Tuesday, December 7, 2021

Biden Administration publishes draft policy statement on standard-essential patents that strikes reasonable balance between patentees' and implementers' interests and bears resemblance to Huawei v. ZTE

Yesterday three U.S. government agencies--the Antitrust Division (ATR) of the United States Department of Justice (DOJ), the United States Patent & Trademark Office (USPTO), and the National Institute of Standards and Technology (NIST)--invited stakeholders to submit comments by early January on a new draft policy statement on standard-essential patents (SEPs).

I applaud the Biden Administration for taking--at least this stage--a very centrist position. Rather than go from one extreme (the Trump Administration's take on SEPs) to another, the three agencies have put forward a statement that reflects a good-faith effort to strike a very reasonable balance. The draft statement warns against the risks to innovation and standards from both the overleveraging of SEPs by their owners and what others simply call hold-out tactics by unwiling licensees. As a litigation watcher, I'm well aware of the existence of either problem.

My favorite part is in footnote 8, which says that "[p]roviding additional information with the licensing offer . . . may be particularly helpful to small entities that do not have the expertise or resources to fully address SEP issues and may lack access to information from which to draw assurance that proposed terms are F/RAND."

The step-by-step negotiation process proposed by the draft statement bears a strong resemblance to EU case law. It's pretty much how the European Court of Justice intended Huawei v. ZTE to be applied, though the post-Sisvel v. Haier I & II reality in Germany looks rather different (and even the relatively FRANDly Dusseldorf Regional Court is not going to challenge Sisvel v. Haier).

In practice, however, SEP injunctions are harder to obtain in the U.S. than in Europe due to eBay v. MercExchange, a decision the draft policy statement obviously mentions.

The draft policy statement is just that--a draft--and even the final vesion is not going to be anything more than persuasive authority in litigation. And how persuasive it will be remains to be seen, as it's obviously difficult for judges to attach much importance to policy positions that depend on which party is in power. At the beginning of this year I was pretty certain that Democrats would stay in power for several terms now, but with what has gone wrong in certain respects (with America now facing a second epidemic: crime), it's possible that Republicans will take back the White House next time. The judiciary will take note of what the executive branch has to say, but has to focus on its own case law. Even the U.S. International Trade Commission (ITC), which is a government agency, is unlikely to modify its stance on the availability of limited exclusion orders (U.S. import bans) over SEPs.

Even if Congress enacted legislation on SEPs (which is not on the horizon at this stage), it wouldn't practically change much for net implementers who do business in jurisdictions such as the UK and Germany. They'd be forced into global portfolio licenses under the threat of sales bans. The effect would then only be indirect, with net implementers possibly hoping that policy makers in Europe might be influenced by the Biden Administration--which I just don't expect to happen.

The draft statement does not touch on the question of whether an implementer who declines to take a global portfolio license should be enjoined the way it is done in the UK and Germany--nor does it say anything about the recent proliferation of antisuit (and anti-antisuit, anti-anti-antisuit, and anti-anti-anti-antisuit injunctions) in that context. Antisuit injunctions are available under U.S. law. But if foreign courts bar an implementer from seeking a U. S. antisuit injunctions by means of a (often even pre-emptive) anti-antisuit injunction, there is little that U.S. courts can do for implementers asking them for help.

While the Trump Administration's policy statement stressed that antitrust law is not above patent law, and effectively suggest that SEP issues should be dealt with under patent and contract rather than competition law, the Biden Administration's draft policy statement makes a few references to antitrust law in footnotes. For example, the statement says patents should be treated like any other property, and that "[c]onditions on licensing may also raise antitrust concerns."

There is nothing in the draft statement on the question of the proper royalty base or on suppliers' access to component-level exhaustive SEP licenses.

Different stakeholders and their lobbying fronts are going to make all sorts of demands now. From my perspective, there's no reason either side could claim that the sky is falling. Neither is anything in that draft statement ourageously unfavorable to one camp nor is the statement going to make huge impact (for the reasons I explained above). But whatever the three government agencies put forward after the current round of feedback could be more controversial.

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Thursday, December 2, 2021

Apple will most likely get Epic's injunction stayed and reasonably disputes independence of Coalition for App Fairness, but should apply same standard to ACT | The App(le) Association's astroturfing

Briefing concerning Apple's appellate motion for a stay of the Epic Games v. Apple anti-anti-steering injunction is complete. Shortly before midnight local time on Tuesday, Apple filed with the United States Court of Appeals for the Ninth Circuit

  1. its reply to Epic's opposition brief and

  2. a response opposing the submission of an amicus curiae brief in support of Epic Games by the Epic-founded Coalition for App Fairness (CAF) and other CAF members.

Theoretically, the district court's injunction is scheduled to enter into force on December 9 (next week's Thursday), but I strongly doubt that it's going to happen then.

I still hope Epic will succeed with its appeal of the district court's flat rejection of Epic's federal antitrust claims against Apple, though the odds are against Epic now, primarily because of the high hurdles for private antitrust litigation in the United States (prior to the kind of reform that Capitol Hill lawmakers are working on) and secondarily because Epic missed out on certain opportunities (such as to convince the trial court that so-called Progressive Web Apps are not a viable alternative to native apps for a mix oftechnical, commercial, and legal considerations). But my personal hopes for loosening Apple's ironclad grip on the iOS app market are one thing, and the fundamental flaws of the California Unfair Competition law (UCL) injunction the district court awarded Epic as a consolation prize are another. Also, the end of opening up the iOS app market doesn't justify the means of trolling Apple with foreseeably aggressive contempt motions should the injunction get enforced (which in turn would place an unnecessary burden on the federal judiciary).

In procedural terms, the first question for the West Coast appeals court to decide on Apple's request for an administrative stay or whether to proceed directly to the adjudication of the motion, which would also be possible pretty quickly as Apple handily satisfies the criteria for a stay. I call an administrative stay a "micro-stay": it's a stay for the purpose of preserving the status quo while the court is weighing, for a few more days or weeks, the motion and deciding on whether to grant a stay for the entire duration of the appellate proceedings.

