A Chinese court’s injunction against the iPhone maker has thrown Qualcomm a badly needed litigation lifeline but also proves how the patent world is moving east
The sprawling dispute between Apple and Qualcomm over the latter’s licensing practices quickly became one of the patent stories of 2017 and, thanks to a series of decisions from courts around the world, once again dominated headlines in 2018 and will most likely continue do so in 2019. That was always likely to be the case, given the iPhone maker’s profile and the importance of Qualcomm’s billion-dollar licensing business to its bottom line.
However, the case has also highlighted the degree to which large-scale patent spats have become far more global in nature. Europe’s appeal as a litigation venue has been apparent for at least a decade, particularly as the climate for patent owners has worsened in the United States, but Apple v Qualcomm has confirmed China’s newfound status as an increasingly attractive venue for some rights holders.
This was underlined in early December when a Chinese court issued preliminary injunctions against various models of Apple’s iPhone over the company’s infringement of two Qualcomm patents and sent reverberations around the patent world. The story immediately became the lead on the Wall Street Journal, which rarely headlines news concerning patents.
The ruling came in a highly consequential few weeks for the landmark patent dispute, with the Chinese sales ban followed by another injunction win for Qualcomm courtesy of the District Court of Munich in Germany.
Oral arguments in the Federal Trade Commission’s lawsuit against Qualcomm over the chip giant’s licensing practices also got underway in the Northern District of California in early January, keeping the dispute firmly in the public eye. That case, which was filed in January 2017, was the catalyst for the spate of suits brought by Apple as the iPhone manufacturer raised its own objections over the licensing of Qualcomm’s market-leading chipset technology. That prompted the San Diego-based company to launch a series of countersuits, including in China, which accused Apple of infringing various of its patents.
Fujian to the fore
The Chinese ruling, which was handed down by the Fuzhou Intermediate People’s Court in late November, found that Apple had infringed two non-essential Qualcomm patents - one related to photo editing and the other to managing applications using a touchscreen.
Any ruling that might place limits on Apple’s marquee product is a seismic event. The decision not only confirmed the growing influence of Chinese courts in global patent disputes but also came as a welcome boost to Qualcomm, which saw a series of decisions go against it in 2018.
Following the Chinese injunction, Apple immediately moved into damage-limitation mode, insisting that the sales ban did not apply to devices running on iOS 12, the latest version of its operating system, which was released in September. One Apple analyst told CNBC shortly after the decision became public that the ruling would affect between 10% and 15% of sales in China. In a statement the company insisted that “all iPhone models remain available for our customers in China”.
If the actual impact is relatively limited, Apple may be less inclined to move for an anti-suit injunction in the United States, which would effectively put the brakes on the Chinese ruling. A move like that would follow a trail blazed in 2018 by Samsung, which won such an injunction in the Northern District of California after a Chinese court ruled against the South Korean company in its licensing spat with Huawei.
That dispute made it to the Court of Appeals for the Federal Circuit in early December but according to reports, the court appeared sceptical that Samsung should be able to dodge a Chinese injunction.
Despite Qualcomm’s success, preliminary injunctions are still rare in Chinese patent cases. As University of California, Berkeley professor Mark Cohen noted in a 2018 article, a study of 90,000 IP cases from 2013 found that only 11 preliminary injunctions were granted, although he did not specify if any were in patent litigation.
In a 2017 IAM article, private practice lawyer Erick Robinson wrote that requests for a preliminary injunction are usually properly denied “because there is no provable immediate harm and the defendant has not had a reasonable chance to defend its case”.
However, they are becoming more common in Fujian province and its capital city Fuzhou, which has issued several preliminary injunctions in the last year or so. Along with the Apple decision, these include:
- December 2017 – Higher People’s Court of Fujian hits US semiconductor equipment firm Veeco with preliminary injunction; and
- July 2018 – Intermediate People’s Court of Fuzhou hits US semiconductor firm Micron with preliminary injunction.
By issuing such a high-profile decision, the city might find that it becomes an increasingly popular destination for foreign patent holders looking to file an infringement dispute. Plus with new rules governing the issuance of preliminary injunctions introduced at the start of this year, all Chinese courts might see a marked increase in requests for exclusion orders.
A tale of two courts
As many patent owners have done in recent years, following the decline of injunctive relief in most US courts, Qualcomm took one prong of its case against Apple to the International Trade Commission (ITC) in Washington DC. While Administrative Law Judge Thomas Pender found that the iPhone maker had infringed at least one valid Qualcomm patent, in a September 2018 ruling he declined to recommend a limited exclusion order banning the import of certain Apple devices, claiming that “public interest factors” weighed against issuing a sales ban.
