Saturday, August 31, 2019

Avanci, Nokia, Sharp move to dismiss Continental's San Jose FRAND/antitrust complaint over component-level licensing

Technically on the same calendar day as Nokia's spectacular win of a second anti-antisuit injunction injunction ("AAII") against automotive industry supplier Continental, its lawyers filed, on behalf of all defendants (the Avanci patent pool, Nokia, Sharp, and a couple of patent trolls Nokia fed with patents) a motion to dismiss Continental's FRAND/antitrust complaint in the Northern District of California (this post continues below the document):

19-08-30 Avanci Et Al. Moti... by Florian Mueller on Scribd

In very general terms, I already commented on some of Avanci's previously announced theories two weeks ago. Also, the fact that Judge Lucy H. Koh denied Avanci's motion to stay discovery suggests to me that Avanci's preview of the motion to dismiss didn't immediately make her feel that this case was a waste of time.

The question here that is most relevant to the information and communications technology industry at large, apart from the overarching objective of Continental's complaint (to obtain a component-level license on FRAND terms), is whether patent pool firms like Avanci, which don't hold patents in a formalistic sense but are key in bringing companies together and getting them to combine their leverage and to coordinate their behavior, can be held liable. Avanci is a SEP pool with a focus on IoT, but there's plenty of similar organizations such as MPEG LA.

I would encourage the decision-makers at major ICT companies and industry bodies (many of whom are known to read this blog) to strongly consider supporting Continental on that "pool-firm liablity" question, be it through amicus curiae briefs or background advice. Such involvement may be particularly important because, quite frankly, Nokia's litigation skills (and let's not forget that Qualcomm is also an Avanci member) are world-class, while there's light and shadow with respect to Continental. The U.S. antisuit motion and the related reply brief left a lot to be desired (while no one can blame Continental's outside counsel in Germany for the anti-antisuit situation, which was a total surprise to everybody and where they face a court that aspires to make the Eastern District of Texas pale by comparison; plus, I think they may very well prevail on appeal). By contrast, Continental's opposition to Avanci's U.S. venue transfer motion was perfect; it could serve as a textbook example for how to deal with this frequent type of situation, and one can see that a lot of thought as well as hard work went into it.

The various questions raised by the motion to dismiss also include the one of whether Sharp was properly served. Continental Automotive Systems, Inc. (the Detroit-area Continental subsidiary that is the plaintiff in NorCal) disputes that the first Munich AAII has been properly served under the Hague Convention--but now that Nokia has an injunction in place against the German parent company of the Continental group (though a few degrees removed from the U.S. entity, which could make it hard to establish contempt of court if they do their part but any single one in the chain of subsidiaries refuses to comply), service may be less of an issue there. Still, it's interesting that an Avanci member now raises a service question, too.

Motions to dismiss can dispose of some claims, though it's unlikely that an entire multi-claim complaint like the one in question would be dismissed. It's also possible that Continental's lawyers have to address some shortcomings through bringing a second amended complaint (the current one is already the first amended one). I actually thought two years ago that the FTC might have to make some limited improvements to its complaint against Qualcomm, but Judge Koh didn't reach that conclusion. However, Continental is a different case, and the need to amend the complaint again could cause some delays, though the October 2021 trial date is so far off that it might still be kept even in that scenario.

The issue of pool-firm liability is really very important, and while my policy position is clear (such firms should be liable for the behavior they cause and coordinate), I'll probably talk about this in greater detail only after Continental and, hopefully, one or more amici curiae have done the prerequisite case-law search and opposed the Avanci-Nokia motion. It appears that apart from some paywalled websites I'm the only one to write about this case at the moment, so I at least wanted to share the motion here quickly, even prior to forming an opinion on the liability issues.

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Friday, August 30, 2019

Nokia wins again: Munich court issues additional anti-antisuit injunction against Continental's German parent company to stop pursuit of U.S. antisuit injunction

Yesterday I attended and reported in detail on the Munich I Regional Court's preliminary-injunction hearing in Nokia v. Continental AG. Last month Nokia had already obtained an against Continental Automotive Systems, Inc. ("CAS"; not to be confused for the international sports tribunal) of Auburn Hills, MI, the plaintiff in the Northern District of California FRAND/antitrust lawsuit against the Avanci patent pool firm, whose contributors include Nokia, Continental, and various other patent holders. Today the court doubled down on Continental by additionally granting Nokia an AAII against Continental AG, the Hanover, Germany-based parent company of the entire Continental group.

This is a very significant victory for Nokia's litigation team, particularly its European head of litigation, Dr. Clemens-August Heusch, and the Finnish mobile company's outside counsel from the Arnold & Ruess firm: lead counsel Dr. Cordula Schumacher; Dr. Arno Risse ("Riße" in German), the mastermind behind the AAII initiative; and Tim Smentkowski.

Today's AAII, which Judge Dr. Hubertus Schacht announced in his chambers (with only one other person than me listening), requires the German parent company to use its influence over its indirect U.S. subsidiary in order to cause it to comply with the AAII already in place against CAS. This means Continental AG must tell a direct subsidiary to tell an indirect subsidiary to tell another indirect subsidiary--and so forth--until at the end of that enforcement chain CAS is directed to withdraw the fully-briefed U.S. motion for an antisuit injunction.

Chances are that a marshal ("Gerichtsvollzieher") will visit Continental AG's headquarters in Hanover on Monday, or on Tuesday at the very latest, to serve the injunction on them as per Nokia's request. Upon service, the clock begins ticking and Continental AG has to take some action within 24 hours.

The enforcement of this pair of injunctions with a cross-border effect is anything but trivial:

  • CAS, while a wholly-owned indirect subsidiary of a German company, is a U.S. legal entity and argues that the first AAII has not yet been served in accordance with the Hague Convention for international service through governmental channels. Even if and when CAS has been served, it may not be easy to actually collect contempt fines. However, in lieu of fines the German court can also order the imprisonment of corporate officers, at least one of whom is actually a resident of Germany.

  • With Continental AG there won't be any problem to serve the injunction swiftly or to collect contempt fines, but there could be a dispute in the end over whether Continental AG did everything it reasonably can be expected to do to achieve the stated objective of the AAII, which is the withdrawal of CAS' U.S. antisuit motion. Theoretically there could be a situation where Continental AG claims to have done its part, but some recalcitrant executive(s) in some other jurisdictions refused to comply, and in some countries such as Germany, corporate law limits shareholders' ability to interfere directly with operational decisions (they can only do so indirectly by replacing management).

We'll see how much courage Continental has, and how far they will be prepared to go even at the risk of bringing up the Munich court against that company. I wouldn't be surprised to see CAS file something with Judge Lucy H. Koh's court in the Northern District of California next week in order to withdraw the U.S. antisuit motion against Nokia's pursuit of patent injunctions against Continental customer Daimler. They might also consider refusing to withdraw and instead offering to stipulate to a stay. Either way, their action will be involuntary, as Judge Koh will know, and while the normal course of action would be for their withdrawal to be accepted, Judge Koh might have enough wiggle room to decide to keep the motion alive regardless.

It's virtually certain that Continental AG will immediately appeal today's decision to the Munich Higher Regional Court ("Oberlandesgericht München"). If they receive a copy of the judgment (including the underlying rationale) by fax today (the court's press office told me they'd send the decision to the parties by fax; yes, there's no such thing as PACER in Germany), those Freshfields lawyers have a reputation for working both smart and hard, so they will probably write up their appellate brief over the weekend.

They haven't appealed the first AAII yet because doing so would be inconsistent with their position on service in accordance with the Hague Convention. But with this one, service is a non-issue, so they might even appeal prior to being formally served.

