Friday, November 15, 2019

Slide decks from Brussels conference on Component-Level SEP Licensing (November 12, 2019)

During and after the Brussels conference on Component-Level SEP Licensing that I organized on Tuesday, I've received various requests for the panelists' slide decks. Fortunately, all the speakers who used slides have provided them to me by now and authorized their publication.

I'll also do a follow-up in the form of a summary (with some soundbites).

Now, let me provide links to the slide decks in the chronological order of the presentations:

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Munich appeals court schedules ruling on Nokia's anti-antisuit injunctions against Continental for December 12

Just a quick follow-up to yesterday's report on the appellate hearing in Munich on Nokia's anti-antisuit injunctions against Continental:

The Munich I Higher Regional Court's press office told me today that a ruling has been scheduled for December 12.

I still predict the same outcome: reversal. The court's position on the irreconcilability of an antisuit--including anti-antisuit--injunction with German law didn't appear to change at any moment during the hearing that lasted well over two hours. What I attribute the delay to is simply that this appeals court--at least when it comes to patent cases--tends to write very comprehensive opinions. Those judges won't necessarily address each and every argument they don't have to reach. But unlike their U.S. counterparts, they do cover a lot of ground beyond the shortest path to a particular outcome when fundamental questions are at stake. Earlier this year, an injunction Qualcomm had won and enforced against Apple in Germany was tossed on three independent grounds, any single one of which would have been self-sufficient.

The practical effect of this target date is that Continental can't make a third attempt at a U.S. antisuit injunction for another four weeks. Meanwhile, on December 10, the first Nokia v. Daimler trial will be held in Mannheim (there have been first hearings in three Munich cases, but the second hearings there are the actual trials and the soonest one of them will take place in February). In all those years I've seen only one bench ruling in Mannheim, so realistically, there won't be any German patent injunction in place against Daimler before sometime in January. Meanwhile, a renewed motion for an antisuit injunction in the U.S. could be resolved if a motion to shorten time succeeded--which it might if a Mannheim injunction loomed large after the December 10 trial, especially since the issues have been briefed before, even if not by Sharp and Conversant.

The Mannheim Regional Court is more likely than the one in Munich to be receptive to the argument that Nokia shouldn't be granted injunctive relief against an end-product maker (Daimler) only because of a refusal to extend an exhaustive license to upstream companies in the supply chain. I'm cautiously optimistic it may work out that way (or Nokia's Mannheim case might also fail on the merits and be rejected or stayed). In that case, a U.S. antisuit injunction won't even be needed before the first final Nokia v. Daimler judgment is entered in Munich.

Nokia may lose everything in the end. Huawei is probably going to win its private antitrust lawsuit against Nokia in Dusseldorf. The European Commission might launch formal investigations anytime. And if Nokia can't gain decisive leverage over Daimler in the short term, it will probably end up paying tens of millions of euros under Germany's "loser pays" rule as there's an army of intervening companies on Daimler's side and Nokia has to pick up the bill for all those legal entities if it loses. Statistically, most of those types of complaints don't go anywhere, so Nokia needs a lucky punch, but it faces some hurdles. I was less optimistic about Daimler and its suppliers' ability to fend off Nokia's patent assertions, but Huawei's Dusseldorf action is a game changer: even if Nokia could force Daimler to take a license (be it from Nokia or from the Avanci pool as a whole), Huawei's lawsuit would continue unabatedly.

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Thursday, November 14, 2019

Munich appeals court likely to reverse Nokia's anti-antisuit injunction against Continental: Judge Koh may have to rule on third antisuit motion soon

Before we go to today's Munich appellate hearing, let me just say that this week's Component-Level SEP Licensing conference in Brussels exceeded expectations, which applies to the quality of the presentations of those who strongly advocate component-level licensing obligations under antitrust and contract law as well as of those who are skeptical of, or even adamantly opposed to, at least one of those legal bases--everyone I invited was terrific. I'll publish the slides no later than this coming weekend. Now, the latest from Nokia v. Continental.

3 1/2 months ago I voiced a concern over what appeared to be a contradiction in the Munich I Regional Court's decision to grant Nokia an ex parte (i.e., without notice or hearing) anti-antisuit injunction against Continental, barring the automotive supplier from shielding Daimler from Nokia's numerous German patent infringement actions:

There's something odd about the anti-antisuit-injunction injunction. The order notes that antisuit injunctions of the kind that exists in the U.S. are not known in Germany. But then the court somehow threads the needle and actually does issue an antisuit injunction for the purpose of thwarting a potentially-upcoming antisuit injunction from overseas.

A month later, when the Munich court entered another such injunction (against a different Continental legal entity), I wrote "[t]he appeals court may very well find that two wrongs don't make a right."

That's precisely what's most likely to happen this evening by Central European Time (morning by Pacific Standard Time), though it won't become known until tomorrow morning local time.

To be fair, Presiding Judge Tobias Pichlmaier of the 21st civil chamber of the lower court--in a speech delivered a couple of weeks ago--as well as the late-August decision (which came after briefing and hearing, unlike the ex parte in July) were definitely more nuanced than the first, hastily-prepared decision. Still, Presiding Judge Konrad Retzer of the 6th Civil Senate of the Oberlandesgericht Muenchen (Munich Higher Regional Court) started today's appellate hearing with a summary of the factual and legal issues that included two grounds of reversal:

  1. A preliminary injunction might not be warranted as no Continental antisuit motion against Nokia is currently pending in the United States. But Nokia's lead counsel, Arnold Ruess's Cordula Schumacher, accurately pointed out that Judge Lucy H. Koh of the United States District Court for the Northern District of California had not resolved the issue on a definitive basis: Continental could refile. I would file under lawyer's hyperbole that she said Judge Koh had twice "invited" Continental to refile. Once: yes. Twice: well, the denial of Continental's motion for an anti-anti-antisuit temporary restraining order merely noted that Continental had been told they could bring another motion for a preliminary injunction, but it's in the eye of the beholder whether that's an invitation.

  2. Judge Retzer appeared to be unconvinced by the attempt to distinguish the German anti-antisuit injunction from a U.S. antisuit injunction only because of a narrower scope (relating to a motion rather than an entire litigation). While he credited the lower court for its diligent analysis of some other aspects of the matter, he appeared to view this part as reversible error. Also, being the incarnation of equanimity, he did not appear receptive to an equality-of-arms argument (U.S. court can issue antisuit injunctions, so--Nokia said--German courts should provide a countermeasure). Neither did Nokia's self-defense argument get much traction: Judge Retzer explained that self-defense is when a court can't help you before it's too late, and not when you can still go to or defend yourself in court. The analogy he used was somewhat similar to Second Amendment activists' "when seconds count but the cops are minutes away" argument.

    Recent anti-antisuit decisions in Paris and London didn't bear any non-negligible weight with the German appeals court either as they didn't (because they couldn't) address the questions to be resolved under German law.

The court declared its intent to reach a decision today, but it would be late, so Judge Retzer asked parties, counsel, and the general public (like me) to go home and call his chambers tomorrow morning.

The decision will be final as preliminary-injunction rulings cannot be appealed to the Federal Court of Justice.

