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The following can be attributed to John Bergmayer, Legal Director at Public Knowledge:

“Sonos has put forward a compelling story about how difficult it can be for independent technology companies to compete in areas that dominant platforms have decided to enter. An innovator in smart speakers, Sonos is outsold and outgunned by the large technology companies who see this market as an area of growth. In order to integrate with music services and smart assistants from these companies, Sonos has to collaborate with them. Sonos has alleged in particular that Google has abused that relationship, and ultimately that it has infringed Sonos’s patents.

“However, Sonos has had to resort to a legal tool that will harm the public interest. Its request to the ITC, asking it to exclude from the United States a wide range of products (not just smart speakers) it alleges infringe its patents, would harm consumers and could have broader effects on competition. While that request should be denied, Sonos can pursue its claims in another forum, and policymakers need to step up and address the growing anti-competitive concerns of dominant digital platforms. 

“Patent law is often not the right tool to address claims of anticompetitive behavior by dominant platforms. In general, patent law can be a poor tool to protect innovation due to overly general, obvious, and iterative patents that can produce licensing and attorney fees but do little to advance innovation. By design, patent law limits competition, does not merely target ‘copying,’ and can be used by large companies who acquire vast numbers of patents against potential new market entrants. An import blockade based on alleged infringement, before there has even been a trial on the merits, is too blunt a tool, and sets a dangerous precedent that could end up harming small innovators and protecting dominant firms in the future.

“Nondiscrimination and interoperability rules would better address the situation that Sonos and companies like it find themselves in. Third-party hardware products should be able to integrate with Google services on equal terms as Google’s hardware products, and Google should not limit third parties from implementing useful features, such as speakers that also integrate with other smart assistants. 

“We must address the underlying problem of dominant digital platforms’ power in the marketplace with systemic, fundamental changes to the way this industry functions. To achieve this, Public Knowledge continues to call on policymakers to create an expert agency to regulate dominant digital platforms and the specific anticompetitive harms they create. Until we do, we may continue to see workarounds like this one that don’t serve consumers or the industry well.”

You may view the comments here.

The post Sonos Needs Regulatory Protections For Competitive Concerns, Not a Blockade of Consumer Products appeared first on Public Knowledge.

The following can be attributed to John Bergmayer, Senior Counsel at Public Knowledge:

“We congratulate the FTC on this important victory. Judge Koh's ruling shows that the FTC has the ability to bring, and win, important cases that protect American consumers.

“This case underscores the importance of standards-setting to promoting innovation. Qualcomm has created many important wireless technologies that are a key part of smartphones. But Qualcomm's technologies were only included in industry standards because it agreed to license its patents on fair, reasonable, and non-discriminatory (FRAND) terms. Inclusion in mandatory standards is what gives those technologies commercial value in the first place.

“This important ruling, among other things, holds Qualcomm to its FRAND commitments. Companies who contribute their technologies to standards are entitled to fair compensation but cannot be allowed to use their patents–which the entire industry, because of standards, must use–for anticompetitive ends. Standards-setting bodies and IP rights cannot be used as an end run around competition law.

“The FTC should continue to ensure that companies with bottleneck control of key technologies do not act in ways that reduce competition and raise consumer prices.”

For more information, you can our recent blog post, “FTC Should Continue to Fight for Lower Consumer Prices in Qualcomm Lawsuit,” and our letter to the International Trade Commission.

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Qualcomm targeted iPhones that use Intel baseband technology with their lawsuit, conspicuously leaving out iPhones that use Qualcomm baseband technology, despite the fact that those phones also use technology that Qualcomm has claimed is infringing. By exercising its patent rights in a way tailored to harm a new competitor, Qualcomm seems more concerned with maintaining a monopoly position in the premium baseband market than in obtaining patent relief. This behavior appears targeted at pushing Qualcomm’s only competitor, Intel, to exit the market.

We therefore asked the ITC to uphold an administrative law judge’s opinion – which found, among other things, that if it granted Qualcomm’s request it was “nearly certain” that Intel would “exit the premium base band market” – that the public interest in competition meant that Apple should be permitted to continue selling iPhones with Intel, rather than Qualcomm chips.

