It Was Nice While It Lasted: 9th Circuit Rejects Lower Court Ruling On How Abuse Of Patent Monopolies Can Violate Antitrust

from the wait,-what dept

Last year we had a detailed post about judge Lucy Koh's district court ruling that outlined exactly how Qualcomm abused its patents in an anticompetitive way to shake down the entire mobile phone industry for decades. This was in a case that was brought by the FTC and it was a stunning ruling on multiple accounts. First, it's rare for a court to recognize how patents and copyrights grant monopoly rights that can be abused in violation of antitrust rules. Second, it exposed a stunning degree of anticompetitive behavior on the part of Qualcomm.

Unfortunately, this week, the 9th Circuit overturned that ruling, though did so in a somewhat confused manner. Indeed, this ruling may significantly limit any kind of antitrust activity (at least in the 9th Circuit).

There are a lot of details, but the key element at stake was Qualcomm's "no license, no chips" rules. No company could buy Qualcomm chips, which were necessary for mobile devices, without licensing Qualcomm's entire patent portfolio. This snippet from the lower court ruling gives you the basics:

These high royalties reflected an unusual negotiating tactic called "no license, no chips." No one could buy Qualcomm's cellular chips unless they first signed a license to Qualcomm's patent portfolio. And the terms of these patent deals were heavily tilted in Qualcomm's favor.

Once a phone maker had signed its first deal with Qualcomm, Qualcomm gained even more leverage. Qualcomm had the right to unilaterally terminate a smartphone maker's chip supply once the patent licensing deal expired.

"If we are unable to source the modem, we are unable to ship the handset," said Motorola executive Todd Madderom in a deposition. "It takes many months of engineering work to design a replacement solution, if there is even a viable one on the market that supports the need."

That made Qualcomm's customers extremely vulnerable as they neared the expiration of a patent licensing deal. If a customer tried to negotiate more favorable terms—to say nothing of formally challenging Qualcomm's patent claims in court—Qualcomm could abruptly cut off the company's chip supply.

But, it got worse. The licensing terms for the patents required that you paid based on every device sold even if your devices did not include Qualcomm chips. Basically, even if you chose not to use Qualcomm's chips, you still had to pay for them. That seemed obviously anticompetitive, because if someone is already paying for Qualcomm's technology, why then pay another company as well?

However, the 9th Circuit rejects all of that as anticompetitive. Why? Because it says it wasn't anticompetitive, it was just hypercompetitive.

This case asks us to draw the line between anticompetitive behavior, which is illegal under federal antitrust law, and hypercompetitive behavior, which is not.

The ruling opens with a weird hagiography of Qualcomm. I mean, parts of it read straight out of a puff piece advertorial:

Qualcomm’s patent licensing business is very profitable, representing around two-thirds of the company’s value. But Qualcomm is no one-trick pony. The company also manufactures and sells cellular modem chips, the hardware that enables cellular devices to practice CDMA and premium LTE technologies and thereby communicate with each other across cellular networks.

A key part of the ruling is arguing that Qualcomm's "no license, no chip" plan in selling to OEM's is sensible because of the concept of patent exhaustion. If you don't recall, back in 2008, in the LG v. Quanta case, the Supreme Court made the correct call that patent rights "exhaust" upon sale. That is, if I sell my patent-protected widget to Company A, and Company B buys it and includes it in its contraptions, I can't then sue Company B. This makes sense because it's the same chip that was already legally purchased.

Yet, the 9th Circuit panel seems to conclude that this kind of ruling forced Qualcomm into its "no license, no chip" business model. Indeed, the panel seems in awe of such a business model -- jacking up prices and limiting competition by using the Supreme Court's rule as leverage to cut out a key part of the market.

Qualcomm reinforces these practices with its so-called “no license, no chips” policy, under which Qualcomm refuses to sell modem chips to OEMs that do not take licenses to practice Qualcomm’s SEPs. Otherwise, because of patent exhaustion, OEMs could decline to take licenses, arguing instead that their purchase of chips from Qualcomm extinguished Qualcomm’s patent rights with respect to any CDMA or premium LTE technologies embodied in the chips. This would not only prevent Qualcomm from obtaining the maximum value for its patents, it would result in OEMs having to pay more money (in licensing royalties) to purchase and use a competitor’s chips, which are unlicensed. Instead, Qualcomm’s practices, taken together, are “chip supplier neutral”—that is, OEMs are required to pay a per-unit licensing royalty to Qualcomm for its patent portfolios regardless of which company they choose to source their chips from.

But, what does Qualcomm "obtaining the maximum value for its patents" have to do with anything here? The only way to obtain maximum value for your patents is, by definition to be anticompetitive.

And here's where the ruling gets truly bizarre. It says that because the device manufacturers (the OEMs) don't compete with Qualcomm, then it's clearly not anticompetitive.

