Sensible Settlement In The Patent World

The latest patent battle between industry titans reinforces the fact that to every litigation problem there is a solution that makes sense for both sides.

(Photo by Justin Sullivan/Getty Images)

Recent events have reminded us that a sensible settlement can be reached in even the most high-stakes IP disputes. Last week, as two of the country’s leading IP trial lawyers delivered their opening statements in perhaps the most valuable (in terms of money at stake) IP-driven case in history, a surprise settlement was announced. Mid-opening statements, in a case with so much media (and investor) interest that the presiding judge had already temporarily banned tweeting from his courtroom during proceedings. Despite the courtroom drama, the companies involved — Apple and Qualcomm — had been negotiating behind the scenes for some time. In fact, the parties released a statement about the settlement almost immediately after it was first announced by the media. All in all, it was an amazing denouement to the latest contender for trial of the century in the IP world.

So what does this surprising turn of events have to teach us as IP lawyers? First and foremost in my view is that a sensible settlement can be reached in every case — no matter how involved, or how far along — at any time. Yes, I know that the best way to reach a favorable settlement is to prepare the case as if it were going to trial. At the same time, however, it is also important to realize that even the thorniest disputes can become ripe for settlement at any point, sometimes for reasons that have very little to do with the legal or factual issues in the dispute. This Apple-Qualcomm settlement is a case in point.

Some background first for readers who may be less familiar with the issues the parties were grappling with. For many years, Apple was a faithful Qualcomm customer, buying Qualcomm chips and paying a discounted patent licensing fee as a result. More recently, Apple started to balk at Qualcomm’s royalty rates, and partnered with Intel to make a competing chip for use in the iPhone. Faced with the prospect of losing its best customer — with respect to both chips and patent royalties — Qualcomm found itself forced to litigation against a recalcitrant Apple. Considering the stakes, it is not surprising that the situation devolved into a worldwide battle, across numerous forums including courts in Germany and China, as well as the ITC, PTAB, and district court in the U.S.

As the cases unfolded, some interesting things came to light. For one, Qualcomm was unafraid to bolster its cases by bringing patents acquired from other technology companies into the fray. For its part, Apple refused to back down at any stage, filing a host of IPRs against any patents asserted against it. Likewise, Apple demonstrated its resolve by refusing to blink when Qualcomm was successful in one trial in San Diego. At the same time, Qualcomm continued to persevere, even in the face of an FTC case complaining of improper licensing practices that also went to trial (and remains pending a decision) where Qualcomm itself was the defendant.

These events were all a prelude to the trial last week, where Apple and its contract manufacturers were prepared to square off against Qualcomm by putting Qualcomm’s licensing model and practices before a jury, for a determination of whether those practices were proper. As we now know, however, Apple faced a conundrum of a technical nature at the same time, one that threatened Apple’s ability to release a next-generation (5G) iPhone in a timely manner. More than anything else, the uncertainty around whether Apple’s chip partner Intel could make a 5G chip that would match Qualcomm’s offerings seems to have driven this settlement.  In fact, Intel announced it was suspending its 5G chip development efforts once the settlement was announced, as it became clear that Apple was back to partnering with Qualcomm for at least the next design cycle.

While the details of the settlement remain a bit murky, there is enough information out there to suggest that it was a win-win for all sides. For Apple’s part, it seems safe to assume that the pressure it put Qualcomm under allowed it to negotiate favorable financial terms for itself — at least more favorable than it would have gotten absent litigation. Further, Apple can proceed to finalize and release future iPhones free of the uncertainty of continued litigation with Qualcomm. Making things even better is the fact that Apple once again proved itself a dogged and formidable patent litigation opponent, enhancing the already-substantial deterrent effect created by Apple’s past patent litigation exploits.

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On the other side, Qualcomm needed a settlement in the worst way. No business wants to lose its best customer, especially if the customer is also creating a roadmap for other companies to also back away from their existing relationship. As such, Qualcomm is undoubtedly cheering the fact that it brought Apple back into the fold, while also demonstrating to the rest of the industry that it itself is a litigation powerhouse. Especially important on that front is the fact that Qualcomm was able to get a trial win on its non-standard essential patents, giving weight to a portfolio that is less difficult to value than the company’s sizable SEP portfolio. Unsurprisingly, Qualcomm investors have reacted jubilantly to the settlement news, sending the company’s share price rocketing. While there is still some uncertainty for Qualcomm around the FTC case, as well as with respect to the post-settlement period relationship with Apple, for now the mood is a good one around the company vis a vis the stock market.

Ultimately, this latest patent battle between industry titans reinforces the fact that to every litigation problem there is a solution that makes sense for both sides. Sometimes arriving at that solution can take a lot of time and expense, but that does not diminish the possibility of eventually reaching a settlement that both sides can live with. Put another way, Apple-Qualcomm reminds us that sensible settlements are almost always available.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.


Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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