Before his death, Apple Inc. Chief Executive Officer Steve Jobs famously vowed to go “thermonuclear” against Google Inc.’s Android operating system for smartphones. The company has been following through on Jobs’ threat, and ground zero is the International Trade Commission.
The tiny agency is poised to issue a final decision this week in the first fully litigated patent infringement case in the United States between Apple and an Android phone maker, HTC Corp. The decision, a test of sorts for Jobs’ assertion in a recent biography that Android is “a stolen product,” could reshape the market for smartphones and the rollout of high-speed 4G networks.
The ITC has emerged as the battleground of choice in a bruising intellectual property war among smartphone makers. The agency will decide whether to ban the importation of all infringing Android devices made by Taiwan-based HTC, which according to court papers currently accounts for 50 to 60 percent of sales of 4G smartphones.
To some, the suit is the first strike by Apple to annihilate Android competition. After the HTC complaint, which was filed in April 2010, Apple went on to sue the other two main Android phone makers, Motorola Mobility Holdings Inc. and Samsung Electronics Co. Those cases, as well as countersuits, are still pending at the ITC. (Parallel cases are also pending in slower-moving district courts.)
“Eliminating all of the major Android device manufacturers from the United States — as Apple is attempting — would allow Apple to establish virtual monopoly in the mobile device industry,” wrote Michelle Lee, head of patents and patent strategy for Google in an ITC filing. “Excluding the HTC Android devices from the U.S. would threaten the viability of the Android platform.…The damage to consumers and the public welfare from reduced competition in this nascent industry would be severe.”
HTC is in a difficult position. On July 15, Administrative Law Judge Carl Charneski issued a 238-page decision ruling that the company infringed two of Apple’s patents. (A week after the decision was released, Charneski left the ITC to join intellectual property boutique Brinks Hofer Gilson & Lione’s Washington office.)
According to Florian Mueller, an independent patent analyst and consultant, both patents are key to the Android platform. One, which he described as relatively narrow, “covers a feature many if not most users would miss — tapping with your finger on a phone number in an e-mail, for example, and the number is called.” The second patent is much broader, he said, and deals with the structure of how software is organized.
Charneski’s decision is being reviewed by the ITC’s six politically appointed commissioners, three Republicans and three Democrats. On Thursday, they’ll issue a final determination in which they can uphold, modify or overturn the judge’s ruling. Because the patents at issue are so distinct, Mueller said, “I’d be very surprised if the commission overturned the [administrative law judge] on both patents.”
Sapna Kumar, an assistant professor of law at the University of Houston Law Center who is a former patent litigator and follows the ITC closely, agreed. “I think it’s pretty likely they’ll affirm the decision,” she said.
There are no monetary penalties for ITC cases, which are brought under Section 337 of the Tariff Act of 1930. Instead, the victor is awarded an exclusion order directing the U.S. Customs and Border Protection to turn away all infringing articles. In addition, a cease-and-desist order that bars the sale of infringing products already in domestic inventory may be granted.
Apple wants both remedies, and in court papers adopted a jingoistic tone to make its case. “Apple is an American company that has poured billions of dollars in research and development and other investments into the U.S. economy. HTC is a foreign company that is free-riding on Apple’s research and development expenditures and resulting patents rather than creating its own innovations,” wrote Kirkland & Ellis partner Robert Krupka on Oct. 17. Apple’s legal team also includes Palo Alto, Calif., patent boutique Bridges & Mavrakakis and Washington’s Adduci, Mastriani & Schaumberg.
HTC argued that the judge got it wrong, and that there was no infringement. The company has an important ally in its corner — the ITC’s Office of Unfair Import Investigations, which agreed that HTC did not infringe Apple’s patents. (In a procedural oddity, an investigative attorney from the office serves as the third party in Section 337 cases, representing the public interest. However, it’s not uncommon for the judge or the commissioners to reach a different conclusion than the staff.)
HTC also focused on persuading the commissioners to soften the penalty if the ruling is upheld, urging them to craft “a remedy that is narrowly tailored to provide relief and protect the public interest,” wrote Charles Verhoeven, a partner at Quinn Emanuel Urquhart & Sullivan. “Apple’s concern here is its self-interest, not the public interest.” Perkins Coie and Keker & Van Nest are also providing legal counsel to HTC.
The ITC has the discretion to forgo an exclusion order if it finds there’s a public interest in keeping an infringing product on the market. “It’s an extremely high bar,” said Kumar of the University of Houston. The last time the ITC determined an exclusion order was not in the public interest was in 1984, in a case involving beds for burn victims where there was no alternative product, she said. “It was a matter of life and death.” Here, she noted, the main argument is that an exclusion order would promote a monopoly for Apple — a concern that in the past “the ITC hasn’t cared about.”
