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Washington, D.C. 20436 Before the Honorable Deanna Tanner Okun Chairman In the Matter of CERTAIN PERSONAL DATA AND MOBILE COMMUNICATIONS DEVICES AND RELATED SOFTWARE Investigation No. 337-TA-710
REPLY COMMENTS OF THE ASSOCIATION FOR COMPETITIVE TECHNOLOGY IN RESPONSE TO THE COMMISSION'S SEPTEMBER 21, 2011 REQUEST FOR WRITTEN SUBMISSIONS ON THE ISSUES OF REMEDY, THE PUBLIC INTEREST AND BONDING
T ABLE OF CONTENTS L II. III. INTRODUCTION THE COMMISSION PLAYS A CRITICAL ROLE AS GATEKEEPER AGAINST UNFAIR IMPORTS REPL Y TO GOOGLE'S SUBMISSION A. B. 1 3
Google's Submission Asks the Commission To Broaden Its Analysis of the Public Interest Beyond the Boundaries of Section 337 .4 Android's Purported "Open Platform" Status Does Not Justify Ignoring the Patent Laws 8 I. Android Is Not an "Open Platform" a. b. 2. Android Honeycomb's Source Code Is Closed Android "Compatibility Requirements" 9 9 .10 12
Open Source Is Subject to the Same Patent Laws as All Others in the Marketplace
The Interest in Protecting Patent Rights Outweighs Any Conceivable Harm to Competitive Conditions and the Public Health and Welfare .l4 1. Google Focuses on the Harm Resulting from Undefined "Injunctive Relief' Not the Harm that Would Result From the Specific Scope of an Exclusion Order 15 An Exclusion Order Would Not Harm Competition in the Smartphone Market 15
2. 3. IV.
An Exclusion Order Would Not Harm the Public Health and Welfare ..... 17 .18 18
REPLY TO HTC'S SUBMISSION A. HTC's Claim that Its 4G Mobile Products Are Irreplaceable Is Faulty 1.
HTC's Claim that It Manufactures 50% of All 4G Handsets Is Misleading, as 40 Handsets Represent a New Market and There Is Much Debate as to Where the Dividing Line Between "3G" and "4G" Stands .18 Even as the 40 Market Currently Stands, HTC Improperly Asserts that its 40 Products Lack Competitive Substitutes .19
Like, or Directly Competitive Alternatives to HTC's Android Phones are Readily Available 19
HTC's Argument that Competitors' Offerings Cannot Replace HTC's Portfolio of Devices Ignores that Smartphone Market Shares Evolve Rapidly HIC Fails to Consider that Suitable Alternatives to HTC's Android Device Already Exist
19 21 22
TABLE OF AUTHORITIES
Apple v. Motorola, Inv. No. 337-TA-750 Apple v. Samsung, Inv. No. 337-TA-796 Association of Civilian Technicians v. FLRA, 22 F.3d 1150 (C.A.D.C.1994) Certain Battery-Powered Toy Vehicles, Inv, No. 337-TA-314, Comrri'n Op. at 11 (Apr. 10,1991) Certain Personal Data and Mobile Communications Devices, Inv, No. 337-TA-71O (76 Fed. Reg. 58,537, 58,539 (Sept. 21,2011» Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998) Skyhook Wireless, Inc. v. Google, Inc., Civil Action No. 10-3652 (Mass. Superior Court) Spansion v. lTC, 629 F.3d 1331 (Fed. Cir. 2010)
8 8 8 14 1, 6,14 8 11 7
19 U.S.C. § 1337(1) 19 U.S.C. § 1337(c) 19 U.S.C. § 1337(d)
18 7 8, 15, 16
133 Congo Rec. S. 1794 (Feb. 4, 1987) 132 Congo Rec. H1782 (Apr. 10, 1986) Black's Law Dictionary 1375 (6th ed. 1990) H.R. Rep.No. 100-40 100th Cong., 1st Sess 156 (April 6, 1987)
6 6 8 3
INTRODUCTION The Association for Competitive Technology, Inc. ("ACT") submits the following reply
comments in response to the Commission's Notice of September 21, 2011 in the matter of Certain Personal Data and Mobile Communications Devices, Inv. No. 337-TA-710 (76 Fed. Reg. 58,537, 58,539 (Sept. 21, 2011».1 ACT is an international grassroots advocacy and education organization that represents over 3,000 small and mid-sized information technology firms from around the world. It is also the leading trade organization for mobile application developers and the only organization of its kind that focuses on the needs of small business innovators. A majority of mobile applications used worldwide are created by American small business developers. For example, a recent study by ACT of the top 500 best-selling mobile applications showed that more than 88% of the applications came from small businesses. These small business developers are risk takers in high technology fields that depend on strong IP protection for a return on that risk. Google and HIC effectively ask the Commission to abandon its core mission of stopping unfair practices, and instead venture into the business of setting national telecommunications; competition, and intellectual property policies of sweeping dimensions.2 Google and HTC argue that the Commission should somehow factor into their analysis in this case speculative assumptions about other pending Android cases, and grant the Android platform a categorical immunity from all 337 relief. ACT respectfully submits that the Commission should refuse to do
1 ACT was granted an extension of time to file its reply comments pursuant to letter issued by Secretary Holbein dated October 18, 2011 granting ACT's October 14, 2011 Motion for Extension.
