Alison Frankel

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.

The Apple board members’ influence on all of the defendants tied the six company-to-company anti-poaching agreements into a broader price-fixing conspiracy, said class counsel Joseph Saveri of Lieff Cabraser Heimann & Bernstein. Saveri told me he was pleased that Koh also picked up on arguments that the identical agreements lent weight to the plaintiffs’ conspiracy allegations. As the judge wrote, “The fact that all six identical bilateral agreements were reached in secrecy among seven defendants in a span of two years suggests that these agreements resulted from collusion, and not from coincidence.”

The plausible inference from the plaintiffs’ evidence, Koh said, is that “the agreements were negotiated, reached, and policed at the highest levels of the defendant companies.” According to the judge, Jobs pushed particularly hard for anti-poaching agreements and had a hand in four of the six company-to-company deals. When, for instance, former Palm CEO Ed Colligan balked at an agreement, Jobs allegedly told him, “‘We must do whatever we can’ to stop cold calling each other’s employees and other competitive recruiting efforts between the companies,” Koh wrote.

My colleague Jon Stempel pointed out in his story on Koh’s ruling that Jobs also personally reached out to Apple board member Schmidt when Google was attempting to recruit an Apple engineer. “I would be very pleased if your recruiting department would stop doing this,” Jobs wrote Schmidt. (The Google recruiter in the incident was subsequently fired, Stempel wrote.)

“Jobs was kind of thuggish,” Saveri told me. “He was a tough guy and a force of nature, and he ran over almost everyone, including CEOs of big companies.”

Saveri also said that thanks to Koh’s October 2011 order requiring defendants to turn over materials from the Justice Department investigation, the plaintiffs already have stronger evidence than what’s in the complaint Koh declined to dismiss. (She did dismiss California state-law business claims, but kept alive all state and federal antitrust allegations.) The class can now proceed with additional discovery.

I emailed Apple counsel George Riley and Michael Tubach of O’Melveny & Myers, who submitted the joint defense motion to dismiss, but didn’t hear back.

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In a really smart piece last month, my Reuters pal Dan Levine wrote that Steve Jobs’ promise to kill Google’s Android operating system has not been fulfilled. Instead, wrote Levine and co-author Poornima Gupta, Apple’s patent war against Android users Motorola, Samsung, and HTC had become “a costly global war of attrition.” Both sides have won skirmishes, but no battle has been decisive. The Reuters story quoted Judge Richard Posner of the 7th Circuit Court of Appeals, who is overseeing a Motorola case in U.S. District Court in Chicago. “You’re not going to shut down the smartphone,” Posner told Apple’s lawyer. “[And] they’re not going to shut down the iPhone.”

The exact same thing could be said of Microsoft’s patent war with Google and its Android acolytes. When the smartphone patent infringement cases launched in 2009 and 2010, maybe it was feasible that one or two of the big three could kill off another of them. But since then, with Apple and Microsoft teaming up to buy Nortel patents and Google countering with its purchase of Motorola Mobility, this war has become a standoff that can only be resolved with cross-licensing deals.

That’s why antitrust arguments — as opposed to patent infringement claims — have been creeping into the spotlight over the last few months. On Tuesday, the European Union announced that it has opened antitrust investigations of Motorola’s demands for licensing fees on standard-setting patents, following complaints by both Microsoft and Apple. (Google’s Android partners, of course, have lobbed similar allegations of patent extortion at Microsoft.) The goal of such claims is to drive down the cost of licensing one another’s patents. In other words, if you can’t beat ‘em, pay as little as possible to join ‘em.

We should have a much better idea of the strength of Microsoft’s assertions against Motorola by next week, when Microsoft’s lawyers at Sidley Austin will get to air their arguments about Motorola’s alleged abuse of its industry-standard patents at a preliminary injunction hearing before U.S. District Judge James Robart in federal court in Seattle. Microsoft moved for the injunction on March 28, asking the judge to stop Motorola from taking any action to block certain Microsoft products from the German market. Microsoft said it had brought the Seattle suit in 2010 “to force Motorola to honor its commitment to license its standard-essential patents.” Instead, according to Microsoft, Motorola went to German courts, seeking its own injunction against Microsoft. Microsoft argued in its Seattle motion that it needs a restraining order to preserve the U.S. judge’s ability to decide the merits of its case.

It outlined those purported merits in a summary judgment motion filed last Friday. According to Microsoft, Motorola made a “blatantly unreasonable” demand that it pay $4 billion (yes, billion) in annual royalties for the use of 50 Motorola patents in Microsoft Windows. The demand “was so overreaching that no rational company could ever have accepted it or even viewed it as a legitimate offer,” Microsoft asserted. “Motorola’s obvious strategy was … to make an offer that Microsoft was sure to refuse so that Motorola then would be free (in its view) to sue on its standard-essential patents to gain leverage in other disputes with Microsoft.” Microsoft asked for a ruling that Motorola had breached its agreement to license standard-setting patents on fair and reasonable terms.