Although Qualcomm’s licensing and modem chip businesses have made it a major player in the broader cellular technology market, the company is not an OEM. That is, Qualcomm does not manufacture and sell cellphones and other end-use products (like smart cars) that consumers purchase and use. Thus, it does not “compete”—in the antitrust sense—against OEMs like Apple and Samsung in these product markets. Instead, these OEMs are Qualcomm’s customers.

Later it goes even further:

Thus, a substantial portion of the district court’s ruling considered alleged economic harms to OEMs—who are Qualcomm’s customers, not its competitors—resulting in higher prices to consumers. These harms, even if real, are not “anticompetitive” in the antitrust sense...

But... that gets almost everything backwards. First off, for years, antitrust experts have been saying the proper determination of whether or not something is anticompetitive is the impact on its customers. And here, it's clear that Qualcomm is using this bundling policy to jack up the prices (massively) for its customers. It seems like a quintessential example of anticompetitive behavior... and the court says no?

The ruling is worth reading in detail, as it bends over backwards to basically say that nothing that Qualcomm does violates antitrust law, it's all just good business to squeeze as much money as possible out of its patents. It even repeats again that since it doesn't see Qualcomm's actions hurting "competition itself" and merely just some competitors:

... the anticompetitive harm identified must be to competition itself, not merely to competitors.... The FTC identifies no such harm to competition.

Now, there is some reasonable logic to that line. Any kind of competition can harm competitors. If I market myself better than a competitor, that's harm to a competitor, but it's not an antitrust issue. But if that harm to the competitor is because of my monopoly power it's a different story. And here, that is absolutely the case.

Also, there are a few lines in here that, at the very least, might doom any attempts at bringing an antitrust case against companies like Amazon, Google, Apple or Facebook (at least in the 9th Circuit). For example, the court suggests that any new competitor entering the market proves there's no antitrust problem, no matter how well they did in that market, or whether or not they were hindered from obtaining market share through abuse of monopoly power:

The FTC’s conclusion that OEM-level licensing does not further competition on the merits is not only belied by MediaTek and Intel’s entries into the modem chip markets in the 2015–2016 timeframe, it also gives inadequate weight to Qualcomm’s reasonable, procompetitive justification that licensing at the OEM and chip-supplier levels simultaneously would require the company to engage in “multi-level licensing,” leading to inefficiencies and less profit. Qualcomm’s procompetitive justification is supported by at least two other companies—Nokia and Dolby—with similar SEP portfolios to Qualcomm’s.

In finally talking about the fact that Qualcomm is able to use its monopoly position to charge an anticompetitive surcharge, the panel basically says "nah..." because "patent monopolies are cool."

We hold that the district court’s “anticompetitive surcharge” theory fails to state a cogent theory of anticompetitive harm. Instead, it is premised on a misunderstanding of Federal Circuit law pertaining to the calculation of patent damages, it incorrectly conflates antitrust liability and patent law liability, and it improperly considers “anticompetitive harms to OEMs” that fall outside the relevant antitrust markets.

In short: because they have a government granted patent monopoly, it's okay for them to abuse that in anticompetitive ways, and we won't consider it anticompetitive. Or, another way of reading this: patent laws inherently create anticompetitive situations, and we're fine with it. And, tragically, that may be a correct reading of the law, as crazy as it is.

I guess this isn't that surprising. This has been the issue we've had with patents for ages -- that they are a monopoly. And that's why we were excited about the original ruling: finally recognizing that patent monopolies could be as abusive as any monopoly. But, here, the court is basically saying "abusing your patent monopoly is fine by us."

And, really, what this should mean is that we need to fix our patent laws, which are dangerous and harm competition. But... that seems unlikely.

Again, this kind of ruling almost certainly means phone prices will remain much higher than they would be in a competitive market for chips (which is why it's slightly frustrating that I've seen some supposedly "free market" supporters cheering on this ruling). But it might also mean that any antitrust fight against big tech just became significantly more difficult as well. As the court says:

Anticompetitive behavior is illegal under federal antitrust law. Hypercompetitive behavior is not.

Good luck figuring out which one is which.

Filed Under: 9th circuit, abuse, antitrust, competition, customers, devices, monopoly, patents, phones
Companies: qualcomm

Qualcomm Used Patent Monopolies To Shake Down The Entire Mobile Phone Industry For Decades

from the and-we-all-suffered dept

Just a few weeks ago, Qualcomm and Apple settled a massive patent dispute on the eve of a trial. In the run-up to the settlement, Apple had made a really compelling case that Qualcomm's practices involve blatant abuse of its patents to jack up prices to insane levels and to limit any real competition. Just recently we wrote about how media-tracking giant Nielsen was abusing patents for anticompetitive purposes, but they looked like blatant amateurs compared to Qualcomm. As we noted in that post, our founding fathers worried quite a bit about the impact of patent monopolies and how they would stifle innovation and competition. James Madison said:

"But grants of this sort can be justified in very peculiar cases only, if at all; the danger being very great that the good resulting from the operation of the monopoly, will be overbalanced by the evil effect of the precedent; and it being not impossible that the monopoly itself, in its original operation, may produce more evil than good."

