Friday, March 15, 2013

Huawei wins German 4G (LTE) patent injunction against ZTE's base stations

Today the Mannheim Regional Court announced the first decision ever in a Chinese-Chinese patent infringement action in Germany. Huawei won a German injunction against its rival ZTE, which is no longer allowed to sell 4G-capable base stations in Germany unless it wins a stay from the appeals court or, more likely, agrees to pay royalties to Huawei. After only one ruling on one of its German standard-essential patent (SEP) lawsuits Huawei has already been more successful than Samsung, which has been suing Apple for almost two years over cellular SEPs in Mannheim but lost its first three cases and saw the fourth one stayed (a fifth lawsuit, in which Samsung can at best obtain damages, is still alive). In a recent submission to the FTC Apple pointed out that, on a worldwide basis, Samsung and Google prevail on only one out of eight (Samsung) or one out of ten (Google) of their SEP assertions.

Due to a scheduling conflict I wasn't able to attend today's announcement in person (though I did attend all the other Mannheim announcements I've reported on so far) but I've been informed of the outcome by an absolutely reliable source, and I attended the trial in mid-December. Presumably the parties to this dispute will soon inform their shareholders. The only respect in which ZTE defended itself successfully is that its "surfsticks" (USB modems) were cleared of infringement because they were not deemed to implement the patented invention to a degree that would have warranted a sales ban: with respect to those devices there's a potential for substantial non-infringing use in the court's opinion. Huawei and ZTE fiercely compete in the global market for base stations sold to carriers, while end-user "surfsticks" are a much smaller business opportunity.

The patent-in-suit, EP2273818 on "key derivation", is allegedly essential to the fourth-generation cellular telecommunications standard, Long Term Evolution (LTE). Huawei prevailed on claims 1, 7 and 12. Presiding Judge Andreas Voss ("Voß" in German) and Judges Lembach and Schmidt ordered ZTE to cease and desist from the sale of

  • base stations capable of practicing claim 1 unless ZTE takes precautions against infringement of this method claim by its customers (more details on this requirement further below),

  • base station components functioning as target base stations for end-user devices if such components infringe claim 7, and

  • base station components functioning as source base stations for end-user devices if such components infringe claim 12.

The decision is appealable but Huawei can enforce it during an appeal if it posts a bond of 1 million euros ($1.3 million).

Claims 7 and 12 are product claims, which is why any sale or offer of devices meeting the description of these claims is now prohibited, and contempt of court will be sanctioned with fines of up to 250,000 euros for each violation (which usually means each shipment to a given customer, but not each unit sold) or confinement of management for up to six months per violation (up to two years in total in the event of multiple acts of contempt).

Claim 1 is a method claim. Direct infringement of claim 1 occurs only if customers (in this case, carriers) actually use ZTE's base stations and operate them in a 4G-compatible mode, but not if they use those base stations only in 3G (UMTS) and GSM modes. The ruling prevents such contributory infringement by requiring ZTE

  • to "state expressly and prominently" in any offers that ZTE's customers need a license from Huawei to practice claim 1 (i.e., to run these base stations in 4G/LTE mode) and

  • to sell such base stations to customers only if the customers (i.e., the carriers) promise to pay a contractual penalty of 50,000 euros (or a minimum of 25,000 euros for each one of multiple violations) to Huawei.

If ZTE fails to make the required statement in an offer or to require its customers to promise contractual penalties to its rival Huawei in accordance with what I summarized above, ZTE faces the same contempt sanctions for each act of offering or each sale of such products as if it acted in contempt of the prohibition to practice claim 1. I believe ZTE will comply with all these orders, and most likely take a license from Huawei. Alternatively, it can try the iterative approach that worked out well for Apple last year in its dealings with Motorola Mobility and make, in accordance with the German Orange-Book-Standard framework, an improved offer to Huawei for taking a license to this patent or to Huawei's entire cellular SEP portfolio. In that case the appeals court may find that (further) enforcement of the injunction is abusive. But the offer that ZTE made Huawei in the build-up to this decision was deemed insufficient by the court.

Today's ruling stands as proof of Chinese high-tech innovation. It's also a significant achievement for Huawei's lead counsel in the German part of the dispute with ZTE, Christian Harmsen of Bird & Bird. It furthermore demonstrates that it's definitely possible to win patent injunctions, including SEP-based ones, in Mannheim. In fact, Nokia is fairly likely to win a Mannheim case next Tuesday against HTC. The Mannheim court has recently issued various wireless patent decisions finding no infringement and has stayed a number of cases over doubts concerning the validity of the patents-in-suit. Mannheim is not the European equivalent of the notoriously patentee-friendly Eastern District of Texas (though I must admit that I, too, drew this comparison after I attended the first few hearings and disagreed with the court's approach to FRAND-pledged SEPs, which I still do). The Mannheim Regional Court is patentee-friendly, but only within reason. It resolves patent infringement lawsuits very quickly, and litigants (plaintiffs as well as defendants) face a court that has unparalleled expertise in the adjudication of wireless patent cases. If you have a patent that is broad enough to be infringed but not so broad that it falls within the scope of the prior art, and if you're interested in injunctive relief rather than just damages, Mannheim is one of the best venue choices -- and in many cases the most efficient venue choice -- you can make, provided that your rival generates substantial revenues in the German market. Huawei just scored a hole in one. But if you don't (or shouldn't) believe in your case, you'll most likely suffer a defeat, or a multi-year stay, and you might then be better off with a lay jury in a non-tech-savvy rural area.

Next week the Düsseldorf Regional Court will decide on two more Huawei v. ZTE 4G patent lawsuits. I attended the combined trial in late January, and another infringement finding is clearly a possibility.

While Huawei and ZTE are suing each other over patents and other intellectual property rights in multiple fora,cthey sometimes have to defend themselves against the same plaintiffs. In particular, they are coordinating some of their defensive efforts against InterDigital, a U.S.-based non-practicing entity.

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