Wednesday, July 31, 2019

Avanci, Nokia trying to escape Judge Koh's jurisdiction over Continental case: motion to transfer venue from San Jose to Dallas

In soccer terminlogy, Nokia's "Munich Maneuver" may be the Goal of the Century, subject to whether or not the anti-antisuit-injunction injunction ("AAII") is lifted. As of now, it appears Daimler supplier Continental, which argues that is hasn't been properly served yet, still hasn't filed an objection to the preliminary injunction. An objection would lead to a hearing. But presumably Continental wants to stay consistent with its views on service (I can't offer any opinion on that procedural part).

Service (of process) is also an issue affecting Continental's U.S. FRAND/antitrust case against Avanci, Nokia, and others. The defendants (mostly, but not exclusively, the Avanci licensing firm, Nokia, and some privateers holding former Nokia patents) have asked Judge Koh to postpone the upcoming case management conference because "[d]efendant Sharp Corporation has not yet appeared in this case."

At the same time, Avanci-Nokia are trying to get the entire case transferred out of Judge Lucy H. Koh's court in the Northern District of California by way of a motion filed on Wednesday Pacific Time (this post continues below the document):

19-07-31 Avanci Et Al. Moti... by Florian Mueller on Scribd

The motivation for this is not in the above motion, which instead states all sorts of largely or entirely pretextual reasons for the desired transfer from the Northern District of California (in this case, San Jose) to the Northern District of Texas (which practically means Dallas). The real reasons for this are Judge Koh and her case law. Forget about the rest, which is irrelevant for such a high-stakes dispute involving in no small part organizations from overseas.

Qualcomm, which just missed estimates and is anxiously awaiting the Ninth Circuit's decision on its motion to stay the enforcement of the FTC's antitrust remedies, is an Avanci member. But even if it weren't, the key findings in the Qualcomm case regarding component-level licensing and the smallest salable patent-practicing unit (SSPPU), and the conclusions Judge Koh had previously reached in GPNE Corp. v. Apple with respect to the SSPPU, would have Avanci, Nokia and the rest of the group concerned to an undiminished degree.

In the Northern District of Texas, those questions haven't been resolved. But it's a different circuit, and that's why I'm sure Avanci and Nokia wouldn't even want to go to another West Coast district because once the Ninth Circuit affirms any parts of Judge Koh's ruling, the other districts in the circuit would follow suit. If Avanci and Nokia got their way, they'd be in the Fifth Circuit, and they could at least make an argument based on Judge Rodney Gilstrap's HTC v. Ericsson decision in a neighbor district within the same circuit, the notoriously patentee-friendly Eastern District of Texas. While a decision by another district in the same circuit isn't binding, proximity may yet give this one slightly more weight than Judge Koh's very well-reasoned holdings in FTC v. Qualcomm. By contrast, Judge Gilstrap has often made extremely patentee-friendly decisions, as have other judges in his district, and the related reputation of the Eastern District of Texas limits the persuasive impact of any of its case laws in other circuits. Also, Judge Koh is a rockstar judge who was in the process of being appointed to the Ninth Circuit and on Hillary Clinton's list for the Supreme Court. But... she's in the Ninth Circuit, and all Texas districts (and some others) are in the Fifth.

The Avanci-Nokia motion to transfer venue doesn't make extremely strong arguments for Texas. Where they are certainly right is that there was no particular reason for NorCal (other than case law, which obviously doesn't count, and probably that Continental's lawyers hoped the case would be assigned to Judge Koh, for which there was no guarantee but which fortunately happened). A former Apple licensing executive, Boris Teksler, is still based in Silicon Valley, and he manages Conversant, one of the patent assertion entities in the case that hold former Nokia patents. Then there are some offices of various defendants in the Northern District of California, but Avanci and its co-defendants deny that those offices really are relevant to the issues in the case.

The convenience argument for the Northern District of Texas is relatively weak. To give you an example, they argue that Europe-based witnesses and experts (Nokia, Continental etc.) have a slightly shorter flight time to Dallas than to San Francisco. It's like a little less than 10 hours in one case and slightly over 10 hours in the other--something no traveler (and I've gone back and forth dozens of times) would care about. In that context, they didn't even do their research homework properly: they base their estimates on the distance from Munich to the two alternative venues, but Continental is headquartered in Hanover (far up north from Munich), where the nearest airport serving direct flights to many U.S. cities is Frankfurt (which is also the #1 airport in Germany, though Munich has become more important over time).

That reminds me of a non-fatal but stupid mistake they had in their otherwise very well-crafted opposition to Continental's U.S. motion for an antisuit injunction: they described a consumer class action against Qualcomm as an Apple case. Since the consumer case was consolidated with FTC v. Qualcomm, it was Judge Koh who made the decision (not to grant an antisuit injunction at the given time) that they cited. It doesn't make the motion weaker, but since I criticized the Continental side, and in the context of the use of Munich instead of Frankfurt as the originating airport in the latest motion, I wanted to mention this anyway.

What weighs in favor of the Avanci-Nokia venue transfer motion is that there was no absolutely pressing reason for bringing the case in San Jose, other than case law. But case law doesn't count, though it is relevant to the efficiency argument: the Northern District of Texas is less busy, and slightly faster to adjudicate cases, as the Avanci-Nokia motion argues. Obviously, if they really wanted rapid adjudication, they wouldn't slow things down with a transfer motion. And the fact that Judge Koh knows the issues at the heart of the case so well, and can cite to some of her own holdings, really does make NorCal the ideal place even from a pure efficiency point of view--just that the outcome will likely not be the one that Avanci and Nokia like.

Continental's lawyers now have some homework to do. They have to identify and explain some weaknesses in Avanci-Nokia's arguments for Dallas, and they have to explain why the Northern District of California is just as good a venue for this as North Texas--or that even if Dallas seemed preferable, it wouldn't be the better choice by a wide margin, and given what's at stake and how deep-pocketed all parties to this dispute are, some convenience factors that may be more relevant to lower-profile cases shouldn't be given too much weight.

What Nokia's flash-of-genius Munich Maneuver and Avanci-Nokia's motion to transfer venue have in common is that they are on the run from the one and only Judge Koh.

Now I just hope that Continental will do a better job on its opposition to the motion to transfer venue than in the antisuit injunction context.

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Tuesday, July 30, 2019

Nokia persuades Munich court to issue anti-antisuit injunction against Daimler supplier Continental, pre-empting decision by Judge Koh

If the European Commission's Directorate-General for Competition (DG COMP) doesn't help Daimler and its suppliers such as Continental, then the Nokia v. Daimler patent assertion campaign is not going to end well. Unless something changes fundamentally, the most likely outcome is that Nokia will gain decisive leverage pretty soon, as a result of its patent assertions in Germany, with the question primarily being whether the Munich I Regional Court or the Mannheim Regional Court will be first to enter a provisionally-enforceable SEP injunction that will force Daimler to bow to the supra-FRAND royalty demands of the Avanci group. And its supplier will continue to be denied a direct license from key patent holders such as Nokia. A court may well find that they are entitled to such a license, but by the time they get there, their key customer (Daimler) will be bound to unfavorable and fundamentally unfair contract terms.

The two factors that unfortunately make me so pessimistic for the time being are

  • those injunction-happy, un-FRAND-ly German patent infringement courts and

  • the fact that Nokia has the best and most experienced patent litigation team of all SEP enforcers while its adversaries in this dispute need to get their act together and do a far better job than what I've seen from them lately.

Not only has Nokia apparently received a favorable claim construction from the Munich I Regional Court (on a preliminary basis) but it has also secured an unprecedented anti-antisuit-injunction injunction, while Continental, which is trying to shield Daimler from Nokia's German patent infringement actions, is making it unnecessarily difficult for Judge Lucy H. Koh of the United States District Court for the Northern District of California to grant a conventional antisuit injunction, even though there would actually be valid policy reasons to do so.

On two other occasions, this blog accurately predicted antisuit injunctions barring patent holders from the overseas enforcement of SEP injunctions: Microsoft v. Motorola Mobility in 2012 (Judge James L. Robart, affirmed by the Ninth Circuit), and Huawei v. Samsung last year (Judge William H. Orrick; the parties settled before the Federal Circuit ruled on Huawei's appeal). In the first case, Sidley Austin represented the movant and defeated Quinn Emanuel; in the other case, QE brought the motion and Sidley opposed.

