Friday, February 28, 2014

IPCom's $2.2 billion lawsuit against Apple thrown out by German court: no infringement found

Two different chambers (panels of judges) of the Mannheim Regional Court just announced a total of three rulings on standard-essential patent (SEP) infringement cases brought by IPCom, a patent licensing firm based in the Munich area that acquired the wireless patent portfolio of Bosch years after the latter had exited the car phone market and is now monetizing it. Today's decisions are, without a doubt, a setback for IPCom's enforcement efforts:

Two lawsuits against Apple, including one involving a €1.57 billion ($2.2 billion) "partial" damages claim, and one against HTC (a company IPCom has been suing for about six years) were dismissed because the court concluded that Apple and HTC didn't infringe a certain IPCom patent family by implementing the 3G/UMTS standard. It's a given that IPCom will appeal, but Apple, HTC, Nokia (or soon Microsoft, which is in the process of buying Nokia's wireless devices business), Ericsson, Vodafone and others will likely continue to challenge the validity of the related patents in different fora. This will go on for some more time, unless someone settles, which Deutsche Telekom did last year but others appear to be less interested in.

The patents-in-suit in the cases dismissed today, both going back to the same original application and entitled "access of a mobile station to a random access channel in dependence of its user class", are European patent EP1841268 (called the "#100A" patent and at the heart of the gazillion-dollar suit against Apple) and German patent DE19910239 (also asserted in the case against HTC that was adjudged simultaneously with the two Apple cases, except that claims against 4G/LTE devices were severed and not adjudicated today). This patent family relates to priority access to channels for emergency responders. The claim construction issue underlying all three of today's rejections involves a claim limitation that contains the word "bit", which both patent-specialized chambers of the court (in fact, this court has adjudicated far more wireless patent cases than any other court in the world) interpreted literally because otherwise the claim scope, which was narrowed by a recent post-grant decision by the European Patent Office, would not be distinguishable from earlier versions of the claims that referred, more generally, to "information".

This conclusion comes as no surprise. I attended the two Apple trials earlier this month and just didn't blog about them because I had an exclusive arrangement with a law firm interested in research on SEP enforcement. I am, however, free to blog about the non-FRAND aspects of this matter, and I prepared this post on the train this morning from Munich to Mannheim because I anticipated this outcome. Having watched numerous cases over which the same judges, Judge Dr. Kircher (Apple cases) and Judge Voss ("Voß" in German; HTC case) presided, it made sense to me that they'd ensure the difference between the broader term "information" and the narrower term "bit" be given meaning.

Ahead of the Apple trial I had listed the names of many German law firms involved with disputes over IPCom's "#100A" patent. With today's decisions, the law firm of Freshfields Bruckhaus Deringer continues its (truly impressive) defensive winning streak on Apple's behalf. Attorneys-at-law Dr. Frank-Erich Hufnagel and Wolrad Prinz zu Waldeck und Pyrmont already fended off seven Samsung lawsuits in Germany (not definitively because some were stayed and others are on appeal, but for the time being), five of them over SEPs. In the IPCom cases as well as at least one Samsung case over a patent involving a complicated mathematical formula, Dr. Arno Risse ("Riße" in German) also made very significant contributions to the effort. On Apple's behalf, this team is undefeated. At this month's IPCom trial, Apple's legal team furthermore included patent attorneys from the Munich-based firm of Samson & Partner, with the firm's founder, F.R. von Samson-Himmelstjerna, and Dr. Tobias Stammberger also representing Nokia against IPCom.

As counsel for HTC, Hogan Lovells's Dr. Martin Chakraborty has literally fended off dozens of German patent infringement lawsuits.

IPCom is working with lawyers from multiple firms on these cases. In its Mannheim litigations, Quinn Emanuel's Dr. Marcus Grosch is on board. He's the undisputed number one among Mannheim-based patent litigators. Just yesterday, he achieved the invalidation of a Microsoft patent (a decision Microsoft's counsel said they would appeal today). In the original version of that post, written at the end of a long day, I mistakenly said he represented HTC in today's cases. HTC is a Quinn Emanuel client in the United States, but not in Germany.

Another Quinn Emanuel client, Samsung, works with this firm in the U.S. as well as on some of its German cases and took a license to the Bosch wireless patent portfolio many years ago for a limited amount of money (long before IPCom acquired those IPRs).

Samsung, Apple, Microsoft, Google and others wrote an(other) open letter to European Union decision-makers this week warning against a growing problem in Europe with so-called patent assertion entities (PAEs). I, too, believe that more work needs to be done on the rules of procedure of Europe's future Unified Patent Court.

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Thursday, February 27, 2014

Federal Patent Court of Germany declares Microsoft maps patent invalid: immediate appeal

Today the Bundespatentgericht (Federal Patent Court of Germany) held a hearing in the nullity action brought by Google subsidiary Motorola Mobility against the German part of Microsoft's EP0845124 on a "computer system for identifying local resources and method therefor", a patent asserted not only against Motorola Mobility's Android-based devices but also against the Google Maps service per se. The proceedings in the infringement case had been stayed to await this decision on validity, and based on today's court decision to declare the patent invalid (not only in its granted form but also all of the proposed amendments), there won't be an infringement trial until after the appeal (provided that it is successful) that counsel for Microsoft announced would be filed tomorrow. Bardehle Pagenberg's Dr. Tilman Mueller-Stoy ("Müller-Stoy" in German), Microsoft's lead counsel in the related infringement case and co-counsel at today's nullity hearing, told the Federal Patent Court about the immediate appeal shortly after the announcement of the ruling when communicating Microsoft's request that the written ruling issue at the earliest opportunity.

Usually patent holders file an appeal only after the Federal Patent Court's written decision, which comes down a few months after the nullity hearing (where the basic outcome is announced from the bench). But this patent is due to expire in the summer of 2015 and could give Microsoft significant leverage. It became very clear at today's nullity hearing that Microsoft's counsel (its lead counsel today was Bardehle Pagenberg's Peter Hess, a patent attorney) fundamentally disagreed with the court, especially (though not only) as far as their narrowing amendments were concerned. After the introductory remarks by the court's Second Nullity Senate reiterated the key points of a preliminary ruling communicated a few months ago, Mr. Hess, Dr. Mueller-Stoy and their colleagues Dr. Malkomes and Dr. Haupt had to fight an uphill battle against a Quinn Emanuel team led by Dr. Marcus Grosch (who was victorious today but may very well lose three Mannheim cases tomorrow, two against Apple and one against HTC, as counsel for IPCom [corrected; previously said HTC, a typo at the end of a long and tiring day]). Microsoft's lawyers made an admirable effort under extremely difficult circumstances, and it wouldn't surprise me in the slightest if they salvaged this patent (at least in a narrowed form) on appeal. Just statistically speaking, the reversal rate of Federal Patent Court decisions is very high. In nullity cases, it's more than 40% (provided that appeals are filed and actually adjudicated).

