Sunday, September 29, 2019

Qualcomm makes "more equal than others"-like argument in Ninth Circuit appeal of Judge Koh's summary judgment on chipset licensing of SEPs

Component-level (including, but not limited to, chipset-level) licensing of standard-essential patents (SEPs) is the hot topic for the technology industry, especially in the Internet of Things era, for its standard-setting organizations, for regulators, and--increasingly--for Article III courts in the U.S. and their counterparts in other jurisdictions.

Approximately four months ago, I announced my plans to organize conferences on this subject on both sides of the Atlantic. Here's an update on those plans before discussing the subject in connection with Qualcomm's Ninth Circuit appeal of the FTC's antitrust win in the Northern District of California:

  • In a couple of days, registration will begin for FOSS Patents' Brussels conference on November 12, 2019 at the Sofitel Le Louise. I will publish the detailed conference program--we'll cover the legal, regulatory, policy, economic, and technical aspects--and registration links in a very few days.

  • I had also said there would be such an event in the San Francisco Bay Area. I can't go into specifics regarding the latter. Suffice it to say that there will soon be a related announcement for mid-January, and you'll read about it on this blog, too.

Now, back to Qualcomm's antitrust appeal. On August 24, the San Diego-based chipmaker won a stay (for the duration of the appellate proceedings) of the injunction Judge Lucy H. Koh had issued. Later that day, Qualcomm filed its opening brief. A week later, the DOJ and various other Qualcomm allies filed their amicus curiae briefs.

Judge Koh had identified two different legal bases on which Qualcomm has an obligation to extend chipset-level SEP licenses on FRAND terms to its rivals:

Qualcomm's procedural objective is for the November 2018 summary judgment to be vacated. In that case, the district court would have to consider all sorts of evidence Qualcomm would like to present. I'm sure that in the hypothetical event of a remand for this purpose, Qualcomm would again appeal any finding in the FTC's favor, but for now, Qualcomm firstly wants a second bite at the apple--possibly also hoping to just settle the case with the FTC in that scenario.

I don't recall whether this was Qualcomm or one of its allies, but someone had even made a jurisdiction-related argument in recent months, according to which the FTC's summary judgment motion on a matter of contract interpretation was out of place in an antitrust case. Qualcomm's Ninth Circuit opening brief doesn't say that, however.

Qualcomm does not--as it could not--argue that the language of those ATIS and TIA FRAND declarations unambiguously rules out chipset-level licensing. Instead, the common denominator of Qualcomm's attack vectors against the summary judgment decision is that there was extrinsic evidence that the district court allegedly failed to consider. Such evidence would be partly technical (related to whether or not a baseband chip practices and implements a cellular standard), partly related to other SEP policies (ETSI--which would raise questions under French law--and ANSI) that Qualcomm says the ATIS and TIA FRAND declarations must be compatible with, and partly about industry practice and, closely related to that one, the industry's understanding of SEP licensing obligations.

Qualcomm engages in hair-splitting when it says, after conceding "that some modem chips infringe some Qualcomm SEPs," that "infringement of a patent does not determine what 'implements' or 'practices' an ATIS or TIA standard," which Qualcomm argues are two "legally and factually distinct" questions. However, the definition of a SEP is that it's inevitably infringed by implementing the relevant standard. Theoretically, one can also infringe a SEP without practicing or implementing any standard it's been declared essential to--but the reason those modem chips do infringe is because they do just that.

The argument that only complete devices can implement an entire standard ignores that the modem chip in a smartphone is simply the mastermind that controls all of the technical operations and functions that make the device as a whole standards-compliant.

Qualcomm's #1 vulnerability is that virtually the entire industry testified at trial that Qualcomm insists on license grant-backs that exhaustively licenses Qualcomm's baseband chips. Qualcomm tries to explain this dual standard away now by stressing that it "has received incoming cross-licenses pursuant to outgoing licenses it has granted to OEMs that manufacture complete cellular devices," and "patent holders will not grant outbound portfolio-wide licenses while leaving themselves exposed to opportunistic claims of infringement by their licensees."

What Qualcomm seeks to portray as a perfectly reasonable kind of symmetry is actually a massive asymmetry. The asymmetrical effect is that the customers of Qualcomm's baseband chips are covered (thanks to exhaustion) with respect to patents held by the likes of Samsung (which is also a chipmaker, not only a device maker) and Ericsson (which makes network infrastructure, not handsets at this stage), while no one can buy a chipset and be covered with respect to Qualcomm's patents. Even buying a Qualcomm chipset doesn't ensure this because Qualcomm (never mind that notion called patent exhaustion) will collect a patent royalty on top of the selling price of the chip.