Microsoft's position was simply perfect. In order to remove any doubt about the software giant's willingness to take a license on FRAND terms, Microsoft made a binding commitment to take a license on terms to be determined by Judge Robart. And Microsoft had won the race to the courthouse by bringing a FRAND complaint in the Western District of Washington just before Motorola Mobility's enforcement campaign started (and long before MMI's German complaints).

There really can be no reasonable doubt about Continental being a totally willing licensee, and Nokia an absolutely unwilling licensor (they may make some offers, but certainly not for an exhaustive component-level license on FRAND terms). However, it appears at least parts of the automotive industry have yet to learn the meaning of the expression "race to the courthouse!"

According to court documents, the Avanci group of SEP holders "first began targeting certain Continental customers (automobile OEMs) in early 2017, asserting that their connected cars practice the cellular standards purportedly covered by [those Avanci companies'] alleged SEPs, and offering a license to the alleged SEPs." Continental then contacted those SEP owners directly, and "on or about early 2018" they also contacted Avanci. In March 2019, Nokia finally filed patent infringement lawsuits in Germany against Daimler. But it took Continental until May 2019 to bring its U.S. FRAND/antitrust complaint in the Northern District of California (here's a link to the recently-amended complaint), and until June 12, 2019 to bring a motion for a U.S. antisuit injunction, asking Judge Koh's court to bar Nokia from enforcing SEPs against Daimler--Continental's customer--in Germany.

In a counterfactual scenario where Nokia would have been in Continental's shoes and vice versa, I'll tell you what would have happened. Nokia would have brought its U.S. complaint and U.S. antisuit injunction motion before its customer would have been hit by the first infringement complaint.

There is no hard and fast rule that only an earlier-filed case can serve as a basis for enjoining someone from pursuing a later-filed case. But there's this problem called "comity." It's about jurisdictions having respect for each other. While antisuit injunctions bind parties (by preventing them from pursuing a case or enforcing an injunction that isn't self-executing), not courts, they do constitute an interference with another case. A judge ordering an antisuit injunction will certainly feel better about it (and the appeals court will be more likely to uphold it) when there's a strong argument that the enjoined case (again, technically it's the party that gets enjoined) was actually interfering with the enjoining case. In other words, it's a self-defense kind of argument: a party brought a case in another jurisdiction just to thwart the earlier-filed one, so the antisuit injunction simply prevents this from happening.

Continental is right that the Northern California FRAND case will be rendered meaningless with respect to any customer (in this case, Daimler) Nokia forces (through the enforcement of SEP injunctions) into a license deal. The one thing in this context that I'm still optimistic about is that Judge Koh, the world's leading technology industry judge, will identify, or may already have identified, the holdup that is going on here.

But in the technology business, and in litigation, the fast often eat the slow.

Regardless of two obvious shortcomings of Continental's U.S. antisuit injunction motion, which I'll elaborate on further below, Nokia wasn't going to take its chances. What happened then was--and I'm not exaggerating--the most innovative and brilliant procedural move I've ever seen by a plaintiff asserting patents in Germany. Arnold & Ruess's Dr. Arno Risse ("Ri├če" in German) came up with the idea of pre-empting Continental's U.S. antisuit injunction effort by means of a German antisuit injunction. Before Continental would be in the position to prevent Nokia from continuing its German patent enforcement campaign against Nokia, Nokia wanted to be able to prevent Continental from obtaining and enforcing a U.S. antisuit injunction. Years ago Dr. Risse already impressed a Mannheim judge and me when he, then a young Freshfields associate, delivered oral argument on Apple's behalf with respect to a patent of enormous mathematical depth.

Together with lead counsel Cordula Schumacher (who likewise was on Freshfields' Apple team a long time ago), Dr. Risse filed a motion with the 21st civil chamber (a panel of judges, or division) of the Munich I Regional Court, which hears many patent cases, though traditionally most of the patent complaints filed in Munich have been assigned to the 7th civil chamber under Presiding Judge Dr. Matthias Zigann.

Presiding Judge Tobias Pichlmaier chairs the 21st civil chamber. Years ago, I saw Judge Pichlmaier serving as a side judge on the 7th civil chamber before becoming a judge on the appeals court, the Munich Higher Regional Court, from where he returned to the lower court to preside over a chamber.

Judge Pichlmaier's panel granted Nokia's ex parte motion straight away--on July 11, 2019--without holding a hearing as Nokia had credibly argued that a decision in the U.S. was imminent. A few days later, Nokia informed Judge Koh of this development by way of a letter, to which they attached an English translation and the German original of the Munich order (this post continues below the document):

19-07-17 Nokia Letter to Ju... by Florian Mueller on Scribd

Continental may still get a hearing by objecting to the injunction. And the court might lift the injunction then. But for now it stands, though Continental argues that it hasn't been properly served yet under the Hague Convention. Apparently Nokia served the injunction on the chairman of the board of the enjoined U.S. company by sending it to the person's German address instead of having it delivered, through international diplomatic channels, to the legal domicile of the enjoined company. I don't have an opinion on the service-of-process part, except that I agree with Nokia it's only a question of when, not if, Continental will have to comply, provided that it doesn't get lifted in the meantime.

When a legal team takes such a highly original initiative--the legal equivalent of the "flash of genius" sometimes invoked in U.S. patent law--and immediately secures an injunction, the people behind this deserve credit, regardless of the fact that I consider Nokia's pursuit of SEP injunctions against Daimler, while refusing to extend a component-level license to Continental on FRAND terms, downright patent holdup.

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.

This is unchartered territory, and whether it will be upheld (especially if it goes up to the appeals court) remains to be seen. But an interesting development it certainly is.

I don't think Continental's German counsel (Freshfields Bruckhaus Deringer's Dr. Frank-Erich Hufnagel) can be blamed in the slightest. This initiative by Arnold & Ruess on Nokia's behalf was unforeseeable. Otherwise I'm sure he'd have filed a protective writ, in which case the court would likely have held a hearing before deciding.

That said, Continental does have a potential problem in the U.S. and needs fundamentally better (and, in some situations, faster) execution as far as I can see. And better coordination with Daimler in light of those pending German cases.

No matter how much I support Continental's desire to obtain a component-level license on FRAND terms, I can't help but conclude that Nokia's opposition to the U.S. antisuit motion is stronger and more persuasive. Anything's possible, and maybe Continental will be lucky and Judge Koh will attach more importance to the fundamental patent licensing and policy issues.

There is a structural problem here: the U.S. entity that brought the motion in the U.S. is not among the three (!) European Continental companies that received an official third-party notice from Daimler of the German patent infringement cases. Such third-party notices are issued to contractual partners who owe indemnification. And one of the Gallo requirements for the antisuit injunction Continental is seeking is the (at a minimum) functional identity of the parties between the enjoining case and the enjoined case. The defendant to the German patent infringement complaints is Daimler, and it's Continental's customer (though I'll have to nuance this in a moment). I agree with Continental that there's a certain analogy here to the "customer suit exception." But it's really odd that, in such a high-stakes litigation, Continental and Daimler wouldn't have ensured that the party bringing the U.S. antisuit motion is among the third parties receiving notices (of a potential risk for indemnification) in the German cases. Maybe Judge Koh will still grant an antisuit injunction, but this disconnect makes it unnecessarily difficult and would have been easy to avoid by means of cross-jurisdictional coordination (just like it would also have been easy to make those U.S. filings several months earlier).

Continental is also seeking relief that appears overbroad. They want to shut down all those Nokia v. Daimler cases in Germany, but Nokia represents that they also involve Daimler cars that don't come with a Continental telematics control unit (TCU). There's obviously no way that Continental could preclude Nokia from asserting patents against cars that don't even contain any accused Continental components.

