Monday, July 13, 2020

BREAKING: Sharp grants automotive component-level SEP license to Huawei, partially withdraws patent infringement suits against Daimler

[BREAKING NEWS]

With multiple simultaneous filings dated July 6, 2020, Sharp partially withdrew its German standard-essential patent (SEP) infringement actions against Daimler as the Foxconn-owned Japanese electronics maker has concluded an automotive component-level license agreements with Huawei. The infringement actions are continuing with respect to Daimler cars that do not come with a Huawei baseband chipset, telematics module, or telematics control unit (TCU).

In terms of the economic significance of the remaining claims, it's a safe assumption that well over half of the dispute between Sharp and Daimler has been amicably resolved by virtue of patent exhaustion. But this breakthrough agreement far transcends that particular set of cases. It divides the Avanci gang led by patent abusers and formed for the purpose of dissuading blue-chip SEP holders such as Sharp from granting component-level licenses, while exposing Nokia's dogged denial of the feasibility and fairness of component-level SEP licenses as purely pretextual. Sharp's partial withdrawals conclusively prove that it is possible to differentiate at the end-product level based on upstream suppliers.

I applaud Sharp--which owns a large SEP portfolio and has proven its will to enforce its rights in court--for showing the way forward for licensing cellular SEPs to the automotive industry, which has traditionally required its suppliers to secure the prerequisite patent licenses; I congratulate Huawei on having convinced Sharp of the benefits of such an agreement at the negotiating table; and I'm happy to see Daimler--as a beneficiary of its indirect customer relationship with Huawei, which is known to provide connectivity modules to Daimler's tier 1 suppliers such as Continental and Harman--being relieved from a significant part of the litigation pressures it has been facing for a while. In practical terms, the Sharp-Daimler cases are now merely about past damages with respect to cars that came without Huawei components. Injunctive relief is a practical non-issue as Daimler could presumably equip 100% of its products with components supplied by Huawei or coming with Huawei chips and modules.

It bears recalling that Huawei is suing Nokia in Dusseldorf for an exhaustive component-level SEP license on FRAND terms. That antitrust trial will go forward in early September. Meanwhile, Nokia's infringement claims against Daimler are falling apart.

The Sharp-Huawei license deal further validates the positions taken by the Bundeskartellamt (Federal Cartel Office of Germany) in its interventions in multiple German Nokia v. Daimler cases, advocating the referral of a set of component-level licensing questions to the Court of Justice of the EU (CJEU).

The groundbreaking agreement won't go unnoticed in Brussels, where the European Commission is dealing with SEP licensing issues at the policy as well as competition enforcement levels.

The fact that Sharp agreed to license not only tier 2 (connectivity modules) and tier 1 (TCUs) products, but also baseband chipsets (tier 3 from a car maker's perspective), means that this license agreement is bound to be referenced by smartphone makers in some of their disputes. Apple, in particular, has been advocating chipset-level SEP licensing for a long time. Sharp's parent company, Foxconn, is the largest one of Apple's contract manufacturers.

There can't be the slightest doubt that we'll see more and more agreements of this nature and stature now. Some of them will come into being on a consensual basis, such as the one I learned about today, while others will simply result from regulatory action and judicial decisions. One way or the other, the likes of Nokia, Ericsson, and Qualcomm won't be able to deny component-level licenses for too much longer.

IoT startups stand to benefit from this trend. They are far too small to be in a strong position vis-à-vis certain abusive and anti-innovative SEP holders (and the trolls they feed with patents). IoT innovators depend on their suppliers being licensed. The European Commission has failed the IoT industry so far, siding with yesterday's losers rather than tomorrow's winners, but as a result of negotiations (such as Sharp-Huawei), private lawsuits (such as Huawei v. Nokia), and regulatory interventions (such as the Federal Cartel Office's submissions in Nokia v. Daimler), change is coming.