And Thomas Jefferson, who grudgingly ran the patent system for a while (and where he tried to institute rules to prevent abuse) seemed to regret the entire concept of patents:

... generally speaking, other nations have thought that these monopolies produce more embarrassment than advantage to society; and it may be observed that the nations which refuse monopolies of invention, are as fruitful as England in new and useful devices.

But one quote regarding such monopolies that sticks most with me is that of UK Parliament member Thomas Macauley, who gave a famous speech in 1841, in which he declared:

Sir, that I may safely take it for granted that the effect of monopoly generally is to make articles scarce, to make them dear, and to make them bad...

He further noted that if there is a case that the only way to remunerate people is through such a monopoly they may grudgingly be granted, but warns of the evil this will enable if allowed to do more than incentivize the original creation:

It is good that authors should be remunerated; and the least exceptionable way of remunerating them is by a monopoly. Yet monopoly is an evil. For the sake of the good we must submit to the evil; but the evil ought not to last a day longer than is necessary for the purpose of securing the good.

I'm thinking about these quotes, yet again, in relation to Qualcomm. Just a month after settling the lawsuit with Apple, a federal judge in an ongoing antitrust lawsuit filed by the FTC, laid out in massive detail just how evil Qualcomm has been in using its monopoly powers to stifle innovation and competition. The 283-page ruling is incredibly damning -- and if you don't feel like reading the whole thing, Tim Lee over at Ars Technica has an only slightly shorter summary of just how Qualcomm's shake down scam worked.

I read every word of Judge Koh's book-length opinion, which portrays Qualcomm as a ruthless monopolist. The legal document outlines a nearly 20-year history of overcharging smartphone makers for cellular chips. Qualcomm structured its contracts with smartphone makers in ways that made it almost impossible for other chipmakers to challenge Qualcomm's dominance. Customers who didn't go along with Qualcomm's one-sided terms were threatened with an abrupt and crippling loss of access to modem chips.

"Qualcomm has monopoly power over certain cell phone chips, and they use that monopoly power to charge people too much money," says Charles Duan, a patent expert at the free-market R Street Institute. "Instead of just charging more for the chips themselves, they required people to buy a patent license and overcharged for the patent license."

Qualcomm -- which it should be noted has been one of the most aggressive agitators against patent reform (and sometimes in favor of making patent law much, much worse) -- is basically the world's largest patent troll, and it loved every minute of it.

Qualcomm's patent licensing fees were calculated based on the value of the entire phone, not just the value of chips that embodied Qualcomm's patented technology. This effectively meant that Qualcomm got a cut of every component of a smartphone—most of which had nothing to do with Qualcomm's cellular patents.

"Qualcomm charges us more than everybody else put together," Apple executive Jeff Williams said. "We've never seen such a significant licensing fee tied to any other IP we license," said Motorola's Todd Madderom.

And, of course, Qualcomm leveraged its position to hold everyone over a barrel:

These high royalties reflected an unusual negotiating tactic called "no license, no chips." No one could buy Qualcomm's cellular chips unless they first signed a license to Qualcomm's patent portfolio. And the terms of these patent deals were heavily tilted in Qualcomm's favor.

Once a phone maker had signed its first deal with Qualcomm, Qualcomm gained even more leverage. Qualcomm had the right to unilaterally terminate a smartphone maker's chip supply once the patent licensing deal expired.

"If we are unable to source the modem, we are unable to ship the handset," said Motorola executive Todd Madderom in a deposition. "It takes many months of engineering work to design a replacement solution, if there is even a viable one on the market that supports the need."

That made Qualcomm's customers extremely vulnerable as they neared the expiration of a patent licensing deal. If a customer tried to negotiate more favorable terms—to say nothing of formally challenging Qualcomm's patent claims in court—Qualcomm could abruptly cut off the company's chip supply.

And, of course, Qualcomm used this power to crush the competition and stamp out any kind of non-Qualcomm innovation.

Qualcomm's first weapon against competitors: patent licensing terms requiring customers to pay a royalty on every phone sold—not just phones that contained Qualcomm's wireless chips. This gave Qualcomm an inherent advantage in competition with other chipmakers. If another chipmaker tried to undercut Qualcomm's chips on price, Qualcomm could easily afford to cut the price of its own chips, knowing that the customer would still be paying Qualcomm a hefty patent licensing fee on every phone.

Also notable: right after Apple and Qualcomm settled their legal dispute in April, Intel announced it was exiting the mobile 5G chip space, and admitted it was entirely because of that settlement:

“In light of the announcement of Apple and Qualcomm, we assessed the prospects for us to make money while delivering this technology for smartphones and concluded at the time that we just didn’t see a path,” [Intel CEO Bob] Swan said.