Affirmance of Nokia's anti-antisuit injunction would be a major surprise. Also, while the presiding judge's initial outline also mentioned the intermediary or complicit liability of Continental AG with its indirect U.S. subsidiary Continental Automotive Systems as a potentially outcome-determinative issue with respect to one of the two injunctions, that question wasn't discussed in the hearing--presumably because it won't have to be reached.

Nokia voluntarily joined two U.S. standard-setting organizations--ATIS and TIA--and made U.S. FRAND declarations. In doing so, Nokia submitted to U.S. in personam and in rem jurisdiction, which entails, ínter alia, the possibility of antisuit injunctions. Continental couldn't have enforced its rights as a third-party beneficiary in any other jurisdiction than the U.S., where the automotive supplier has significant business activity in the Wolverine State as well as the Golden State. Assuming that Nokia's anti-antisuit injunction (which was in any event a brilliant tactical move and definitely had an impact, though probably a short-lived one) gets lifted, Continental is likely to refile in the U.S.--where the standard for an antisuit injunction is fairly high and may not be met in this case.

In a related development, Judge Koh canceled the hearing on the Avanci-Nokia venue transfer motion, which she often does when the parties' briefs constitute a sufficient basis for adjudication. But there may be a hearing--in a week from today--on the defendants' joint motion to dismiss.

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Wednesday, November 6, 2019

Component-Level SEP Licensing: final conference program as PDF

If you plan to attend next week's Component-Level SEP Licensing conference in Brussels, you may find it useful to download the final conference program (this post continues below the PDF document):

FOSS Patents 19-11-12 Confe... by Florian Mueller on Scribd

The conference is already overbooked, but for a few more days I'll still accept registrations via EventBrite as there are always some no-shows and the hotel can provide--to use a cloud computing-style term--some (limited) burst capacity if needed.

The PDF will render correctly on most devices. However, when viewed on Scribd (such as in this post), a special character in the name of one speaker may result in a "blot."

Also, I've already received some useful feedback from readers to yesterday's "Call for input: do you know of any cases in the PC industry in which SEP holders refused to license component makers or based their royalties on the end product?"

So far it looks like there are a couple of wireless companies that also try to impose device-level royalties on personal computers, but they just can't do that when WiFi cards are sold separately and later incorporated into PCs, and some tried the same with respect to MP3 (as implemented by the Microsoft Windows operating system). I'll follow up with more detail on that one later this month.

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Tuesday, November 5, 2019

Call for input: do you know of any cases in the PC industry in which SEP holders refused to license component makers or based their royalties on the end product?

What you find in the headline is not meant to be a rhetorical question. While I'm personally unaware of any case in the personal computer industry (with just one exception that I'll state in a moment) in which a standard-essential patent (SEP) holder insisted on the end product (desktop computer or laptop) being the royalty base and/or refused to grant an exhaustive license to component makers, I can't rule out that there have been such cases in that huge and decades-old industry. That's why I'm asking for your help. Input from readers has previously been very helpful, such as in connection with privateering (patent transfers from to non-producing entities).

My focus is on mobile devices, and I've looked at PC-related patent litigation only when countersuits targeting personal computers were brought in retaliation for mobile patent suits. In one such case, an absurd letter by Motorola Mobility to Microsoft entered the public record: Motorola wanted 2.25% per unit from Microsoft and explicitly stated that "the royalty is calculated based on the price of the end product (e.g., each Xbox 360 product, each PC/laptop, each smartphone, etc.) and not on component software (e.g., Xbox 360 system software, Windows 7 software, Windows Phone 7 software, etc.)." To put this into perspective, on most PCs that royalty rate would have been roughly at a level with Microsoft's entire income from selling a Windows OEM license. Motorola made that outlandish demand in a letter, but limited its royalty demand to 2.25% of the selling price of Windows in Judge James L. Robart's now-famous FRAND case as well as in a similar proceeding (that led nowhere before the parties withdrew all pending claims) before the Mannheim Regional Court. Motorola even denied the undeniable later on--apparently they realized they had been a bit too crazy, fortunately just temporarily.

Video codec patents are one example of a category of SEPs for which patentees could theoretically have insisted that the royalty base should be the end product. Graphics and memory standards are another example.

What about WiFi? All I know is that I've bought WiFi cards for several desktop PCs in a row, just because it's always a nice fallback when there's an issue with a landline or a router. I can just get a connection via a smartphone with tethering--and in many places, other options exist. Obviously, when I bought those cards for roughly $40-50 each, there was no way any WiFi patent holder could have collected a royalty based on the total cost of the related PC. I paid my $40-50 for that component regardless of whether I plugged it into a $500 or a $5,000 computer. Apparently, the companies that made the WiFi cards I bought were fully--and exhaustively--licensed. It's the same situation when you buy an additional or larger memory chip or a new graphics adapter and just install such components yourself.

Today's smartphones are handheld PCs. If there really is no example (other than a letter Motorola distanced itself from) of SEP holders having treated the PC industry the way they're now trying to treat the mobile device and automotive industries, then that would expose the likes of Qualcomm, Nokia, and Ericsson as total outliers in the wider technology industry.

In case you do know of any cases, please fill out the contact form. I protect my sources unless you request--in writing--to be named. What I'm primarily looking for is verifiable information, such as publicly accessible court filings. If you have unverifiable information that you nevertheless consider highly pertinent, please let me know, too--but I may then have to follow up with you to get a better idea.

Thanks in advance for your help! I will publish the results of this call for input on this blog, in a future post.

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Friday, November 1, 2019

Upcoming Brussels conference on component-level SEP licensing: final program and roster of speakers

The hottest SEP-related topic at this time is the question of whether--and on what terms--implementers of FRAND-pledged standards should have access to exhaustive component-level licenses. It's relevant to antitrust enforcement, litigation, and policy-making.

On Tuesday, November 12, FOSS Patents' Component-Level SEP Licensing conference will be held at the Sofitel Le Louise. Tickets are available via EventBrite. Here's the final program (with all panelists named):

08:30Registration & Reception
09:00Panel discussion on component-level licensing (antitrust and contract law)
10:00"All Comers" Or Not? Access to Licenses Under Contract Laws
Moderator: Dave Djavaherian (Founder, PacTechLaw)

11:00Patent Licensing: Implications for Business
Moderator: Ief Daems (Legal Director Antitrust EMEAR, Cisco Systems)

Seeking Component-Level Licenses: Experiences From the Field
Patent royalties in the IoT industry: an economics perspective
Joachim Henkel (Professor of Technology and Innovation Management, Technical University of Munich)
13:30The 2019 FTC v. Qualcomm Ruling: Key Holdings, Next Steps, Global Impact
Moderator: Jay Jurata (Partner, Orrick, Herrington & Sutcliffe)

Judge Lucy H. Koh's findings of fact, conclusions of law, and remedial orders
Jay Jurata (Partner, Orrick, Herrington & Sutcliffe)

Licensing practitioner's perspective on fallout from FTC v. Qualcomm ruling
Eric Stasik (Founder and Director, Avvika)

Could Judge Koh's reasoning be adopted under Art. 102 TFEU?
Evelina Kurgonaitė (Secretary General, Fair Standards Alliance)
15:00Afternoon Coffee Break
15:30Antitrust Complaints Over Component-Level Licensing
Moderator: Rebekka Porath (Director IP Policy EMEA, Intel Corporation)

