FOSS Patents

While Apple is facing even more antitrust issues (and deservedly so), Google is not a distant second in the discipline of drawing regulatory scrutiny and inspiring legislative action to combat various types of abuse of market power. And these days there's even more going on with a view to Google.

Today, the Italian competition authority--in Italian: Autorità garante della concorrenca e del mercato--announced that it has opened formal investigations of Google allegedly impeding interoperability (sharing individuals' data across platforms), with a particular view to weople, a service operated by Italian company HODA (Holistic data Activation). Weople describes itself as "the app to invest and protect your data," or "the first bank to invest your data and gain value from it, while protecting it and activating your privacy rights."

The European Commission manages an EU Framework Program for Research and Innovation, and its 2014-2020 edition named "Horizon 2020" scored Weople as a "high-quality project proposal in a highly competitive evaluation process." These are Weople's five goals as stated on its website:

1. Give people an easy tool for them to apply the GDPR [General Data Protection Regulation] and act[ivate] their rights. Give people a tool for having, knowing and controlling their data.

2. Give people a tool to earn money from their data, to participate in this growing and very important market with consciousness and highly protective privacy systems.

3. Use data to help people and families to get services that can protect them, bring savings and make them feel better.

4. Give people a high-level and reliable data storage service, with full data availability.

5. Apply strong and modern principles of ethics and transparency. Apply an economic approach based on both voluntary margin limitations and sharing economy plus social sustainability principles.

These are laudable goals, and it means a lot that the European Commission considers it an interesting project. But according to the Italian competition authority, Google's conduc could compromise the right to portability of personal data as established Art. 20 GDPR and deprive consumers of certain benefits they could derive from their data. Where competition law comes in is the problem that Google's conduct is suspected of limiting the ability of third parties to develop innovative data-based services.

The Italian competition authority has already conducted a dawn raid of Google's Italian premises together with a special police unit named Guarda di Finanza (GdF).

In late October, this already happened in connection with Google's alleged abuse of a dominant position in the Italian market for display advertising.

Yesterday, South Africa's Competition Commission published a provisional report (press release, PDF) outlining various findings and recommendations 14 months into its Online Platforms Market Inquiry. Unlike the Italian investigation I just mentioned, that one isn't only about Google, but Google appears to be the primary target based on the list of "leading platforms" identified by the investigators:

"Apple App Store, Google Play Store, Takealot, Booking.com, Airbnb, Mr Delivery, Uber Eats, Property24, Private Property, AutoTrader, and Cars.co.za along with Google Search (including its specialist search units such as Google Shopping and Google Travel)." (emphases added)

The following paragrah about Google Search is particularly interesting:

"Among other findings, the Inquiry has provisionally found that Google Search plays an important role in directing consumers to the different platforms, and in this way shapes platform competition. The prevalence of paid search at the top of the search results page without adequate identifiers as advertising raises platform customer acquisition costs and favours large, often global, platforms. Preferential placement of their own specialist search units also distorts competition in Google’s favour. The Inquiry provisionally recommends that paid results are prominently labelled as advertising with borders and shading to be clearer to consumers and that the top of the page is reserved for organic, or natural, search results based on relevance only, uninfluenced by payments. The Inquiry also recommends Google allows competitors to compete for prominence in a search by having their own specialist units and with no guaranteed positions for Google specialist units. The Inquiry is also exploring whether the default position of Google Search on mobile devices should end in South Africa."

I agree that paid search results should be marked more clearly, and there is a point in at least limiting the extent to which non-organic search results appear at or near the top of a search results page.

As for app stores (Apple's iOS App Store as well as Google Play for Android apps), the initial recommendation is potentially helpful but in my view fails to address an even bigger problem than the app tax, which is the app review tyranny:

"In software application stores, there is no effective competition for the fees charged to app developers with in-app payments, resulting in high fees and app prices. The Inquiry’s provisional recommendation is that apps should be able to steer consumers to external web-based payment options, or alternatively a maximum cap is placed on application store commission fees."

A cap on app store commissions would be infinitely more helpful than the sham settlement proposed in the Northern Distict of California, where the attorneys-general of 36 U.S. states, Epic Games, and Match Group (to whose complaint Google responded this week) are still pushing for a meaningful result. In South Korea, Google will likely be fined soon over its bad-faith compliance with a statute relating to in-app payments, but if South Korea had simultaneously capped the commission (as is now being contemplated in South Africa), the situation would be clearer.

One of the most interesting antitrust investigations of Google was announced by Germany's Bundeskartellamt (Federal Cartel Office) last month and relates to the licensing terms for Google Maps.

While it's been quiet lately about the United States et al. v. Google antitrust litigation in the District of Columbia, that case will go to trial next year and has enormous potential. A joint status report by the United States Department of Justice, the 36 state AGs, and Google was filed on Tuesday (PDF). Yesterday the plaintiffs sought an extension of a deadline to respond to an expert report, which--just like the status report--suggests Google is not being as cooperative as the government plaintiffs would have hoped:

https://www.documentcloud.org/documents/22087266-22-07-13-plaintiffs-memo-iso-eot-resp-to-fox-report

There's a lot going on, and I'm now keeping track of those issues more systematically than in the past.

This is my second of at least three consecutive posts on automotive patent licensing issues. The previous one discussed the L2 Mobile Technologies v. Ford Motor Company case that is pending in the District of Delaware.

At the annual conference of the Italian Antitrust Association, the European Commission's Executive Vice President and competition commissioner Margrethe Vestager gave a speech yesterday that ushered in--as its title promised--"a new era of cartel enforcement." The manuscript was published on the Commission's website.

1+1+1=3. Mrs. Vestager vowed to crack down, inter alia, on (i) novel types of cartels and (ii) buyer cartels, and (iii) recalled recent enforcement action against (German) car makers. Automotive standard-essential patent (SEP) licensing negotiation groups (LNGs) are the combination of all of that. Further below I'll quote the relevant passages, which speak for themselves. If this doesn't serve to discourage car makers from advocating a solution that is inherently worse than the alleged problem it purports to solve, what else will?

If you haven't previously read my thoughts on collective licensing negotiation groups, here are the links to all parts of my late-July trilogy:

1. SEP Licensing Negotiation Groups -- Part I: analogy to patent pools entails false symmetry between facilitating and complicating automotive patent licenses

2. SEP Licensing Negotiation Groups -- Part II: justice delayed is justice denied when unwilling licensees can hide behind a consensus-building effort

3. SEP Licensing Negotiation Groups -- Part III: legalization of buyers' cartels would invite group boycott and collective hold-out

In the passages from the speech that you find below, any emphases were added by me to highlight certain keywords.

Novel types of cartels (i); automotive cartels (iii)

In one way or another, most of the cartels we deal with are still fundamentally about fixing prices. But sometimes, what we want as consumers is not so much a cheaper product as a better one. More and more, for example, we want to be sure that the products we’re buying won’t harm the environment. So a cartel that holds back improvements in the quality or the sustainability of the products we buy can be just as harmful as one that fixes prices.

This is why we took our decision in July against the five German carmakers who limited competition between them on how effectively they would clean the exhaust of their diesel cars. The cartel took place within what was otherwise perfectly legal, even beneficial, technical cooperation. The companies were developing a new cleaning technology that used an additive, which they called AdBlue, to remove harmful nitrogen oxides from car exhausts. And they needed to cooperate to tackle the practical challenges – to set up a network of AdBlue filling stations, for example, or to design a standard pump nozzle that would fit any car.

But they crossed the line into illegal collusion when they indicated to each other that they wouldn’t aim at cleaning beyond the level required by the legal standard. They knew they could remove even more pollution than the law required, by injecting more AdBlue into the exhaust. So they could have competed to attract environmentally-conscious consumers, by making even cleaner cars. But instead, they chose not to compete for the best possible cleaning performance.