Motorola is represented in the Seattle case by Ropes & Gray. Ropes partners Jesse Jenner and Steven Pepe didn’t return my calls. I also left messages with Microsoft inside counsel Andrew Culbert and outside counsel David Pritikin of Sidley but didn’t hear back.

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The big guns are rolling out on both sides of Microsoft’s patent infringement suit against Barnes & Noble at the U.S. International Trade Commission. Microsoft has no fewer than four firms (Sidley Austin; Orrick, Herrington & Sutcliffe; Woodcock Washburn; and Adduci, Mastriani and Schaumberg) working on the six-month-old case, in which it accuses Barnes & Noble’s Nook e-readers of infringing Microsoft patents. Barnes & Noble this week supplemented its team of Cravath, Swaine & Moore and Kenyon & Kenyon with Paul Brinkman‘s group from Quinn Emanuel Urquhart & Sullivan. The Quinn addition is notable because Barnes & Noble’s devices use Google’s Android operating system; Quinn, which is one of Google’s go-to IP firms, previously defended the Android system in Apple’s ITC case against HTC.

When it comes to Android, Microsoft and Google don’t exactly think the same way, as you’ll see below. But there is one issue on which they have a peculiar alignment of interests: they’re both trying to put the kibosh on supposedly confidential information that’s jumped from litigation into the public domain.

Google, as you’ll no doubt recall, has been fighting for months to undo the damage an email written by one of its Android engineers has apparently caused to Google’s defense of Oracle’s Java infringement claims. (The engineer, Tim Lindholm, said all alternatives to Java “suck” and Google should license the software code.) Google has been arguing, without any success, that Oracle improperly introduced the damning email into the record and all traces of it should be purged — even though, by now, Lindholm’s email is plastered all over the Internet.

Microsoft, meanwhile, has been gleefully roasted this week by tech bloggers citing disclosures from the Barnes & Noble case. (See, for instance, here, here, and here.) The Microsoft-is-a-troll taunting began way back in April, when the brainy folks at Groklaw first covered Barnes & Noble’s answer and affirmative defenses to Microsoft’s ITC complaint. The book-selling giant, Groklaw pointed out, was asserting a patent misuse defense, claiming that Microsoft is on a mission to destroy Android by demanding exorbitant licensing fees for trivial patents.

Then last week, Bloomberg noticed that Barnes & Noble had filed some pretty juicy documents to support its assertions, including a March 2011 letter Barnes & Noble’s Cravath lawyers sent to the Justice Department’s antitrust division, urging DOJ to investigate Microsoft for antitrust violations in its anti-Android campaign. In an accompanying slideshow presentation to the DOJ, Barnes & Noble detailed Microsoft’s Android-related license deals and the nondisclosure agreements Microsoft supposedly forced licensees to sign. Groklaw uploaded all the documents — including Cravath’s letter to the DOJ and the slideshow — and the blogosphere took over. (Kinda funny that the March 2011 letter from Cravath is addressed to then-Antitrust Division chief Christine Varney, who is now, of course, a Cravath partner.)

You can find the Barnes & Noble filings with a few clicks, but you can’t find them in the record of the ITC case anymore. That’s because Microsoft complained to ITC Secretary James Holbein that the B&N document dump contained confidential information. (I can’t even link to Microsoft’s Nov. 2 and Nov. 4 letters; they were filed under seal.)

Barnes & Noble, which has made Microsoft’s secrecy a theme of its defense, responded with a fiery six-page letter on Nov. 4. “Prior to the institution of this investigation and ever since, Microsoft has claimed confidentiality where none existed,” B&N’s lawyers at Kenyon & Kenyon wrote. “Over the course of license negotiations with Microsoft, Barnes & Noble repeatedly told Microsoft that it did not consider its negotiations to be confidential; Microsoft’s unilateral insistence on the confidentiality of documents given to Barnes & Noble over the course of negotiations does not create a confidentiality agreement.” (I highly recommend reading the letter, which details exactly how Microsoft attempted to extract a nondisclosure agreement from Barnes & Noble in a series of licensing meetings.)

Barnes & Noble said in the Nov. 4 letter that it would move to have the documents reclassified as not confidential, but the ITC docket doesn’t indicate it’s made a motion yet.