Antitrust complaints over SEP licensing
Rafał Sikorski (Professor, Adam Mickiewicz University; and Senior Partner, SMM Legal)

Continental antitrust lawsuit against Avanci
Kent Baker (Head of IP Strategy & Licensing, u-blox)
16:00BONUS SESSION: Access to Injunctive Relief
Moderator: Edmund Mangold (Patent Counsel, BMW)

Evolution of national case law on SEP injunctions since Huawei v. ZTE
Bram Nijhof (Counsel, Taylor Wessing)

The proportionality requirement under the EU enforcement directive
Maurits Dolmans (Partner, Cleary Gottlieb Steen & Hamilton)

The German patent reform debate
Moderator: Florian Mueller (Founder, FOSS Patents)
Panelists: Messrs. Dolmans, Mangold, and Nijhof

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Wednesday, October 30, 2019

Game changer in automotive patent wars? Huawei brought antitrust complaint against Nokia in German court to get exhaustive module-level SEP license

The Munich I Regional Court scheduled a Nokia v. Daimler "double-header" for today: first hearings (several months after which there will be trials followed by decisions) in two of the Finnish company's ten patent infringement cases pending against the German car maker.

The wireless standard-essential patents-in-suit are EP1388234 and the related German patent DE60240446C5 on a "hybrid automatic repeat request (HARQ) scheme with in-sequence deliver of packets" as well as EP2797239 on "a method and a telecommunication device for selecting a number of code channels and an associated spreading factor for a CDMA transmission." On June 5, the same court held a hearing on Nokia's infringement action against Daimler over EP1671505 on a "redundancy strategy selection scheme," and indicated a strong inclination to rule in Nokia's favor, unless things change when the actual trial takes place on February 6, 2020.

A number of suppliers of telematics control units (TCUs) to Daimler are intervening in the infringement case on the automotive company's behalf: Continental (which tried twice, but unsuccessfully so far, to shield Daimler from Nokia's lawsuits by means of a U.S. antisuit injunction), BURY, Bosch, TomTom (world-famous for its navigation systems), and Valeo subsidiary Peiker. Another intervenor, Huawei, makes cellular communications modules that are at the heart of many TCUs made by others; Huawei is also known to offer TCUs, but its counsel mentioned only its connectivity modules today.

Another factor that sets the Chinese mobile technology company apart from the other intervenors is that Huawei is presently obtaining several times more SEPs--and has a far higher share of existing 4G patents--than Nokia. By contrast, the TCU makers intervening in this case largely don't own cellular SEPs. What lends this particular importance is that it shows it's about product-focused innovators (car makers, TCU makers, and the likes of Huawei, Samsung, and LG) versus companies like Nokia and Ericsson, whose current product business is a shadow of its former self, so they increasingly focus on patent monetization.

Something I had heard through the grapevine was finally confirmed today:

Huawei has recently filed an antitrust complaint against Nokia with the Dusseldorf Regional Court, asking the court to order Nokia to make a FRAND licensing offer to Huawei--which (as was also mentioned today) already has a license agreement in place with Nokia for its end products (phones, tablets etc.)--that would result in an exhaustive SEP license covering Huawei's cellular connectivity modules.

Huawei is more likely than not to succeed with its Dusseldorf antitrust action. Presiding Judge Dr. Thomas Kuehnen ("Kühnen" in German), who chairs one of the two patent-specialized "senates" (divisions) of the Dusseldorf Higher Regional Court and is the principal author of the leading German reference work on patent infringement proceedings, published an article this year in the periodical of the German Association for the Protection of Intellectual Property (GRUR). In that article, Judge Dr. Kuehnen explained why implementers at all levels of the supply chain are entitled to an exhaustive FRAND license--and after analyzing various procedural avenues, he concluded that the most practical approach is for the implementer to ask a court--as Huawei is doing now--to obligate the SEP holder to make a FRAND offer. That appears more reasonable than a prayer for relief over a specific set of terms, given that a SEP owner has more information available to make a FRAND offer that complies with the criteria laid out by the Court of Justice of the European Union (CJEU) in Huawei v. ZTE.

Huawei's counsel in the Dusseldorf antitrust action--and representing Huawei to the extent it is an intervenor in Nokia's patent infringement actions--is Preu Bohlig's Professor Christian Donle. Preu Bohlig is one of Germany's oldest IP law boutiques. In the smartphone patent wars that firm successfully defended HTC against a couple of Apple patents. When I heard of Professor Donle's component licensing antitrust action, I invited him to speak at my Brussels conference on November 12 (that's already the week after next), and he thankfully accepted, so he will share a panel with Bristows' Pat Treacy, BakerBotts' Paul Lugard, and Orrick's Jay Jurata. But back to the German cases:

If at the end of Huawei's antitrust action Nokia is required to grant an exhaustive module-level SEP license on FRAND terms (and a real license as opposed to an "extended workbench" type of deal under which the de facto licensee would still be the car maker, with the component supplier merely acting as a licensing agent on the OEM's behalf), Nokia's patent infringement actions against Daimler will, to the extent they involve Daimler cars that come with a then-licensed Huawei component, be not only meritless, but even downright unlawful.

For that reason, Huawei has intervened in the German Nokia v. Daimler cases, requesting that--to the extent Huawei is affected--the cases be severed and stayed. I don't know what percentage of Daimler cars come with a cellular communications module from Huawei--all that has been mentioned so far is that Continental is one of Huawei's various customers among TCU makers, so the percentage could be extremely high.

In today's first hearing, the Munich court (I'll comment separately on their attitude toward antitrust defenses to patent infringement cases) basically said that since Nokia has chosen to sue Daimler, they are for now inclined to be ignorant of the issues raised by Huawei--though we're simply talking about the very (il)legality of what Nokia is doing by refusing to license Huawei while suing its (indirect) customer, Daimler. But it was just a first hearing, so there still is a chance for Huawei to obtain a stay even from the Munich court (which is an outlier court even within Germany in this specific context), or maybe it won't even be necessary in case Nokia fails to prevail on infringement and/or cases get stayed over validity concerns.

I've quickly drawn up a few diagrams to explain the relationship between the different parties and cases. First, here's a hypothetical scenario in which Nokia would--which it probably won't unless forced to--finally honor its FRAND pledge and extend an exhaustive SEP license to Huawei, which would in turn supply TCUs (which it may or may not do, but definitely could do anytime) to Daimler (click on the image to enlarge):

Patent exhaustion works downstream, so the net effect is that Daimler, as the end-product maker, would find itself fully licensed. While an argument was made today about exhaustion under German law requiring that the first licensed sale already involves a product practicing all claim limitations, Nokia did not--as I'm convinced it could not--make an argument that its SEPs claim cars, and Huawei's connectivity modules are full-featured communications devices that--to put it in a slightly oversimplified way--contain all the hardware you find in a phone apart from a screen.

