Huawei and Samsung to argue radically divergent views of patent, antitrust dispute as US litigation heats up

31 January 2017 9:55am

12th September 2016. By Mike Swift.

With Huawei and Samsung poised for their first substantive hearing in a US court over their patent and antitrust litigation, each of the companies is hoping the judge overseeing the case will accept its particular view of the case. Huawei views it as a patent case, pure and simple. Samsung says it is an antitrust case about Huawei's illegal abuse of monopoly by bringing litigation in China, which could interfere with Samsung's manufacturing operations there and downstream sales in the US.

Even as the explosive growth in global smartphone sales ebbed, Huawei has ridden its growing prominence outside China to become the world's third-largest smartphone maker during the first quarter of 2016, trailing only Samsung and Apple.

Just as Samsung promptly landed in a global intellectual property battle with Apple in 2011 when it began to eat into the iPhone-maker's market share, the company is now locked in a battle with Huawei over the alleged abuse of standard-essential patents, or SEPs, that is likely to play out for years in courts in the United States and China.

Four months after Huawei sued Samsung in the US and China  the two companies will have their first substantive meeting Tuesday before the US federal judge who will oversee their case in California — US District Judge William Orrick.

Predictably, the two companies have very different ideas about how Orrick should view their case. Huawei says it is a patent case, pure and simple. It wants the US court to limit its decision to setting a fair, reasonable and nondiscriminatory, or FRAND, rate to cross-license the patent portfolios of the two electronics giants, and the Chinese company has promised to abide by the court's decision.

Samsung will urge Orrick to view the case as an illegal abuse of monopoly power by Huawei. In the same kind of characteristically combative language Samsung often hurled against Apple — indeed, it is being represented in the US litigation against Huawei by the lawyers who handled that — the South Korean company accuses its Chinese rival of trying to "game" the court systems in the US and China. Samsung asserts that it should be able to pursue its antitrust claims against Huawei right now.

"By seeking to enjoin Samsung's extensive manufacturing operations in China, Huawei threatens to interrupt Samsung's ability to supply smartphones in the United States and around the world," Samsung said in a recent court filing. "This blatant course of conduct, in which Huawei attempts to game the court systems, plainly constitutes patent hold-up and violates the US antitrust laws."

"Samsung is entitled to proceed — now — on its claims for judgment of liability, equitable relief, and damages for Huawei's patent hold-up in violation of Section 2 of the Sherman Act," the company added.

Huawei became the world's third-leading maker of smartphones in the first quarter of this year, in part because of its dominance in China, but also because of its rapid growth in Europe and growing success in selling higher-priced devices that directly compete with phones sold by Apple and Samsung, according to technology market research firm IDC.

Huawei's global market share has continued to grow through the first half of 2016, with the company claiming 9.4 percent of the 343 million smartphones sold globally in the second quarter of 2016, trailing only Apple's 11.8 percent share and Samsung's 22.4 percent, IDC said. Huawei had 8.2 percent of global sales in the first quarter of 2016.

China-US focus

In short, the view Samsung sees when it looks in the rear-view mirror at Huawei resembles what Apple saw when it looked back at Samsung in 2011, four years after having created the smartphone category when it launched the iPhone.

While the Apple-Samsung battle featured litigation filed in Europe, Australia and Asia as well as in the US, the struggle between Huawei and Samsung appears focused on courts in China and California, at least for now.

Immediately after Huawei sued Samsung in US District Court in San Francisco in late May, Huawei filed a number of lawsuits against Samsung in China alleging patent infringement, including activity related to standard-essential wireless communications patents.

On May 25, Huawei announced that it had filed several lawsuits against Samsung at the Shenzhen Intermediate People's Court for allegedly infringing SEPs related to smartphones. Huawei said it was seeking damages and royalties for the allegedly unlicensed use of 11 4G patents related to cellular communications technology, operating systems and software.

The Shenzhen court was scheduled to hold a hearing in July, but it is understood that Samsung filed a jurisdictional challenge, and the hearing was postponed.

On July 4, Huawei also filed complaints in the city of Quanzhou against Samsung and four affiliated companies over alleged patent infringements, seeking compensation of 80 million yuan (about $12 million).

In response, Samsung filed retaliatory lawsuits in Chinese courts. The Shenzhen Intermediate People's Court said it had officially accepted the 10 complaints filed by Samsung against Huawei Technologies on July 8.

A few weeks later, on July 21, Samsung filed six patent infringement complaints against Huawei at the Beijing Intellectual Property Court, further escalating the patent war between the two tech giants.

Samsung is seeking injunctions against Huawei by asking the court to order Huawei and its retailer to stop infringing its patents. It is understood that the allegedly infringed patents include four 3G SEPs, and two non-SEPs. Samsung is seeking a total of 161 million yuan ($24 million) in compensation, including 80.5 million yuan each for the two non-SEPs. It wants only injunctions in the four SEP claims and is seeking no damages.

'Gating issues' in US

Samsung filed its US antitrust counterclaims against Huawei in August. In that case, Samsung is represented by Quinn Emanuel Urquhart & Sullivan, the firm that has represented the company against Apple since 2011.

Little went well for Samsung in US District Court against Apple. Two successive juries imposed damages awards of $1.05 billion and $120 million in favor of Apple, although US appeals courts have significantly trimmed those awards in ensuing years, and the US Supreme Court may go even further when it reviews damages awards on Apple's design patents in October.

Samsung was constantly playing defense against Apple, including having to counter Apple's claims that it violated the Sherman Act by abusing the market power it held with its SEPs and deceiving international standards bodies. A jury found in 2012 that Samsung did not violate the Sherman Act, one of the company's few victories in the trial court.

Samsung may have learned from the experience, as it is now aiming antitrust allegations against Huawei similar to the ones Apple once leveled against it. The Korean company claimed that Huawei is seeking patent injunctions in China as leverage to force Samsung to pay more to license its patents.

"Samsung strongly disagrees with Huawei's suggestion that the determination of FRAND rates is the preliminary gating issue in this litigation," the company told Orrick Sept. 6. "Huawei's actions constitute patent hold-up and misuse of monopoly power, contrary to law."

Huawei countered that Samsung has failed to negotiate in good faith, and that Samsung refused to negotiate after it broke off talks last year.

"Huawei filed the present action because after five years of fruitless negotiations, Samsung has not come forward with an offer to grant a license to its SEPs on FRAND terms," Huawei told Orrick, adding that Samsung's offer "was conditioned on Huawei's acceptance of manifestly inadequate compensation for a license to Huawei's portfolio of SEPs."

ABA 2019