While 21 companies have taken royalty-bearing Android patent licenses from Microsoft, Google's Motorola Mobility still refuses to pay. None of Microsoft's offensive claims against Motorola Mobility, all of them filed in 2010, has gone to a U.S. district court trial yet (only its defensive claims involving FRAND issues). A German injunction involving Google Maps would have (had) the potential to bring about a near-term settlement.

While Microsoft and Google haven't been able to settle their patent infringement dispute so far, they do agree that it would be terrible policy for Europe, especially with a view to the growing problem of patent trolling, to allow Europe-wide injunctions to issue prior to ascertaining the validity of asserted patents. These two companies, as well as other industry leaders including the likes of Apple, Broadcom, Cisco and Samsung, reiterated their concerns over potential shortcomings of the rules of procedure of Europe's future Unified Patent Court in an(other) open letter published on Tuesday. It's an interesting coincidence that Microsoft and Google met in court during the same week and that a patent that almost resulted in an injunction last year was, though this could change on appeal, declared invalid. Google couldn't have complained too much if an injunction against Google Maps had issued before its invalidity defense was fully evaluated, given that Google capitalized on such an unfortunate situation against Apple for 19 months and tried the same (over the same patent) against Microsoft. But all of these major players agree that bifurcation (separate tracks for infringement and invalidity cases that can result in the enforcement of patents that shouldn't have been granted in the first place) is a bad idea. I hope the European Union's decision-makers will take their concerns seriously. These companies know what they're talking about.

In all of the smartphone-related patent disputes between major players that I watch, not a single patent has survived a Federal Patent Court hearing in its granted form. Most of them were invalidated entirely; others were narrowed. There could be some interesting developments in some of the related appeals.

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Wednesday, February 26, 2014

Korea Fair Trade Commission clears Samsung's use of standard-essential patents against Apple

I have seen several Korean news reports, of which I obtained machine translations (Google Translate), on an announcement today by the Korea Fair Trade Commission, South Korea's antitrust authority, that Apple's complaint against Samsung over its pursuit of injunctive relief over FRAND-pledged standard-essential patents (SEPs) was rejected. The KFTC found Samsung's conduct to be above board. One of the reports quoted an unnamed Apple official who expressed disappointment.

The KFTC had been investigating the matter since the summer of 2012 further to a complaint lodged by Apple in April 2012. The regulatory agency has now determined that Samsung is "not liable" for a violation of Korean antitrust law, called the Monopoly Regulation and Fair Trade law.

This wholesale acquittal contrasts with the state of FRAND antitrust matters in other jurisdictions. While I recently raised the question of whether regulators in the U.S. and EU are taking a soft line on SEP issues and answered it with "Yes!" as far as the DoJ's closing of its investigation of Samsung is concerned (because the issue is not moot at all, given that Samsung is still pursuing a U.S. import ban, through an appeal, and wants an injunction over the two SEPs it's going to assert at next month's California trial), the DoJ did at least say it would continue to monitor Samsung's behavior and reiterated concerns over SEP abuse. And the European Commission indicated in December that Samsung needs to make significant improvements to its proposal in order to reach a settlement. I'd like EU and U.S. regulators to look into some of the FRAND-related issues the Competition Commission of India has decided to investigate, but at least they haven't concluded Samsung's pursuit of SEP-based injunctions was lawful.

I do, however, attribute the outcome of the Korean antitrust case in no small part to the fact that regulators in the West failed to make much sharper decisions. The KFTC ruling appears to be far more SEP holder-friendly than anything the DoJ, FTC or European Commission ever indicated in this context, but unlike in August, when I wondered whether South Korea was on the verge of becoming a "FRAND rogue state", all I can say now is that basically the Korean competition regulators have taken the worst parts of certain Western rulings, positions and almost-accepted settlement proposals on SEP injunction issues, have taken those worst parts to a new level, and added at least one absurdity of their own to the mix.

The unprecedented absurdity I mean is that the KFTC determined Samsung did not have "essential facility" type monopoly power based on its SEPs because "more than 50 companies hold over 15,000 SEPs relating to 3G wireless communication (UMTS/WCDMA) technology", citing the Fairfield Resources International 2009 Report and noting that this constitutes a difference from case in which "only one essential facility exists". This makes no sense at all because any one SEP (if truly essential to the standard, of course) can force someone out of the market. As a Motorola expert witness once put it, "it only takes one bullet to kill". If Apple didn't need a license to Samsung's 3G SEPs on FRAND terms because it could, as it has, secure a license to, for example, Ericsson's SEPs reading on the same standard, then Samsung wouldn't have essential-facility power. But that's simply not the case. I don't think this reasoning is going to be adopted by any antitrust regulator anywhere else in the world anytime soon. Other regulators may well agree that "essential facility" theories aren't the best vehicle to address SEP abuse, but the existence of non-interchangeable SEPs held by other companies is not a reasonable basis to let SEP holders go ahead and pursue injunctive relief.

Another highly perplexing part of the KFTC's holdings is that Samsung's behavior is, in no small part, excused with the fact that "by first filing a patent infringement lawsuit", Apple was responsible for the overall "negotiation atmosphere" being determined by the characteristics of patent infringement litigation. In other words, Apple drew first blood. But Apple sued Samsung only over non-SEPs. I have explained on various occasions that and why SEP and non-SEP issues must be kept separate. To be fair, however, the KFTC was not the first government agency in the world to conflate those issues. Previously, that's what a majority of the ITC did as well, with only Commissioner Dean Pinkert dissenting (on a very well-reasoned basis). If the ITC as a whole had adopted the Pinkert stance on the issue, the Presidential veto of the U.S. import ban Samsung won last year would never have been necessary, and the KFTC would not have been encouraged to excuse SEP abuse with non-SEP enforcement. Non-SEPs can be worked around; true SEPs cannot. Non-SEPs are typically unencumbered; SEPs are subject to FRAND licensing commitments. But after the ITC majority failed to make that distinction, it's hard to blame the KFTC for merely taking SEP and non-SEP conflation to a new level. And the unfortunate course of events in the U.S. may very well have contributed to a political climate in which Korean officials weren't overly sympathetic to Apple's antitrust complaint against Samsung.

There's another reason not to describe Korea as a "FRAND rogue state", despite the parts of the KFTC's decision that I fundamentally disagree with. Korean media appear to be well aware of the fact that this decision is different from the conclusions reached elsewhere in the world on these issues, and at least one Korean law professor (who is also licensed as a U.S. attorney-at-law and patent attorney) said that while Samsung is entitled to royalties on its SEPs, seeking sales bans over them is "problematic". In the long run I believe the KFTC's conclusions won't benefit Korean companies and consumers either, even if this may be viewed as a win for Samsung in the short term.

In other FRAND news today, Reuters reports that Huawei has withdrawn its EU antitrust complaint against InterDigital. The European Commission had not launched formal investigations anyway, and won't do so now following the withdrawal of the complaint.