Apple has already requested an administrative stay for the event it petitions the Supreme Court. In its appellate motion, Apple wrote:

"In the event the full stay is denied, Apple requests that the administrative stay be extended for an additional 30 days to allow Apple to seek Supreme Court review while undertaking the substantial changes that would be required to comply with the injunction while attempting to mitigate—but not eliminate—the irreparable harms it will cause Apple, customers, and developers."

Apple would take this matter up with the top U.S. court if it had to, but again, I don't think it will be necessary. Now that briefing is complete, I find it not impossible but somewhat hard to imagine any outcome other than the stay Apple is seeking.

Here's Apple's reply brief, and it truly is a lot more compelling than Epic's opposition filing (this post continues below the document):

21-11-30 Apple Reply in Sup... by Florian Mueller

For the reasons I already discussed last month, it makes a whole lot of sense for the Ninth Circuit to grant Apple's motion for a stay.

In order for that to happen, Apple merely needs to convince the appeals court of there being pretty good grounds on which the UCL injunction may be overturned. As I explained before, it would be an unprecedented kind of anti-anti-steering injunction under U.S. law. Apple has other arguments that the district court wasn't receptive to but which are likely to bear weight with the appeals court, such as that Epic's defeat under the Sherman Act is also dispositive of its UCL claims. Even if one doesn't agree with Apple on this 100% (I, for one, am convinced that California UCL does give courts more wiggle room than federal antitrust law), the fact that Apple's business model was (regrettably, if you ask me) cleared under federal antitrust law at least makes it a pretty good possibility that the UCL injunction won't be affirmed.

There's also the notable absence of a market definition from the UCL part of the district court's judgment and question, and Apple continues to dispute Epic's standing, pointing to a decision by the Second Circuit that found merchants who don't accept Amex cards lack standing to challenge Amex's anti-steering provision. Epic is not on the App Store anymore; some of its subsidiaries are, but Epic elected not to make them parties to the case, as Apple accurately notes (and which may be one of those decisions that Epic regrets in retrospect--they made some brave and smart decisions, but also some that weren't great).

Apple argues that the amicus brief submitted by the Coalition for App Fairness (CAF) is just another filing by Epic itself. On this one, I agree with Apple, even though I very much agree with the CAF's #OpentheAppStore policy goals. However, courts are rather permissive when it comes to amicus briefs. And as I already did in the headline of this post, I can't help but notice Apple's dual standards in this regard.

Here's Apple's opposition to the CAF's amicus brief filing (this post continues below the document):

21-11-30 Apple Response to ... by Florian Mueller

Apple makes some strong points in that opposition filing when it argues that the "CAF is not independent of Epic." Of course it's not. It came into being shortly after Epic provoked the removal of Fortnite from the App Store (and from Google Play). Apple's filing recalls the following:

"Epic was then in control of CAF, 'charg[ing] [it] with generating continuous media and campaign tactic pressure on Apple,' even hiring and paying for 'a consultant to help to establish a reason for [CAF] to exist (either organic or manufactured).'"

The "organic or manufactured" quote from the evidentiary record is pretty damning, and that kind of attitude did nothing to persuade the district judge to enter a judgment in Epic's favor on the key claims. (Again, I say so even though I'd like the CAF to succeed.)

Apple accurately disputes that the CAF is, as its proposed amicus brief claims, an "independent nonprofit organization" (emphasis in Apple's--but not the CAF's--filing). Epic has too much influence over the CAF for that claim to be true, and Apple accuses the CAF of failing "to disclose to this Court even that Epic is a member, much less that Epic created and controls CAF." Even if the appeals court accepted the amicus brief nonetheless, Apple has already destroyed its credibility.

The CAF's amicus brief's deficiencies extend beyond a lack of forthrightness in that one regard. In order to obfuscate Epic's control (together with Spotify and Match Group) over the organization, the CAF was formally joined by four of its members: Tile, Match Group, Basecamp, and Knitrino. But as Apple notes, all four of them offer subscription apps, which the district court noted "are not part of this case." Epic's case against Apple is all about in-app purchasing, and while subscriptions are closely related, it's true that "subscription apps are subject to a different anti-steering provision that is unaffected by the injunction." Therefore, it's easy to see that those four CAF members simply decided to lend their names to the motion in order to divert attention away from the fact that the CAF is simply trying to submit an amicus brief on Epic's behalf.

Of course, those companies might make IAP offers at some point, but that would be a change of business model for them.

Apple says that "CAF's motion is nothing more than an attempt by Epic to file two responses rather than one to Apple's stay motion." That characterization goes a bit far. Still, it is true that this attempt by the CAF to influence the Ninth Circuit's decision on Apple's motion is probably going to fail. Even if the brief was accepted, it would hardly benefit Epic.

But Apple is now the proverbial pot calling the kettle black. Two months ago I criticized Apple for utilizing ACT | The App Association, which is more accurately described as ACT | The Apple Association. ACT issues statements on App Store issues all the time, and I guess we'll see amicus briefs from them in this case, too. While CAF did a poor job on that amicus brief (failing to disclose even that Epic is a member is an unforgivable mistake and diminishes its credibility), there can be no doubt that not only all of its members but also all of its financial backers are genuine app developers (like Epic and Spotify). That is more tha ACT can say: ACT simply renamed itself "The App Association" at some point, but there is no indication that many of its curent members actually make apps, as I'm not aware of ACT only accepting sign-ups from actual app makers (apparently there's no vetting, and I know of a U.S. professor who held a position with the Clinton White House and at some point signed up for free just to verify the hypothesis of ACT not applying any criteria to who joins, or charging a cent) or that they kicked out members who don't make apps when ACT repositioned itself as an app developer organization.

Apple should refrain from astroturfing, and I absolutely don't understand why some other major tech companies condone ACT's disingenuous pro-Apple advocacy on App Store issues (especially members who don't like Apple's App Store model). ACT supports Apple not only in the App Store context but also on standard-essential patents, and interestingly that chameleon of a lobbying front then claims it has members who make IoT products. So it is an App Association or an IoT Association? This is called "géométrie variable" in French.

Astroturfing is so serious an issue that Politico recently reported on it. ACT doesn't get mentioned there, but that's the kind of organization policy makers can't trust to represent whom they say they represent.