And the ruling a month later made clear, Qualcomm's patent attack against Apple was very much driven by fear of competition from Intel:

Freed of Qualcomm's chip supply threat, Apple began to challenge Qualcomm's high patent royalty rates. Qualcomm responded by cutting Apple off from access to Qualcomm's chips for new iPhone models, forcing Apple to rely entirely on Intel for the cellular chips in its 2018 models. Qualcomm sued Apple for patent infringement in courts around the world, while Apple pressed the Federal Trade Commission to investigate Qualcomm's business practices.

And, of course, Qualcomm has long used its patents to directly stifle any competition as opposed to the indirect versions described above:

Chipmakers are ordinarily expected to acquire patents related to their chips and indemnify their customers for patent problems. But Qualcomm refused to license its patents to competitors, putting them in a difficult position.

"The prevailing message from all of the customers I engaged with was that they expected us to have a license agreement with Qualcomm before they would consider purchasing 3G chipsets from MediaTek," said Finbarr Moynihan, an executive at chipmaker MediaTek.

If a chipmaker asked to license Qualcomm's patents, Qualcomm would only offer a promise not to sue the chipmaker itself—not the chipmaker's customers.

As Tim Lee highlights, Qualcomm was so comically evil in executing this plan, it literally laid out the details of how to starve MediaTek (MTK) in a PowerPoint presentation:

This is summarized in the judge's opinion:

The slide includes the strategy “make sure MTK can only go after customers with WCDMA SULA,” with an arrow leading to “Reduce # of MTK’s 3G customers to ~50.”... The next strategy is “Formulate and execute a GSM/GPRS strategy to destroy MTK’s 2G margin & profit,” with an arrow to “Take away the $$ that MTK can invest in 3G.” .... Thus, Qualcomm’s refusal to license MediaTek was designed to (and in fact did) limit MediaTek’s customer pool and reduce MediaTek’s revenue base to invest in future cellular generations.

There's a LOT more in the ruling by Judge Lucy Koh and it basically lays out a road map of pure evil by Qualcomm, allowing it to skim a ton of (literal) monopoly rents off the entire mobile phone market, even when its own innovations were a minimal part of that market -- while at the same time abusing its patent position to deliberately stifle competition and innovation. The court order says that Qualcomm needs to renegotiate its licenses, and can no longer use its "no license, no chip" deals that block customers from buying Qualcomm chips if they don't have a license.

Of course, Qualcomm won't go down without a fight, and has announced that it's appealing the ruling. So this will go on for some time. But if you ever want a pure example of the "evil" created by excessive patent monopolies, Qualcomm is about as pure an example as you can find.

Filed Under: antitrust, extortion, licensing, lucy koh, mobile phones, monopolies, no license no chips, patents, shake down
Companies: apple, intel, mediatek, qualcomm

Dear Silicon Valley Tech Companies: Stop Treating Your Structural Challenges As Political Challenges

from the politics-and-business-are-not-the-same dept

A couple weeks back Karl wrote up an excellent analysis of the NY Times' big piece looking at how Facebook tried to deal with ongoing criticism of the company concerning the influence operations that it appears Russians used their site for. Karl's post focused on just how many companies make use of similar political smear campaigns, and everyone (including the press) should be much more tuned into this kind of thing. Indeed, a followup story from the NY Times last week showed that a bunch of other tech companies -- namely Lyft, Lime, Juul and Qualcomm -- all had hired the very same "Definers" firm that Facebook had hired to smear its opponents.

I wanted to write a follow up post, though, to make a slightly different point. This one is more directed at the people who work at all of the big tech companies: Stop thinking about running your companies as political campaigns, and focus most on what is best for end-users. It should be noted, of course, that all of these companies are a bit different, and they all do take different approaches to the market, but over the last few years, especially, one thing that has shined through with many of these companies is that they've dealt with the challenges suddenly being directed at them as political issues, rather than structural issues.

It's not difficult to see why this is happening. To some extent, it goes back to the popular saying: "We judge others by their actions and ourselves by our intentions." When these companies are getting attacked over their actions, they often feel wronged by the coverage, which they feel is unfair, because the press are often judging the decisions absent larger context that shows how they reached those results. And sometimes it is unfair. But there are still elements of truth in all of these complaints, and companies need to recognize even more, that these challenges are both structural and potentially existential, rather than one of people just being "unfair" in their coverage.

The second reason why this is happening is that the political world has spent years beating on Silicon Valley to be "more engaged" in politics, and so much is now being driven by how things look through a political lens that it's become controlling in many ways. All of these companies have hired tons of political operatives, who know how to do political campaigns. Not all of them care what the company is actually doing -- they just care about how it's perceived.

Years back, when I was studying "organizational behavior," in college, I remember the professor explaining office "politics" succinctly: raising your own profile while decreasing the profile of anyone else. And, indeed, there are many examples in the NY Times Facebook article of this kind of thinking in action. Rather than deal with the larger structural problems, Facebook decided to go after its critics and its competitors. After the NY Times piece came out, TechCrunch published a bunch of the pitches they received from Definers, noting how very political they were. Unlike most PR pitches, in which the sender identifies what company they're representing, and why they're emailing, Definers pitches were... different:

We checked our inboxes and none of the pitches Definers sent to TechCrunch made an explicit disclosure that the messages they contained had been paid for by Facebook to push a pro-Facebook agenda. They all required the recipient to join those dots themselves.