Then there's a procedural argument that Continental makes and that I can't agree with though I wish I could. They claim that Nokia misrepresented the sense of urgency to the Munich court. Nokia told the Munich court that a U.S. antisuit injunction could come down as early as July 24, the deadline for Nokia's opposition brief. Continental still has time to file a reply brief. But that doesn't make sense to me. Reply briefs are optional. Whether Continental would have waived it, or filed way ahead of schedule, or whether Judge Koh would simply have decided without even waiting for the reply brief (since the prevailing party couldn't and wouldn't complain), there would have been multiple scenarios in which the antisuit injunction sought by Continental could theoretically have come down as early as July 24 (or not long thereafter).

For the technology industry (including the automotive sector) at large, it would really be good if Continental could still turn this around, and if Judge Koh could adjudicate the important FRAND licensing and competition issues in Continental v. Avanci. In almost a decade of litigation monitoring I've seen many reversals of fortune--especially the Apple v. Samsung cases offered more ups and downs for the parties than a visit to Six Flags Magic Mountain. It's not over yet. But for now, Nokia with its litigation superstars (both inhouse and outside) has the upper hand, and regardless of what happens, litigation history has already been made.

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Monday, July 29, 2019

Gaming the system: Qualcomm leverages 3GPP working group chairmanship to distort patent portfolio valuations

If you are already familiar with SEP portfolio valuation methods and their inherent shortcomings, you may wish to skip the introductory part (Basics) and jump straight to the part where I discuss specific issues with Qualcomm's conduct in connection with what is arguably the most central standardization process in the field of cellular telecommunications.

Basics

The valuation of standard-essential patent (SEP) portfolios is often performed in two steps: first, the value of all SEPs reading on the relevant standard is determined; second, the relative value of a given company's contributions to the standard is measured. In antitrust or contract cases raising FRAND questions, the inquiry may be limited to the second part, as a disproportionately high share of industry-wide royalties collected by one SEP holder can in and of itself serve to establish overcharging and unreasonableness. The latter is a huge problem for Qualcomm in the FTC antitrust case, given that Qualcomm collects approximately 25% of all wireless SEP royalties while being far below that percentage when it comes to its ownership position in wireless SEPs relative to the rest of the industry. Even Ericsson, a company that just suported Qualcomm's now-fully-briefed Ninth Circuit motion to stay the FTC's antitrust remedies, gave testimony in the FTC case that undermines Qualcomm's royalty demands. Ericsson believes to be the leader, and expressed the view that even Nokia's SEP portfolio appears more valuable than Qualcomm's.

For the purpose of determining the relative value of a given company's contributions to a standard, two inherently imperfect indicators are commonly looked at:

  1. the number of declared-essential patent families; and

  2. the number of contributions to the standardization discussion (so-called change requests).

Either approach is purely quantitative, not qualitative. But a qualitative analysis is rather costly and time-consuming even with respect to a single patent, making it practically impossible for a large portfolio. And the valuation of change requests can also be difficult, except for requests that are obviously devoid of any technical value, such as reports of mere typos or punctuation mistakes.

The specific problems of the first approach (counting declared-essential patent families) include the well-known problem of massive overdeclaration (driven by both the desire to capture as much of the value of a standard and the potential liability for undeclaring) and that of "opportunistic patenting". To explain the latter, I'll quote an instructive passage from Just-in-time inventions and the development of standards: How firms use opportunistic strategies to obtain standard-essential patents (SEPs), a paper authored by Byeongwoo Kang and Rudi Bekkers on behalf of the Eindhoven Center for Innovation Studies (ECIS) that examined the patenting behavior of participants in standard-setting and identified unusual filing activity around key standard-setting meetings:

"Our data reveals a strong relationship between patent timing and the occurrence of meetings. We observed a remarkable phenomenon that we call 'just-in-time-inventions': the patent intensity of about-to-become claimed essential patents is much higher during or just before these meetings than in other periods. At the same time, they are of considerably lower technical value ('merit'). This suggests that the just-in-time inventions are only beneficial to their owners, whereas for the public they merely invoke unnecessary costs. Finally, we observed that the phenomenon of just-in-time inventions is highly concentrated among specific types of firms, above all vertically integrated ones, and the incumbent champions of the previous technology standard." (emphasis added)

The market-driven and reality-centric solution to the problems I just outlined would be exactly what the FTC proposed in its opening statement in the FTC v. Qualcomm antitrust trial in January: SEP holders like Qualcomm should have to negotiate without undue leverage and, if necessary, prove the value of exemplary patents in court, where the validity and infringement of those patents can be challenged. The FTC didn't say so, but in the industry's opinion Qualcomm's SEPs tend to be very broad, making many of them more susceptible to invalidity than non-infringement contentions. Qualcomm's "No License-No Chips" policy has enabled the San Diego chipmaker to pretty much avoid "the moment of truth," and until earlier this decade, SEP holders drew enormous leverage from the threat of injunctive relief.

But most of the time, portfolio valuation--be it in negotiation or in portfolio-related litigation--is based on those two imperfect methods: DEP (declared-essential patent) counts and CR (change request) counts.

Specific issues

Qualcomm employee Wanshi Chen (the latter being the family name) is the chairman of the 3GPP RAN1 ("R1") working group ("WG"). That WG is "responsible for the specification of the physical layer of the radio [i]nterface" for all the major cellular standards from 3G to 4G (LTE) to 5G. 3GPP means "Third Generation Partnership Project." According to its website,

"The 3rd Generation Partnership Project (3GPP) unites [Seven] telecommunications standard development organizations (ARIB, ATIS, CCSA, ETSI, TSDSI, TTA, TTC), known as 'Organizational Partners' and provides their members with a stable environment to produce the Reports and Specifications that define 3GPP technologies.

"The project covers cellular telecommunications network technologies, including radio access, the core transport network, and service capabilities - including work on codecs, security, quality of service - and thus provides complete system specifications. The specifications also provide hooks for non-radio access to the core network, and for interworking with Wi-Fi networks.

"3GPP specifications and studies are contribution-driven, by member companies, in Working Groups and at the Technical Specification Group level."

For a company seeking to exercise a maximum of control over cellular standards development, it's hard, if not impossible, to think of a more influential position than the chairmanship of the RAN1 WG. For an overview of 3GPP WGs I recommend table 1 on page 6 of a document (PDF) available on Ericsson's website. 3GPP members have full access to certain stats on the "3GPP meetings for group R1" webpage. RAN1 WG meetings attract substantially more participants (typically around 450) than meetings held by other WGs.

Unfortunately, Mr. Chen's conduct raises very serious questions. There are extremely strong indications that he has been leveraging this position for the purpose of distorting DEP and CR counts to an extent that other industry players may view as a downright betrayal of the trust that was once placed in him. As in some other patent-related contexts, the proverbial fox appears to have been put in charge of the hen house.

Issue #1: sky-high number of SEP declarations

First, there's a conspicuously high number of SEP declarations by Mr. Chen compared to other current and recent 3GPP WG chairmen, as shown by the high-rising bluish line on the following chart based on IPlytics data (click on the image to enlarge; this post continues below the chart):

Mr. Chen was a very active patentee even before, but his current position gives him privileged access to information and generally a lot of influence over the standardization process.

The raw data underlying the chart comes from all SEP records where the chairmen or vice chairmen are listed as inventors or co-inventors. IPlytics is a particularly popular tool for researching patent databases. I have recently seen IPlytics-based charts in various articles and tweets by top-notch analysts. So far I have heard only good things about their service.

The number of SEP declarations per month was calculated by counting each patent family at most once per generation (taken from the "technology generation" field); if a declaration involves multiple generations, then the highest generation was used. For each patent family, the earliest declaration date of all patents with the same generation was used. The chart then shows the cumulative number of declarations on a monthly basis.

Mr. Chen was elected RAN1 chair in August of 2017. The chart shows filings by other chairmen and vice chairmen (of RAN1 as well as RAN2 and SA2) who held those positions for a comparable period of time. The chart furthermore shows the numbers for some ex-RAN1 chairmen. Note that Mr. Chen, prior to becoming cahirman, served as vice chairmen form August 2013 to August 2017. The following table shows the periods of chairmanship or vice-chairmanship for the relevant persons (format: MM/YY):

NameWGchairmanvice chairman
Wanshi ChenRAN108/17-NOW08/13-08/17
Havish KoorapatyRAN110/17-NOW---
Younsun KimRAN1---08/17-NOW
Richard BurbidgeRAN208/15-NOW---
Frank MademannSA204/15-04/19---
Satoshi NagataRAN108/13-08/1711/11-08/13
Matthew BakerRAN108/09-08/1308/13-08/17

The disproportionately high number of SEP declarations by Mr. Chen strongly suggests that he's taking advantage of his current chairmanship and already did so with respect to his prior vice-chairmanship.