2 ACT takes no position regarding the merits on violation, including issues of alleged infringement and existence of a domestic industry. The positions set forth in this submission are directed to the impact ofa remedy only if a violation of the statute is found.
so not just because the arguments lack merit, but also because it would do harm to the careful boundaries statutorily set for its authority. Contrary to the arguments advanced in Google Inc.'s ("Google") and HTC America Inc., and Exedia, Inc.'s (collectively, "HTC") submissions to the Commission's September 21,2011 Notice, a decision to deny or narrow a remedy in this investigation on public interest grounds would threaten the protection ofIP rights on which small business developers rely, and as a result, threaten future innovation by American mobile application developers. Far from serving any of the pro-competitive purposes asserted, a categorical immunity for Android would discourage future investment in technology by reducing the value of patent rights, thereby actually reducing innovation and competition over time. Thus, declining to issue an exclusion order applicable to Android devices would have a severe negative effect on American innovation in the smartphone market (a market that has become a $20 billion industry and source of job creation across the United States). The claims made by Google and HTC that exclusion of infringing Android devices would negatively impact the public interest are flawed and overstated. The only public interest impacted by an exclusion order in this investigation would be the furtherance of the public's strong interest in preventing unfair trade practices. First, contrary to Google's assertion, Android is not truly "open source" and nothing about the purportedly "open" nature of Android justifies Google and HTC ignoring patent rights. Second, HTC and Google overstate any conceivable harm to competition that would result from an exclusion order and incorrectly portray Apple as an industry behemoth looking to eliminate the "fast moving maverick," HTC. Finally, the smartphone industry is rapidly expanding and changing, and there is no evidence to suggest, as
HTC does, that excluding HTC Android devices from the U.S. would negatively impact competition in the smartphone market, or the availability of like or directly competitive articles.
THE COMMISSION PLAYS A CRITICAL ROLE AS GATEKEEPER AGAINST UNFAIR IMPORTS
Before turning to the specific arguments advanced in support of denying relief on public
interest grounds, it is important to recognize both the critical public interests that are vested in our intellectual property laws and the Commission's role as a trade agency charged with enforcement of those rights at the border. In the course of enacting its 1988 amendments to Section 337 that were intended to enhance the ability of patent holders to use the 337 forum for border enforcement, Congress stated, "[tjhe importation of any infringing merchandise derogates from the statutory right, diminishes the value of the intellectual property, and thus indirectly harms the public interest. (H.R. Rep.No. 100-40 100th Cong., 1st Sess 156 (April 6, 1987» One has to look no further than to both the growth and prominence of patent-based cases filed at the Commission since the 1988 amendments were enacted to appreciate its critical role in providing fast and effective relief for patent owners. This value has accelerated as high technology product cycles grow shorter and manufacturing and technical skill more globalized. The reason that the Commission finds itself now as arbiter of many of the most high profile and important patent disputes in the world is precisely because it has taken its legislative mandate to heart and has been steadfast in providing impartial, expeditious adjudication of infringement claims, and where warranted, effective remedies. While the statute does require the Commission to weigh the public interest in connection with issuance of any remedy, over the course of its history it has properly understood that the circumstances that might outweigh the public interest in effective patent enforcement are extremely rare. In fact, there have been only three cases in the history of the modern statute
where relief was denied on public interest grounds, the last being nearly 30 years ago. ACT strongly believes that there is no reason to deviate from this historical recognition of the importance of intellectual property protection as both a vindication of property rights and advancement of the public interest. III. REPL Y TO GOOGLE'S SUBMISSION Google's arguments as to why the Commission should decline to issue an exclusion order in this investigation are fundamentally flawed. First, Google asks the Commission to consolidate its analysis of the public interest here with other investigations where devices using Google's Android operating system are at issue, and to reach a categorical decision insulating all Android devices from exclusion. This request is not only unprecedented, but it also exceeds the reach of Section 337. Second, much of Google's argument is premised on the benefits of Android's "open source" platform. Yet, as discussed below, Android is not nearly as open as Google claims, and even if it were, there is no public policy that favors open source software ("OSS") over other software. Even ignoring these fatal flaws in Google's arguments, the alleged harm to competition and public health and welfare is not compelling, and does not justify Commission declining to issue an exclusion order here. A. Google's Submission Asks the Commission To Broaden Its Analysis of the Public Interest Beyond the Boundaries of Section 337
Although Google's frames its arguments under the guise of the Commission's public interest analysis, the analysis Google asks the Commission to adopt goes far beyond the bounds of this investigation. Google's asks the Commission to combine its public interest analysis in
this case with a speculative assumption about all other pending cases involving Google's Android operating system. See Google Submission at 8-9. And, in so doing, Google argues that
the Commission should categorically insulate all devices using Android from an exclusion order to (1) preserve competition in the mobile industry; (2) protect Android's open platform and (3) prevent harm to the public health and welfare. Google's categorical approach, however, asks Commission to drastically broaden its analysis of public interest as defined by section 337 and, in effect, set national telecommunications and competition policy by elevating the growth of a purportedly open
mobile platform (Android) over the patent rights of a more closed platform (Apple). See, e.g. Google Submission at 11 (arguing that "[t]he public interest requires that the Commission consider the importance of an open mobi1e platform to U.S. industry and consumers and refuse to enter an exclusion order if a violation is found in this investigation") (emphasis added). The law of Section 337 does not permit that, and there is no basis for that here. Google's request is outside the Commission's mandate in Section 337. Google argues that unfair trade is necessary to preserve competition. Not only is Google's premise wrong competition is and will remain robust notwithstanding the exclusion order but Google has
asked the Commission to do the opposite of the Commission's mandate. Section 337 is a trade remedy focused on preventing unfair trade practices such as patent infringement not encouraging them. Requiring a complainant to compete with its own patented technology, presumably developed at significant expense, would have the effect of discouraging future investment in technology by reducing the value ofthe patent grant, thereby actually reducing innovation and competition over time. While it may be beyond dispute that propagation of Google's Android platform becomes easier if it can simply ignore fundamental intellectual property rights, that does not make it either in the public interest or the proper subject of the Commission's unfair trade protection function.
