The dispute between patent holding firm IPCom and Taiwanese wireless device maker HTC continues to escalate. IPCom, which is in the position to enforce an injunction after HTC withdrew its appeal, just issued a press release announcing that it sent formal cease-and-desist letters ("Abmahnungen" in German) to major German retailers, demanding an immediate end to their sale of HTC's 3G-capable products. IPCom says it has also asked the Mannheim Regional Court to "initiate penalty proceedings for contempt of court against HTC". The court can fine HTC with up to 250,000 euros per violation (in general, each shipment would count as one violation) or order imprisonment.
I contacted IPCom to ascertain that the letters it sent to retailers formally threaten with legal action unless the recipients sign a cease-and-desist agreement stipulating a contractual penalty. IPCom confirmed that that's what they did. In other words, we're talking about the last step prior to litigation against those resellers, as opposed to a mere infringement notice or other type of patent assertion letter.
The patent IPCom asserts in its letters to retailers is a UMTS-focused divisional patent derived from the patent IPCom can enforce against HTC. The UMTS-focused divisional was deemed valid by the Mannheim Regional Court and the High Court of England and Wales earlier this year. A German utility model (basically a fast-track patent) related to that patent survived reexamination by the German Patent and Trademark Office (DPMA). HTC, Nokia, T-Mobile, Vodafone and Ericsson objected to the grant of this patent in opposition filings lodged with the European Patent Office. The EPO will hold a hearing in a few months.
The retailers IPCom contacted will now have to decide whether to take any risks. The agreements retailers conclude with vendors usually contain hold-harmless clauses under which HTC would have to bear the costs and risks of any such legal issues. While there's strong demand for HTC's products in the German market, the legal departments of some retailers might be uncomfortable with this situation and prefer not to be drawn into litigation. It remains to be seen what impact IPCom's aggressive course of action is going to have.
IPCom justifies its legal threats against retailers with HTC's unwillingness to cease the sale of its products in Germany. HTC claims it has a workaround. I'd usually be inclined to believe them, but the thing I don't understand is why they didn't present their workaround to a court of law. They had the opportunity in the appellate proceeding, but they elected to withdraw their appeal. That's why the next opportunity to find out about a court's opinion on the claimed workaround will be whenever the Mannheim Regional Court takes a decision on IPCom's motion to penalize HTC for alleged contempt of the injunction. That may take months, however.
I asked IPCom some questions about this, and one thing IPCom told me is that it's difficult for them to initiate new lawsuits (over new patents such as the aforementioned divisional patent) against HTC for logistical reasons. A lawsuit against a foreign company must be served through the defendant's government in accordance with international rules (unless the country has agreed to an expedited service procedure). IPCom claims that a complaint that it has been trying to serve on HTC for more than a year still hasn't been served in Taiwan. The German lawyer who represents HTC in all other proceedings against IPCom refuses to accept it, too. As a result, that lawsuit is stalled, and this administrative issue appears to be part of the reason why IPCom feels forced to draw resellers (such as previously T-Mobile and Vodafone, whom it is already suing over the same divisional patent) into this dispute.
I haven't seen proof of a delay in delivery, but if what IPCom says is true, then I can't blame them for taking action against German resellers, though I'd criticize that kind of strategy under many other circumstances.
IPCom says that HTC refuses to take a license to the wireless patent portfolio originally developed by Bosch, a mobile communications pioneer. I recently obtained a court document according to which the court determined a value in dispute (the amount on which court fees are based) based on the assumption of a royalty rate of 2.5% to 3.5% for one 3G-essential patent.
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