Issue #2: rule changes for correction requests

Correction requests are one type of contribution to a standard-setting process. Their primary purpose is to fix issues as early as possible, ideally before any user of standards-compliant devices will be affected. Under 3GPP rules, any formal changes to a specification of an already-adopted standard require the submission of CRs in the sense of correction requests.

It's a well-known fact that some participants in standard-setting like to inflate the number of CRs such as by filing separate CRs even when they could--and conveniently would be--combined. And there can be duplicative or conflicting CRs, which is why it's undoubtedly necessary to consolidate overlapping CRs at the editorial stage. But Mr. Chen imposed new rules that were simply designed to deprive participants of the credit they deserve for valuable contributions, while crediting mostly just the section editors, not the original contributors.

Here's an example of a CR that an editor employed by Motorola Mobility submitted, but a proposal of the verry same substance had previously been rejected only because of the new rules imposed on the RAN1 WG by the Qualcomm-employed chairman (this post continues below the document):

36213_CR1162_(Rel-15)_R1-18... by Florian Mueller on Scribd

Instead of allowing submitters to use the standard form all the time, Mr. Chen insisted on a limit of one submission per company during a given period, and even required submissions to be made in standard text files (as opposed to using the submission form, as Motorola Mobility did in the above example, which resulted in rejection only because they used the standard form)--and the net effect is basically that the editor will then submit the CR in the name of the editor's company, without any credit to the original submitter.

I've obtained an email sent by Mr. Chen to the entire WG on June 26, 2018 ("Draft agenda for RAN1#94"), in which he reminded everyone of the rule that they should not use the standard CR template and of the one-CR-per-company limit:

---START QUOTE---

  • For those agenda items marked with “no individual CRs” – PLEASE, no individual CRs, only text proposals. Please also do NOT use CR template for your contribution. Rather, just use regular word document with proposals & TPs embedded instead.

  • For those agenda items marked with “single contribution restriction” – PLEASE, follow it STRICTLY. For example:

    • If any companies have with more than one contribution in the respective agenda items, the 2nd contribution and onward will be marked in red color and will NOT be treated.

    • The contribution itself CAN NOT be a “shell” contribution, which only contains references to other multiple contributions located e.g., in “others’ section. Each contribution has to be self-contained. The “shell” contributions will be marked in red color and will NOT be treated.

---END QUOTE---

Mr. Chen's overly strict rules were criticized by ETSI's Kai-Erik Sunell in an email on August 30, 2018 for being inconsistent with standard 3GPP rules:

"P.S. Frankly speaking, it is difficult for me to understand why you are asked to prepare these corrections on behalf of other companies. 3GPP working methods do not define any 'CR editors' and all 36.xxx specifications are already under change control which means that the rapporteurs of these specifications cannot serve as specification editors anymore. You (and everyone else) are, of course, welcome to serve as informal 'CR editor' if you like to volunteer for something like that but then, please, fill in all the coversheet fields as if the CR captured your own corrections. Please see below an extract from TR 21.900 Technical Specification Group working methods, subclause 4.1.2, https://portal.3gpp.org/desktopmodules/Specifications/SpecificationDetails.aspx?specificationId=555"

Mr. Sunell's title at ETSI is Mobile Competence Center Technical Officer. But ultimately the chairman decides the rules, and apparently the rules haven't really improved since.

"Credit where credit is due" is a good principle. It doesn't make sense that the RAN1 WG would credit only section editors of the specification but not the original submitters.

Of course, it does make sense for Qualcomm's purposes. But will the rest of the industry let one company set the rules for the most important 3GPP WG just because it decreases some other major patent holders' CR percentages? And how about Mr. Chen's disproportionately high number of SEP declarations?

I would encourage the membership of the RAN1 WG to raise the issues internally, and to think about the extent to which Qualcomm's corporate interests as a major patent holder and monetizer are aligned with the interests of the industry at large in encouraging and fairly crediting (with a view to future patent valuation discussions) all contributors.

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Saturday, July 27, 2019

Qualcomm's motion to stay enforcement of FTC's remedies fully briefed: outcome-determinative questions

This month's Ninth Circuit motions panel (consisting of Judge Mary M. Schroeder, Judge William C. Canby, and Judge Morgan B. Christen) now has all the briefing in front of it to decide on Qualcomm's motion for a partial stay of the FTC's antitrust remedies, filed earlier this month after Judge Lucy H. Koh in the Northern District of California denied a motion for a stay. Former Qualcomm attorney and now-DOJ antitrust chief Makan Delrahim's division, with support from Department of Defense and Department of Energy officials, unsurprisingly spoke out in favor of Qualcomm's motion by filing a statement of interest. Amicus curiae briefs were submitted by Ericsson and former Federal Circuit Chief Judge Paul Michel.

The FTC naturally opposed, and industry body ACT | The App Association was quick to support the FTC's opposition. Meanwhile, chipmaker MediaTek has also made a filing in support of the FTC's position. While Qualcomm's attack on Judge Koh's decision stands on its own, the FTC's opposition brief would be incomplete without the ACT and MediaTek briefs. ACT is basically playing the "attack dog" (in a smart way, however) for the FTC, and MediaTek addresses a variety of legal and factual questions that the FTC presumably ran out of pages to discuss. The problem here is not the quality of the FTC's opposition brief, but quantitative constraints can fully explain why it would be insufficient without ACT's and MediaTek's submissions.

On Thursday, Qualcomm filed its reply brief (this post continues below the document):

19-07-25 Qualcomm Reply ISO... by Florian Mueller on Scribd

Let's look at the three key factors: merits, irreparable harm, and the public interest.

Merits

In an effort to counter Qualcomm's attempts to separate different aspects of its conduct ("no license-no chips" and refusal to license rival chipset makers), MediaTek's brief seeks to refocus the Ninth Circuit on the grand picture, citing to the Supreme Court's 1962 Continental Ore decision, which held that "plaintiffs should be given the full benefit of their proof without tightly compartmentalizing the various factual components and wiping the slate clean after scrutiny of each." Indeed, one of the most important strengths of Judge Koh's ruling is that it never loses sight of how interlocked and interdependent the different aspects of Qualcomm's business model are.

The merits-related part of Qualcomm's reply focuses on the question of whether Qualcomm has an antitrust duty to deal with other chipset makers in terms of extending SEP licenses to them on FRAND terms. Qualcomm's lawyers say "the FTC looks to sidestep rather than embrace that ruling, arguing that 'the district court's finding of antitrust liability does not hinge' on an antitrust duty to deal, though the FTC says somewhere else that Qualcomm's refusal to grant such licenses is "not 'just' a breach of contract."

It's hyperbole on Qualcomm's part to say "the FTC declines to defend that [duty-to-deal] holding," but the FTC does appear to hedge its bets, as plaintiffs seeking to defend a trial win often do. The injunction requiring Qualcomm to extend SEP licenses to rival chipset makers can be upheld on the basis of a straightforward antitrust duty to deal, but also on the basis of the role the related refusal to deal plays in the greater scheme of things here.

In a footnote, Qualcomm notes that "in its opposition the FTC never cites either Aspen Skiing Co. v. Aspen Highland Skiing Corp. [Supreme Court, 1985], or MetroNet Servs. Corp. v. Qwest Corp. [...] (9th Cir. 2004), which formed the basis for the District Court's flawed finding of an antitrust duty to deal." I agree with Qualcomm to the extent that this kind of omission is counterintuitive. However, I wouldn't describe this as conceding away the chipset-licensing part of the case, especially not since the FTC may simply have known all along that MediaTek would take care of this part of the debate. As for MediaTek, Qualcomm criticizes that its brief "elides the fact that Qualcomm never licensed SEPs exhaustively at the chip level." But regardless of this denial, Qualcomm

  • made FRAND licensing commitments that the district court found to have scope for exhaustive SEP licenses to rival chipset makers,

  • secured licenses from other SEP owners that protect Qualcomm's customers by way of exhaustion, and

  • as ACT's brief notes, Qualcomm "even sued a rival chipmaker for breach of FRAND based on the rival's refusal to license [Qualcomm]." (ACT's brief also contains some quotes from the Qualcomm-Broadcom litigation of about a decade ago.)