Should Congress decide it prudent to grant Android patent law immunity under Section 337, it can certainly do that. It is hard to see how such selective promotion of otherwise unlawful conduct is something with which the Commission should concern itself. Discouraging investment and innovation would have a devastating impact in the development of the smartphone device market, and on small businesses in particular. Small businesses produce 13 times more patents per employee (many of which are among the top one percent most cited patents) than large businesses. Ex. 1, SBA, Office of Advocacy, Frequently Asked Questions (Sept. 2008), available at http://www.sba.gov/advocacyI7495/8420. Further, a
majority of mobile application developers are small businesses with less than 10 employees and in locations across the United States. Ex. 2, Consumer Privacy and Protection in the Mobile Marketplace Before the Senate Commerce Subcommittee on Consumer Protection, Product Safety, and Insurance, 112 Congo 3-4 (2011) (statement of Morgan Reed, Executive Director, Association for Competitive Technology). In its Section 337 investigations, the Commission has consistently recognized that small businesses rely on patent rights as a key tool in creating innovative technologies, and in fact, Congress amended Section 337 in 1988 to permit small businesses to have access to the lTC's powerful remedy. See 132 Congo Rec. H1782 (Apr. 10, 1986); 133 Congo Rec. S. 1794 (Feb. 4, 1987) (statement by Sen. Lautenberg, also on behalf of Sen. Roth). The Commission should not jeopardize the even application of patent laws that protects small business inventors and large corporations alike by permitting the importation of Android devices that infringe valid U.S. patents. Google's request that the Commission consider other pending cases involving the Android operating system in analyzing the public interest in this investigation is also unprecedented. The Commission has previously declined to consider information outside the
record as part of its public interest analysis, and the Federal Circuit affirmed this. In Spansion v. lTC, 629 F.3d 1331 (Fed. Cir, 2010) the court rejected Spansion's argument that the ITC failed to give meaningful consideration of the public interest in issuing a limited exclusion order because, among other things, it did not consider that the PTO had rejected some of the asserted claims as unpatentable in a reexamination. The court said:
By statute, the Commission is required to issue an exclusion order upon the finding of a Section 337 violation absent a finding that the effects of one of the statutorily-enumerated public interest factors counsel otherwise.
With respect to the ongoing PTO reexamination, such proceeding is not explicitly listed as a public interest factor in Section 337 .. [I]t was not erroneous for the Commission to omit any discussion of such issues from its analysis of the public interest factors when fashioning a remedy to Appellant's violation of Section 337. Id. at 1359-1360. Google is not asking the ITC just to consider information "outside" of the instant investigation, they are asking the ITC to consider the effect of multiple potential exclusion orders (across the different Android investigations). This is contrary to Section 337's requirement that
the Commission consider the effect of the particular exclusion order contemplated on the public interest. Section 337 requires the Commission to evaluate the public interest "with respect to each investigation." 19 U.S.c. § 1337(c) (emphasis added). The statute obligates the Commission to issue an exclusion order in the event that it finds a violation only unless "after considering the effect of such exclusion on the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers, it finds that such articles should not be excluded from entry." 19 U.S.C. § 1337(d); see also, Lexecon Inc. v. Milberg
Weiss Bershad Hynes & Lerach, 523 U.S. 26,35 (1998) (,,[TJhe mandatory 'shall' ... normally creates an obligation impervious to judicial discretion"); Association of Civilian Technicians v. FLRA, 22 FJd 1150, 1153 (C.A.D.C.1994) ("The word 'shall' generally indicates a command that admits of no discretion on the part of the person instructed to carry out the directive"); Black's Law Dictionary 1375 (6th ed. 1990) ("As used in statutes ... this word is generally imperative or mandatory"). Thus, the plain language of the statute states that the Commission
can deny a remedy only if that remedy would adversely impact the statutorily defined public interest factors. The statute does not permit the Commission to deny a remedy where that remedy is only contrary to the public interest if the Commission considers the combined effect hypothetical remedies in other investigations. Thus, to decline to issue an exclusion order in this investigation based on the effect of exclusion orders in other investigations (the issuance of which are hypothetical since the Commission has yet to reach the issue of violation in the other Android cases)" would, therefore, disregard the plain language of Section 337. B. Android's Purported "Open Platform" Status Does Not .Iustity Ignoring the Patent Laws
Google argues that mobile devices using Google's Android operating system should be insulated from Apple's patents, and from the effects of an exclusion order because Android is an "open mobile platform." See Google Submission at 9-11. Google's premise that the public interest in Android's "open platform" outweighs the interest in protecting patent rights, however, is fundamentally flawed. Android is not the "open" platform Google describes, and even if it was, open source technology is subject to the same patent laws as everyone else in the smartphone marketplace. For example, the GNU General Public License (the most widely used
Post-hearing briefs were just filed on October 19,2011 in Inv, No. 337-TA-750 (Apple v. Motorola) and discovery is ongoing in Inv. No. 337-TA-796 (Apple v. Samsung).