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Tuesday, February 25, 2014

CLS Bank v. Alice is not about 'the death of software patents': it's more like Bilski Reloaded

Four years ago people advocating the abolition of software patents made a lot of noise, including a movie named Patent Absurdity, about a case pending then before the Supreme Court of the United States: Bilski v. Kappos. They hoped that the Supreme Court would not only affirm the Federal Circuit's holding that Bilski and his co-inventor Warsaw weren't entitled to a patent on a risk-hedging business method, but that it would interpret 35 U.S.C. § 101, the statutory definition of which inventions are eligible for patent protection in the U.S. (applications must still meet all other patentability criteria such as novelty and non-obviousness), in a way that would render many, if not most or even all, software patents invalid.

The Supreme Court's June 2010 opinion fell far short of those hopes and expectations. The Bilski stuff was held patent-ineligible on the grounds of being too abstract, but the court declined to provide further guidance of the restrictive kind some had argued for. On page 9 of the Bilski ruling, a more restrictive approach was rejected because it "would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals". While that passage was based on a reference to amicus briefs submitted by pro-software-patent organizations, the way the SCOTUS refers to those concerns leaves no doubt that the justices who supported the passage agreed that the Bilski decision shouldn't cause collateral damage in those areas. At the very least it showed that the court had been perfectly aware of some people's abolitionist hopes and dreams, but declined their invitations to legislate from the bench on an issue it simply didn't have to reach.

Four years later history appears to be repeating itself as a result of the Supreme Court's grant of certiorari (i.e., decision to hear the case) in CLS Bank v. Alice. And I venture to predict a similar outcome: the ruling will, once again, be very narrow because, just like in Bilski, the facts of the case don't lend themselves to a decision of broad scope.

These are the four Alice patents at issue:

Don't be misled by words like "apparatus", "systems", and "computer program products". These are business method patents, not software patents in the sense of patents relating to software, or "computer-implemented" (another term that appears in those patents), innovation. The Alice patents relate to the very basic idea of having a third party ensure, like an escrow, that a transaction between two parties only takes place if the mutual obligations are met. That's what Alice seeks to monopolize. Some of these claims are downright business method claims (though the parties stipulated before the district court that they should be interpreted as requiring computer implementation); the others are business method claims camouflaging as system or program claims.

What has created the widespread perception of this being a software patents case is primarily that two opposing camps, for disparate reasons, place the emphasis in their argument on what implications this case allegedly has for software patents:

  1. The first group consists of those who don't want patents like the Alice patents to be invalidated on the grounds of patent-ineligibility under § 101. There are two subgroups of this group:

    • (1a) those who absolutely want business methods to be(come) patentable by declaring them as computer-implemented invention (CII) patents, and

    • (1b) those who would probably invalidate the Alice patents anyway on non-novelty or obviousness grounds, but who don't want § 101 to be the vehicle for invalidation.

  2. The second group already wanted Bilski to result in a restrictive ruling that didn't happen then and won't happen now.

I have some examples:

  • Alice Corporation is, obviously, in group 1a. In its petition for certiorari, Alice grossly overstated the key issue to be reviewed as follows:

    "Whether claims to computer-implemented inventions--including claims to systems and machines, processes, and items of manufacture--are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court?"

    Alice knows that judges will be more receptive to the idea of patenting software than that of patenting abstract business methods. And it hopes to get support from some of those who fear that if business method patents fall, software patents might be next in line. Those facts still don't make this anything other than a case involving business method patent claims that make only token references to computer hardware. A more honest question on review would have looked like this:

    "Can an otherwise-unpatentable abstract business method be patented in circumvention of 35 U.S.C. § 101 by mentioning magic words such as 'computer-implemented', 'computer' or 'program' in the claims?"

    While honest, this would be a no-go, which is why Alice prefers to blow things out of proportion.

    Circuit Judge Newman, who dissented from the Federal Circuit's majority in Bilski and wanted even that ultra-abstract patent application to pass the test, may also be part of this group. She may be more comfortable than others with the notion of a patent system without any meaningful boundaries.

  • Circuit Judge Moore wrote an alarmist dissent-in-part:

    "I am concerned that the current interpretation of § 101, and in particular the abstract idea exception, is causing a free fall in the patent system. [...] And let's be clear: if all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents." (emphasis added)

    At the end of an even more alarmist footnote, she writes: "There has never been a case which could do more damage to the patent system than this one."

    Statements like these do nothing to discourage abolitionists from filing briefs in this context. But the actual intention of this 1b group of people is to warn against excessive use of § 101 (as opposed to other means of killing bad patents). Just like Alice and its fellow proponents of business method patents, they feel that the specter of software patent abolition will scare U.S. judges, who are well aware of the significance of the IT industry to the American economy. That agenda still doesn't change the substance of Alice's patent claims.

  • The Electronic Frontier Foundation (EFF) is part of the second group but makes an interesting point in the amicus brief it filed in support of a SCOTUS review of the Federal Circuit decision:

    "Indeed, that failure [by the Fed. Cir.] to provide guidance led to a wrong and dangerous ruling in WildTangent, Inc. v. Ultramercial LLC, et al., No. 13-255. A petition for certiorari in that case is also currently pending before this Court; amicus believes that the WildTangent case would provide a better vehicle than this one to resolve how Section 101 applies to computer-implemented inventions. Brief of Amicus Curiae Electronic Frontier Foundation in Support of Petitioner, WildTangent, Inc. v. Ultramercial, LLC, et al., No. 13-255. However, the question surrounding the scope of Section 101 needs to be addressed by this Court, and this case, too, provides an opportunity for that to happen."

    So the EFF admits that CLS Bank v. Alice is a suboptimal context for raising the issue of software patent-eligibility. By the way, the patent at issue in the WildTangent case relates to advertising-financed online video viewing. It's also a business method patent, though it involves a digital media business as opposed to a financial services business.

I wouldn't read too much into the fact that the Supreme Court accepted to take a look at CLS Bank v. Alice. The Federal Circuit was hopelessly divided. It affirmed the decision to invalidate all of Alice's asserted claims, which I agree with the EFF was the right outcome, but only on the basis of affirmance by an equally divided court, not a substantive decision that received majority support. Only a minority of the circuit judges would have upheld the method patent claims. But there was also a majority that argued the method and system claims should rise or fall together -- and a few judges actually wanted to uphold the method claims as well. Regardless of whether the Supreme Court necessarily finds any important issue in CLS Bank v. Alice that goes beyond Bilski, it may have seen a need to speak out on this difficult issue.

In Bilski, the message to software patent abolitionists was that the U.S. patent system was intended by Congress to be inclusive and expansive. Between the lines, the SCOTUS told abolitionists that they needed to talk to Congress. Circuit Judges O'Malley and Linn wrote a dissenting opinion that makes a clear distinction between what the law is today and what some people, right or wrong, might prefer it to be. Notably, these two circuit judges would have considered even Alice's method claims patent-eligible, but they tell abolitionists that this case does not provide an opportunity for them to bring about the change they desire:

"We finally note that certain Amici express concern regarding the proliferation and aggressive enforcement of low quality software patents. [...] They seem to believe that patents on early generation technology inhibit technological advances. [...]