If the Munich Higher Regional Court affirmmed today's AAII against Continental AG, or if the appeals court lifted it only on the basis of intermediary or complicit liability questions, but upheld the other aspects of the case, CAS would know that an appeal upon being served would likely fail. Should the appeals court lift the second AAII on the basis of intermediary or complicit liability questions without reaching any other aspect of the case on which the appeals court overrules the lower court, then CAS could still appeal and might succeed, but wouldn't know for sure.

The hurdle in Germany for a stay of an injunction pending an appellate proceeding is insanely high--unlike in the U.S., where this just worked out for Qualcomm against the FTC. In Germany it's almost like a company has to be on the brink of collapse. However, in this case, since the AAII requires the withdrawal of a pending and fully-briefed U.S. motion, Continental might try to get a first short-term stay pending the appellate hearing. But I wouldn't hold my breath for this working out.

Given the urgency of this, I would normally expect the appellate hearing to take place in September, and possibly even the first half of September. The same appeals court took a long time earlier this year to lift Qualcomm's Munich fake injunction against Apple, which was an urgent matter as well, but not a preliminary-injunction proceeding. Also, it was a different time of the year, and there were apparently some court-internal circumstances that delayed the decision. I'm sure they'll be much faster this time, but there's no guarantee that they're still going to hold the hearing (at the end of which they'll typically rule) in a matter of only a few weeks.

While this doesn't mean that affirmance would be impossible or highly unlikely, the name of the game is going to be a different one now. Yesterday the lower court was unreceptive to some of Continental's lawyers' arguments, including but not limited to the following ones:

  • It's self-contradictory to hold that Continental is acting unlawfully by German standards through the pursuit of a U.S. antisuit injunction, only to enter an antisuit injunction (in this case, an AAII) anyway.

    U.S. courts perform a far more comprehensive and multifactorial analysis before granting an antisuit injunction, such as the Ninth Circuit's Gallo test along with the Unterweser factors. If German courts do want to enter AAIIs at all, over doubts whether German law allows this at all, they will at least need to come up with a more sophisticated test than just deeming patent rights--including the right to seek patent injunctions--sacrosanct. The appeals court may very well find that two wrongs don't make a right, or that if an AAII is warranted to right a wrong, an inquiry comparable to the one performed by U.S. courts needs to be developed.

  • Freshfields Bruckhaus Deringer's Dr. Frank-Erich Hufnagel argued that any concerns in Germany over the United States (as a jurisdiction) violating international law through the grant of antisuit injunctions would have to be addressed at the diplomatic level, with the Federal Republic of Germany, represented by its government, holding talks with the United States. However, the Munich I Regional Court appeared to feel that they can just act in self-defense, basically taking international law into their own hands.

I believe Continental is reasonably likely to get the AAII lifted on appeal. At a minimum, the appeals court will give more thought to such issues as the ones I just outlined. But for now, Nokia and its lawyers have scored a very meaningful victory that ups the pressure on Daimler. Continental, one of its key suppliers, was trying to shield Daimler by means of a U.S. antisuit injunction, but Nokia's AAII now constitutes a massive roadblock.

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Thursday, August 29, 2019

Munich court hell-bent on pre-emptive strike against Judge Koh's jurisdiction over Continental antisuit injunction motion against Nokia

While I doubt rather strongly that the Avanci patent pool firm's U.S. venue transfer motion (from San Jose to Dallas) will succeed, Avanci contributor Nokia may help that entire group of patent holders (including, inter alia, Qualcomm) avoid the October 2021 FRAND/antitrust trial in the Northern District of California altogether. Nokia currently has the upper hand in Germany over both Daimler and one of its key suppliers of telematics control units, Continental, and may get decisive leverage from patent injunctions--probably in Munich before it does anywhere else--long before the end of the two long years, plus two months, that the build-up to the trial in the Northern District of California is still going to take.

Today I went to the Munich I Regional Court to attend the Nokia v. Continental AG preliminary-injunction hearing I had written about on Monday. Nokia already has an anti-antisuit injunction in place against Continental Automotive Systems ("CAS"), a Detroit area U.S. subsidiary of the Continental group, but Continental argues it hasn't been properly served yet under the Hague Convention, which is why Nokia is still pursuing the previously-denied injunction against Continental AG, the Germany-based parent of the entire group. Within Germany, it would take only a day or two to serve the injunction and demand compliance.

With respect to Continental AG, the complaint was severed and assigned a new case number. Today's hearing was formally only about the severed part, but it also represented the first chance for Continental's outside counsel to make its case against the motion, as the preliminary injunction against CAS came down on an ex parte basis without notice or hearing. (In the U.S., preliminary injunctions can't be granted ex parte; only temporary restraining orders can, though even for TROs an adversarial proceeding is the norm; also, TROs must either be converted into a PI after a couple of weeks or they're automatically lifted.)

The panel of three judges will announce a decision at noon (Central European Summer Time) tomorrow. As I'll explain further below, the court hasn't changed its mind about the appropriateness of the existing anti-antisuit-injunction injunction ("AAII") against CAS, but the fate of Nokia' severed pursuit of the same kind of AAII against Continental AG now turns on the question of whether the group parent, though it would undoubtedly be considered a real party in interest by U.S. standards, can actually be enjoined with respect to a motion brought by an indirect (like six degrees removed) subsidiary.

Philosophically, I support Continental's motion for a U.S. antisuit injunction and believe a ten-day bench trial in Judge Koh's court is the best way to resolve the licensing dispute (at the heart of which is whether Nokia can refuse to extend a license to Continental on the terms Continental would deem FRAND). Without a U.S. antisuit injunction against the German cases, Daimler and, by extension, Continental realistically can't stay in the ring until the San Jose trial kicks off. At the same time, Nokia's litigation department is second to none and Continental's motion has some structural shortcomings that will make it unnecessarily hard (though far from impossible) for Judge Koh to grant it.

The single biggest issue--apart from the U.S. motion being undoubtedly overbroad--was mentioned almost two hours into today's hearing by Regional Court Judge Dr. Hubertus Schacht, who filled in for Presiding Judge Tobias Pichlmaier today: the chronology of events. To the extent that a couple of other defendants to foreign patent infringement cases had obtained antisuit injunctions in the Ninth Circuit, the enjoining action had been filed before (Microsoft v. Motorola) or, at a minimum, near-simultaneously (Huawei v. Samsung, where Samsung was the movant) with the affected foreign case. In the Continental-Nokia case, however, I regret to say that, as Judge Dr. Schacht also noted today (and as I've criticized before), one may very well view the U.S. case as encroaching on ten earlier-filed German patent infringement cases, though a German patent injunction would likely create commercial realities that would end up killing the U.S. case.

Nokia brought ten German patent infringement complaints against Daimler in Munich, Mannheim and Dusseldorf in April. None of them has gone to trial yet, though the press office of the Mannheim Regional Court informed me earlier this week that trials (over one patent each) are slated for December 10, January 21, March 17, and May 19. The Munich I Regional Court always holds first hearings, which most of the time are roughly comparable to U.S. Markman hearings plus an initial infringement analysis, and a first hearing in one Nokia v. Daimler case was held in June. What happened then presumably scared the living daylights out of Daimler and Continental:

Originally, that particular case had been assigned to the 21st civil chamber (Presiding Judge: Tobias Pichlmaier). But Daimler, represented by Quinn Emanuel's Dr. Marcus Grosch, presumably hoped to cause a delay by requesting that the case be reassigned to the 7th civil chamber (Presiding Judge: Dr. Matthias Zigann) because the same patent-in-suit had previously been asserted by Nokia against Apple. The Nokia-Apple dispute (the second one in less than a decade) was settled pretty quickly three years ago, but technically, the patent had been pending with the 7th civil chamber. So there was an argument for reassigning the matter, but Judge Dr. Zigann kept the original schedule, with a first hearing only a few days away at the time.

