Sunday, October 20, 2019

Judicial imperialist Birss rewound 3,000 years to crown himself King Solomon of FRANDland--dethronement is nigh: Unwired Planet v. Huawei

First things first: CONGRATULATIONS to now-Lord Justice Richard Arnold, who was sworn in a few days ago as a new IP judge at the UK Court of Appeal. For the time being, Justice Colin Birss is now the only (at least the only well-known) patent-specialized judge at the court below, the England & Wales High Court (EWHC). Some thought Justice Birss was going to be promoted sooner, but Lord Justice Arnold, whom I listened to earlier this year, is far more likely to bring balance to the appeals court.

Who knows--maybe the decision-makers read Justice Birss's Unwired Planet v. Huawei ruling, which came down to letting a SEP holder enforce an injunction only because the defendant declined to enter into a global (as opposed to UK-specific) portfolio license on terms dictated by the UK court, is not just an outlier. It was and, until overruled, continues to be outrageous. If considered, that one would have done nothing to boost his chances. But what's easily ten times worse is that the UK Court of Appeal affirmed it.

The next four days--Monday through Thursday--the Supreme Court of the UK, which granted the equivalent of a cert petition by Huawei, will hold a hearing that is the last chance to dissuade the UK judiciary from going further down Disaster Road.

Unlike in the U.S. or Germany, where hearings by the top court for patent infringement cases are focused on narrow legal questions and take only a couple of hours, the Supreme Court of the UK will look at this in great depth and from many angles. While Unwired Planet is where things went awry first, that appeal was consolidated with Conversant v. ZTE.

Huawei has more than one potential way of winning. For an example, the grant of an injunction was reversible error simply because Unwired Planet was found not to have made a FRAND-compliant offer--enough of a reason under the CJEU's Huawei v. ZTE framework to deny injunctive relief. And he reads the "ND" part out of "FRAND" (or at least applies it in antitrust--not contractual--terms). But the two most fundamental--and interrelated--questions are whether a UK court should coerce a defendant into a global portfolio license at all, and even if that was considered a possibility under some circumstances, whether that would even apply in a case like this: Huawei generates only about 1% of its worldwide sales in the UK, making the choice of venue nothing but (extreme) forum shopping on Unwired Planet's part.

Apart from patent monetization-centric companies like Qualcomm, Ericsson (which fed Unwired Planet with patents), and Nokia (which sold patents to Conversant), the technology industry at large stands behind Huawei and ZTE. The last case of a similar profile in which everyone I talked to hoped for reversal by the highest court was the design patent damages (to the extent of unapportioned disgorgement) Apple v. Samsung case.

In January 2015, Justice Birss himself was still on the right track in Vringo v. ZTE:

"I could see a very different circumstance if Vringo had made a FRAND offer for the [UK patent-in-suit] itself and that offer had not been accepted. Then an injunction might well follow. In that sort of case, unlike the one based on the global portfolio licence, the threat of the injunction, which is after all a territorial remedy, would not be being used to create some sort of international coercion or coercion about other patent rights." (emphases added)

Between that sensible holding, a subsequent occasion on which he reiterated that view, and the Unwired Planet v. Huawei mess, Justice Birss--one of many European judges who are anxious to see the Unified Patent Court put in place at long last--radicalized himself and went off the deep end.

It's a longstanding principle of patent law that it confers territorial rights. Even if multiple patents belong to the same patent family as they share an original specification and its priority date, a British patent is not a U.S. patent is not a Chinese patent.

With "coercion," Justice Birss, prior to his self-radicalization, was spot-on. While his Unwired Planet v. Huawei ruling doesn't formally order Huawei to enter into a global portfolio license agreement, that's simply the net effect unless Huawei would prefer to just exit the UK market. Unwired Planet's enforcement of the injunction would serve the purpose of what would otherwise (in the event of a court ordering specific performance) be contempt sanctions--very draconian ones in this case.

It's not in the interest of justice to let a court in one country simply presume the validity and infringement of patents in another jurisdiction, given that patent law does differ. In a decade of watching patent infringement cases closely, I've seen many situations in which patents from the same family fared differently not just because of judges taking different views (that happens even within the same jurisdiction all the time, especially with patent cases) but for venue-specific reasons. For an example, I've seen parties raise prior use defenses in Germany, and what they presented had (to have) happened only in Germany. I've seen prior art being deemed eligible in one jurisdiction but not in another, simply based on whether something one could find in a particular unversity library wasn't deemed public knowledge elsewhere.

It's disrespectful of other jurisdictions to adjudicate what they should rule on. This is called comity of nations. It's also an issue in connection with antisuit injunctions, a topic Professor Jorge Contreras touches on in his new paper, "The new extraterritoriality: FRAND ryoyalties, anti-suit injunctions and the global race to the bottom in disputes over standard-essential patents." Violating that principle has been described as "judicial imperialism," which appears to have become Justice Birss's school of thought.

The fact that Justice Birss set a global base royalty rate with a potential for further increases based on the status of local SEPs held by the same party doesn't solve the problem that Unwired Planet might simply not be entitled to a single cent in some places (or, if not to nothing, to much less than what Justice Birss determined).

Justice Birss based his coercive approach on the fact that real-world negotiations typically result in global portfolio licenses. But even when a court of law analyzes what would or might happen in the real world, a court will never have the full breadth of options available that private parties do when they negotiate with each other. There must be limits as to what can be imposed on someone against his will.

