Today I watched a hearing in another patent infringement lawsuit brought by Motorola against Apple in Mannheim. I will report on the prospects and key issues in that litigation tomorrow (it's been a long day). For now, suffice it to say that the court didn't take a firm position at today's hearing and Apple is considerably more likely to defend itself in that action than in another case. Before I elaborate on that matter in a subsequent post, I'd like to talk about money. Bonding, to be precise.
After the aforementioned hearing on November 18, many people took note of Apple's request for a two billion euro ($2.7 billion) bond being (in case Motorola wins and seeks to enforce a ruling while it is still on appeal or appealable). It's certainly a staggering amount -- but it pales in comparison to what's really at stake. At the hearing two weeks ago, the amount appeared to be an all-time total. Today it was clarified that this is an annual figure. But the period of time for which Motorola Mobility might have to post a bond would span far more than one year.
One of Motorola's lawyers mentioned the year 2018 today. Considering that the relevant cases are up for decision in February 2012, we're then talking (hypothetically) about six years, or six times $2.7 billion, or $16.2 billion. (For a point of reference, Google is currently proposing to buy Motorola Mobility for $12.5 billion.)
At this stage it's unclear whether the court buys the $2.7 billion annual figure, but if Apple can demonstrate that the accused products generate such a level of profits in Germany on an annual basis, the court may indeed accept this as a basis for the determination of a bond. In the relevant actions, Motorola is suing Apple Sales International, an Ireland-based organization. Judge Voß appeared to agree that a bond would have to relate to the particular legal entity enjoined, considering that a certain part of the profits will be generated not in Ireland but by Apple Inc. in the United States and/or by Apple's German subsidiaries (Apple GmbH, Apple Retail Germany GmbH). But he's well aware of the fact that Ireland's low corporate tax rate is an incentive for many technology companies to structure their business in ways that produce the bulk of their European profits in Ireland.
Judge Voß also told Motorola that an appeal can take several years, so in principle he agrees that a bond would have to be posted for a much longer period than one year. Whether he agrees that six years is a reasonable period is another question, but one year it certainly won't be.
In February we'll get to know which figures the court determined to be appropriate. In the remaining part of this post, I'll quickly explain the background of this bonding issue.
In Germany, a permanent injunction handed by a first-instance court at the end of a full proceeding -- which is fairly likely in one of Motorola's Mannheim lawsuits against Apple and less likely but far from impossible in another -- is "preliminarily enforceable", meaning that the plaintiff can seek enforcement but will be liable if, at the end of the process, the injunction is found to have been improperly granted. The end of the process means that the ruling (or a subsequent appellate decision) can no longer be appealed, or it is appealed but the next higher court isn't willing to hear the appeal, or a party doesn't exercise its right to appeal (or withdraws its appeal, which is what HTC did against IPCom one week ago).
In other words, if a plaintiff in Germany wants to be on the safe side, he'll wait until he has a finally enforceable ruling. But it does happen that patent holders are prepared to take the risk (in terms of potential future liability) of preliminary enforcement, especially if they wish to use a German injunction as leverage for a settlement of a worldwide dispute or if they are concerned that the patent may expire during or not long after an appellate proceeding.
In order to ensure that the defendant will be compensated for the enforcement of an improper injunction, the court requires the plaintiff to post a bond.
There are two ways in which a company can get a bank to confirm to the court that the necessary guarantees are in place. The company can put the corresponding amount of money into a separate bank account. In that case, the fees will be rather low, and the interest income generated during the bonding period could offset some or all of the related charges. The other alternative basically comes down to an insurance deal, which is the only option for those who don't have the required liquidity, and it can be very costly.
I don't know if anyone ever enforced a ruling against a multi-billion bond in Germany. But given what's at stake between these litigants on a global scale, it's not entirely impossible that it might happen in this case. I could also see Apple post huge bonds to enforce German rulings against its rivals, depending on the overall circumstances.
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