[....]

Here’s an example of Definers’ oppo mud-slinging we were sent targeting Apple and Google on Facebook’s behalf:

Just came across this – thought you might find it interesting: https://digitalcontentnext.org/blog/2018/08/21/google-data-collection-research/

“A major part of Google’s data collection occurs while a user is not directly engaged with any of its products. The magnitude of such collection is significant, especially on Android mobile devices, arguably the most popular personal accessory now carried 24/7 by more than 2 billion people.”

The study’s findings are rather shocking… It really highlights how other tech companies should be looked at critically – scrutiny shouldn’t just be on FB for data misuse. Apple & Google have been perpetrators of data abuse as well…

“Scrutiny shouldn’t just be on FB for data misuse” is the key line there, though it’s still hardly a plain English disclosure that Facebook paid for the message to be sent.

We received multiple Definers’ pitches on behalf of what looks to be three different tech companies — and only one of these is explicitly badged as a press release from the firm paying Definers to do PR. (In that case, e-scooter startup Lime.)

Not that they listen to me, but if there was a simple message I could get across to everyone working at these companies, it's that they need to stop treating actual structural issues and the actual impact of what they do as political fights, but as real, structural issues that need to be addressed. That's not to say admit that all of the criticism is valid -- because some of it is not. But, recognize that there is truth in many of the complaints, and to focus on actually doing right by your users, not simply attacking the messenger or denying the seriousness (and certainly not by merely pretending to take the issue seriously in public while privately admitting nothing will change). The fact that Facebook repeatedly denied "key aspects" of this story, only to post a blog post the night before Thanksgiving that more or less admitted everything they had previously denied, shows that the company is still treating this as a political campaign. Friday night news dumps are a classic political move to "bury" bad news, and the only time better than a random Friday night is the night before a major holiday.

For many years I've said that one of the reasons why I find the tech industry so important is that it has -- historically -- been a demonstration of what good happens when certain (not all) companies and their users have interests aligned. Rather than working at cross purposes, or trying to screw over users, many tech companies have shown that they can provide value in a way that everyone comes out of it better off. When they actually focus on doing the right thing -- even at the short term expense of the bottom line -- good long term strategies tend to result.

However, treating everything as a political campaign is the opposite of that strategy. It means attacking critics and competitors, rather than focusing on doing what's right. And, unfortunately, this political thinking is becoming pervasive across the tech industry. Some will argue that it has actually always been true, but that's not accurate at all. Much of Silicon Valley's success was premised on taking a very different approach -- one that really did focus on doing the right thing, rather than the most expedient or the most immediately profitable. But, that has changed for many, many companies. And even if it may be understandable as to why it is happening, that's still no excuse.

So, for everyone who works at these companies, please take a step back and think about what your actual vision is. Are you making decisions to actually do what's best for the users of your products. Or are you simply attacking your critics and competitors? If it's the latter, it seems like a clear sign that your company has lost its way.

Filed Under: consumers, doing the right thing, innovation, politics, users
Companies: apple, definers, facebook, google, lime, lyft, qualcomm

Qualcomm's Patent Nuclear War Turning Into Nuclear Winter

from the none-of-this-is-good dept

We haven't written much about Qualcomm and Apple's all out nuclear war over patents, but a few recent developments suggest it's worth digging in and discussing. In some ways it sweeps in other companies (mainly Intel) and also involves the FTC and the ITC. I won't go through the entire history here because I'd still be writing this post into next year. Qualcomm is a pretty massive company and while it does produce some actual stuff, it has long acted quite similar to a patent troll. It has also vigorously opposed basically all patent reform efforts, while at the same time quietly funding a bunch of "think tanks" that go after anyone advocating for patent reform (I expect some fun comments to show up below).

The reason Qualcomm acts this way is that it has long abused the patent system to jack up prices to ridiculous rates. And it's finally facing something of a reckoning on that. In early 2017, the FTC went after Qualcomm for abusing its patents -- notably: "using anticompetitive tactics to maintain its monopoly in the supply of a key semiconductor device used in cell phones and other consumer products." Specifically, the FTC alleged that Qualcomm, despite promises to the contrary to get its patents into important standards, was not following the FRAND (Fair, Reasonable and Non-Discriminatory) licensing of its patents, as required to have its inventions be a part of the standard. Just days later, Apple sued Qualcomm, also regarding Qualcomm's patent shakedown, claiming that Qualcomm had been massively overcharging Apple for the use of its patents, rather than licensing them on a FRAND basis.

