18 October 2011

Samsung Appeals, Retaliates, in Patent War With Apple

Apple-Android-InvadersLast Friday, we reported in detail on the published judgment of Justice Annabelle Bennett, in the Federal Court of Australia, granting Apple a preliminary injunction against Samsung’s Galaxy Tab 10.1 (see Samsung’s ‘Eyes Wide Open’ Sinks Australian Galaxy Tab 10.1).

While we were doing so, Apple and Samsung were back in court arguing about the scope of the injunction.  As reported by Fairfax Media (Apple fails in new Samsung court bid), Apple’s lawyers argued that the injunction should be broad enough in its terms to prevent Samsung from launching any new tablet device, and expressed concerns that the Korean company would simply launch a near-identical problem under a different name.  Samsung, for its part, rejected this argument, pointing out that a broad injunction could impact upon products already on the market in Australia – such as the Galaxy Tab 7 and 10.1v – about which Apple has not complained.

Unsurprisingly, Justice Bennett – who indicated earlier in the proceedings that she would entertain issuing only a narrow injunction – rejected Apple’s submissions.  The Court Orders require that Samsung ‘will not import, promote, offer to supply, supply, offer for sale or sell in Australia the device, examples of which were supplied by the solicitors for the respondents to the solicitors for the applicants on 25 August 2011 (Australian Galaxy Tab 10.1)’, or ‘any version of a Galaxy Tablet 10.1’ which includes the ‘heuristics’ feature or ‘touch screen’ panel as demonstrated to the court, and allegedly covered by Apple’s patents.

RETAILERS REACT

We speculated in our previous post about the effectiveness of an injunction in Australia blocking a product that is widely available in international markets, including online sources.  Consumers – particularly those tech-savvy purchasers who are the likely market for the Galaxy Tab 10.1 – are already accustomed to shopping around online for the best price globally.  Online shoppers are increasingly unconcerned about where a product ships from if the price is right.  We further suggested that it is primarily Australian retailers (of both the traditional ‘brick-and-mortar’, and modern online varieties) who will suffer from sales lost to overseas online stores.

We were, however, a little surprised to learn from Fairfax Media reports that bypassing of the injunction – which is effective only against Samsung itself – is not restricted to individual purchasers.  Apparently, ‘online sellers on eBay, and web stores such as MobiCity.com.au, Expansys, Techrific and dMavo, are bypassing Samsung Australia and obtaining stock from other countries, such as Hong Kong (see Buyers dodge court's Samsung tablet ban).

While there are unlikely to be consequences for individuals importing Galaxy Tabs for personal use (there are no ‘patent infringement sniffer dogs’ in Australian customs), importing the products in significant numbers, and openly advertising them for sale and ‘in stock’, is almost certain to attract Apple’s attention.  Indeed, it has previously succeeded in preventing retailer Ruslan Kogan from selling ‘grey market’ Galaxy Tab 10.1 imports after threatening to sue (see Fairfax Media report Kogan buckles to Apple legal threats).

The latest twists in the ongoing drama came from two new court filings made in Sydney on Monday, 17 October 2011, by Samsung.

Firstly, Samsung has filed an application for leave (i.e. ‘permission’) to appeal last week's decision by Justice Bennett.  At the same time, it has filed a complaint against Apple, seeking a preliminary injunction barring sale of the iPhone 4S in Australia.

APPEAL – PROCESS AND PROSPECTS

In general, any decision of a single judge of the Federal Court can be challenged by appeal to the Full Court – typically a panel of three (different) judges.  In the case of a final ruling, i.e. after a full trial, any party to the proceedings automatically has the right to appeal.  However, an appeal from a preliminary judgment requires permission.  At this stage, the judge who will hear the leave application has not yet been nominated.

In order to be granted leave to appeal, Samsung will need to show that there is a possible error of law in Justice Bennett's decision for consideration on appeal.

We do not consider that there is any guarantee that Samsung’s application for leave to appeal will be granted.  In our view, Justice Bennett explained and applied the correct law.  That law required her to decide certain questions of fact, based on the evidence before her.  She had to decide firstly whether there was a probability that Apple’s patents are infringed by the Galaxy Tab 10.1.  She then had to look at the various factors contributing to the 'balance of convenience'.  In the final analysis, Justice Bennett’s decision turned on how she weighed up the various facts in evidence, not on the legal principles that she identified.  An appeals court usually will not revisit factual findings of the primary judge.  So Samsung will need to persuade the court that it could come to a different conclusion on appeal, by applying the correct law to the same facts.

Samsung might argue that in reaching a final conclusion, Justice Bennett took an incorrect approach to weighing up the balance of convenience.  Her approach was to enumerate all of the factors presented by the parties, and in each case determine whether the balance favoured one  party or the other, or was evenly weighted.  She then effectively tallied up the individual results to arrive at the final decision.  An alternative approach might be to take all of the factors into account as a whole since, in any given case, some factors may be more important than others.  However, this is largely speculation, and we will have to wait to see how Samsung argues its case for leave to appeal.