Patent exhaustion works across any number of levels of a supply chain. Here's the second of my three charts--the present commercial reality of Huawei supplying its modules to Continental, which in turn sells a TCU to Daimler, but with the assumption of Nokia finally (which is not the case yet) granting a component-level license to Huawei (click on the image to enlarge):

The third and final chart combines the two previously-shown paths down the supply chain with Nokia's ongoing (allegedly unlawful) patent litigation campaign against Daimler and Huawei's Dusseldorf antitrust action against Nokia (click on the image to enlarge; this post continues below the diagram):

The chart mentions the basis for the Huawei v. Nokia antitrust case: Art. 102 TFEU, the unilateral-conduct (abuse of dominant position) paragraph of EU law.

Daimler and four other suppliers (Continental, Valeo, BURY, and Gemalto) filed EU antitrust complaints against Nokia earlier this year. Huawei would be in its right to do so, but no such filing is known. What is known by now is the Dusseldorf antitrust case, and just like Huawei v. ZTE started in that same town, where I attended the January 2013 trial that resulted in the referral of various SEP injunction-related questions to the CJEU, Huawei v. Nokia, too, has the potential to make EU antitrust history.

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German judge wants EU competition commissioner Margrethe Vestager to do his job: Nokia v. Daimler

The biggest news from today's Nokia v. Daimler doubleheader patent infringement hearing in Munich was Huawei's potentially groundbreaking German antitrust lawsuit against Nokia over the former handset maker's refusal to extend an exhaustive component-level standard-essential patent (SEP) license to Huawei, which is at least an indirect--through telematics control unit (TCU) makers like Continental--supplier to Daimler. But there's more (I typed 11 pages of notes)...

The two divisions of the Munich I Regional Court that hear patent infringement cases (the 7th Civil Chamber and--which held today's hearings--the 21st Civil Chamber) appear to have an interesting self-concept. While they very much focus on patent cases, their responsibility extends to all fields of civil law, depending on what issues get raised in their cases. Competition law is not an exception. But their protective instincts consistently benefit patent holders, even trolls and other abusers, and apparently never those whose businesses are profoundly impacted by antitrust violations.

Hogan Lovells's Dr. Benjamin Schroeer ("Schröer" in German), counsel for Nokia v. Daimler intervenor Peiker (a Valeo subsidiary), was one of several attorneys for Daimler suppliers who explained to the court how their clients are affected by Nokia's refusal to extend exhaustive component-level licenses to them, choosing to sue Daimler instead. But what matters to the court is that Nokia holds patents and elected to sue Daimler over them--end of story, for the time being...

Dr. Schroeer suggested that Daimler is just serving as a proxy for Nokia to sue because, in reality, it's about the telematics control units (TCUs) supplied by the likes of Peiker and Continental. In that context he even hinted at a violation of the intervenors' right to be heard. Whether he meant to indicate to the Munich court that they're considering a complaint with the Federal Constitutional Court of Germany wasn't clear--but that's where a complaint over a denial of the right to be heard would ultimately go.

When Dr. Schroeer stressed his client's antitrust injury, Judge Dr. Hubertus Schacht, who filled in for Presiding Judge Tobias Pichlmaier today, said the following:

"Complaints [over Nokia's allegedly anticompetitive conduct] are also pending with the [European] Commission. It appears there are legal remedies for [what you've described]."

It's a well-known fact that Daimler and at least four suppliers (Continental, Valeo, BURY, and Gemalto) have lodged such complaints this year. The EU Commission will at some point--possibly in the near term--decide whether to open formal investigations. Assuming the Directorate-General for Competition (DG COMP) does investigate, and finds that Nokia has violated Art. 102 of the Treaty on the Functioning of the EU (TFEU), and further assuming that such Commission decision would be upheld by the Court of Justice of the EU, Nokia might indeed get fined. But in the meantime, the German courts will have to adjudicate the pending Nokia v. Daimler patent infringement actions (at least ten are known, and more may be--or may even have been--filed). If a patent injunction is ordered against Daimler, and actually enforced, the car maker will be left with no choice but to bow to Nokia's demands--and those may be totally out of line, as counsel for Huawei said today that he's ready to produce the existing Huawei-Nokia patent license agreement covering mobile end products within five minutes of Nokia waiving the confidentiality requirement, and the court would see that what Nokia is seeking from Daimler is a disproportionately higher license fee for its cars than the one it's actually getting from Huawei for its mobile phones and tablets.

As I noted in another post on today's hearing, the positions the Munich court took today were highly preliminary. It's happened before in some Munich cases--though never with respect to an antitrust defense to the best of my knowledge--that the court adopted a different position at the time of the second hearing, which is the actual trial. Should Nokia be granted injunctive relief in these cases, it would amount to a dereliction of duty with respect to the application of competition law. In that light, I found it disappointing and disconcerting that a German judge would tell automotive suppliers to complain with the EU's competition authority instead of recognizing the ramifications of Nokia's refusal to license component makers.

Relying on EU competition commissioner Margrethe Vestager is not the answer to serious antitrust issues raised in a German patent infringement litigation.

If Daimler's suppliers are--as any remotely reasonable reading of the CJEU's Huawei v. ZTE makes perfectly clear--entitled to an exhaustive SEP license, the Munich court can't just argue that the bottom-line commercial effect of Daimler taking a license from Nokia would be that Daimler can continue to make and sell cars that come with cellular connectivity. With Huawei's private antitrust lawsuit against Nokia, it's fairly possible that the central question here--access to exhaustive component-level licenses that enable suppliers to sell to any customer anytime (one of the fundamental freedoms of the EU: freedom of movement of goods)--will reach the EU's top court within a few years. Should the CJEU then find that Nokia's refusal to deal was an antitrust violation, some people may end up looking very bad because they would have condoned or even abetted illegal conduct despite having had every chance to do their job and thwart SEP abuse.

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Qualcomm's German outside counsel: all mobile communications technology resides in baseband chipset

In the FTC v. Qualcomm antitrust litigation, particularly in its opposition to the FTC's motion for summary judgment on chipset-level licensing, Qualcomm disputed that cellular standards are implemented by baseband chips. Qualcomm claimed that only "complete devices" can implement cellular standards (which failed to persuade Judge Lucy H. Koh of the United States District Court for the Northern District of California).

That's why I just can't help but share a soundbite from today's Nokia v. Daimler patent infringement hearing in Munich. Today, Quinn Emanuel's Dr. Marcus Grosch represented Daimler against Nokia's standard-essential patent (SEP) assertions. But he also represented Qualcomm in its German patent infringement actions against Apple. Here's a fundamental truth he told the Munich court today:

"All that we're talking about with respect to mobile communications technologies is ultimately in the baseband chip."

That quote made my day--and justifies an unusually short blog post by my standards.

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Sunday, October 27, 2019

Intel antitrust lawsuit takes aim at Softbank-owned Fortress Investment's patent aggregation, obfuscation, and litigation tactics

As this week draws to a close, I realize that the most important IP topic of the week was the role of financial engineering behind some of the most aggressive patent transfers and assertions. Huawei's counsel in the Unwired Planet v. Huawei case told the Supreme Court of the UK that Unwired's aggressive attempts to monetize former Ericsson patents amounted to "leveraged financial engineering." Earlier in the week, Intel filed an antitrust and unfair competition complaint in the Northern District of California against Fortress Investment and three of its subsidiaries (two of which are patent assertion entities named VLSI Technology and DSS Technology Management). Fortress Investment was in free fall until it was acquired by Japan's Softbank for $3.3 billion in 2017.

