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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