Unfortunately that reality has come to pass, though through different means. As for the matter we filed in, the ITC, in reviewing the administrative law judge’s opinion, found that the one remaining patent in the case was, in fact, invalid. Thus it did not have to either agree or disagree with the judge’s finding (which was not at all popular among some segments of the patent bar) that yes there was infringement, but no there should still not be an import ban. This was a good outcome, though not one with the same legal effect as one might have wanted.

But, since then, Apple and Qualcomm have settled all of their litigation, and cut a deal where Apple will resume buying chips from Qualcomm and paying licensing fees. Like with a lot of settlements, it looks like the companies met in the middle, finding a pragmatic solution that satisfies their business and product roadmap needs.

I’m happy for them. But now that Apple is switching its business back to Qualcomm, Intel has exited the premium baseband market. Losing Apple’s business was indeed fatal to Intel’s baseband ambitions. I’m less happy about that.

To be clear this appears to have a lot to do with Intel’s inability to deliver the parts that Apple needs. The problem is less that one company is leaving the market, than that lots of companies have left the baseband market in the past decade: Freescale Semiconductor, EoNex Technologies, Texas Instruments, Renesas, Broadcom, ST-Ericsson, NVIDIA, and Marvell have all bowed out, ceding the market to Qualcomm. People see and interact with monopolies and companies with dangerous levels of market power every day, but monopolies are a problem behind the scenes as well, in the components of the products you buy and in the machines that make them, driving up cost and reducing choice in ways that are harder to see but are just as real.

This would be a problem even if Qualcomm achieved its market power fairly, through out-innovating and out-executing its rivals. But as competition authorities around the world have found, this is not the case. Qualcomm has abused standards-setting and patent licensing to obtain and lock in its dominance. Many patents are valuable simply because they are included in a standard, and this is why most companies are happy to agree to charge FRAND (fair, reasonable and non-discriminatory) rates in exchange for having their technologies included in a standard. This means that they charge a reasonable rate to anyone who is willing to pay – which can mean, of course, a lot more revenue than the zero they would receive if a rival’s patents were included in a standard instead. But Qualcomm has engaged in a number of tactics that have attracted legal censure around the world, leveraging patents that have become valuable due to the standard-setting process for its broader business ends. For example, it would refuse to license its FRAND-obligated patents to competitors – only to end users of the competitors’ parts. Consumer devices would therefore ultimately be licensed, but by demanding payment from downstream users of components that it has more leverage over (for instance, because it sells and licenses them other components and patents they need), it can demand higher “reasonable” fees than it otherwise would. (Fortunately, a federal judge has recently ruled that Qualcomm is required to license its FRAND patents to anyone who asks, including competitors.) Qualcomm would also demand a license that was a percentage of the final sale price of a device, meaning that it would get higher rates due to improvements to devices that its patents have nothing to do with. Also, Qualcomm’s broader strategy of bundling licensing in with the sale of chips, and charging for the same license over and over to multiple parties in the manufacturing chain, not only allow Qualcomm to extract higher payments, they muddy the waters for regulators and provide opportunities for complicated and anticompetitive “rebate” schemes designed to further shut out competitors. (It’s important to note here that under the doctrine of patent exhaustion, if a manufacturer sells a fully-licensed item, downstream users of that item don’t have to take out their own license, and if you buy a patented item from a seller that seller can’t turn around and sue you for patent infringement. A lot of Qualcomm’s actions can be seen as ways to contractually route around the patent exhaustion doctrine.)

That’s why, despite the Apple/Qualcomm settlement, we encourage the Federal Trade Commission to stay the course in its ongoing lawsuit against Qualcomm. Companies like Apple have to look out for their bottom line, and drawn-out litigation with a key business partner doesn’t usually make sense. Only public authorities like the FTC can stand up to companies like Qualcomm, and end their anticompetitive practices, hopefully lowering prices for consumers and making new market entry possible.

The post FTC Should Continue to Fight for Lower Consumer Prices in Qualcomm Lawsuit appeared first on Public Knowledge.

