Monday, December 24, 2018

The patent defendant's dilemma in Munich: damned if you do, damned if you don't give up your secrets

The shocking part about last Thursday's Qualcomm v. Apple patent injunction in Munich is not that Qualcomm finally won a case after several trials at which the courts in Mannheim and Munich were rather unconvinced of a valid patent being infringed. Much to the contrary, an analyst asked me a week ago: "How come Qualcomm, with its more than 100,000 patents, hasn't just been able to assert a few strong hardware patents and end the dispute with Apple that way?" I told him that chipset patents, while harder to work around, appear to face many of the same quality issues as software patents.

It was to be expected that Quinn Emanuel was going to win something at some point.

The economic implications don't shock me either. All that Qualcomm has to show now, for its north of 100K patents, is an agnostic judgment (the court stressed even in a press release that there may not even be an infringement) affecting older iPhones, and analysts say Apple generates only about 3% of its sales in Germany (which in turn is a significant but far from a huge market for Apple) through its own online shop and the 15 official German Apple Stores.

On U.S. TV I saw an interview where someone noted that the court wouldn't have required a massive deposit if the case wasn't economically significant. In fact, the court had reduced by 60% the amount Apple originally demanded, but that was because it turned out that the alleged infringement certainly didn't apply to the 2018 iPhone models. Still, yes, the amount is significant--but that's in no small part because the court has to assume that if Apple's Ireland-based European distribution company stops supplying iPhones 7 and 8 to German customers, those sales will be lost, and can't just assume that those customers (major carriers and retailers) will simply source elsewhere in the EU's Single Market.

As for the deposit and the old/new iPhone distinction, I'd like to debunk, once and for all, just two of the pieces of fake news spread by woefully incompetent commentators on TV and on the Internet who pretend to know what they're talking about but are just clueless:

  1. The bond or (in the alternative) deposit required under the court ruling is € 668.4 million per case. There are two cases (one against Apple Inc., the U.S. parent company, and another one against Apple's European distribution company and the German entity operating 15 Apple Stores in the country). So the total (since it wouldn't make sense for Qualcomm to enforce one of the rulings but not the other) is € 1.337 billion, or more than US$1.5 billion.

    It's obviously not against the law to comment on a case without at least reading the court's press release, but it discredits the ones who fail to do their job. The court's press release says "Sicherheit in Höhe von jeweils 668,4 Mio. €," which translates as "security amounting to € 668.4 million, respectively," with "respectively" meaning "per case" in this context. The court's press release explains clearly it's about two cases and stated the two case numbers.

  2. At least one commentator on TV speculated that Qualcomm might be able to seek an "extension" of the injunction to newer iPhones and drew an analogy to China. Completely wrong. Under German law (and it's the same in the U.S. unless your injunction is suboptimally-worded) an injunction affects all violations that have an "identical core" ("kerngleicher Verstoß"). So even if the court didn't evaluate newer iPhones, the injunction would apply if the violation was technically of the same nature. But Presiding Judge Dr. Matthias Zigann stated at Thursday's announcement that the reason for which the security amount isn't even higher is because there was apparently consensus at trial that newer iPhones are technically different enough so as not to fall under that injunction.

Even all the fake news isn't shocking because it's normal in connection with high-stakes commercial litigation, and especially high-stakes patent litigation.

No, the absolutely terrible thing that I'm still profoundly concerned about is that Judge Dr. Zigann laid out a doctrine under which Germany would become the perfect patent jurisdiction for companies to steal competitors' technical secrets.

First, Judge Dr. Zigann explained that German civil litigation is centered around the parties' proffers of evidence as opposed to U.S.-style pretrial discovery. The complainant brings an allegation; the defendant must counter it with a denial; and the more substantiated the allegation is, the more substantiated the denial must be. It's a ping-pong game of mutually upping the ante.

In these two Qualcomm v. Apple cases over the envelope tracker patent, the court concluded that Apple's definitive denial (not just a denial for lack of sufficient information to form an opinion or belief) fell short of Qualcomm's efforts to establish infringement by means of a teardown report.

Many media reports quoted Judge Dr. Zigann's "defendant's dilemma" doctrine, and as an earwitness I can confirm that this is what he indeed said:

"If a defense is only possible by means of revealing a secret, a party must reveal it, in which event it ceases to be a secret, or a party may elect not to reveal it, in which event it may lose the case, as has happened today."

Apparently it never crossed his mind that the lesser evil would be to just throw out some patent infringement complaints for evidentiary failure, especially when a plaintiff actually has the evidence and withholds it. The fact that Qualcomm's German counsel elected not to sign the protective order and deny Qualcomm's engineers access to Qorvo's technical secrets should have given the court pause. Why would Qualcomm firstly conduct discovery in the U.S. for the stated purpose of presenting chipset schematics in Munich but then elect not to do so?

It happens again and again, also in connection with antitrust defenses (which are an affirmative defense in Germany only in connection with injunctive relief), that, whenever there is doubt, cases are resolved in favor of patent holders.

We'll see what the appeals court ("Oberlandesgericht München" = "Munich Higher Regional Court") makes out of this. It would be disastrous if it affirmed the defendant's dilemma doctrine because it would create a whole new incentive for patent holders to sue competitors in Germany.

Qualcomm's insistence that the chipset schematics be made available to its own engineers or not be considered by the court and the court-appointed expert witness was unreasonable and should have weighed strongly against the credibility of its infringement accusation, including its inherently-unreliable teardown report.

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