What's good for the goose is good for the gander. If others are required to grant exhaustive chipset-level SEP licenses to Qualcomm, it can work the other way round as well. But Qualcomm's Orwellian logic is that all patent holders are equal, and one--Qualcomm--is more equal than all others.

If the Ninth Circuit figures this out, Qualcomm will have a huge credibility problem. That wouldn't be formally dispositive, of course, but it wouldn't help them.

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Thursday, September 26, 2019

Cert petition, amicus brief criticize Federal Circuit for vitiating damages apportionment requirement: Time Warner Cable v. Sprint

The United States Courts of Appeals for the Federal Circuit has always been viewed as being more sympathetic to patent holders than to alleged infringers--but not in every single aspect of patent law. For an example, some critics of former Chief Judge Randall Rader, who disparaged the PTAB as patent "death squads," acknowledged that his rulings on patent infringement damages provided some important clarifications beneficial to defendants.

Two documents that have recently been filed with the Supreme Court of the United States argue that various Federal Circuit rulings in recent years have gutted the apportionment requirement for patent damages claims:

  • On August 15, Time Warner Cable (which doesn't exist anymore in its original form, but a Charter Communications subsidiary is now continuing the litigation in question) filed a petition for writ of certiorari (request for Supreme Court review) in its patent infringement dispute with Sprint. A district court--affirmed by the Federal Circuit--found that Time Warner infringed a Sprint patent on connections between VoIP and pre-VoIP-era telecommunications networks, and awarded $140 million in damages, based on a reasonable-royalties theory that Time Warner argues failed to apportion between infringing and non-infringing features. Time Warner's petition raises two distinct issues: the one relating to apportionment and one about the written-description requirement.

  • Last week, Intel filed an amicus curiae brief in support of the first part (apportionment) of the cert petition.

Both the petition and the amicus brief place particular emphasis on a 135-year-old Supreme Court ruling: In Garretson v. Clark (1884), the top U.S. court stated that "the [prevailing] patentee [seeking damages] must in every case give evidence tending to separate or apportion the defendant's profits and the patentee's damages between the patented feature and the unpatented feature." And the highest court in the land added that "such evidence must be reliable and tangible, and not conjectural or speculative." In that case, the patent-in-suit read on an improved mop head, but not the cleaning device as a whole.

Interestingly, it was also in the late 19th century when it became law that a prevailing design patent holder was entitled to an unapportioned disgorgement of infringer's profits. A typical example of a design patent-infringing product at the time was a carpet. In the Apple-Samsung dispute, there was a strong policy argument that today's highly multifunctional products had to be analyzed and treated differently from 19th-century products. But in the Garretson utility patent case, apportionment already came into play even though it was a no-tech (not even a low-tech) product by today's standards. Undoubtedly, what was already warranted in the Garretson mop-head case is hugely more relevant in the smartphone era.

There's some indication that the Supreme Court may have felt last year that the question of apportionment at least potentially warranted another look: on April 4, 2018, the Supreme Court invited the Solicitor General to express the views of the federal government on the cert petition in EVE-USA, Inc. v. Mentor Graphics Corp.--but before the DOJ responded to this CVSG, the petition was withdrawn as a result of a settlement.

Yesterday, Sprint responded to Time Warner's petition and Intel's amicus brief.

With a view to any unfinished business left over from EVE-USA, Sprint argues that it was a lost-profits case, while the case pending now is about a reasonable royalty (as a damages theory). That's a weak point because the issue was and is apportionment.

Like pretty much any party opposing a cert petition, Sprint also claims that it's all about a factual determination rather than a need for important legal clarification. While I don't agree with Sprint as far as the apportionment question is concerned, they may have a point here with respect to the scope of the patent-in-suit in light of the written description. But that one is only a lower-priority second part of Time Warner's petition, and there is no support whatsoever from any amicus curiae for that part. I would have thought that more parties than one (Intel) would throw their weight behind the apportionment question, but one theory I have is that some of the organizations that typically care about such issues have business relationships with Sprint and/or work closely with Sprint on other policy issues.