SAMSUNG PATENTS – TECHNICALLY STRONG

As has been widely reported (e.g. Samsung tries to block iPhone 4S in Australia at itnews.com.au and Samsung sues to block iPhone 4S in Australia in Fairfax Media), Samsung has filed suit seeking an injunction against Apple’s iPhone 4S, which was released only last Friday in Australia, and has reportedly already sold tens of thousands of units.  Samsung claims that Apple’s latest handset infringes at least three of its wireless communication patents:
  1. Australian patent no. 2006241621, ‘Method and apparatus for transmitting/receiving packet data using pre-defined length indicator in a mobile communication system’;
  2. Australian patent no. 2005202512, ‘Method and apparatus for data transmission in a mobile telecommunication system supporting enhanced uplink service’; and
  3. Australian patent no. 2005239657, ‘Method and apparatus for transmitting and receiving data with high reliability in a mobile communication system supporting packet data transmission’.
These patents are technically and legally relatively strong.  They cover aspects of the 3G wireless protocols which enable handheld devices to communicate with broadband carrier networks, and are thus difficult (or perhaps impossible) to work around, in a technical sense, in order to avoid infringement.  By the same token, the fact that the patented technologies were developed specifically to address requirements of this specialised telecommunications application increases the likelihood that it was new and inventive at the time of filing, and that the patents are therefore valid.

SAMSUNG PATENTS – STRATEGICALLY WEAK? 

However, the circumstances of the development of the patented technologies, and in particular there adoption as part of the 3G standards that are now deployed in wireless communications system worldwide, might also decrease their strategic and commercial value to Samsung in this current dispute.  Industry standards are typically developed by agreement amongst major manufacturers and/or service providers, which work together through a series of meetings to determine how the standardised system will work so that all of the separate participants in the market will be able to manufacture compatible devices, and operate compatible services.  The 3G standards were developed by the 3rd Generation Partnership Project (3GPP).  There are currently 384 individual members of the 3Gpp, including various Samsung entities, and Apple (UK) Limited, along with dozens of the best-known names in the global telecommunications industry.

When an individual member contributes technology to a standard, which is covered by a patent, or patent application, it may be required to make certain concessions.  In particular, if the use of the patented technology is essential to the implementation of the standard, such that nobody would be able to produce compliant devices without using it, the patentee must agree that it will not use its patent rights to shut anybody out of the market for devices and equipment which implement the standard.  Generally, this does not mean that the contributor is unable to receive any compensation for its development of the technology.  It is permitted to collect royalties, but must not discriminate in favour of, or against, particular participants in the market.

The usual requirement that is adopted in this situation is that the patentee must agree that it will license its patented technology to all comers on ‘fair, reasonable and non-discriminatory’ (FRAND) terms.  In other words, a license must be granted to anybody who requests it, so long as they are willing to pay the same ‘reasonable’ royalty rates as all other licensees.

If the patents being asserted by Samsung against Apple are essential to the 3G standard, and if they are therefore subject to a FRAND agreement, it does not necessarily mean that Samsung cannot obtain an injunction.  However, it does make it much less likely that it will be able to obtain a preliminary injunction.  A company can certainly be restrained if it simply refuses to pay the same FRAND royalties as all other licensees – this is patent infringement pure and simple.  But the final outcome of a case involving FRAND patents is unlikely to be a permanent injunction, since the infringer cannot be prevented from obtaining a license if the parties are able to agree on the FRAND royalty rate.  If there is a dispute over this rate, then the court can, in principle, make orders to resolve this dispute, rather than issuing an injunction.

Furthermore, it is clear in such cases that an award of damages would be a perfectly adequate remedy if a preliminary injunction is not issued.  The amount would simply be the total royalties that the infringer would have had to pay if it had taken the FRAND license in the first place.

Overall, where FRAND patents are involved, the balance of convenience is unlikely to favour the grant of a preliminary injunction.  It will therefore be interesting to see how Samsung and Apple argue their respective cases in relation to the application of the asserted patents to the 3G standards.

CONCLUSION

In our view, from a legal perspective it appears that Apple retains the upper hand in the escalating dispute.  It has an injunction barring the Galaxy Tab 10.1 from the Australian market, which is more likely than not to survive an appeal by Samsung.  And while Samsung’s retaliatory strike is based on patents that are undoubtedly employed in Apple’s 3G wireless products – including the iPhone 4S – there is a significant question mark over Samsung’s ability to obtain a preliminary injunction based on these patents.

Yet we have been surprised by previous developments in this case, and will not be laying any money on the outcome just yet!

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