Not only did Judge Dr. Zigann indicate a strong inclination that the patent-in-suit had to be construed in such a way that the accused Mercedes cars would be deemed to infringe it, but he also made it clear that Nokia's complaint clearly appeared to satisfy the requirements for a standard-essential patent (SEP) injunction under the CJEU's Huawei v. ZTE framework. Nokia had already specified in its complaint what licensing offer it had made to Daimler, and how and when, and why Nokia believed its offer was FRAND. It was just very unusual, if not unprecedented, for the Munich court to take a position on the Huawei v. ZTE test (i) even though Nokia had not yet filed a request for injunctive relief at the time (it did not long thereafter, as Judge Dr. Zigann anticipated) and (ii) given that first hearings in Munich (the Mannheim and Dusseldorf courts don't even do anything comparable) are usually just about claim construction and infringement analysis (they normally don't even address invalidity defenses at that early stage).

Roughly a week after that shocking experience in Munich, Continental brought its motion for a U.S. antisuit injunction. Also, Continental's original San Jose complaint was filed only on May 10, about a month after Nokia's German patent enforcement campaign against Daimler had begun.

There's no case law for a German AAII, so there's no prescribed test that would involve the sequence of filings as a criterion. And even in the U.S., poor timing isn't necessarily fatal, but just like in Munich, it plays a psychological and political role: a later-filed lawsuit will be presumed to unduly interfere with an earlier-filed one, not the other way round.

The Munich I Regional Court is not amused that Continental attempted an end run, via San Jose, around those German cases, including a Munich case that Nokia, based on the court's initial analysis, is fairly likely to win against Daimler. When Nokia's German lawyers from the Arnold & Ruess firm brought this to the Munich court's attention by means of an AAII motion, this struck a nerve. The AAII against CAS came down almost instantaneously, and Continental's counsel from Freshfield Bruckhaus Deringer was talking to a wall today with respect to the common aspects of today's case with the one it was severed from (such as whether a German court can claim that antisuit injunctions are unlawful in Germany, only to grant one--an AAII being just a special type of antisuit injunction--anyway).

Nokia was represented today by Cordula Schumacher, Dr. Arno Risse ("Riße" in German; he's credited for the original idea of giving an AAII motion a shot), and Tim Smentkowski, who were accompanied by two Nokia employees, European litigation chief Dr. Clemens-August Heusch (who enjoys a great reputation in the German patent law community) and Dr. Jonas Heitto (who apparently works in the licensing department). The sole remaining hurdle for that team to overcome is that the court still had some doubts as to whether Continental AG, which is not formally a party to the NorCal case, can be held liable in any way for an indirect subsidiary's actions.

Continental was also represented by a team of three: Dr. Frank-Erich Hufnagel (known for being Apple's lead counsel in many German cases), Dr. Eva-Maria Herring (who in the Qualcomm v. Apple context managed what may have been the most multi-faceted defense filings in any German patent infringement dispute in history), and Corin Gittinger. Dr. Hufnagel most vehemently defended Judge Lucy H. Koh's jurisdiction and the idea of a FRAND determination by her, based on extensive evidence and testimony. Dr. Herring persuasively addressed the standards for intermediary liability and joint liability (the literal translation would be "complicit liability") under the case law against the background of the inherent limitations to the influence of shareholders over management actions under corporate law in the U.S., the Netherlands (where an intermediate holding company appears to be based), and Germany--as did Mr. Gittinger.

Should Continental AG successfully defend itself, it will most likely be because of reluctance on the court's part to enjoin an indirect corporate parent. Continental's lawyers drove some important points home in this regard. However, Judge Dr. Schacht said at some point during the first third of the hearing that the outcome may hinge on whether the court concludes that Nokia's pleadings, including various affidavits, warrant a reversal of the burden of proof. In that event, the fact that Continental apparently didn't (because it possibly couldn't) specifically deny that Continental AG's legal department played any active role in the U.S. antisuit injunction initiative might decide the matter in Nokia's favor.

De iure, it's debatable whether Continental AG can simply order the withdrawal of the U.S. antisuit motion, given that shareholders can't directly take the executive driver's seat. De facto, there can be no doubt that if Continental AG picked up the phone or sent an email to its indirect subsidiary in the Wolverine State, the U.S. motion would be history in no time.

In light of Continental AG's indirect role here, the court told Nokia how to modify its motion so as to require Continental AG to use its influence over its subsidiaries in order to bring about the desired result.

An interesting question that also came up was whether the antisuit injunction motion even required Continental to keep its motion alive or whether Judge Koh could grant it sua sponte. U.S. judges have more flexibility and power than their German counterparts, and I have found an example of a sua sponte injunction order mentioned in a ruling by the United States Court of Appeals for the District of Columbia Circuit. Judge Paul Michel (then the Chief Judge of the Federal Circuit) and another then-Federal Circuit judge were sitting on the D.C. Circuit by designation. Interestingly, that injunction was practically an antisuit injunction, requiring an abusive serial plaintiff to "seek leave of this court before filing any new civil action; that he shall certify that any such complaint raises new matters never before decided on the merits by any federal court; and that he shall truthfully so certify any complaint on pain of penalty of contempt of this court." Would the Munich AAII ultimately fail because it can only bind one or more Continental entities, but not Judge Koh? Normally, if CAS really had to withdraw the motion, it would probably be game over. However, Judge Koh has already been officially notified of the Munich AAII. It remains to be seen how she will respond to an involuntary withdrawal of the motion.

The Munich court appears really upset--and hell-bent on supporting, at least with respect to CAS and possibly also with respect to Continental AG, Nokia's pre-emptive strike. They're basically applying the Bush Doctrine here as they argue that if antisuit injunctions are unlawful in Germany, they can simply enjoin Continental from pursuing one. I still struggle with that kind of logic.

My mind says Continental AG won't be enjoined; but there's a certain gut feeling that the judges in Munich are in a combative and aggressive mood, putting patent law--and the strong enforceability of patents, even including injunctions over FRAND-pledged SEPs--above everything else. Tomorrow we'll see. What's obvious, however, is that whenever CAS believes that it has been properly served and objects to the existing preliminary injunction, the Munich I Regional Court will almost certainly (unless a miracle happens in the meantime) uphold that one, in which case Continental can and presumably will appeal the issue to the Munich Higher Regional Court.

Irrespectively of the concept of an AAII, the question of liability for an indirect subsidiary, involving a question of the burden of proof, is one on which reasonable people can disagree. However, what I don't understand at all is why the court doesn't feel it's overreaching to obligate Continental to withdraw the U.S. antisuit motion, given that (though I don't know whether it's been explained to them) there would presumably be more reasonable alternatives such as requiring Continental to stipulate to a stay (maybe even just a stay of an injunction in case it's granted; on that basis, the U.S. court could adjudge the antisuit motion anyway, and maybe the Munich AAII will be lifted by the appeals court in the interim).

The question I was most interested in today is whether Nokia's pursuit of an AAII against the group parent contradicts its disputing--in a filing made with Judge Koh's court--the functional identity of the parties between the U.S. FRAND/antitrust case (where CAS is the sole plaintiff) and the German Nokia v. Daimler cases, given that CAS does not supply the components accused in the German Nokia v. Daimler cases. Nokia pointed out that CAS is trying to achieve in the Northern District of California that the entire Continental group would receive a worldwide SEP license from Nokia; and Nokia vehemently and convincingly (in practical, though not necessarily formalistic legal terms) argued that no matter how many different legal entities the Continental group consists of, it's practically one large organization run by the same people at the very top. If they had said the same in the U.S. litigation, there wouldn't be much, if anything, left of their claim that the U.S. antisuit motion should be denied for lack of functional identity. But they said so only in room 501 of the Munich I Regional Court today, approximately 6,000 miles away from San Jose, and the U.S. motion has been fully briefed, so unless Continental's U.S. lawyers figure out a way of still bringing Nokia's positions in the German litigation to Judge Koh's attention (a letter, a request for judicial notice, or whatever), it might not affect the decision in California.