We do not discount Amici's concerns, we just disagree with what they ask us to do to quell them. Congress can, and perhaps should, develop special rules for software patents. It could, for instance, limit their life by limiting the term of such patents. [...] Or, Congress could limit the scope of software patents by requiring functional claiming. Or, it could do both, or devise some other rule. But broadening what is a narrow exception to the statutory definition of patent eligibility should not be the vehicle to address these concerns. While Congress may, this court may not change the law to address one technological field or the concerns of a single industry."

For the final part of this post I'd like to get back to what those Alice patents are really about. Circuit Judge Moore's alarmist words relate to Circuit Judge Lourie's opinion that all of Alice's patent claims-in-suit are ineligible. I don't mean to take a position here on which of these opinions is right (I've already said that I'm against those Alice patents). There are some interesting points in all of the different opinions provided by this fractured Federal Circuit (except that Circuit Judge Newman in my view totally misunderstood the concern of some people about patents in certain fields: she thought that people were concerned about limits on experimentation, when the concern is actually about incremental innovation, which requires real products to be developed and distributed). But since the Lourie opinion is of concern to some who say it is tantamount to the death of software patents, let's look at certain passages in the Lourie text that show this impact assessment blows things out of proportion:

"The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a 'disembodied' concept, [...] a basic building block of human ingenuity, untethered from any real-world application."

"Apart from the idea of third-party intermediation, the claim's substantive limitations require creating shadow records, using a computer to adjust and maintain those shadow records, and reconciling shadow records and corresponding exchange institution accounts through end-of-day transactions. None of those limitations adds anything of substance to the claim."

"First, the requirement for computer implementation could scarcely be introduced with less specificity; the claim lacks any express language to define the computer's participation."

"Furthermore, simply appending generic computer functionality to lend speed or efficiency to the performance of an otherwise abstract concept does not meaningfully limit claim scope for purposes of patent eligibility. [...] That is particularly apparent in this case. Because of the efficiency and ubiquity of computers, essentially all practical, real-world applications of the abstract idea implicated here would rely, at some level, on basic computer functions--for example, to quickly and reliably calculate balances or exchange data among financial institutions. At its most basic, a computer is just a calculator capable of performing mental steps faster than a human could. Unless the claims require a computer to perform operations that are not merely accelerated calculations, a computer does not itself confer patent eligibility."

"Whether the instructions are issued in real time, every two hours, or at the end of every day, there is no indication in the record that the precise moment chosen to execute those payments makes any significant difference in the ultimate application of the abstract idea."

If the Lourie opinion had become precedent (which it has not) or if this line of reasoning became effectively precedent after the SCOTUS decision, the paragraphs I quoted above (and they are just a subset of what could have been selected) contain more than enough ammunition for those defending or upholding true software patents -- for one example, patents on software techniques that enhance performance.

Circuit Judge Lourie and those joining in his opinion did not mean to abolish genuine software patents. They just don't want fake software patents to pass the § 101 test. In the particular context of Alice's system claims, the following question is raised:

"[D]o the limitations of the claim, including any computer- based limitations, add 'enough' beyond the abstract idea itself to limit the claim to a narrower, patent-eligible application of that idea? Or, is it merely a Trojan horse designed to enable abstract claims to slide through the screen of patent eligibility?"

The SCOTUS can close the door to Trojan horses without abolishing software patents. I guess it will find a way to do the former without collateral damage. It carefully avoided unintended consequences in Bilski. There may be even more noise now than there was four years ago, but U.S. substantive patent law hasn't changed since.

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Growing industry coalition urges the EU (again) not to turn Europe into a patent trolls' paradise

While Apple and Samsung still haven't been able to settle their global patent dispute, they do agree that patent assertion entities (PAEs), or "patent trolls", cause serious "problems that continue to plague innovators". In September the world's two largest smartphone makers were already among an impressive group of signatories of an open letter to European policy-makers that warned against an increasing patent troll problem in Europe and, especially, the ways in which the problem could exacerbate as a result of shortcomings in the rules of procedure of the Unified Patent Court system that is at the preparatory stage.

Apple and Samsung's concerns were already shared back then by other major players such as (a non-exhaustive list in alphabetical order) adidas, Cisco, Deutsche Post DHL, Google, HP, and Microsoft. This morning the UPC Industry Coalition released another open letter addressing the issue, and notable new members include Broadcom, Dell, Huawei, and Vodafone. Here's the letter (this post continues below the document):

25 February 2014 - UPC Industry Coalition - Open Letter by Florian Mueller

Once again, these companies -- mostly but not exclusively tech giants -- stress their support of "an effective and balanced unified patent system", but they apparently think that more work still needs to be done on the rules of procedure in order for Europe to "achieve the stated purpose of the UPC to defend 'against unfounded claims and patents,' 'enhance legal certainty,' strike 'a fair balance between the interests of right holders and other parties,' and allow for 'proportionality and flexibility.'"

The signatories have read with concern "[r]ecent press reports suggesting that some PAEs welcome bifurcation within the UPC further show that a system with perceived loopholes has the potential to open the floodgates to a detrimental form of patent litigation", pointing to an IAM (Intellectual Asset Management magazine) article entitled "Why the US's most litigious NPE is a huge fan of the German patent system".

The two primary issues that have tech-producing and tech-using companies concerned are that without clarity in the procedural rules, the UPC might grant injunctions too readily, and especially do so over patents that shouldn't have been granted in the first place. The second problem, which exacerbates the first one dramatically, is also called "bifurcation": validity and infringement remedies are addressed on separate tracks, with validity often taking considerably longer and even a short window of opportunity to enforce an actually-invalid patent giving a patentee enough leverage to obtain a settlement (which then includes the withdrawal of the bogus patent, so it remains a threat to everyone else).

Programmers of multi-threaded software call this a "race condition": a system will work properly only if the worked performed by one thread (here, the invalidation proceedings) is indeed concluded before a certain critical stage of a second thread (here, the infringement proceedings that can result in a sales ban) is completed -- but the system will fail if, for whatever reason, the second thread gets ahead of the first one because, which is simply a flaw, there is nothing in the system that makes the second thread wait for the first if necessary.

I'd like to say something here about my personal experience in discussing patent policy matters with the European Commission years ago (and based on what I hear, things haven't really changed in this regard). There are some great people working for the Commission who perfectly understand the economic dimension of these legal issues and are committed to balance and reasonableness. But there are also some people who are very dogmatic about IP enforcement and, unlike most researchers, have not yet understood how serious certain problems caused by the excesses of the patent system (too many invalid patent, overly powerful enforcement) are -- or maybe they don't even want to understand because they have a strong interest in growing the patent (including patent litigation) industry, not so much the real economy. The ultimate, high-level decision makers will hopefully listen to those who have a strategic and economic perspective, not to the ones whose dogmatic approach is that if there's any problem about the patent system, the system itself will solve it anyway.