OSS license) includes an entire section devoted to patents rights. Ex. 30 § 11 (GNU General Public License, version 3). The Commission should not decline to issue an exclusion order in this investigation because of Google's self-serving characterization of Android as "open source." 1. Android Is Not an "Open Platform"
Android is much less "open" than Google claims it is, and thus the purported public interest in "protecting" Android is diminished. First, Google does all pre-release development on Android behind closed doors and, if it releases source code at all, it does so only after its preferred OEMs have released a device. Second, after release Google continues to exert control over Android through its implementation of strict "Compatibility Requirements." a. Android Honeycomb's Source Code Is Closed
Contrary to Google's claims about the "openness" of Android, its source code base is closed and open to only a few privileged partners. The source code for Honeycomb, version 3.0 of the Android platform, has never been released. Google made a conscious decision to withhold Honeycomb to keep others from accessing and modifying it. See Ex. 7 (Cade Metz, Steve Jobs Vindicated: Google Android Is Not Open, http://www.theregister.co.ukl20 _release_of_first_devices). Galaxy Nexus phone THE
REGISTER(Mar. 24, 2011), available at
11/03/24/google_ will_not_open_source _android _honeycombon
And, while Google and Samsung recently unveiled Samsung's new
which runs on Ice Cream Sandwich, the latest version of Android-
Google is remaining evasive about when, where and even whether Ice Cream Sandwich source code will be made publicly available. See Ex. 8 (Gavin Clarke, Devs still Frozen out of Android Ice Cream Source, THEREGISTER (Oct. 20, 2011), available at http://www.theregister.co.ukI20111l O/20/google _ice _cream _sandwich _freedoml).
As is noted above, Google does all pre-release development on Android behind closed doors and, if it releases source code at all, it does so only after its preferred OEMs have released
a device. This gives Google (and its preferred OEMs) a 6-9 month head start in access to Android source code allowing them to retain a competitive advantage on a supposed "open source" platform. See Ex. 9 (Gavin Clarke, Google Cracks Open Android's Closed Development, THE REGISTER (July 22, 201 )), available at http://www.theregister.co.ukl2010/07/22/ android_open _development). Google's key Android applications, which are "core" to the Android experience, are provided only under closed-source proprietary terms. For example, the following Google Android applications which are included on nearly every carrier-supplied Android handset -
are closed applications: Google Search, Google Maps, Y ou'Tube, Gmail, Talk, Messaging, Google Voice and the Android Market. In light of this, analysts at Vision Mobile recently highlighted Android as the most closed project out of a number of major OSS projects. Ex. 10 (Vision Mobile, Open Governance Index at 38 (July 2011), available at http://www.visionmobile.comlrsc/researchreports/ Open%20Govemance%20Index%20(VisionMobile).pdf). They explained "Google provides all
the necessary tools and development environment for developers to contribute to the platform but clearly prioritizes control and the commercial success of the platform over open governance." Id. at 16. b. Android "Compatibility Requirements"
Google also exerts broad ranging control over the Android platform through its so-called Compatibility Requirements. If a device manufacturer wants to use the Android trademark and
have access to the Android market and other core Android applications (all of which are commercially critical in the mobile industry), it must take a license and comply with Google's strictly implemented and opaque "Compatibility Requirements." The Compatibility
Requirements give Google a huge degree of control over what goes into the Android platform 10
and, in practice, ensure that Android is not as "open" as Google claims. As Dan Morrill, a manager in Googles Android Group, admits, Google is "using compatibility as a club to make [device manufacturers] do things we want ... " Ex. 3 (Steve Lohr, Suit Opens a Window into Google, N.Y. TIMES, May 8,2011, available at http://www.nytimes.coml201110SI091 technology 109google.html ?pagewanted;:;2& _F3&hphttp:// www.theregister.co.ukl2011/0SIOSlgoogle_skyhook_case_goes_on (citing an email from Dan
Morrill dated Aug. 6,2010 produced in the Skyhook Wireless v. Google litigation». The Android Compatibility Requirements govern what devices are considered Androidcompatible. And, compatibility is required before a device manufacturer can use of the Android name and access the Android Market. See Ex. 4 (Frequently Asked Questions, Compatibility, available at http://source.android.comlfaqs.html#compatibility ("[I]f a manufacturer wishes to
use the Android name with their product, or wants access to Android Market, they must first demonstrate that the device is compatible."». Device makers must obtain final approval directly ld. ("f the device
from Google that an implementation meets the Compatibility Requirements.