The issue that Time Warner Cable and Intel complain about in their filings is that the Federal Circuit has in recent years deemed the apportionment requirement to be satisfied by other means than an apportionment in a strict sense. In a strict sense, apportionment would really mean to tell the jury what the commercial value of the non-infringing parts and features of a product is versus the deemed-infringing one(s)--and to then determine what percentage of that commercial value would constitute a reasonable royalty or lost profits. However, the Federal Circuit's disturbingly permissive approach has recently been to content itself with such alternative approaches as simply seeking a "low" royalty rate on an entire product--and there would be other examples that contrast with various Federal Circuit decisions earlier this decade or even before, all of which showed that the appeals court took the judiciary's gatekeeper role in the damages theories context very seriously.

Damages determinations are put before juries, and jurors easily get misled by damages theories based on the entire commercial value of a complex multifunctional product. Even the distinction between a mop head and the rest of a cleaning device can make a significant difference. The difference between a patent infringed by a $5, $10 or $20 chip versus the value of an entire smartphone is far more substantial. But this gets even worse when someone may assert a patent on a cup holder in a car, or on one feature of numerous computer programs shipped with a car.

Again and again and again, Sprint's opposition brief points to the fact that their trial evidence included, among other things, allegedly-comparable license agreements that should be deemed strong evidence of the market value of the patented invention--evidence that already involves an apportionment because the parties who negotiated the relevant agreements will have taken the need for apportionment into account.

Comparable license agreements bear considerable weight with judges and juries. With a view to their relevance to apportionment, Sprint's opposition brief implicitly suggests two things:

  1. Under what Sprint considers the correct standard, such license agreements should in and of themselves be deemed to satisfy the apportionment requirement. In other words, Sprint would like to use such top-down evidence to eliminate the need for a more conventional bottom-up apportionment where one attaches a part of the entire commercial value of a product to the infringing feature(s) and the remainder to the non-infringing ones.

  2. Sprint seems concerned that the apportionment standard suggested by the petitioner would make license agreements relating to entire products (and not just to particular components) inadmissible as evidence.

I disagree with #1, and believe #2 overshoots.

License agreements can't serve as a substitute for an apportionment analysis presented to the jury. The Garretson language doesn't appear to allow that kind of end-run around the apportionment requirement.

But that doesn't mean such license agreements would be inherently inadmissible under the standard proposed by Time Warner. If a jury is presented with apportionment evidence in the case before it, and if the jury is furthermore informed of how to analyze a third-party license agreement against this apportionment background, then it may still work. Let me give an example: a patent reads on a particular type of chip, and that kind of chip is commonly found in WiFi routers as well as smartphones. The patent holder negotiated a royalty of 0.5% of the end price of a WiFi router, and presents that agreement as evidence in a dispute with a smartphone maker. What clearly wouldn't make sense is to argue that a WiFi router manufacturer's decision to pay a 0.5% royalty means the same royalty rate should apply to smartphones. But the royalty can be normalized by calculating what royalty rate was actually paid with respect to the relevant component. If the relevant component in the accused smartphone is also properly identified, then the router license agreement may have a probative value that outweighs the risk of jury confusion.

It's too early to go into much detail on the merits. Right now, it's about certworthiness. The petition and Intel's amicus brief make a plausible case that the Federal Circuit has recently rubberstamped damages theories that don't appear to satisfy the apportionment requirement that one can reasonably read into the statute (35 U.S.C. § 284), the Garretson decision, and various post-Garretson decisions. Only the Supreme Court can get the Federal Circuit back on the right track by clarifying that Garretson, after 135 years, is still good law and even far more critical--in economic terms--than anyone could have imagined back in the 19th century.

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Saturday, September 14, 2019

Looney Coons meets resistance to ill-conceived STRONGER Patents bill that would increase patent troll litigation, harm high-tech innovators

Over at IPWatchdog they have a summary of this week's Senate Judiciary Committee hearing (video recording) on the STRONGER Patents Act, a bill primarily (but not exclusively) put forward and promoted by Senator Chris Coons (D-Del.). They place a little more emphasis on quotes from those supporting the bill, but they do acknowledge a "sharp split on injunctive relief, IPR [PTAB inter partes reviews] fixes."

The bill's name stands for "Support Technology & Research for Our Nation's Growth and Economic Resilience," but there's nothing positive to say about its content other than recognizing the creativity that went into the derivation of this marketing-friendly acronym and the fact that there is widespread consensus one should end USPTO fee diversion. While the tertiary item on "assisting small businesses in the U.S. patent system" sounds good, it's useless and amounts to diversionary tactics.