A case like this can be a powerful deterrent, showing companies that they can’t escape the rules, by colluding in novel ways.

...

[...] And at a time like this, it’s more important than ever that we keep our markets working fairly and well – not least, by taking firm action to tackle cartels.

That’s why we’re investing so much at the moment, to make sure our work stays relevant. It’s why we’re developing new ways to spot cartels, and why we take an interest in new types of cartel, as well as more familiar ones.

Buyer cartels (ii)

In the last few years, for instance, we’ve dealt with several cartels that manipulated industry reference prices, rather than fixing final prices. Last year, we fined four ethylene buyers more than 260 million euros, for conspiring to reduce the reference price that was applied in long-term contracts.

Buyer cartels like this one may not raise prices for consumers. But that doesn’t make them some sort of victimless crime. They still make our economy work less efficiently. And they still have direct victims – even if it’s suppliers, not consumers, who suffer.

And some buyer cartels do have a very direct effect on individuals, as well as on competition, when companies collude to fix the wages they pay; or when they use so-called “no-poach” agreements as an indirect way to keep wages down, restricting talent from moving where it serves the economy best.

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Of the three key decisions that were scheduled for today, the least important one (a Nokia v. Daimler patent infringement ruling in Munich) has been pushed back on very short notice by more than a month, and the second one will be announced any moment now (and probably will have been announced by the time you read this, unless you're an early bird catching a premature worm):

According to the Financial Times, which is the European Commission's favorite media outlet when it comes to leaking competition-related (and many other types of) decisions, EU competition commissioner Margrethe Vestager has persuaded enough of the other commissioners that the Directorate-General for Competition (DG COMP) can appeal Apple and Ireland's victory in the EU General Court, which held that the Commission's "state aid" decision alleging favorable tax treatment of Apple by Ireland was baseless. The final decision will be made by the Court of Justice of the EU (CJEU), which is based in Luxembourg like the EU General Court (which was previously called Court of First Instance) and focuses exclusively on questions of law, not fact--which is a huge problem for the Commission given that the factual findings didn't support its decision in the first place.

This blog has been--and obviously has no reason not to continue to be--critical of the Commission's 13-billion euro decision (by now there's even another billion and a half in play, it appears), which was deficient, self-contradictory, and hard to reconcile with the Commission's acceptance of special tax rules in other parts of Europe that do look like state aid at first sight.

25 years ago, I actually recommended to Blizzard Entertainment (now part of Activision-Blizzard) to set up an Irish subsidiary to benefit from the low corporate tax rate there that was available to foreign investors meeting certain requirements. I had previously met officials of the Irish Development Agency at Software Publishers Association (SPA) Europe conferences, and I wanted the best for my client. But it's not the best for Europe. While I'm in favor of fair tax competition, what Ireland has been doing for a long time is just to take advantage of the EU's fundamental flaws.

The EU is a failing experiment of a "supranational" (neither an international organization like the UN, where you need unanimity for all decisions and member countries retain full sovereignty, nor a single nation state) body and the idea of "ever closer (and irreversible) integration." A few U.S. tech giants now have a market capitalization in excess of all publicly-traded companies from all industries in all European countries. Tesla, which just turned 17, is more than twice as valuable as the entire German automotive industry. The Digital Age belongs to America and parts of Asia, and Europe is the continent of losers that is more concerned with its history and diversity, and with taking care of poor neighbors, than its own future. But while the EU fails most of its citizens, some small countries like Ireland and Luxembourg have managed to take advantage of the EU's systemic deficiencies, at the expense of all others. Ireland can offer its low corporate tax rate only because it markets its access to the EU's Single Market, which is about 100 times as large as Ireland's domestic market.

The problem that the founders of the EU and its predecessors faced was that the benefits of integration (stronger together) were as clear as the impossibility--in the past and even today--of getting the governments of its member states to give up all sovereignty, and to convince the populations of particularly southern countries that the continent as a whole would have to accept one set of laws--and a common language, for which English would have been the obvious choice--while still retaining some local traditions, but practically demoting national languages to regional dialects. If the EU had done that, and if the focus had been on building an economy that can compete with places in the world where people simply work a lot harder than in most of Europe, then European digital startups could address a market with half a billion inhabitants, a single language, a single set of laws (even EU directives are not a substitute for a single jurisdiction), and make it big. Instead, the EU is going down the tubes, economically speaking.

It's telling that some of Europe's most affluent countries like Switzerland and Norway aren't EU member states, and with the UK the European country with arguably the best education system has already left.

Instead of realizing and addressing those structural shortcomings, the EU Commission changed direction in a different way over the course of the 2010s: having given up on fair competition, and being unable to cure its own diseases (by the way, the EU has also failed completely to make anything positive happen with respect to the COVID-19 pandemic; actually, open borders made everything worse), the EC opted for protectionism.

That protectionism is reflected by the EU Commission's unwillingness to require Nokia to live up to its FRAND licensing obligations vis-à-vis automotive suppliers, and its new plans for a Digital Services Act designed to give the EU Commission maximum leverage over global tech giants.

Mrs. Vestager has clearly turned a blind eye to antitrust violations by European companies, with only a few token investigations meant to create the perception of a balanced approach to enforcement, while going after each and every U.S. company, no matter how absurd the theory might be.

On the subject of absurdity, the Apple-Ireland "state aid" case was a transparent attempt to scapegoat a successful company that was on the verge of bankruptcy in the 1990s and went on to become the most valuable corporation in the history of the world, without needing any oil reserves to get there. It was a smear campaign, styled as an antitrust decision.

Not only in terms of the amount at stake, but also the extreme contortion of the law and the total absence of facts that would have underpinned those theories, Mrs. Vestager's Apple-Ireland decision has been the most ridiculous Commission ruling to date. The judges of the EU General Court realized this, and tossed it in its entirety. The Commission decision even contained two fallbacks: a Plan B, where the relevant amounts of money would have been approximately 10% of Plan A, and a totally unspecified Plan C. None of the three plans worked out and the appeals court overturned the whole thing.

In order to side with the Commission, the top EU court would have to engage in the most massive miscarriage of justice in its history, and it's not like all of its decisions had been uncontroversial. The Commission's only chance is for that to happen. It's not the kind of appeal that is reasonably likely to succeed. It's a long shot, and the only way for the Commission to prevail would be for the CJEU to place politics above the law just like the Commission did when it decided to bring this appeal.

For Mrs. Vestager personally, but also for the Commission as a whole, this is worth trying even if the chances are extremely slim. It's going to take a couple of years, and by then Mrs. Vestager's going to be nearing the end of her second term as competition commissioner. The embarrassment is going to be even greater then in all likelihood, but later is better than sooner in this case--for the commissioner, for the Commission, not for Europe, which would have a greater benefit from the Commission focusing on real issues, of which there are many, some of which I just mentioned, such as Nokia's abuse of standard-essential patents to the detriment of Europe's automotive industry and IoT startups.

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It is high time that the automotive industry stopped being the ideal target of shakedown attempts by standard-essential patent (SEP) holders due to its sheer size, the high prices of its end products, and its pacifist attitude. For a long time, car makers used to be on the sidelines of major disputes. They generally resolved any IP issues out of court, respecting exclusionary rights in some cases and cross-licensing (or simply refraining from hostilities) in many others. But times have changed, and with cars increasingly becoming smartphones on wheels, those car makers are no longer dealing with a herd of sheep when it comes to patent assertions but have entered a jungle teeming with predators. As a result, they must confront those challenges more decisively, lest they be eaten alive.

Against this backdrop I'd like to promote (not getting anything for it) an upcoming Munich conference hosted by the Bardehle Pagenberg firm: Automotive Patent wars -- To pay or not to pay: That is the question." on May 9.