A few months later, Qualcomm sued Apple, claiming that it had been sharing Qualcomm's proprietary code with Intel. Apple had been using chips from both Qualcomm and Intel, but was in the process of dropping Qualcomm entirely. Qualcomm also launched multiple parallel proceedings at the ITC. As we've discussed for over a decade now, patent holders ridiculously get two shots at anyone they accuse of patent infringement (so long as the accused manufacturers its goods outside the US). The International Trade Commission (for reasons that make no sense) feels that it can judge on its own if patents have been infringed, and if so, it can block the further importation of the "infringing" good. That's the only remedy at the ITC, but it can have quite an impact, obviously, in blocking a product out of the US market. Incredibly, the ITC need not follow the same rules as a regular court and it can do its own analysis while a case is in federal court (which might rule entirely differently).

So that's the history. Basically, Apple and Qualcomm are in an all out patent nuclear war, with the FTC and ITC involved around the edges. In the last few weeks, however, pretty much everything has been looking pretty bad for Qualcomm. While an administrative law judge at the ITC did find some infringement, he (somewhat surprisingly) announced that he would not recommend an import ban (again, this is the only remedy the ITC can offer). The full ITC needs to review this recommendation and make a final call. Tons of patent maximalists are screaming their heads off about how the ITC must start blocking iPhones, but as Judge Thomas Pender recognized, banning an entire product because it may have infringed on a single patent is ridiculous. In the language of the judge "the statutory public interest factors weigh against issuing a limited exclusion order as to products found to infringe patents asserted in this investigation." In other words, "grow up Qualcomm, this isn't such a big deal that you get to completely ban the product."

And, now, the latest is that the FTC's case against Qualcomm went in the FTC's direction, with Judge Lucy Koh granting the FTC's motion for partial summary judgment and saying that Qualcomm was violating its FRAND promises. This isn't everything to do with the case, but does involve questions around whether or not Qualcomm can limit its licensing to just device makers, or if it also has to license its patents to other chipmakers, like Intel. And Koh points out that basically everyone recognizes that the FRAND agreement it made applies to everyone -- not just a limited subset of companies. Koh repeatedly highlights Qualcomm's own previous statements that support this.

Furthermore, Koh points out that allowing Qualcomm to discriminate against chipmakers would hand the company a total monopoly, and that clearly goes against the concept behind the FRAND agreement to put the technology into the standard:

If a SEP holder could discriminate against modem chip suppliers, a SEP holder could embed its technology into a cellular standard and then prevent other modem chip suppliers from selling modem chips to cellular handset producers. See Lemley, Intellectual Property Rights, 90 Calif. L. Rev. at 1902 (stating that a company with a SEP “will effectively control the standard; its patent gives it the right to enjoin anyone else from using the standard”). Such discrimination would enable the SEP holder to achieve a monopoly in the modem chip market and limit competing implementations of those components, which directly contradicts the TIA IPR policy’s stated purpose to “enable competing implementations that benefit manufacturers and ultimately consumers.” TIA IPR at 6. See Borg v. Transamerica Ins. Co., 47 Cal. App. 4th 448, 456 (1996) (holding that a court may not interpret a contract in a way that contradicts the contract’s plain meaning). Qualcomm never attempts to explain how discrimination against modem chip suppliers is consistent with the stated purposes of the IPR policies.

I know there's a lot of jargon in there, but it's basically saying that the whole point of the standardization process, as everyone agreed, was to create standardization across multiple competitors (while still allowing a reasonable license for patent holders). But if Qualcomm can reinterpret this agreement to say that FRAND only applies to downstream users, then that completely overturns the entire intention of the standards making process and just gives Qualcomm a total monopoly on the chips (going well beyond its patents). Qualcomm will undoubtedly appeal, but it's not a good start for the company.

Oh, and speaking of not a good start, the post-Apple world for Qualcomm isn't looking great either. Its latest earnings projections going forward were below what Wall St. was expecting and some are noticing a $5-billion-ish Apple-shaped hole in the books.

While I've been equally critical of Apple in the past when it's abused the patent system, in this situation it seems pretty clear that Qualcomm completely overplayed its hand with its patents in ways that were abusive, and that drove up costs in an unfair manner, against its own agreements. And so far, the various courts and administrative bodies are not buying into Qualcomm's desperate attempts to keep up its monopolizing.

It all goes back to the point we've been making for decades: if you have a good product, compete in the marketplace. Don't abuse the patent system to try to block competitors or to artificially inflate the price. That just telegraphs that you're bad at innovating and you know that competitors can do a better job than you. Qualcomm is now learning how that plays out in the long run.

Filed Under: antitrust, ftc, itc, monopoly, patents, phones, sep, standards, standards essential patents
Companies: apple, intel, qualcomm

Qualcomm Says It's Fighting For The Little Guy, While Really Blocking Patent Reform That Would Help The Little Guy

from the a-bunch-of-crap dept

Last week at CES, I had the honor of "moderating" a panel on what was next for patent reform, that kicked off with a short speech from US Patent and Trademark Office Director Michelle Lee, who notes that she's the first ever director of the Patent Office to attend CES (which is crazy). Before Director Lee was appointed to the full job, back when she was just the interim director, I noted that she was the first head of the patent office I'd ever seen who seemed to have a more accurately nuanced view of patents, and recognized how in some cases they could be harmful rather than helpful. She's continued to make that clear since taking over the top job full time, and you can see that in her speech. She, unlike so many in government jobs related to copyright or patents, actually pointed out the full Constitutional clause, and how patents need to be for the promotion of progress, and not just "to help inventors get paid."