is to include Android Market, Google will typically validate the device for compatibility before agreeing to license the Market client software ... Device manufacturers should contact Google to obtain access to Android Market.") The Compatibility Requirements are also opaque. The determination of Android compliance takes place in two steps: (l) each Android-enabled device must be run against Google's Compatibility Test Suite ("CTS"); and (2) the device and software reviewed by Google based on non-standardized requirements called the Compliance Definition Document ("CDD"). Ambiguity is introduced into Google's Compatibility Requirements because neither step is comprehensive, and the CnD review, in particular is highly subjective. See id. (explaining that
Android's CDD and CTS "do] ] not attempt to be comprehensive").
Google, thus, has room to
exercise discretion in interpreting a device's compatibility and can erect erects barriers against replacing components on the platform by creating new implementations." Current litigation against Google suggests that Google has used this ambiguity to subjectively enforce Android's Compatibility Requirements. In Skyhook Wireless. Inc. v. Google, Inc., Civil Action No.1 0-3652 (Mass. Superior Court), Skyhook alleges Google used its Compatibility Requirements to eliminate competition from Skyhook, not to ensure the quality of the Android platform. Specifically, Skyhook claims that after Google decided not to license Skyhook XPS (a proprietary global positioning system for mobile devices developed by Skyhook), Google prevented Motorola from replacing Google locations services with the Skyhook XPS service. Ex. 6 ~~ 23,27-32 (Skyhook v. Google Complaint). In addition, Skyhook claims that it entered into an agreement with Motorola to ship its XPS service with Motorola's Android phones, but Google prohibited shipment on the pretext that it was incompatible and forced Motorola to instead use Google's competing application. Id ~~ 27-32. 2. Open Source Is Subject to the Same Patent Laws as All Others in the Marketplace
See, Ex D (Android Compatibility FAQs) "Who determines what will be part ofthe compatibility definition? Since Google is responsible for the overall direction of Android as a platform and product, Google maintains the Compatibility Definition Document for each release. We draft the CDD for a new Android version in consultation with a number of OEMs, who provide input on its contents." http://source.android.com/faqs.html#compatibility.
See also, Ex. 5 (http://static.googleusercontent.com/external_ contentluntrusted _ dlcp/ source.android.com/en/us/compatibilityJandroid-2.3-cdd.pdf ("Device implementers are strongly encouraged to base their implementations to the greatest extent possible on the "upstream" source code available from the Android Open Source Project. While some components can hypothetically be replaced with alternate implementations this practice is strongly discouraged, as passing the software tests will become substantially more difficult. It is the implementer's responsibility to ensure full behavioral compatibility with the standard Android implementation, including and beyond the Compatibility Test Suite."))(emphasis added)
Even assuming Android was as open as Google claims, nothing about the purportedly "open" nature of Android supports insulating HTC's Android devices from an exclusion order. Google's Submission paints OSS and by extension Android as akin to a grass roots
movement that, because it is composed of "amateur actors," should not be subject to the usual patent rules that govern the rest of the marketplace. See Google Submission at 9-10. To the
contrary, the basis for the Android platform, the Linux kernel, is a successful, commercialized software program that is used competitively by a number of highly-successful technology companies. For example, Red Hat made $281 million in Q2 2012 distributing Linux.' and IBM has over 500 commercial products that run on Linux.6 Moreover, contrary to Google's attempt to paint OSS as a grass roots community of hackers, it is in reality very "big business" and one that has continuously operated within the IP rights framework, not outside of it. It has been estimated that over 85% of companies report that they use
ass in their business.
See Nicole Kobie, Gartner: 85 Percent of Firms Use Open
Source, IT PRO (Nov. 17,2008), available at http://www.itpro.co.uk/608322/gartner-85-percent -of- firms- use-open-source. Android and Linux in particular are thriving commercially as Android is seeing 550,000 activations per day. Ex. 13 (Greg Kumparak, Android Now Seeing 550,000 Activations Per Day, Tech Crunch (July 14,2011), available at http://techcrunch.coml201 1/07114/android-nowseeing-550000~activations-per-day/). Jim Zemlin, the Executive Director ofthe Linux
Foundation, calls Linux an "unstoppable force" in the industry. Linux has an entire industry consortium, the Linux Foundation, that "promotes, protects and advances Linux." Ex. 14 (The Linex Foundation website, available at http://www.linuxfoundation.org). The members of the
5 Ex. 11 (Red Hat Reports Second Quarter Results, Press Release (Sept. 21,2011) available at http://investors.redhat.com/releasedetail.cfm?ReleaseID=607350) 6 Ex. 12 (IBM website, IBM & the Lima Community, available at http://www-03.ibm.comflinux!community.html).
