Tuesday, February 5, 2013

Settlement pressure mounts as HTC can't deny infringement of key Nokia patent

Based on what Judge Dr. Holger Kircher of the Mannheim Regional Court indicated at a trial today, Nokia appears quite likely to win a German patent injunction against HTC on March 19 over EP0673175 on "reduction of power consumption in a mobile station". Rather than face exclusion from the largest market in Europe, HTC could enter into a settlement agreement and agree to pay royalties to Nokia, which may very well happen between now and the scheduled Mannheim ruling, or shortly thereafter.

At a high level this patent is easily explained: it's about saving battery power by identifying during a mobile connection any messages (basically, packets of data) that can be reconstructed from only a portion of an encoded message (encoded for purposes of wireless transmission, with certain redundancies to allow for error correction) and, whenever possible, providing power to the receiving component only if and when further portions must be received in order to decode the message. If there's a strong radio signal, there's no point in wasting battery power on redundant data: it's more efficient to turn the receiving component on again just in time for the next message. This is particularly relevant when the phone is not in active use but still connected to a cellular network.

HTC's defensive strategy shows just in how much trouble it is. Even after Judge Dr. Kircher advised counsel for HTC (Dr. Clemens Plassmann of Hogan Lovells) that merely criticizing Nokia's detailed infringement contentions is no substitute under the law for a denial of infringement, HTC did not elect either to claim that there definitely is no infringement or at least to dispute infringement on the basis of lacking sufficient information. Under German law, a denial by HTC on the basis of insufficient information would require Nokia to deliver further proof (which it did, but which is simply not needed as long as HTC dodges the question of whether it denies or concedes infringement).

Nokia's lead counsel in this action, Bird & Bird's Christian Harmsen, most likely nailed it when he said that the only reason for which HTC refuses to deny is that under the circumstances it can't do so without violating the truthful pleading standard. Under German law (like in other jurisdictions) any denial, including a denial based on lack of knowledge, may result in criminal prosecution if the declaring party actually did know that the accusation it denied was accurate. It appears that HTC is aware of its infringement and, therefore, can't take the risk of a denial. That's why it doesnt's simply say: "No, our products don't do what Nokia claims they do." HTC resorts to failure-of-proof and failure-to-state-actionable-claim types of arguments, which are irrelevant for now because the leading German reference on patent litigation clearly says that all a plaintiff needs to do here to state an actionable claim is to allege that a specified patent claim is infringed by certain accused products. Only if a defendant denies, further analysis will be performed, and further proof will be required from the plaintiff.

The need for defendants in Germany to deny an infringement allegation is also going to be a key issue at a Microsoft v. Motorola Mobility and Google trial next month in Munich over the Google Maps Android app.

What lends HTC's inability to deny infringement even more significance is that Germany is only one of three major jurisdictions in which Nokia may soon win enforceable decisions against HTC. The Finnish company is also asserting this patent against its Taiwanese rival in the US (where it is seeking an import ban from the ITC as well as additional remedies, particularly damages, in federal court) and the UK. In the UK, HTC brought a declaratory judgment request against numerous Nokia patents, to which Nokia responded with offensive counterclaims, meaning that the UK part of the dispute is now an infringement case just like the one in Germany and could result in remedies (injunction, damages etc.) relating to HTC's UK business.

The BlackBerry company (previously known as Research In Motion, or RIM) was also being sued over this patent but recently settled. Nokia is still suing Android device maker ViewSonic over this patent in U.S. federal court.

HTC's de facto concession of infringement wouldn't have to result in an adverse ruling if any other defense (than non-infringement, which HTC can't plead) succeeded, but the court was rather skeptical of HTC's other defenses:

  • HTC points to an arbitration clause in an existing license agreement, and some arbitration proceeding between the two companies is ongoing, but it only relates to standard-essential patents (SEPs). Judge Dr. Kircher is most probably not even going to have to look at the question of whether this patent is standard-essential (Nokia says it's not) because the court will have to look at the question of preclusion based on Nokia's pleadings, not HTC's defenses. In the alternative, the judge noted, HTC would be able to stall any Nokia enforcement action, even if Nokia asserted patents on beeswax melting machines (the Mannheim court had a case over related patents last week, obviously involving different parties).

  • HTC also claims patent exhaustion because it uses Qualcomm baseband chips. Nokia and Qualcomm have a patent license agreement in place, but the court was underwhelmed by HTC's substantiation of its exhaustion claim.

  • German courts stay infringement actions involving a potential injunction only if there's a high probability of invalidity. HTC is challenging this patent in a parallel proceeding in the German Federal Patent Court. Its two primary prior art references are Motorola patents that don't appear to disclose all of the limitations (elements) of Nokia's asserted claims. The court and the parties agreed that further pleadings related to the alleged invalidity of this patent would be submitted within three weeks' time. It's not impossible that the court changes mind and stays this case, but it probably won't.

After HTC settled with Apple I wrote that its biggest patent worry is now Nokia's ongoing enforcement campaign over 32 patents. This patent was the first one on the list. Nokia also has some other claims pending that may very well succeed. But not all of them will: the Mannheim court today felt that another patent Nokia is asserting against HTC (and ViewSonic), EP1474750 on a "method and system for storing and transferring multimedia tags", must be interpreted so broadly that it will most likely be found infringed by HTC's devices but will also be deemed to be highly likely to be invalid under that particular claim construction. The Munich I Regional Court appeared to interpret it more narrowly at a first hearing in the ViewSonic case. But HTC can't defeat each and every Nokia patent, and sooner or later -- probably sooner rather than later -- it's going to have to take a royalty-bearing license.

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