Like many--if not most--legislative proposals, "STRONGER" is a misnomer, and those opposing the pillars of that reactionary and harmful proposal stressed that stronger enforceability of patents doesn't mean a stronger innovation economy. As the Electronic Frontier Foundation accurately stated, that bill "would make bad patents stronger than ever." In a Washington Examiner op-ed, the R Street Institute's Charles Duan proposes that "Congress should look for solutions that enhance not the strength of patents, but the strength of patent correctness."

At its core, "STRONGER" is an

  • anti-America Invents Act,

  • anti-Supreme Court,

  • anti-Federal Circuit,

  • anti-PTAB,

  • anti-eBay v. MercExchange

basket of pernicious idiocies and boon for litigators, companies with products involving only one or a very few patented inventions, and above all, patent trolls. "MONGER" would be a more suitable name, in the sense of a warmonger (in this case, litigation, not literal war). The modified acronym could be resolved like this:

"Monetization Of Non-judiciously Granted Exclusionary Rights"

In a follow-up post I'll talk about the substantive points the witnesses (three in favor, three against) made at the hearing and in submissions (the record is open for a few more days). Before I get there, I'd like to discuss the two key players in the Senate Judiciary Committee, Chairman Sen. Thom Tillis (R-N.C.) and, especially, the zealot behind the bill, Sen. Coons.

Should anybody ever have believed that quick passage was an option for the MONGER bill, those hopes should have been dashed by Sen. Tillis's efforts to distance himself from (at least) the proposed overruling of the eBay v. MercExchange standard for injunctive relief as well as the "one bite at the apple" approach to petitions for PTAB inter partes post-grant reviews.

It's regrettable that Sen. Tillis joined Looney Coons (I'll explain the reasons for that pejorative nickname toward the end of this post) in writing a letter to USPTO Director Andrei Iancu--a letter that the recipient had likely requested, if not explicitly, then at least implicitly--ahead of the PTAB rule changes I've previously criticized. But Sen. Tillis appears to have second thoughts, or at least wants to see how things evolve before taking the next steps and perpetuating and/or exacerbating anything.

Sen. Tillis has an IT background. Whether his previous role as a "partner" (with respect to the consulting business that used to belong to PricewaterhouseCoopers) with IBM makes him particularly receptive to Big Blue's pro-monetization patent policy ideas is another question, but at least this background contrasts nicely with Looney Coons's (according to Wikipedia) sole real-economy job experience as in-house counsel at W.L. Gore & Associates, the company known for Gore-Tex and other materials, a business in which you have pretty much a one-to-one relationship between patents and products.

Looney Coons has a very, very special relationship with the Gore-Tex company, as this archived Delaware Online article, which I found through a page summarizing information about Coons that Wikipedia presumably prefers to remain silent about, reveals:

"Soon after those tough times, Coons' mother, Sally, married again, this time to Robert Gore, the wealthy chairman of Newark-based fabrics-maker W.L. Gore & Associates. Coons was 14 at the time."

At W.L. Gore, Coons was responsible for ethics training, federal government relations, e-commerce legal work and for general commercial contracting. To be fair, as a Yale graduate (though it's unclear to what extent he owed his admission to his wealthy stepfather's connections) who clerked for a Third Circuit judge Coons could have had job opportunities outside the family business, but that's where he spent the only eight years of his real-economy professional life, with a political focus (albeit a non-exclusive one).

W.L. Gore was among the top contributors to Coons's 2010 Senate bid, which was the critical one: a special election to fill then-VPOTUS Joe Biden's seat. Conventional wisdom would have said that the Democratic primaries were the real challenge as Delaware has elected only Democratic senators since 1994, and has also been firmly blue for about as long. However, as the great Rush Limbaugh noted then, Obama presumably wouldn't have gone to Delaware to campaign for Coons if Republican candidate Christine O'Donnell hadn't had a prayer. Democratic leaders might have been more concerned than they admitted that an article in which Coons described himself as a bearded Marxist (I'll link to it and discuss it further below) posed a serious risk in the general election.

Other major donors included Skadden Arps and the second-largest Delaware law firm, Young Conaway. Law firms obviously stand to gain from more patent litigation. The latter has also been Coons's top donor in the second half of this decade, just like lawyers and law firms (with Paul Weiss and K&L Gates, both also known for patent lawsuits, among the top 5) were by far and away the top "industry" supporting him. Then there was Amgen, a biotech company, a type of business that in terms of the patents-to-products ratio is similarly situated as the Gore-Tex company. Pharma is the top three industry supporting him. Lobbyists are fifth on the list.

