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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