Foundation include Google and IBM, two of the largest tech companies in the world, along with dozens of others. ld. In addition, IBM, Red Hat and other large companies that use Linux for commercial advantage have formed the Open Innovation Network (OIN), a patent crosslicensing effort that has as its express and sole purpose to protect Linux. Ex. 15 (OIN Network website, available at http://www.openinventionnetwork.comlabout.php). There is no reason for
a platform that enjoys such commercial success and industry support should be exempt from the patent rules that govern the rest of the technology marketplace.
The Interest in Protecting Patent Rights Outweighs Any Conceivable Harm to Competitive Conditions and the Public Health and Welfare
Like Google's arguments about the "threat" to an open mobile platform, Google's arguments concerning the harm to competition and public health and welfare are unpersuasive and do not justify declining to issue an exclusion order here. The Commission should decline to issue relief only when the adverse effect on the public interest would be greater than the interest in protecting patent rights. See Certain Battery-Powered Toy Vehicles, Inv. No. 337-TA-314, Comm 'n Op. at 11 (Apr. 10, 1991). That is not the situation here. First, Google' s arguments regarding the purported harm are fundamentally flawed because they discuss only the effect of
undefined, broad "injunctive relief," not the specific exclusion order that could issue in this Second, Google grossly overstates the harm to competition in the smartphone
market if the Commission HTC's Android device. Competition would continue to thrive in the smartphone market even ifHTC's devices are excluded from the U.S. Finally, an exclusion order would not have the negative impact on public health and welfare that Google alleges because all mobile devices and smartphones not merely HTC's devices benefit national
defense, disaster relief, and medical applications.
Google Focuses on the Harm Resulting from Undefined "Injunctive Relief' Not the Harm that Would Result From the Specific Scope of an Exclusion Order
As an initial matter, Google's Submission fails to tie the alleged harm to the public interest to the specific patent infringement at issue in this investigation. Throughout its
submission, Google discusses only the harm resulting from undefined, generic "injunctive relief." Google Submission at 9, 11, 14, 15. To the extent that ITC issues a limited exclusion order in this investigation, however, it will be limited to excluding HTC devices found to infringe specific claims of the asserted patents. Public interest has to consider the discrete impact of the precise scope of the order, not some generic notion. See 19 U.S.C. § 1337(d) (directing the Commission to consider the public interest effect of, specifically, the "exclusion" of "the articles concerned, imported by any person violating the provision of this section"). Because Google focuses on the harm from generic "injunctive relief," not the specific scope of an exclusion order in this investigation, Google overlooks that any purported harm to the market is due to HTC's own choosing. HTC and any other Android-based manufacturer can stop using the patented features, or, perhaps, take a license to continue their current activities. The only reason HTC faces exclusion is its continued insistence on marketing Android devices containing infringing, but unlicensed, features. 2. An Exclusion Order Would Not Harm Competition Smartphone Market in the
Google incorrectly frames Apple as an industry behemoth looking to eliminate the "fast moving maverick," HTC. Google Submission at 6. To the contrary, there is considerable competition in the smartphone market and if the Commission excluded HTC's Android devices, there would not be harm to that competition.
Moreover, Android's market share is 39%, ten percent more than Apple's 28% market share. See
Ex. B (http://blog.nielsen.comlnielsenwire/online
_mobile/in-u-s-smartphoneEven if HTC' s Android-
market -android- is-top- operating-system -apple- is-top- manufacturer).
based products are excluded, Apple and Android would have approximately the same market share. ld. And of course, if HTC redesigned its devices to remove the patented features, the market share calculus would remain largely unchanged. Other market participants such as RIM (with 20%) and Microsoft (with 9%) have significant market shares as well. ld. In fact, an exclusion ofHTC Android-based phones would not even eliminate HTC from the market, as it is the leading manufacturer for Windows-based phones. Id. Nor would it eliminate all Android devices from the market since Samsung, Motorola and others manufacture devices that use the Android operating system. These non-HTC Android devices would be unaffected by any exclusion order issued in this investigation.' Google goes so far as to argue that an exclusion order would harm competition among wireless network providers because HTC phones use a variety of services. But the same is true for the remaining competitors. For example, Apple's customers have a choice of AT&T, Verizon, and Sprint. See Ex. 16 (Apple Store iPhone Family, available at http://store.apple.coml us/browse/home/shop _iphone/family/iphone). In addition to overstating the market impact of HTC, Google also overemphasizes the importance of the Android operating system to the smartphone market. Google describes the smartphone market as having a choice between only two operating systems: the Apple iOS platform and the Android platform. See Google Submission at 6-9. It ignores that RIM's Blackberry operating system has 20% of the market, and that Windows 7 Phone is gaining in
Further, as discussed in Section lIl.A, supra, Google's request that the Commission consolidate its analysis of the public interest here with other investigations involving non-H'I'C Android device manufacturers is wholly improper.