The following may be attributed to John Bergmayer, Senior Counsel at Public Knowledge:

“Qualcomm is trying to use the ITC process to strengthen its monopoly. The ITC administrative law judge has properly held that the public interest is not served by bringing the number of competitors in critical premium baseband technology for smartphones from two to one. Unless the ITC upholds this important ruling, consumers can expect to see higher prices and lower quality for smartphones and other connected devices.”

You may view the letter here.

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The following may be attributed to Charles Duan, Director of the Patent Reform Project at Public Knowledge:

“We applaud the reintroduction of the Trade Protection Not Troll Protection Act. The ITC has become an increasingly popular venue for patent disputes due to its strong power to exclude products at the border. But that strong exclusionary power invites abusive practices that damage American businesses and consumers. We welcome this bill’s efforts to curb opportunities for abusive litigation before the ITC.

“The ITC has become recently known in the news for its troubling and so-far failed attempt to grant itself authority over digital data transmissions. We are glad that this bill continues a long-needed conversation about the role of the International Trade Commission in the patent system. We look forward to working with members of Congress and other policymakers as this bill moves forward.”

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Charles Duan, Director of the Patent Reform Project, will moderate a panel entitled, “Zombie SOPA: A New Threat to the Open Internet,” on Monday, March 14 at 11 a.m. CST. The following is from the panel’s description:

“The controversial Stop Online Piracy Act (SOPA) was defeated in Congress, but there have been backdoor efforts to revive it. One of the most surprising is happening at the International Trade Commission, an agency with powers to block importation of articles based on copyrights or patents.

“The ITC recently decided Internet downloads are blockable ‘importation of articles.’ The decision was widely criticized by tech companies and Internet advocates (but praised by the MPAA, who wants to use it for SOPA-style website blocking). It was recently struck down by a federal court, though the case is ongoing.

“We’ll discuss how we got here and where this decision, and the ITC, are going.”

Raza Panjwani, Policy Counsel, will join a panel entitled, “Internet of Things: Just Someone Else's Computer?,” on Friday, March 11 at 5 p.m. CST. The following is from the panel’s description:

“The Internet of Things not only enables new technological possibilities; it forces us to confront and upend assumptions we have about our devices, our property, and our persons.

“Embedding networked computers in a wider range of objects–not just tablets and phones, but cars, wearables, medical devices, appliances, and homes–generates data about consumers, and gives control over how the devices work and the data they generate to people outside the consumer's home.

“Our laws and behaviors are built around personal control of personal property. But now that those devices are ‘smart,’ they can have ‘loyalties’ to people other than their owners, in their code and in the law.”

Please contact Communications Manager Shiva Stella to schedule an interview with our experts if you’re attending SXSW. You can join the conversation using #sxsw.

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The following may be attributed to Charles Duan, Director of the Patent Reform Project at Public Knowledge:

“This decision is a big win for the open Internet. By rejecting the ITC’s attempt to expand its jurisdiction, the Federal Circuit helps to ensure that Internet users have unfettered access to the free flow of information that has proved so useful for innovation and free expression.

“In particular, Judge O’Malley’s concurrence strongly recognized the importance of ensuring that ‘the Internet remains an open platform for all.’ This recognition of the central role that open information flow has played in the digital age is heartwarming to advocates like us who have tirelessly worked to protect that Internet openness.

“We applaud the Federal Circuit on its decision today, and will continue following the case as it moves forward.”

A copy of the decision may be found here.

The post Federal Circuit Protects Open Internet from Trade Agency Incursion in ClearCorrect v. ITC appeared first on Public Knowledge.

The comments responded to last year’s decision by the U.S. International Trade Commission to block Internet data transmissions on the theory that those transmissions were acts of “importation” regulable by the Tariff Act of 1930. Concerned with the potential widespread effects on Internet freedom if the ITC maintained power to block information, the comments ask Marti to intervene appropriately in the ITC’s future decisions.

The following may be attributed to Charles Duan, Director of Public Knowledge’s Patent Reform Project:

“It is truly exciting to see this wide range of diverse interests coming together to protect Internet freedom from an overreaching ITC. We want all policymakers to recognize that a federal agency like the ITC, designed for importation regulation, cannot force its decisions on Internet policy upon American consumers.