A more interesting point that Qualcomm raises in the duty-to-deal context is that "a 'price squeeze' claim is not cognizable under antitrust law without a duty to deal or below-cost pricing" under the Supreme Court's 2009 linkLine ruling. The alleged "price squeeze" in that case was that AT&T charged competitors a wholesale (= for other vendors) price for the use of its phone lines that didn't leave those rivals enough of a margin if they were to match AT&T's retail (= end-user) price point. The Supreme Court held that one can't claim an antitrust violation on the basis of an allegedly unprofitable difference between wholesale and retail prices unless there's something wrong on at least one end (which for the wholesale price would require that a duty to deal exists, and for the retail price there would have to be a case for predatory pricing).

But MediaTek argues that "the District Court was correct to reject Qualcomm's analogy to linkLine and to treat Qualcomm's policies of refusing to license modem chip supply competitors and 'no license-no chips' as a multifaceted campaign of coercion, exclusive dealing, and tying, rather than a mere price squeeze." It's typical of MediaTek's number one priority, which is to help the appeals court see the forest and not just the trees.

From a commercial point of view, there are huge differences between the fact pattern in linkLine and Qualcomm imposing a high patent tax on device makers that effectively diminishes the competitiveness of other chipset makers. If the linkLine plaintiffs had gotten their way, they'd have been able to buy AT&T's product and sell it at the same or a lower price to consumers. By contrast, the likes of MediaTek wouldn't buy Qualcomm's chipsets at a discount only to sell them to OEMs. Instead, they develop and manufacture their own products, and they need SEP licenses from a variety of patent holders, one of whom is Qualcomm.

This is how Qualcomm describes the legal standard for the merits-related part of the analysis:

"The FTC claims that Qualcomm must show that it is 'likely to succeed on the merits of the appeal.' [...] That is incorrect. [...] But as detailed below, Qualcomm readily clears the higher bar of showing a likelihood of success."

I conditionally agree with the first part: if Qualcomm persuaded the appeals court that there was irreparable harm, then the requirement for the merits would be lower and might come down to just raising a question that gives the Ninth Circuit pause. But the second part--that Qualcomm has already shown it will prevail on appeal--amounts to wishful thinking.

As I already wrote last week, the motions panel will have to reach a conclusion now based on an analysis of limited depth. In the combination of the FTC's opposition brief and the ACT and MediaTek submissions as well as Judge Koh's very well-reasoned and (relative to the issues in the case) easy-to-understand ruling, the motions panel may be able to see through those smokescreens and conclude that Qualcomm is rather unlikely to prevail. But given the complexity of the case, the panel may simply be unsure at this stage. The latter is more likely than the former, and in that case the other two factors (irreparable harm and public interest) will effectively be dispositive.

Irreparable harm

I agree with MediaTek that "Qualcomm can readily avoid irreparable harm if it comes to the table in good faith and applies the same creativity in negotiating that it has in devising schemes to thwart competition." That's because there can be contractual solutions such as putting the parties to an agreement concluded during the appellate proceedings into the situation they faced before (status quo ante), and because the contract (re)negotiation-related injunction doesn't force Qualcomm to enter into agreements with a specific set of terms and conditions (which, if such a terms sheet existed, might or might not cause irreparable harm).

While Qualcomm has in my opinion failed to establish any irreparable harm of an inevitable kind, I do agree with Qualcomm's lawyers on a couple of questions in this context. The FTC argues that the fact the Ninth Circuit expedited the appeal "substantially reduces any impact on Qualcomm from compliance with the antitrust laws as ordered by the district court." If one agreed (as I don't) with Qualcomm's lawyers that the injunction would force them to enter into agreements that cause irreparable harm, then those contracts would do damage way beyond the duration of the appellate proceedings. And Qualcomm's lawyers are right that the FTC at some point conflates merits and irreparable harm, or at least appears to do so. As Qualcomm accurately notes, "the harm the stay is intended to mitigate is the harm Qualcomm would suffer while the appeal is pending if the District Court was wrong." (emphasis in original)

If the motions panel had more time (including that they'd hold a hearing to discuss any irreparable-harm theories), I'd be confident they'd disagree with Qualcomm either entirely or for the most part. However, under the circumstances under which the circuit judges will have to reach a decision on a stay, it's possible that Qualcomm will be deemed to have satisfied this factor.

Public interest

The "national security" argument is really very unconvincing because this here is just a question of degree with respect to Qualcomm's profitability, not a cloud over its viability. As MediaTek puts it with reference to what the FTC also wrote in its opposition brief, "Qualcomm has devoted significantly more cash to dividends and stock repurchases ($25.63 billion in 2015-2017) than to R&D expenditures ($16.2 billion)."

But the Ninth Circuit may be swayed by the federal government's submission, unless they realize pretty quickly that attaching too much importance to it would reward Qualcomm for its DC lobbying efforts and would enable Antitrust AAG Delrahim to successfully represent Qualcomm as if it were (as it used to be before his current job) his client.

Should the Ninth Circuit agree with Qualcomm and its supporters on the public-interest part, it would reward them for a FUD strategy (fear, uncertainty and doubt) as opposed to actually substantiating a serious and plausible national-security issue.

Having watched this litigation unfold for 30 months, including that I attended all eleven trial days from opening statements to closing arguments, I still agree with Judge Koh's thorough and holistic analysis as much as I did when I first read it. And I don't think the irreparable-harm and national-security arguments hold water. But the motions panel has been looking at this now for less than 30 days, so anything's possible. If Qualcomm failed to win a stay, it would be off to a bad start in Round 2. If a stay was granted, Qualcomm would probably overstate what this means for its chances concerning the future decision on the merits--the real thing.

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Friday, July 26, 2019

Macabre Qualcomm-internal presentation used tombstones to illustrate competitors' exits from mobile chipset market

In a medical context, "to exit" means "to die." That particular meaning of the word appears to have served as inspiration for somebody at Qualcomm who made the macabre design choice to depict the exits of key competitors from the mobile chipset market (Freescale in 2008, ST Ericsson in 2010, Texas Instruments in 2011, Broadcom in 2012, and Nvidia in 2014) as a graveyard at the bottom of a chart with tombstones to the left and right (click on the image to enlarge; this post continues below the image):

The document was highlighted yesterday by MediaTek's amicus curiae brief in support of the FTC's opposition to Qualcomm's motion to stay the enforcement of the FTC's antitrust remedies (this post continues below the document):

19-07-25 MediaTek Amicus Br... by Florian Mueller on Scribd

A MediaTek executive was also a key witness earlier this year in the FTC v. Qualcomm antitrust trial in the Northern District of California. MediaTek, which competes with Qualcomm mostly in the lower-priced market segment, "sells more than 1.5 billion semiconductor chips per year powering cell phones, tablets, voice assistant devices, smart TVs, and media players." Qualcomm's lawyers and expert witnesses sometimes point to the fact that MediaTek succeeded in a certain part of the market in an effort to blame other companies' problems just on their own decisions and execution.

MediaTek's brief focuses on Qualcomm's obligation to extend an exhaustive SEP license on FRAND terms to rival chipset makers. MediaTek argues (and I agree) that it's in the public interest for Qualcomm to begin meeting that obligation sooner rather than later.

The law firm representing MediaTek here is Boies Schiller & Flexner, which also represented Apple against Qualcomm. Boise Schiller's William Isaacson, the American Lawyer Litigator of the Year 2016, was spotted at the FTC v. Qualcomm trial in San Jose in January every single day.

Also yesterday, Qualcomm filed its optional but expected reply brief to the FTC's opposition to the motion to stay enforcement. I've uploaded it to Scribd and will write about it later today, or over the weekend.