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Friday, July 10, 2020

Nokia getting nowhere: two more infringement cases against Daimler stayed as declared-essential patents-in-suit are likely invalid

An earlier version of this post went live on Wednesday and confused EP'505 (asserted in Munich) for EP'199 (asserted in Mannheim). A source of mine had gotten confused, and I should have double-checked, but now it's all 100% correct--and the conclusions are obviously the same, except that the Nokia v. Daimler trial in Munich on the 23rd will go forward and promises to be the most important event to date in the automotive patent wars. I'll try to attend.

Sometimes I wonder whether the S in "SEP" stands for "scam" rather than "standard."

Everyone who deals with patents professionally knows that, at least with respect to information and communications technologies, the system is broken beyond repair. Patent offices issue far too many patents and treat mass filers as "key accounts" whose "demand" for weapons of extortion they seek to satisfy. Unlike its U.S. counterpart, the European Patent Office isn't run by a trolls' lawyer, but it's also part of the problem.

But standard-essential patents take the issues facing the patent system to an even higher level. Companies overdeclare (though some have higher "hit rates" than others). No scrutiny is performed. And besides countless patents that aren't essential from an infringement point of view, the vast majority of those who may claim a standard-essential technique are simply invalid as granted.

Nokia failed to deliver a great smartphone user experience, then increasingly resorted to patent monetization. But it concluded license deals without a lot of patents actually coming to judgment. They monetize a portfolio that contains a huge amount of hot or even not-so-hot air. Where's the substance?

For a while, everything appeared to be working out according to plan for Nokia with respect to the Daimler dispute. They knew they were facing a 19th-century company that they hoped would cave at some point. Daimler certainly failed to put the necessary pressure behind its EU antitrust complaint, while Nokia found political opportunists of the worst kind in Brussels who were--and potentially still are--perfectly prepared to do lasting damage to the European Commission's reputation as a competition watchdog. After so many years of having been accused of protectionism, the Commission couldn't vindicate its critics more effectively and convincingly than by condoning Nokia's conduct.

Meanwhile, Nokia was hoping to get leverage through a barrage consisting of ten German patent infringement actions against Daimler. But the tide has turned, and this appears to be a dreadful season for the failed handset maker. The amicus curiae brief filed by the Federal Cartel Office of Germany with the courts hearing Nokia's cases makes it very hard--if not impossible--to imagine that Nokia would obtain an enforceable injunction against Daimler anytime soon, if ever.

Now I've found out that Nokia also keeps losing on the technical merits. Not only has Nokia been unsuccessful in Mannheim so far, but Nokia felt forced to enter into stipulations to stay two more cases given the high likelihood of invalidation of the relevant patents-in-suit:

  • On October 30, 2019, the Munich I Regional Court's 21st Civil Chamber had held a first hearing in two cases, one of which is about EP2797239 on "a method and a telecommunication device for selecting a number of code channels and an associated spreading factor for a CDMA transmission." The trial was supposed to be held on July 29, but it won't go forward as this patent, too, appeared likely invalid, so much so that Nokia had to consent to a stay (as per a filing on July 7, 2020).

  • In Mannheim, Nokia had already lost one case (patent not essential), and another case had been stayed. On June 15, case no. 2 O 37/19 over EP1273199 on a "method and arrangement for maintaining synchronization in association with resetting a communication connection" was also stayed pending a preliminary opinion of Federal Patent Court on validity. The week before, counsel for Nokia had reiterated that they considered the patent valid, but nevertheless consented to a stay.

There still are some other Nokia v. Daimler cases pending in Germany, with a Munich trial still being slated for later this month, a Mannheim ruling scheduled for early August, and a few Dusseldorf hearings set to take place in August and September. But so far, Nokia simply isn't winning. Much to the contrary, Nokia keeps devaluating its portfolio, and all those handset makers whose licenses are up for renewal in the not too distant future are presumably watching those developments attentively. Nokia's litigators picked the patents they thought were their strongest weapons, and it turns out they're largely non-starters...

What makes me really happy is the fact that the Munich I Regional Court appears increasingly receptive to strong invalidity arguments. That brings at least some balance to an otherwise broken system.