Prior to this post, I had mentioned Coons only once: back in July 2012. But I had noticed on different occasions that the then-freshman senator took very extreme pro-patentee positions. He appeared to be highly motivated (by whatever or whomever) to promote a pro-troll agenda, but others were more influential at the time. He's now approaching the end of his second term (the first full term), and has positioned himself as the stalwart of making patents stronger at the expense of companies that create highly multifunctional products.

Delaware's nickname is The First State, but it's also a tiny state, though a great place for registering companies. Compared to the size of the local economy, patent litigation is a significant business there. Last year, IP Watchdog reported that "patent litigation shifts towards Delaware." It's like the East Coast equivalent of the Eastern District of Texas, and Coons presumably seeks to incentivize patent litigation because the local economy of a dwarf state like his significantly benefits from travel by patent litigators and more jobs at local litigation firms. The state is so small that its district court could fund a substantial part of its operations just by collecting pro hac vice fees from lawyers coming there from other districts to assert or defend against patents.

Coons is still what they would call a backbencher in the UK, so while I follow U.S. politics very closely (far more closely than the politics of any other country), one doesn't hear about him too often. On the few occasions his positions on non-patent policy items made news, I typically disagreed with him, but I've researched his voting records and statements and, contrary to his youthful sin of calling himself a bearded Marxist, he actually tries very hard to position himself as a centrist on some issues, though he's most accurately labeled a "liberal populist" (according to Interestingly, he's now facing an attack from the far left with a view to next year's Democratic primaries as he gets blamed for not having opposed certain judges nominated by the Trump Administration. Those ultraliberals aren't satisfied with his efforts to delay and derail the Gorsuch and Kavanaugh nominations (which he tried very hard), and even his assertion that Justice Gorsuch occupied a "stolen seat" isn't sufficient for their taste. They wanted him to be radically opposed to anybody President Trump would nominate. While I don't agree with those guys, from a patent policy point of view I wish them luck.

One huge problem in the patent policy context (though I hope the MONGER bill is still going to die) is that Coons has a style and certain views that give him great access to Republican colleagues. He does reach out across the aisle, though his anti-wall collusion with McCain means nothing, as the Arizona senator even betrayed his own electorate on Obamacare because he had only one goal in his final years: to oppose President Trump, who had offended him not only by what he said (by the way, McCain was ranked 894th out of 899--or fifth from the bottom in a group of almost 1,000 people--when he graduated from the Naval Academy) but even more so by winning with a politically-incorrect campaigning style that McCain mistakenly rejected when he had the chance. But many other Republicans respect Coons for his leadership role in a Capitol Hill prayer group. There are indications that he's well-liked by a number of Republicans, not all of whom are RINOs, and fellow Democrats probably don't view him as an exceedingly electable rival for higher office.

So they let him advance a patent policy agenda that amounts to pandering to the law firms among his donors, the family business W.L. Gore, similarly-situated patent holders, lobbyists, and to promoting his thumbnail state's economic interest in patent litigation, especially since it's not easy for Delaware-registered companies to get a troll case moved out of that district.

His centrist reach-out-across-the-aisle initiatives largely appear to be like the joint anti-wall effort with McCain: people who don't understand the issues may be misled to believe that they're a compromise, when in reality they don't solve the problem they purport to tackle. The MONGER bill is very much like that, and hopefully other Democrats, but especially the Republican Senate majority, won't be fooled. Again, Senator Tillis's reservations are excellent news for innovation and economic growth.

Coons's rhetoric at the hearing came down to platitudes like Miles's Law ("where you stand depends on where you sit") and the desire to appear as an open-minded moderator of different views, but a leopard can't change its spots and Looney Coons is the best friends patent trolls have had in the United States Senate in years.

No matter how level-headed he may pretend to be, the terrible nature of his patent policy proposals in and of itself justifies calling him Looney Coons. A 1985 article that he wrote for The Amherst Student raises serious concerns over his reasonableness and, generally, his judgment: Chris Coons: The Making Of A Bearded Marxist" (in order to distance himself from that self-attached label, he now stresses he's a fiscal conservative, and the record in his county actually does support that claim)

It's about how his African experience made him switch allegiance from the GOP to the Democratic Party. While my Trumpian views are well-documented, there are Democrats whom I consider reasonable and with whom I agree on some issues--even with Bernie, who every once in a while raises a valid point or at least asks questions that nobody else asks though they warrant further thought. So the problem is not that Coons found himself in agreement with Democrats on more important issues than with Republicans.

