At 9 AM today, the Mannheim Regional Court pronounced its ruling on one of the patent infringement lawsuits Motorola Mobility brought against Apple in Germany in April 2011. This is the first substantive ruling in this dispute. A default judgment that the same court entered against Apple last month will be rediscussed at a second hearing in early February. Here's today's ruling, which includes an injunction that is preliminarily enforceable against Ireland-based Apple Sales International in exchange for a €100 million ($134 million) bond unless Apple wins a stay:11-12-09 Mannheim Ruling for MMI Against Apple
The ruling generally relates to all Apple products that implement the patent-in-suit. The ruling notes that, "inter alia", this includes the iPhone, iPhone 3G, iPhone 3GS, iPhone 4, iPad 3G and iPad2 3G. But the iPhone 4S, which was released after this litigation started (April 2011), undoubtedly implements the same telecommunications standard.
The patent-in-suit is EP (European Patent) 1010336 (B1) on a "method for performing a countdown function during a mobile-originated transfer for a packet radio system". This patent is one of the two patents at issue in the action in which a default judgment was entered against Apple Inc. It was declared essential to the General Packet Radio Service (GPRS) standard. It's the European equivalent of U.S. Patent No. 6,359,898, a patent against which Apple raised a FRAND defense in the United States and which is being asserted in an action that was just transferred from the Western District of Wisconsin to the Northern District of Illinois.
The ruling targets Apple's European sales organization but relates only to that entity's sale to German customers.
Besides an injunction, the ruling also holds that Apple owes damages of an amount to be determined after Apple provides to Motorola certain information on the sale of infringing products in Germany in the past. All of this can be appealed.
What will Apple do?
The ruling states that Apple could modify its products by removing the patented feature so as to steer clear of further infringement. It remains to be seen whether this is a commercially viable option for Apple. This feature could be somewhat fundamental to wireless data transfers in general.
Apple is certainly going to appeal this ruling to the Karlsruhe Higher Regional Court and to request a stay for the duration of the appellate proceedings. Such a suspension may or may not be granted. If there's no stay, Motorola will have to decide whether to bear the risk of enforcing a ruling that might be overturned later. Apple asked for a €2 billion ($2.7 billion) bond, but the court agreed with Motorola that a much lower amount -- in this case, €100 million -- was warranted.
Apple might also make efforts to procure a license to the patent-in-suit. Apple made an offer to Motorola to take a license on FRAND terms going forward, but, as I'll explain further below, Motorola's lawyers developed a theory that enabled them to reject Apple's offer while fully preserving their client's entitlement to injunctive relief according to the decision taken by the Mannheim court. Since the ruling adjudicated a new question of law, it's of particular significance.
Quinn Emanuel and Mannheim continue to give Apple a run for the money
There's no question that this is a major win for Motorola Mobility and its counsel, Quinn Emanuel (the firm also defeated Apple's motion for a preliminary injunction against Samsung in the US, a decision that Apple just appealed).
They are also on the winning track against Apple in another Mannheim case. That other case involves the second of the two patents at issue in the action known for the default judgment. It's increasingly unlikely that the default judgment may soon be replaced by a substantive ruling with an identical outcome (but a stronger basis for enforcement).
Yesterday I found out (from a French court decision) that Apple is also suing in Mannheim. They are asserting six patents against Samsung in that venue, which is probably the second center of gravity of worldwide wireless patent litigation now (second only to the ITC).
Mannheim court allows patent holders to tie a FRAND license for the future to an unconditional recognition of liability for past damages
In connection with another Motorola v. Apple litigation in Mannheim I explained last week how companies seeking a FRAND license in Germany must follow a certain procedure laid out by the German Federal Court of Justice in its Orange-Book-Standard ruling. Essentially, they can't just hold a FRAND defense against a patent holder who's suing them. Instead, they have to proactively make efforts to procure a license on FRAND terms by making an irrevocable, binding offer to the patent holder and by posting a bond for ongoing royalties.
Only if the FRAND patent holder denies a license despite having such an offer on the table, the defendant can claim that an injunction would result in a violation of competition law and, as a result, should not be granted. I have so far seen only one German patent ruling in which that kind of defense appeared to have contributed to a decision by the Mannheim Regional Court to stay a case rather than order an injunction.
The ruling explains in detail what kind of offer Apple made to Motorola. That offer is one relating to all of Motorola's FRAND-pledged patents including the one at issue in the case that was heard a week ago.
Motorola overcame Apple's FRAND defense because Apple reserved the right to contest the validity of the patent-in-suit "when, insofar and for as long as" Motorola would seek damages for past infringement -- which in Motorola's opinion goes back to the year 2007 -- above a FRAND rate.
The logic presented by Motorola's counsel convinced the court: someone using a patented invention should have to pay a price for being found to have infringed. While competition law requires the patent holder to extend a license on FRAND terms going forward, past infringement is a different matter. If, in the alternative, damages for past infringement were limited to a FRAND royalty rate, Motorola and Judge Voß argue, an infringer might ultimately get to use the patent on more favorable terms than someone procuring a license at the outset. They say that favorable terms would result from a scenario in which payments for using the patent in the past can be avoided by proving the patent invalid.
In this case, Apple has a nullity action (a litigation to invalidate the patent) going at the Federal Patent Court in Munich. Whether or not it will succeed is unclear at this stage, but if it succeeded, Apple wouldn't want to pay royalties for past infringement. Under the offer Apple made to Motorola, it would accept a continuing obligation to pay FRAND royalties in the future, but it wants to retain its invalidity defense with a view to damage claims related to past infringement (unless those damages claims were limited to a hypothetical license on FRAND terms).
Commercially, this would pose substantial risk to Apple. Damages for past infringement could be high if they are not limited to a FRAND rate.
But the Orange-Book-Standard decision didn't address the issue of past damages explicitly. I have talked to several lawyers who are uncomfortable with its lack of specificity. Motorola's German counsel found multiple ways to justify a rejection of Apple's FRAND offer and avoid having to grant a compulsory license, at least at this stage (this will likely be the most important issue on appeal). The one I just described at length is the one that won the day. Therefore, the court didn't see a need to look into some of the other FRAND questions raised, which include the following ones:
Motorola apparently argued that it would not have to grant a license for future use only if someone recognizes liability for past infringement in principle. They apparently want to receive a payment for those past damages or at least a bond that guarantees such payment.
It's unclear whether such licensing offers as the one made by Apple can be limited to a particular patent, or to standards-essential patents valid in only one jurisdiction (in this case, Germany), or whether a patent holder can withhold a license for the German market unless an offer to take a license covers all standards-essential patents held by the patent holder around the world.
The court also didn't address the question of whether willful infringement might preclude a defendant from access to a FRAND defense. Motorola claims to have contacted Apple back in 2007 with a demand to take a license to its standards-essential patents.
Any one of the questions raised above might also entitle a FRAND patent holder in Germany to withhold a license and preserve his ability to request and obtain injunctive relief.
There's no doubt that Germany is a particularly difficult place for bringing a FRAND defense. With today's ruling, that's clearer than ever, and creative lawyers will probably push the Orange-Book-Standard envelope in ever more ways over time.
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