Thursday, September 26, 2013

Smartphone patent foes, other tech firms jointly urge Europe to prevent rise of abusive litigation

An impressive, diverse coalition of technology companies (even including a couple of major European non-IT companies such as adidas and Deutsche Post DHL) has sent an open letter to European decision-makers expressing concern over two aspects of the latest draft of the rules of procedure for Europe's future Unified Patent Court (UPC) that could create "significant opportunities for abuse" -- not only, but also, by patent assertion entities (PAEs), often referred to as "patent trolls". These two aspects -- bifurcation coupled with easy access to injunctions -- are problematic characteristics of the current patent litigation reality in Germany (which the letter doesn't say, but it's a fact) that could affect the whole of Europe once the UPC begins its work and adjudicates patent infringement lawsuits seeking Europe-wide remedies (which German courts presently cannot do).

The letter to the governments of EU Member States, the European Parliament, the European Commission and the Preparatory Committee of the UPC was first published and reported on by the New York Times and warns that the envisioned framework would give PAEs "substantial bargaining power to force excessive settlements from companies", which "would, in all likelihood, lead to a rise of abusive litigation before the UPC". The letter notes that "PAEs have already begun to set up shop in several European countries, drawn by the potential for siphoning more revenue from European companies".

The tech coalition's letter comes a few days before an October 1 deadline for stakeholder submissions to the Preparatory Committee.

Not only do the signatories collectively represent a huge share of global IT innovation but it's even more remarkable that there is a consensus on these concerns even among companies that typically disagree on patent policy and have litigation pending against each other in the U.S. and Europe. The three most important ongoing smartphone patent disputes are Apple v. Samsung, Microsoft v. (Google's) Motorola, and Apple v. (Google's) Motorola (I'm not counting Oracle v. Google here because it's strictly a copyright case on appeal). Four of the parties to those disputes -- Apple, Google, Microsoft, and Samsung -- are among the signatories. While Apple and Microsoft generally promote strong IP protection except for combating the abuse of standard-essential patents (SEPs), Google and Samsung jointly oppose Apple's pursuit of injunctive relief over non-SEPs in the U.S. but aggressively leverage their SEPs. In the U.S. patent reform debate, Microsoft's focus is on transparency in ownership and the recovery of legal fees, while Google pursues a broader anti-software-patent agenda. But in the context of the UPC's rules of procedure, they all agree and have united to urge Europe to prevent major damage to innovation and the economy at large. They are joined by other tech players like BlackBerry, Bull, Cisco, the European Semiconductor Industry Association (ESIA), HP, Intel, SFIB (a French IT industry association), Yahoo, and major carriers (Deutsche Telekom, Telecom Italia) and -- didn't I just mention the economy at large? -- two companies that are primarily users, not makers, of IT: adidas (which has been sued by numerous patent trolls including Lodsys in the U.S.) and Deutsche Post DHL.

As a Europe-based litigation watcher with a cross-jurisdictional perspective and a former activist in EU patent policy, I totally agree with these companies. Almost five months ago I already highlighted "the risk of Europe becoming the new Eldorado for NPEs/PAEs/trolls" and warned against focusing the whole patent reform debate exclusively on the U.S. while there also what I described as "the European threat". It would be a mistake of enormous proportions to think that patent trolls are and will remain exclusively a U.S. problem. The way litigation in general works in the U.S. (such as the "American Rule" of no recovery of legal fees except under narrow circumstances) creates some opportunities for trolls, but with respect to the two concerns of this coalition of tech companies over the UPC, the German framework -- which, again, would affect the whole of Europe based on the proposed rules of procedure -- has terrible shortcomings in areas in which defendants in U.S. patent cases are actually in better shape. In the U.S., there is a full invalidity defense in all patent infringement proceedings -- not so over here, where bifurcation, a concept I've blogged about and criticized before, typically results in infringement rulings long before adjudication of parallel nullity (invalidation) complaints, creating an opening for the enforcement of improperly-issued patents, potentially for several years (way too long for most defendants to refuse to settle). And those infringement rulings -- which makes bifurcation so bad, but also constitutes a major problem in its own right -- almost always represent injunctions, i.e., sales bans.