SEP disputes raise antitrust issues, and that's what's now, finally, also happening in the automotive industry:

• On March 29, Reuters reported on an EU antitrust complaint brought by Daimler against Nokia. The article quotes an official Daimler statement: "We want clarification on how essential patents for telecommunications standards are to be licensed in the automotive industry. Fair and non-discriminatory access to these standards for all users of the essential patents for telecommunications standards is a key prerequisite for the development of new products and services for connected driving." (emphasis added)

  The three words "for all users" are interesting. This wording at least makes it plausible that Daimler's complaint relates to Nokia's refusal to extend SEP licenses on FRAND terms to certain component suppliers. The motivation would obviously be for Nokia justify its royalty demands with the end price of an entire car, or substantial parts thereof.

• What reinforces this impression is the subsequent filing of a complaint by a medium-sized company (that just employs about 2,300 people; a midget compared to Daimler) named BURY Technologies, but instead of burying the hatchet, they're throwing down another gauntlet to Nokia. Yesterday (Monday, April 8), BURY Technologies announced its EU antitrust complaint against Nokia, alleging that "the Finnish group had refused to grant licenses for mobile communications components from BURY."

  The official press release refers to a "cartel complaint," which is just an incorrect translation of the German word "Kartellbeschwerde" (which broadly covers any complaint with a competition enforcement agency): it's not about Nokia having formed a cartel with others, but about unilateral conduct by Nokia as a SEP holder. It's not hard to imagine that a relatively small company just doesn't have a lot of expertise in the area of competition law.

  The fact that this complaint was filed in relatively short succession to Daimler's makes it fairly likely that there was some coordination behind the scenes, except that Daimler would know the difference between antitrust and cartels.

The question of component-level licensing is also the key issue in the FTC v. Qualcomm dispute in the Northern District of California. Just like one of the world's most famous FRAND judges, United States District Judge James L. Robart, I also think Judge Lucy H. Koh's FTC v. Qualcomm ruling could come down any moment. Daimler's and BURY Technologies' complaints over Nokia's conduct with the EU Commission show that this is a global issue, and Judge Koh has the potential here to be a global thought leader, like Judge Robart became one with respect to FRAND rate determinations (and in the U.S., with respect to antisuit injunctions against SEP abusers).

Having watched Nokia in litigation over many years (even going back to its first dispute with Apple), and the unfortunate (for Nokia and its stakeholders, though not for consumers) demise of its mobile device business that changed its attitude toward patent monetization, I'm not surprised that it apparently made demands that Daimler wasn't willing to meet without a fight. Daimler is also defending itself against Broadcom's German lawsuits (as is BMW).

With all that's going on, this blog may have to take a closer look at automotive patent cases going forward just because of a huge overlap with smartphone issues. For now, I really hope the European Commission will launch formal investigations of Daimler's and BURY Technologies' complaints. The best-case scenario would be for the U.S. to clarify the question of component-level licensing on the basis of a ruling by Judge Koh and for the European Commission to do so at the end of an antitrust investigation.

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Qualcomm presently has to defend itself against antitrust cases around the globe, and is awaiting, like the industry at large, Judge Lucy H. Koh's upcoming ruling following the FTC v. Qualcomm trial held in San Jose in January. But while most of the industry is eagerly anticipating the decision, Qualcomm is still lobbying hard to avoid it. The "national security" concerns purportedly voiced by Department of Defense and Department of Energy officials in this context are the non sequitur of the decade, given that any security issues would relate to actual products (and would have to be addressed at that level, such as by taking a "trust but verify" attitude toward Huawei's base stations), not to patent licensing practices. ACT | The App Association has thankfully already debunked that BS with a short post that points to a more detailed write-up by a Gibson Dunn lawyer (PDF). I recommend both documents strongly. They are so good that I really don't feel I have anything to add at the moment.

In five weeks, the huge Apple, Foxconn et al. v. Qualcomm trial will commence in San Diego (Southern District of California), where a trial of a sideshow lawsuit is currently taking place even though the way the mirror case in the ITC went suggests the complaint has very little or no merit. A second trial will be held in July over Apple's patent infringement counterclaims, and to be honest, I don't have any opinion on those claims yet for lack of having performed even the most superficial analysis so far.

But there's also a number of things going on overseas. Today I'd like to draw some attention to the situation in South Korea, where the current earth-spinning wave of antitrust actions against Qualcomm started in December of 2016 with a decision by the Korea Fair Trade Commission (KFTC) that involved a 853ドル million fine. The fine, however, is not what Qualcomm is primarily concerned about. A highly knowledgeable Korean source tells me that Qualcomm's efforts to appeal the KFTC's decision clearly focus on behavioral remedies: remedial orders that require Qualcomm to do something, or to cease doing something.

Since a Korean court's denial of Qualcomm's motion to stay the execution of the KFTC's remedial orders (a denial that was upheld on appeal as I just learned), I haven't written about the Korean situation. That's because my own primary research is limited to the U.S. (easy for me to do wherever I am, thanks to electronic access), Germany (provided I'm there when something happens), and occasionally also including the rest of Europe (especially the UK, sometimes also the Netherlands, France, and other countries). With respect to Asian cases, I depend on sources, and fortunately I get an increasing quality and quantity of information from that part of the world.

Just like chipset-level licensing is going to be the most interesting part of Judge Koh's impending decision (her summary judgment to that effect was great, but it was limited to two particular FRAND commitments), it's also a cornerstone (to say the least!) of the Korean antitrust case against Qualcomm. As I reported about two years ago, Qualcomm allegedly kept Samsung out of the wireless chipset market through restrictive contract terms, an impression that was confirmed by some of Samsung's videotaped testimony in the FTC trial. However, with a view to the FTC trial and its overall global antitrust woes, Qualcomm entered into a new agreement with Samsung more than a year ago. Qualcomm's "gag orders" in contracts are well-known, so it's a safe assumption that Samsung, whether or not it even has the desire to do so anymore, simply can't pursue antitrust charges against Qualcomm without potentially being held to have breached its contract.

In December 2018 it became known that LG Electronics became (once again) a party to the Korean proceedings. While nowhere near as large and powerful as Samsung, LG is also an interesting and impressive Korean company. In fact, while only number two in this field in Korea, LG is yet a more significant mobile handset maker than everything that the entire, digitally degenerated, European continent (just thinking of that utter morony and indicator of digital-age delusion named "Article 13") brings to the table in that particular product category.

The aforementioned Korean source believes LG wanted a similar deal from Qualcomm as Samsung got, but Qualcomm gave LG short shrift, and that's why LG rejoined the appellate proceedings as an interested party.

In my opinion, the single most important one of the KFTC's remedial orders is the one that requires Qualcomm to extend exhaustive standard-essential patent (SEP) licenses to rival chipset makers including the chipset divisions of device makers. A "covenant to sue last" is the very opposite of a clearly-exhaustive license: it's an attempted end-run around the actual requirement.

From what I hear (including what I heard at the January trial), Qualcomm appears to continue to go about its patent licensing business as if the KFTC's remedial orders didn't exist or weren't enforceable. But they do exist, and they are enforceable, so Qualcomm is practically at the mercy of the Korean government in this regard.

There comes a point when the South Korean government will have to step up the pressure massively. In the alternative, South Korea's reputation as an antitrust jurisdiction would be in jeopardy. The KFTC can't turn a blind eye to Qualcomm's blatant contempt of the remedial order regarding chipset licensing without paying a reputational price. What will other antitrust offenders do in other (present and future) cases?