A decision to allow various interventions was made a few days ago by the following three Ninth Circuit judges: Judge Mary M. Schroeder, Judge William C. Canby, and Judge Morgan B. Christen. Senior Judges Schroeder and Canby are Carter appointees; Judge Christen was appointed by Barack Obama. At first sight there's no reason to believe that these judges are going to be exceedingly sympathetic to the Trump Administration officials supporting Qualcomm. It wouldn't help Qualcomm either if the panel became aware of any of the various op-eds authored by Qualcomm shills and allies describing FTC v. Qualcomm as "an Obama case."

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Wednesday, July 24, 2019

In response to Qualcomm's motion to stay FTC's antitrust remedies, industry body says DOJ antitrust chief has "aspirational policy positions"

Over the course of the last 14 months, U.S. Antitrust AAG (Assistant Attorney General) Makan Delrahim has been mentioned here on half a dozen occasions, most of which were directly--and some of them at least indirectly--related to his tireless advoacy on his former client Qualcomm's behalf (1, 2, 3, 4, 5, and 6). In the second one of those posts, I quoted an article (PDF) according to which Mr. Delrahim's positions "lack legal support" and are simply "out of sync with a large and growing body of US case law" on such issues as injunctive relief and FRAND royalty rates.

In an amicus curiae brief filed last week to support the FTC's opposition to Qualcomm's motion to stay the enforcement of antitrust remedies, ACT | The App Association described that lack of legal support and desynchronization with case law as follows:

"[...] Mr. Delrahim expressly desires to change Supreme Court precedent, whereas the district court and this Court are required to apply existing law. Notably, AG Barr, in sworn testimony to the FTC, has also voiced views and 'theories' contrary to Mr. Delrahim's aspirational policy positions." (emphasis in original)

That's a diplomatic way of saying that the man who is often referred to as "U.S. antitrust chief" (though the Federal Trade Commission is safely outside his sphere of influence, which is why he's resorting to amicus briefs) has an agenda of swimming against the judicial tide in the FRAND/SEP context.

Not only is Mr. Delrahim at loggerheads with the case law but most industry players disagree with him. ACT says in its filing that "[t]he companies and associations that have joined [ACT | The App Association] in efforts to curtail SEP abuses represent over $100B annually in R&D spending across a range of industries, own hundreds of thousands of patents (including SEPs), employ 50 million+ Americans, and contribute trillions of dollars to annual U.S. GDP." (emphasis in original)

As to Mr. Delrahim allegedly "expressly desir[ing] to change Supreme Court precedent," I've looked up the speech ACT is referring to. What he said is a bit more nuanced. He argued that the Supreme Court "has not yet commented on [a particular] issue," though he did concede that "[i]n a handful of cases, the U.S. Supreme Court has recognized that there can be antitrust liability for collusive activity that manipulates the standard-setting process to gain an advantage over rivals," and "recognizes that concerted action among implementers or innovators at the same level of the supply chain could constitute an antitrust violation." But, in general, ACT is right that Mr. Delrahim's approach to SEP-related legal questions is that he'd rather make new law than just live with the existing one.

Not only in this context but generally speaking, the ACT's filing complement and reinforces the FTC's opposition brief to Qualcomm's motion, lodged with the Ninth Circuit after an endeavor to the same end failed in Judge Koh's court, for an enforcement stay. Where the FTC stays true to its low-key tone, the ACT is far more combative and directly points the appeals courts to some striking contradiction and inconsistencies between what Qualcomm and its amicis are saying now and what Qualcomm has said and done before, including that "[Qualcomm] even sued a rival chipmaker for breach of FRAND based on the rival's refusal to license [Qualcomm]." (emphasis in original) The ACT brief also notes that Qualcomm Technology Licensing's current president, Alex Rogers, said the following more than a decade ago (he was a vice president at the time): "Saying [Qualcomm] refuse[s] to license competitors is like saying McDonald's refuses to sell hamburgers [...] It's nuts. It's crazy."

With respect to the public interest, Qualcomm's allegations of irreparable harm, and the strategic interests of an amicus like Ericsson, the ACT brief is direct and forceful where the FTC is rather low-key. When it comes to the merits, however, the FTC's brief does a really great job defending Judge Lucy H. Koh's ruling. In a recent post I already took the position that it doesn't make sense that a refusal to deal can only constitute an antitrust violation if it's bad for short-term profitability. The FTC cites to a Third Circuit decision, ZF Meritor LLC v. Eaton Corporation, that explains this very well. Let me quote that one more extensively than the FTC (facing page limits) did, but not without pointing out that the specific context here was exclusive dealing, which is also an issue in the FTC v. Qualcomm case but not relevant to the motion for an enforcement stay:

"Although the Supreme Court has created a safe harbor for above-cost discounting, it has not established a per se rule of non-liability under the antitrust laws for all contractual practices that involve above-cost pricing. See Cascade Health Solutions v. PeaceHealth, [...] (9th Cir. 2007) (stating that the Supreme Court's predatory pricing decisions have not 'go[ne] so far as to hold that in every case in which a plaintiff challenges low prices as exclusionary conduct[,] the plaintiff must prove that those prices were below cost'). Nothing in the case law suggests, nor would it be sound policy to hold, that above-cost prices render an otherwise unlawful exclusive dealing agreement lawful. We decline to impose such an unduly simplistic and mechanical rule because to do so would place a significant portion of anticompetitive conduct outside the reach of the antitrust laws without adequate justification.

"'[T]he means of illicit exclusion, like the means of legitimate competition, are myriad.' Microsoft, [...] ('Anticompetitive conduct can come in too many different forms, and is too dependent on context, for any court or commentator ever to have enumerated all the varieties.') [...]"

Qualcomm has the right to file an optional reply brief, and I guess it will. At that point, or on some other occasion should there surprisingly be no reply brief, I'll go into more detail on some of the theories. Below please find the FTC filing as well as the ACT's high-energy and high-value amicus brief:

19-07-18 FTC Opposition to ... by Florian Mueller on Scribd

19-07-19 ACT the App Associ... by Florian Mueller on Scribd

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Monday, July 22, 2019

New USPTO trial practice guidelines overshoot as they seek to restrict parallel PTAB IPR petitions challenging the same patent

Since taking office, Undersecretary and United States Patent & Trademark Office (USPTO) Director Andrei Iancu, who previously managed a major patent litigation firm, has been on a crusade against inter partes reviews of issued patents by the Patent Trial and Appeal Board (PTAB). It will take more than one blog post to explain and comment on Director Iancu's various anti-IPR initiatives, all of which share a common goal: to keep as many weak patent claims alive as possible, contrary to the political goal of the economically most important part of the America Invents Act (AIA). Giving leverage to patent holders even though the asserted patents were obtained without an actual contribution to the state of the art is a total misallocation of resources and incentivizes legal gamesmanship while discouraging true innovation.

This month, the USPTO published the latest update to its PTAB Trial Practice Guide (PDF). The section on "Parallel Petitions Challenging the Same Patent" starts on page 26, and its first paragraph is already very telling:

"Based on the Board's prior experience, one petition should be sufficient to challenge the claims of a patent in most situtations [sic]. Two or more petitions filed against the same patent at or about the same time (e.g., before the first preliminary response by the patent owner) may place a substantial and unnecessary burden on the Board and the patent owner and could raise fairness, timing, and efficiency concerns. See 35 U.S.C. § 316(b). In addition, multiple petitions by a petitioner are not necessary in the vast majority of cases. To date, a substantial majority of patents have been challenged with a single petition."

I don't mean to attach too much importance to the typo ("situtation") in the first sentence. I usually have typos in my posts. But in an official document of this kind, typos are unusual, and most often found in sections that underwent edits until shortly prior to publication. That said, the issue here is one of substance.

The "substance" of that paragraph just amounts to vague terms expressing frequencies of occurrence ("most", "vast", "substantial", "rare", "unlikely"). Not even numbers. Just words.

As a matter of policy, that's not the way to provide workable and meaningful instructions to judges. Judges have to make decisions, and they need criteria, possibly examples, that help them do their job. Words like "most" and "unlikely" don't constitute or properly describe criteria, much less a standard, for anything.