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Wednesday, July 8, 2020

Apple, Intel must amend antitrust complaint against Softbank-owned industrial-scale patent troll conglomerate Fortress Investment

In November, Apple and Intel jointly filed a complaint that practically constituted an amended version of one previously brought by Intel against Softbank-owned Fortress Investment, a group that operates a number of patent troll firms such as what may be the most infamous patent troll in history, Uniloc. This morning a docket entry made an order by United States District Judge Edward M. Chen (Northern District of California) publicly known, but the actual document is sealed for the time being:

(UNDER SEAL) ORDER granting [111], [114] Motion to Dismiss. Plaintiff granted leave to amend. Signed by Judge Edward M. Chen on 7/7/2020. (afmS, COURT STAFF) (Filed on 7/7/2020)

This outcome--a dismissal, but with a chance for Apple and Intel to amend the pleadings--is consistent with what Law360 expected to happen based on a mid-June hearing.

Short of knowing what exactly the order says, I can't elaborate, but the decision per se warranted a post. It's a safe assumption that Apple and Intel will give it a new try, and Fortress will likely argue that even the amended pleadings are lacking and wanting. They may get support once again from Antitrust Assistant Attorney General Makan "Macomm" Delrahim, whose primary objective it is to strengthen the owners of weak patents--never mind if it involves siding with foreign and foreign-owned entities against some of America's most innovative and iconic companies (Make America Great Again, anyone?). However, "Macomm" won't have too many more months in office, judging by the polls (which I find very disappointing, though I can relate to many voters' disenfranchisement with the Trump Administration given what went wrong this year in a couple of extremely important contexts).

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Tuesday, July 7, 2020

Supreme Court affirmance of API copyrightability ever more likely--deference to jury (with respect to "fair use") is Google's last line of defense

For a few years I've limited my commentary on the Oracle v. Google Android-Java copyright case to procedural matters, without reiterating the reasons for which I believe the thousands of lines of Java API code asserted in that case are protected by copyright, and their use by Google was unfair. While I agree with Oracle on substance, I did publicly support Google's successful cert petition because I care about the key issues far more than about specific cases.

I'm going to continue to steer clear of arguing the issues. But I am still following the proceedings, and I have bad news for those who hated the Federal Circuit's copyrightability holding: with respect to copyrightability, it looks like Google is more likely than not to lose.

Due to the coronavirus crisis, oral argument was postponed on very short notice in mid-March, and later rescheduled for the next term (October 2020 at the earliest). Then, in early May, the following order was entered:

The parties are directed to file supplemental letter briefs addressing the appropriate standard of review for the second question presented, including but not limited to the implications of the Seventh Amendment, if any, on that standard. The briefs, not to exceed 10 pages, are to be filed simultaneously with the Clerk and served upon opposing counsel on or before 2 p.m., Friday, August 7, 2020.

This is about deference to the jury with respect to "fair use." The jury had found in Google's favor, so this is, per se, a potential Get Out of Jail Free card for Google, and apparently one that a group of law professors had raised in an amicus curiae brief. But it also means Google's non-copyrightability argument is struggling--or may already have failed definitively--to get traction with the top U.S. court for the second time in about six years.

That's simply because the second question ("fair use") won't be reached unless the first (copyrightability) is answered in the negative for Oracle. "Fair use" is a defense to infringement, and you can't infringe what isn't protected in the first place.

It's unclear how many justices proposed the request for supplemental briefing. It might have been only one, but it will have taken support from several others for this order to be entered. There is quite a possibility of multiple justices--potentially a majority--already having concluded that Google can't prevail on its non-copyrightability argument. The hearing was postponed on such short notice that many if not all of the justices are quite informed; at a minimum, their clerks had concluded their analysis at that stage.

If the Supreme Court answered the "fair use" question in Google's favor on the basis of jury deference, it might or might not discuss the standard for software copyrightability in detail. Whether the Federal Circuit's copyrightability holding would be affirmed explicitly or (by reaching "fair use") mostly implicitly, the copyrightability of API code would continue to be a reality in the United States.