I have been pointed to two Korean articles:

• a story published on hani.co.kr, entitled "Qualcomm Scoffing at the KFTC's 'Remedial Orders Against Patent Bullying'--KFTC 'Not Doing Much'" and

• an eDaily.co.kr report on a parliamentary hearing where KFTC chairman Kim Sang-Joo said he would "take actions if Qualcomm does not implement the remedial orders," but a high-ranking KFTC official, its director general Shin Yeong-ho, also pointed to the fact that the competition enforcement agency would firstly have to find that Qualcomm is in contempt of an order that does not state specific deadlines before it can take the next step.

That next step would involve criminal charges. There are some differences between different jurisdictions in terms of antitrust enforcement:

• In the U.S., the goverment has to sue an antitrust violator, like in the FTC v. Qualcomm case. It's then up to a court to enter a judgment, and remedial orders must then take the shape of an injunction (absent a settlement such as a consent decree, of course). Failure to comply with the injunction can then give rise to contempt proceedings (again, in court).

• The European Commission's competition enforcement division can hand down an order, and the affected company can appeal it to the EU's judiciary in Luxembourg (examples: the Republic of Ireland and Apple are appealing the "state aid" decision on Apple's Irish taxes, and Google is also in the process of appealing a couple of EU antitrust rulings). Enforcement of EU decisions is ultimately always limited to fines, but they can hurt.

• The KFTC is in a stronger position. It has quasi-judicial authority like the EC, but the consequences of failing to comply with an enforceable KFTC decision are worse because enforcement means a criminal complaint is filed by the KFTC with the Prosecutor General's office in accordance with Article 71 of Korea's Monopoly Regulations and Fair Trade Act (MRFTA). According t Article 67, para. 6, of the MRTFA, executives failing to comply with a corrective measure or prohibition order taken under various articles of the law can be fined or, in serious cases, imprisoned for up to two years. By contrast, the EU Commission can't imprison anyone because it's a supranational institution.

More and more people in Korea appear to be wondering why the KFTC is sitting by idly as Qualcomm disregards the remedial orders. The articles indicate that Jeon Haechul, a member of South Korea's national parliament, asked tough questions last year.

Talking about companies that have not received a better licensing offer from Qualcomm despite the KFTC's remedial orders, one of the articles specifically names LG, Intel, Apple, Huawei, and MediaTek. The terms of Samsung's agreement with Qualcomm are not known beyond what was said in the public part of the U.S. FTC proceedings.

The KFTC had already been very patient in the build-up to its decision, granting Qualcomm about three times as many hearings as it usually does before making a decision. But whenever its patience will be exhausted, Qualcomm's wireless SEPs will have to be licensed at the chipset level, which will also result in exhaustion, but in the sense of exhaustion under patent law. "Exhaustion" is the magic word here.

With more than a year having passed since Qualcomm's new deal with Samsung, something will have to happen in the not too distant future. If Judge Koh decides the question of chipset-level licensing, on a broader basis than last year, in the U.S. FTC's favor, the KFTC may (and in my view should) be encouraged to take this antitrust matter to the next level, giving Qualcomm one last warning before pursuing criminal charges.

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The FTC and Qualcomm once intended to settle the antitrust litigation pending before Judge Lucy H. Koh in the Northern District of California by November 14, but we're now just one month and one day away from the trial date and no agreement has been reached. But there's been tremendous progress in the form of Judge Koh's recent summary judgment order on Qualcomm's obligation to extend standard-essential patent (SEP) licenses to rival chipset makers such as Intel.

On Thursday, the FTC and Qualcomm filed a joint final pretrial statement, which outlines (on page 4 of the PDF document) the remedies the FTC is going to fight for (this post continues below the document):

18-11-29 FTC v. Qualcomm Jo... by on Scribd

Let's look at the injunctive relief sought by the FTC item by item:

• "Prohibit Qualcomm from conditioning the supply of modem chips on a customer’s patent-license status"

  This would be the end of Qualcomm's "no license, no chips" policy. Qualcomm's going to argue that it shouldn't have to tolerate that its chipset customers infringe on its patents, but as a monopolist it's not allowed to engage in tying and, regardless of market share, patents embodied by its chip are simply exhausted. Last year's Lexmark ruling by the Supreme Court makes this pretty clear, one would think.

• "Require Qualcomm to negotiate or renegotiate, as applicable, license terms with customers in good faith under conditions free from the threat of lack of access to or discriminatory provision of modem chip supply or associated technical, software, or other support;"

  This, too, would prevent Qualcomm from leveraging its chipset market position when negotiating license terms.

• "Require Qualcomm to submit, as necessary, to arbitral or judicial dispute resolution to determine reasonable royalties and other license terms should a customer choose to pursue such resolution;"

  I've warned against arbitration on unfair terms on various occasions and in different ocntexts (most recently, Huawei v. Samsung). What's good here is the requirement that a Qualcomm customer would "choose to pursue such [dispute] resolution." This way, customers preferring to have an Article III court make a FRAND determination can't be forced to arbitrate.

• "Require Qualcomm to make exhaustive SEP licenses available to modem-chip suppliers on fair, reasonable, and non-discriminatory terms and to submit, as necessary, to arbitral or judicial dispute resolution to determine such terms;"

  The second reference to arbitration must be seen in light of the first one: it's up to the licensee whether the matter is arbitrated or litigated.

  This prayer for injunctive relief goes beyond the summary judgment victory the FTC has already scored. As the FTC clarified in August, the summary judgment motion was merely about contract interpretation, not about a general requirement on antitrust grounds. Now they're shooting for a bright-line rule.

• "Prohibit Qualcomm from discriminating or retaliating in any way against any modem-chip customer or modem-chip supplier because of a dispute with Qualcomm over license terms or because of a customer's license status;"

  The intention behind this one is good and clear. However, Qualcomm's criticism of the FTC's requested relief lacking specificity is not entirely unfounded with respect to this broad and vague terminology: "retaliating in any way" could also involve legitimate forms of intellectual property enforcement. Maybe the FTC will provide greater clarity.

• "Prohibit Qualcomm from making payments or providing other value contingent on a customer's agreement to license terms;"

  This one is meant to close a loophole: Qualcomm has previously entered into rebate/kickback agreements in order to get companies to accept contract terms with anticompetitive implications.

• "Prohibit Qualcomm from entering express or de facto exclusive-dealing agreements for the supply of modem chips;"

  Here, the FTC is seeking to prevent Qualcomm from monopolization through contracts.

• "Prohibit Qualcomm from interfering with the ability of any customer to communicate with a government agency about a potential law enforcement or regulatory matter;"

  This issue is well-known because of Apple's dispute with Qualcomm. Qualcomm promised Apple some rebates, but then withheld a billion-dollar amount just because of Apple allegedly having violated a "business cooperation and patent agreement" (BCPA) by talking to regulators, which Apple says was in some cases merely about responding to questions from competition enforcers and in the remaining cases happened after the BCPA expired. Apple argues that it didn't violate the agreement while it was in force, and didn't emphasize the policy implications of such contract terms too much; fortunately, the FTC is now trying to establish a general rule that Qualcomm's customers must remain free to talk to regulators,even proactively as complainants.

• "Require Qualcomm to adhere to compliance and monitoring procedures and appropriate 'fencing in' provisions, including but not limited to a potential firewall between patent licensing and chip personnel;"

I'm not sure this would work in practice. In either division, employees would likely try to optimize the result for Qualcomm as a whole.

• "Impose any other relief that the Court finds necessary and appropriate to redress and prevent recurrence of Qualcomm's conduct"

  This is just meant to give Judge Koh greater flexibility. What it means, and whether it will give rise to any particular injunction after the bench trial, remains to be seen.

These prayers for injunctive relief suggest that the trial is going to be extremely interesting, and what will happen afterwards may be very significant. Parties sometimes settle on the eve of the trial, so it's not certain yet that the trial will happpen. But, at a minimum, any settlement (consent decree) would have to be viewed against the background of the above proposals. If the FTC settled on a basis that would fall far short of the above, the agency's credibility would be compromised...