One last observation. There were only a very few people in the courtroom today, despite the matter involving some highly interesting questions of law and policy, and there being significant commercial ramifications. Today's small audience included inhouse counsel for a major mobile device and chipset maker, a lawyer from a German office of a major U.S. litigation firm, two persons I didn't know, and a few young people who looked like interns. I'm not sure if Continental or Daimler sent anyone (other than Continental's outside counsel). There's a lot more interest in such hearings when major mobile device makers like Apple are involved. Many automotive industry players (car manufacturers as well as their suppliers) may have to take patent litigation more seriously, or they're not going to survive disputes with the take-no-prisoners litigation pros working for the likes of Nokia. Especially in multijurisdictional litigation, coordination sometimes makes all the difference.

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Continental seeks to keep Avanci case in San Jose, says it "will have immediate and lasting effects on the whole IoT industry [...] around the world"

In a few hours the Munich I Regional Court will finally hear oral argument regarding Nokia's motion for an anti-antisuit-injunction injunction ("AAII") against automotive industry supplier Continental. In the post I just linked to, I stated the correct weekday (Thursday) but missed the correct date by one day (meanwhile fixed).

In the antisuit context, I've previously expressed some disappointment that Continental didn't make it structurally easier for Judge Koh (such as by choosing the ideal plaintiffs and movants from that large corporate group) to grant the U.S. antisuit motion. The motion and the related reply brief made some valid points, but also contained nonsensical parts. And, quite frankly, I don't understand why they didn't counter Nokia's denial of functional identity of the parties by pointing to Nokia's own argument in the German AAII case, where Nokia essentially tells the court that Continental AG, the Germany-based group parent, controls all Continental entities at any rate--in which case functional identity (between the parties in Continental v. Avanci et al. in San Jose and the German Nokia v. Daimler--as well as recently-filed Sharp v. Daimler--cases) becomes a matter of merely applying the logic of the U.S. customer suit exception here.

But I must give Continental's U.S. lawyers credit for now having filed the strongest and most thoroughly researched opposition brief to a venue transfer motion that I've seen in almost a decade of watching these kinds of cases. It's roughly three times as fact-rich as the average opposition brief of this kind that I've seen in high-profile cases. While Continental's filings in the antisuit context contain passages that attempt to substitute words for facts, the opposition brief to Avanci's motion to transfer the case out of Judge Lucy H. Koh's court in San Jose (Northern District of California) and to the Northern District of Texas excels with a record density of relevant facts (this post continues below the document):

19-08-28 Continental Opposi... by Florian Mueller on Scribd

If I didn't agree with Continental that "[t]his case will profoundly impact an entire global industry—the Internet of Things, including automotive connectivity," I wouldn't have taken an interest in it in the first place. As Continental's opposition brief notes, the IoT industry is estimated to reach $11 trillion by 2025, and Avanci has made it clear all along that the patent pool firm "seeks to license the entire Internet of Things."

There simply is no judicial district in the world where you'd find a higher concentration of today's and tomorrow's leading IoT companies than the Northern District of California, and within that district, San Jose is, at most, a few miles away from the center of gravity.

Besides the strictly legal relevance of the particular relevance of a case to the local economy in a federal judicial district, Continental's efforts to portray this case as a pivotal one for Silicon Valley are presumably also meant to persuade Judge Koh that this case is worth her time despite being one of the busiest federal judges.

Technically, it's about the district. Practically, it's about the judge. If someone, in an alternative universe, offered Avanci a deal under which the case would stay in San Jose but another judge would take over, but Avanci would have to withdraw its transfer motion in exchange, I guess they'd do so any day of the week.

Continental notes that "[t]his Court is extremely familiar with the legal issues in this lawsuit because it recently decided FTC v. Qualcomm, Inc., No. 17-cv-00220-LHK, another case involving FRAND, SEP, and related antitrust issues." That is, quite obviously, the reason for which Avanci's first transfer motion, prior to the one that is pending now, tried to at least move the case up north to San Francisco--before it had even been formally assigned to Judge Koh.

Among the other relevant cases that Continental lists are some that Judge Koh presided over, with her decision on the smallest salable patent-practicing unit in GPNE Corp. v. Apple being particularly interesting. There were some SEP issues in Apple v. Samsung, but Judge Koh left them to the jury, while in GPNE she made a key decision--specific to the facts in that case, but based on an approach that can be applied here as well.

Continental is right that "the Northern District of Texas has had few, if any, cases involving FRAND, SEP, or related antitrust issues." That's true because if patent holders sue in Texas, they generally prefer to do so in the Eastern District.

Continental has a very good story to tell about its own presence in the Northern District of California. Its Intelligent Transportation Systems (ITS) segment offers "Key as a Service" ("KaaS"):

"Using KaaS, a person can use her phone to lock, unlock, start, stop, and operate the vehicle in other ways. [...] In other words, this technology enables keyless entry and use of a vehicle. [...] The user's phone communicates with a Remote Cloud Key ('RCK') device typically installed in the vehicle, which also provides information about the vehicle to the phone, such as speed, fuel levels, and location. [...] KaaS also utilizes devices (e.g., ACCM and CSM modules) that rely on 3G connectivity. [...] ITS has 44 engineers working on KaaS, all located in San Jose."

ITS, which also depends on connectivity for its "fleet management" service and "telematics platform", is less than eight miles from the San Jose federal courthouse on North 1st Street--the courthouse is between South 1st Street and 2nd Street.

Continental's lawyers have done the most thorough research imaginable on travel by Avanci representatives to the Northern District of California for licensing talks as well as speeches at conferences. Continental criticizes Avanci's motion for its failure to reference one of the Ninth Circuit's Jones factors considered in evaluating transfer motions: "the respective parties' contacts with the forum." That's where any business meetings or presentations at conferences become relevant--and, unsurprisingly, Avanci and its members travel there all the time. They also choose or are forced to litigate there quite frequently. And they have various offices in the area, though Avanci's motion denied that the activities of those offices are too relevant to this FRAND/antitrust case.

Continental stresses that the plaintiff's choice of forum generally deserves some deference, and even more so in an antitrust case. Also, while Avanci argues that Continental's claim under California's Unfair Competition Law won't survive the upcoming motion to dismiss the complaint, at least for now there is such a claim and no one could reasonably claim that a judge in Texas should have to make a decision based on California UCL.

Avanci could have tried to move for a transfer to another district in California (just like they wanted to move it over to a different city with in the Northern District). But where could they go? The Eastern District (Sacramento) doesn't matter for tech cases. The Central District (L.A.) does get a significant number of technology cases, and there some carmakers have operations in or around Torrance, but presumably not the ones that are directly or indirectly involved with Continental v. Avanci. Relatively speaking, the Southern District of California would apparently have been the only alternative in the Golden State, but then Avanci would have had to place the emphasis on Qualcomm, which is a key Avanci member and certainly has a strong interest in this case, though Nokia is more relevant. Continental actually mentions the fact that Qualcomm witnesses can be compelled to testify in San Jose, but not in Dallas.

Continental doesn't want to take its chances, so while they are, for good reason, confident of being able to defeat Avanci's motion, they'd at least like to be allowed to conduct venue discovery before the transfer motion would be granted. Again, I predict that the motion will be denied (and most likely without a hearing, much less discovery), but it's better to be safe than sorry.

In the absence of compelling reasons for transferring the case from San Jose to Dallas, Avanci's only realistic chance of effectively wresting this case out of Judge Koh's hands is to gain decisive leverage over Continental through enforceable German patent injunctions. That strategy might work given the sad situation in Germany, where injunctions come down too often (typically even over invalid patents) and judges used to be totally unreceptive to FRAND arguments until they saw the European Commission taking action against Samsung and Motorola and the Court of Justice of the EU's Huawei v. ZTE opinion practically overruled the German Orange-Book-Standard doctrine or at least its utterly unreasonable application at the time. Post-Huawei, even German courts have become slightly more moderate with respect to SEP issues, but it's still an exceedingly patentee-friendly jurisdiction where judges tend to feel that a patent over which you can't obtain an injunction isn't really a patent. If Continental can't secure a U.S. antisuit injunction against Nokia (and, if necessary, also against Sharp in the next step), it's more likely than not that Nokia or some other Avanci member would gain so much leverage in Germany (over Continental customer Daimler) that Continental might ultimately be forced to drop its San Jose case, and the IoT industry would be the poorer for it.