In its lawsuit filed on Monday (October 21, 2019), Intel alleges antitrust violations

  • either in the market for patents for high-tech consumer and enterprise electronic devices and components or software therein and processed used to manufacture them

  • or, in the narrower alternative, in the market for licenses to Fortress's aggregate portfolio.

Antitrust analysis generally starts with market definition. There must be a market in which someone has a dominant position and acts abusively.

Intel isn't saying that investments in patent licensing firms or large-scale acquisitions of patents by patent assertion entities would always be illegal, or that trollish litigation tactics raise competition concerns. The first couple of pages of the complaint discuss the policy implications of patent assertion entities (PAEs) at a generic level, but the specific case is about certain structural and behavioral characteristics of Fortress's industrial-scale patent acquisition and assertion business model.

Citing to what network technology company Sonus Network alleged in a case against one of Fortress's numerous shell companies, Inventergy, the complaint quotes that particular entity's CEO as telling Sonus that "Fortress[,] does not settle" in litigation and, in the absence of a license deal palatable to Fortress, Sonus would face "an IP bloodbath." The flowery language of that threat does not per se constitute an antitrust violation, and the complaint doesn't say or suggest so. It merely serves to illustrate how little Fortress's business model has to do with innovation and to what extent the business model is simply to create, and capitalize on, a patent reign of terror. Case in point, a particularly well-known Fortress entity, Uniloc, previously caught my attention because it shows up in the RPX Daily Litigation Alert very often as they've brought dozens of lawsuits against Apple and Google, as well as other defendants.

Fortress apparently sets up and shuts down patent assertion entities at an unusually high frequency. They transfer patents between them, sometimes as a result of subsidiaries being unable to meet their payment obligations to the holding company. Similarly, they just dismiss complaints in one venue to refile somewhere else. And when patent claims are found invalid, they sometimes come up with many dozens of amended claims that allegedly don't have any more merit (as they just add some meaningless terms to the claim language), but enable them to keep suing forever.

Again, vexatious and oppressive litigation tactics don't in and of themselves constitute anticompetitive conduct. The point I found particularly interesting from an antitrust angle is that Intel explains how Fortress systematically acquires, through different subsidiaries, patents covering alternative techniques so as to make it practically impossible to work around all of those patents without Fortress being able to allege (whether with or, more likely, without merit) some infringement(s) at any rate. I couldn't find the term "patent thicket" in the complaint, but that's the one that came to my mind when I read the related passage:

"23. Further, aggregating a massive portfolio of electronics patents allows Fortress and its PAEs to amass a range of patents that are both substitutes for and complements to one another. When a firm wants to build an electronic device, such as a smartphone, there are many ways to do so. Each alternative requires multiple technologies. However, the alternatives do not require the same combination of technologies. For example, Alternative 1 might require technologies A, B and C, while Alternative 2 might require technologies D, E and F. The technologies used for Alternative 1 (A, B and C) are complements: they are each needed to create the device using Alternative 1. Similarly, the technologies used for Alternative 2 (D, E, and F) are economic complements. The technologies comprising Alternative 1 are also a substitute for the technologies comprising Alternative 2, because the bundle of technologies used in Alternative 1 can be used as a substitute for the bundle of technologies used in Alternative 2.

"24. There are many possible permutations of complement and substitute technologies for electronics patents. For instance, Alternative 3 might require technologies A, C and D. In that scenario, the technologies bundled in Alternative 3 are a substitute for the technologies bundled in Alternatives 1 and 2 respectively; A, C, and D are complements in the production of Alternative 3; and technology D is a substitute for technology B. Technologies can thus be both substitutes and complements. If Alternative 4 used technologies A, B, and D, then B and D are complements for Alternative 4, and substituting D for B changes Alternative 1 to Alternative 3."

Another allegation is that Fortress requires companies to license numerous patents deemed meritless (so weak that they "never would have been asserted by their former owners") in order to license those that are not that weak. Package deals are common in many industries, and the allegation here is very much about Fortress's patent aggregation strategies. It's not about aggregation of the efficient kind where licensees would be presented with a one-stop solution: while the Fortress web of companies as a whole engages in large-scale patent aggregation, companies face royalty demands from numerous Fortress companies and are never offered a deal covering the patents held by all Fortress entities.

According to Intel's complaint, "Fortress and its PAEs foreclose the possibility—which existed before aggregation—that litigation can be an economic alternative to licensing patents." In other words, Fortress allegedly bases its monetization strategy in no small part on the nuisance value of meritless patent lawsuits that result in what I would call hard (i.e., legal fees) and soft (i.e., distraction of employees) costs to those forced to defend against Fortress's infringement actions.

The complaint mentions the following Fortress PAEs--note that any of those PAEs may itself have spawned numerous companies (in the U.S. as well as abroad):

  • VLSI Technologies allegedly discussed three alternative ways of helping NXP maximize its income from a part of its patent portfolio: Financing, Privateering, and Corporate Carve Out (an acquisition of a copany division along with its patents). Guess what--the chosen route was Privateering. Two years ago, VLSI asserted eight former NXP patents "against virtually every one of Intel's microprocessors ever sold since 2011" and sought $7.1 billion. That first case got stayed when PTAB IPRs were instituted against six of the patents-in-suit. Thereafter, VLSI brought a couple of Delaware cases, at least one of which also involved a multi-billion-dollar damages claim. But with injunctions not being realistically available in the U.S. (except from the ITC in the form of import bans), VLSI is also suing Intel in China.

  • DSS sued Intel as one of various defendants (electronics companies as well as retailers like Wal-Mart). Intel settled earlier this year, but presumably on very favorable terms as the patent claims-in-suit had been declared invalid by the PTAB.

  • Uniloc's dozens of lawsuits were mentioned above. To be precise, various Uniloc entities have so far sued Apple 25 times in the U.S. (Eastern and Western Districts of Texas), apparently mostly or exclusively over cellular standard-essential patents acquired from Philips, and over the course of only three months brought a total of 35 lawsuits against Google. That's 60 just between Apple and Google--and there have been more than 70 other Unioc infringement suits already.

  • Inventergy acquired many hundreds of patents from companies like Nokia, Panasonic, and Huawei, then sued Apple, HTC, and ZTE in the District of New Jersey and is seeking an ITC exclusion order (import ban).

  • IXI sued Samsung, BlackBerry, and Apple.

  • Seven Networks sued ZTE, Samsung, and Google, and apparently got those three companies to settle before also suing Apple.

  • KIP CR (= Crossroads) P1 has sued a number of companies including Huawei and Oracle. That entity even challenged the constitutionality of PTAB IPRs, but the Supreme Court denied that cert petition.

This problem is undoubtedly a whole lot bigger and more severe--and, therefore, more harmful to industry and consumers--than conventional "patent trolling." It will be interesting to see what else comes to light in the course of this litigation. Finally, here's the complaint:

19-10-21 Intel Antitrust Co... by Florian Mueller on Scribd

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Saturday, October 26, 2019

Munich I Regional Court developing Local Standard-Essential Patent Rules applying Huawei v. ZTE CJEU case law

This is the second post on the Munich I Regional Court's celebration of the 10th anniversary of its Local Patent Rules (on Thursday). In the previous pos (on the history of Munich's Local Patent Rules and on Presiding Judge Tobias Pichlmaier's explanation of the rationale behind granting Nokia's anti-antisuit injunctions against Daimler supplier Continental) I already announced that I would separately write about Presiding Judge Dr. Matthias Zigann's outline of various ideas surrounding the court's forthcoming Local Standard-Essential Patent Rules.

