Skilled in the Art: Qualcomm Antitrust Cases Heating Up at Ninth Circuit + The Law Behind a Paywall + Lyft Hits Patent Passenger with $500K Fee Bill
The Ninth Circuit is going to shrink the $5 billion consumer class action against Qualcomm, but isn't spoiling to eliminate it.
December 03, 2019 at 07:00 PM
12 minute read
Welcome to Skilled in the Art. I'm Law.com IP reporter Scott Graham. The holiday's over and a lot is going on in IP land. Here's a quick rundown of items crossing my desk today:
• The Ninth Circuit is going to shrink the $5 billion consumer class action against Qualcomm, but isn't spoiling to eliminate it.
• Both sides have now weighed in on Qualcomm's appeal of Judge Lucy Koh's ground-breaking injunction in FTC v. Qualcomm. Amici include two former Federal Circuit chief judges, and a tech giant that blames billions in losses on Qualcomm.
• Supreme Court ponders copyrightability of Official Georgia Annotated Code.
• Lyft says patent owner ignored PTAB warnings, should pay $569,254 in attorneys fees.
As always, you can email me your feedback and follow me on Twitter.
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Ninth Circuit Judge: Qualcomm Arguments 'Strong' but Recycled
Qualcomm's IP licensing practices are back on the front burner. The U.S. Court of Appeals for the Ninth Circuit heard arguments Monday in the $5 billion antitrust class action brought by consumers. And it's scheduled a Feb. 13 hearing in San Francisco for the big kahuna: the FTC v. Qualcomm showdown over U.S. District Judge Lucy Koh's unprecedented injunction.
As I wrote Monday, Judges Jay Bybee and Ryan Nelson sounded inclined to at least dial back the nationwide class certified by Koh to smartphone purchases made in California, and perhaps other states that have "repealed" the Supreme Court decision on standing for indirect purchasers.
Donald Trump appointee Ryan Nelson dominated the questioning. When Susman Godfrey's Marc Seltzer persisted in arguing that non-repealer states have "zero interest" in denying consumers a remedy under California law, Nelson told him, "You're overstating your case. Stop it."
But even if the class were limited to Californians only, Qualcomm would still have potential exposure of about $600 million, and that could be subject to trebling. And this Ninth Circuit panel—all Republican appointees—didn't sound eager to eliminate the class action altogether.
Qualcomm attorney Bob Van Nest of Keker, Van Nest & Peters argued that common issues don't predominate, in part, because some buyers didn't pay anything for their phones, making injury impossible. But Judge Jay Bybee replied, "There might be a price pass-through. It's going to be disguised some place else. It's going to be reflected in their monthly charges."
Van Nest acknowledged that's possible, but said it's only a theory that the plaintiffs failed to support with evidence.
"There was no affidavit or no expert testimony about it?" Judge Eugene Siler Jr., visiting from the Sixth Circuit asked.
Van Nest admitted that there was, but said Koh "had an obligation to look behind the mere statements of their expert."
Nelson leveled with Van Nest. "I appreciate your arguments. I think they're really strong," he said. But "everything you're arguing we would have to find that the district court abused its discretion, and I feel like you're re-arguing some of the same arguments that you did below."
Uh-oh.
Van Nest argued that the court could chalk it up to an error of law. Koh committed error under Supreme Court precedents by failing to look beyond the plaintiffs' theory," he said. "And an error of law is always an abuse of discretion."
"What if we don't agree that it's a legal error, and we start delving into the facts?" Nelson asked.
I wrote last May that these appeals will pit the irresistible force of Qualcomm's appellate lawyers against the immovable object of Koh's detailed factual findings. It appeared Monday that Nelson is already feeling the pinch.
Parties, Amici Line up for FTC-Qualcomm Appellate Clash
Meanwhile, Qualcomm, the FTC and plenty of amici curiae have weighed in on the merits of Koh's injunction following last winter's bench trial.
Koh enjoined Qualcomm from threatening to disrupt chip supply to smartphone makers who balk at licensing its IP, and forced it to license its standard-essential patents to rival chip makers. She issued the decision in May after rejecting a belated request from the Department of Justice to submit a statement of interest on remedy. The Ninth Circuit stayed the injunction pending appeal.