Good patent policy has to take into consideration the practical implications for businesses and the tactical situation that defendants face at different junctures. It's not enough to just put procedures in place that theoretically result in a correct result after four or five years (when all appeals have been exhausted) because most lawsuits don't reach that point. It's of the utmost importance to prevent holders of dubious patents from having undue leverage at the stages at which a vast majority of patent infringement cases are settled. Uncertainty is a recipe for undue leverage. Europe's decision-makers have to ensure that there is enough legal certainty along the way that defendants won't be forced to settle on unreasonable terms.

The stakes are high for Europe and for the officials who ultimately have to ratify the UPC's rules of procedure. If they adopt a framework now -- at a point at which far-reaching patent reforms are being debated in the U.S. -- that invites abusive patent litigants (trolls and others) to capitalize on the shortcomings of these rules, they won't be able to say that they didn't know, much less after today's remarkable letter. Frankly, it's not that hard to increase legal certainty in the areas highlighted by this tech industry coalition. If you want to have bifurcation at all, you can at least ensure that stays of infringement cases pending separate invalidation actions are reasonably available -- more widely than in Germany. And for injunctive relief you can also provide the judges of the future UPC with some guidance as to which factors to take into consideration at the remedies stage (it would even be possible to indicate the weight certain factors should have).

I'm going to talk more about the UPC subject in the months ahead. In the final part of this initial reaction to the open letter I just want to show an example of how the combination of bifurcation (with an exceedingly high standard for stays) and automatic access to injunctive relief can hurt consumers. In February 2012 Motorola Mobility (a few months before the closing of its acquisition by Google) won a German injunction against Apple over a push notification patent. It enforced immediately, resulting in Apple's forced deactivation of the feature (for Germany-based users) in late February 2012. That was 19 months ago -- that's a year and half plus one month. And according to Apple's tech support website, the feature is still unavailable, though I expect it to be re-enabled rather shortly since an appeals court, finally, lifted this injunction earlier this month (in order for enforcement to actually end, Apple must firstly post a bond and do some paperwork, which can take a few weeks) because a preliminary ruling by Germany's Federal Patent Court (which will in a few hours hold a hearing on a multi-touch patent Apple enforced against Motorola) indicated that this patent is dead in the water. In the meantime, a UK court had held its key claim invalid for four (!) independent reasons, the Mannheim court that originally granted the injunction had stayed a case in which Microsoft had to defend itself against it, and the appeals court had already stayed the appellate proceedings back in April, also over doubts concerning the validity of the patent. The appellate hearing took place almost six months ago, and the court made clear that it has serious doubts about whether this patent should ever have been granted -- but as of the time of publishing this post, German Apple users are still deprived of this feature. Why? Because the German approach is that a patent right is vitiated pretty much entirely if its owner can't enforce an injunction (in other words, there's an underlying assumption of irreparable harm to the patentee), while premature enforcement of an improperly-granted injunction can always be addressed in a subsequent lawsuit over enforcement damages (so there's an underlying assumption that monetary compensation is almost always adequate to make the victims of illegitimate enforcement whole) -- but it would be much better policy to consider sales bans to cause irreparable harm in many cases and then to weigh such harm against other considerations.

I have harshly criticized Google for its trollish enforcement of Motorola's push notification patent. This undermines Google's credibility in the U.S. patent reform debate where it (directly and through lobbying fronts) uses "trolls" as a pretext for its push for a general weakening of IP enforcement while its own behavior shows that operating companies can behave trollishly as well. But I applaud Google for promoting in the EU context a reasonable balance. The fact that it urges policy makers here to prevent all patent holders, including Google itself, from doing in the future on a Europe-wide basis what Google has been doing recently in Germany is really positive and enhances the credibility of this tech coalition.

Now it's up to policy-makers to heed these concerns and act accordingly.

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents and Google+.

Share with other professionals via LinkedIn: