costs. (The Korea Times reported Monday that Apple and Samsung are in global settlement talks.) Until there’s a Samsung deal, two law professors, Brian Love of Santa Clara University and Michael Risch of Villanova told Bloomberg, the Google settlement is more important as a symbol than for any actual impact.

What is increasingly obvious is that the same can be said for the entire panoply of smart device patent cases. Apple and Samsung have now been through two long and expensive patent infringement trials before U.S. District Judge Lucy Koh in San Jose. Apple has won both, but the jury in the trial that concluded earlier this month awarded the company only $119.6 million in damages, less than a day’s sales for Samsung. Most importantly, Apple failed to win an injunction in the federal-court litigation. Samsung also tried and failed, in its case at the U.S. International Trade Commission, to win any prohibition on the importation of Apple products. Microsoft, meanwhile, established in separate litigation against Google that individual patents in high-tech devices are worth a pittance.

New class action: Real victims of Samsung infringement are consumers

Alison Frankel
Feb 10, 2014 19:55 UTC

Once again, we are reminded that defendants underestimate the creativity of the class action bar at their own peril.

Last week, the firms Reese Richman and Halunen & Associates filed quite an interesting class action complaint in federal court in San Francisco. The case asserts that Samsung’s infringement of various Apple patents in its mobile devices – as established in a jury trial in federal court and in a proceeding at the U.S. International Trade Commission – has injured unwitting Samsung mobile device buyers who believed they were purchasing non-infringing products. According to the complaint, the resale market for Samsung devices has been hard-hit by infringement findings against the company; the suit claims that Samsung owners are actually in danger of violating the Tariff Act of 1930 if they attempt to resell infringing tablets and smartphones.

As you may recall, Samsung is on the hook to Apple for more than $900 million in damages after a partial damages retrial in November of its first round of patent infringement claims against Samsung in San Francisco federal court. The purported nationwide consumer class action actually claims far more than that on behalf of Samsung device purchasers. Under one of the suit’s causes of action, the class wants Samsung to repay the entire cost of the infringing mobile devices to the consumers who bought them – or at least the lost value consumers have realized as a result of Samsung’s infringement. Under another theory, class members assert that Samsung must disgorge to them all of its profits from selling infringing devices. That’s a lot of money: According to Apple, Samsung took in $3.5 billion in revenue from the sale of almost 11 million infringing devices.

Apple and Motorola talk arbitration. End in sight to patent war?

Alison Frankel
Nov 20, 2012 22:24 UTC

In the two weeks since U.S. District Judge Barbara Crabb of Madison, Wisconsin, unceremoniously tossed Apple’s breach-of-contract against Motorola just as a trial to determine a fair licensing rate for Motorola’s standard-essential wireless tech patents was to begin, Apple’s lawyers at Covington & Burling andTensegrity Law Group have been struggling to persuade the judge to change her mind and dismiss the case without prejudice. I already told you about the bench memo Apple submitted on Nov. 5, after Crabb said at a hearing that if Apple wouldn’t agree to abide by the licensing rate she set, she would dismiss its declaratory judgment and specific performance claims. Apple argued, in essence, that since Crabb was dismissing on jurisdictional grounds, she hadn’t reached the merits of Apple’s case, so she couldn’t preclude Apple from refiling its claims. Apple repeated those arguments in a brief filed last week, responding to a Nov. 14 brief by Motorola’s lawyers at Quinn Emanuel Urquhart & Sullivan that urged Crabb to stick by her decision to toss the case with prejudice. “No litigant,” Motorola wrote, “should be permitted to try to engineer a judgment to its liking on the eve of the trial, then seek to walk away so that it can reengineer and refile its claims elsewhere, at some later date.”

That might seem like the same old bomb-throwing by two companies that have spent the last three years (and untold millions of dollars) attempting to litigate the other’s smart devices into oblivion, but last week’s briefing, as well as another brief Motorola filed Monday, revealed something new: a tantalizing step toward arbitration that could be, to quote Winston Churchill, the end of the beginning of the smartphone patent wars.

Don’t get too excited, because Apple and Motorola are still squabbling over the terms of such an arbitration. But here’s where things stand. At the Nov. 5 hearing before Crabb, Motorola suggested, apparently for the first time in open court, that it would be willing to submit to binding arbitration to set a fair and reasonable licensing rate for both its portfolio of patents essential to wireless technology and Apple’s corresponding portfolio. Apple General Counsel Bruce Sewell followed up with a letter on Nov. 8 to Motorola GC Kent Walker(cc’ing Google lawyer David Drummond). “Your offer to arbitrate made before Judge Crabb on November 5, 2012, was … welcome news,” the Apple letter said. “We agree to arbitrate the value of mutual licenses to our respective (standard-essential patent) portfolios.”

How Apple botched its fair rate case against Motorola

Alison Frankel
Nov 6, 2012 23:50 UTC

I know Apple is a brilliantly managed company represented by brilliant outside counsel. But I cannot for the life of me figure out Apple’s endgame strategy in its breach-of-contract case against Motorola in federal court in Madison, Wisconsin.

Apple had a chance to mitigate Google’s leverage from Motorola’s standard-essential patents in the smartphone wars. Instead, it squandered more than 18 months of litigation, refusing on the eve of trial to agree to abide by the court’s determination of a fair and reasonable royalty rate for Motorola’s IP unless U.S. District Judge Barbara Crabb set a rate of no more than $1 per iPhone. As a result, Crabb dismissed Apple’s case Monday, on the day she was to have begun a bench trial on Apple’s breach-of-contract claim. Her ruling means Apple may not be able to bring similar claims against Motorola in any other U.S. court, which robs the iPhone maker of powerful leverage in the global smart device war.

From my reading of Crabb’s orders and Apple’s responses in the week leading to Monday’s dismissal, Apple must have known it was at extreme risk of this outcome. The chain of events began with Crabb’s 57-page decision on Oct. 29, which outlined the scope of the trial that was scheduled to begin the following week. Apple’s lawyers at Covington & Burling and Tensegrity Law Group should have been happy with Crabb’s ruling, which held that Apple could, indeed, compel Motorola to offer Apple a license for its standard-essential IP on fair and reasonable terms. Specific performance, as that relief is known, is extraordinary in a breach-of-contract case, Crabb acknowledged, but she said that the circumstances of this dispute, in which the two sides are manifestly incapable of negotiation, justify it. Crabb went on to say (like U.S. District Judge James Robartof Seattle in Microsoft’s parallel breach-of-contract case against Motorola) that she would first have todetermine a fair licensing rate for Motorola’s patents and would then decide whether Motorola breached its obligation to license the IP to Apple on reasonable terms. If she found Motorola in breach, she said, she might order it to offer its IP to Apple on the terms she set.

Motorola loses bid to reshape crucial trial on essential patents

Alison Frankel
Oct 11, 2012 22:22 UTC

The next great turning point in the war for global device domination comes next month, when Motorola faces two trials – one against Apple, the other against Microsoft – that will determine its ability to use its portfolio of standard-essential patents as leverage in IP disputes with its competitors. I’ve been harping on this theme for a while, but trials have a way of sharpening the issues. Both of these cases will be tried to judges, not juries, so we won’t get immediate results. But when U.S. District Judge Barbara Crabb in Madison, Wisconsin, and U.S. District Judge James Robart in Seattle issue rulings, Motorola and its rivals should have a very clear understanding of how valuable Motorola’s patents on essential wireless technology are.

The Apple trial — which will decide whether Motorola breached its agreements with international standard-setting bodies by failing to license essential technology to Apple on fair and reasonable terms — is scheduled to begin in Wisconsin on Nov. 5, but the Microsoft case in Seattle, which begins on Nov. 13, could hold greater industrywide interest. When he denied summary judgment to both Microsoft and Motorola in June, Robart said he needed more information about what exactly constitutes a fair licensing deal on standard-essential technology before he could ask a jury to decide whether Motorola breached its obligation to license its IP to Microsoft. He called for a bench trial to determine a reasonable royalty rate — an exercise that will likely expose Motorola’s licensing agreements with other counterparties and will certainly give every other Motorola licensee a starting point in future negotiations.

Over the summer, Motorola’s lawyers at Ropes & Gray and the Summit Law Group attempted to reshape the bench trial before Robart. In a motion for summary judgment they filed in July, the Motorola lawyers said that Robart’s proposed rate-setting exercise would improperly set the terms of a contract that does not exist between Microsoft and Motorola. “There is no existing licensing contract between Motorola and Microsoft,” they wrote. “Instead, Motorola submits that there is simply a right to a license. Thus, there is no existing contract for the court to interpret or in which the court can merely ‘fill in’ gaps.”

Samsung goes after jury foreman in bid to reverse Apple verdict

Alison Frankel
Sep 27, 2012 04:02 UTC

By Alison Frankel and Dan Levine

Samsung doesn’t want you to know why it believes juror misconduct tainted the $1.05 billion verdict that a San Jose federal court jury delivered to Apple in August. Its lawyers at Quinn Emanuel Urquhart & Sullivan redacted that entire section of the motion for judgment as a matter of law that they filed Friday with U.S. District Judge Lucy Koh in San Jose, California. But from a close examination of the statute and cases Samsung cited in the redacted section, we’ve discerned Samsung’s two-pronged argument for juror misconduct: The nine-person jury improperly considered extraneous evidence during deliberations and jury foreman Velvin Hogan failed to disclose in voir dire that he was involved in 1993 litigation with a former employer that led him and his wife to declare personal bankruptcy.

In an exclusive interview Tuesday about Samsung’s secret new allegations, Hogan, an engineer, confirmed that he was a party in two cases cited in Samsung’s brief, a 1993 case from municipal court in Santa Cruz titled Seagate Technology v. Hogan and a 1993 federal bankruptcy case titled In re Velvin R. Hogan. According to Hogan, when Seagate hired him in the 1980s and he moved from Colorado to California, his new employer agreed to split the cost of paying off the mortgage on his Colorado home. But after Hogan was laid off in the early 1990s, he told us, Seagate claimed he owed the company that money. Hogan said he sued Seagate for fraud, Seagate countersued, and he ultimately declared personal bankruptcy to protect his house.

Can Quinn Emanuel credibly argue that Koh needs to hold a hearing to determine whether Hogan’s failure to disclose the 1993 litigation is grounds to throw out an unrelated patent infringement verdict for Apple? Again, we don’t know precisely what Samsung’s argument is, but several of the cases it cited in the new brief’s table of authorities concern juror bias and the failure to disclose relevant information in the jury selection process. In U.S. v. Perkins, for instance, the 11th Circuit Court of Appeals ruled in 1984 that the defendant in a criminal obstruction of justice case was entitled to a new trial because a juror didn’t reveal that he had previously been both a defendant in a civil case over stolen union funds and a witness in a criminal case involving the firebombing of a union hall. In a 1989 2nd Circuit ruling called U.S. v. Colombo, the court called for an evidentiary hearing on whether a juror deliberately failed to disclose that her brother-in-law was a government prosecutor in order to get on the jury, and held that if she hid her ties to the government, convictions in a huge Mafia racketeering case must be vacated.

Why Apple is settling EC’s e-books antitrust case – but not DOJ’s

Alison Frankel
Sep 20, 2012 22:09 UTC

On Wednesday, Reuters confirmed what it first reported last month: Apple and four book publishers have offered to settle a European Commission investigation of price-fixing in the market for e-books. That’s particularly notable because Apple and two of those publishers – Macmillan and Viking – have refused to settle with the U.S. Justice Department’s antitrust division, which reached an agreement last April with three other publishers accused of conspiring with Apple to change the pricing model for e-books. Neither the DOJ settlement nor the proposed EC deal involve a financial penalty, so why would Apple, Viking and Macmillan agree to settle with antitrust regulators from the European Union but not their U.S. counterparts?

Two reasons: EC procedure and U.S. liability.

First, a caveat. I reached out to Macmillan’s lawyers at Sidley Austin, Penguin’s counsel at Akin, Gump, Strauss, Hauer & Feld and Apple’s lawyers at Gibson, Dunn & Crutcher, but none would comment, nor did Apple respond to a request for comment. In other words, I’m offering informed speculation rather than from-the-horse’s-mouth reporting.

That said, consider the way antitrust cases proceed at the EC, which is the trade section of the European Union. After regulators complete their investigation and conclude that defendants have engaged in anti-competitive behavior, they have the power to levy a fine before there’s any court ruling on liability. Those fines, moreover, can be huge. In 2008, the EC levied a $1.3 billion penalty against Microsoft for failing to comply with a previous EC directive to permit competitors to run programs on Windows. The following year European regulators set a new record with a $1.4 billion fine for the accused chip monopolist Intel.

Posner ruling makes smartphone patent war economically irrational

Alison Frankel
Jun 26, 2012 13:58 UTC

There is no federal judge more economically outspoken than Richard Posner of the 7th Circuit Court of Appeals, who in his scant spare time co-authors a provocative blog with the Nobel Prize-winning University of Chicago economist Gary Becker. With a high-pitched querulous voice and no tolerance for obfuscation, Posner can demolish lawyers he considers economics slackers. If you’ve got a dubious theory of damages, you’d better hope you don’t end up arguing it before him.

But I’d bet neither Apple nor Motorola thought their damages theories were particularly unusual in the patent infringement cases Posner tossed Friday, sitting by designation in federal district court in Chicago. The lawyers on both sides (who didn’t return my calls seeking their comments) are, after all, veterans of the smartphone patent wars: Quinn Emanuel Urquhart & Sullivan for Motorola; Covington & BurlingWeil, Gotshal & Manges and Tensegrity Law Group (Matt Powers‘s new shop) for Apple. Motorola made basically the same damages argument against Apple that it has asserted in litigation with Microsoft in federal court in Seattle, claiming that it’s due more than 1 percent of iPhone sales for Apple’s infringement of a standard-essential Motorola patent on communications between cellphones and cellular towers. Apple, meanwhile, offered an economic consultant’s analysis of what it might have cost Motorola to license or work around its patents for digital signal processing and recognition of embedded phone numbers and Web addresses.

Nevertheless, according to Posner’s 38-page opinion, neither side made a legally sufficient case for damages. That, in turn, doomed both sides’ requests for injunctions. With neither an injunction nor money damages an option for Apple or Motorola, Posner said any judgment on the validity or infringement of the patents at issue “would have no practical effect” and dismissed both suits with prejudice.

More Apple antitrust woes: CEO, directors at hub of poaching case

Alison Frankel
Apr 19, 2012 22:36 UTC

It’s not easy for antitrust plaintiffs to get past a defense motion to dismiss. Before the U.S. Supreme Court raised the pleading standard for everyone in Ashcroft v. Iqbal in 2009, it imposed that tough burden on antitrust claimants in Bell Atlantic v. Twombly, a 2007 opinion that held it’s not enough just to argue that alleged conspirators engaged in parallel price-fixing. Under Twombly, antitrust complaints have to offer detailed and specific facts to support a plausible argument that defendants colluded to restrict competition.

On Wednesday evening, U.S. District Judge Lucy Koh of San Francisco federal court ruled that software engineers in a putative class action against Apple, Google, Intel, Intuit, Lucasfilm, Adobe, and Pixar met that high standard. As the judge explained in her 29-page opinion, it certainly helped the plaintiffs that the defendants all entered consent decrees with the Justice Department in 2010, agreeing to end their practice of restricting cold calls to recruit one another’s engineers. But what really convinced the judge not to dismiss the engineers’ case was the “significant influence” of former Apple CEO Steve Jobs; Google chairman and Apple board member Eric Schmidt; and Apple and Google director Arthur Levinson.

At least one of those three men, Koh said, had a hand in each of the six bilateral anti-poaching agreements among the defendants. “Their overlapping board membership lends plausibility to plaintiffs’ allegations that each defendant entered into this conspiracy ‘with knowledge of the other defendants’ participation in the conspiracy, and with the intent of . . . reduc(ing) employee compensation and mobility through eliminating competition for skilled labor,’” the judge wrote.

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