In the same scenario (and I'm not suggesting that it's likely--the fact that the SCOTUS requests additional briefing doesn't mean it will necessarily agree with Google on jury deference), those opposing the protection of API code under copyright law wouldn't really make headway beyond this particular case (and even in that one, there'd simply be a remand to the Federal Circuit). It would be a procedural decision, centered around the standard of review, far short of agreeing with Google's "fair use" defense in its own right--and next time a different jury, ideally instructed by a different (more balanced) judge, might simply find otherwise. It wouldn't be precedential with respect to the substantive issue.

After Oracle won the first of two rounds in the Federal Circuit (with Orrick Herrington Sutcliffe's Joshua Rosenkranz as lead counsel), Google already requested certiorari, but the Supreme Court declined. That fact, combined with the May 4, 2020 order that implies copyrightability, suggests quite strongly that Google is facing an uphill battle in that regard.

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Thursday, July 2, 2020

European Commission circling above--and still failing to help resolve--patent licensing dispute over automotive components

Last week, MLex published a report by Khushita Vasant (not paywalled, though most MLex reports are available only to subscribers, which is why I rarely have the chance to link to them) on a "third round of questions" the European Commission's Directorate-General for Competition (DG COMP) expects automotive suppliers to answer sometime this week.

MLex says the questionnaire "also asks carmakers about 'have-made' rights in Nokia's license offers." An academic paper recently discussed the shortcomings of such "have-made rights", and I commented on it. The Bundeskartellamt (Federal Cartel Office of Germany) summarized the parties' positions, including Nokia's offer to grant "have-made rights," in its submission to the courts hearing Nokia's German patent infringement complaints against Daimler, but clearly wasn't persuaded that the availability of "have-made rights" would obviate the need for judicial clarification on the availability of a full component-level license affording suppliers freedom to operate.

On the one hand, it's a positive sign that Daimler's and its suppliers' antitrust complaints against Nokia are still being preliminarily investigated by DG COMP. On the other hand, the Commission's hesitance to launch formal investigations is in stark contrast to a variety of cases involving American companies (you name them).

In recent months I heard from various sources that Nokia's "have-made rights" and similar proposals were flatly rejected by automotive suppliers from Europe, America, and Asia in response to the previous round of questions. If the Commission had wanted to, it could have considered that feedback a clear indication just like in scenarios in which it performs a market test of potential remedies. Here, the market responded with an unequivocal thumbs-down, and there's no reason why that should be different this time around.

In the weeks and months ahead, three German courts will decide on the well-thought-out suggestion by the Federal Cartel Office to refer certain questions of EU antitrust law to the CJEU. Meanwhile, DG COMP will have to decide on whether or not to launch formal investigations of Nokia's conduct. Should the EU's top court ultimately find that Daimler's suppliers had been entitled to a full SEP license all along, DG COMP would look bad--in terms of a dereliction of duty--for not having taken action. I believe the proper course of action would be for the Commission to launch formal investigations, which the Commission could stay pending the CJEU ruling on the underlying competition issues.

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Monday, June 22, 2020

BREAKING NEWS: Federal Cartel Office of Germany asks regional courts to refer component-level standard-essential patent licensing questions to CJEU, disagrees with Nokia

BREAKING NEWS

One of the most well-respected competition enforcement agencies in the world, the German Bundeskartellamt (Federal Cartel Office), has dealt a major blow to Nokia's abusive standard-essential patent assertion campaign against Daimler and, by extension, Daimler's global suppliers. As a result, the Mannheim Regional Court has already postponed the ruling it was slated to announce tomorrow (June 23) to August 4, 2020.

On June 18, Joerg Nothdurft, one of the highest-ranking officials of the Federal Cartel Office, sent a 24-page fax to the Mannheim and Munich courts, outlining the antitrust agency's perspective on the question of component-level licensing. In what is comparable to a Statement of Interest by the DOJ in U.S. cases or an amicus curiae brief, the Federal Cartel Office moves to stay Nokia's SEP infringement cases against Daimler and to refer multiple outcome-determinative legal questions to the Court of Justice of the EU (CJEU) in Luxembourg.