Judges Pichlmaier and Dr. Zigann preside over different divisions (21st and 7th Civil Chamber, respectively). Local Rules obviously apply to both patent-specialized divisions alike.

NOTE: Those new rules are still work-in-progress. The court has floated some ideas at this stage, but nothing is final yet. The court's current plan is for Judge Dr. Zigann to unveil a near-final draft on December 12, after which there is still going to be a chance for stakeholders to provide input that might result in further modifications.

Despite key parts still being in flux, I wanted to share the court's preliminary plans with you, and I wish to thank Judge Dr. Zigann for having authorized the publication of the two slide decks you can find below.

First, the English-language slide deck Judge Dr. Zigann used in his presentation at an ETSI IPR committee meeting earlier this month (this post continues below the document):

ETSI IPR SC Meetings Zigann... by Florian Mueller on Scribd

Second, the German-language slides shown at the Thursday (October 24) event (this post continues below the document):

Pichlmaier Und Zigann 10 Ja... by Florian Mueller on Scribd

One of the ideas that were incorporated into the draft rules between the ETSI meeting and the October 24 event is that an implementer can specifically name patents that should be excluded from the scope of the license, and by doing so unilaterally can avoid paying license fees for them.

What will be subject to further discussion is an adoption of the Düsseldorf appeals court's stance on the non-discrimination requirement attaching itself to standard-essential patents and survives tranfers. The final Munich rules may differ from the Düsseldorf doctrine.

One idea that neither presentation elaborates on in full detail is that a patentee may divide a portfolio up into two groups--sort of an A list and a B list of SEPs. The patents on one of the two lists would be eligible for a retroactive reduction of the license fee by means of an implementer opting out. Closely related to the concept of the two lists is the preliminary idea of a "joker" that might reduce the royalties due to zero: that would be the case if any nullity and/or declaratory judgment actions brought by the implementer succeeded in taking down a contractually-predefined number of declared-essential patents from the A list.

For now I will refrain from sharing my thoughts on the Munich court's preliminary SEP rules here. I just wanted to be of service to my esteemed readers and share the two documents as well as some additional information on where things stand. Again, this is very much in flux. The court has received input from various stakeholders, and will continue to listen to feedback and suggestions until those rules are finalized, which may very well happen by the end of this calendar year.

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Presiding Judge Pichlmaier explains rationale behind granting Nokia's anti-antisuit injunction against Continental's U.S. antisuit motion

On Thursday evening, the Landgericht München I (Munich I Regional Court)--by now one of Germany's three leading patent litigation venues--celebrated the 10th anniversary of the "Münchner Verfahren" ("Munich procedure") for patent infringement cases. It's what U.S. district courts typically call Local Patent Rules.

Former Presiding Judge Dr. Peter Guntz--who left the regional court's bench several years ago to become a (presumably far better-paid after taxes) member of the Technical Boards of Appeal of the European Patent--and a patent litigator (Olaf Giebe) explained how Munich's Local Patent Rules came into being. There had been some informal exchanges between patent-specialized judges and lawyers, and one of the topics they discussed was Munich's conspicuous lack of popularity as a patent litigation venue as compared to Düsseldorf and Mannheim at the time.

Mr. Giebe wrote up a one-pager that laid out three priorities to work on toward improvement. One of them was that lawyers simply had a better idea of what to expect in procedural terms from the two aforementioned courts, and Munich needed to catch up on clarity. Speed obviously matters, too. The third item, however, was somewhat sensitive: it came down to suggesting plaintiff-friendlier claim constructions, but without specific proposals. There just was a feeling in the patent litigation community at the time that the courts in Düsseldorf and Mannheim were more willing to construe patent claims in a way that enabled plaintiffs to prevail.

Former Presiding Judge Dr. Guntz stressed that the fathers of Munich's Local Patent Rules didn't want to attract patent cases by means of patentee-friendly rulings--but it sounded like Munich was deemed too restrictive in plaintiffs' eyes.

Munich is Europe's patent capital as it's the primary seat of the European Patent Office and home to the Federal Patent Court of Germany (where nullity complaints or complaints over rejected patent applications are filed) and the Max Planck Institute for Innovation and Competition--and, by now, the Munich I Regional Court is a very significant venue for patent infringement cases and has two patent-specialized divisions, the 7th Civil Chamber under Presiding Judge Dr. Matthias Zigann and the 21st Civil Chamber under recently-appointed Presiding Judge Tobias Pichlmaier.

It wasn't always clear whether the state government and the leadership of the court truly appreciated the importance of being a significant patent venue. Thursday's keynote speakers--Chief Judge of the Munich I Regional Court Dr. Andrea Schmidt and Bavarian Attorney General Georg Eisenreich--made it clear not only in their speeches but through their mere presence that there is awareness at the highest levels.

Chief Judge Dr. Schmidt mentioned that she just recently sat in the audience to follow a patent trial and heard the term "FRAND" for the first time--up to that point, she said, she only knew the English words "friend" and "friendly."

After the keynotes and the historic flashback delivered by former Presiding Judge Dr. Guntz and Mr. Giebe, there was a panel on which Meissner Bolte's Dr. Tobias Wuttke (one of two lawyers who frequently serve as lead counsel for Deutsche Telekom in patent infringement cases) and the two presiding judges of the patent-specialized divisions gave an update on current legal developments. I'll talk about Judge Dr. Zigann's new SEP litigation guidelines (still work in progress) later. Judge Pichlmaier refocused his panel presentation on short notice and talked about something that has drawn the interest of--and, from what I hear, been welcomed by--many members of the German patent law community: the two anti-antisuit injunctions the court granted against a U.S. subsidiary of automotive supplier Continental (who was seeking to shield Daimler from Nokia's German patent infringement lawsuits) as well as against Continental AG, the German group parent.

The Oberlandesgericht München (Munich Higher Regional Court) has recently postponed the appellate hearing by two weeks from Halloween to November 14 at Nokia's request as their lawyers have to participate in a doubleheader hearing (on two of their ten pending infringement cases against Daimler) next Wednesday (which would have been just the day before the appellate anti-antisuit hearing). Continental's counsel will also be present next Wednesday, but only as an intervenor, while Nokia is the plaintiff.

Judge Pichlmaier reminded everyone of what used to be the most popular stalling tactic employed against German patent infringement actions: companies that expected a patent holder to sue them in Germany (or some other European country with reasonably fast patent courts, such as the Netherlands) over a particular patent or set of patents often brought declaratory judgment actions in Italy. That tactic was called "the Italian torpedo." What they asked the Italian courts to adjudicate was whether they infringed the German (or Dutch, British etc.) parts of European (= EPO-granted) patents--only to seek a stay of any subsequent German cases under EU regulations.

This week, the question of extraterritorial adjudication of patents was at the center of a UK Supreme Court hearing (Unwired Planet v. Huawei/Conversant v. ZTE). The previous post was my seventh post this week just on that case.