But Lee is a good politician and didn't say anything all that controversial on either side of the debate. The real fireworks came afterwards on the panel discussion itself, where my "moderation" consisted of asking a single question (other than asking the panelists to introduce themselves), after which the panel turned into a somewhat heated argument over the patent system in which I never had a chance to speak until the end when I had to cut things off. The question I asked: what is the one thing that you think most needs to be fixed in the patent system?

Three out of the five panelists -- Kate Doerksen, Lee Cheng and Brian Mennell -- represented victims of patent trolls. Kate and Brian both have experienced the perils of being a small startup and getting hit with patent lawsuits that have the potential to destroy their businesses. You can read Kate's story here, in which she's being sued by a large company trying to keep her startup from competing altogether. It's even reached the point where Kate agreed to something of a deal with the devil: Erich Spangenberg. As we've discussed, Spangenberg, who was one of the most aggressive patent trolls, recently shifted his business into being a sort of reverse patent troll, where he makes deals with small companies like Kate's, taking an ownership stake in the company in exchange for "helping" the company deal with patent trolls, usually by seeking post-grant review to invalidate the patents being asserted against the startups.

Mennell has the classic patent troll story of running a startup and getting hit by a patent troll that undermines the ability of the company to stay in business (and also notes that the Supreme Court's Alice decision made him lose a business method patent, though he doesn't seem to see that as problematic).

Lee Cheng is Newegg's General Counsel, and someone we've covered for years as an aggressive fighter against patent trolls.

And yet... down at the end of the panel row was Laurie Self, a top Qualcomm lawyer. Qualcomm has been a longterm fighter against patent reform -- which isn't all that surprising, as a big part of Qualcomm's business has been licensing its patents. Many people have argued that Qualcomm, in particular, has been the driving force behind blocking patent reform. It's funded think tanks and front groups pretending to "represent inventors." If you see a big patent conference where all of the speakers are basically in favor of expanding the patent system and against reform, there's a better than even chance that the top sponsor of the event is Qualcomm. And so it was little surprise that she presented herself as arguing for "the little guy" on the panel, despite the fact that Qualcomm is a $70 billion company

Meanwhile, the concerns of the three actual representatives of small companies on the panel -- who are actually dealing with patent trolling on a regular basis -- were completely dismissed by Self. When Newegg's Cheng challenged Self to come up with a single specific example of how to stop abusive patent trolling, she came up with nothing, except ideas to expand the powers of patent holders to go after companies. Every time people brought up abuse, Self more or less threw up her hands and said "how can you possibly tell what's abuse and what's not" and so, the implication was: why even try to stop abusive trolling?

The other representative on the panel was Rep. Darrell Issa, who among other things is the chair of the intellectual property subcommittee of the House Judiciary Committee, and thus a key person in actually moving forward with patent reform. And, if you watch the panel, you can see his visible frustration with Qualcomm and Self basically being a key player in holding up any progress on that front. He also revealed that, like the other three non-Qualcomm panelists, he too was a victim of a patent troll, back before he was in Congress. It's well known that Issa ran a successful car alarm business before going into Congress and holds a number of patents himself, but less known is the fact that his company was apparently sued by someone holding a ridiculous and vague expired patent.

Issa pointed out, quite clearly, that Self was being very misleading in claiming that there was no way to determine what was abusive. He explained a variety of abusive practices, and noted how those specific practices could and should be targeted. Cheng similarly highlighted just how broken things are, and the total failure of Qualcomm to point out any way to deal with the trolls, instead focusing on ways to undermine earlier patent reform efforts. Issa also mocked Self's claim about Qualcomm not suing others for patent reform "in several years" noting that the company doesn't need to, because it just threatens companies with its giant patent portfolio and "like Clint Eastwood with 100 machine guns" tells companies that it'll find something that they must violate:

The reason you haven't sued anyone is you have a huge bundle of patents, and you assert them all at once. And the question is, like Clint Eastwood, with a hundred machine guns, 'you might beat one bullet, but are you going to beat them all?' That versus individual pleading of specific claims, is one of the innovative parts of this bill. We want companies to have to say, specifically, what did you infringe, give it with some specificity, 'we've got enough patents, that you're going to infringe something, and if you go down this road of not taking a license, we're going to get you.' That kind of technological omnibus is pretty good when you've got A&T and Qualcomm and Apple and Broadcomm all trading patents. But for the startup, that cannot necessarily afford to buy a portfolio even if they believe they don't fall under it, it can be devastating.

