Yesterday I attended a Samsung v. Apple (re-)trial in Mannheim further to a March 8, 2013 decision to reopen proceedings because Judge Voss' ("Voß" in German) court felt at the time that Apple had not yet met its burden of proof as a defendant. The patent-in-suit is a 3G standard-essential patent(SEP), EP1679803 on a "method for configuring gain factors for uplink service in radio telecommunication system".
While I didn't immerse into all of the technical detail relevant to the infringement and validity analysis, the retrial was exceptionally interesting from a FRAND and standard-setting point of view -- transcending the Apple-Samsung dispute -- in two ways:
The remedies discussion showed that Samsung has become, once again, more defensive in the FRAND context, and I attribute this to a combination of antitrust pressure and litigation tactics. In December 2012 Samsung unilaterally withdrew, in anticipation of a Statement of Objections (SO, preliminary antitrust ruling) by the European Commission, all of its European SEP-based injunction request, but continued to seek monetary relief. Meanwhile it has also become less aggressive with respect to monetary relief. At yesterday's trial counsel for Samsung handed the court (and Apple) a document clarifying its modified prayers for relief, which explicitly limit the accounting requested from Apple (in Germany, only a prevailing patentee is entitled to such an accounting) to damages theories other than the pursuit of a disgorgement of infringer's profits. Disgorgement is usually a popular remedy in German patent infringement cases. By asking for financial data relevant to the computation of other damages but not related to profits per se, Samsung shows that for the time being it's not preparing a disgorgement claim -- but it doesn't appear to have dropped its damages claim yet. And Samsung declined to stipulate to Apple's proposal that it limit its requested compensation to a FRAND royalty.
Samsung's tactical choices in the FRAND context increasingly complicate Google's efforts to extract more than a FRAND royalty for Motorola Mobility's SEPs by isolating the company that supplies the software powering most Samsung smartphones and tablets.
The assessment of the chances of success of Apple's nullity (invalidation) complaint against the patent-in-suit (with a view to a reasonably likely stay of this case) centered around an issue that affects standard-setting and calls into question not only the validity of many SEPs but also their actual contribution to innovation: companies take out patents on (at worst) what they hear at the standard-setting table or (almost as bad) on predictions of where a standardization effort is headed. Two researchers, Byeongwoo Kang and Rudi Bekkers, authored a paper on this subject on behalf of the Eindhoven Centre for Innovation Studies (ECIS), entitled "Just-in-time inventions and the development of standards: How firms use opportunistic strategies to obtain standard-essential patents (SEPs)". They examined the patenting behavior of participants in standard-setting and identified unusual filing activity around key standard-setting meetings:
"Our data reveals a strong relationship between patent timing and the occurrence of meetings. We observed a remarkable phenomenon that we call 'just-in-time-inventions': the patent intensity of about-to-become claimed essential patents is much higher during or just before these meetings than in other periods. At the same time, they are of considerably lower technical value ('merit'). This suggests that the just-in- time inventions are only beneficial to their owners, whereas for the public they merely invoke unnecessary costs. Finally, we observed that the phenomenon of just-in-time inventions is highly concentrated among specific types of firms, above all vertically integrated ones, and the incumbent champions of the previous technology standard."
So the two highlights of yesterday's retrial relate to the Alpha and the Omega of SEPs: the time when they are filed and the inventions are adopted (which is pretty much the same in many cases) and the time when remedies for past "infringement" by implementers of the standard are determined.
I'm now going to elaborate on both topics in separate sections. As for the technical aspects of this patent, I made some effort to follow the discussion but by far not enough to fully understand the technology at issue. Based on the court's case management decisions and questions/reactions, it appeared to me that Judge Voss and his panel were leaning Samsung's way on infringement (simply put, while Apple argues that 3G networks don't transfer a particular number and stressed that a power ratio is a different thing than an amplitude ratio, the court already appeared at the first trial to be inclined to find an infringement if some different information with a deterministic relationship to the value described in the claim is transferred), but at the same time appeared to lean Apple's way on the question of whether to stay the case until the Federal Patent Court rules on the validity of the patent-in-suit. A decision (which may or may not be a final ruling) has been scheduled for November 22, 2013.