“One year ago, the ITC’s decision was easily overlooked, dismissed as a mere case about teeth patents. But today, because of the efforts of coalitions like these, the broad ramifications of the ITC’s decision are known to federal judges, White House administrators, and mainstream media. The advocacy community is to be applauded for its watchful eye on Internet openness.

“We look forward to continuing to work with Mr. Marti, the administration, the ITC, and others, to protect those values that have made the Internet such an asset to this nation and the world.”

The ITC’s decision was entitled In re Certain Digital Models. It is currently on appeal at the U.S. Court of Appeals for the Federal Circuit, under the name ClearCorrect v. ITC.

You may view the comments here, including a full list of signatories. Please view this page for additional background on this case.

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The International Trade Commission has power to stop importation of articles that infringe copyrights, patents, or other intellectual property rights. This case involves allegations of infringement over Invisalign-style plastic braces, but the interesting part is what “articles” are being imported. Not the plastic braces. Not even molds for the braces. The “imported articles” are electronic data files downloaded on the Internet.

The ITC decided that its power over “importation of articles” extended to Internet transmissions, because downloading files is apparently an act of importation.

Nonetheless, the idea that a little-known federal agency can block Internet data is concerning for open Internet advocates like us—and concerning for everyone else as well. The New York Times opposed the ITC’s decision, deeming it “bound to hamper the exchange of ideas and information on the Internet.” The Wall Street Journal characterized the case as a “clash over protecting a free-flowing Internet.” A letter of twenty-eight organizations and law professors warned against “unintended but troubling possibilities that may result from the decision” comparable to the despised SOPA and PIPA bills.

(And if you want to learn more, we’re trying to do a panel at South by Southwest on this case—go and vote it up!)

The oral argument today dealt with these important issues of Internet openness. But despite the fact that these modern issues of new technology are central to the case, the argument actually opened with one of the oldest communications technologies: the telegraph.

ClearCorrect's attorney, who opposed the ITC's decision, began by pointing out that electronic transmissions haven't really changed much in hundreds of years:

ClearCorrect: This transmission of information is no different than a telephone call, television signal, radio wave, Morse code. It’s the same thing: it is an electronic surge across a wire. That’s all it is. The character of the transmissions have not changed since the mid-1800's. Maybe the quantity of data has. But the character of these transmissions is no different. And congress never gave the Tariff Commission or the ITC the authority to regulate them.

And how would the Commission even begin to exclude data transmissions?  ClearCorrect noted that traditionally “[a]rticles in the context on this statute means something that can be intercepted at the customs house, stamped with trademark, broken in transit, put on a rail car.” This simply is not the case for data. Data has no physical form capable of being intercepted by customs, making enforcement by traditional means impossible.

The ITC stressed that their jurisdiction over goods would only extend to “digital goods” and not services. However this distinction is lacking in the ITC’s decision. Data transmission could potentially mean anything “bought and sold in commerce.” Trying to cut cloud services out of the ITC’s range (as the Internet Association raised big concerns about), the ITC's attorney argued that “strong arguments could be made that…cloud storage…looks an awful lot like the services” in question. But Judge O’Malley found that hard to believe:

Judge O’Malley: But anything that would be data streamed, for example, that would be bought and sold in commerce?

ITC: Well it might or might not be. It depends on the nature of it. I’m not here to tell you exactly where the line is between goods and services.

That’s a cop-out: the ITC is asking the Federal Circuit to draw a line, and then refusing to say where the line is.

One important concern in this case was whether the ITC's supposed powers over digital data could be leveraged into site-blocking orders in the ITC. Chief Judge Prost started off questioning with this exact issue:

Chief Judge Prost: I don’t quite understand how you’re trying to cabin what’s going on here [where you] say, if I’m understanding correctly, that these Internet service providers are all worried, but this isn’t that type of case, and kind of, don’t worry, we’ll get that case, and we’ll decide it on the facts and the record before us.