We'll see a decision from the Ninth Circuit in a few days. Maybe even before the weekend. An administrative stay is a no-brainer, but they might even consider the motion to be strong enough to grant a full stay right away. The U.S. judiciary will do itself a favor if it doesn't have to rule on motions for contempt-of-court sanctions that would potentially try in more or less absurd ways to stretch the envelope of that unprecedented anti-anti-steering injunction.

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Saturday, November 27, 2021

In Black Friday filing, Epic Games opposes Apple's 9th Circuit motion to stay the injunction

On November 16, Apple filed with the United States Court of Appeals for the Ninth Circuit a motion to stay the Epic Games v. Apple injunction, whih came down in September based on a finding of a violation of California Unfair Competition Law (UCL). Epic had ten days to respond, plus one extra day because the deadline would otherwise have been on Thanksgiving Day.

I continue to believe that the Ninth Circuit is more likely than not to grant Apple's motion. While I don't agree with all of Apple's arguments, and don't disagree with all of Epic's either, there simply are overwhelming reasons to order a stay. It's the most logical and reasonable thing to do. Should the appeals court deny Apple's motion, Apple asks for an additional administrative stay (30 more days) so it can seek Supreme Court review.

After Epic's opposition brief, which I'm sharing below, I have nothing to add, nor do I see a need to modify any of my positions, or to adjust any of my predictions. I do, however, wish to note that Epic's opposition brief simply assumes that Apple would have to continue to allow commission-free purchases being made outside of an iOS app, even though the purchased digital goods or content would be consumed in an iOS app (which is also called "cross-wallet" or "cross-purchase"). That is simply not the case. While the court took note of Apple's current policy, there is absolutely nothing stopping Apple from making adjustments in that regard, should Apple indeed have to comply with the injunction. As an app developer, that's not the way I'd like it to be, but as a commentator I strive to provide correct analysis.

Here's Epic's brief, filed late on Black Friday:

21-11-26 Epic Games Opposit... by Florian Mueller

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Wednesday, November 24, 2021

Deutsche Telekomedy in Mannheim: court informally dismisses antitrust claims against IPCom but urges global settlement including infringement action against Sprint in Texas

This Tuesday, the Mannheim Regional Court gave short shrift to Deutsche Telekom v. IPCom, an "antitrust case" in which the mobile network operator is seeking roughly $300 million in restitution (recovery of past royalty payments plus interest). The court's public hearing list described the cause of action in case no. 2 O 130/20 as "anticompetitive discrimination involving standard-essential patents in connection with patent license agreement dated June 7, 2013." Some other claim(s) had already been voluntarily dismissed by the plaintiff ahead of trial. The remainder was stayed at the end of the trial, but on a basis that allows either party anytime to ask the court to resume the proceedings, which would result in a swift ruling that could have only one outcome: a formal dismissal of the case as clearly meritless. As part of its hold-out strategy, Deutsche Telekom even stipulated to that kind of revocable stay, while IPCom would have preferred a decision. Typically, defendants are happy to just put a case against them on hold, but I'll get to the parties' motives later (here's a shortcut to that part of the post)--and they have a lot do with an IPCom v. Sprint case pending before Judge Rodney Gilstrap in the Eastern District of Texas and slated to go to trial next spring.

If I wanted to go into detail on everything that is deficient about Deutsche Telekom's Mannheim complaint, I'd have to write an even longer post, every single paragraph of which would have to start with "Let that sink in" or "Lo and behold," which would get a bit repetitive. Let's focus on the forest rather than get lost in a multitude of trees--and please take any references to Deutsche Telekom's outlandish theories and allegations as if "Let that sink in" had been put in front of a parenthetical expression in a mathematical formula.

What Deutsche Telekom has been trying to do would--if it worked, which it never will--make it practically impossible for parties to enter into reliably stable settlement agreements that put standard-essential patent (SEP) cases to rest. The licensee could always come back later and relitigate settled issues. And even if--as here--a clause specifically and incontrovertibly ruled that behavior out, the licensee would argue--as Clifford Chance "of counsel" Dr. Joachim Schuetze ("Schütze" in German) did on Deutsche Telekom's behalf--that parties cannot dispose of antitrust law no matter what they put into an agreement.

Deutsche Telekom argues that IPCom acted in a discriminatory manner by--well, the court noted it's not even clear what particular action other than not rescinding the 2013 license agreement Deutsche Telekom is complaining of. Deutsche Telekom says it has been discriminated against because no other carrier besides them has so far taken a license from IPCom. Is that IPCom's fault? Deutsche Telekom alleges that IPCom didn't make enough of an effort to force its rivals to take a license. IPCom's lead counsel, Quinn Emanuel's Jérôme Kommer, stated for the record toward the end of the trial that this is not even factually correct, as there are infringement actions (such as against Vodafone in the UK), but the discussion between the court and the parties didn't even get to facts like that because the case necessarily fails as a matter of law.

What would it really mean--talking about the forest, not just the trees--if Deutsche Telekom, in an alternative universe, could prevail? If they could get out of a license agreement because others engaged in holdout for years on end? Let me give you a couple of examples from the automotive industry, where patent infringement is rampant. Almost five years ago, BMW became the first publicly-announced licensee of the Avanci platform (a pool that contains dozens of cellular SEP portfolios--by coincidence it even includes some Deutsche Telekom patents--and represents a one-stop solution for car makers). Earlier this month, Avanci announced its latest license deals and stated that roughly 25 million connected vehicles had been licensed. An all-time licensing volume of 25 million cars is not a lot given that approximately 70 million passenger cars are sold every year, and infringement is even more widespread when considering that most Volkswagen cars have a license only up to 3G while actually coming with 4G connectivity. So, BMW could have turned around after Avanci's recent announcement like Deutsche Telekom did against IPCom. If Deutsche Telekom got its way, BMW could bring claims against Avanci or every one of its licensors (except maybe Qualcomm, whose de facto licensing rate is higher as its chips are in a lot of cars) that the actual licensing rate is very low and BMW has costs that others have so far avoided by means of holdout. "Discrimination. Avanci's licensors aren't suing Toyota, Volkswagen, you name them."

