“If the ITC and other judges follow the basic rules of procedure and the legal requirements of the patent laws, as well as basic rules of evidence, then they will easily conclude that infringers of Qualcomm’s patented innovation should be held responsible for stealing the fruits of its inventive labors.”
In an age with instantaneous commentary on social media, the wheels of justice in courts seem to move at a glacial pace, especially in patent infringement lawsuits in the fast-paced smartphone industry. Yet, courts have been methodically receiving and meticulously reviewing the evidence in Qualcomm’s lawsuits against Apple Computer for infringing its patents. And, like the tortoise who eventually wins over the speedy hare, the judgments are just now coming out against Apple.
This past December, a Chinese court issued a preliminary injunction against Apple selling iPhones that infringed Qualcomm’s patents. A week later, A German court issued an injunction against Apple selling iPhones in that country that infringed Qualcomm’s patents. Last week, a jury in the United States found Apple liable for infringing Qualcomm’s patents and awarded Qualcomm $31 million in damages.
Not the Last Word
As important as these court rulings are, the fight is not over yet. Qualcomm is continuing its efforts to obtain legal protection for its patent rights at the International Trade Commission (ITC). Last fall, an ITC judge also found Apple had infringed Qualcomm’s patents, but then the ITC judge refused to grant Qualcomm the only remedy available at the ITC for infringement of its patents: an order excluding the infringing products from importation into the United States.
The ITC judge’s refusal to issue a remedy on a finding of patent infringement is currently under review by the entire ITC, and it should be reversed. The judge claimed that the “public interest” weighed against issuing the exclusion order. But as Professor Kristen Osenga and I explained in a submission to the ITC, this was a misuse of the “public interest.” It was legally unprecedented to deny a complainant its lawful remedy after the judge found that its rights were violated. It was also the result of the judge’s own serious misunderstandings of the nature of the smartphone market.
The Hold-Up Hoax
Contrary to the self-serving assertions by Apple and other companies about patent owners allegedly “holding up” innovation, the smartphone industry is defined by a previously unknown rate of new innovation in products and services, of increased competition, and of quality-controlled price reductions. Hundreds of millions of smartphone users the world over are a testament to this fact. These and other legal and commercial facts were detailed at length by law professors, economists, and former government officials in a recent submission to the Federal Trade Commission (FTC).
The FTC should also take note of the growing number of court decisions confirming Apple’s policy of patent infringement. The FTC initiated an antitrust lawsuit against Qualcomm in the final days of the Obama Administration in January 2017 and the trial just recently concluded. In this lawsuit, the FTC is asserting a claim that Qualcomm is violating the antitrust laws for charging too much for the use of its patents in smartphones. In addition to an Apple executive’s testimony supporting the FTC, another star witness for the FTC alleging that Qualcomm is charging too much for the use of its property was Huawei, the Chinese telecommunications giant that has been officially charged by the U.S. Department of Justice for theft of IP rights of U.S. companies. Less than one month before the Huawei representative took the stand, the U.S. had Canada arrest a top Huawei executive. Another witness for the FTC at the trial, a renowned economist, could not identify a single example of R&D in innovation that had been deterred as a result of Qualcomm’s licensing of its patents. Like the ITC judge’s conjectures about the “public interest,” the FTC’s case is driven by academic theories about “patent holdup” and self-serving complaints about “patent trolls” that are contradicted by real-world evidence in the smartphone industry and by the millions of consumers who benefit from smartphones all over the word.
An Important Message
This is why the recent court decisions holding Apple to account for its patent infringement are important, because they send an important signal that patent infringement is unacceptable, no matter how big the wrongdoer. Apple is the first company in history to have reached a market cap of $1 trillion, and it has over $200 billion in cash in the bank. When it was a fledgling startup in San Diego in the 1980s, Qualcomm invented the telecommunications technology that makes all of our phones “smart,” but Qualcomm is the veritable “little guy” compared to Apple. Qualcomm’s market cap is approximately 6.5% of Apple’s $1 trillion market cap last August. Apple has eight times more cash on hand to cover whatever expenses it may occur than Qualcomm’s annual total revenue.
In recent years, Apple has been leveraging its status as the 800-lb gorilla in the high-tech industry. As many know, Apple plays hardball with competitors and business partners alike. Unfortunately, this includes Apple using other’s intellectual property. Qualcomm thus was forced to file numerous patent infringement lawsuits against Apple in multiple countries, and these lawsuits have been dragging on for years. Last fall, Qualcomm reported that Apple, through its contract manufacturers, has withheld $7 billion (and counting) in royalties it was supposed to be paying for using Qualcomm’s patented technologies, like 4G, in the millions of iPhones it has been selling around the world. For a company with $1 trillion in value in 2018 and $200+ billion in the bank, a $7 billion liability is no more than a rounding error for Apple, but this loss of revenue is an existential threat to most other companies like Qualcomm.
In sum, Apple is engaging in a practice now called “efficient infringement,” which is increasingly common today, especially among high-tech giants like Apple and Google. This occurs when a company chooses to infringe another’s patents given its calculation that it will pay less money in a court-ordered judgment than in a properly negotiated license agreement—after years of fighting the patent owner in court and before regulatory tribunals at the Patent Office and after forcing the patent owner to pay millions in legal fees. Too often, companies like Apple really think they can just get away with infringing others’ patent rights because they have the resources to outlast patent owners in these legal challenges.
The United States has been a leader in innovation—its economy has grown for 200 years and people have flourished—as a result of its longstanding commitment to securing the rights of innovators to the fruits of their inventive labors. This was just as true for Thomas Edison, the Wright Brothers, and Nikola Tesla as it is today for companies like Qualcomm. Any economist will tell you: markets can only function when property rights are secured against ongoing violations—it is the viable threat of an injunction that stops the serial trespasser and makes him negotiate with you if he wishes to continue to use your property. This has been a key factor in the two centuries of success in the U.S. innovation economy.
The recent court decisions are a welcome signal of the rule of law and the protection of the rights of innovators, but they are just the first steps in an important ongoing legal fight. The ITC should reverse the earlier denial of the exclusion order after finding Apple liable for patent infringement. Companies like Qualcomm will not continue to invest billions in R&D that make innovation possible if they know they will have to spend years in court and before regulatory agencies defending their rights just to win the royalties they should have received in the first place. An ITC exclusion order, like an injunction, is key to discouraging companies from engaging in serial efficient infringement. Similarly, the judge presiding over the FTC trial should rule that the FTC has failed to prove its case given the absence of evidence of any harm to consumers or to innovation.
If the ITC and other judges hearing the ongoing cases follow the basic rules of procedure and the legal requirements of the patent laws, as well as basic rules of evidence, then they will easily conclude that infringers of Qualcomm’s patented innovation should be held responsible for stealing the fruits of its inventive labors. This means injunctive relief, not just monetary damages. This is what courts in Germany and in China have already done in holding Apple responsible for its past and ongoing violations of Qualcomm’s patent rights. If this does not happen, then innovation will suffer and everyone loses.
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