There are also some who deny that Europe faces a PAE problem and that things may get a whole lot worse. I will talk about this in more detail on another occasion. I'd just like to say that PAEs are definitely not a US-only phenomenon. Case in point, on Friday the Mannheim Regional Court will rule on three cases brought by patent licensing firm IPCom, two against Apple (including a case in which a "partial" damages claim of EUR 1.57 billion ($2.2 billion) has been brought) and one against HTC. I attended the combined trial in the two Apple cases and I believe the complaints will be rejected. The court was noticeably unconvinced of there being an infringement of the patent in its narrowed form, if properly construed, after a recent decision in an opposition proceeding before the EPO. IPCom is not seeking an injunction against Apple anyway. But if IPCom had done so, and if the case had not been stayed to await the outcome of the opposition proceeding, it could have won, due to the way patent litigation works in Germany, a sales ban against the iPhone and all 3G-capable iPads in Germany.

With the Unified Patent Court, unless sufficiently clear rules of procedure are put in place, such lawsuits could result in Europe-wide injunctions on a premature basis (i.e., before the validity of a patent-in-suit has truly been ascertained). This would make Europe a patent trolls' paradise, and the policy-makers who can rein in the extremists now should so so, lest they will be responsible for massive damage to the European economy that will also affect European consumers.

[Update] I just saw this post on Google's EU policy blog by Catherine Lacavera, Google's litigation director, on "Curbing patent trolling in Europe", and also wish to recommend strongly this Technet blog post by Microsoft's deputy general counsel and corporate vice president Horacio Gutierrez who says very clearly that "[m]ore work [is] needed to protect [the] European Union from patent trolls" . [/Update]

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Monday, February 24, 2014

Nortel told Google in 2010 it infringed the search patents Rockstar is now asserting against it

Almost four months have passed since the Rockstar Consortium's "Halloween lawsuits" against Google and seven Android device makers (six at this point, because Huawei has already settled) over former Nortel patents, and at this stage the focus is still on venue transfer motion practice. Google wants Rockstar's Android OEM cases as well as the search engine case (in which Google is the only defendant) moved out of Texas and over to California. It filed a declaratory judgment action in California shortly before Christmas over the patents asserted against Android OEMs (and against Google itself, actually, which was added as a defendant to the Samsung case) and a motion to transfer venue in the search engine case.

About two weeks ago Samsung brought a motion to dismiss Rockstar's lawsuit, claiming that one of the asserted patents is invalid and, which would have broader implications, that Rockstar subsidiary MobileStar Technologies lacked standing when the suit was filed (because a certain registration with the Texas Secretary of State occurred only a month later). HTC, LG, ASUSTeK and Pantech filed similar motions last week. Meanwhile, ZTE has done so, too, but in addition to the two issues raised by Samsung and the others, it also wants Rockstar's willfulness allegation with respect to the '551 patent tossed. And Google filed a motion consistent with Samsung's in the Rockstar v. Samsung and Google case.

In the search engine case, Rockstar responded last week to Google's motion to transfer that one to Northern California. What's far more interesting than all sorts of detail about factors weighing for or against one venue or the other is that Rockstar, in the context of where the relevant witnesses are based and how Texas-centric its patent licensing business has historically been, names two of its employees -- CEO John Veschi and Mark Hearn -- who met, while they were still employed by Nortel, with Google in 2010 to discuss licensing the patents-in-suit in the search engine case. In the same paragraph, the subjects of willfulness and Google's knowledge of the patents-in-suit come up.

Rockstar had alleged willful infringement in its original complaint against Google, but the complaint itself discussed only Google's failed bid for the Nortel patent portfolio in the willfulness context. The auction was held in 2011. Prior licensing talks weren't mentioned in the complaint.

A declaration attached to Rockstar's opposition to Google's transfer motion by the aforementioned Mark Hearn says the following about the 2010 meeting between Nortel and Google, which is very significant with respect to the allegation of willfulness:

"6. As part of my employment with Nortel, I personally attended a meeting with Google about the patents-in-suit in 2010. That meeting was also attended by Raj Krishnan and John Veschi, among others, who were all part of the intellectual property team at Nortel.

7. At the 2010 discussions with Google, Nortel employees presented claim charts to Google regarding the manner in which Google infringes the patents-in-suit directly and through third parties.

8. The patents-in-suit that had then issued were the only patents where Nortel presented claim charts to Google.

9. Many documents concerning patent monetization regarding the patents-in-suit, including communications with Google about the patents-in-suit and notifications of infringement, have resided in or near the Eastern District of Texas since the time of their creation in the Nortel era."

Google emphasizes an inequitable-conduct defense against those patents. If it proves those patents invalid or unenforceable, or if it at least convinces the court that there was no objective willfulness (because it would have had a reasonable basis for assuming invalidity or unenforceability or non-infringement), then there won't be any willfulness enhancements (up to triple damages) of a damages award. But if those types of defenses fail, Google will have to try to explain away the significance of the 2010 licensing discussions and the infringement claim charts presented to it at the time.

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Saturday, February 22, 2014

Apple, Samsung confirm failure of settlement effort in early February but keep talking

In January, Apple and Samsung informed Judge Lucy Koh, the federal district judge presiding over two patent infringement cases between them in the Northern District of California, that they were going to have settlement talks, with the help of a mutually agreed-upon mediator and involving both companies' CEOs, no later than on February 19. The proposal was made because the court urged the parties to explore a settlement ahead of their next trial scheduled to begin on March 31 in San Jose.

Media reports from Korea recently indicated that the CEOs, accompanied by senior in-house counsel, had indeed held a meeting, but that an agreement was not reached. Late on Friday by California time, a joint report by Apple and Samsung's counsel to Judge Koh confirms that "[t]he parties [with their delegations headed by Apple CEO Tim Cook and Samsung CEO IT and Mobile Communications JK Shin] attended a full-day negotiation session with the mediator during the first week in February" and that they "did not reach an agreement at that session". But the report also confirms that the lines of communication haven't broken down: "Since that session, one or more of the foregoing party representatives has spoken with the mediator numerous times in order to progress the settlement efforts. For example, Apple representatives held telephonic conference calls with the mediator more than six times after the mediation. Samsung representatives held telephonic conference calls and other communications with the mediator more than four times after the mediation."

Apple and Samsung "remain willing to work through the mediator jointly selected by the parties". But it appears to me that they need more guidance from courts, in the U.S. and elsewhere, before this global dispute can end in a cross-license agreement involving the "anti-cloning" provision Apple apparently and understandably insists on. Guidance will have to come from the U.S. but probably needs to come from more than one country. For example, there should be a ruling in the foreseeable future on the parties' Australian litigation. Apple's offensive claims went to trial last year; Samsung's FRAND-related claims will be tried soon.

Here's Apple and Samsung's joint filing:

14-02-21 Apple-Samsung Joint Report Re. Status of Settlement Discussions by Florian Mueller

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Friday, February 21, 2014

Samsung to U.S. appeals court: Presidential veto not broad enough to protect Apple once more

Last week I asked: "Are U.S. and EU antitrust enforcers taking a rather soft line on standard-essential patent issues?" Based on a Samsung filing with the United States Court of Appeals for the Federal Circuit that entered the public record yesterday, I must answer this question with a resounding "Yes!" as far as the Antitrust Division of the United States Department of Justice (DoJ) is concerned. Basically, Samsung's filing makes clear that it seeks to benefit from reverse protectionism in which I believe the U.S. government is engaging for geopolitical reasons that have nothing to do with Apple, phones, tablets, or patents.