Paragraph 377 of Justice Birss's decision is a textbook example of a fundamentally flawed approach to an important question of fact: the number of relevant SEPs (i.e., SEPs reading on the cellular standards at issue in the case), as the question of how much Unwired Planet is entitled should not lead to an aggregate royalty on everyone's SEPs that would be excessive royalty-stacking:

"The number for 4G handsets [proposed by Huawei] is 1812 and is much too high. The corresponding number in [Unwired Planet's proposal] is 355 but that number is much too low if it is to represent all Relevant SEPs. I think both values are out by about a factor of two. Half of 1812 is 906 while twice 355 is 710. Splitting the difference takes one to 800. Standing back, about 800 is fair and in my judgment an appropriate figure for the pool of 4G/LTE patents. Applying that as the denominator in a fraction to determine the share S which Unwired Planet’s patents represent from the pool gives 6/800 = 0.75%." (emphasis added)

Give me a break. The part I highlighted simply assumes that justice is served by assuming either party exaggerated by a factor of two, just in opposite directions.

There's nothing there that supports either the finding that one number is too high (other than the reasonable assumption that a SEP holder obviously benefits from a lower number (because then the share is higher) and a defendant conversely would like it to be high.

This. Is. Primitive.

It might be the way that a kindergarten teacher resolves a dispute between two children. Hopefully, those kids will acquire greater analytical skills when they grow up.

A similar approach may have been deemed wise in the case of the Judgment of Solomon (whether or not that story actually happened). But nowadays motherhood could be determined based on a DNA test instead of threatening to cut a baby in half. For FRAND rates, there are studies, and there are expert witnesses.

There have been roughly 3,000 years of legal evolution since Solomon's era. Justice Birss, a patent zealot, chose to rewind those three millennia. Now there's only one time machine that can put us all back into the 21st century: the Supreme Court of the UK will hopefully--and I'm very optimistic--dethrone this self-crowned King Solomon of FRANDland.

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Thursday, October 17, 2019

Requiring SEP holders like Nokia to license automotive suppliers would spur European IoT innovation on bottom line

While I agree with Politico.eu's question of whether it's a good idea for one EU commissioner to be put in charge of both digital innovation and antitrust enforcement, and have previously criticized the de facto merger of two other directorate-generals of the European Commission, I sharply disagree with the suggestion that a formal antitrust probe of Nokia's refusal to extend exhaustive SEP licenses to component makers on FRAND terms would threaten to weaken Europe's position in the 5G era.

Nice try, Politico and IP Europe (an industry body representing patent monetization-focused companies)--but most likely you're barking up the wrong tree as Margrethe Vestager may simply be immune to anyone's attempt to implant in their head a conflict of interests between two areas of responsibility. [Update] On Twitter, Thibault Larger, the author of the Politico article, has explicitly denied having had the intention to influence the process. He furthermore provided explanations I would summarize as arguing that while he believes there are innovation policy concerns (I view the dynamics differently), his article didn't rule out that Mrs. Vestager might decide in favor of antitrust law enforcement regardless of the industrial-policy concerns Politico believes to have identified. [/Update] Even more so when an article fails to meet journalistic standards: it would have been more honest to let IP Europe author an op-ed. [Update] Also via Twitter, the author noted that "Competitive Edge" is an opinion column. However, I replied that the fact it contains extensive quotes--with an emphasis on and strong endorsement of IP Europe's views (he finds them "very cool" as he said), but also from the Fair Standards Alliance--blurs the distinction between an opinion piece (which normally comes either with no quotes or, if there are any, they are few and far between and only for the purpose of endorsing or criticizing them) and a report. [/Update]

The backdrop is that the Directorate-General for Competition (DG COMP) received antitrust complaints earlier this year from Daimler and four of its suppliers--Continental, Valeo, Gemalto, and BURY--over Nokia's licensing practices. With the Juncker Commission on the way out and the confirmation of the incoming von der Leyen Commission facing delays, the EU's executive body is basically in a state of interregnum. At any rate, Mrs. Vestager will remain in charge of competition enforcement as she sailed through her confirmation hearing. She proved just yesterday that antitrust violators can't hope for a breathing space.

The aforementioned Politico article basically argues that Mrs. Vestager would have to leave Nokia and, by extension (as its practices are similar), Ericsson alone at this stage because they posted losses last year and are the only European makers of 5G network infrastructure, but merely launching formal investigations would adversely affect their licensing negotiations.

Either of those two Nordic companies has a market capitalization between 25 and 30 billion euros--and from my many interactions with investment banks and funds as a consultant, I assume the market has already prized in a fairly high likelihood of formal investigations. Those companies used to be much stronger than they are today, so they have become ever more reliant on patent licensing revenues. But they're in the infrastructure business because they believe it's a good one to be in. If they believed otherwise, they'd spin it off and focus on patent licensing, which would be even more profitable after eliminating the need to secure cross-licenses and the risk of infringement countersuits.

Whatever the outcome of formal investigations might be, no one will get a free ride: Nokia, Ericsson, and all other SEP holders will continue to be entitled to FRAND royalties. They believe they can make more money licensing end-product rather than component makers. Ericsson said as much in a presentation, and Qualcomm told the IRS. So for the sake of rational analysis, let's grant Nokia (and, by extension, Ericsson) that their licensing revenues might suffer some reduction as a result of an obligation to license component makers. Would that fact, in and of itself, complicate Mrs. Vestager's task when wearing her other future hat, the one for digital industry policy? Only if one defined the "digital industry" so narrowly that it would basically be limited to two companies.

Component-level SEP licensing doesn't impede innovation. It enables more of it.

