Qualcomm Slammed In Patent Brawl With Apple

Qualcomm Inc. lost two pretrial skirmishes last month in its patent and antitrust battle against Apple Inc. — in just about every way imaginable.

U.S. District Judge Gonzalo Curiel of San Diego repeatedly found that Qualcomm had misstated the law, overreached with its arguments or was just plain wrong as he refused to block Apple from suing Qualcomm in foreign jurisdictions or to order the resumption of royalty payments while the litigation plays out.

Qualcomm had argued at an Aug. 18 hearing that its financial “house is on fire” because Apple and its contract manufacturers have shut off some $4 billion a year in royalty payments. But Curiel wasn't swayed. “The court is mindful of the stakes presented by this suit,” he wrote in one of two orders. “The scales of equity, however, do not bend for dollar amounts alone no matter how great.”

Maybe most troubling for Qualcomm, Curiel strongly hinted — without formally deciding — that he will reject Qualcomm's request to adjudicate a fair, reasonable and non-discriminatory (FRAND) royalty rate for Apple on Qualcomm's global portfolio of standard-essential cellphone patents (SEPs).

“Apple is not obligated to accept a worldwide FRAND license from Qualcomm,” Curiel wrote in explaining why he would not enjoin Apple from seeking declarations of non-infringement or patent exhaustion in European and Asian courts.

“Apple has made no binding commitment that limits where it can bring a lawsuit, under what laws, or how it can enforce its third-party beneficiary rights” to FRAND royalties, Curiel added. Apple indicated at the Aug. 18 hearing that it would not submit to a global FRAND determination.

Apple is represented by Boies Schiller Flexner and Fish & Richardson while Qualcomm is backed by Cravath, Swaine & Moore and Jones Day. Gibson, Dunn & Crutcher represents Apple's contract manufacturers.

A spokesman for Apple said in an emailed statement that the company was pleased with the ruling.

“Apple has always been willing to pay a fair price for technology used in our products, but for years Qualcomm has acted unreasonably and refused to negotiate fair terms for the single connectivity component they provide,” he wrote.

Qualcomm's vice president of public affairs, Christine Trimble, called the rulings disappointing.

“We recognize that the motions involved high procedural hurdles,” Trimble added. “Nevertheless, we are pleased that the court has set a case schedule that will get us to trial expeditiously.”

No Royalties — For Now

Apple sued Qualcomm in Curiel's court in January after licensing negotiations with Qualcomm failed. Apple accuses Qualcomm of abusing its dominant position in 3G and LTE technology to negotiate above-FRAND royalty rates. The royalties are actually paid by Apple's Taiwan-based contract manufacturers, including Pegatron Corp. and Compal Electronics Inc., who are then reimbursed by Apple. Cupertino, CA-based Apple further argues that Qualcomm is “double-dipping” by selling chips and then collecting royalties on the patents that protect them, contrary to the Supreme Court's May 30 Lexmark decision on patent exhaustion. See, Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. __ (May 30, 2017).

The Federal Trade Commission is also suing Qualcomm in the Northern District of California for alleged antitrust violations. Apple followed up with antitrust and patent actions in the U.K., Japan, China and Taiwan.

In Qualcomm v. Compal, No. 3:17-cv-01010-GPC-MDD (S.D. Cal. Sept. 7, 2017), Curiel held that Qualcomm failed to show it would be irreparably harmed by Apple's refusal to pay royalties during the litigation.

Qualcomm had argued that the nonpayments would cut a huge hole in its R&D budget and embolden other licensees to similarly withhold payments. But Curiel pointed out that Qualcomm president Derek Aberle had assured investors on a July earnings call that there's no “indication that this is somehow going to result in a bunch of other licensees deciding not to report and pay royalties.”

“That Qualcomm's own president has stated to the investing public that he does not believe that there is any merit to the contagion argument belies the plausibility and credibility of the argument made to the court,” Curiel wrote.

In one of the rare positive notes for Qualcomm in the two orders, Curiel did assure Qualcomm it would be made whole if it prevailed at trial. “If and when this court holds that the defendants' licensing provisions are enforceable, the court will evaluate whether it is proper to grant permanent injunctive relief, e.g., specific performance, or damages,” he wrote.

No Bar on Foreign Suits

In Apple v. Qualcomm, No. 3:17-cv-00108-GPC-MDD (S.D. Cal. Sept. 7, 2017), Curiel rejected Qualcomm's bid for an anti-suit injunction that would block Apple from pursuing its parallel overseas actions until the proceedings against Curiel are completed.

Qualcomm had argued that Microsoft v. Motorola, 696 F.3d 872 (Ninth Cir. 2012), in which the Ninth Circuit enjoined Motorola Inc. from enforcing a German injunction while a Washington federal court hashed out their FRAND disputes, was “squarely on point.”

Curiel disagreed. In that case, Motorola was the party that had made a binding commitment to a standards-setting organization to license on FRAND rates. “Apple, unlike Qualcomm, has not made a binding commitment,” Curiel noted.

While Qualcomm is trying to frame the case as ultimately about a global FRAND license, Apple remains free to raise legitimate antitrust and patent issues on a territory-by-territory basis, Curiel held.

“Any defendant who faces parallel litigation in a foreign suit will be inconvenienced,” Curiel wrote. But “the court does not find that judicial resources will be wasted on the foreign actions. Apple's foreign suits raise legitimate questions under foreign anticompetition and patent law that are distinct from the claims before the court.”

Curiel further noted that the governments of China and other countries have imposed antitrust penalties on Qualcomm in recent years, and that it was Qualcomm — not Apple — who asked Curiel to rule that Qualcomm's global license offer to Apple met FRAND terms. “Qualcomm placed global relief on the table, not Apple,” Curiel wrote.

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Scott Graham writes about intellectual property and the U.S. Court of Appeals for the Federal Circuit for ALM. Contact him at [email protected]. On Twitter: @ScottKGraham.