From what I heard a long time ago, Nokia also filed some "Italian torpedo" DJ actions against non-practicing entity IPCom earlier this decade. The reason that torpedo tactic worked was simply that Italian courts aren't the fastest ones in Europe, and they're particularly slow when a plaintiff does nothing to speed things up. Those Italian proceedings were so very slow that defendants didn't merely delay a German injunction--in many if not most cases, they simply avoided it altogether because a patent would either expire in the meantime or be invalidated by the Federal Patent Court of Germany.

In recent years I haven't heard of any example of an "Italian torpedo," except that an appeals court in Milan held that Italian courts didn't have jurisdiction over foreign parts of EPO-granted patents since those foreign parts couldn't be infringed in Italy. Judge Pichlmaier, too, mentioned that the Italian torpedo has lost relevance.

He then said that antisuit injunctions, typically obtained in the U.S., have recently played the role that the Italian-torpedo tactic used to play. What he didn't mention, however, is that antisuit injunctions are very rare, while the Italian torpedo was allegedly a rampant problem at a time.

When Nokia's creative lawyers filed their anti-antisuit motion with Judge Pichlmaier's division, the first question was in rem jurisdiction as the motion related to Continental's U.S. antisuit motion, which targeted not only cases pending in Munich but also some pending in Düsseldorf and Mannheim. (By the way, the Nokia v. Daimler Mannheim cases are pending before Presiding Judge Dr. Holger Kircher's 2nd Civil Chamber, and Dr. Kircher handed down two patent injunctions in Motorola v. Microsoft in 2012 that never got enforced because of Judge James L. Robart's U.S. antisuit injunction in the Western District of Washington.)

The three-judge panel quickly determined that the nationwide geographic scope of the patent infringement cases in action (those Daimler cars are sold all across Germany) enabled the Munich court to decide this matter even with respect to cases pending in other German venues.

Judge Pichlmaier--who was involved when the court granted the original ex parte (without notice or hearing) injunction against Continental Automotive Systems, Inc., but was on vacation when the case against the German group parent was decided--explained on Thursday why the Munich court believes their anti-antisuit injunction has a basis in German law even though U.S.-style antisuit injunctions do not: they distinguish the narrow scope of the anti-antisuit injunction, which does not prevent Continental from pursuing the U.S. case as a whole (only the antisuit motion, from the maximalist scope of Continental's (original) U.S. antisuit motion, which sought to prevent Nokia from pursuing its German infringement cases against Daimler in any or all respects.

I wonder what the court would have done--and what Judge Pichlmaier would then have said on Thursday--if Continental had merely sought a Microsoft v. Motorola- or Huawei v. Samsung-style U.S. antisuit injunction barring the enforcement of patent infringement injunctions. I believe the German court wouldn't have liked that either, and would presumably have argued that--as German patent judges and litigators often say--injunctive relief is "the king of patent remedies," which is why an anti-enforcement injunction would also have been deemed a major encroachment on Nokia's rights. That is just speculation, of course. However, looking at the totality of what has recently happened in the U.S. (two denials) and in Germany (though anything can still happen at the appellate hearing on November 14), it's fair to say that Continental's original U.S. motion was overreaching, thus didn't work out.

Judge Pichlmaier noted that they had--though not through filings with their court--heard of Continental's unsuccessful pursuit of an anti-anti-antisuit injunction and concluded his presentation saying that the anti-antisuit injunction was meant to defend what everyone was celebrating at the Thursday event: Munich's role as a leading patent litigation venue.

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Avanci, Nokia, Sharp insist that Judge Koh should dismiss Continental's FRAND/antitrust complaint--even with prejudice

In late August, Avanci, Nokia, Sharp, and a couple of non-practicing entities filed a joint motion to dismiss automotive supplier Continental#s San Jose FRAND/antitrust complaint over component-level SEP licensing. In early October, Continental opposed the defendants' motion and accused the Avanci patent pool of a "conspiracy" to "boycott[] suppliers so [patentees] can collect hold-up royalties downstream."

Yesterday the defendants filed their reply brief, and they keep pursuing each and every attack vector (this post continues below the document):

19-10-25 Avanci Et Al. Reply ISO Motion to Dismiss Continental's Complaint by Florian Mueller on Scribd

The defendants' most fundamental argument still is that Continental lacks standing in the absence of some concrete injury. Unlike Microsoft in its FRAND dispute with Motorola, Continental hasn't even been threatened to be sued.

A sworn declaration by Nokia's Lasse Holopainen makes very clear that Nokia is unwilling to license end-product makers. While the question of whether there is an antitrust injury involves more difficult questions, it's hard to see why Continental shouldn't at least be able to enforce its third-party beneficiary rights under the defendants' ATIS and TIA FRAND declarations (the ones underlying last year's summary judgment against Qualcomm).

The defendants deny Continental's allegations of a boycott as all contributors to the Avanci patent pool remain free to enter into direct license agreements with entities like Continental if they so choose. They say that the boycott theory is a new approach by Continental, and any conspiracy would have to meet a pleading standard requiring a "specific time, place, or person involved in the alleged conspiracies."

Interestingly, even Continental's fairly recent attempts to serve the complaint on Sharp are deemed insufficient by Sharp. They insist on international service under the Hague Convention (as did Continental Automotive Systems with respect to the Munich anti-antisuit injunction). Apart from service of process, the reply brief states that Continental "did not make [a request for a license from Sharp] until after it filed this lawsuit, or that Continental has repeatedly refused since then to provide any of the basic information Sharp has requested from Continental in order to prepare an offer"--but Sharp believes to have made a FRAND-compliant offer to Continental based on its own assumptions.

Judge Lucy H. Koh of the United States District Court for the Northern District of California will hold a motion-to-dismiss hearing on November 21, unless she decides to take the matter under advisement based on the party's briefs.

The reply brief makes seome reasonably strong points, so I wouldn't be surprised in the slightest if at least parts of Continental's complaint were dismissed, but I lack the time to research this in greater detail. The defendants are even pushing for a dismissal with prejudice as opposed to one that would allow Continental to amend its complaint.

On Wednesday (October 30), Nokia and Continental will square off in court again as the Munich I Regional Court's 21st Civil Chamber under Presiding Judge Tobias Pichlmaier will hold first hearings on two of Nokia's ten German patent infringement complaints against Daimler. Continental will be present as an intervenor supporting Daimler.

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Trolls and Qualcomm invite UK Supreme Court to render Non-Discrimination part of FRAND meaningless: Unwired Planet v. Huawei

This is my seventh post on this week's UK Supreme Court hearing in Unwired Planet v. Huawei, after which I'll focus (until there's further news from the London case) on some other topics, such as a couple of filings in the Northern District of California (one of which, like Unwired Planet v. Huawei, involves leveraged financial engineering behind patent lawsuits) as well as the Munich I Regional Court's 10-year anniversary, and forthcoming SEP-related extension, of its Local Patent Rules.