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Monday, August 26, 2019

Nokia's German anti-antisuit campaign against Continental's San Jose antisuit motion: court hearing scheduled for Thursday (8/29)

Continental v. Avanci (Northern Distict of California; Judge Lucy H. Koh; trial date in October 2021) continues to be an extraordinarily interesting FRAND dispute. On Thursday (August 29) I'll attend a hearing that the 21st Civil Chamber of the Munich I Regional Court will hold as a result of Nokia pursuit of an additional anti-antisuit-injunction injunction ("AAII") against Continental AG, the German parent company at the top of the automotive industry supplier's corporate group. The AAII that Nokia obtained last month enjoins Continental Automotive Systems, Inc. ("CAS"; of Auburn Hills, MI), the plaintiff in the U.S. case, once properly served on CAS--which Nokia claims to have occurred already while CAS argues the rigid service requirements of the Hague Convention in conjunction with the rules governing the service of German court injunctions have yet to be fulfilled.

The press office of the Munich court thankfully confirmed to me today that a hearing would be held, and provided the case number 21 O 9512/19, while the case number of the already-ordered injunction against CAS (of which Nokia informed Judge Koh) is 21 O 9333/19. A translation of Nokia's original German motion was attached to Continental's reply (in the form of another letter to Judge Koh). The motion named two respondents (click on the image to enlarge; this post continues below the image):

Respondent 1 is Continental AG (the German parent company of the entire group); Respondent 2 is CAS, the U.S. entity and plaintiff in the NorCal case. Continental's reply brief in support of its motion for a U.S. antisuit injunction against Nokia's pursuit of German patent injunctions against Continental customer Daimler describes CAS as "an indirect corporate subsidiary of Continental Automotive GmbH," a German limited-liability company that according to a table I found on page 20 of Continental AG's 2015 annual report is a wholly-owned subsidiary of Continental AG. To avoid or at least minimize any confusion, Continental AG owns Continental Automotive GmbH, which in turn owns CAS in the greater Detroit area.

In July, the Munich I Regional Court granted an ex parte (which in Germany means that the other party won't hear anything about the judicial process until a decision comes down) injunction against CAS, but denied the motion with respect to Continental AG. Apparently the Munich I Regional Court then assigned different case numbers to the same preliminary-injunction case: 21 O 9333/19 for the successful part of the motion (the one targeting CAS), and 21 O 9512/19 for the part that was (at least initially) denied. The hearing on Thursday must be held because Nokia didn't accept the denial with respect to the German company.

At the end of or subsequently to the Thursday hearing, the court will decide whether to uphold the denial, in which case Nokia can appeal the matter to the Munich Higher Regional Court, or to reverse the denial and grant the additional preliminary injunction Nokia is seeking against Continental AG, in which case the latter would have the right to appeal the decision to the Munich Higher Regional Court. Either way, I guess this matter will reach the regional appeals court (comparable to a federal judicial circuit in the U.S.) pretty soon.

An additional preliminary injunction against Continental AG would bring two distinct advantages from Nokia's perspective:

  1. Continental AG ultimately controls all companies within the group, and the injunction would require Continental AG to ensure compliance with the AAII by all of its direct and indirect subsidiaries.

  2. What's more important is that Continental AG is based in Hanover, Germany, so a preliminary injunction could easily be served within a day or two--obviating any Hague Convention questions and delays.

While the 9333 injunction against CAS came down without a hearing (no matter how unbelievably baffling this may be from an American vantage point), the fact that things didn't go quite so smoothly for Nokia in the 9512 case against Continental AG means that Continental will now finally have the chance to explain to the court why it believes Nokia is not entitled to an AAII. Declarations attached to two recent U.S. filings indicated that Freshfields Bruckhaus Deringer's Dr. Frank-Erich Hufnagel--whom I mentioned here countless times when he was lead counsel for Apple--is Continental AG's counsel in the German Nokia cases. Nokia is suing Daimler in Dusseldorf, Mannheim (where the first of several trials will be held in December as the Mannheim Regional Court's press office just told me), and Munich--and in all those cases, at least some of the accused products are Mercedes models that come with telematics control units supplied by Continental, which according to a U.S. filing has some contractual obligation to indemnify Daimler.

Two things are a mystery to me that I hope I'll better understand by attending the Thursday hearing:

  • In the CAS case, the Munich court wrote that antisuit injunctions are not reconcilable with German law, only to proceed and grant one (an AAII). How can they grant what they say is basically against German law?

  • Until I learned today that Nokia is seeking an AAII against Continental AG, I thought Nokia had a point--not necessarily, but potentially fatal for Continental's U.S. antisuit motion--in disputing functional identity of the issues and parties (one of the Gallo requirements for a U.S. antisuit injunction) given that CAS, the U.S. plaintiff and antisuit movant, is not among the three Continental entities that received third-party liability notices in the German Nokia v. Daimler cases. While I've agreed with Continental's analogy to the customer suit exception (that normally governs transfers between U.S. districts) all along, I thought that maybe CAS was just too many steps remote from Daimler, the defendant in the German infringement actions Continental is trying to prevent Nokia from pursuing. But now Nokia itself is insisting on an AAII against Continental AG, the group parent that is not a party to the U.S. proceedings. Again, I'll learn more on Thursday, but for now I'm really puzzled because it looks like Nokia itself is actually establishing the very functional identity of the parties between the U.S. case and the German cases that it used to dispute. If Continental AG is in Nokia's opinion (though so far the Munich court disagrees) properly enjoined by an AAII, then it appears pretty much irrelevant which ones of Continental AG's myriad direct and indirect subsidiaries receive third-party notices in the German infringement actions versus which one brought the U.S. antisuit motion. Is Nokia undermining its own assertion that the parties aren't functionally identical? I'm going to listen closely on Thursday to figure this one out.

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Sunday, August 25, 2019

Qualcomm argues Quanta changed patent exhaustion law, requiring Qualcomm to adjust terms of dealings with other chipmakers

This is my first follow-up to yesterday's post, which just served to make Qualcomm's Ninth Circuit opening brief in its appeal of the FTC v. Qualcomm ruling public and to discuss the likely effect of the sheer length of that filing on the further schedule.

While it's imperative to see the forest among all the trees, it simply is a huge case, so this first commentary on Qualcomm's opening brief on appeal will focus on the question of chipset-level licensing (Section I of the brief, which ends on page 70 of the PDF).

In order to analyze what Qualcomm is saying in that incredibly important part, I've re-read a couple dozen other documents, most of which are court decisions cited by Qualcomm or others in this context. On this basis I can provide you with a bird's-eye view on the questions this part of the appeal turns on.

First, Qualcomm says Judge Lucy H. Koh of the United States District Court for the Northern District of California determined that the market-dominating cellular baseband chipset maker had an "antitrust duty to deal" with its competitors by granting them an exhaustive SEP license on FRAND terms.

In connection with Qualcomm's motion to stay, the FTC had (in that context, unsuccessfully) argued that the obligation to grant licenses to other chipset makers was not simply and strictly an antitrust duty to deal in a narrow sense, but there was more to it. It was about the overall conduct and its anticompetitive implications. Qualcomm already claimed in connection with its motion to stay enforcement that the FTC wasn't even trying to defend Judge Koh's rationale.