Looney Coons wrote that he "spent the spring of [his] junior year in Africa on the St. Lawrence Kenya Study Program" even though his "friends, family and professors all advised against it." He simply felt an urge to "see the Third World for [himself] to get some perspective," and in Kenya he "saw [...] poverty and oppression more naked than any in America, and [he] studied under a bright and eloquent Marxist professor at the University of Nairobi." While he wrote that he was still "thankful for [America's, and I guess also the Gore-Tex family's) wealth and freedom," he "questioned Amherst, and America." It sounds like he somehow felt guilty for his better fortune, which would be stupid but looks like a plausible explanation.

The question here is judgment. He's just one of countless people from the Northern Hemisphere who feel attracted to impoverished countries, be it in Africa (even my otorhinolaryngologist spent some time at an Ethiopian hospital) or Hispanoamerica. But while I respect people's choice to do that, and know that some of them may nevertheless become successful entrepreneurs I'd be happy to do business with or great lawyers I'd be happy to hire in a non-ideological context, I don't want people like that to hold political office because there's a very high risk that they'll then impose such irrational choices on everyone else.

That kind of decision just doesn't make sense if one preserves a healthy degree of selfishness--which is why everyone told Coons not to go there. If you want to see a different part of the world, there's plenty of safer, healthier and more prosperous choices than a place like Kenya. Presumably the facts were similar at the time Coons went there: at this stage, more than 140 (!) countries in the world have a higher per-capita GDP than Kenya (according to Wikipedia), and 115 (!) countries are safer. Why would an American student, from an ultra-high-net-worth family, possibly go there instead of, say, Oxford (as Bill Clinton did), or maybe France, Japan, China. And if he wanted to be indoctrinated with Marxist propaganda, Moscow at the time would have been one of the safest cities in the world.

It was an irrational choice because he irresponsibly prioritized one goal over other valid considerations. A social justice warrior who at some point decided to be too good for his own good. If it's only about his own good, let him do that. If he had never returned, we'd never have heard about it. But a decision like that is, in my opinion, a symptom of a partial derangement. Human beings aren't computers, and it's not rational to be 100% rational; we don't operate exclusively on the basis of economic considerations and game theory. But it is irrational to take huge risks for no good reason. Without the slightest need. And it's also crazy to see problems in a far-away part of the world and to feel bad about having a better life.

Looney Coons wants weak patents--patents that the USPTO grants after an average of only approximately 20 hours of net examination time, large parts of which have nothing to do with prior art searches--to survive even challenges that have merit. And not just to survive, but to succeed in court or, with injunctions being very likely if he got his way, to be used by trolls and their lawyers to extort companies that make real products. Whether he does this for W.L. Gore, some pharma companies, the litigation firms and lobbyists among his top donors, for the local Delaware economy, or simply because he's irrationally obsessed with an idea of "STRONGER" patents that makes as little sense as his decision to go to Kenya and to blame America for Africa's problems, he doesn't deserve any support. The MONGER stuff should never even go to a vote. We'll talk about the dangerous substance of that proposal next time.

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Thursday, September 12, 2019

Munich court schedules first hearings in two Sharp v. Daimler patent cases for late November, another anti-antisuit hearing for early October

Two key contributors to the Avanci IoT patent pool are suing Daimler in Germany:

Today the press office of the Munich I Regional Court ("Landgericht München I") thankfully responded to my inquiry regarding the hearing dates in the three Munich Sharp v. Daimler cases:

  • On November 20, 2019, the court's 21st civil chamber under Presiding Judge Tobias Pichlmaier will hold hearings in case no. 21 O 8609/19 over EP2854324 on a "communication system and mobile station apparatus" and case no. 21 O 9918/19 over EP2312896 on a "base station device, mobile station device and corresponding communication methods using carrier aggregation."

  • On March 5, 2020, the 7th civil chamber under Presiding Judge Dr. Matthias Zigann will hear case no. 7 O 8818/19 over EP2667676 on a "base station device, mobile station device, and uplink synchronization requesting method."

