Judge Posner Smartphone Litigation

On Friday, Judge Posner, sitting as a trial judge, dismissed with prejudice patent infringement litigation between Apple and Motorola on the basis that no damages could be proven by either side. Judge Posner stated that proof of infringement alone was not enough to warrant a remedial order, such as damages, an injunction or a declaration.

The patent infringement action (1:11-cv-08540 – Northern District of Illinois) involved claims by Apple of infringement of several patents by Motorola. Motorola also made claims of infringement against Apple. Both companies claimed damages and an injunction against the smartphone sales of the other. Friday’s decision (PDF) related to motions for summary judgment.

Judge Posner, who normally sits with the United States Court of Appeals for the Seventh Circuit in Chicago, earlier dismissed most of the damages expert reports of both Apple and Motorola as being inadmissible following a Daubert hearing last month. Without evidence as to damages, Judge Posner considered whether the actions could succeed for injunctive relief or declaratory relief. Judge Posner concluded that both actions should be dismissed with prejudice. There is significant discussion of this decision (see for example, FOSS Patents, CNN, Ars Technica, and Slashdot)

Any intimation that proof of infringement is alone enough to warrant a remedial order (as when Dow posits an “obligation to award some amount of damages” if infringement is proved) was scotched by the Supreme Court in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391–92 (2006). [p12]

It would be ridiculous to dismiss a suit for failure to prove damages and allow the plaintiff to refile the suit so that he could have a second chance to prove damages. This case is therefore dismissed with prejudice; a separate order to that effect is being entered today. [p38]

Regarding injunctive relief, Judge Posner questioned how a patent identified as essential to a standard and entitled to FRAND licensing could ever attract an injunction:

To begin with Motorola’s injunctive claim, I don’t see how, given FRAND, I would be justified in enjoining Apple from infringing the ‘898 unless Apple refuses to pay a royalty that meets the FRAND requirement. By committing to license its patents on FRAND terms, Motorola committed to license the ‘898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation for a license to use that patent. How could it do otherwise? How could it be permitted to enjoin Apple from using an invention that it contends Apple must use if it wants to make a cell phone with UMTS telecommunications capability— without which it would not be a cell phone. [p18/19]

A FRAND royalty would provide all the relief to which Motorola would be entitled if it proved infringement of the ‘898 patent, and thus it is not entitled to an injunction.[p21]

Regarding the applicability of injunctions generally, Judge Posner discussed whether damages would be an adequate remedy (although pointing out that in this case, neither party met its evidentiary burden to prove damages).

In fact neither party is entitled to an injunction. Neither has shown that damages would not be an adequate remedy. [p21]

Apple also contends that it’s losing market share (which could happen though its sales were growing—as they have been—because a competitor, namely Motorola, was growing faster) to Motorola, and also losing future customers to Motorola because of infringement, and requests an injunction to limit Motorola’s penetration of the market and preserve Apple’s own customer base. But it has not laid a foundation for such relief.

To begin with, as far as the record shows, an injunction would not avert such losses, because of the ease of designing around the patent claims at issue.[p23]

If, then, Apple couldn’t exclude Motorola from the market with an injunction because of the ease of inventing around, the only thing Apple lost as a result of the alleged infringements was royalties capped at the minimum design-around cost. Its alleged loss of market share because Motorola’s smartphones do the same thing (either via license or design-around) would have occurred with or without an injunction, and so doesn’t establish the inadequacy of damages.[p24]

A related reason for withholding injunctive relief in this case is that it would be likely to impose costs on the alleged infringer disproportionate both to the benefits to it of having infringed and to the harm to the victim of infringement, and would thus be a windfall to the patentee and a form of punitive rather than compensatory damages imposed on the infringer.[p25]

Judge Posner identified the disconnect between the value of the smartphone as a whole and the claims at issue:

Typical is the statement in Apple’s brief of June 18 that “an Apple survey identified watching streaming videos from YouTube among the top ten planned activities for consumers using iPads in the United States.” The ‘263 patent in issue in this litigation is not a claim to a monopoly of streaming video!

Apple is complaining that Motorola’s phones as a whole ripped off the iPhone as a whole. But Motorola’s desire to sell products that compete with the iPhone is a separate harm—and a perfectly legal one—from any harm caused by patent infringement.[p30-31]

The notion that these minor-seeming infringements have cost Apple market share and consumer goodwill is implausible, has virtually no support in the record, and so fails to indicate that the benefits to Apple from an injunction would exceed the costs to Motorola. An injunction that imposes greater costs on the defendant than it confers benefits on the plaintiff reduces net social welfare. That is the insight behind the “balance of hardships” component of the eBay standard for injunctive relief in patent cases.[p33-34]