Only two weeks have passed since the DoJ announced the closing of its investigation of Samsung's use of FRAND-pledged standard-essential patents (SEPs) against Apple, arguing that "[a]s a result of the [Obama Administration's veto of an import ban Samsung won last year], the Antitrust Division has determined that no further action is required at this time". The fundamental importance of the underlying issue to industry would have been enough of a reason to penalize Samsung even for a failed attempt to win an import ban over a SEP. The European Commission has not closed the Samsung investigation yet even though Samsung also failed with its related attempts in multiple European countries. The U.S. government, however, apparently wanted to avoid the impression of dual punishment (veto plus antitrust decision).

Even on that basis, it was just totally premature to "close" the investigation (except for keeping the door open very slightly by promising to continue to monitor the situation) without remedies of any kind. If this was about SEPs as opposed to foreign policy, the DoJ would have expected at a very minimum that Samsung withdraw all of its still-pending requests for injunctive relief against Apple over U.S. SEPs. In December 2012, Samsung dropped its European SEP-based injunction requests against Apple in an effort to pave the way for a settlement with the European Commission and to avoid or minimize fines. It never did this in the U.S., so it would have been anything but unreasonable for the DoJ to close its investigation of Samsung only after similar withdrawals. Again, foreign policy is the only plausible explanation for why the DoJ did not demand this.

There were and still area two ongoing efforts by Samsung to win sales and import bans against Apple's standards-compliant products in the U.S. market:

  1. At the trial that will begin in California in less than six weeks, Samsung is going to be asserting two SEPs (as well as a couple of acquired non-SEPs against Apple. Samsung's April 2012 prayers for relief concerning its counterclaims included and still include a request for injunctive relief:

    "That Apple and its officers, agents, servants, employees, and all those persons acting or attempting to act in active concert or in participation with them or acting on their behalf be immediately, preliminarily and permanently enjoined from further infringement of Samsung's Patents In Suit;"

    Prior to the DoJ's closing of the investigation, Samsung should have withdrawn that request -- which is exactly the kind of request it dropped Europe-wide -- with respect to the two SEPs it's taking to trial (for the non-SEPs it's obviously free to pursue such relief).

  2. On November 1, 2013, the public redacted version of Samsung's appeal of the unfavorable parts of the ITC ruling on its complaint against Apple became available. The veto was not appealable, but the ITC had sided with Apple on one more SEP and a couple of non-SEPs. It turned out that Samsung is pursuing on appeal only one patent: a FRAND-pledged SEP. In my commentary I thought Samsung primarily did this with a view to a damages claim in federal court (in Delaware, where its mirror lawsuit of the ITC complaint was filed) and possible FRAND determinations in which it would want to argue that the patent is still alive. I said it would "be a long shot to win an import ban (on the remand it seeks) in light of the last veto (though not 100% impossible if the FRAND-related facts changed in the meantime, such as new offers made in negotiation that might warrant a new public interest analysis down the road, most likely in 2015)".

    In its recent answer brief to Samsung's appeal, Apple raised FRAND issues and argued that, in light of the last veto, Samsung's appeal should be tossed because Samsung won't be able to win the only type of remedy the ITC can order. The ITC itself merely defended its non-liability finding. I saw those briefs a few weeks ago but decided to wait until Samsung's reply brief before blogging about them. I wanted to see what position Samsung takes on Apple's FRAND arguments, and that's what the remainder of this blog post is about. Samsung is indeed arguing the way I suspected it would (i.e., that it can win an import ban on remand, should the appeal succeed on liability), and this shows that the DoJ should never have closed the investigation without Samsung withdrawing that Federal Circuit appeal or at least clarifying that the purpose of the appeal was just to get the non-liability holding reversed, with a view to damages and royalty determinations (though this might have supported certain mootness arguments by Apple).

Here's the import ban-related part of the public redacted version of Samsung's filing:

"G. An Exclusion Order Is the Proper Remedy for Apple's Failure to License the '644 Patent

The Commission properly rejected Apple’s claims that Samsung's commitment to standards-setting organizations precluded an exclusionary remedy for the '644 Patent. As the Commission noted, Apple identified no per se rule barring the ITC from issuing an exclusion order on a FRAND-encumbered patent. [...] In particular, the Commission noted that ETSI's IPR policy does not prohibit patent owners from seeking injunctive relief, and that several attempts to add such language have failed. [...] Although Samsung does not dispute that exclusionary relief ought to be a last resort when declared essential patents are asserted, it cannot be the case that an accused infringer can avoid the ITC's statutory mandate by simply raising FRAND concerns while refusing to 'engage in an impartial and honest Essential IPR licensing negotiation process,' as ETSI expects of its members. [...] As described below, that is exactly what the Commission concluded Apple did here.

Apple's citation to opinions from other courts denying injunctions on FRAND-encumbered patents have no bearing on the Commission' s determination. Such cases are not binding on this Court or the Commission and largely relate to different standards-setting organizations with different rules, policies, and objectives, such as ITU, IEEE, and JEDEC. No statute or other precedent requires the lTC to deny an exclusion order simply because monetary remedies would be adequate before a district court. [...]

To the extent the '644 Patent is subject to a FRAND licensing commitment, the Commission also correctly determined that Apple had failed to show that Samsung did not satisfy that obligation. [...] Over the course of three years, beginning before the underlying Investigation was commenced, Samsung sought in good faith to license its UMTS patents, including the '644 Patent, to Apple on FRAND terms and conditions. [...] Apple rejected every offer and never made any serious counter-offer. [...] Although Apple's brief refers only to certain unilateral license offers proposing [[REDACTED]], Apple conspicuously fails to mention Samsung's December 2012 proposal for [[REDACTED]] Apple's rejection of license terms that it previously suggested were FRAND, combined with its refusal to make a counteroffer or otherwise reasonably engage in further licensing negotiations, confirms that Apple is not negotiating in good faith, and does not intend to license Samsung's patents unless compelled to do so. [...] It was this inexplicable unwillingness to license on any terms that prompted the Commission to characterize Apple's approach as 'reverse patent holdup' in which 'an implementer utilizes declared-essential technology without compensation to the patent owner under the guise that the patent owner's offers to license were not fair or reasonable.' [...] Even Apple's cases agree that exclusionary relief is appropriate in these circumstances. See Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901, 914 (N.D. Ill. 2012).

Unable to demonstrate that Samsung is not entitled to exclusionary relief as a matter of law, Apple contends that a remand with respect to the '644 Patent would be futile because the USTR would likely veto an exclusion order if granted, as it did for Samsung's '348 Patent. As an initial matter, Apple cannot ask this Court to usurp the function of the executive to conduct policy evaluations of Commission determinations by denying relief that is otherwise appropriate under the ITC's statutory mandate and this Court's precedent. Moreover, Apple overstates the USTR's position with respect to the '348 Patent.