What if Daimler tried to get out of this year's settlement with Nokia, arguing that the patent holder hasn't been licensing other car manufacturers at a pace that the Mercedes maker would deem non-discriminatory?

Those analogies even fall far short of an accurate characterization of the absurdity of Deutsche Telekom's non-case. I don't know the language of BMW's agreement with Avanci, but it wasn't a settlement of pending litigation. By contrast, antitrust issues had actually been raised by Deutsche Telekom in its multi-year litigation with IPCom, but when Deutsche Telekom--not under duress but purely for the convenience of its then-outgoing CEO--wanted to settle, IPCom negotiated a Section 8.2 of the 2013 agreement that Presiding Judge Dr. Holger Kircher of the Mannheim court's Second Civil Chamber read out during the Tuesday trial. That clause explicitly stated that IPCom was under no obligation whatsoever to conclude license agreements (much less on a particular set of terms) with Deutsche Telekom's competitors. Deutsche Telekom originally demanded that the very opposite be put into the agreement (whether an obligation to sue third parties would have been enforceable is another question), but the final contract stated otherwise. It's not hard to imagine that IPCom saw what Deutsche Telekom was preparing for, and wasn't going to fall into that trap.

It is that clause 8.2 that Judge Kircher noted in his initial discussion of the case which is unusual and single-handedly dispositive, obviating the need to reach any of the other questions, of which there are many and the court appeared very unconvinced of Deutsche Telekom's ability to meet any of a plurality of other criteria for the refund (plus interest) the carrier is seeking. Let me give just some examples: it's unclear what particular conduct on IPCom's part constituted discriminatory behavior; Deutsche Telekom contradicts itself by alleging an abuse of market power without ever recognizing the essentiality of a single one of IPCom's patents to any industry standard; and even if Deutsche Telekom inexplicably prevailed somehow, the refund might be offset by a damages award for past infringement. The latter is an interesting aplication of the Latin rule of dolo agit qui petit quod statim redditurus est ("he who has to immediately return what he is seeking brings a bad-faith claim"): normally that concept benefits implementers of standards because they can avert a SEP injunction if they're entitled to a license (and if their behavior meets certain requirements to benefit from that affirmative defense). The injunction would then be enforced in bad faith as a license agreement would resolve the issue. Here, it cuts in the other direction: if Deutsche Telekom managed to extricate from the license agreement, it would retroactively become a multi-year infringer and owe damages (which, by the way, could even be supra-FRAND).

Similarly, the 2013 license agreement comes with a saving clause, so even if a clause was deemed anticompetitive, it would merely have to be replaced with the closest enforceable alternative.

Judge Kircher acknowledged that Deutsche Telekom's complaint raises legal questions of first impression, and the parties could not cite to any applicable precedent. But if you ask me, the case is simply an idiocy of unprecedented proportions in connection with SEP licenses and patent settlements. In any event, Judge Kircher noted that the court would never reach those novel questions because of that clause 8.2.

I admire Deutsche Telekom's lead counsel for arguing with a straight face that the decision the court described as inevitable (a dismissal of the complaint) "would allow non-practicing entities to impose a license agreement on one party and then save the costs of enforcing their patents against others." It doesn't make sense because either the patents are weak, in which case the first licensee in an industry doesn't have to take a license anyway, or they can be enforced, in which case it's always going to make economic sense to sue others--not all of them at the same time, but sooner or later a patent holder will collect back-royalties or sue for past-infringement damages even if the patents had expired.

The court debunked Deutsche Telekom's argument that settlement agreements cannot override, or disable, antitrust law. Obviously parties cannot enter into valid and enforceable agreements in a way that would harm the competitive process. But they can enter into agreements--especially settlement agreements--under which they dispose of individual claims, such as the right to seek a refund under specified circumstances. Neither the court nor IPCom's counsel said so, but my view is this: if Deutsche Telekom wanted to do so, it could complain about IPCom's post-contractual conduct to the Bundeskartellamt (Federal Cartel Office of Germany). The contract wouldn't preclude them from that--no valid and enforceable contract ever could. As Judge Kircher explained on behalf of the court (based on his prior internal discussion with Judge Boettcher, who is the rapporteur on this case, and Judge Elter), Deutsche Telekom was full well aware of a scnario in which its rivals might not take licenses from IPCom on similar terms. That's why they originally wanted a clause 8.2 in the agreement that would have stated the very opposite. They ultimately contended themselves with an agreement that leaves no room for the kind of refund claim they're pursing now. They made their bed and have to lie in it.

Judge Kircher said toward the end (when he urged IPCom to stipulate to a revocable stay so the court might never have to hand down a judgment in this case) that everyone in the room (including yours truly) heard from the court in no uncertain terms that IPCom would win. Also, in his introductory discussion of the case, Judge Kircher noted that besides the legal questions he addressed (and none of which the court appeared inclined to answer in Deutsche Telekom's favor), there were several others, all of which he described as predictable--but he wouldn't even get to them.

So why is Deutsche Telekom pursuing that kind of losing case in the first place?

There are three versions of the story. The simple, obvious, and not reasonably deniable truth is that Deutsche Telekom is being a bully (ab)using some of its vast resources against a small German licensing firm, and the chronology of events shows that this complaint was brought a few months after IPCom sued Sprint, which had meanwhile become a Deutsche Telekom subsidiary, in the Eastern District of Texas. There had been some negotiations between the parties over whether Sprint was or was not licensed under that 2013 agreement (which presumably has some "affiliate entities" type of clause), and if so, on what terms Sprint might get licensed. Deutsche Telekom's lead counsel said that it was during those licensing talks last year that Deutsche Telekom became aware of the fact that no other carrier had taken a license from IPCom (which, again, is why IPCom is suing some of them, and no one can seriously expect them to sue the whole world at the same time). Therefore, the semi-retired Clifford Chance lawyer said Deutsche Telekom's C-level executives identified a need to obtain legal clarification of whether this constituted discrimination.