The whole panel is an interesting, if frustrating discussion -- and shows a big part of why patent reform still hasn't gone anywhere. Giant patent holding companies like Qualcomm are pretending that they "represent the little guy" and are doing everything possible to muddy the waters and block real reform that targets abuse.

Filed Under: bryan mennell, darrell issa, kate doerksen, laurie self, lee cheng, michelle lee, patent reform, patent trolling, patents, uspto
Companies: ditto, newegg, qualcomm

DailyDirt: Artificial Intelligence Is Starting To See Things Now

from the urls-we-dig-up dept

Artificial intelligence projects have gotten more attention over the past few years as some major milestones have been achieved and point to a promising future for AI (or cognitive computing or whatever we want to call it now). Software is getting better and better at recognizing what we're writing and saying... and now it's getting better at seeing what we're up to. Check out a few of these projects where computers are identifying visual images and correctly identifying a wide variety of things.

• Microsoft Research has bested its AI competitors at the 6th annual ImageNet image recognition competition -- with a classification error rate of just 3.5 percent (down from >24% in 2011). Perhaps someday these algorithms will be able to replace volunteer humans who currently classify various objects for other people. [url]
• Facebook's image recognition software can identify a surprising number of objects and activities. A semi-automated Facebook M might be more efficient or helpful than a pure AI or a pure human service, but it may be difficult to surpass the human standard (unless compared to a cable company's customer service). [url]
• MIT researchers working on a system designed to recognize specific scenes -- also gained the ability to identify objects without explicit programming to do so. Computer vision is improving significantly, and it's starting to piece together visual context in a similar way we do, but without us telling it how we do it. [url]

After you've finished checking out those links, take 10% off any $50+ order from our Daily Deals using the promo code DAILYDIRT.

Filed Under: ai, algorithms, artificial intelligence, blindness, computer vision, image recognition, machine learning, mit
Companies: facebook, google, intel, microsoft, qualcomm, tencent

DailyDirt: Passwords? We Don't Need No Stinkin' Passwords

from the urls-we-dig-up dept

Fingerprint-based biometric security systems are everywhere now, but there are some well-known problems with using your fingerprints instead of a password. First off, you unconsciously leave copies of your fingerprints just about everywhere you go. Still, fingerprint sensors seem to be getting better and better. I'll stick to my 4-digit PIN for now, though, thanks, but if you like using your finger for your digital locks, check out these links.

• Qualcomm has an ultrasonic fingerprint sensor that captures three dimensional characteristics of a user's fingerprint by penetrating the outer layers of skin with sound. This sensor can more accurately detect fingerprint features when fingers are wet or slathered in hand lotion, but it might not be able to identify you correctly if you get a papercut or cracked, dry skin? [url]
• Vkansee has a high-resolution optical fingerprint sensor that claims to be able to detect the sweat pores of your fingertip. This sensor isn't available on any commercial smartphones, but presumably better biometric sensors are going to be embedded in more and more devices. Yay? [url]
• There are plenty of concerns about how accurate fingerprint identifications systems are -- with issues such as false positives and false rejection rates. One of the key aspects, though, is that fingerprints are not secret and not revocable. Some systems try to detect "liveness" to make sure a fingerprint is attached to a (hopefully healthy and not under duress) living person, and there are a few other approaches to guard against spoofing, but fingerprints aren't a perfect biometric. (And no perfect biometric system exists....) [url]

If you'd like to read more awesome and interesting stuff, check out this unrelated (but not entirely random!) Techdirt post via StumbleUpon.

Filed Under: biometrics, fingerprint, fingerprints, identification, passwords, pin, security, sensors
Companies: qualcomm, vkansee

Qualcomm Uses DMCA To Shut Down Its Own GitHub Repository (Plus A Bunch Of Others)

from the because-copyright! dept

Another day, another story of ridiculously errant DMCA takedown notices. The latest involves Qualcomm hiring Cyveillance to issue a DMCA notice to Github, demanding the site take down 116 repositories for allegedly violating Qualcomm's copyright. Of course, among those repositories are... Qualcomm's own repository. Because, apparently, like many other companies out there that do DMCA takedown notices, Cyveillance doesn't much care about collateral damage, and issues overly broad takedown notices because it can, and because there's simply no penalty for doing so. The takedown also impacted CyanogenMod developers and Sony's own Xperia dev Github repository. Because if you're going to create collateral damage, why not try to hit everyone?

The impetus behind the takedown request is a WiFi config file – literally a text file – which is taken straight from a Sony firmware release. In this takedown Qualcomm also took down PRIMA mirror which is open source code for Atheros wireless chipsets that they release on the CodeAurora gitweb site.

The article at Ausdroid also points out that Qualcomm has been trying to create "better relations with the open-source community for sometime." I would imagine one way to do that would be to not pull down their GitHub repositories with bogus DMCA claims. But, of course, Qualcomm has long been known as a patent and copyright bully, so apparently old habits die hard.

Filed Under: copyright, dmca, github, open source, respositories, take downs
Companies: cyveillance, github, qualcomm