The USTR did not conclude that exclusion orders are never appropriate for declared essential patents; rather, the USTR stated that 'whether public interest considerations counsel against a particular exclusion order depends on the specific circumstances at issue,' such as the infringer’s refusal to take a FRAND license. [...] (emphasis added). The USTR's disapproval of the '348 Patent exclusion order was based on the lack of 'a comprehensive factual record' and 'explicit findings' regarding issues such as 'the presence or absence of patent hold-up or reverse hold-up.' [...] Any deficiencies in the record or the Commission's findings can be easily addressed on remand, allowing the USTR to confirm that standards-related concerns have been adequately considered, and that any issued exclusion order will not implicate public policy concerns."

I agree with Samsung -- as I already did in my commentary on its opening appellate brief -- that the USTR veto was not broad enough to make it 100% impossible for Samsung to win an import ban on a potential remand. I also agree with Samsung that Apple's brief somewhat overstated the scope of the USTR veto. But on that basis, I can't agree with the DoJ's decision to "close" the investigation. The issue was not and is not moot.

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Thursday, February 20, 2014

Gave keynote at settlement party of HTC and Nokia's German lawyers, patent attorneys

It's a well-known fact that (good) lawyers treat each other as colleagues, not adversaries, despite their best efforts to defend their clients' interests vigorously. The relationship between Nokia and HTC's German outside patent litigators and patent attorneys stands out nonetheless. After roughly six years of jointly defending against patent licensing firm IPCom, they are on unusually friendly terms, and this did not change in the slightest as a result of the dispute between Nokia and HTC that lasted almost two years (April 2012 - February 2014) and had its center of gravity, in terms of the number of asserted patents and decisions handed down, in Germany.

This evening, approximately 30 of the 50 attorneys-at-law and patent attorneys involved with the German part of the Nokia-HTC dispute gathered for a drink in a spacious conference room in the Dusseldorf office of Hogan Lovells, at the invitation of HTC's lead outside attorney in Germany, Dr. Martin Chakraborty. I had the pleasure and the honor of making a surprise appearance as a keynote speaker. Dr. Chakraborty had this idea, I accepted the invitation, and we had not told anyone about it beforehand.

Since I had attended most of the German hearings and trials in this dispute over these past two years, I was uniquely positioned to provide an anecdotal recap and share certain observations on the occasion of this unusual celebration. I did this for two reasons. One, I have the greatest respect for both camps' legal work. In absolute numbers, this dispute produced various records with respect to the smartphone IP matters I monitor and even beyond. Offensively and defensively. It was a clash of Titans. Two -- and this was no less important to me personally --, I know that HTC and its lawyers found themselves in disagreement with my commentary more frequently than Nokia did, but I do respect both companies (over the years I've taken increasingly favorable positions on HTC's approach to patent litigation) and appreciated this opportunity to show it.

Now that the dust has settled and a deal has been struck, I sincerely hope that the deal terms (which are entirely unknown to me) will help both parties as they pursue their (now-divergent) business models. They face challenges without a doubt, but they also have opportunities.

It was the first invitation to give a speech outside the Munich area that I accepted in almost three years. (By the way, I have no compensation for my time to disclose in this context.)

In my (relatively short) address I mentioned that one of the intriguing aspects of this spat was the diversity of the patents-in-suit: pretty much everything patentable in the mobile devices industry from A as in "antenna" to U as in "USB" -- only to be reminded that V as in "VP8" (Google's video codec) had also been at issue.

For the sake of a complete record of who was involved with this massive effort I'm now going to list both parties' law firms in alphabetical order (firstly Nokia's since this was also the party that started it).

Nokia's law firms:

HTC's (including S3 Graphics') law firms:

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Wednesday, February 19, 2014

Liberty Media's TruePosition acquires Skyhook, touts its patents: implications for Google lawsuit?

Skyhook Wireless, a company that has been suing Google for more than three years over various location-positioning patents, with a trial likely to take place (finally) this year, has just been acquired by Liberty Media's TruePosition subsidiary. The official announcement says that "Skyhook's technology provides TruePosition with another important tool in [its] technology and patent portfolio that perfectly complements [its] existing offerings" (emphasis added).

As Re/code mentions in its report on the deal, the [Skyhook-Google] court battles have revealed all sorts of interesting information about the control Google has exerted over the Android ecosystem". Google's heavy-handedness concerning Android drew a lot of additional attention last week after Google's mobile app distribution agreements with Samsung and HTC were published. Also last week, Galen Gruman wrote on Infoworld: "Meet AOSP, the other [i.e., open-source] Android, while you still can", going on to explain how an increasing part of the Android codebase is closed and the open-source components are nearing the point at which they won't represent a competitive mobile operating system.

It's too early to tell what effect Liberty Media's acquisition of Skyhook Wireless will have on the pending Google patent litigation. If the case does go to trial this year, Google will face a well-heeled opponent that can afford even more protracted litigation and (even international, if necessary) escalation. But the "If" is the question. While it would make sense for Liberty Media to aggressively enforce Skyhook's IP (which was apparently the reason for the deal) in order to monetize what it has acquired, it's also possible that Skyhook's new owners will be more willing to settle the matter with Google. But even if Liberty Media is prepared to settle, Google is not known to be exceedingly willing to pay patent royalties, so the case may have to go to trial anyway. It wouldn't be logical for Liberty Media to acquire IP and tout it in a press release only to dismiss a case without getting royalties. In doing so it would devalue Skyhook's patent portfolio and call into question the rationale for the transaction. So I think there still is a fairly high probability of the case going to trial.

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HTC, LG, ASUSTeK, Pantech join Samsung in moving for dismissal of Rockstar Android lawsuits

A week ago I reported and commented on Samsung's motion to dismiss the patent infringement lawsuit brought against it by the Rockstar Consortium and its MobileStar Technologies subsidiary in the Eastern District of Texas. The next day ASUSTeK brought a motion raising the same issues (alleged invalidity of one patent and, which has potentially broader implications, lack of standing at the time the lawsuit was filed). Yesterday HTC, LG and Pantech followed suit. Technically, due to the AIA's joinder rule, each defendant faces a different Rockstar lawsuit, though the issues are near-identical, except that the case Rockstar brought against Google itself (apart from the fact that Google was later added as a co-defendant to the Samsung case) is about search engine patents.

Of the seven Android device makers sued on Halloween, one (Huawei) has settled, five (firstly Samsung, then ASUSTeK, HTC, LG, Pantech) have brought motions to dismiss, and one (ZTE) has yet to respond. Presumably ZTE will also move for dismissal, unless it settles before.

What we're seeing here is just the overture in the form of a venue fight. Google filed a declaratory judgment action in the Northern District of California shortly before Christmas. Google's partners are meanwhile trying to get the Texas cases dismissed, which would make the California action the first-filed case. At the same time, Rockstar is trying to win the dismissal of the California lawsuit, arguing that there's no point in litigation in two districts "when a single suit in Texas, combined with six existing suits in Texas, can fully safeguard Google's interest".