What should the PTAB judges do then? Should they keep statistics of the cases before them and strive for a particular distribution of decisions, based on whatever range of percentages a given judge believes to be consistent with guidelines like "unlikely" and "substantial majority?" So after someone grants two petitions challenging the same patent, they'll have to reject at least the next ten?

When outsiders like bloggers or financial investors (especially risk arbitrageurs) try to predict an outcome, it's an inherently probabilistic exercise. But applying the law is different from placing bets on one outcome or the other. It should be all about the merits, not a numbers game.

The section on parallel petitions has many more paragraphs, and some do talk about criteria for whether a petition should be granted, with a particular emphasis on reasons weighing in favor of rejection. But before the reader reaches that point, the new Trial Practice Guide takes the position that two parallel petitions challenging a given patent should be "rare," and three or more should be "unlikely" to be justified--"unlikely" regardless of how many claims a patent has, how complex the relevant technology is, or how many prior art references are presented.

The good news here is that the PTAB judges can still grant parallel petitions if they deem them justified. But Director Iancu will achieve his objective of dissuading many petitioners from even trying to bring parallel petitions now.

I can think of at least four reasons why parallel petitions are sometimes not only justified, but even necessary:

  1. There are maximum word counts for PTAB petitions and related filings. However, some patents have so many claims that parallel petitions are necessary. Qualcomm's envelope tracker patent is a good example: it was challenged by four petitions, each of which targeted different claims. And all four petitions were granted based on a likelihood of having merit.

  2. Petitions are typically brought in response to infringement lawsuits, and such petitions must be filed within a year of the complaint. However, plaintiffs often have more time to decide which claims to ultimately take to trial, so defendants should be able to challenge all claims of an asserted patent.

  3. In light of the Supreme Court's SAS ruling, the USPTO should actually welcome a partitioning of IPR petitions. Under SAS, all challenged claims must be reviewed even if a likelihood of success has been identified with respect to only one of them. Multiple petitions per patent, however, are a means of still giving the PTAB some flexibility.

  4. Sometimes defendants identify additional prior art references after an initial petition.

The PTAB's enemies such as former Federal Circuit Chief Judge Randall Rader have used the highly pejorative term "death squad" because of a high invalidation rate (80%). Here again it should be about the merits, not about the numbers. The proper conclusion from a high invalidation rate would be to reject more applications in the first place. Instead of greater legal certainty through higher patent quality, Director Iancu's vision is to have ever more patents (including junk patents), ever more litigation, and ever more leverage for patent holders because defendants will face many roadblocks such as page limits, maximum word counts, the next best thing to a prohibition of parallel petitions, unfavorable claim construction standards, and so forth. While some (such as the firm Mr. Iancu used to run) stand to gain from such policies, it's bad news for legitimate innovators, for the economy at large, and for the general public.

It's very, very hard to convince a jury that a patent should be deemed invalid. Jurors have too much respect for "the Government" in a context like this. PTAB IPRs, however, can solve the problem, unless the process is sabotaged by means of a Trial Practice (Mis)Guide.

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Friday, July 19, 2019

Vestager serves Qualcomm a double whammy for dessert: second EU antitrust fine in as many years

The term of the Juncker Commission is nearing its end, and while I'm far from enthusiastic about his successor, I'm relieved that neither that conservative-in-name-only Weber nor "Poor Man's Bernie" (Timmermans, who's less reasonable than the real Senator Sanders) got the top job. However, my preference among reasonably likely candidates would have been Margrethe Vestager, the EU's competition commissioner, as I made clear on social media, despite disagreeing with some parts of her regulatory activism, such as the "state aid" case against Ireland and certain aspects of the Android case.

Last year I wrote that Qualcomm "won" the "Antitrust Grand Slam" when the European Commission joined the U.S. Federal Trade Commission and a couple of Asian regulators in fining Qualcomm. The Commission imposed a fine of €997 million ($1.2 billion) over exclusionary conduct in the years 2011-2016 when Apple was precluded from sourcing baseband chipsets from Qualcomm's competitors such as Intel. That exclusive dealing is one of the four counts on which the U.S. FTC defeated Qualcomm in court this year (my previous post discussed some support Qualcomm got for its motion for an enforcement stay).

Yesterday's fine, based on a supplemental Statement of Objections that came down in July 2018, amounts to "only" 242 million euros (272 million U.S. dollars), so it now got a "double whammy" from the EU. The latest one is about predatory pricing. At first sight, that's counterintuitive. We all know that the allegations usually brought against Qualcomm, besides exclusive dealing, are all about maximizing revenues even in the very short term, not just for the long haul. However, we have to keep in mind that Qualcomm is not just "a monopoly" (in the sense of U.S. antitrust law; over in the EU, this is called "market dominance"), but a dual monopoly: its SEP portfolio bestows monopolistic rights (not only on Qualcomm but also on any other patent holder, provided at least one patent in a portfolio is truly standard-essential), as does its position in certain segments of the chip market, and those monopolies are mutually-reinforcing as a result of Qualcomm's practices.

So even if Qualcomm (now quoting an EU Commission statement) "sold certain quantities of three of its UMTS chipsets below cost to Huawei and ZTE, two strategically important customers, with the intention of eliminating Icera, its main rival at the time in the market segment offering advanced data rate performance," it doesn't mean that phones became cheaper or that Qualcomm lost money on those devices in the short term. Much to the contrary, we can assume that Qualcomm was able to easily afford price dumping on those low-end chipsets because it would impose its patent tax on those devices anyway (even if those device makers had used non-Qualcomm chips).

Having said that, the second EU antitrust fine imposed on Qualcomm during Mrs. Vestager's first term is perfectly consistent with findings by various antitrust regulators around the globe, and with Judge Koh's landmark ruling.

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Patent enforcement against delivery of non-executable data: Federal Circuit more balanced than Germany's Federal Court of Justice

The Munich-based CIPLITEC (Center for Intellectual Property Law, Information and Technology) is a recently-created forum for an exchange of views between the leading Bavarian law schools and practitioners. Yesterday, Dr. Ralf Uhrich, in-house patent litigation counsel at Google and in charge of all European patent infringement cases to which Google is a party (always as a defendant unless I missed something), gave a talk at Ludwig Maximilian University, as per CIPLITEC's invitation, on the subject of "patent protection for data." I had previously seen Dr. Uhrich at various German patent trials while he was a Quinn Emanuel associate, and at a couple of conferences in the area.

As a result of CIPLITEC's inclusive approach, there were 200 or 300 people in the audience as per my estimate; most of them were students, but I also spotted a number of law professors, patent attorneys, and patent litigators. In response to strong demand, this event had to be moved to a larger room than the one they had originally reserved. I attribute this to the topic, to many people's interest in Google's views (though one of the organizers stressed that Dr. Uhrich was expressing his personal views as opposed to engaging in advocacy on his company's behalf), and to Dr. Uhrich's great personal reputation in the German legal community. By the way, if you didn't know who he is, you might be led to believe he's the younger and smarter brother of Liverpool FC manager (and this year's UEFA Champions League-winning coach) Juergen Klopp.

The starting point for the presentation was the European legal framework for patent-eligible subject matter: Article 52 of the European Patent Convention (EPC). As Dr. Uhrich explained, the exclusions set forth there appear broader than they are applied when it comes to entire patents: a token reference to a computer or even just a storage medium salvages a claim, but non-technical claim limitations (though a more efficient use of computing resources is considered technical) are irrelevant to a novelty or inventiveness analysis. Having campaigned against software patents in the EU, my personal view is that the European Patent Office as well as national courts act as if Art. 52 EPC didn't exist as far as entire patent claims are concerned, and while the situation is indeed substantially better with respect to what counts in a novelty or inventiveness context, the statutory exclusions have simply been gutted. A 1969 decision by the Federal Court of Justice of Germany, Rote Taube ("Red Dove"), defined technicity as the planned use of controllable forces of nature for the purpose of achieving a specific result, and on that basis it would be possible to distinguish a software-controlled braking mechanism or other advanced in an applied natural science from pure advances in software such as more efficient memory (or bandwidth) usage through data compression.