I left a message for Barnes & Noble counsel Peter Barbur of Cravath (who signed the DOJ letter) but didn’t hear back. Paul Brinkman of Quinn declined comment. Microsoft counsel Robert Rosenfeld of Orrick referred my call to a Microsoft spokesperson, who declined comment.

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Remember the Cold War military doctrine of Mutually Assured Destruction? The idea was that if the United States and the Soviet Union both knew the enemy had enough weapons to wipe the entire country off the map, neither would actually use those weapons. Mutually Assured Destruction got the entire world through the age of fallout shelters and Barry Goldwater. So the doctrine should be powerful enough to get Google, Apple and Microsoft past Justice Department antitrust regulators.

It’s a given that Google’s $12.5 billion Motorola bid is going to be scrutinized for its antitrust implications. Google’s law firm on the deal, Cleary Gottlieb Steen & Hamilton, has conceded that point; the firm announced that David Gelfand – who previously escorted Google unscathed through antitrust reviews of its DoubleClick and AdMob acquisitions — will be antitrust counsel on the Motorola bid. The $4.5 billion acquisition of Nortel’s intellectual property by a consortium led by Microsoft and Apple is already under review by the DOJ’s antitrust division. I’m betting that each patent plays will have an easier time passing regulatory muster because of the other.

Before I get to why, there’s the issue of which agency will be investigating the Google deal. Both the Federal Trade Commission and the Justice Department have the power to conduct premerger antitrust reviews. They’ve both looked at Google acquisitions in the past: the FTC green-lighted the 2007 DoubleClick and 2010 AdMob deals; the DOJ rejected Google’s proposed advertising partnership with Yahoo in 2008 and approved, with some modifications, its deal with ITA Software in 2011. The FTC is also reportedly conducting a widespread antitrust investigation of Google’s search engine business. But I have it on good authority that the Justice Department will be handling the Motorola review, partly because DOJ has historically overseen competition in the telephone industry and is already reviewing the AT&T merger with T-Mobile and the Nortel IP sale.

Traditionally, antitrust regulators look at deals as either horizontal or vertical acquisitions. The classic horizontal deal is a merger of two rivals in the same market. A vertical acquisition is one that helps a company with its own upstream or downstream products. Vertical deals are considered less of a threat to competition within a market, so they get less antitrust scrutiny. In one regard, Google’s Motorola acquisition is a simple vertical merger, since it puts Google into two businesses it wasn’t in before: manufacturing smartphone handsets (and set-top devices) and licensing patents.

But IP complicates the traditional horizontal-or-vertical analysis, because patents, by their very nature, are intended to squelch competition: patent holders have a short-term monopoly on their invention. If you’ve paid even the slightest attention to the patent-bound technology industries, you know how viciously patents can be wielded for anticompetitive purposes, particularly when end products like computers and smart phones are covered by hundreds of patents. The FTC conducted hearings in June (here’s the transcript) on what it calls “patent hold-up” — the ability of a patent owner to extract big licensing fees for IP that’s just part of a sophisticated tech product.

So when antitrust regulators look at patent-heavy deals, they have to analyze the patent licenses that will transfer in the merger from both horizontal and vertical perspectives. The relevant market in patent deals, to use another bit of antitrust lingo, is the technology market, not necessarily the market for a particular downstream product or service. When the DOJ looks at the Motorola deal, its antitrust lawyers will want to know which companies license Motorola technology, how those licenses affect the relevant markets, and how much leverage the licensing agreements and Motorola patents give Google in those markets.

That’s where the Nortel IP consortium comes in. DOJ has to ask the same questions about how Microsoft, Apple, Research in Motion, Ericcson, Sony, and EMC can leverage the 6,000 or so Nortel patents they acquired for $4.5 billion in June. The last (and only) time the Justice Department previously reviewed a similar IP transfer was in 2010, when DOJ examined the $442 million purchase of Novell software patents by a different Microsoft and Apple consortium. In that review, regulators barred Microsoft from acquiring any patents outright and said EMC couldn’t acquire 33 of the patents it wanted.

This time around, though, Microsoft and Apple can point to Google’s purchase of the Motorola patents to argue that the Android smartphone platform is now as heavily armed as the iPhone and Microsoft’s Windows Mobile smart phone. Google, in turn, can credibly claim that it needs the Motorola smartphone patents to protect Android from the power its rivals acquired via the Nortel patents.

It would be easy for regulators to look at the two potent patent portfolios (say that three times fast!) — wielded by warring competitors in one of the most cutthroat industries in the world — and see a balance of power. If Google monkeys with Motorola patent licenses, Microsoft and Apple will retaliate with Nortel IP licenses. You can call it mutually assured destruction, but it could turn out to be a constructive end to the expensive smartphone patent wars.