Even Judge Kircher cautiously put the German action into the context of the Texas case and suggested--in other words--that Deutsche Telekom thought an offense was a necessary part of a good defense. He noted that this German case was about having an action with the reverse caption: Deutsche Telekom v. IPCom in Mannheim as opposed to IPCom v. Sprint (a Deutsche Telekom subsidiary) in Texas. The whole reason the judge urged the parties to stipulate to a revocable stay (with the promise to reach a swift decision if a party changed mind) was that he thought it might make sense for them to also settle the Texas case, which according to his representation involves a $70  million damages claim. Assuming that IPCom is seeking willfullness enhancemenets (aka "treble damages"), that would be more like $210 million, and Deutsche Telekom's behavior does appear unusually reckless. So Judge Kircher would like them to take a break from litigation and talk. They spent about an hour outside the courtroom (quite a long interruption--the court originally gave them 20 minutes). But when they returned to the courtroom, IPCom doubted Deutsche Telekom's sincere intentions to settle. Still, based on Judge Kircher promising that, if need be, the court can resume the proceedings and reach a decision in the very short term, IPCom accepted that the case would be stayed--for now.

Deutsche Telekom's counsel actually considered it offensive that Judge Kircher made it sound like they had brought a meritless case in Germany only in retaliation for a patent infringement action in the United States. Actually, if it worked the other way round, a U.S. federal judge would just tell it like it is. I've heard U.S. judges dismiss complaints or appeals as "frivolous", or saying that a party is pursuing some other goals and using the court as a pawn in a global chess game. In Germany, judges have to be more careful: if they speculate on a party's motives while dismissing the merits of a case, it can give rise to motions of censure, seeking (though typically unsuccessfully) the recusal of a judge because of bias. Such complaints can go up all the way to the country's Federal Constitutional Court. Judge Kircher carefully nuanced his remarks, and acknowledged that Deutsche Telekom is in its right to bring novel claims. While I can't read his mind, I know he's got Deutsche Telekom all figured out. But again, a German judge has to tread carefully in a delicate situation like that, and knowing that the plaintiff will leave no stone unturned because money doesn't matter, and seeing that the Clifford Chance firm appears to be more concerned with pleasing a long-standing blue-chip client than with maintaining its reputation in antitrust law.

Whatever I say or write here won't reach the Federal Constitutional Court, so I'll be blunt: Deutsche Telekom's case is nonsensical crap. It's an insult to human intelligence. At all three layers of the law (policy, law, facts), it's a downright insanity. I had a logistically convenient chance to attend the trial, and I went there because I expected I'd have a lot to laugh--and Judge Kircher is always very interesting and often entertaining to listen to. It was a sitcom, not a serious litigation. I had the gut feeling that if Deutsche Telekom had insisted on a ruling, Judge Kircher and his colleagues might even have ruled straight from the bench.

In my opinion, it is not fair that IPCom has to wait until it can recover from Deutsche Telekom its attorneys' fees under the German "loser pays" rule. I also think IPCom is reasonably entitled to a German ruling ahead of the U.S. trial. Judge Kircher is right that normally a defendant has no interest in a case like that going forward. But when a case is this crazy, when it's easily discernible as an attempt to drive up litigation costs in Germany, and considering that it's uncomfortable to stare down the barrel of a gun even if you know it's not loaded, then it is in the interest of justice to throw out a case (though Deutsche Telekom would obviously exhaust all appeals).

What's even more important is to discourage other SEP licensees from turning around many years later just because they can afford it and because a firm like Clifford Chance may gladly do anything to please them. Just the fact that this case even went to trial (because defendants to German complaints--unlike in U.S. litigation--can't bring motions to dismiss, motions for judgment on the pleading, or motions for summary judgments) is now going to lead many patent holders to ensure that license agreements come with a clause like that Section 8.2 of the IPCom-Deutsche Telekom license agreement. What appeared to be an abundance of caution on IPCom's side at the time is now probably going to become a standard clause of SEP settlement contracts, as a result of Deutsche Telekom's action and this trial report, but I owe it to my readership, which includes many (actually, practically all) of the technology industry's top licensing executives to explain what can happen when someone like Deutsche Telekom acts in bad faith further down the road.

The sad reality is that some settlement negotiations will now take longer, or in a worst-case scenario, might even fail when parties find it hard to agree on a "Deutsche Telekom-IPCom" clause. The bottom line could be even more--and more protracted--litigation, courtesy of a deep-pocketed and utterly unreasonable German carrier. The case is a comedy, even a travesty, but the potential impact of Deutsche Telekom's outrageous behavior on global SEP licensing negotiations is more of a tragedy.

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Monday, November 22, 2021

O-RAN entails 'medium to high' security risks according to study released by German government agency: paradigm shift needed to avoid 'security debacle'

In a recent post on O-RAN I discussed European concerns over the contemplated standard for the modularization of mobile network infrastructure being driven by geopolitical objectives (America first, Chinese bogeyman) rather than technical merits. The situation appears to be a lot worse than that. Today one of the world's most well-respected and independent IT security authorities, the German Bundesamt für Sicherheit in der Informationstechnik (BSI; official English title: Federal Office for Information Security) released an 86-page study (PDF; in German) that must give some people not only food for thought but possibly even pause.

The government agency's risk assessment--to be precise, the BSI commissioned and funded the study, and did not influence the researchers' independent work--focused on the following objectives: confidentiality (of data), integrity, accountability, availability, and privacy. The study took three different stakeholer angles: that of a user of a 5G network, that of an operator of a 5G network, and that of the state (i.e., the public interest). In light of the lack of specificity of the current version of the O-RAN specs, the risk assessment relates to a "worst-case perspective" in which none of the optional security measures have been implemented and a "best-case perspective" based on the assumption of all optional security measures actually having been put in place.

The renowned security experts took into consideration that the leverage of potential attackers varies greatly. Therefore, they evaluated how much damage could be done by a totally external attacker, a 5G user, an "insider", a cloud operator, and a RAN operator.

Here comes my translation of the two final and most important paragraphs of the executive summary (all emphases in original):

"As a result of the risk assessment, it has been identified that medium to high security risks emanate from a multiplicity of the interfaces and components specified in O-RAN. This comes as hardly a surprise as the current development process of the O-RAN specifications is not guided by the paradigm of 'security/privacy by design/default' and the principle of multilateral security (minimal trust by each participant [in the other components]) has not been heeded.