The judge’s initial determination is now subject to review by the ITC – if upheld it would be just the fourth time in ITC history that public interest factors would have prevented an exclusion order. The four factors in question are:
- public health and welfare;
- competitive conditions in the US economy;
- the production of like or directly competitive articles in the United States; and
- US consumers.
Any move by the ITC to ban sales of Apple’s flagship product from the company’s home market would undoubtedly be huge news – although not unprecedented. In 2013 the commission ruled that some older iPhone and iPad models should be excluded from the US market after finding that the California-based company had infringed one of Samsung’s SEPs. That decision, however, was then vetoed by the Obama administration which, much like Pender, cited the effect it would have on competitive conditions in the United States as well as on US consumers.
If the ITC rules that an exclusion order should be put in place, the current White House may be less likely to step into the fray in a spat between two US businesses. However, arguably nothing demonstrates the shifting power dynamics between the world’s leading patent jurisdictions as clearly as the contrast between Qualcomm’s relative woes in the United States and its successes overseas in its spat with Apple.
A Chinese Federal Circuit
China’s appeal for foreign patent owners has only increased as the country has introduced specialist IP courts in Beijing, Shanghai and Guangzhou. At the start of the year the strengthening of its court system, at least in IP terms, took another turn with the creation of the IP Rights Court for Appeals – a new national forum for IP cases, which will primarily hear appeals in cases involving patents but also first-instance disputes that the Supreme People’s Court considers suitable to be tried before the new court.
Although he admitted that there was still much to be learnt, on the China Patent Blog, Robinson described the new forum as a “real game changer”. Given that it is set to become the country’s principal appeals court for patent disputes, it is inevitable that it will draw comparisons with the Federal Circuit in the United States, the creation of which in 1982 is widely credited by IP owners with helping to strengthen patent rights in the country and ushering in an unprecedented boom in IP value creation.
If a similar boom now transpires in China, it will presumably not just be Qualcomm beating a path to the country’s courts. But it is not just the rise of new specialist fora and the availability of injunctive relief that could attract patent owners. Last year it was announced that China is introducing punitive damages in infringement cases, offering a further enticement.
The relatively low level of damages typically available in Chinese patent disputes has often been identified as one reason why the country was unlikely to overtake the United States as the world’s leading venue for global patent cases. To what extent China now narrows the gap with the high awards on offer in US courts may determine just how far east the patent world’s centre of gravity shifts.
Qualcomm’s injunction looks like just one more part of a shake-up in the global IP order.
An unfamiliar position for Apple
How the dispute between Apple and Qualcomm unfolds through the course of this year may hinge on the Federal Trade Commission’s case but while the IP community focused its attention on the San Jose courtroom, another element was added to the mix at the turn of the year.
As some were still getting over their New Year’s Eve hangovers it was revealed that Apple had been hit hard by slumping sales of iPhones in China, causing it to revise its revenue guidance down for the first quarter of its current financial year. The news caused the company’s share price, which dropped considerably in the final months of 2018, to fall further and prompted plenty of questions over Apple’s reliance on the iPhone and the company’s long-term trajectory.
Of course, the fading appeal of the tech giant’s flagship product is not going to affect a trial lawyer’s opening statements over the rights and wrongs of how Qualcomm licenses its chipsets. However, it may be playing on executives’ minds further up the food chain in Apple’s Cupertino headquarters.
Are the disappointing numbers out of China likely to prompt Apple to keep up the Qualcomm fight in an effort to squeeze even more profit out of each device? Or might it resolve to draw a line under the myriad cases, staunch the spiralling legal costs and seek a settlement with its rival?
Comments from Apple’s CEO Tim Cook in early January certainly pointed to the former as the most likely course of action. Cook told CNBC that, in his company’s view, Qualcomm’s policy that buyers of its chipsets must also take a patent licence was illegal and that the San Diego business charged “exorbitant prices” for a licence to its intellectual property.
However, the longer this dispute goes on, the more uncertain it is how Apple’s wider business prospects are likely to affect its litigation strategy. All through the smartphone wars the company was firmly on the front foot as its disputes with the likes of Samsung and Nokia came against a backdrop of mind-boggling sales numbers. If the fourth quarter wobble becomes part of a longer-term trend then we might get our answer on how worsening market conditions affect Apple’s litigation strategy.
If the smartphone wars taught us anything it is that even the most bitter rivals can find a path out of the courtroom to settlement.