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Monday was mostly a good day for Google and Motorola. Unless you’re on vacation where there’s no Internet access, in which case you’re not reading this, you’re surely aware that Google announced its $12.5 billion acquisition of Motorola, which means that Google is picking up one of the best patent portfolios in wireless history — and supposedly had the pleasure of besting Microsoft in doing so. But the news wasn’t all good for Google and its new best friend, Motorola. Deep down in the patent litigation trenches at the U.S. International Trade Commission, Administrative Law Judge Theodore Essex denied Google’s high-profile, third-party motion for sanctions against Microsoft in Microsoft’s infringement suit against Motorola.

Okay, so it’s not exactly on a par with the $12.5 billion deal. It’s a little humbling, though, for Google and its lawyers at Quinn Emanuel Urquhart & Sullivan. As I mentioned yesterday, Google filed an Aug. 10 motion for sanctions in the Microsoft ITC case, claiming that Microsoft violated a confidentiality order when it disclosed Google code to one of its experts without informing Google. (The ITC proceeding, in case you hadn’t figured it out, involves Motorola products that employ Google’s Android operating system.) Google asserted that when it found out what Microsoft planned to disclose, in-house lawyer Matthew Warren emailed a Microsoft lawyer to request a conference. Microsoft, according to Google, didn’t respond. Google then filed the sanctions motion.

But Judge Essex said Google rushed to judgment. The ground rules in the case, in which just about everything is (frustratingly) shielded by the confidentiality order, say that any party that objects to another’s use of confidential materials has to make a good-faith effort to resolve the dispute, and then must wait two days before filing a motion for sanctions. “The ALJ finds no basis to discern from Google’s statement whether Google made a reasonable, good-faith effort to resolve the matter with Microsoft,” Judge Essex wrote. “The ALJ notes to Google failed to attach the Warren email to its motion and it is unclear whether Google even notified Microsoft of its intention to file the instant motion.”

There you have it: evidence that Google may know how to snatch a $12.5 billion company away from Microsoft, but not how to make nice with its rival in a discovery fight. I left word with Microsoft counsel Brian Nester of Sidley Austin; Motorola counsel Charles Schill of Steptoe & Johnson; and Google counsel Amy Candido of Quinn. None got back to me.

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There are all sorts of questions out there about Google’s $12.5 billion acquisition of Motorola Mobility. What will the deal mean for HTC and Samsung, the other cellphone makers using the Android platform? Will the merger force Microsoft to make a bid for Nokia? And is Carl Icahn, Motorola’s biggest shareholder, finally satisfied? I’ll leave it to others to ruminate on all that. I’m interested, as always, in what this deal means for lawyers.

The one clear answer is that a union between Google and Motorola is a good thing for Quinn Emanuel Urquhart & Sullivan.

Quinn’s Charlie Verhoeven and his patent litigation team are favorites of both Google and Motorola in the smartphone wars. With Google’s endorsement, Quinn has been representing both Samsung and HTC in high-stakes litigation against Apple; Quinn got those assignments after amassing an impressive collection of patent trial wins for Google in the Eastern District of Texas. (Even Verhoeven and Google can’t win ‘em all; I reported in May on a $5 million verdict against Google in the Bedrock patent trial.)

There’s been speculation that Google brought Quinn into the HTC and Samsung cases under an Android indemnification agreement. Google and its partners have never confirmed that any such deal exists. If there is an indemnity arrangement, that might explain why Quinn Emanuel is representing Motorola in smartphone litigation with Apple and Microsoft. (When Google recently filed a non-party motion for sanctions against Microsoft in Microsoft’s U.S. International Trade Commission case against Motorola, Quinn Emanuel signed the Google pleading — even though Quinn also represents Motorola in the case, along with Steptoe & Johnson.)

But Quinn Emanuel’s relationship with Motorola extends beyond Motorola’s smartphone litigation. The firm stepped into a vicious trade secrets fight between Motorola and a Florida company after Motorola was twice sanctioned for discovery violations. The $10 billion case ended up settling for less than $50 million.

Also worth pointing out whenever we’re talking about Google: one of the two most recent appointees to the Federal Trade Commission, Edith Ramirez, was previously an IP partner at Quinn Emanuel. Last October, in a speech before the Golden State Antitrust and Unfair Competition Law Institute, Ramirez spoke of her first FTC review: Google’s proposed merger with AdMob, the rival smartphone advertising network. Even though the deal meant the combination of two of the biggest players in a rapidly expanding market, Ramirez voted with her fellow commissioners to permit the merger, partly because Apple was developing its own mobile ad network.

I reached out to John Quinn and Charles Verhoeven, but neither responded to my e-mail.

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