At the heart of Qualcomm's case is its contention that it has no antitrust duty to deal with its competitors. Under the Supreme Court's Trinko and Aspen Skiing decisions, antitrust law trumps private competitive decisions only when a monopolist abandons profits, or its only purpose is to damage competitors, and neither applies, the company argues in a brief signed by Goldstein & Russell's Tom Goldstein.
"Qualcomm's purpose in exhaustively licensing only at the OEM level is to maximize its own licensing revenue commensurate with the value of its intellectual property. That is an entirely pro-competitive goal," Goldstein writes.
Qualcomm is also looking to overturn Koh's summary judgment ruling that Qualcomm's FRAND commitments to two standard-setting organizations (SSOs) oblige it to license its SEPs "to all comers, including competing modem chip suppliers." At a minimum there are at least triable issues as to whether the SSO policies apply only to the smartphone manufacturers who practice the standard, Goldstein argues. "In fact, the standards do not describe the functionality of modem chips or even mention them," he contends.
Also signing onto the Qualcomm briefs are lawyers from Cravath Swaine & Moore; Keker, Van Nest & Peters; and Morgan Lewis & Bockius.
DOJ is backing Qualcomm, in a timely fashion this time around. Koh's imposition of a compulsory licensing regime—"without holding a separate hearing on remedy"—has "the potential to negatively impact innovation in 5G technologies and compromise national security," DOJ states in a brief signed by Deputy Attorney General Michael Murray of the Antitrust Division.
Qualcomm also has the backing of not one but two former chief judges of the Federal Circuit among its many amici curiae. Former Chief Judge Paul Michel argues that Koh misapplied the doctrine of the smallest salable patent practicing unit in determining that Qualcomm's royalties are unreasonably high. And former Chief Judge Randall Rader, who has taught patent law courses at various law schools, is among a group of "professors, economists and scholars" who argue that Koh's decision "will stifle the innovation economy, which has flourished under the updated antitrust regime."
FTC filed its response last week. The agency argues that Aspen and Trinko don't apply when "a monopolist's refusal to license its rivals breaches its own voluntary commitments made to induce SSOs to include its patented technology in industry-wide standards."
Qualcomm's presentation to the Ninth Circuit "largely ignores its own documents and the other evidence supporting the district court's findings," the agency states in a brief signed by FTC special counsel Brian Fletcher. Instead, it "pervasively relies on the very self-serving testimony the court declined to credit."
Intel is among the amici backing the FTC. Under former Solicitor General Donald Verrilli Jr.'s signature, the company describes itself as "the latest victim to succumb to Qualcomm's scheme, in just the way the District Court and the FTC predicted." After investing billions of dollars, dedicating thousands of engineers and acquiring two modem businesses, "Intel could not surmount the artificial barriers to competition that Qualcomm erected," writes Verrilli, who's now a Munger Tolles & Olson partner.
Intel, of course, exited the modem chip business in April, days after Apple and Qualcomm resolved their own antitrust dispute and struck a multi-year chip supply deal. Intel sold "most of its modem business" to Apple in July at what it now describes as "a multi-billion dollar loss."
The FTC also has its own law professor amici, led by Stanford's Doug Melamed and Mark Lemley and Georgetown's Steven Salop. They note that Trinko held that "under certain circumstances" a refusal to cooperate with rivals can constitute anticompetitive conduct. "This case—in which Qualcomm made and later repudiated a promise to license all-comers—is one of those 'circumstances,'" they argue.
Qualcomm is the leader in the clubhouse, as I see it, given that in staying Koh's injunction pending appeal, a Ninth Circuit motions panel described it as either "a trailblazing application of the antitrust laws, or instead an improper excursion beyond the outer limits of the Sherman Act."
But given that Qualcomm has drawn more right-leaning judges on both the motions panel and in Monday's class action appeal, and the relatively tepid response of those conservative judges on Monday, well, anything seems possible.
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Supreme Court Copyright Arguments, Annotated
The Supreme Court heard arguments Monday in Georgia v. Public.Resource.Org. The question presented is whether "government edicts" that lack the force of law—specifically the annotations in the Official Code of Georgia Annotated—can be copyrighted. The annotations provide guidance for interpreting the statutes and are contributed by the Georgia Code Commission, which includes both legislators and non-legislators.