In its court filing, Google all but prostrated itself before the ITC to convince it that the public needs Android phones. The mobile industry is massive and still growing, employing hundreds of thousands of people, Google argued, and an exclusion order would harm the economy. Also, Android is the only open-source platform, “available for use and customization by any programmer or any handset maker” and “with the potential for transformative innovation.”
In addition, Google argued that Android devices are “reshaping disaster response” by allowing citizens to get information and interact with responders; that the Android platform is used by the military; and that Android phones are even “assisting the blind to navigate.”
The Association for Competitive Technology, an Apple ally, poked holes in Google’s contentions. “All mobile devices — not merely HTC devices — benefit national defense, disaster relief, and medical applications,” wrote Executive Director Morgan Reed in an ITC filing, adding, “Android is not nearly as open as Google claims, and even if it were, there is no public policy that favors open source software.”
T-Mobile USA Inc., which partnered with Google and HTC to launch the first Android phone in September 2008, said it “would have no short-term substitute” for HTC phones if they were banned. The company has been developing a 4G network — a goal of the Obama administration — and said only one other 4G smartphone, made by Samsung, is approved for its network. “An exclusion order blocking importation of HTC’s smartphones therefore would impair T-Mobile’s ability to deliver the benefits of its next-generation network to consumers,” wrote T-Mobile counsel Michael Abernathy, a partner at K&L Gates, in ITC court papers. If there is to be an exclusion order, T-Mobile asked for a four- to six-month delay in implementation so it could transition to other product offerings.
HTC had another suggestion — ban the import of its 3G phones, but continue to allow the 4G models. “Broadly excluding all HTC Android 4G devices would overly weigh Apple’s interests in protecting the intellectual property at issue here — 20 years old, in many cases and developed for non-mobile platforms — compared to the public interest in continued rapid development and expansion of 4G technology,” Verhoeven wrote.
To justify the move, HTC points to the ITC’s 2007 decision in a case between Broadcom Corp. and Qualcomm Inc. involving baseband processor chips used in cellphones. In that case, the ITC “grandfathered” models of infringing phones that were currently on the market, and only barred importation of new models using the infringing technology.
Without the grandfather clause, the order would have shut out all 3G phones and left a single product on the market. According to ITC staff attorney Thomas Fusco in court papers, the commission acted “based upon the negative impact…on the public health and safety, competition in the U.S., and on consumers.” Fusco urged the commissioners to exempt HTC’s 4G phones, but only for six months. “The harm to Apple from an exception to the exclusion order is likely to be small,” he wrote, noting that Apple doesn’t even offer a 4G phone.
Apple, perhaps unsurprisingly, didn’t see it that way. “There is nothing about HTC’s infringing products that warrants special treatment,” Krupka wrote. The Qualcomm/Broadcom case is different, he said, because the order covered all downstream products that used the chips. In this case, the order would target HTC phones only. “The public interest is served through upholding intellectual property rights and protecting a strong domestic industry grown through use of those same rights.”
Should HTC face a ban on its phones, patent analyst Mueller predicted a speedy design-around in an attempt to circumvent the infringing technology, as well as an appeal to the U.S. Court of Appeals for the Federal Circuit. As for Apple, he said, agreeing to license its patents to HTC for cash “wouldn’t make strategic sense,” unless the iPhone maker needed to cross-license patents from HTC.
That’s a possibility. The two companies are awaiting an initial decision in HTC’s patent suit against Apple, which was filed at the ITC in June 2010. Apple went on to file an additional suit against HTC in August 2011, which is currently in discovery. HTC brought another suit against Apple a month later, also in discovery.
Other fights are pending as well. Motorola’s ITC case against Apple is in discovery, and a decision in Apple’s suit against Motorola is expected in May. Meanwhile, Samsung and Apple sued each other at the ITC in August 2011 — both cases are in discovery. Overall, in the past two years Apple has been involved in 22 ITC cases.
To Graham Gerst, a partner at Global IP Law Group in Chicago who is not involved in the cases, it’s remarkable how the ITC has gone from “an esoteric area that nobody ever heard about to such an important front in the patent wars,” he said, pointing to “the speed of the jurisdiction and the ability to obtain an injunction automatically.” Still, he said, the Apple/HTC case “is one just one battle in one front in what is an international patent war.”
Jenna Greene can be contacted at firstname.lastname@example.org.