For your convenience, here's a list of the six previous posts on the UK hearing:

This case has worldwide implications for two separate reasons: not only does it involve the adjudication of patent-related questions (validity, infringement, exhaustion, valuation) in other jurisdictions by UK courts but affirmance would, besides bringing the UK as a jurisdiction into disrepute, likely set off a global race to the bottom, in which other countries might offer even more patentee-friendly decisions. Throughout the hearing, Lord Briggs most actively asked questions and made remarks. Initially, one could see that he wasn't too familiar with the intricacies of patent and particularly standard-essential patent law, but he demonstrated unparalleled intellectual curiosity and understood some key issues--including the one of a potential race to the bottom (he noted that affirmance would only attract a lot of patent infringement cases to the UK on the assumption that other countries wouldn't "follow suit."

The combination of that realization with Deputy President Lord Reed's acknowledgement of the international ramifications and diplomatic dimension of the matter are two of the reasons for which I expect some kind of reversal. Also, I believe it will bear significant weight with the UK justices that U.S. judges wouldn't adjudicate foreign patents unless both parties consent to it, and some U.S. judges even declined to do so at the parties' joint request. But the UK Supreme Court's attention to detail suggests they are looking for a way to identify maybe just one seemingly small disagreement with the lower courts in order to clean up the mess without having to be too harsh on Lord Kitchin, who authored the opinion of the Court of Appeals and has meanwhile been promoted to the Supreme Court. A finding of forum non conveniens would be possible, though the fundamental issues raised by imperialistic judicial overreach weigh in favor of a broader holding than that.

That said, I don't expect the ruling to be quite so narrow that the lower courts' efforts to read the "ND" (non-discriminatory) out of "FRAND"--by letting Unwired Planet get away with a fundamentally higher royalty demand from Huawei than what Samsung once agreed to pay--would become outcome-determinative. But what the trolls' lawyer and Qualcomm's submission said about the non-discrimination part of FRAND is disconcerting, and appears likely to resurface in other cases in various jurisdictions--for an example, the Dusseldorf Higher Regional Court places great emphasis on the non-discrimination aspect of the FRAND licensing requirement. That's why I wish to express just a few thoughts on that part. In previous FRAND cases I commented on, the focus was on the FR in FRAND, but in Unwired Planet v. Huawei, discriminatory pricing is an issue.

The trolls and Qualcomm try to gut the ND part of FRAND in two ways:

  1. They argue that the ND requirement is not a hurdle in its own right, but merely a factor to be considered when looking at a set of licensing terms as a whole.

  2. In any event, the trolls argue that FRAND has its origins in antitrust law, so the ND part can only be violated if there is competitive harm as defined in that field of law.

The most natural way to understand the "A"("And") in FRAND is that it's a logical connective--as a programmer, I'd call this a logical operator (which means the same). Therefore, a licensing offer by a SEP holder to an implementer must be fair AND reasonable AND non-discriminatory. Each requirement must be satisfied; a failure to satisfy one of them is a failure to meet the FRAND requirement. Whether the "fair" adds anything (as the more common term in the U.S., prior to this decade, was "RAND") or is duplicative of "reasonable" in this context is the subject of academic debate. At least I'm not aware of any case in which a court held terms unreasonable but nevertheless fair, so I assume that "fair" sounds nice (it also gives the acronym a better flow) without raising the bar.

Not so for FR vs. ND. Those elements are distinct. There can be discrimination within a range of fair and reasonable terms; and if a party licenses some implementers at a rate below the fair and reasonable range, but then starts to demand fair and reasonable terms from others, such a behavioral change may result in discrimination. Also, terms can be applied in a non-discriminatory way, yet be too high to be deemed fair and reasonable.

No proposal was made in the course of that hearing for how a conflation of FR and ND should work without simply letting a SEP holder argue that reasonableness alone can satisfy the FRAND requirement.

Conflation is counterintuitive when considering that FR protects an implementer against overcharging while ND protects against being put at a disadvantage. Neither effect would be acceptable.

Should the court decline the invitation to read the ND out of FRAND, the trolls would at least like the justices to apply the competition law standard: there would have to be competitive harm in terms of, more or less, forcing an implementer out of the market.

While it is true that FRAND (or its syonym RAND) is an antitrust term. Professor Rafal Sikorski has looked at the origins of that concept, and found that it goes back a very long time. The first time I made a FRAND argument was not even related to patents, but at the intersection of sports governance and the commercialization of soccer broadcasting rights. Without a doubt, it's not SEP-specific terminology.

The idea that a single royalty demand is not discriminatory short of forcing someone to exit a market must be rejected for two reasons:

  • The FRAND licensing commitments made by participants in standard-setting are a proactive/pre-emptive remedy because otherwise standard-setting would be anticompetitive (as it is about powerful players sitting at a table and effectively excluding competing technologies). The standard for competition remedies is not that the failure to comply with a remedy must be proven to constitute a new antitrust violation. Implementers have a contractual right to non-discriminatory treatment. I understand that some believe this makes the ND part of FRAND more or less identical to a "most favored nation" clause, but that may just be an inevitable consequence of respecting the requirement.

  • Where (as in the vast majority of all cases) a standard is set by a group of companies, there will typically be multiple--possibly even numerous--SEP holders (even more when companies like Nokia and Ericsson engage in privateering). Whether one views the effects through the lens of competition law or that of contract law, one must not lose sight of royalty stacking. A single discriminatory royalty rate may not cause competitive harm in a strict antitrust sense--but in the combination of several license agreements that disadvantage one company, that effect may arise, and the only way to prevent discriminatory royalty-stacking is to ensure that every single license agreement is non-discriminatory.

    There are situations when one particular market participant, or a group of similarly-situated market participants, will be disadvantaged repeatedly. While FRAND-pledged SEPs weren't involved at the time, I remember how HTC was most patent holders' favorite first target among Android device makers earlier this decade. HTC was first to take an Android patent license from Microsoft--but I guess that if they hadn't, they (and not Motorola Mobility) would have been sued first. HTC was the first Android device maker Apple chose to sue (in March 2010). And there were countless other patent infringement actions others brought against HTC at the time. In my recollection they were almost always one of the defendants when patent holders brought complaints against multiple alleged infringers.

    HTC was an attractive target because it had a very significant share in the market for Android devices, but hardly any patents to defend itself (unlike Samsung--the world's #1 patent holder according to some statistics-, Motorola, which was acquired by Google shortly after threatening to leverage its patents against rival Android OEMs, or LG, which has asserted patents against others on a variety of occasions).

    If--in an alternative universe--the license deals that resulted from this had all involved SEPs (in reality, they were about non-SEPs), HTC could have ended up paying discriminatory rates in several cases. No single instance of discrimination might have satisfied the requirement of competitive harm in a strict sense, but in the aggregate HTC could have been forced out of the market.

The trolls' lawyers argue that Unwired Planet simply offered Samsung a sweet deal at the time because Unwired Planet was tight on cash--and, obviously, signing deals with major players like Samsung helps to build credibility for a portfolio. But the circumstances of the party that has to meet a FRAND obligation don't count (while different pricing may be justifiable if one licensee is financially more--or less--stable than another). It's easy to see why commercial operators like Unwired Planet would want to enjoy the flexibility to offer better deals when they need a cash infusion and then charge others more. However, if they want to do that, they need to play that game with patents that are not FRAND-encumbered. Their dire straits or their greed cannot serve to justify FRAND violations--just like one can't drive through a red traffic light only because one's car is running out of fuel.

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