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 ("Ri├če" 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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