Samsung once again modified its prayers for relief -- now with respect to damages accounting
Samsung's counsel told the court that the purpose of the latest modification of the prayers for relief is to avoid a stay of the Mannheim proceedings pending resolution of the European Commission's ongoing antitrust investigation of Samsung's SEP assertions against Apple. Such a stay would happen if the court concluded that there is a risk of an inconsistency between an actual or upcoming European Commission decision and its own position on an outcome-determinative legal issue. Apple still argued that the case should be stayed not only pending the nullity proceedings at the Federal Patent Court but also the EU antitrust investigation. According to Freshfields Bruckhaus Deringer's Wolrad Prinz zu Waldeck und Pyrmont, who presented Apple's FRAND/antitrust arguments, Apple's antitrust-based affirmative defense, the merits which he says have been "factually determined by the European Commission", relates not only to injunctive but also monetary relief under German law. In this context, monetary relief includes an entitlement to an accounting that enables a prevailing plaintiff to bring a quantified damages claim. Unlike in the United States, where damages-related discovery typically takes place during the infringement proceedings (though a bifurcated approach of determining liability first would also be possible in the U.S. and was, in fact, proposed by Apple in a Florida litigation with Google's Motorola), a patent holder needs to prevail on liability in order to be entitled to such an accounting.
Hengeler Mueller's Dr. Wolfgang Kellenter argued the FRAND part for Samsung and said that Samsung's amended, narrowed prayers for relief -- no longer seeking the kind of accounting need for a disgorgement of infringer's profits -- eliminated the potential for conflicting rulings. But Prinz zu Waldeck said that the antitrust issue would only be mooted if Samsung agreed to seek nothing more than a FRAND royalty.
Theoretically, Samsung could still pursue a disgorgement, but in that case it would need to bring a new complaint in order to obtain some of the financial data relevant to a computation of profits, or it would have to base a damages claim including disgorgement on a combination of hard numbers (sales figures etc.) and speculation (profits). The latter scenario would be grossly inconsistent: ruling out a damages theory (disgorgement) at the accounting stage but going for it nevertheless when bringing the actual claim wouldn't make sense.
Judge Voss asked Apple how Samsung would ever receive a FRAND royalty for its SEPs if Apple argues that it's precluded from seeking injunctive as well as non-injunctive remedies (damages). Prinz zu Waldeck mentioned that, for an example, Samsung could bring claims in Germany under the theory of unjustified enrichment. In any event, the full gamut of remedies may be available in cases in which there is no willingness to take a license, but in this case, the European Commission has stated its assessment that Apple is a willing licensee. Dr. Kellenter disputed that Apple is a willing licensee. He said that Apple still had not made a binding offer to take a license in accordance with the German Orange-Book-Standard approach, but that one is, as Prinz zu Waldeck explained, at issue in a case referred to the Court of Justice of the EU. Samsung disputes that the referral has a bearing on non-monetary remedies, but the fifth question the Düsseldorf Regional Court asked the CJEU clearly refers to those.
I don't think Samsung's narrowing of its prayers for relief was made only in an effort to avoid a delayed resolution of the Mannheim case, but litigation tactics presumably did play a role. Samsung's problem in Germany is that it has not yet won a SEP case against Apple, and to the extent that it has appealed any decisions, no ruling favorable to Samsung is likely to come down anytime soon. An infringement finding was made in a different case earlier this year, but that one was stayed pending the parallel nullity proceeding, which few patents in this industry survive. So Samsung needs to obtain at least one finding of liability in Germany in order to have a basis for demanding any money from Apple. And that's the way it should be. No one vetted Samsung's own declarations of standard-essentiality. If companies could turn invalid and/or non-infringed patents into a gold mine by participating in standardization, declaring them essential and later demanding that someone like Apple take a worldwide portfolio (!) license, the result would be disastrous for competition and innovation. There's absolutely no factual basis for a presumption (let alone a strong or even insurmountable presumption) that a declared-essential patent portfolio is valid and indeed infringed.