market shares. Further, Google's portrait of the industry as defined by only Android and Apple iDS is contradicted by recent statements by HTC that "HTC wouldn't rule out creating its own operating system." Ex. 17 (Paul Mozur, HTC 'Very Open' to Further Acquisitions, (Oct. 21, 2011). 3. An Exclusion Order Would Not Harm the Public Health and Welfare
If the Commission issues an exclusion order applicable to HTC Android devices, the public will not lose the benefit of mobile applications that aid in disaster response, national defense, and medical applications. Google cites a host of examples of useful Android applications, including disaster response, national defense, and medical applications. See Google Submission at 14-15. These are not benefits of Android devices, but benefits of smartphones. These same types of applications are currently available on other platforms, including Apple's iPhone. U.S. soldiers have designed iPhone apps to help fight in Afghanistan' and medical specialists created an iPhone app for first-responders." An exclusion order would not bring
military or medical activities to a halt, but rather would require these activities to continue using non-infringing devices. Many of these purported harms would be eliminated by the exception to all exclusion orders provided for in § 337(1), which provides that exclusion orders "shall not apply to any articles imported by and for the use ofthe United States, or imported for, and to be used from, the United States[.]" 19 U.S.C. § 1337(1). Federal disaster responders, the military, and Federal
s See Ex. Q (Harry Sanna, U.S. Soldiers Design iPhone Apps to Help Fight Taliban in Afghanistan, (Jan. 30, 2011) available athttp://www.post-gazette.eom/pg/11030/l121316-82.stm)
See Ex. R (Troy Dreier, Emergency First Responders Get iPhone App, PC MAGAZINE (Feb. 22, 2011) available at http://appseout. pem ag.com/app1e- ios-iphone- ipad- ipod/2 6871 l-em ergeney- first -responders-get - iphoneapp#fbid=hebxkoqE56Y)
police agencies therefore would not be affected by any exclusion order that issues in this investigation. IV. REPLY TO HTC'S SUBMISSION Contrary to HTC's arguments, a limited exclusion order will not have a significant negative impact on competition in the smartphone market, including the nascent 4G market. HTC argues that there are no substitute devices to the HTC smartphones that are the subject of the current investigation. But HTC severely overstates its position in the 4G smartphone market
and fails to recognize the plethora of existing and emerging substitutes to HTC's devices. A. HTC's Claim that Its 4G Mobile Products Are Irreplaceable Is Faulty 1. HTC's Claim that It Manufactures 50% of All 4G Handsets Is Misleading, as 4G Handsets Represent a New Market and There Is Much Debate as to Where the Dividing Line Between "3G" and ~'4G" Stands
Though HTC jumped to a quick start in marketing its 40 mobile products, HTC will likely have difficulty hanging on to its early market share as more 40 handsets come to market. The introduction of 40 handsets is a recent development, and competitors will surely continue to battle for position in the 40 smartphone marketplace. For example, AB! Research reported
earlier this month that 40 smartphone shipments in 2010 were only 4.6 million globally -- a number expected to jump to 245 million in 2016. See Ex. 29
11_10_19 _lte_handset , shipments _to_
hit_l 54_million_in_201 5.html). Moreover, the line between "30" and "4G" on which HTC places heavy reliance is still highly debatable. In fact, the current lack of clear boundary definitions has encouraged at least one Congresswoman to introduce legislation that would establish real guidelines for determining "40" speed. See Ex. 20 (http://www.dailywireless.org/20 11/06/22/wireless-disclosure-act-4g-honestyl). Because of this
uncertainty of 40 limits and the small universe of"40"
handsets on the market today, HTC's
claim to over 50% of 40 devices in the market may be overstated, or at the very least, is unreliable. 2. Even as the 4G Market Currently Stands, HTC Improperly Asserts that its 4G Products Lack Competitive Substitutes
HTC's attempt to characterize its 40 mobile products as irreplaceable by taking a snapshot of the current industry falls short, as 40 carriers currently offer other manufacturers' devices instead of, or in addition to HTC devices. Although HTC makes much of its launch of a 40 handset with Verizon Wireless in May 2011, as of June 2011, CTIA - The Wireless Association, the major trade association for the wireless industry, did not even mention HTC in its list of devices associated with that carrier. See Ex. 21 (http://blog.ctia.org/20 11106/13/wirelessindustry-innovation-devices/). Instead, CTIA listed the
Samsung Droid Charge, LG Revolution, Motorola Droid Bionic, and Motorola Xoom devices.