Connected cars are a particularly important part of the Internet of Things (IoT). In that industry, which employs roughly 14 million people in Europe (quite a bit more than mobile communications technology companies), supply chains have great depth. Access to SEP licenses at all levels of the supply chain would result in market efficiencies as component makers would have more legal certainty with respect to IP liability--at least they'd control their destiny to a considerably greater extent. So their ability to innovate would be strengthened.

Europe is probably never going to catch up with U.S. digital platform companies like the so-called GAFA group of companies. However, car makers are still Europe's most successful exporters of technology, and plenty of other European companies have already jumped on the IoT bandwagon or will in the coming years. Every single day, some products somewhere are made fit for the digital age by means of mobile connectivity--and new products are created that would be unthinkable without it. It is, therefore, in Europe's best interest to ensure that the desire of a few to maximize their patent licensing income doesn't drive or keep countless others out of the IoT space.

The tiered supply chain has enabled the industry to innovate, bringing safer and more intelligent vehicles to consumers. Over the last five years, the worldwide automotive industry spent approximately 500 billion euros on R&D. In the EU alone, the automotive industry invested more than 170 billion euros in R&D, with stand-alone investments of EU automotive suppliers (i.e., R&D not supported by customers) accounting for more than 41 billion euros according to PwC Most Innovative Companies (2017).

In 2017, Valeo alone--only the third-largest of the five complainants--invested 1.9 billion euros in R&D and filed 2,053 patent applications. Digital innovation comes in many shapes and forms, and Mrs. Vestager will be responsible for optimizing the bottom line of an entire sector, not just that of two companies.

Not only are Nokia and Ericsson just a tiny subset of Europe's digital economy (and IoT potential) but there is also no such thing as "5G infrastructure autonomy." 5G deployment will mostly just involve upgrades to existing base stations, and Huawei already has a fairly high market share in Europe. It's probably hard to find any European carrier who wouldn't be using at least some Huawei base stations anyway.

Europe's share of 5G patents shouldn't be overestimated either. Nokia and Ericsson played a bigger role in connection with earlier cellular standards. In 5G, some Asian companies are stronger, and let's not forget about Qualcomm either. Anyone seeking licenses to 5G patents is going to need licenses to more non-European than European patents.

Most of the work on 5G has been done, so Nokia's and Ericsson's continued ability to invest in research and development won't tip the scales in that regard.

Finally, the Politico story mentioned concerns that licensing negotiations might be adversely affected by an antitrust investigation. I don't even believe that there would be much of an impact on licensing negotiations during the formal investigations. No one would be able to rely on any particular outcome of the EU case. If anyone (at any level of the supply chain) nevertheless delayed the conclusion of license agreements, such as because a car maker might prefer to wait and see whether its suppliers will be entitled to a license, license fees would still be owed on every single unit of a product that is sold. In that hypothetical scenario, a patent holder might sometimes get paid later, but liquidity is a non-issue for companies with market caps in the 25-30 billion euro range.

If launched, formal investigations shouldn't take exceedingly long as this case is important, but not huge. And Nokia itself could always cut everything short by offering commitments that would solve the problem.

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Wednesday, October 16, 2019

German patent injunction reform process plagued by misconceptions, strawmen, and bogeymen

Juve Patent wrote last month that the patent reform bill the German government is currently drafting "will likely disappoint many experts and not include the major changes to the automatic injunction that have been called for by the German automotive and telecommunications industries." I don't think one can know for sure at this point that the process isn't going to go in a helpful direction. The proposal might still end up being better than expected, and even if not, the legislative process in the Bundestag (Federal Parliament) could result in major improvements. But given how long major stakeholders such as Germany's automotive industry and Deutsche Telekom have been lobbying for change, an article like the one I just mentioned is disappointing. What we should see at this stage is articles in which patent monetization-focused organizations like Siemens and its allies would spread FUD (fear, uncertainty, and doubt), such as warning against a decline in innovation.

What that Juve Patent article calls "major changes" (to patent injunction rules) would simply put German patent law in compliance with settled EU law. It's not an overreaching demand; it should be viewed as an inevitable minimum outcome.

There hasn't been much press coverage of the German patent reform process, and only last week did two members of the German federal parliament--both from the chancellor's party, the Christian Democratic Union (CDU)--issue a public statement. The headline of the joint press release by Elisabeth Winkelmeier-Becker, the CDU/CSU group's legal affairs spokeswoman, and Ingmar Jung, the group's patent reform rapporteur, demands better protection of corporations from patent trolls.

Placing the emphasis in a patent reform context on trolls is generally beneficial in the public debate as hardly anyone would want to stand up to defend the "trolls'" interests. Anyone who disagrees with measures against "trolls" would firstly have to insist on properly defining what a "troll" is versus a legitimate research-focused licensing business. The term "patent troll" can serve to frame a debate, and that's what those center-right politicians apparently considered appealing.

But there's a significant downside. Not only are "patent trolls" just one part of the problem (and still--despite some signs of increasing activity--a far smaller part in Europe than in the U.S.) but there's a serious risk that even if German patent law was modified and required a proportionality analysis as opposed to practically automatic injunctions, the courts might end up denying injunctive relief only (or largely) to non-practicing entities (NPEs).

While both the Supreme Court's eBay v. MercExchange ruling and the America Invents Act (AIA) made it harder for trolls to gain leverage over alleged infringers, the rules and tests they established aren't NPE-specific (though there is a strong argument that eBay hasn't had nearly as much of an impact on patent holders who can establish competitive harm as ithas on NPEs). If Germany, contrary to Juve Patent's current operating assumption, added a proportionality requirement to the injunction clause (§ 139) of its Patent Act, the statute itself wouldn't be as specific as the four-factor test in eBay. It would be up to the courts how to interpret and apply the new statute, and in the initial absence of any German case law, they would try to understand the legislative intent behind the reform bill.