Dr. Kellenter described Samsung's current prayers for relief as a request for a merely "declaratory" judgment: a declaration that Apple owes Samsung damages. While the most aggressive damages theory under German law (disgorgement of profits, available here with respect to all patents and not only design patents like in the U.S.) is no longer at issue, Samsung is unwilling to declare now that it's going to seek only a FRAND royalty with respect to past use.
I attribute Samsung's backtracking on disgorgement in no small part (in addition to litigation tactics) to its efforts to settle the European Commission antitrust investigation. The effect of antitrust pressure was even clearer in December when Samsung abandoned its push for sales bans, but it's very likely to play a role now, too. In my opinion, the European Commission should be encouraged by the fact that Samsung backs down step by step, but shouldn't settle as long as the result still leaves an opening for supra-FRAND claims. Also, as the Commission noted in December, Samsung's conduct caused harm before it was discontinued.
Last month I noted a certain evolution of Samsung's stance on FRAND based on that and how it argued against the availability of ITC import bans over SEPs in its defense against Ericsson. Samsung is still trying to play some games with SEPs. But at this point Google's Motorola Mobility is the only major company in this field (apart from Qualcomm and NPEs like InterDigital) left to take absolutely extreme positions on SEP-related remedies. Samsung's more and more defensive (though still far from perfect) behavior isolates Google in the industry and in the eyes of courts and regulators.
Opportunistic patenting by participants in standard-setting
I discussed the issue of opportunistic patenting activities by participants in standardization further above, and the best resource on this broader issue is the research paper I linked to. I'd just like to add some information that makes this case here a pretty good example of what those researchers found out.
Samsung's patent-in-suit in the German case, which was granted by the European Patent Office, claims priority based on two Korean patent applications. The priority date of one of them is January 6, 2005, while the other one has a priority date of February 4, 2005 -- that's a difference of only 29 days. The Mannheim court's assessment of likely invalidity now hinges on whether a standard-setting document that was published between those dates is eligible as prior art with respect to a particular claim limitation. This depends on whether the first priority date or only the second one applies as far as that claim limitation is concerned.
Apple argues that the limitation was not there originally and added only after the publication of the prior art document. If Apple's allegation is true, then Samsung made the first filing just weeks (or days) before a certain standardization document (presumably authored right after a standard-setting meeting) was published, and the second one shortly thereafter. This can hardly be a coincidence.
There are organizations and people who complain all the time about a trend toward "devaluation" of SEPs. They obviously dislike Judge Robart's rate-setting opinion; they also disagree with Judge Posner's dismissal of Motorola's out-of-this-world royalty demands. But the value of a patent should be the value of what the inventor contributed to innovation, and it's not really innovation if technical concepts are patented based on what is discussed or predicted to be discussed at a standard-setting meeting. It's more like the SEP-related equivalent of cybersquatting (domain squatting).
Even if this patent here is ultimately found valid, and even if implementers of the 3G standard must actually use the claimed invention, I don't see much value in it in terms of a contribution to innovation. This patent is actually very narrow. If not prescribed by a standard, it's highly unlikely that a device maker like Apple would actually implement it. If Apple needs to license this patent at all, the royalty rate should be very low.
The Federal Patent Court has not yet scheduled its nullity hearing on this patent. Apple believes it will take place in the first half of next year, but that's not certain. If the Federal Patent Court rules on this before Apple and Samsung settle, and if there's a finding that Samsung filed a patent on something right after it appeared in a standardization document, it won't enhance Samsung's reputation and will make Apple a poster child of a certain, rampant form of abuse of the standard-setting process.
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