Earlier this month the U.S. Department of Justice issued an updated Business Review Letter (BRL) for the IEEE patent policy. The new letter offers an important clarification on how antitrust analysis of standards development organization’s (SDO) IPR policies has been misunderstood and misused by the IEEE and others over the last five years. Over upcoming posts we will review the significance and impact of the new BRL, but one thing that immediately stands to this longtime observer of fights over SDOs and IPR policy in the US. Apple has a nasty habit of exploiting its strategic collaborators and them throwing them under the bus to deal with the mess: whether it is Intel, the FTC or, now, the IEEE.
As we have discussed elsewhere, Apple engaged in a decades-long attempt to manipulate the SEP licensing market in order to save money in its arrangement with Qualcomm – the an important player in smartphone chips and Apple’s exclusive chip maker. Apple’s long term partner in this effort was hapless mobile chip-manufacturer Intel – from whom Apple started purchasing mobile chips in 2016. But this effort goes back to at least 2014 and the infamous misleading royalty stack paper written by an Apple outside counsel and an Intel vice president. After a three year fight, in which Apple paraded Intel all over the world as a convenient complainant-competitor against Qualcomm, in the end, Apple settled with Qualcomm. Barely two months later, Apple announced that it dropped Intel as a supplier leading to an immediate plunge in Intel’s share price. Apple seems to believe the Moore has done his duty, the Moore can go…
It may not be a surprise to anyone that Apple ditched Intel given its supply delays and inferior technology. Indeed, Intel’s technology was so inferior that Apple ended up crippling Qualcomm’s chips so that the devices they were in would not perform observably better than those with Intel chips. Apple needed Intel (¶112) to be able to raise an antitrust complaint against Qualcomm. Apple is not a Qualcomm competitor, Intel is. So Apple did what it could to bolster Intel, including, it is alleged, sharing Qualcomm trade secrets.
But Apple was not satisfied with just a private cause action. Strategically, its efforts to lower SEP royalties needed regulatory action. Ever the long-term planner, Apple had been dumping money globally into FRAND -devaluing lobbying efforts for years. In early in 2017, surely aided by the fact that its three in-house competition lawyers were all hired out of the FTC, Apple managed (regulatory capture?) to convince the FTC to sue Qualcomm over the same issues, days before Apple itself filed its own antitrust complaint against Qualcomm. Yet, having gotten FTC to sue Qualcomm over a dissent days before the end the Obama administration, once the FTC was fully committed and tried its case, Apple felt comfortable settling with Qualcomm. Given Apple-friendly media reports of how the FTC trial went, Apple probably believed that any deal it reached with Qualcomm would end up being adjusted in Apple’s favor as a result of it being forced to adjust all of its licensing deals. Indeed, but for the stay pending appeal, that is exactly what Qualcomm would have had to have done. However, given what ended up happening, both Intel and the FTC were left holding the bag.
The final line of attack in Apple’s quest for lower SEP royalties ran through SDOs. Specifically, Apple targeted the IEEE’s IPR policy. As I recounted in a piece cited by the DoJ’s new BRL, Apple consultant Don Wright (the one in the middle) developed a plan to rewrite the IEEE IPR policy to benefit Apple in patent licensing. He put himself on a secret drafting committee withing a closed ad-hoc group drafting the new policy. And then, set up a new closed committee called the Strategic Planning Coordination Committee, which meets only in closed doors and never publishes any agenda or minutes. Mr. Wright has been the active force in this super-secret committee for three years now and his sidekick, Phil Wennblohm (Intel) who led the new policy initiative in 2013, had chaired the IEEE-SA patent committee consecutively for 5 years, until recently. It was this opaque process that led to the policy change.
Indeed, in a decision by an IEEE board in response to the appeal made by Qualcomm and others of the proposed rule change, IEEE shamelessly boasted the closed nature of its process:
The rules pertaining to governance (as opposed to technical standards development activities) do not, and cannot, require openness, consensus-building, or the inclusion of individuals who do not have fiduciary duties to the IEEE in the decision making process of IEEE-SA governance committees….
(p3). Apparently, opacity was required to push through dubious changes that ended up derailing the WiFi standardization process. As I reported previously from January 2016 to the end of June 2019, a whopping 77% (!) of Wi-Fi LoAs have been negative (including eight recent negative LoA from Huawei). This means that a majority of new LoAs are for patents whose owners are refusing to assure that they will license the SEPs on reasonable and non-discriminatory (RAND) terms.
After the change, Apple’s crony, Don Wright, “helped” the IEEE engage in aggressive misleading advocacy of its new IPR policy overseas, especially in Asian jurisdictions, alleging the US Government supposed endorsement for the new IEEE-SA policy and encouraging enforcement against U.S. patent holders. A May 2016 press release and picture by China’s National Development and Reform Commission (NDRC), depicts IEEE-SA officials “explaining” U.S. antitrust and DOJ positions to NDRC officials. The visit encouraged NDRC in its line of “investigations” against U.S. and Western essential patent holders such as Qualcomm, InterDigital, Dolby, Vringo, Nokia, Sisvel, HDMI, and Ericsson. These “investigations” are a well-known Chinese weapon to obtain Western technology for Chinese companies to use at cheaper or near-free rates.
In the end, the IEEE was left with a hot mess. The failures of the change have now been recognized by the DoJ and, and IEEE was reprimanded for its mislead statements and materials on its website (FN11). The offending materials still appear on the IEEE website three weeks later. Moreover, as pro-Apple blogger, Florian Mueller notes, there is reasonable likelihood that the DoJ will sue the IEEE in the near future for failure to abide by the DoJ’s guidance. Indeed, the BRL pointing to IEEE assertions that the DOJ endorsed its IPR policy states that they are “wrong, cause confusion, and must stop.” (p3) Further, the BRL “urges” the IEEE to ensure that neither the IEEE nor its members consider the 2015 BRL by the DoJ an endorsement of the IEEE’s policy. Finally, in footnote 7, the BRL makes the ominous-sounding aside, “The Division has never subsequently brought a criminal action if there was full disclosure by the requesting party at the time of the business review request.” What is left unsaid is whether the Division has ever brought civil action, and if the Division, in fact, believed that the IEEE provided such “full disclosure” so that the Division will not bring criminal action.
Only time will tell what the DOJ will do to the IEEE and what will happen to Intel. In the meanwhile, Apple continues to post ever-increasing profits and to exploit Mr. Wright’s influence over the IEEE to its benefit. Question remains – what’s in it for IEEE?