After further research, I think Qualcomm is closer to the truth here than the FTC as far as the nature of Judge Koh's chipset-licensing decision is concerned. In her conclusions of law, Judge Koh "conclude[d] that Qualcomm has an antitrust duty to license its SEPs to rival modem chip suppliers." It couldn't be any clearer.

What the FTC did in the stay context was to broaden the perspective and present a "right for the wrong reasons" kind of theory (except they wouldn't concede the "wrong" part, and would claim that Judge Koh actually had the right reasons because she got everything right at the holistic level).

Further below I'll also address Qualcomm's linkLine attack vector against the alternative holistic theory. But at the start of the analysis it's just about whether or not Judge Koh concluded there was an antitrust duty to deal. Yes, she did, as Qualcomm accurately notes, and unlike Qualcomm I think she was right to do so, though some people's mileage may vary. I hope the FTC will draw the appropriate conclusions from its inability to sell its grand-picture type of theory from a parallel universe to the motions panel, and will now focus on defending what Judge Koh actually wrote as opposed to a strawman.

Second, Qualcomm discusses the chipset licensing part of Judge Koh's duty-to-deal decision as if, under subsequent Supreme Court (Trinko) and Ninth Circuit () precedent, the sole exceptional basis for an antitrust duty to deal--were Aspen Skiing, a case in which the operator of three ski resorts in an area abusively refused to continue to cooperate with the operator of the fourth resort in order to sell a ticket covering all resorts in that area, which for various reasons was a very attractive offering.

While it is true that the Supreme Court and the Ninth Circuit have on different occasions made it clear that an antitrust duty to deal must be a rare exception, and have therefore opposed exceedingly expansive interpretations of Aspen Skiing, I disagree with Qualcomm's "Aspen Skiing or bust" (my words, not theirs, as you might have guessed) position.

Judge Koh's ruling calls the Aspen Skiing precedent "[o]ne circumstance where a monopolist has a duty to deal with rivals" (emphasis added). One. Not "the only one."

This is consistent with the Supreme Court's Verizon v. Trinko (often just named after the latter) decision, which describes Aspen Skiing as "[t]he leading case imposing §2 liability for refusal to deal with competitors" (emphasis added). The leading one. Again, not the only one. After concluding that the telecommunications case before the Supreme Court in Trinko didn't match the Aspen Skiing pattern (for a reason I'll address further below), it held that "[t]raditional antitrust principles do not justify adding the present case to the few existing exceptions from the proposition that there is no duty to aid competitors" as Verizon was already subject to oversight by regulatory agencies and the downside of "antitrust intervention" would in this case have outweighed the "slight benefits."

I wrote last month (in a post that also summarized the Aspen Skiing case that "nowhere does Judge Koh say or suggest that Qualcomm's obligation to extend FRAND licenses to rival chipset makers is like a photographic image of the fact pattern in Aspen." Those cases involve different industries. It's true that Judge Koh heavily relies upon Aspen, whch is not surprising given that it's the closest precedent out there, but I reject any narrowing of the issue to the question of whether or not this is Aspen 2.0 just like I disagree with the FTC's overbroad characterization of what Judge Koh actually held.

Third, the part of Judge Koh's Aspen analysis that Qualcomm focuses on is the question of whether the monopolist abandoned a profitable course of dealing in a way that would sacrifice short-term profits because of long-term benefits from weakening, or preferably getting rid of, a competitor.

In Aspen, the courts apparently assumed that the larger one of the two players would have made more money in the short term, meaning in a given skiing season, by continuing to cooperate with the competitor it wanted to weaken or drive out of business. In her FTC v. Qualcomm decision, Judge Koh points to what Qualcomm once told the IRS about changes to its licensing terms and the underlying strategic rationale.

Qualcomm argues that this still doesn't make it an Aspen case since Qualcomm switched from license deals with other cellular baseband chipset makers to covenants not to sue (more recently, covenants to sue last) because the law on patent exhaustion changed. Qualcomm's lawyers say their client never wanted to grant exhaustive licenses to chipset makers, but--in other words--the goal posts moved and they had to adjust, but since they never wanted to grant such exhaustive licenses, they never abandoned a voluntary course of dealing.

On this one, I agree on what Qualcomm did or did not want to achieve with its earlier chipmaker agreements (there can be no reasonable doubt in my mind about Qualcomm consistently having tried to structure such deals so as to avoid exhaustion), but for a variety of reasons, any single one of which would be self-sufficient, I ultimately disagree with Qualcomm on what that means for the case at hand.

The first one of those reasons is that we're not talking about a change of the legal framework resulting from legislation (such as if the America Invents Act or an international trade agreement or whatever other measure had enshrined patent exhaustion in statutory law, on a basis going beyond the case law that existed at the time). We're not even talking about the Supreme Court deciding to overrule an earlier decision. There was no legislative or judicial about-face here. The June 2008 Quanta v. LG Electronics decision (PDF) refers to roughly 150 years of tradition of the patent exhaustion doctrine and takes the position that what the Supreme Court held in 2008 had been the (case) law all along. Justice Thomas's per curiam says: "Univis governs this case." United States v. Univis Lens Co. is a decision from 1942--approximately the time Qualcomm's founders were born.

Even if Qualcomm didn't know that its attempts to avoid patent exhaustion weren't effective, Qualcomm still signed those license deals voluntarily, and the unanimous (!) Supreme Court decision in Quanta says that patent exhaustion was always meant to cover that kind of situation--for 150 years, or at least since 1942.

Another key fact to consider is that Qualcomm itself has for a long time demanded and obtained exhaustive licenses covering its own chipsets. Why couldn't a court just find that the abandonment-of-voluntary-dealing criterion of Aspen is alternatively also satisfied by a company's own conduct when the shoe is on the other foot (what's good for the goose...)? Judge Koh's findings of fact refer to those licenses, and even in the legal conclusions on chipset level licensing she mentions that "Ericsson also granted Qualcomm a chip-level license."

Again, I can understand why Judge Koh mostly discussed Aspen. But one can apply the philosophy underlying the concept of venire contra factum proprium to an Aspen-like (even if not identical to Aspen) fact pattern. If a monopolist imposes (and the record contains ample evidence that nobody liked to grant Qualcomm an exhaustive chipset-level back-license, but they all had to because of Qualcomm's enormous market power) a form of cooperation on others, then that is, in my view, potentially an even stronger point than the literal Aspen case of abandoning a course of profitable dealing.

The fact that Qualcomm's refusal to extend an exhaustive SEP license to chipmakers while always securing such licenses for its own chips is one of the most important reasons for which I thought from the beginning that the FTC would prevail on the chipset-licensing part. It would be a modification, or even a replacement, of one of the Aspen criteria, but far too logical and reasonable to even be described as "trailblazing" (which is the relatively most positive potential conclusion of the appeal that the motions panel imagines).

MediaTek's excellent amicus curiae brief in support of the FTC's opposition to Qualcomm's motion to stay mentions the above as the fourth one of "at least four prior voluntary courses of dealing" that could satisfy the related Aspen factor:

"(1) Qualcomm's voluntary FRAND commitments to license, which were designed to expand Qualcomm's profits by securing inclusion of Qualcomm technology in industry standards, (2) its previous record of licensing its patents to rivals as well as customers, (3) its exhaustive sales of chips (with patent rights included in the chip sale) in markets where it lacks monopoly power, and (4) its insistence that other SEP owners license their patents back to Qualcomm’s chip business (precisely the requirement to which Qualcomm now objects when applied to Qualcomm)."

With respect to those FRAND commitments, Qualcomm unsurprisingly denies that they count in this context--but the fact of the matter is that Qualcomm made some FRAND pledges that were very clear about that (as the summary judgment in the FTC case held).

All in all, there are some ways to defend the holding that Qualcomm had an antitrust duty to deal, and I hope the FTC and its amici will follow MediaTek's example rather than try to tell the FTC's holistic story that didn't get traction at the stay stage.