Again wanting to distance himself from that extreme possibility, the ITC attorney specifically disclaimed any possibility of going after ISPs:

ITC: We also have all the limitations of substantive law here, with regard to the ISPs, if the ISPs are what you’re concerned about. In a future case—the Commission applies all of the defenses, legal and equitable—the Commission would apply the DMCA safe harbors to the extent that ISPs are immune from liability in the district courts. They would be immune from liability in the Commission.

It's questionable whether the ITC's statement would hold water in a future case brought against an ISP, but if nothing else we at least know that the ITC has said on the record that Internet service providers are outside of the Commission's scope.

In a somewhat unexpected turn of events, Chief Judge Prost discovered that the ITC had actually misquoted a part of a Senate report, leaving out some key words:

Chief Judge Prost: If you go back, the Commission cited a provision of the legislative history, found in a Senate report, and you repeated it in your brief, but the Commission relied on it pretty heavily in its opinion. Well it turns out that when you look back to the source of that Senate report, the words “in the importation of goods” has been deleted from a quote that’s been found in that Commission report…

I’m talking about the Commission’s opinion in this case relied on that quote, with the term “goods” extracted without an ellipsis or anything, right?

She and Judge O’Malley were concerned that the missing words could have changed the outcome of the ITC’s decision. The ITC’s attorney profusely apologized, and stumbled to argue that the change was insignificant:

Judge O’Malley: If you weren’t afraid of that phrase, then why did it get ellipsed out—or not ellipsed out?

ITC: I was not working on the case at that point, I can’t imagine why that is. I can apologize on behalf of the Commission but there was no ill intent in that. But “goods” were defined broadly…

The ITC and Align (who supported the ITC) raised some very technical arguments to support their sweeping interpretation of the term “articles” to cover electronic transmissions. They argued that dictionary definitions from the 1930s were expansive enough to cover digital data, and that a case decided yesterday demanded that the ITC get deference to define its powers in the way the ITC wanted. But the Federal Circuit judges were much more interested in the wider implications. As they pointed out, the practical effect of giving the ITC jurisdiction here was just to give Align powers on top of powers to block all the things:

Judge O’Malley: Isn’t there just enough opportunity for you to enforce the patent laws through your actions in Texas?

Align: Yes, but the remedy is here…It really makes no sense to suggest that the substantive prohibition is somehow restricted by the original grant of remedies, even though those have been expanded…

Judge O’Malley: But again, this is not a circumstance like in Suprema, where the argument was…that somehow there’s a gap in the statute and that there’s a porous border. Here, you have a situation where, according to your argument,…all of that activity is completely actionable in the United States. You don’t have any “gap” in this statute or coverage.

Ultimately, what drove the argument were questions about the broad effects the case could have on the Internet. As Chief Judge Prost said to the ITC attorney (echoing language in PK and EFF's amicus brief):

Chief Judge Prost: You make the very salient statement that we shouldn’t lose sight of the fact that this is a case about teeth. Well, Markman was a case about dry cleaning. But no one thinks of Markman as standing for anything about dry cleaning. It stands for an important legal principle, and in my view, so does what the Commission has done here. So I don’t quite understand how you’re trying to cabin what’s going on here…

It does seem to me that if we were to affirm the Commission here, we would be saying that the ITC has jurisdiction over electronic transmissions. I don’t see very many limiting principles that would apply to future cases.

ClearCorrect’s attorney agreed, saying that Congress was the right place to decide these difficult questions like digital copyright piracy:

ClearCorrect: Congress has a lot of balls in the air about what we’re going to do about this streaming information. And when it decides these issues…they’re going to have their theories and their evidence and their lobbyists and bills and draft bills, amendments, all that good stuff, to come up with the rule that we can work with, and all live by hopefully.

So the point is well taken that instead of the ITC just unilaterally expanding its own power to try and cope with this brave new world, which I suggest is really no different from the old world, this is a matter that should be left to Congress.

Will the Federal Circuit agree and leave the policy to policymakers, or allow this Commission to become what some have called “the new digital cop”? We’ll find out when the decision comes out, probably in the next few months.

This post was written by Foster Dobry and Charles Duan. Image credit: U.S. Court of Appeals for the Federal Circuit.

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