A press release by the larger one of the two parliamentary groups in the current government coalition would not, all by itself, prove or disprove any legislative intent. No irreparable harm has been done to the cause. However, when you get closer to the actual votes, there will be debates: in the legal affairs committee, possibly also in other committees (such as economic affairs), and in the plenary. What lawmakers say there about the underlying rationale and the objectives they pursue with the bill is likely going to influence the subsequent interpretation of the new statute by the courts. If judges conclude that the purpose came down to denying NPEs access to injunctive relief, they will rule accordingly--and nothing will change with respect to patent lawsuits brought by organizations like Qualcomm, Nokia, Ericsson, Siemens (who hold far more patents than trolls, and are no less aggressive).

There's only one thing I do like about the CDU/CSU press release: they stress that there's an urgent need to act in order to prevent that German companies would be permanently disadvantaged in the global economy. That is indeed a problem with respect to companies that manufacture and/or warehouse products (such as cars) in Germany. And trolls are a significant part of that problem, but not the largest part.

Mr. Jung's quote is very soft and weak with respect to what legislative change is actually needed: he merely describes a proportionality requirement as "a/one [the indefinite article and the numeral are the same word in German] possible solution." Again, considering that it's simply dictated by the EU enforcement directive (the related passage of which has in fact been implemented by Germany in connection with other types of intellectual property than patents), it's mandatory, not optional.

The debate should only be about what guidance the courts should get: what criteria to analyze, and their relative weight.

As a secondary demand, the two CDU/CSU politicians propose what the leading German automotive industry association demands as well: to close the injunction gap, which is the net effect of invalidation proceedings before the Federal Patent Court of Germany taking far longer than the initial infringement decisions by (at least) the Mannheim Regional Court and the Munich I Regional Court. (At this point the Federal Patent Court has such a backlog that even the Dusseldorf Regional Court would order an injunction long before the validity determination.)

The injunction gap is definitely part of the problem--but closing it wouldn't be enough. At this point there's a high risk of the ultimate "compromise" just amounting to an enforcement stay between the conclusion of the first-instance infringement case and the Federal Patent Court's validity determination.

The final sentence of that CDU/CSU press release is simply off-base. It says: "With a particular view to standard-essential patents, there is an observable increase in lawsuits leveraging patent injunctions to the detriment of producing companies."

There was a time when German courts granted SEP injunctions almost as readily as non-SEP injunctions. But with the CJEU ruling in Huawei v. ZTE, that changed; in fact, courts were already somewhat hesitant during the European Commission investigations of Samsung's and Motorola's SEP assertions.

Further improvement with respect to SEP injunctions would be highly desirable, and there have been some worrying decisions by some courts recently. But SEPS are now the only category of patents over which even German courts don't grant automatic injunctions. A key stakeholder said at a government roundtable in May: "We're not here to talk about SEPs." He didn't mean that SEPs should be outside the scope of the reform bill, but that there's a need for a more balanced patent injunction framework with respect to SEPs and non-SEPs alike.

Siemens, which doesn't want any such reform to have teeth (until its own IoT products or medical devices get enjoined at some point), likes to frame the debate that way. They say those concerns are mostly over SEPs, and for SEPs the situation has improved after Huawei v. ZTE.

It's positive to see some parliamentary engagement here at this stage (before the bill is officially introduced). It's very good that a government party (though it's not the one running the Federal Ministry of Justice) confirms there's a sense of urgency for reform. But last week's statement falls far short of what's needed, and reflects the political clout of those who would like to maintain, to the greatest extent possible, the status quo.

Trolls are a bogeyman that can ultimately limit the impact of any reform. The portrayal of the problem as being SEP-related above all else is a strawman that some like to put up only because it's not too hard to take down.

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Saturday, October 12, 2019

Brussels conference (12 Nov) on component-level SEP licensing: roster of speakers almost finalized

I have an update on the upcoming (November 12, 2019) Brussels conference on component-level standard-essential patent (SEP) licensing (for a reminder, here's the registration link). We'll have a roster of really great speakers representing a diversity of perspectives and opinions. I will soon publish the final conference program with all names, but for a preview, let me introduce the moderators and speakers I can already announce--in the order of their planned appearances:

The first session in the morning will be a discussion panel touching on the implications of component-level licensing, or companies' refusal to engage in it, from an antitrust and contract law perspective. There will be a total of four panelists, and I'll ask the questions. As of today I can announce two of the panelists: Pat Treacy is a competition lawyer and partner with Bristows, and a part-time judge on the Chancery Division of the High Court of England and Wales. Paul Lugard is a partner at BakerBotts who has represented clients from many industries (including, but not limited to, consumer electronics and telecommunications) vis-à-vis the European Commission.

Dave Djavaherian, the founder of PacTech Law, served as associate general counsel at Broadcom (I met him at the time as certain Broadcom customers faced lawsuits in Germany). Dave has a wealth of experience in licensing, litigating, and arbitrating SEP matters--and is deeply involved with standards development and policy making (for an example, as vice chair of CWA2).

Two executives from innovative European companies will share experiences in seeking component-level licenses: Nordic Semiconductor's CTO Svein-Egil Nielsen, and AirTies' co-founder and CTO Metin Taskin.

Professor Joachim Henkel teaches technology and innovation management at the Technical University of Munich, and was a visiting scholar at University College London, MIT Sloan School of Management, Harvard Business School, and Singapore Management University. Professor Henkel recently updated his paper entitled "How many patents are valid? Extent, causes, and remedies for latent patent invalidity," the first version of which I mentioned five years ago. His focus at next month's conference will be on the economics of patent licensing.