Fourth, even though the conduct at issue in Aspen Skiing allegedly sacrificed short-term profits for the sake of long-term competitive harm, I believe the concepts of "short-term" and "long-term" must be viewed differently in the fast-paced cellular baseband chipset market. Here, the short-term opportunity would be a license deal with chipmakers (whom one could charge once they ship their components to a device maker), and the long-term one would be Qualcomm collecting royalties from device makers later on. Aspen and Trinko don't specify a particular period of time between one business opportunity and the other.

Fifth, Qualcomm points to two Ninth Circuit no-duty-to-deal decisions, Metronet v. Qwest (2004) and Aerotec v. Honeywell (2016); the latter cites to the former.

Metronet has a lot in common with Trinko: it's about telecommunications networks, and there is governmental regulation in that field, so there's no reason why antitrust law should be invoked instead. Aerotec was about replacement parts sold to a third-party provider of repair services for a type of aircraft component (auxiliary power units). That's also quite far from SEP licensing. A replacement part can be sold only once in each case; patents are virtual and can be licensed any number of times (provided that the contracts contain safeguards against double-dipping).

Sixth, Qualcomm argues it's more efficient to license at the device level than to engage in multi-level licensing, and in this context complains that while there may be a market in terms of demand for chipset-level licenses, courts might have to set royalty rates. (Arguably, those are two separate, though interrelated, issues.) But it's one thing what rights someone (be it a chipmaker or a device maker) can enforce if all else fails and another thing what may be the most common outcome at the end of the day. A device maker who knows that a chipmaker is entitled to a license may still take a license to Qualcomm's entire portfolio--but the negotiation will be different if the important alternative of component-level licensing exists. And as for judicial determinations of royalty rates, that's simply something that can happen--and has sometimes happened--in connection with SEPs. In fact, potential judicial determinations of SEP royalty rates play a key role in connection with restrictions on SEP holders' access to injunctive relief.

Seventh, while I believe the antitrust duty to deal is defensible here, it's always good to have fallbacks and that's where the FTC and its amici may still argue that the grand evil scheme of Qualcomm's anticompetitive conduct justifies an obligation to extend chipset-level licenses. However, Qualcomm does have a point that the Supreme Court's 2008 LinkLine decision basically says you can't base your antitrust theory on the difference between wholesale and retail prices but you must either show predatory retail prices (here, that would mean predatory pricing by Qualcomm for its chipsets when patent royalties are not considered, which has indeed been identified by the European Commission) or a duty to deal at the wholesale level. Qualcomm is right that (in my words) you need at least one of those pillars, but can't just build a bridge without at least one bridgehead. This doesn't mean that LinkLine necessarily defeats a holistic theory here, but one has to navigate around it--otherwise the FTC's alternative theory might fall into the LinkLine trap.

Supporters of Judge Koh's decision need not worry. Qualcomm's opening brief isn't shockingly strong. It's very well-crafted for sure (with a couple of typos on page 37 presumably being attributable to last-minute edits because they wanted to reference the order granting the motion to stay), but it's pretty much what one could hear from them in the January trial: because their business model works for them, they believe it's legit.

However, the FTC and its amici must and undoubtedly will take this challenge very seriously. The appellate game is different from the bench trial, and Qualcomm's opening brief (I'll comment on the other parts on some other occasions) presents the law and the facts in a way that will definitely be "appealing" to any judges worried about an expansive interpretation of the antitrust laws.

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Saturday, August 24, 2019

Qualcomm files opening brief in Ninth Circuit appeal of FTC antitrust win; appellate hearing may slip into February

Not unexpectedly but understandably, Qualcomm just filed a 176-page opening brief with the United States Court of Appeals for the Ninth Circuit in its appeal of the Federal Trade Commission's antitrust victory in the Northern District of California--and an 11-page unopposed motion explaining why the opening brief has to be that long.

This has implications for the timeline. The most recent scheduling order, based on another unopposed Qualcomm motion, gave the FTC until October 25 for its responsive brief, and Qualcomm until November 15 for its reply brief. But in that motion Qualcomm already indicated that the FTC could also get an extension (after Qualcomm got two more weeks because the expedited schedule was too expedited even for them) should Qualcomm exceed page limits. It now turns out the FTC will even get twice as much extra time: four weeks. Qualcomm doesn't oppose it, so it's a given that the FTC will use that extra time and then file its responsive brief just before Thanksgiving--and then Qualcomm will have until mid-December for its reply brief.

When the Ninth Circuit's motions panel for August granted Qualcomm's motion to stay the enforcement of two of the FTC's antitrust remedies yesterday morning and ordered that the hearing be scheduled for January, this extension was not factored in. As a result, the appellate hearing will presumably slip into February (February 3-7 or February 10-14), if not March 2-6; at the very earliest it might take place January 21-24 (the later one of the Ninth Circuit's two January 2020 court sessions), but the January 6-10 session doesn't appear to be a practical option anymore. There are San Francisco sessions scheduled for every single one of the periods I just mentioned. The Ninth Circuit is geographically huge and holds sessions in multiple cities, of which San Francisco is the closest one to San Jose and the only one in that federal judicial district. The first Ninth Circuit session in 2020 without a San Francisco hearing will be in late March/early April, and it's unlikely that this hearing would be postponed by that much.

In order to be of service to my esteemed readers, many of whom take a strong interest in the case, I'm now going to publish the opening brief without further comment. I normally always provide some reaction, and yesterday I did so near-simultaneously with Reuters (the first news agency to publish an article on the stay that Qualcomm had obtained), but given that it's an appellate proceeding where nothing will happen between now and the FTC's responsive brief (I'd have commented today if the motion for a stay had still been pending), that it's a weekend, and that this brief is really voluminous, I'm going to take my time to digest it and will do a follow-up post on Sunday or early next week.

19-08-23 Qualcomm Opening B... by Florian Mueller on Scribd

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Friday, August 23, 2019

Ninth Circuit motions panel grants Qualcomm's motion to stay enforcement of FTC's antitrust remedies; appellate hearing to be held in January

In my most recent post on Qualcomm's motion to stay the enforcement of the FTC's antitrust remedies, I had written two things that have just been validated by the court's decision to grant Qualcomm's motion:

  • "The August [Ninth Circuit motions] panel has a Republican majority, so should that new panel be in charge now, then the DOJ's brief [which included statements by two other federal government departments] would likely be given more weight unless they see that a former Qualcomm lawyer's lobbying for his past client (and possibly also future client when he returns to private practice) doesn't make the idea of healthy competition an ideological cause."

  • "Qualcomm might internally--and reasonably--view the time that this is taking as a sign that is more likely than not to be positive, especially since I guess they feared a swift denial of their motion."

Indeed, the order relies heavily on the DOJ's input, and the time that this took was good for Qualcomm. Here's the order (this post continues below the document):

19-08-23 Ninth Circuit Orde... by Florian Mueller on Scribd

The order is based on the judges' conclusion that

  • "Qualcomm has shown, at minimum, the presence of serious questions on the merits of the district court's determination that Qualcomm has an antitrust duty to license its SEPs to rival chip suppliers" (even though the FTC had argued that it's not simply a duty-to-deal case but a question of Qualcomm's overall anticompetitive scheme),

  • Qualcomm would be harmed by the impact of the injunction entered by Judge Lucy H. Koh on its contractual relationships (though the FTC and its amici had argued that Qualcomm could solve the problem through contract terms that would apply should Qualcomm prevail on appeal), and

  • that the public interest weighed in Qualcomm's favor because of the federal government (and even the FTC) being divided.

The order says the appellate hearing should be scheduled for January 2020. A different panel of judges may be in charge then--we'll see. This motions panel, however, was easily swayed by the DoJ's Statement of Interest (two of the judges were appointed by Republican presidents, one of them by President Trump) and seems rather sympathetic to Qualcomm's position, as is evidenced by the following sentence:

"Whether the district court's order and injunction represent a trailblazing application of the antitrust laws, or instead an improper excursion beyond the outer limits of the Sherman Act, is a matter for another day."