"As a result of conducting this risk assessment, various possibilities for improvement with respect to risk mitigation have been identified. Those are stated as recommendations toward the end of the report. It is key for security improvements to be incorporated into the specification now in order to avoid this time around a security debacle like the one that occurred in the development of 3GPP standards."


I'll read the study in detail, but I did want to share the (unfortunately bad) news right away. It is known in the telecommunications industry that the European Commission is also performing a risk assessment, and it will be interesting to see what comes out of that effort. At first sight, the BSI-commissioned analysis is thorough and probably reliable. There really do appear to be serious issues, but again, I'll need some more time to digest the study.

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Computer-implemented inventions must make direct impact at execution time as opposed to organizational recommendations for design time: patent-eligibility

In its weekly roundup, IAM (Intellectual Asset Management magazine) noted that "[p]atent suit numbers are falling in Dusseldorf and Mannheim but are on the rise in Munich as the city’s courts develop a strong pro-plaintiff reputation." I'd like to comment on that, also because I reported on the premiere session of the Munich I Regional Court's third patent litigation division (the 44th Civil Chamber under Presiding Judge Dr. Georg Werner) last week. If you wish to skip directly to the part on software patent-eligibility in light of Solas OLED v. Samsung, please click here.

Munich is definitely an attractive venue for patent holders, and that is so for a variety of reasons not least including the one noted by IAM. The Munich court still does throw out or stay cases that don't meet a certain standard, and that's why the first case the 44th Civil Chamber heard appears, for now, unlikely to be the first in which it will grant an injunction. I'll get to the fundamental weakness of the patent-in-suit in that Solas OLED v. Samsung case again in a moment--the headline of this post relates to it.

If we assumed for discussion purposes that better-than-average chances of winning favorable rulings are a major factor in this, then Munich would simply be beating Dusseldorf at its own game. For many years--actually, a couple of decades--it was no other court than the one in Dusseldorf that consistently and shamelessly set a low bar, only to attract as many patent cases as possible to a city that is anything but a major center of technological innovation, as opposed to the Munich area with BMW, Siemens, Linde, and so many others. Comparing Munich to Dusseldorf is like Silicon Valley vs. Chicago at best, Pittsburgh at worst.

By the time I got involved with patent policy (2004, the European legislative process on computer-implemented inventions aka software patents), Dusseldorf already had a reputation for disadvantaging defendants in different ways. I know this from discussions with patent litigators and patent attorneys in the mid-2000s, and I know there was at least one German media report at the time that discussed the issue.

The biggest part of the problem is that Dusseldorf is the venue that exacerbated the practical impact of bifurcation: the German approach under which alleged infringers don't have a full invalidity defense in the infringement case itself, but must separately litigate validity, with the infringement court merely performing a rough assessment as to the likelihood of success in order to decide on whether to stay the infringement proceedings pending a parallel invalidation action.

It was Judge Dr. Thomas Kuehnen ("Kühnen" in German) who many years back created case law according to which an infringement case should not be stayed even if the patent is reasonably likely to be invalidated: no, according to the Kuehnen doctrine on stays, the standard is so exacting that the patent has to be extremely likely to be invalidated. Dusseldorf didn't become a popular patent venue just because of the quality of its judges: it lowered the bar for patent assertions to succeed, which in turn attracted many cases, and the more cases a court gets in a field of law, the more expertise its judges will build over time. But there's absolutely no indication that those Dusseldorf judges were smarter than their counterparts in Munich or Mannheim at any given point in time.

The economic damage that the Dusseldorf court has dealt to actual innovators over the years due to its unbalanced decisions must be huge. One particularly shocking and embarrassing case is now getting more attention: Schweitzer-Mauduit v. Julius Glatz. I discussed that one in a Halloween post calling it a creepy patent case. Meanwhile, Frankfurter Allgemeine Zeitung, the most famous German newspaper, has also written about it. What I learned from the FAZ article is that the number of layoffs may be closer to 30 or 35 than the 60 I had previously heard. And I heard that the plaintiff, a publicly traded U.S. company represented by Quinn Emanuel, even sued (over its actually invalid patent) the couple that runs the company (and owns many of its shares) personally, seeking 17 million euros in damages from those people, depriving them of the benefits of their company's liability limitation.

Suing executives personally in Germany is a tactic I discussed in a post last year. Those who were pushing for the recent German patent "reform" bill missed out on a huge opportunity, and one of the smaller things they could have accomplished (if that group had not been mostly a mix of amateurs and saboteurs) would have been to do away with executive liability for patent infringement. While the law allows this, the question is, of course, whether a firm like Quinn Emanuel Germany should engage in such practices that the clients it mostly works for (in Germany, that means companies like Google and Daimler) sharply disapprove of. In that SWM v. Glatz case over a cigarette paper patent, QE Germany acted in such questionable ways that I was thoroughly disappointed to find out about it. The Frankfurter Allgemeine article just adds to that unfavorable impression of what they did in that case.

I do, however, wish to clarify that what QE Germany did in that particular case is presumably an outlier. As for my criticism of their performance (i.e., rate of success) when they were defending Daimler against Nokia, it was definitely the poorest set of results I had ever seen from them, and a look behind the scenes revealed that they had gotten some cases stayed, but Nokia was really beating them in the nullity and opposition proceedings and would have won two or three more injunctions pretty soon. The results don't support Daimler's decision to work with QE Germany: they could have worked with just about any other German patent litigation firm (as my post noted), given that they lost big-time and could have had those poor results at a (much) lower cost. I still believe that QE Germany would get better results if they did what every other patent litigation firm in Germany does (at least I'm not aware of any exception): to have patent attorneys involved every step of the way to benefit from their technical knowledge and patent prosecution expertise.

Solas OLED v. Samsung raises fundamental question of software-related patent eligibility

Finally, my follow-up to last week's commentary on the patent-in-suit in Solas OLED v. Samsung, which relates to the recognition of multitouch gestures.