In other news from last week, Judge Gonzalo P. Curiel scheduled the Apple v. Qualcomm trial in the Southern District of California to begin on April 15. It's a safe assumption that Judge Koh, who is known to work both smart and hard, will hand down her decision on the FTC case before the San Diego trial between Apple and Qualcomm. If Qualcomm's "no license, no chips" policy and other tying and various forms of threatening or discriminatory behavior came to an end and/or if Qualcomm's contract terms prohibiting antitrust complaints were held illegal ahead of the trial in Southern California, Judge Curiel could presumably streamline his case in different ways, narrowing the issues to be put before the jury.

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Last Sunday, IBM and Red Hat announced a merger agreement under which "Big Blue" (NYSE:IBM) would pay 34ドル billion, or 190ドル per NYSE:RHT share, to acquire the company that once started as a Linux distributor.

I may very well talk about the strategic ramifications of the proposed transaction some other time, but the focus of this post is exclusively on what the stock market appears to think of the deal.

On Monday (October 29), Bloomberg already reported on what was then a 12% spread, "among the highest for North American deals." The article quoted a portfolio manager who said he didn't want to bet on a deal that may be about a year away from closing, and IBM CEO Ginni Rometty as denying "any regulatory inhibitors," which she obviously had to say.

The time frame certainly affects demand, given that risk arbitrageurs could in the meantime use the money they would spend on RHT shares now to bet on a couple of other mergers, provided that those other deals would close more quickly and happen sequentially. But there's more to it. The spread does indicate that merger-focused investors are far from convinced that the deal will materialize.

On Friday (November 2), RHT closed at 172ドル.24. If the deal went through, those investing now would then rake in a profit of more than 10%. Even if it took a year, a 10%+ gain would be a great deal. The only explanation for why there isn't stronger demand, at a higher price, is skepticism. Since I can't imagine anyone doubts that IBM is a serious buyer, the reason must be concern about the merger review process in the U.S. (DoJ), EU (European Commission, DG COMP), and China (MOFCOM). While China prevented Qualcomm from acquiring NXP, IBM reportedly claims it's not critical for the Red Hat deal. I haven't formed a definitive opinion on it yet, but for now I'll take IBM's word for it.

Without going into detail (yet) on the issues presented by the transaction, we can "reverse-engineer" the stock price in order to get an idea of how likely the deal is--in the eyes of sophisticated Wall Street investors--to go through or fall through. Let's start with the roughest and simplest approach, and then fine-tune it a little bit to take the time value of money into account.

The potential upside based on Friday's closing price is 17ドル.76. Theoretically it's even greater since someone else might try to outbid IBM, but that doesn't appear to be considered too likely by anyone.

The potential downside here would not realistically be a complete loss of the investment. Red Hat is doing too well to go out of business anytime soon. The closing price over which IBM offered a premium of about 60% was 116ドル.68, pretty much at a level with RHT's 52-week low of 115ドル.31 (an intraday price as far as I can see).

If the deal falls through, it's a reasonable assumption that Red Hat's stock price will go back to that level, though it's obviously hard to predict what the market environment would be at that point in time somewhere in the second half of 2019. In order to keep things simple, let's not consider that investors might think they could mitigate their loss by getting out once there's a serious negative sign, such as a powerful Statement of Objections (SO) by the European Commission.

Assuming that the pre-merger-announcement closing price is where the price would fall, the potential per-share loss is 55ドル.56 (172ドル.24 - 116ドル.68).

If the likelihood of closing is estimated to be 76%, and the risk of things falling apart is (consequently) 24%, then there would be an equilibrium (76% x 17ドル.76 is at a level with 24% x 55ドル.56).

Let's fine-tune this by assuming a financing cost of 4ドル.00 per share (roughly the Fed rate, assuming that you have this cost for 12 months). In that case, the potential gain (by placing the right bet on the deal going through vs. doing a far safer investment that would have a 2.5% yield) is 13ドル.76, and the potential loss increases to 59ドル.56. There would then be an equilibrium if the risk of the deal being blocked (or remedies being imposed with the effect of the deal falling through) was estimated at 19% (19% x 59ドル.56 is at a level with 81% x 13ドル.76).

Even in the aftermath of Qualcomm-NXP, that is a fairly skeptical perspective, given that mergers of this kind normally go through.

I've received a couple of independent invitations to meet portfolio managers in New York to discuss the deal, plus various calls and emails. Investors used to follow my coverage of the Google-Motorola process with great interest, and many still remember my vocal opposition to Oracle's acquisition of Sun Microsystems in late 2009 and early 2010. It was funny for me how the numerous Wall Street people I talked to always called the company "JAVA" (based on the stock ticker symbol). Java--the programming language--wasn't an issue at the time; MySQL, the open-source database, was the reason for which the European Commission conducted a Phase II review and issued an SO. It's about open source again, and this time around, Java will be part of the discussion.

As a matter of transparency, Red Hat contributed to my NoSoftwarePatents campaign in late 2004 and early 2005 (two other companies, including one far smaller than Red Hat, were much bigger supporters of the campaign), but there hasn't been any business relationship with Red Hat since. I've never had any relationship with IBM, other than having the greatest respect for the work of its patent department.

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This is a follow-up to yesterday's post on Judge Lucy H. Koh's decision to deny a joint administrative motion by the Federal Trade Commission and Qualcomm asking her not to rule on a motion for partial summary judgment on the obligation to extend standard-essential patent (SEP) licenses on FRAND terms to rival chipset makers (such as Intel).

I didn't want to jump to conclusions from a case management decision, but in purely probabilistic terms it's a fact that Judge Koh's order increases the likelihood of summary judgment being granted. There's no harder-working judge than her, and she wouldn't have decided to cancel the hearing and take this motion (as well as several other, less important motions) under submission if there had been any questions left to ask. However, if she had been inclined to deny the actual motion, she might just have given the parties four weeks to work out a settlement--the sole remaining plausible explanation would be that she wanted to make it clear her court is nobody's tool, much less a restaurant that serves litigation à la carte where you can put one motion on hold while letting the process continue on the same schedule in all other respects.

This antitrust litigation has been going very, very well for the FTC for a long time. It wouldn't make sense to let Qualcomm off the hook now that there is a near-term opportunity (with respect to the summary judgment motion, "near-term" is actually a gross understatement) to restore fair competition in the market for baseband chipsets and with respect to cellular SEP licensing.

There's probably a lot of fighting going on in DC behind the scenes, inside and outside the FTC. Prior to the latest twist I had already tried to find out about where the current five commissioners stand on FRAND, but haven't found any information that would enable me to predict the outcome of a vote on a hypothetical settlement proposal tantamount to the agency's surrender. In the past, the positions of Commissioners Maureen Ohlhausen and Joshua D. Wright were well-known (I mentioned Mrs. Ohlhausen on several occasions, and in 2013 I dedicated a blog post to Mr. Wright's stance), but they aren't in office anymore. So I extended my search for clues to high-ranking FTC officials. It turns out that two of them--Alden Abbott (the FTC's General Counsel) and Bruce H. Kobayashi--have a certain proximity to Qualcomm and are sympathetic to Qualcomm's unFRANDly positions to a degree that is clearly a minority opinion in the legal community. While I don't have the slightest indication of any impropriety, there is a conspicuous lack of impartiality.

In Mr. Abbott's case, I didn't even have to look far. The "Speeches, Articles, and Statements" section at the bottom of his official bio page mentions a May 2018 interview conducted by two people, one of whom is "Koren Wong-Ervin (Qualcomm)." Her title, according to LinkedIn and Twitter, is Director of IP & Competition Policy. I'll mention her again further below.