In each case in which a motion to dismiss should fail, we're going to see a motion to transfer venue. In its reply brief in California, Rockstar has already described a transfer motion as "the predictable next step should this [California] case survive a motion to dismiss", and Rockstar and MobileStar "of course, reserve the right to file such a motion, if necessary, at an appropriate time".

From what I heard (from a major industry player who is neither a client of mine nor a party to Rockstar's Google/Android-related cases), Judge Rodney Gilstrap, who is presiding over the Rockstar-Android cases in Texas, is notoriously unwilling to transfer cases out of his court to other districts, but some defendants have apparently won such transfers through petitions for writ of mandamus filed with the Federal Circuit. We may very well see one or more mandamus petitions in this context as well. I believe these defendants won't leave a stone unturned in their attempts to move the matter out of Texas.

While all of this delays resolution of the actual infringement issues, even the procedural maneuvering that is going on at this stage does involve some arguments touching on the substance of these cases. In last week's reply brief by Rockstar in California I found the following passage particularly interesting:

"C. Google Is Incorrect That Rockstar's Claims Concern Only Android

Throughout its opposition, Google argues that the asserted patents in this action and the Texas litigation concern solely the Android operating system. [...] This is misleading and mistaken. Rockstar and MobileStar are accusing various mobile devices that, while including the Android operating system, also include hardware and software components that infringe Rockstar and MobileStar patents, not the Android operating system alone. [...] For example, at least one patent (U.S. Patent No. 5,838,551) asserted against these mobile devices in the Texas actions has nothing to do with their operating system, but is directed solely to a type of component contained in those devices.

For this reason, Google is mistaken in invoking the customer-suit exception to the first-to-file rule. That exception applies only 'where the first suit is filed against a customer who is simply a reseller of the accused goods, while the second suit is a declaratory action brought by the manufacturer of the accused goods.' [...] Here, the Texas defendants are not resellers of devices or Android operating systems obtained from Google, but rather design, manufacture, and sell the devices themselves (which use the Android operating system). [...] This is hardly the situation of a patentee taking advantage of a customer who unknowingly purchased an infringing product from a manufacturer.

In any event, Google cannot have it both ways. If Google wishes to paint the Texas litigation as a direct assault on Google itself, then Google cannot plausibly hold out this suit as the 'first-filed' case. It is undoubtedly the second-filed case under any logical view of the substance of each suit."

The '551 patent covers an "electronic package carrying an electronic component and assembly of mother board and electronic package", which is obviously Android-unrelated. I'm still going to refer, for the sake of brevity, to these cases as the "Rockstar Android lawsuits" because all defendants have in common that they make Android-based devices and because most of the asserted patents are allegedly infringed by Android itself. When I say "Rockstar Android lawsuits", I mean "Rockstar's lawsuits against six (originally seven) Android OEMs". But for the legal question of whether a dismissal or transfer is warranted, the distinction must be made, and I do agree with Rockstar that Android device makers -- rather large and sophisticated companies, by the way -- can't be compared to the targets of typical customer suits such as hotels or restaurants offering WiFi access.

The potential scope and usefulness of a customer suit exception is also a hotly contested issue in the ongoing U.S. patent reform debate.

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Friday, February 14, 2014

Kentucky Senate committee approves balanced approach to demand letters by patent trolls

In early November 2013, the Subcommittee on Consumer Protection, Product Safety, and Insurance (part of the Committee on Commerce, Science, and Transportation) of the United States Senate held a hearing on possible measures against deceptive demand letters by patent trolls. It remains to be seen what will ultimately come out of this effort at the federal level, but a state legislature is at the forefront of this issue. On Thursday, the Judiciary Committee of the Kentucky Senate voted unanimously in favor of a bill (SB116) that seeks "to establish a bad-faith assertion of patent infringement as a violation of Kentucky's consumer protection chapter and authorize the utilization of the remedies available for those violations in addition to private remedies established in the bill".

The bill was introduced by Republican State Senators Christian McDaniel and Whitney Westerfield (personal website, website of his law office). Whitney is the chairman of this committee and a reader of this blog (in general, not only in with respect to patent policy). He kindly informed me of these developments via Twitter.

This is the most comprehensive effort I've seen so far to lay out factors weighing for and against allegations of bad-faith patent assertions. Clearly, a lot of thought has gone into the design of a bill (Word document) that aims to make a distinction between good-faith and bad-faith patent licensing activities. It's similar to a bill enacted by the Vermont Legislature last year.

The bill mentions that the state Attorney General is not meant to be restricted by this bill in any way, but the bill itself focuses on a defendant's right in bad-faith litigation or litigation following bad-faith demand letters. Paragraph 3 ensures that defendants have a basis for demanding a bond at any stage of the proceedings ("[u]pon motion by a target and a finding by the court that a target has established a reasonable likelihood that a person has made a bad-faith assertion of patent infringement").

These factors may be considered as evidence of a bad-faith assertion:

  • A demand letter fails to state the patent number, the name and address of the patent owner(s)/assignee(s), or specific factual allegations relating to the infringement claim.

  • A patent holder fails to conduct a reasonably specific infringement analysis prior to sending a demand letter.

  • Information reasonably requested by the taret of a royalty demand is not provided within a reasonable period of time.

  • The roaylty demand is not based on a reasonable valuation.

  • The claim is meritless and the patent holder knew or should have known this.

  • The claim or assertion is "deceptive" (not defined).

  • Previous behavior and litigation can affect subsequent actions (for example, earlier demand letters that failed to satisfy the criteria laid out in the bill).

  • The patent holder is a non-practicing entity.

  • Any other factor the court finds relevant.

And these factors can support a patent holder's claim that an assertion was not made in bad faith:

  • The demand letter contains the information the bill requires.

  • If the original demand letter did not contain it, the patent holder may still be able to cure the defect by providing the information, on request, within reasonable period of time.

  • The patentee "engages in a good-faith effort to establish that the target has infringed the patent and to negotiate an appropriate remedy".

  • Substantial investment in use of patent or in production or sale of product or item covered by it.

  • The anti-NPE assumption is counterbalanced by assumptions in favor of patent holders or original assignees who enforce a patent themselves, and institutions of higher education and any technology transfer entities they own.

  • Previous behavior can be helpful to a patentee if he previously demonstrated good-faith business practices in enforcement of the same patent or a substantially similar one, or successfully enforced the patent or a substantially similar patent through litigation.

  • Any other factor the court finds relevant.

Patent law is part of federal law, and I don't want to get into a discussion here of ways in which state laws can indeed have a bearing on patent infringement litigation. I just wanted to draw additional attention to this truly interesting effort, and I hope that something will be done at the federal level -- and at some point over here in Europe as well -- against bad-faith demand letters. The Kentucky bill is definitely a valuable and constructive contribution to the debate. Should it have a statistically identifiable effect after being passed into law (which I hope) in terms of discouraging assertions against Kentuckians, then I'm sure other legislatures will consider similar measures. Ideally the pressing problem of bad-faith demand letters would be addressed by others even before.

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