The good news in the early part of Dr. Uhrich's presentation was that even the EPO doesn't grant patents that claim a data structure per se. So the issue here is not one of patentable subject matter in the strictest sense, but of the scope given to patent claims at the enforcement stage. To share the bad news upfront, the effect of an overreaching infringement theory can be just as bad as straightforward patent claims on data formats. But, at least for now, the related case law in the United States is fundamentally better than in Germany, though this may be attributable in no small part to the historic happenstance of what cases were put before the courts in what sequence--and what questions for review the parties raised.

Just so there is no misunderstanding: Dr. Uhrich's academic talk was nonjudgmental, so when you find words like "good news" and "bad news" here, rest assured they're just my opinion. He may or may not agree depending on context.

The enforcement-related main part of Dr. Uhrich's talk started with a 19th-century holding by the German Reichsgericht (Imperial Court), Methylenblau, involving a patent covering a chemical manufacturing process that was employed outside of Germany, but the resulting product entered the German market. The key doctrine there was that the scope of protection of a manufacturing patent potentially extends to the output if the substance so produced is an integral part of the patented process. On that basis, the Reichsgericht remanded the matter to the trial court.

The legal tradition that started with Methylenblau wouldn't have had to inevitably lead to a high-court decision, more than a century later, that data sequences generated by a patented data processing operation are afforded the same degree of protection (potentially, as it's always subject to the specific facts of a case). Not only is there a fundamental difference between physical goods and non-physical data but what makes this doubly unreasonable is the blatant inconsistency of such an outcome with the statutory exclusion of patents on "computer programs as such." Unfortunately, it nevertheless happened.

In 2012, the Bundesgerichtshof (Federal Court of Justice of Germany) handed down a decision on whether data storage media manufactured outside of, but imported into, Germany might infringe a video encoding patent, EP0630157 on "systems and methods for coding alternate fields of interlaced video sequences," a patent declared essential to the MPEG 2 video standard. While the patent holder lost the case due to a combination of other reasons, particularly patent exhaustion (the video data was generated with a licensed tool), the decision held that the case could not be dismissed on the grounds of the accused products containing data sequences as opposed to an encoder (be it a physical device or a piece of software).

I have read the MPEG-2-Videosignalcodierung (MPEG 2 video signal encoding) decision, and there is no reference in it to the statutory exclusion of patentable subject matter under the EPC, suggesting very strongly that counsel for defendant didn't raise this point with the top court. German patent litigators rarely recur to the Article 52 exclusions as they have been rendered as meaningless as I explained above when it comes to entire patent claims. Many of my allies in the movement opposing software patents suspect that patent litigators wouldn't even want Article 52 to be given meaning since it would discourage the filing of many patent applications and infringement cases in the first place. Whatever the reason may be, I had a conversation in 2014 with a Federal Court of Justice patent judge (who was on the panel of five judges who made the MPEG 2 decision, though one never knows where a member of a German panel actually stood since there is no such thing in Germany as a dissenting opinion), and I mentioned my opposition to software patents. He noted that their decisions are often misunderstood as being exceedingly permissive in this regard just because the questions put before them--which may just be about novelty or inventiveness, for instance--don't even enable them to address subject matter. I'm still grateful for a very interesting conversation on a train ride from Bayreuth to Nuremberg after a conference, so I don't want to criticize the Federal Court of Justice for a decision that I regard as inconsistent with the letter and the spirit of Article 52 EPC. However, I would strongly encourage other litigants (knowing how many litigators read this blog) to raise the Article 52 question when the opportunity arises in connection with patent enforcement against pure byte sequences.

One of the reasons for which I believe it would be worth trying is that, as Google's Dr. Uhrich explained yesterday, the Federal Court of Justice seized the opportunity afforded to it by a non-digital patent case, Rezeptortyrosinkinase II, to clarify (well, there's a floating border in case law between clarifications and corrections) that the MPEG 2 doctrine doesn't cover just any information resulting from a patented process. In that case decided in 2016, the Federal Court of Justice did not see a patent infringement in the mere communication of the result of a medical analysis from the country in which the analysis is performed to the country in which the process is protected by a patent. In that case, the result was basically just a binary yes-or-no piece of information on whether a certain medical condition was present.

The relevant line-drawing is centered around the question of whether the transmitted data bears actual and technical characteristics engraved by the patented process. In the case of MPEG 2 video data, that was deemed to be potentially the case as the encoding process results in a particular data structure. Apart from the general concerns I raised above, I do have an MPEG-2-specific concern, which is that the key characteristic of MPEG 2 is "lossy" compression, so at least to the extent that data is removed (so as to allow for more efficient compression), it's hard to see how it can simultaneously be "engraved." However, despite disagreeing with the MPEG 2 doctrine, I certainly see the difference between a specific data format on the one hand and some abstract information on the other hand.

However, it will take more decisions to get a better idea of where exactly the line is drawn (and ideally one of the cases would eliminate the problem on the basis of Article 52 EPC). In the Q&A part, I brought up a case I had watched in Mannheim earlier this decade. A cellular standard-essential patent covered an algorithm for calculating a number sequence used as a key (like a cryptographic key) for mathematical operations that transformed data (the data to be sent over the wireless network) in a way that minimized undesirable physical effects at the radio frequency level. The key was clearly standard-essential, just like a cryptographic key prescribed by a security standard would be; but the asserted patent claim, in the preliminary opinion of the panel of judges, probably wasn't because the accused baseband chipsets simply had the number sequence hardwired instead of performing the patented process to derive them. That case was somewhere in the middle between MPEG 2 and Rezeptortyrosinkinase II, but never reached the higher courts due to a settlement.

Thankfully, Dr. Uhrich also drew a comparison between German and U.S. case law on patent enforcement against data sequences. In Bayer v. Housey Pharmaceuticals (2003), the United States Court of Appeals for the Federal Circuit affirmed the dismissal of an infringement claim because "infringement under 35 U.S.C. § 271(g) is limited to physical goods that were manufactured and does not include information generated by a patented process, and because the physical goods here (drug products) were not 'manufactured' by a process claimed in the asserted patents." The opinion was authored by Circuit Judge Timothy Dyk, joined by then-Chief Judge Mayer and now-Chief Judge Prost.

The term "manufacture" plays a key role in U.S. patent law. As some of you may remember, it was key to the Samsung v. Apple Supreme Court appeal related to the "article of manufacture" based on which a design patent holder would be entitled to an unapportioned disgorgement of an infringer's profits. The term "manufacture" alone, coupled with an almost-originalist interpretative standard that takes into account what lawmakers really meant way back when, enabled the Federal Circuit to decide against what would have been a similarly expansive school of thought as the one of the Federal Court of Justice of Germany.

Here comes Judge Sharon Prost again, who in most contexts (with exceptions like design patent damages proving the rule) takes very balanced positions. Meanwhile she had become Chief Judge, and she authored the Federal Circuit opinion in ClearCorrect v. ITC, a decision that Google's Dr. Uhrich also explained yesterday. In that case, the ITC had ordered an import ban on data generated outside the U.S. but sent to the U.S. for the purpose of 3D printing. It's not unheard of for the ITC to have an expansive view of its jurisdiction, even including digital data transfers, but the appeals court made clear that it disagreed with what the ITC had already held prior to ClearCorrect, which was that the statutory term "articles" "should be construed to include electronic transmission of digital data [...]."

The way things work, there's no doubt that some patent-asserting plaintiffs are still going to try to push the envelope of data format patentability in the United States. But at least for now, they'll be facing an uphill battle whenever they try.

What is clearly needed is a pushback against overreaching patent enforcement in Germany. Yesterday's academic presentation was neither a campaign speech nor particularly alarmist. Expressing a personal--not corporate--view, Dr. Uhrich responded to a question from the audience with a reference to other forms of intellectual property protection for data, such as database rights (a big thing in the EU, by the way) and copyright law.

I mentioned my Art. 52 EPC concern, but I also think that regardless of software patent-eligibility, the MPEG 2 decision is bad as a matter of policy because if an encoder is patentable, then so is, typically, the related decoder. And that's what the enforcement of codec patents should be limited to.

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