The question is whether Sharp is now going to seek a prophylactic anti-antisuit-injunction injunction ("AAII") from the Munich court, given that Daimler supplier Continental may in the not too distant future file an antisuit-injunction motion with Judge Lucy H. Koh in the Northern District of California targeting at least Sharp, Nokia, a couple of patent assertion entities Nokia had fed with patents, and the Avanci patent pool firm. On Tuesday, after Continental's miserable failure over the course of four days (two weekend days, but well-run litigants wouldn't care) to respond to a letter Sharp had addressed to Judge Koh, the world's #1 technology industry judge dismissed a pending antisuit-injunction motion without prejudice so as to avoid piecemeal resolution with two or more antisuit injunction motions in the same case. While Continental was too slow and/or unprofessional to clarify promptly that Sharp wasn't meant to be included by the original antisuit motion, it could have brought a subsequent antisuit motion targeting Sharp. Also, Continental had withdrawn parts of its motion even with respect to Nokia (most importantly the ten aformentioned pending German cases) to comply with the first Munich AAII, but by doing so without prejudice, the automotive supplier reserved the right to revive those parts in the event of a successful appeal to the Munich Higher Regional Court. And then the Avanci pool has various other members, so if Continental refiles, it should target all Avanci contributors (in case its lawyers are conflicted with regard to any of them, it should simply find new ones, which may be a good idea anyway given how things have gone wrong so far with respect to the antisuit effort).

There are two AAIIs in place, one (the first to come down) against Continental Automotive Systems, Inc. of Auburn Hills, MI, and one against Continental AG, the Germany-based parent company of the entire group (and, as part of that, an indirect parent of the U.S. entity). The first one had been granted ex parte without a hearing and without Continental even having a clue until the decision had come down. But there was a service-of-process dispute as the U.S. entity pointed to the Hague Convention (which according to the Avanci defendants' motion to dismiss Continental's U.S. lawyers may have failed to comply with when attempting to serve Sharp Japan). The second one didn't raise that kind of issue, but the court initially denied an AAII because Nokia had not made it sufficiently clear what complicit or intermediary role Continental AG, which is not a plaintiff in the case before Judge Koh, had played in the U.S. antisuit effort. Nokia didn't take no for an answer, so the court held a hearing, and then decided in Nokia's favor.

On October 2, 2019, the Munich I Regional Court will hear the U.S. Continental entity's motion for reconsideration of the first AAII. The court didn't say why that hearing wouldn't take place sooner, given the urgent nature of a preliminary injunction, but it's easy to figure: the issues will be a subset of the ones already heard in late August, so the outcome will be the same unless the appeals court (Munich Higher Regional Court, "Oberlandesgericht München") will lift the second AAII in the meantime. It may seem counterintuitive that the appeals court will decide on the second AAII before the first, but that's due to the combination of two factors:

  • Continental didn't move for reconsideration of the first one until it had been served in what it deemed to be compliant with the Hague Convention. That's why, in a way, the second AAII is now practically ahead of the first one.

  • The losing party to a preliminary-injunction motion (be it the movant or the non-movant) must firstly give the lower court the chance to reconsider, which actually just worked out for Nokia and resulted in a second AAII. That's why the October 2 hearing formally had to be scheduled, but since the second AAII is already past that stage, the appeals court can review it soon (provided that Continental already has appealed, or will appeal in the coming days; the deadline is early next week).

The German legal term is "sofortige Beschwerde" (immediate objection), but it comes down to a motion for reconsideration in the lower court, and if that one fails, then it goes up to the appeals court. By scheduling the reconsideration hearing for early October, knowing that the appeals court will likely hold a hearing before (or otherwise the reconsideration hearing could be pushed back), the lower court enables itself to quickly lift the first AAII should the second one be lifted on grounds that apply to the first one as well (most of the issues are overlapping, but the second one involves complicit or intermediary liability on top of everything else).

This takes us back to what Sharp may do. If Nokia's AAII is upheld, we can set our watches by Sharp bringing an immediate AAII motion with the lower court unless Sharp will already have done so by that time. Should Nokia's AAII be lifted on grounds that would apply to any AAII Sharp might bring, then Sharp will likely refrain from bringing one in the first place or will withdraw a hypothetically pending one. The scenario of Continental not appealing the second AAII is almost impossible to imagine (even more so since we now know they objected to the first one); in that highly hypothetical case, Sharp would certainly pursue its own AAII just as if Nokia had won affirmance.

Given that Nokia, which has demonstrated its litigation prowess again and again, filed ten cases against Daimler before Sharp filed its five complaints, the question is whether those Sharp cases are ultimately going to make any difference. It's certainly a chance for Sharp, which increasingly seeks to monetize its patents, to send out a clear message to other implementers of cellular standards that the Foxconn-owned Japanese electronics company is not just a dog that barks but doesn't bite. They do sue from time to time, as those five German cases prove.