Id. Similarly, MetroPCS, an important regional carrier, currently offers 40 handsets from LO and Samsung, but not from HTC. See Ex. 22 (http://www.metropcs.comlpresscenter/
articles/mpcs-news-20 100921.aspx). In fact, among six 4G carriers, including AT&T, CellularOne, MetroPCS, Sprint, T-Mobile, and Verizon Wireless, not one exclusively offers HTC devices. See Ex. 21. Because leading national and regional carriers choose not to offer HTC products, HTC's devices are far from irreplaceable. B. Like, or Directly Competitive Alternatives to HTC's Android Phones are Readily Available 1. HTC's Argument that Competitors' Offerings Cannot Replace HTC's Portfolio of Devices Ignores that Smartphone Market Shares Evolve Rapidly
Recent business activities of smartphone manufacturers suggest that HTC's current position in the 4G marketplace is unlikely to last. For instance, Android's share of the
smartphone market was just 10% fifteen months ago, it is now 43.5%, and it is projecting at 49% by the end of 2011. The numbers suggest a market that is still emerging, and competitors, such as Microsoft and Nokia, are creating partnerships that will unquestionably foster competition in the marketplace. See Ex. 23 (http://www.microsoft.com/presspass/press/201 11partnership.mspx). In fact, Microsoft's Windows Phone 7, particularly with its updated Mango operating system, is gaining popularity, and Windows Phone 8, expected to be even more successful, will be released in 2012. Windows Phone 7 is now available in many different form factors and from multiple hardware manufacturers, with decreasing costs to the consumer. See Ex. 24 (See
11-10-20/microsoft-to-help-halve-phone-costs-next-yearand especially Mango has also gotten strong,
Windows Phone 7-
positive reviews in the tech press. See Ex. 25 (ttp:l/review.techworld.comlmobileoss/3 3078 76/mierosoft -windows- phone- 75-review/?view=verdict&intcmp=rv-ia-tb-4; http://www.popsci.eomlgadgets/article/2011-09/windows-phone-75-mango-review-getting-
closer-now). Notably, the growth ofapps available through Windows Phone 7 has been faster than on either Apple or Android, suggesting a promising future. See Ex. 26 (See http://www.mobilityfeeds.com/mobility -feed/2 0 I1/03/windows- phone- 7-marketplace- fastest-
growing -app-store-ever-over-I OOOO-appsin-less- than- 5-months- microsoft.html). Further, the list of current leaders in the overall smartphone market may help point to eager competitors in the new 40 handset market. The top five global handset manufacturers are Nokia, Samsung, LO Electronics, ZTE, and Apple. See Ex. 27 (See http://www.ide.comlaboutlviewpressrelease.j sp?containerId=prUS226 79411). HTC already
competes with Samsung and LO, and can expect fierce competition from Apple and Nokia (with
Microsoft) in the 40 market soon. These companies, some of whom also incorporate Android operating systems, will not simply allow HTC, notably absent from that list, to drive the 40 market. As a result, even if HTC' s estimation of its 40 smartphone market share is accurate, HTC has not offered any evidence that competitors' phones will not flood this nascent market in the months to come. 2. HTC Fails to Consider that Suitable Alternatives to HTC's Android Device Already Exist
Looking beyond 40 handsets, HTC substantially overestimates its own significance to the Android-based smartphone marketplace. As addressed in the OUII's Response to the Issue
of Public Interest, numerous alternatives to HTC's devices exist to address consumer demands and public health, safety and welfare concerns. Though smartphones running the Android operating system account for approximately 40% of the entire smartphone market, HTC-Android phones represent a mere 14% of that Android-based smartphone market share. See
(http://blog.nielsen.comlnie1senwire/online_mobile/in-u-s-smartphone-market-android-is-topoperating-system-apple-is-top-manufacturer). Thus, under a limited exclusion order directed at
HTC's smartphones, 86% of the entire Android-based smartphone would be readily available for consumers or safety and emergency personnel who prefer that system. Such a minor public impact cannot justify the broad exception HTC seeks. Moreover, consumers, businesses, and safety personnel would still have access to the non-Android smartphones if the ITC issued a limited exclusion order in this investigation. noted in the As
Response, Apple, Nokia, RIM, Samsung -and even HTC - currently supply
smartphones utilizing operating systems other than Android. These non-Android-based smartphones comprise over 60% of the United States smartphone market. See OUIl Ex. A (htlp:llblog.nielsen.comlnielsenwire/online_mobile/40-percent-of-u-s-mobileusers-own-
Additionally, RIM still leads the business and enterprise
market, even if its lead has shrunk in recent years. Ex. 28 (http://www.visagemobile.comfnewslblogsI7392!blackberry-may-be-Iosing-grip-on-enterprisemarketl). These competitor manufacturers will willingly and adequately replace HTC's market share in case an exclusion order is issued. In sum, HTC's attempt to invoke a sweeping public interest exception severely overstates its own importance to the 4G market and ignores the existence and emergence of suitable competitor smartphones,
For these reasons, ACT respectfully submits that the Commission should not be swayed
by Google and HTC's submissions in considering whether to exclude any HTC Android devices that infringe any of Apple's valid patents. There are no compelling public interests that would support a decision to deny or limit relief in this investigation should the Commission find a violation.
Date: October 24, 2011
Morgan Ree Executive Director The Association for Competitive Technology 1401 K St. NW Suite 502 Washington, DC 20005 Tel: (202) 331-2130 Fax: (202) 331-2139
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