The letter notes that two of Daimler's suppliers--Continental and Valeo--drew the office's attention to certain issues.

The Federal Cartel Office proposes to request the CJEU to opine on a set of specific legal questions:

  1. The first question is whether it constitutes an abuse of a dominant position under EU competition law to pursue injunctive relief against an end-product maker while refusing to fully license its suppliers.

  2. The second question relates to whether a SEP holder is "entirely free" to choose the target of an infringement action regardless of its position in the supply chain.

  3. The third question outlines specific cases in which the Federal Cartel Office is inclined to believe that suppliers are entitled to a license.

  4. The fourth and final question raises the issue of whether SEP holders are free to offer a license only to a particular level of the supply chain.

The Federal Cartel Office notes that the European Commission's Directory-General for Competition (DG COMP) has not yet decided whether to open formal investigations, but that its failure to do so does not suggest that Nokia's course of action is in compliance with EU antitrust law.

I interpret the Mannheim Regional Court's postponement of tomorrow's decision on very short notice as a sign that the court originally intended to order a Germany-wide sales ban, but is now forced to give this further thought. I cannot imagine that Judge Dr. Kircher is still going to enjoin Daimler. And if he did so, his injunction would be stayed by the appeals court in no time.

This development is the worst news ever for Nokia and its partners-in-crime (mostly the Avanci gang) in the automotive patent wars. Nokia's and its trolls' (as well as Sharp's) infringement campaign is going to grind to a halt now. The Court of Justice of the EU will decide. DG COMP may or may not launch formal investigations now, but in the event of a referral of those legal questions to Luxembourg, the Commission would most likely await the outcome before taking specific action against Nokia. I suspect that the Federal Cartel Office filed its amicus curiae brief with DG COMP's unofficial blessings.

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Wednesday, June 17, 2020

Dusseldorf Regional Court reinforces position on access to standard-essential patent injunctions: analysis starts with SEP holder's licensing offer

On Monday, the press office of the Landgericht Düsseldorf (Dusseldorf Regional Court) issued a press release on six Conversant v. Huawei and ZTE cases scheduled to go to trial tomorrow (Thursday, June 18, 2020). Of note, the court that adjudicates more patent infringement cases than any other European court (though most smartphone cases, including cases over cellular connectivity in cars, go to the rocket dockets in Mannheim and Munich) reiterates its position on the availability ofcinjunctions over standard-essential patents:

"Nach der Rechtsprechung des EuGH darf ein Unterlassungsanspruch aus einem standardessentiellen Patent, für das eine FRAND-Erklärung abgegeben wurde, nur geltend gemacht[] werden, wenn der Patentinhaber dem lizenzwilligen Benutzer zuvor eine Lizenz zu fairen, angemessenen und nicht diskriminierenden Bedingungen (FRAND) angeboten hatte."

My unofficial translation:

"According to CJEU case law [i.e., Huawei v. ZTE], injunctive relief over a FRAND-pledged standard-essential patent may only be sought if the patentee previously offered to the willing licensee a license on fair, reasonable, and non-discriminatory (FRAND) terms."

The above sentence reaffirms that the starting point of the FRAND analysis will be what the SEP holder demanded. Should the SEP holder have failed to discharge its FRAND duties, no injunction will issue.

The three leading German patent litigation venues continue to approach and adjudge this legal question inconsistently:

The legal test is extremely important, but let's not forget that a lot depends on how a test is applied. If the analysis begins with the SEP holder's offer, but even the most egregious of royalty demands are deemed to be FRAND-compliant, it won't really help. Conversely, if a court approaches a case like the Mannheim Regional Court's Second Civil Chamber in Nokia v. Daimler, but doesn't set the bar unreasonably high for the implementer of the standard, then the outcome may still be pro-competitive. That's why next week's Mannheim ruling will be a particularly interesting one to analyze.

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