Friday, December 7, 2018

When defending against standard-essential patents, beware of standard-essential utility models

While "standard-essential patents" (SEPs) is one of the most common terms in the tech sector, it would sometimes be more accurate and inclusive to refer to "standard-essential intellectual property rights" (SEIPRs). That collective term would include both SEPs and SEUMs: standard-essential utility models. Utility models are a German specialty, basically a second-class type of patent with a shorter term but instant registration (no substantive examination). This blog covered a utility model case years ago when Apple asserted a slide-to-unlock utility model against Samsung in Germany; that case got stayed over validity concerns and never went anywhere. Beyond German utility models, the collective term "SEIPRs" would cover any other IPRs that may exist in other jurisdictions and are like patents, but aren't called patents.

Yesterday I went to the Munich I Regional Court to watch a standard-essential utility model case, Netlist v. SK Hynix and HP, over German utility model no. DE2020100185017, which was derived last year, in preparation of this lawsuit as counsel for Netlist explained, from a pending European patent application, EP2454735 on a "system and method utilizing distributed byte-wise buffers on a memory module." From what I've been able to find out, this patent was declared essential to a JEDEC memory standard.

An EPO patent examiner rejected the application, though Netlist is still trying to persuade the EPO to grant a patent. But in parallel to that effort, they quickly took out a utility model, with claim language drafted specifically for the purposes of the lawsuit against SK Hynix and HP, and sued in Munich.

The previous Munich trial I reported on took 12 hours; yesterday's trial took only about four. No would-be witness was sitting on the hard wooden seats outside.

Netlist's counsel in this action, Fieldfisher's Benjamin Grzimek, was mentioned on this blog about five years ago when Unwired Planet, an Ericsson privateer, sued a bunch of mobile device makers. A filing made by SK Hynix with the ITC suggests Netlist is also a patent assertion entity (unsurprising after I had noticed the extent to which they emphasize their patent infringement cases on their corporate website):

"Netlist does not design or manufacture JEDEC compliant DDR4 RDIMM or LRDIMM, and it never has. It does not compete with Respondents. And, Netlist freely admits that it made no technical contribution to any JEDEC standard. Others contributed the technologies JEDEC adopted into its standards, which JEDEC compliant products implement. Indeed, in years past when Netlist designed and sold memory modules, its business model was to sell non-JEDEC compliant memory modules; these are the products, according to Netlist, from which the patents arose. Tellingly, despite having litigated the patents and defended IPRs, Netlist did not even disclose four of the five patents asserted at the [ITC] hearing to JEDEC as potentially essential to the standard until years after the patents issued, and just months before filing its [ITC] complaint. All of this reflects a shift in Netlist's overall strategy. After operating at a loss for all but one year of its existence, Netlist now touts that '[t]he Company is focused on monetizing its patent portfolio' and that it 'plans to pursue an intellectual property-based licensing business in which it would generate revenue by selling or licensing its technology, and it intends to vigorously enforce its patent rights against infringers of such rights.'"

"Consistent with this strategy, Netlist has secured third-party funding for its litigation campaign against SK hynix, which is by no means limited to the two investigations in the ITC. Netlist recently announced that it 'obtained outside investment to finance the legal fees and costs of its legal action against SK hynix” from TR Global Funding V, LLC."

The defendants in the Munich utility model are represented by IP and antitrust litigators from Bardehle Pagenberg led by Professor Peter Chrocziel (who has been named German IP litigator of the year twice and was mentioned numerous times on this blog because of his past work for Microsoft and Apple), with rising star Dr. Anna Giedke arguing non-infringement for the most part. Interestingly, even though Bardehle has many patent attorneys itself, including some of the most well-known ones in Europe, two patent attorneys from Samson & Partner (another top-notch firm I mentioned often because of its work on behalf of Nokia and, such as in the pending Qualcomm cases, Apple) represented SK Hynix and HP yesterday: Dr. Georg Jacoby and Dr. Robert Baier. The involvement of Samson's patent attorneys doesn't imply anything negative for Bardehle's great patent attorneys; if anything, it speaks to the strength of Bardehle's litigation team.

The court will announce a decision at the end of January, and Presding Judge Dr. Matthias Zigann said at the end of the trial that he can't indicate an inclination before a post-trial conference with his two side judges. If I had to make a guess, I'd expect the case to be dismissed or stayed. Defendants made a pretty good "squeeze" case, where the asserted claim would either have to be construed too narrowly to support an infringement finding or, in the alternative, the claim would be too broad to be valid. A patent attorney from the Bosch Jehle firm, representing Netlist, showed a computer animation meant to distinguish the claimed invention from the prior art, but patent attorney Dr. Baier dismissed its core--the idea of taking CAS latency into account-as a "triviality" and, while Judge Dr. Zigann didn't say what he thought of it, I wouldn't bet on Netlist's chances here.

Judge Dr. Zigann noted at the start of the trial that the utility model and its underlying patent specification lack clarity. He explained that "the upside for you is that counsel can read anything into it; the downside is that so can the Court."

There are two important lessons to be learned:

  1. Reference was made to a U.S. case in which one or more defendants sought or even obtained (at some point, however, that case got stayed by stipulation) a U.S. antisuit injunction barring Netlist from the enforcement of injunctive relief over SEPs--but if Netlist prevailed in the case tried by the Munich court yesterday, there would be an argument over whether an SEUM falls within the scope of that injunction. I believe SK Hynix and/or HP would have a strong case, given that this SEUM was simply derived from a pending SEP application. But there could be an enforcement dispute, and there would be a risk of a court saying that if they wanted to preclude Netlist from enforcing utility models, they should have requested a differently-worded antisuit injunction. And that could give Netlist leverage, even if perhaps only for a short period.

  2. While utility models don't enjoy any presumption of validity (for lack of substantive examination), there can be situations in which a (final or non-final) rejection of the underlying patent application by the EPO actually suggests to a German court that the utility model is likely valid. In yesterday's case, that doesn't appear to be an issue. But there have been utility model cases in Germany in which an EPO examiner based a rejection on a theory that doesn't apply to German utility models. The differences between the two jurisdictions are limited and sometimes subtle, but there are some and they can prove outcome-determinative, resulting in a utility-model injunction while a patent couldn't be enforced.

Implementers of standards should always bear the additional risks arising from utility models in mind, especially when there is a threat of litigation, or already an ongoing one. You need an invalidation strategy that will not only work against a European patent or patent application, but also take down a utility model. And you shouldn't forget about utility models when crafting antisuit injunction motions.

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