John "Jay" Jurata is an Orrick, Herrington & Sutcliffe partner and the leader of the firm's global antitrust practice. I've linked to some of his writings in the past, such as an article on Assistant Attorney General Makan Delrahim's SEP policy positions and one on the Unwired Planet global FRAND rate case that the Supreme Court of the UK will hear in about a week from today.

Eric Stasik, the founder and director of consulting firm Avvika AB, provides assistance and guidance to firms engaged in commercial patent license negotiations (both patent holders and potential licensees), particularly within the field of mobile communications. I've seen his expert reports in various SEP cases involving FRAND licensing questions, and while we've often disagreed on LinkedIn, we get along well and maintain a constructive dialog. Eric's 20+ years of SEP licensing experience include 10 years of working for Ericsson (1992-2002), initially as a senior patent engineer and later as Drector of IPR and Licensing for Telefonaktiebolaget LM Ericsson (the corporate parent of the entire Ericsson group). He'll comment on the fallout from FTC v. Qualcomm against the background of his hands-on licensing expertise.

Evelina Kurgonaite became Executive Director of the Fair Standards Alliance earlier this year. Previously, she was Head of Policy Strategy and Legal Counsel at Samsung. She also worked for PaRR (Policy and Regulatory Report). Evelina will analyze the the FTC v. Qualcomm decision from the perspective of whether a similar outcome would be possible under EU antitrust law.

Rafał Sikorski is a professor of law (with a focus on IP as well as competition law) at Adam Mickiewicz University (Poznan, Poland) and a senior partner at SMM Legal. He's a sought-after conference speaker. He gave very well-received speeches at a Munich conference on injunctive relief earlier this year (where Judge Robart and (soon-to-be Lord) Justice Arnold also spoke). At my Brussels conference, Professor Sikorski will talk about certain SEP-related antitrust complaints.

Kent Baker, Head of IP Strategy & Licensing at u-blox (a company headquartered in Switzerland and selling positioning and wireless communication technologies around the globe), will discuss the U.S. Continental v. Avanci et al. case.

Edmund Mangold, a co-inventor of multiple patents, is patent counsel at BMW. Mr. Mangold will introduce the panel on access to injunctive relief and later join fellow panelists Maurits Dolmans, a Cleary Gottlieb Steen & Hamilton partner who represents major clients such as Google, IBM (for whom he recently secured unconditional approval of the acquisition of Red Hat) and Walt Disney in the EU (and is also admitted to practice in the United States), and Bram Nijhof, who heads Taylor Wessing's competition, EU and trade practice group in the Netherlands. I will ask the panelists a few questions about patent injunctions, not only related to SEPs but also with a view to the ongoing patent reform process in Germany.

This conference will touch on certain hot topics that some people prefer not to talk (or even not to think) about. I took this initiative because I felt it was time to organize an event with that focus. It will be an honor to welcome such top-notch speakers in a month from today. And if you'd like to come and listen, here's a link to the registration page, again.

As I've mentioned on another occasion, there will be a comparable event in the San Francisco Bay Area in mid-January, and I expect to be able to share some more information on that one next month.

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Thursday, October 10, 2019

After voting down EC candidate Goulard, the European Parliament should oppose giving France control over both DG GROW and DG CONNECT

The Financial Times' EU reporter Mehreen Khan just reported that the European Parliament has overwhelmingly decided to reject Sylvie Goulard, French president Emmanuel Macron's candidate for what would arguably have been the most powerful position in the new European Commission (this post continues below the tweet):

As Mehreen Khan noted, only 12 MEPs outside her own European-level political group voted for her. Practically all European People's Party and Socialists & Democrats MEPs voted against Mrs. Goulard, a scandal-ridden candidate who failed to provide a convincing answer in her confirmation hearing to the simple question of why one should confirm her as an EU commissioner in light of the fact she had to resign as French minister of defense. She promised to step down should she be ultimately convicted of any wrongdoing, but that was unsatisfactory because it wouldn't have occurred before the end of her term.

Virtually all European media reports in the build-up to the parliamentary decision suggested that resistance to her nomination was fueled by institutional outrage: at least the two largest groups in the European Parliament believe in the spitzenkandidat approach, a word borrowed from German that means "top-list candidate" and stands for the notion that only a candidate for the EP should be named president of the European Commission, the bloc's executive branch of government. But the new Commission president, Ursula von der Leyen, didn't run in this year's EU elections. She was Germany's minister of defense, and came into play when neither the EPP's Manfred Weber or the S&D's Frans Timmermans (whom I've repeatedly called "Poor Man's Bernie") managed to secure a majority.

What only one of the articles I saw mentioned is, however, the issue I'd like to focus on because innovation matters more than retribution: apparently some MEPs were concerned not only about the integrity of that particular candidate but also (or even primarily) about the allocation of fields of policy-making among the different commissioners.

No matter who will be named instead of Mrs. Goulard, what the EP should never accept--for the sake of Europe's fitness for an increasingly digital future--is that one commissioner--and especially not a French commissioner--effectively controls both DG GROW (the Directorate-General for the Internal Market, previously called DG MARKT) and DG CONNECT (Directorate-General for Communications Networks, Content and Technology, previously called DG INFSOC = Information Society).

Formally, the DGs are part of the Commission's "services" and "independent" from the commissioners and their aides ("cabinets"). But that's nominal. In reality, the political appointees make all the decisions.