As in a lot of Supreme Court IP cases, the questioning was all over the map and suggested some non-traditional alliances. Justices Neil Gorsuch and Sonia Sotomayor, for example, had some of the sharpest questions for the state of Georgia ("Why would we allow the official law to be hidden behind a paywall?" Gorsuch asked at one point.)
Justices Brett Kavanaugh and Ruth Bader Ginsburg, meanwhile, ganged up on the nonprofit that wants to publish all official edicts of the Legislature for free on the internet. Kavanaugh said he saw no daylight between this case and 19th century precedents that found headnotes authored by an official court reporter copyrightable.
My ALM colleague R. Robin McDonald offered a rundown here.
I was drawn to the neighboring argument transcript in New York State Rifle & Pistol Association v. City of New York, in which the city argues that its restriction on transporting guns is mooted by a new state law, giving the rifle association everything it wanted. The association still wants a court ruling that will enjoin any future attempted restrictions by the city.
A normal person would think, "Wow, cutting-edge arguments on one of the great constitutional issues of the day." Me? I couldn't help thinking, "I wonder if this will have implications for Super Sack!"
Maybe I've been writing about intellectual property a little too long.
Lyft Ride Turning Expensive for RideApp
When the Patent Trial and Appeal Board found patents asserted against Lyft and Uber Technologies indefinite last summer, I wrote that patentee RideApp would now be on thin ice, Section 285-wise, if it continued pressing its cases in district court.
And wouldn't you know, now that U.S. District Judge Jon Tigar has likewise found the claims indefinite, Lyft and its Baker Botts counsel are moving for a declaration of exceptionality and $569,254 in attorneys fees. That's the amount Lyft says it spent once the PTAB issued the first of its two decisions on July 17.
"When the Patent Office confirmed the invalidity of the '730 Patent, not once, but twice, RideApp was fully aware its patent was invalid," Baker Botts partner Jeremy Taylor writes for Lyft. "Despite this, RideApp refused to dismiss the case and offered no explanation of how RideApp could continue to plausibly assert the '730 Patent in light of the Patent Office's invalidity findings."
Lyft is stretching things a bit here. The PTO did not "confirm the invalidity" of the patent. It declined to institute proceedings on the ground that it found the claims indefinite, and therefore could not apply them to the prior art. That certainly points toward invalidity, but is not an official office action "confirming" it.
On the other hand, Judge Tigar seemed to invite a fee motion when he observed in his October claim construction order that RideApp and its Kasowitz Benson Torres counsel changed positions in his court following the PTAB decisions and did so untimely. He noted that "RideApp's 'conduct is not conducive to the orderly progress of this case, and the [Court] disapproves of it,'" citing Rambus v. Hynix Semiconductor.
I'm guessing we'll be seeing a lot of these types of fee motions now that the PTO has adopted the same claim construction standard used by federal courts. If I were RideApp, I'd argue that it wasn't my choice to get hauled before the PTAB, and that I was still entitled to have my day in court, regardless of what the PTAB might have said.
Also of note:
➤ Lyft's exposure revealed. Lyft says RideApp had estimated damages at $584 million through 2018, plus interest and on ongoing 4% royalty.
➤ The $900-an-hour associate. Lyft lists Baker Botts partner Taylor's standard billing rate as $970 an hour. Senior associates Elizabeth Boggs and John Gaustad bill at $900 an hour. Associate Keith Jurek's rate is $670 per hour. After discounts and other fee reductions, Lyft says the rates actually billed ranged from $500-670 per hour for associates and $826 per hour for Taylor.
➤ Judge Alsup as the model. Lyft analogizes to U.S. District Judge William Alsup's recent smackdown of Straight Path IP Group in its patent litigation with Cisco Systems and Apple. "The plaintiff took one position on claim interpretation in the Federal Circuit while defending its IPR win, and, after achieving its goals, took a second, incompatible position in district court," Taylor writes. "Judge Alsup stated that the plaintiff's tactics rendered the case one 'that stand[s] out from others' and exceptional under a totality of the circumstances."
➤ Uber case dismissed. RideApp voluntarily dismissed a similar case against Uber in Georgia federal court pending the outcome of appeals in the Lyft litigation.
That's all from Skilled in the Art today. I'll see you all again on Friday.
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