Mr. Abbott was already trying hard to make a case against the case against Qualcomm before his appointment, a fact that Bloomberg Law reported on ("Critic of FTC Qualcomm Suit Named Agency General Counsel").

While at the Heritage Foundation, Mr. Abbott organized antitrust conferences at which then-Commissioner Ohlhausen explained why she dissented from the FTC's complaint against Qualcomm. In January 2018, both Mr. Abbott and Qualcomm's Mrs. Wong-Ervin both spoke at a Heritage Foundation conference.

On the Heritage Foundation's website, I googled up this article by Mr. Abbott on the Qualcomm case. He predicted that foreign competition authorities would leverage this U.S. antitrust matter against innovative U.S. companies, something which hasn't happened to date. He wanted Mrs. Ohlhausen to lead the FTC (which she did only on an interim basis).

In March 2018, Mr. Abbott spoke at the "IP Leadership" conference, whose sponsors included Qualcomm and the law firm representing it against Apple in the Southern District of California, Cravath Swaine & Moore.

The FTC's chief economist, Mr. Kobayashi, crossed paths with Qualcomm's Mrs. Wong-Ervin at George Mason University. According to the FTC's website, he had been a law professor there since 1992, and she was the Director of George Mason's Global Antitrust Institute and an adjunct law professor from November 2015 to September 2017 (according to her LinkedIn profile).

In 2016, the two teamed up with DC Circuit Jugge Douglas Ginsburg and former FTC commissioner Joshua Wright to co-author at least a couple of articles one can find with Google: an article on "extra-jurisdictional remedies involving patent licensing" (PDF; published by Competition Policy International), and a paper (SSRN) on "the Korea Fair Trade Commission's Amendment to Its Review Guidelines on Unfair Exercise of Intellectual Property Rights."

Those people's views on SEP licensing boil down to saying that patents are legal monopolies, thus there's no room for the notion of overcharging--which is misguided for various reasons, including but not limited to

• the fact that one must separate the value of someone's technical contribution to the state of the art from the value of a standard as a whole (as so many others, such as Judge Posner, explained before), and

• the policy consideration that, without antitrust-based restrictions, a single SEP would enable any given patent holder to prevent an entire industry from implementing a standard on a commercially viable basis (or at all), and typically there's a plurality of SEP owners, especially in the field of cellular telecommunications where hundreds and often even thousands of patents are declared to be essential to a single standard.

Qualcomm's FTC friends hold views outside the mainstream--and contrary to the public interest. Let's hope the five commissioners won't adopt those views.

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This is my second post on the Qualcomm v. Apple patent infringement trial held by the Mannheim Regional Court yesterday. In the previous post I reported on the alleged (non-)infringement and (in)validity of the patent-in-suit, EP2460270 on a "switch with improved biasing". While the case is too close to call, this patent assertion may fail on the merits just like the first one that went to trial in Mannheim. But the court might also, contrary to what the non-asserted independent claim 16 implies for claim construction purposes and despite a finding by the Swedish patent office that the patent lacks a sufficient inventive step over prior art presented by Apple, hold Apple liable for infringement and decline to stay the case pending a parallel nullity action. In that case, Apple's affirmative defenses--antitrust and licensing--will be outcome-determinative at least with respect to the availability of injunctive relief.

For a long time, it was hard to fend off even standard-essential patent injunctions in Germany on antitrust grounds (with or without a FRAND commitment, which German courts wouldn't deem enforceable by third-party beneficiaries anyway). It was arguably hardest in Presiding Judge Dr. Kircher's court. The situation improved after the Court of Justice of the EU ruling in Huawei v. ZTE; in a way, it already got a little bit better after the European Commission took action against Samsung and Motorola. But very regrettably, the thinking of German patent judges is still, by and large, that antitrust defenses are just part of a throw-in-the-kitchen-sink tactic of infringers.

The patents Qualcomm is asserting in Germany--at least the ones that have been discussed in hearings or trials--aren't standard-essential, which ups the ante for Apple's antitrust defense. However, it's a fact that Qualcomm's conduct has been deemed anticompetitive by competition enforcers in multiple jurisdictions ("Antitrust Grand Slam").

Judge Dr. Kircher stressed that yesterday's discussion of the antitrust issues in the case was just meant to be a round of opening statements, far from a final decision. However, the court's preliminary inclination is that

• Qualcomm's conduct does not constitute a violation of Art. 102 of the EU Treaty (the abuse-of-dominant-position paragraph) in its own right,

• nor does the court tend to believe that its German patent assertions against Apple constitute a violation of the conduct the European Commission fined it for (exclusivity arrangements with Apple depriving Intel of a fair chance to compete on wireless baseband chipsets; the court feels this is just a fundamentally different type of behavior).

The judge said Art. 102 TFEU violations are typically identified where a company abuses a dominant market position in order to cement its monopoly, with cases involving "divergent markets" (the one in which the dominant position is held and the one that is affected) representing a less common scenario. Therefore, he feels an antitrust defense of that kind should succeed only under exceptional circumstances. Then he is concerned about the "subjective" nature of Apple's theory that Qualcomm's (non-standard-essential) patent assertions are meant to force Apple to drop Intel as a baseband chipset supplier. He also pointed to the fact that Qualcomm denied any such intention. Also, he noted that Apple couldn't infringe Qualcomm's patents with impunity even if Qualcomm pursued anticompetitive goals. Apple's counsel--the antitrust part was mostly argued by Freshfields Bruckhaus Deringer's Dr. Frank-Erich Hufnagel--was quick to clarify that Apple wasn't seeking a "free ride," but prepared to take a license on reasonable terms. Apple is seeking the dismissal of the complaint, but on other grounds; its antitrust defense is all about injunctive relief.

First, I don't think "divergent markets" are nearly as much of an exception as the court indicated. Even the famous EU Microsoft cases involved the leveraging of Microsoft's desktop operating system monopoly and its effects on the markets for workgroup servers and media player software products. Second, the overarching objective of competition enforcement, be it merger control or antitrust in a narrow sense, is to preserve competitive restraints, meaning that a company can't just command any price it wants (without having to pay much attention to its competitors' price points) or impose all sorts of other terms. Competition is never perfect as evidenced by the prices Apple can command for its new iPhones, but the difference between those products and high-end Android smartphones is only gradual, while Qualcomm can charge, for the combination of SEP royalties and chipsets, a multiple of what its competitors demand. It's obvious that Intel's deal with Apple goes a long way toward some competitive restraints on Qualcomm's business decisions, so it's not far-fetched to see the intention.

In his opening statement on antitrust, Dr. Hufnagel explained to the court that--and why--the analysis should be holistic, taking into consideration the entirety of Qualcomm's conduct, which he described--using this exact English term--as a "grand evil scheme" involving different actions and measures such as exclusivity rebates for customers/licensees, the refusal to license rival chipset makers, and a multiplicity of patent assertions in different jurisdictions, including (but not limited to) its ITC complaints targeting specifically Intel-powered iPhones (earlier this week, the ITC staff raised public-interest concerns over that litigation strategy) and the German cases, which in practical terms target only Intel-powered devices because all of the accused devices are sold with Intel baseband chips in Germany.

Dr. Hufnagel said Qualcomm was, by now, asserting a total of 13 patents against Intel-powered iPhones in Germany. Prior to that statement, I was aware of three patents asserted in Mannheim and seven (four of which are from the same family) in Munich. I'll try to find out about the three remaining assertions--and who knows how many other suits Qualcomm may file in the meantime.

Apple's counsel noted that Qualcomm could have simply sued the maker of the allegedly-infringing chipset (Avago/Broadcom), and said the "subjective"/"objective" distinction wasn't key under antitrust law: the focus should be on anticompetitive effects.