The IP policy unit is part of DG GROW, and they consistently promote ever broader patents and ever more leverage in litigation for patent holders. By contrast, DG CONNECT has a tradition of, and hard-earned reputation for, being sympathetic to the digital sector. DG CONNECT takes a more balanced approach. They understand the implications of IP enforcement in connection with highly complex and multifunctional products. They realize to a greater extent than some other people that certain startups seek to be protected by patents, while many others need to be protected from patents. And they tend to look at free and open-source software as an opportunity, not merely a threat to other business models.

DG GROW already has the upper hand in IP policy-making. But with DG CONNECT ceasing to be an independent voice within the Commission (which would be the inevitable effect of the same commissioner being in charge), there's a risk of the EU Commission's IP policies completely drifting off balance.

Even the Wall Street Journal's article entitled "Incredible Shrinking Europe," which describes the EU as an economic-policy failure, acknowledges that the Single Market is the one aspect of EU economic policy that is working out--not in the sense of growth or wealth, but sheer size (more than 500 million consumers).

France got the most out of all the backroom horse-trading between the governments of the EU member states:

  • The new Commission president, Ursula von der Leyen, grew up in French-speaking Brussels, was nominated by France (as opposed to her country), and is more likely to pursue an agenda to Macron's liking than to advance Germany's interests.

  • A Frenchwoman, Christine Lagarde, will be president of the European Central Bank and continue its policy of financing southern European governments in contravention of EU law.

  • And France secured not only one of the two most important areas of responsibility within the Commission--the Internal Market (only Competition is similarly important)--but convinced the rest of the EU to allow the Internal Market division to absord and neutralize DG CONNECT.

Not only does France have its own national patent troll (France Brevets), which creates a huge conflict of interest for a French commissioner, but the Macron Administration is on a crusade against global digital powerhouses they generally refer to as "GAFA" (Google, Apple, Facebook, Amazon). Their top-listed candidate in this year's EU elections even likened those companies to large countries such as China.

A French EU commissioner nominated by Macron is, in practical terms, going to be an anti-GAFA commissioner. Giving an anti-GAFA commissioner control over both DG GROW and DG CONNECT is a bad idea. It's ultimately even bad for Europe because the French agenda does not benefit European consumers (who want access to innovative digital products and services) and countries with a stronger innovation culture than France, such as the Nordic countries or even Germany.

France has a rich history, but it doesn't have much of a future. None of its largest corporations (such as LVMH, L'Oréal, and Sanofi-Aventis) is a digital-economy player. Macron likes to think of France as a "Startup Nation," but has no facts to back up that vision. And it's hard to see how this is ever going to improve, given that many of the brightest young French engineers and programmers go to work for GAFA and other non-French companies and, which is so shocking, considering that only 2% of French students reach the top performance level in the TIMSS international math test, roughly at a level with Persian Gulf states. By comparison, 50% of Singapore's students are top performers in math, 40% of South Korean students, 20% of Russian students, and 14% of American students. Even Kazakhstan is at a level with the U.S., i.e., seven times as strong as France.

The French digital policy agenda is to dumb down all of Europe only because France has degenerated. This year's EU copyright reform is an example, as is the French pet project of a "digital tax" (the U.S. threatened with retaliation, but a deal was reached in August). The situation will get a whole lot worse with a Macron appointee controlling both the EU's internal-market and digital-policy divisions--an unprecedented concentration of power that would be undesirable even if the commissioner came from a more innovative country with brighter students.

Hopefully the European Parliament will defend DG CONNECT's independence. Today's vote against Mrs. Goulard opens the door to interinstitutional negotiations. The French government is already afraid of this, and I agree with former Swedish MEP Amelia Andersdotter that commissioner portfolios aren't allocated to countries:

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Wednesday, October 9, 2019

Judge Koh denies Continental's anti-anti-antisuit TRO motion against Avanci, Nokia, Sharp, others: complex legal issues require hearing from defendants

Late Tuesday afternoon by local time, Judge Lucy H. Koh of the United States District Court denied automotive supplier Continental's motion for a temporary restraining order (TRO) against the Avanci patent pool firm and several of its members (Nokia, Sharp, Conversant, Optis). The motion had been brought earlier in the day and sought not only to prevent defendants from pursuing injunctive relief against Continental supplier Daimler but also to bar them, by means of an ex parte TRO, from seeking yet another anti-antisuit-injunction injunction (AAII) in Munich or from another German court.

I have uploaded the decision to Scribd, but it is short enough that I'll copy the text of the decision below and insert my commentary:

ORDER DENYING PLAINTIFF'S EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE

On June 12, 2019, Plaintiff filed a motion for anti-suit injunction against some of the defendants in the instant case. ECF No. 32. On July 23, 2019, Plaintiff's First Amended Complaint added an additional defendant. ECF No. 97. On September 10, 2019, the Court denied without prejudice Plaintiff's motion for anti-suit injunction. ECF No. 173. The Court stated that, if Plaintiff elected to refile its motion for anti-suit injunction, Plaintiff should do so against all Defendants, and that all Defendants should file one consolidated opposition. Id. As of October 8, 2019, Plaintiff has failed to file a new motion for an anti-suit injunction. Instead, Plaintiff filed an ex parte application for a temporary restraining order and order to show cause why an anti-suit injunction should not issue against Defendants on October 8, 2019. ECF No. 185.

[COMMENT] Not only is Judge Koh an extremely analytical and meticulous judge but she also has a reputation for being a very strict judge. Here, she says Conti filed a motion for a TRO instead of a motion for an injunction. While she hadn't expicitly authorized a TRO motion, it is practically a motion for an injunction, given that any TRO would either have to be converted into an injunction after a couple of weeks or it would automatically go out of effect.