That means they don't view the district court's decision as being in the antitrust mainstream, the sole question from the vantage point of those circuit judges being whether it's about novel theories that might be affirmed nonetheless or just squarely outside the boundaries of antitrust law.

Even if the same three judges were to evaluate the merits of the case, affirmance would be possible, but it would be an uphill battle for the FTC. With a different panel, however, and extensive briefing on the merits, anything is still possible. At this procedural stage, a panel with a Republican majority simply didn't want to turn a deaf ear to a Republican government's input urging the appeals court to stay the enforcement of remedies and warning of grave consequences even for national security.

Qualcomm's opening brief is due today. Qualcomm had first requested and obtained an expedited appeal, but then it was too tight a schedule even for their purposes, so they asked for an extension, which they got.

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Thursday, August 22, 2019

Judge Koh schedules Continental v. Avanci et al. FRAND trial for October 2021, denies defendants' motion to stay discovery

Yesterday Judge Lucy H. Koh of the United States District Court for the Northern District of California held an initial case management conference in Continental v. Avanci et al.--for details on the issues in the case, please click on the links to earlier posts that you find in this article--and subsequently issued the following case management order (this post continues below the document):

19-08-21 Case Management Or... by Florian Mueller on Scribd

The 10-day bench trial (reminiscent of FTC v. Qualcomm) will kick off on October 15, 2021.

The next case management conference will take place on December 18, 2019, and I'll probably be in the area and may stop by out of curiosity (which wasn't possible yesterday).

Also, the defendants' (i.e., Avanci, Nokia, and privateers that Nokia once fed with patents; and meanwhile, Sharp has also been properly served) motion to stay discovery was denied. While their forthcoming motion to dismiss and already-pending venue transfer motion have yet to be adjudicated, it's possible that Avanci's related arguments at least haven't overwhelmed Judge Koh, which may be the reason she doesn't see a point in staying discovery.

The just-mentioned motion to transfer the case from San Jose to Dallas is already the second attempt to avoid Judge Koh's jurisdiction over the case. In June, Law.com's Scott Graham reported on the denial of a venue-internal transfer motion: the Northern District of California has several divisions; Judge Koh is based in San Jose; and Avanci wanted to at least get the case moved out of that place (with San Francisco being their preferred alternative), even before it was formally assigned to Judge Koh (at the time it was still pending with Magistrate Judge Nathaniel Cousins, which already made it likely that it would be assigned to Judge Koh). As Scott Graham mentioned, Nokia's testimony in FTC v. Qualcomm didn't appear credible to Judge Koh (for undestandable reasons as Nokia itself once complained over Qualcomm's practices, at a time when Nokia was still in the mobile handset business).

The order doesn't say anything about the further process regarding Continental's fully-briefed motion for an antisuit injunction. In my opinion, that motion is neither totally meritless nor a slam dunk.

Juve Patent thankfully credited my blog for publishing the case numbers and patent-in-suits of five German Sharp v. Daimler patent infringement cases (Sharp is another Avanci member). That article also says a first hearing in one of the Nokia v. Daimler patent infringement cases will be held in Munich in October, and the first Nokia v. Daimler trial is scheduled for December in Mannheim. When Continental and Avanci briefed Judge Koh ahead of yesterday's case management hearing, Continental listed those German patent infringement actions against Daimler as related cases, while Avanci and its co-defendants deny that there is a link.

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Saturday, August 17, 2019

Hot summer for Ninth Circuit motions panel: Qualcomm's motion to stay enforcement of FTC remedies still pending after more than 3 weeks

Imagine you're a judge on the United States Court of Appeals for the Ninth Circuit, and from time to time you serve on the Motions Panel that changes every month. Motions to stay the enforcement of injunctions are the most critical ones to resolve, short of anything related to executions, but there aren't any pending in the Ninth Circuit.

Most motions, including those motions to stay enforcement, involve relatively narrow issues. But from time to time, a "monster" motion comes along. That's what happened when Qualcomm, understandably though I mostly disagree with them on substance, sought a stay of the enforcement of the injunction the FTC had obtained from Judge Lucy H. Koh of the United States District Court for the Northern District of California.

Just the findings of fact and conclusion of law underlying the order span 233 pages. But there's also been a significant volume of briefing on the motion. Assistant Attorney General Makan Delrahim, a longstanding Qualcomm friend who represented Qualcomm while in private practice, heads the Antitrust Division of the Department of Justice, and his subordinates made a filing in support of Qualcomm that was also backed by a couple of other Administration officials. The FTC's solid but somewhat lackluster opposition to Qualcomm's motion was supported by industry body ACT | The App Association and by chipmaker MediaTek, whose filing showed a Qualcomm-internal presentation depicting competitors' exits from the cellular baseband chipset market with tombstones.

The national security arguments made by Qualcomm and its usual allies are bogus claims from different perspectives. Not only are products, not patents, relevant to security and is Qualcomm far too profitable that a requirement to extend patent licenses on fair, reasonable and non-discriminatory terms could threaten the innovative capacity of a company that spent far more on stock buybacks in recent years than on research and development, but Qualcomm's national-security argument also comes down to them saying that the elimination of competition (by means that the district court found illegal) has now made them, as the sole survivor, absolutely critical to U.S. national security. Meanwhile, Apple has acquired Intel's mobile chipset division, ensuring that there still is at least one major U.S. company investing in R&D in this field.

But let's again try to look at this from the vantage point of a judge on the Ninth Circuit motions panel. You get hundreds and hundreds of pages to review, which point to lots of external documents, such as other decisions. That's why, after Qualcomm was granted expedited appellate proceedings, they found even they, with their vast resources and their intimate knowledge of the issues, needed more time. You see a submission by the federal government that urges you to grant the motion lest the world descend into chaos.

It's not easy to brush aside those concerns by giving the motion short shrift. Judge Koh denied Qualcomm's original motion to stay enforcement quickly, but the original ruling had taken even her (as famous as she is for working smart and hard) well over three months after the January trial. I still remember the laughter in her courtroom when she said: "Sadly, this opinion's gonna take some time." It did, but the result was well worth it.

It's now been more than three weeks since briefing was completed, and some knowledgeable people had actually expected a decision to come down in July.

I'm not sure about how the Ninth Circuit organizes this internally, but I presume that the July motions panel (with a Democratic majority) is still in charge, given that the motion was fully briefed before the end of July and the judges on the motions panel are, according to the appeals court's website, "assigned to consider ready substantive motions matters," and this one was ready with almost a week left in July. The August panel has a Republican majority, so should that new panel be in charge now, then the DOJ's brief would likely be given more weight unless they see that a former Qualcomm lawyer's lobbying for his past client (and possibly also future client when he returns to private practice) doesn't make the idea of healthy competition an ideological cause.

The decision will be interesting, but whatever the outcome may be, let's not overrate it. An appeals court may well stay enforcement, especially for the duration of an expedited appeal, but nevertheless affirm, in whole or in large parts, when the focus is entirely on the merits, or it may deny a stay but identify serious issues later on.

The time that it's taking them to decide can't be reliably interpreted. The only safe assumption is that they are kind of overwhelmed. It might mean that they're working on a rationale that will enable them to grant the motion without taking such a strong position that would suggest the merits panel could decide only one way. It could also mean that they've concluded the motion should be denied, but in light of governmental brouhaha about the end of the world being nigh, the appeals court wants to write up a thorough denial. Qualcomm might internally--and reasonably--view the time that this is taking as a sign that is more likely than not to be positive, especially since I guess they feared a swift denial of their motion. Contrary to Qualcomm's representations, it's not like anything dramatic would happen to Qualcomm's business in the very short term, given that any license (re)negotiations would take a lot longer at any rate.

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