It was a powerful statement, but Judge Dr. Kircher took the (preliminary) position that the court had to focus on the patent-in-suit before it in the particular litigation. Dr. Hufnagel conceded that a single non-standard-essential patent assertion was not going to force Apple into submission and back into the Qualcomm fold all by itself. But the wider "grand evil scheme" would have that potential.

The discussion will continue on October 2 in a trial involving a different Qualcomm patent (EP3036768 on a "layout construction for addressing electromigration"). Without a holistic assessment of Qualcomm's overall conduct, Apple's antitrust defense is likely a lost cause except in a case where a patent couldn't be worked around within a reasonable time frame.

In the present case, it appears that Apple could just solve the problem by having its products for the German market made by Pegatron, one of its contract manufacturers. Pegatron was drawn into the litigation. Apple doesn't usually want to do so, but had to plead it into the case because of a lack of clarity regarding whether the patent-in-suit was covered by Pegatron's license deal with Qualcomm, which is subject to "capture periods" (presumably this means that patents applied for or granted during a certain period fall under a license agreement, a structure I've seen in the public redacted versions of settlement agreements). But Apple's primary contract manufacturer, Foxconn (Hon Hai), may not be licensed. Wistron was als mentioned. I believe Compal, for whatever reason, was not named.

The license-based affirmative defense was apparently raised at a relatively late stage. That discussion, too, may continue when other Qualcomm patents go to trial. But it's not as certain as the continuation of the "grand evil scheme" debate, which is actually raging around the globe.

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There's a third summary judgment motion related to Qualcomm's business practices that is worth talking about, though it is admittedly a distant third given the enormous potential of the FTC's motion regarding the licensong of rival chipset makers and Apple's motion targeting Qualcomm's "double-dipping" (chipset sales + patent royalties). In a lower-profile motion that nevertheless highlights a major issue, Apple has asked Judge Gonzalo Curiel of the United States District Court for the Southern District of California to throw out Qualcomm's counterclaims according to which Apple has to repay rebates amounting to billions of dollars because it breached a "Business Cooperation and Patent Agreement" (BCPA) through its efforts to instigate and broaden antitrust investigations into Qualcomm's conduct (this post continues below the document):

18-09-01 Apple Motion Re. R... by on Scribd

In order to understand the context of the motion, one needs to go back to last year's (amended) complaint, in which Apple stated the issue as follows ("Nature of the Action", paragraph 1):

"Qualcomm pursues its illegal practices through a secret web of agreements designed to conceal and obfuscate its conduct. In at least one such agreement, Qualcomm inserted a gag order that prevented an aggrieved party from seeking relief that could curb Qualcomm's illegal conduct, in an effort to keep courts and regulators in the dark and its coerced customers quiet." (emphasis added)

A "gag order" relating to information that stakeholders give to regulators is highly problematic. Allowing this kind of scheme would enable companies with huge leverage to impede the work of competition authorities to the point that antitrust action would be both less likely to happen and far less likely to succeed.

Most of Apple's motion focuses on compliance ("we didn't breach the agreement"), not on (un)enforceability, but at least Section A.5 makes a public-policy argument:

"Any interpretation of the BCPA that would prevent Apple from responding to the [regulatory] agencies' requests (whether based on subject matter or the alleged truthfulness thereof) or would allow Qualcomm—the target of agency investigations—to receive repayment of billions of dollars based on Qualcomm's own (incorrect) view of their contents would contravene established public policy. The public policy of California favors full disclosure of concerns about unlawful conduct to governmental investigators." (emphasis in original)

"Apple had a legal duty to comply with all subpoenas and CIDs [Civil Investigate Demands] from the FTC. Moreover, FTC rules of practice state that the FTC 'expects all parties to engage in meaningful discussions with staff.' [...] Inherent in this expectation is freedom from retaliation if the investigation's target dislikes a response. For this reason, responses to CIDs are generally confidential 'to safeguard the rights of individuals under investigation and to protect witnesses from retaliation.'"

"The same is true in Korea. The KFTC has stated that it 'relies heavily on third parties to gain information” relevant to ongoing investigations and to detect anticompetitive activity in Korea. [...] And Korean antitrust law expressly states that an investigative target cannot retaliate against, or give 'any disadvantage' to, another entrepreneur for 'cooperating with investigations' of unfair trade practices."

Apple's legal argument in the summary judgment motion is mostly about evidentiary failure on Qualcomm's part (for an example, Apple says there's no evidence Tim Cook discussed the KFTC investigation with his counterpart, whom Qualcomm didn't even seek to depose), about timing (Apple's first written correspondence with certain regulators occurred in eah case after the regulator had launched an investigation; and the BCPA expired at some point, so Qualcomm can't claim a breach based on what occurred post-expiration), and so forth. If Qualcomm convinces Judge Curiel that there is room for factual dispute, the motion may be denied (though Apple could still prevail on any of this at trial). If Apple's strategy works, the court will hold that nothing Apple did constituted a violation of the BCPA (reasonable interpretation provided). And if my wish was granted, the court would sua sponte place a lot more emphasis on the enforceability part than Apple did.

A few more quotes from Apple's complaint show the importance of the underlying issue:

"Qualcomm's recent effort to cover its tracks—by punishing Apple for providing truthful testimony at the request of government regulators—underscores the lengths to which Qualcomm will go to protect its extortion scheme."

"The BCPA carved out, as it must, an acknowledgment that Apple has a responsibility to respond to enforcement agencies' requests for information. But in restraining Apple from initiating action or bringing concerns to law enforcement, Qualcomm conditioned billions of dollars on Apple's silence before courts and regulators about Qualcomm's business practices. And Qualcomm is now interpreting that agreement to retaliate against Apple for responding to requests for information about Qualcomm's practices from competition agencies, inhibiting law-enforcement review of Qualcomm's anticompetitive practices."

"232. Specifically, Qualcomm offered to pay Apple the nearly 1ドル billion it owed if Apple would, in Qualcomm's words:

(i) publicly and specifically retract and correct each of Apple's misstatements about Qualcomm to regulatory agencies [...]; (ii) inform the relevant agencies that such statements were and are untrue; (iii) disclose Apple’s correspondence with any agencies relating to any investigation of Qualcomm;10 (iv) provide any and all additional facts to regulators and Qualcomm relating to Apple's dealings with Intel concerning any possible or actual consideration from Intel to Apple relating to Apple's implementation of WiMax or the use of Intel chips; and (v) provide Qualcomm with the requested information about any communications between Apple’s senior executives and Samsung.

233. Thus, in an extraordinary and transparent effort to manipulate regulatory iinvestigations into its anticompetitive behavior, Qualcomm offered to repay Apple nearly 1ドル billion in withheld BCP Payments if Apple recanted its true and, in many cases, sworn testimony before government agencies and instead gave false testimony favorable to Qualcomm."

In light of the above, the term "gag order" is actually an understatement. Qualcomm wanted to be exonerated by using Apple, in exchange for a billion-dollar payment, as its mouthpiece. Demanding a retraction of a statement is reminiscent of what certain communist dictatorships used to do during the Cold War. They, too, obligated people to publicly speak against their previous statements.

While it's understandable that Qualcomm will try anything in a multi-billion-dollar dispute to save money and, therefore, claims that Apple breached the agreement, the most important question is why Qualcomm put a "gag order" in place and made a billion-dollar offer for retracting statements Apple had made to regulators. Why would Qualcomm have done all of that in the first place if its business model was as legal as it keeps telling courts and the general public?

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While Justice Anthony Kennedy has decided to retire from the Supreme Court after 30 years, his concurrence in eBay v. MercExchange, which stressed the unreasonableness of injunctive relief over a minor feature of a multifunctional product, will be a lasting legacy for which the tech sector (apart from patent trolls and companies that used to make or are still making devices, but largely or entirely relying on patent licensing revenue) will be forever grateful.