In the exemplary SEP-related antisuit case in the Ninth Circuit, Microsoft v. Motorola, Judge James L. Robart of the United States District Court for the Western District of Washington entered an injunction before his original order--a TRO--would have expired. A technical difference is that Microsoft had filed a motion for a preliminary injunction (PI) simultaneously with its motion for a TRO. And an important procedural difference is that even the TRO didn't come down without the non-movant being heard. [/COMMENT]

Federal Rule of Civil Procedure 65(b) provides that a court may issue a temporary restraining order ("TRO") without notice to the adverse party in limited circumstances where "specific facts in an affidavit or a verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the movant result to the movant before the adverse party can be heard in opposition." Fed. R. Civ. P. 65(b)(1)(A) (emphasis added). The movant must also certify in writing any efforts made to give notice and the reasons why it should not be required. Fed R. Civ. P. 65(b)(1)(B).

Plaintiff has not provided specific facts in an affidavit or a verified complaint that show why irreparable harm will result to Plaintiff if the Court does not issue a temporary restraining order before Defendant can be heard in opposition. Nor has Plaintiff certified in writing any efforts made to give notice and the reasons why it should not be required. The Court therefore DENIES Plaintiff’s ex parte application for a temporary restraining order and order to show cause why an anti-suit injunction should not issue against Defendants. Additionally, the Court DENIES as moot Plaintiff’s corresponding motion to seal, ECF No. 184.

[COMMENT] Conti's motion came with a legal memorandum, with three declarations, and with a host of documents attached to them. But any such requirement is qualitative, not quantitative. What Conti did make clear is that, absent an anti-anti-antisuit TRO, the other parties would likely move for another anti-antisuit injunction in Germany (and there, almost certainly in Munich, where Nokia has already succeeded twice and an appellate hearing has been scheduled for Halloween). Obviously, with a German anti-antisuit order in place against the pursuit of a U.S. antisuit injunction, the three Avanci members already suing Daimler in Germany--Nokia, Sharp, Conversant (a total of 16 cases between the three)--, and possibly others, will be free to seek and enforce injunctive relief against Conti's customer, which would most likely force Daimler into a license deal on Avanci's supra-FRAND terms.

What Judge Koh's order makes clear is that she wasn't satisfied with how Conti described the situation. She might have missed an affidavit (that word is part of a passage she highlighted when quoting the Federal Rules of Civil Procedure) specifically for the purpose of coherently and compellingly laying out the facts that Conti believes warrant a TRO. Indirectly and implicitly, Conti did; but that wasn't enough.

What might also have played a role is Conti's footnote that the ten already-pending German Nokia cases were, for the time being (awaiting the outcome of the Munich anti-antisuit appeal) excluded. Those are the cases were the Avanci group of companies is most likely to obtain and enforce a first German SEP injunction against Daimler. But due to the Munich anti-antisuit order, Conti had to exclude them (otherwise a contempt proceeding in Munich would surely have started). So the TRO motion was just about five Sharp cases, one Conversant case, and any future or unknown cases, not to the ten more advanced Nokia cases.

Conti's TRO motion was very reasonable in terms of the breadth of the relief sought--unlike the original antisuit motion, which I had criticized for being ridiculously overreaching. But they still face a couple of problems they could have avoided by making better and faster decisions earlier on. There's only an indirect connection--one has to walk around a few corners to reach the destination--between the plaintiff in the U.S. case, a Michigan-based Conti subsidiary, and the legal entities facing a potential indemnification claim from Daimler. They could have avoided this by having the German group parent, and/or some other legal entities, join the U.S. entity in the NorCal case. Another problem here is timing: they should have brought their U.S. complaint far earlier, and probably should have targeted more Avanci members from the get-go (such as Sharp) if part of the plan was to seek a U.S. antisuit injunction against German SEP cases. Judge Koh's order doesn't mention or allude to timing. I believe she simply didn't even reach that point because the causal nexus between the denial of a TRO and alleged irreparable harm from those German Avanci companies v. Daimler cases was missing, and that part was dispositive in and of itself. [/COMMENT]

Given the complexity of the legal issues raised in Plaintiff’s application, the Court finds that hearing from Defendants will likely be necessary for resolution of any future application for a temporary restraining order.

[COMMENT] That final paragraph of the order suggests that even if Conti had gone to extreme lengths to provide an affidavit on the facts requiring a TRO without a hearing, Judge Koh would almost certainly have denied the motion because this is a complex matter that she's not going to decide in violation of the principle of audiatur et altera pars.

An antisuit order is an extraordinary remedy, and an ex parte (= without hearing the other side) TRO is no less extraordinary. What Conti asked for would have been doubly extraordinary--actually, extraordinariness even grows exponentially.

Judge Koh's denial of the motion means she declines any invitation to go to a sandbox and play with her colleagues in Munich. While the Munich I Regional Court appeared fairly passionate about those anti-antisuit injunctions, Judge Koh is above the fray. She's never allowed anyone to use her court as a tool. In that context, I remember how Judge Robart in Microsoft v. Motorola, a case that really made FRAND history, told counsel for both parties of an Irish proverb that when the chess match is over, the king and the pawns return to the same box--and complained that he felt his court was basically being used as a pawn in a global chess match. The presiding judge of the panel that hears Munich patent appeals has a mentality that appears closer to Judges Koh and Robart than the lower Munich court, so if the German appeals court, too, wants to stop playing transoceanic torpedo games, the two antisuit orders currently in force in Germany may be lifted on Halloween.