The infringement-related part of the discussion showed an issue that is familiar from other cases involving software architecture patents: compared to physical aspects (such as whether a certain layer is made of a particular material), it's much harder for courts to determine whether a certain structure is actually found in program code. Last week some reference was made to "pointers" being passed along. So, is passing a pointer on from one code segment to another the same as passing the data on? Is a certain object raw data (whatever the capacitive touchscreen measures with its horizontal and vertical wires) or is it the result of some kind of evaluation? Is a "server" a separate computer or could it just be a subroutine of a computer program (Apple's "quick links" patent)? In the U.S., those questions go before juries unless they can be resolved purely through claim construction. In Germany, the courts try to decide them based on the pleadings.

It doesn't appear exceedingly likely that Solas OLED will even win the infringement ruling it is seeking. But in any event, that patent-in-suit is outrageous.

I'll use some Microsoft terminology now because almost all of the coding I've done over the last 20 years has been on the Microsoft .NET framework (where C# is the predominant programming language). There's the important distinction between "design time" (which is when programmers edit code in the development environment--Visual Studio in that case) and "execution time" (which is when the program actually runs on a computer).

Even those favoring a broad scope of patent-eligible subject matter in connection with software should draw the line where the benefits that a patent claims to generate are purely relevant at design time, not at execution time.

To recognize a multitouch gesture like pinch-to-zoom (clearly multitouch because you need two fingers), it is one possible strategy to identify single-touch gestures (such as when each of the fingers taps on the screen) and to then discern a multitouch gesture based on a combination of previously-identified single-touch gestures. That's a step-by-step approach. But it's also possible to proceed directly to the multitouch analysis (based on the raw data)--and that multitouch analysis could, theoretically, even be implemented with AI algorithms, which would just figure out the most efficient path based on experience.

This is the key point now: If the "one-two" approach of firstly identifying single-touch gestures and then recognizing multi-touch gestures based on a number of single-touch gestures (like firstly identifying trees, then saying all these trees are a particular type of forest) had technical advantages at execution time, there might be something patent-eligible about the claimed invention. Not so here. The patent specification itself merely suggests that directly analyzing raw data for multitouch purposes is more error-prone (and harder to test), meaning that humans who write the program code are more likely to deliver quality work under the "one-two" approach than the direct one.

There's no such thing here as inherently superior reliability (and/or efficiency) for technical reasons. It's all about reducing the complexity of a problem for the human mind by breaking up the software design process into two steps. You can't claim the human mind in a patent.

The Munich court knows the position of the Federal Court of Justice on interpreting an issued patent: for infringement purposes (invalidity is another story), courts have to assume that the patent examiner granted the patent because there was some technical benefit somewhere. In this case, the Munich court reasonably says that the patent argues it makes it easier to add support for new gestures. The claims do not refer to the addition of new gestures: they just talk about recognizing gestures (whether old or new), as opposed to referring to (for example) an entry system for defining a gesture. But based on the specification, it is correct to say that if the patent purports to solve any problem, it's the problem of supporting programmers tasked with writing gesture recognition code.

Whether raw data is analyzed directly or whether there is the two-step approach taught by the patent, code can be reliable or unreliable. You can write perfectly reliable and efficient code either way. Or you can leave it to an AI system, which will then figure out over time what works best for its purposes.

If it's all about simpler, cleaner code from a human perspective, then we're not at the level of automation. Even software developer tools may meet the machine-or-transformation test. But there has to be an automated process. You start some program code, and it does something that other code can't do, or it does the same but outperforms the state of the art (by being faster and/or more reliable and/or more secure and/or using less memory, bandwidth etc.).

It's really astounding that whoever examined that patent application at the German Patent & Trademark Office failed to see that there was no such thing as a technical effect. It's about a coding style and mere probabilities of whether programmers will do a better job one way or the other. It's not about a specific process implemented in software and yielding per se technical benefits.

If the mere proposal to break up a complex software development problem into smaller building blocks because they're easier to digest for the human mind and save the effort of reinventing the wheel was patent-eligible without specific execution-time benefits, we'd see a deluge of additional patent infringement cases against the entire technology industry.

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Friday, November 19, 2021

After Google's announcement of bad-faith compliance with in-app payments law, South Korean lawmakers must go back to the drawing board if they respect themselves and want to be respected

Barring the unforeseeable, I intend not to comment again on app store matters after this post until the Ninth Circuit has ruled on (and most likely will have granted) Apple's motion for a stay of Epic's injunction. But a follow-up to the previous post, which I just linked to, is warranted by Google's official announcement of how the search giant and mobile operating system market leader intends to "comply with the [new South Korean in-app payments] law" (quotation marks are not enough to put this into perspective). I had not addressed this part in my previous post, but it's the same pattern as what Apple intends to do--and Google's announced new terms just took effect yesterday.

The issue is precisely the same one. The South Korean law theoretically requires Apple and Google to do what Epic Games has so far failed to win in court (except in the eyes of a journalist who may never stop reiterating clearly erroneous legal interpretations) and the odds tend to be against Epic's appeal). Yet the bill proves pointless, useless, worthless in practice. But I strongly suspect that this is not how the South Korean legislature wants to be seen, so this is presumably not the end of the story.

The tax and review tyranny of the two leading mobile app stores (Apple's iOS App Store and Google's Android equivalent named Google Play) is under attack on multiple fronts in different ways. There is litigation, which has so far not helped in any meaningful way other than exposing certain issues; there are antitrust investigations, the mere specter of which already played a key role in getting Apple and Google to change some of their terms; and there are legislative initiatives, with South Korea theoretically having been ahead of the rest of the world but now risking to be nothing more than Apple and Google's laughing stock.

Here's the problem with what Google describes as compliance with the South Korean law requiring alternative in-app payment options:

"Service fees for distributing apps via Android and Google Play will continue to be based on digital sales on the platform. We recognize, however, that developers will incur costs to support their billing system, so when a user selects alternative billing, we will reduce the developer’s service fee by 4%."

So, if you're large enough that you normally pay 30%, the Google Play tax goes down to 26%; if you're eligible for small business terms, or if you're large and a particular customer's subscription has been in place for long enough, it's reduced from 15% to 11%; and for Google's Media Experience Program, it changes from 10% to 6%.