With this voice of reason in connection with patent enforcement leaving the Supreme Court, and with someone like Assistant Attorney General Makan Delrahim mislabeling as "the United States' policy" an unFRANDly agenda hostile to innovators focused on making actual products, the product-making, truly innovative majority of America's technology industry should make an effort to ensure that Justice Kennedy's successor will have a very balanced approach to patent enforcement. Where the rumored candidates stand on patent policy is usually unknown: you'd only have a clue if they had previously served on the United States Court of Appeals for the Federal Circuit, or maybe if they had demonstrated a certain approach to patent cases at the trial stage (Judge Rodney Gilstrap--obviously not a candidate--is undoubtedly unbalanced). But that's rarely the case. For an example, no one really knew where Justice Gorsuch would stand, but he's a judge whom I would always trust that he'll go to extreme lengths to interpret the law correctly and reasonably (and to explain his reasoning in an intelligible way).

At this stage, there is a high-potential candidate we should rally behind: Senator Mike Lee (R-Utah).

He's on the President's shortlist of about two dozen potential nominees. Senator Ted Cruz (R-Tex.), himself often considered a potential Supreme Court nominee and probably one of the smartest jurists ever to hold elective office, vouches for his colleague's judicial conservatism. As does Mark Levin. Or the Hoover Institution's Adam White. And Senator Lee would gladly accept.

There are, however, two obstacles, apart from the fact that there are many other impressive people on the list of potential nominees. They aren't insurmountable, but they are significant. One is that Senator Mike Lee is not a sitting judge, unlike other recent nominees. The other issue is that he called on then-candidate Trump to withdraw before the general election when the "p***y-grabbing" recording came up. I must admit that even I, as a longstanding Trump supporter (even on this blog I voiced support for him in early 2016), was very concerned at the time that the recording would cost him too many female votes. Fortunately, he won anyway, and more and more people believe that he may go down in history as one of the most impactful presidents ever. But in that situation so close to the election, Senator Lee was skeptical, for understandable reasons.

I'm reasonably optimistic that President Trump will let bygones be bygones, and that he's not too much bound to this conventional thinking that only a sitting judge should be nominated. He's the first president never to have held political office or to have been a general.

Silicon Valley, and Microsoft and Amazon up north, and many other tech innovators across the United States, should support Senator Lee. The Supreme Court will continue to hear many patent cases in the coming years and beyond. Sooner or later, a FRAND case will reach the Supreme Court, given all that is going on with the controversy surrounding Qualcomm's business practices (most recently, an extremely interesting motion for an anti-enforcement injunction brought by consumers) or the patent dispute between the world's two leading Android device makers (Samsung v. Huawei), and numerous other issues and disputes. If Apple and then-Google's Motorola hadn't settled, even Judge Posner's historic FRAND decision could have gone all the way up to the top U.S. court.

There also is some potential for legal questions involving the United States International Trade Commission (USITC) and its sole remedy (equivalent to injunctive relief) reaching the Supreme Court in the not too distant future.

A hypothetical Justice Mike Lee would understand how to strike a reasonable balance between the interests of right holders and those of innovators who don't intend to infringe but simply implement industry standards or independently create products. He's knowledgeable on antitrust as well, and patent and antitrust matters overlap ever more often.

I've previously mentioned Senator Lee's advocacy of reasonableness in patent enforcement:

• June 28, 2012: Six senators oppose exclusion orders over standard-essential patents

• July 11, 2012: At Senate hearing, FTC and DoJ argue that import bans over FRAND patents must be an exception

• May 23, 2013: Four Senators write to the ITC, raise SEP issues with a view to Samsung-Apple decision

• July 31, 2013: Bipartisan senators suggest Presidential veto of impending ITC import ban of older iPhones, iPads

Please support him if you can.

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I wish this were just an April Fool's Day post, but sadly it's true that politicians in the EU are making ever more radical proposals concerning U.S. Internet giants. While I don't expect anything extreme to actually happen in the near term, calls for or speculation about breakups of large corporations contribute to a climate in which it becomes increasingly hard to find reasonable solutions, and to focus on actual wrongdoing by abusers of dominant market positions. It's a climate of thoughtlessness.

About a week ago, EU competition commissioner Margrethe Vestager, more descriptively named Activistager, told the Telegraph that a breakup of Google into multiple smaller entities would have to remain on the table as an option for competition enforcement. No one seriously believes this would be the outcome, but just mentioning the possibility is a kind of saber-rattling that appears totally disproportionate. One may or-as the U.S. Federal Trade Commission concluded in 2013--may not consider any of Google's business practices anticompetitive. But even if one agreed with the EU Commission's charges, one can't seriously think about a breakup. Maybe some minor remedies and limited fines, but that's the maximum extent of it.

Unfortunately, socialist anti-business radicalism is on the rise in Europe. The European political coordinate system has always been clearly to the left of American politics. By way of comparison, even someone like Hillary Clinton would be clearly to the right of the center of European politics--and on some issues even closer to parties considered "far-right" by European standards than to Merkel's Christian Democratic Union, which is conservative in name only, or Macron's En Marche, a movement in the tradition of French statism. But in the past there still was a huge difference between the more egalitarian, statist European approach and what would sooner or later result in five-year plans.

The European debate over Internet giants and the power they accumulate--and the way they leverage their reach and their network effects--needs more reasonableness. The current trend is worrying. Mrs. Activistager should be isolated. But the "nuclear option" of breaking up companies comes up way too often in the European debate.

Just this weekend, two senior German politicians said in interviews that a Facebook breakup may be necessary as a last resort. Robert Habeck, the co-chair of the German Green Party, told a newspaper that governmental intervention is warranted where there isn't enough competition. Mr. Habeck described Facebook as a "data superpower" that owns too many services, including WhatsApp, and aggregates all of their data. Therefore, he believes competition law needs to evolve in order to be able to break up such giants.

In Europe, the Greens are more influential than anywhere else in the world. They regularly join government coalitions in different European countries, and in the European Parliament they sometimes have the power to tip the scales in narrow votes. Most of the time they side with center-left parties, but sometimes also with European conservative-in-name-only parties. Merkel and her closest circle of allies and advisers tried to form a government with the Greens last year, but failed because the somewhat libertarian Free Democratic Party didn't just want to provide the missing votes to Merkel's strategic alliance with the Greens.

The reason I described the Free Democratic Party as "somewhat libertarian" is that it, too, increasingly adopts left-wing populist positions. For instance, the FDP supports Activistager's "state aid" case against Apple and the EU Commission's "digital tax" plans. And the vice chair of the FDP group in the German parliament, Michael Theurer, told Germany's leading financial daily, Handelsblatt, that a corporate breakup would be a "massive governmental intervention and, besides governmental regulation, a last resort"--but even he, while preferring to explore ways to build competitive pressure through innovation, didn't want to rule out a breakup of Facebook.

Mr. Theurer says that the "platform economy" has a tendency to result in monopolies and "a high concentration of power." Therefore, the libertarian-in-name-only politician, like the Green leader I mentioned before, believes competition law as it exists is insufficient to address the digital economy and urges its "further evolution."

While former Pirate Party leader and social democrat Christopher Lauer is far less influential, the leading Berlin newspaper, Der Tagesspiegel, published an op-ed of his last week in which he demanded the "nationalization" of Facebook.

Whatever conclusions Facebook may have to draw from the Cambridge Analytica affair, politicians in Europe, and especially in the largest EU member state, should be more careful about the measures they propose. Radical ideas, even if described as a last resort by some (not all) of their proponents, distract from real issues (such as Europe's abysmal failure in the digital platform economy) and from the quest for real solutions, and are particularly unhelpful on the brink of a trade war.

Europe should try to stay in the global competition enforcement mainstream. But in the Age of Activistager, that may be too much to ask for.

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