Both Conti and Nokia face difficult decisions now. Conti could easily derive a motion for a preliminary injunction from its just-failed motion for a TRO, and refile--but they might be well-advised now to firstly await resolution of the German appeal (in three weeks from tomorrow). Nokia, Sharp and Conversant could show Conti's latest U.S. attack on its German cases to the lower Munich court immediately and seek a new anti-antisuit order, which they'd almost certainly be granted, but they, too, might await the Halloween hearing. [/COMMENT]

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Tuesday, October 8, 2019

Escalation: Continental seeking anti-anti-antisuit (yes, 3x 'anti') temporary restraining order against Avanci, Nokia, Sharp, others

In July, Nokia surprised everyone by obtaining an anti-antisuit-injunction injunction ("AAII") preventing automotive supplier Continental from pursuing a U.S. antisuit injunction against Nokia in an effort to shield Continental customer Daimler from Nokia's ten (and possibly other) German patent infringement suits. When that news broke, a few people in the industry were already wondering about whether the next level of escalation would be an anti-anti-antisuit motion. In fact, there is historic precedent for that, though it's rare.

Here we go--a couple of hours ago, Continental brought a motion for a temporary restraining order (TRO), asking Judge Lucy H. Koh of the United States District Court for the Northern District of California to bar within a matter of hours--ex parte, i.e., without a hearing--Avanci, Nokia, Sharp, Conversant (which has very recently become the third and latest Avanci member to sue Daimler for patent infringement, as I reported earlier today), and Optis from seeking another AAII against Continental in Germany.

Today's TRO motion renews the original pursuit of a U.S. antisuit injunction against those defendants, but now also includes Sharp. About a month ago, Judge Koh had denied the previous motion without prejudice, explicitly allowing renewal (but didn't want to entertain multiple motions in a row).

I've criticized Continental's lawyers very harshly. I thought the original motion was overbroad. They were seeking to shield Daimler even from lawsuits targeting cars that don't come with an accused Continental component, which I described as behaving like a class-action plaintiff without meeting the requirements for a class action; they failed to clarify at the time that they didn't mean to enjoin Sharp, which wasn't a defendant when the original motion was brought and when defendants had to respond to it (but by now Sharp has been added to the case--and presumably been properly served, too); and they originally wanted to prevent patent assertions against Daimler regardless of remedies sought.

Continental has now brought a narrowly-tailored TRO. That makes a lot more sense, and I feel that their decision to focus on what's more realistically achievable (though a motion for an antisuit injunction or TRO is never a cakewalk) also validates my criticism. They've abandoned their unbelievable attempt to overreach, and I commend them for that. Now it's just about Daimler cars that come with accused Continental components; it's only about parties that were in the case at the relevant time; and it's only about preventing those Avanci members from seeking injunctive relief against Daimler.

The current TRO motion does not include the first ten cases Nokia brought against Daimler in Germany. Continental already had to withdraw that part of the original motion in September due to Nokia's Munich AAII. But the motion notes that--as this blog has also reported--the Munich Higher Regional Court will hear Conti's appeal on Halloween, and should the existing AAIIs be lifted, Conti will inform Judge Koh and will presumably seek an extension to those cases.

The exclusion of those ten pending Nokia v. Daimler cases is a major limitation. Even if today's TRO motion succeeded, the Avanci group would achieve its strategic goal of forcing Daimler to accept their supra-FRAND royalty rates if Nokia just got enough leverage from one of those first ten cases.

Continental has certainly become very reasonable now. Will they succeed? I generally like to offer predictions, but in this case I'll refrain from it, especially since this motion will likely be resolved very swiftly one way or the other.

The anti-anti-antisuit request makes a lot of sense. It could be that Judge Koh flatly declines to play a long-distance game of leverage with her Munich counterparts, but she might also conclude that an anti-anti-antisuit TRO just for the purpose of quickly resolving the actual motion is reasonable.

The more conventional part of the motion, which comes down to a motion for an antisuit (just one "anti" for a change) injunction that would start as a TRO (TROs need to be converted into injunctions after a short while or they automatically expire), is now narrowly-tailored as I said. This is a clear case of standard-essential patent holders--who whine about "hold-out" (implementers' delay tactics) all the time--being unwilling to license a company just because they don't like Conti's position in the supply chain and consider car makers like Daimler the more lucrative type of target. That's a strong policy argument in favor of Conti's U.S. case. The primary issue is still timing. What matters here is not the date of the motion, but the date of the filing of the original complaint. The Northern California complaint was brought in May, but Nokia's and Sharp's patent assertion campaigns against Daimler started before. However, timing is not an issue with respect to any cases that were filed after Continental's U.S. complaint (such as that newly-discovered Conversant lawsuit) or will be filed going forward. The two Munich AAIIs that are in effect (one against the U.S. entity that is the plaintiff in California, and one against the German group parent) require Conti to exclude Nokia's first ten cases from the scope of the requested TRO for the time being. So timing could become a bigger issue should Conti, after a successful appeal in Munich (a Happy Halloween scenario for Conti), seek to broaden the scope of the order they're seeking.

This is an interesting procedural twist, and should I find anything worth highlighting after a closer look (so far I've looked at those documents only cursorily), I may do a follow-up post, though chances are that some sort of a decision--even if just a procedural order--will come down before I even get there.

Let me now, finally, show you both the motion and the underlying memorandum (two documents):

19-10-08 Continental Motion... by Florian Mueller on Scribd

19-10-08 Continental Memo I... by Florian Mueller on Scribd

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