4% is just marginally above payment processing fees. If developers don't use Google Play, they have to use some other service or, if large enough, they might opt to work directly with credit card companies. To put this into perspective, let me quote the Bankrate.com website:

"Visa and Mastercard tend to charge merchants between 1.5% and 2.5% to accept their credit cards, whereas American Express charges between 2.5% to 3.5%."

So Google's reduction would leave a margin for third-party payment processing of only about 2.5% in the best case and 0.5% in the worst case (Amex's peak rate).

As a result, end users wouldn't save enough money to even bother to enter payment credentials elsewhere.

No app developer could profitably offer users a non-negligible discount if they used an alternative payment system. The saving (on what the developer owes Google) is just not going to make a difference.

The same would happen in the U.S. if the Epic Games v. Apple injunction ever got enforced (which it never might).

As I wrote yesterday, Apple has already declared its intent to levy its app tax on payments made by users who follow external links that take them out of an iOS app to complete a transaction. I'm sure Apple would not offer "sweeter" terms in that hypothetical scenario of Epic enforcing its consolation-prize injunction (again, I think the injunction will be stayed, and I don't think the anti-anti-steering injunction based on California UCL is all that solid).

The difference is just that the Epic Games v. Apple judgment explicitly authorizes Apple to do this. The judge recognized Apple's right to tax app developers. The South Korean law, as far as I can see, neither endorses the app tax nor does it prevent Google from at least trying to get away with bad-faith compliance that is not against the letter of the law.

Whether Apple will play the same game in South Korea or just stop selling devices there remains to be seen. South Korea is pretty much "Samsung Country." It might not be worth it for Apple to serve a limited number of Korean customers if it has to make the kind of concession that no other jurisdiction, for the time being, requires it to make. It could always return to the market later, and various South Korean Apple fans would probably buy their devices abroad.

But Android is huge in South Korea, so Google won't leave the market: it just capitalizes on the in-app payment law's biggest structural weakness.

In the short term, this may be the right move for Google. It might backfire, however, in the event that South Korean lawmakers recognize that their original bill was not intelligently designed, and come back to require an equal footing for alternative app stores, ruling out that alternative app stores can be taxed. But that would then raise the question of whether South Korea would expropriate Google (and Apple, if the iPhone maker even wanted to stay in that market under those circumstances). There is intellectual property involved, even though--ironically, in no small part as a result of Google's 11-year litigation with Oracle--it would be hard to enforce profitably through infringement litigation. Here, the platform makers can just leverage the market power of their platforms. And at some point the question would then be whether any jurisdiction could and would force them to make their developer tools available to everyone. Theoretically, third-party developer tools could do the job. Practically, constant operating system changes might put alternative tool makers at a fundamental disadvantage, or simply out of business.

There would be challenges even if alternative app stores were allowed. But app store diversity would be structurally stronger and more enforceable, provided that the platform makers would be barred from self-preferencing or from sabotaging third-party app stores. Any restrictions of access to API, or performance degradations by design, could be proven with the help of technical experts, and then those companies could be fined.

So far, Russia and Japan have been most effective, though I think that the European Commission, just by looking at certain issues over many years, was intimidating enough that Apple started to lower its fees, such as the 15% rate for long-running subscriptions (most subscriptions are actually not in place for very long, so what looks like a generous gesture has limited financial impact in practice).

Russia broke the app review monopoly by enabling its government to dictate what Russian apps Apple needs to pre-install. There was some doubt about whether Apple would accept this, but ultimately Apple wanted to keep the rubles rolling and acquiesced. Japan reached an "e-reader" settlement with Apple, which has global impact, but the jury is out on whether Apple will figure out a way of rendering it a lot less effective, such as by restrictions on cross-purchases.

South Korea initially appeared to make the boldest move, but after Google's announcement the question is just whether Apple will adopt the same approach or, more likely, refuse to comply altogether. Either way, the South Korean bill doesn't help developers or consumers in the slightest as things stand.

The South Korean parliament needs to amend its bill or Google will be laughing all the way to the bank.

And there's a geopolitical issue here: South Korea is somewhat dependent on the United States (not just for military reasons). For a variety of reasons it may not be feasible in the foreseeable future, but the best solution for countries like South Korea and even Japan, Russia, India, or possibly Latin American countries, would be to cooperate more closely than ever with the European Union on the regulation of digital markets. I'm not doubting the good intentions of U.S. lawmakers, such as the one and only David Cicilline (just one example), to address these issues. But should it turn out that the U.S. government would ultimately stand behind Apple and Google once countries like South Korea seriously regulated digital marketplaces, smaller countries might have to team up with others lest they be bullied around.

Microsoft is on the right side of history with respect to app distribution. It never did anything even 1% as bad as what Apple and Google have been doing for more than a decade now. But there was a time when Microsoft's conduct raised issues, and in a way, Google's announcement reminds me of Microsoft having been forced by the European Commission (and the EU judiciary) to offer a "Windows N" edition without the Media Player: it did nothing to create additional opportunities for alternative media players as customers saved nothing, Microsoft obviously had no incentive to promote it, and hardly anyone ever spotted, much less purchased, a "Windows N" edition. However, the far more important part of the EU Microsoft case involved network protocols, and that one did have an impact. Interestingly, in that part of the case IP was key (as Microsoft could have tried to enforce patents against third-party implementations of its protocols, and asserted copyright over documentation), and the EU ensured that only a small license fee could be charged. Also, Microsoft has been extremely careful to avoid antitrust issues ever since (there may still be occasional complaints, but they don't appear to have substance), which is more than Apple and Google can say at this stage.

Google's announcement is just the South Korean equivalent of "Windows N": a jurisdiction tells them to offer choice, and the target of the new regulation says "you can have choice, but it's not our problem whether anyone will actually end up choosing the alternative we are forced to provide."

South Korea didn't get this right the first time because Google can just provide a choice that makes no business sense. But no one is ever beaten unless they give up the fight. Better luck next time, South Korea! And may lawmakers and other decision makers (judges, regulators) around the globe learn from South Korea's initial mistake.

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