But if Nokia got decisive leverage over Daimler in the meantime, Daimler might take an Avanci pool license, in which case it would also be licensed to Sharp's patents-in-suit. I hope Daimler will be able to avoid this, as Avanci's terms are supra-FRAND and SEP licenses should be available at the component level, with royalties calculated as a percentage of the smallest salable patent-practicing unit. However, Nokia is amazingly good at the patent litigation game, and I have yet to see an automotive company that can withstand such an onslaught. Let there be no doubt that Quinn Emanuel's Dr. Marcus Grosch, Daimler's lead counsel in the Nokia and, according to Juve Patent, also the Sharp cases, is going to give Nokia a run for the money. But the first hearing in one of those cases already showed the court leaning Nokia's way, and ten patents is just too much ammo. Without a successful FRAND/antitrust defense, or the infringement cases at least being stayed pending the resolution of Daimler's and some of its suppliers' EU antitrust complaints against Nokia, it will only be a question of when, not if, Daimler will lose. And QE does a whole lot more work for SEP asserters than for implementers, especially in Germany (where they also represented a patent assertion entity against Nokia over the course of many years, until Nokia exited the mobile handset business).

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Tuesday, September 10, 2019

Automotive supplier Continental gets penalized for its lawyers' low-quality work as Judge Koh denies (without prejudice) motion for antisuit injunction

A little over a year ago, Judge Lucy H. Koh of the United States District Court for the Northern District of California denied without prejudice a motion for an antisuit injunction--by a consumer class against Qualcomm. But a very detailed and thoughtfully-crafted order indicated that the motion had raised some valid points, just prematurely, which is why I viewed the order as an invitation for the consumer class to refile at the right time. Meanwhile, Qualcomm's settlement with Apple has directly and indirectly (because of its effects on Intel's cellular modem aspirations) taken care of that matter.

Today (Tuesday), Judge Koh once again denied an antisuit-injunction motion--automotive supplier Continental's motion that was meant to shield Daimler from (at least) Nokia's German patent enforcement campaign--without prejudice, and accordingly states that "Plaintiff may refile a motion for anti-suit injunction." But this time around it's not an invitation in practical terms as I'll explain below, after showing you the actual order (two pages plus signature):

19-09-10 Order Denying Wo P... by Florian Mueller on Scribd

Continental's work related to this U.S. antisuit motion is a total disaster. I've criticized them before, though I did give them credit for a first-rate opposition brief to Avanci and Nokia's venue transfer motion. Considering that Continental itself is a sizable company, and that an even larger company (Daimler) should have a strong strategic interest in this, it's nothing short of a bankruptcy declaration for the ability of two members of the DAX-30, the "club" of the 30 largest publicly-traded German corporations, to fend off the Avanci patent pool's and particularly Nokia's patent enforcement efforts.

In Germany, Continental is represented by Freshfields Bruckhaus Deringer, and Daimler by Quinn Emanuel. That's as good as it gets, but the environment there is markedly hostile to those defending themselves against patent infringement suits (worse than the infamous Eastern District of Texas because of easy access to injunctions), so the idea of trying to shackle Nokia through a U.S. antisuit motion was a good one. However, the quality of the execution of that idea is far below the standard of anything I've seen this decade from major device makes and operating system developers in the "smartphone patent wars." They've botched almost everything they could botch in this context--however, as I'll explain now, a reversal of fortune (and no, this is not meant to be a subtle word play) is procedurally possible. Without such a reversal, Daimler would likely have to bow to the Avanci pool's supra-FRAND royalty demands at some point during the December-2019-to-May-2020 "trial season."

I'm really shocked at how unprofessionally and unreasonably Continental has acted. The antisuit motion was filed too late; they failed to put a better structure in place to satisfy the functional-identity requirement under Gallo by not making sure that at least one of the U.S. plaintiffs and movants would be one of the Continental entities that potentially owes Daimler damages as a result of those Nokia cases; the motion was overbroad from the beginning, and even to an irrational extent when they insisted--which no reasonable person could do with a straight face--that it should even bar Nokia from enforcing patents against Daimler cars in which no Continental component is accused of infringement; later, they realized that they had made a stupid mistake by not including Sharp (though they must already have known of Sharp's German lawsuits against Daimler by the time of the original complaint), so they added Sharp by way of an amended complaint. It's beyond ridiculous, but they may even have failed to apply a California legal standard to their service of process on Sharp that Continental itself had already benefited from in at least two California litigations (and despite holding the Hague Convention against Nokia in the anti-antisuit context).

It was a letter by Sharp asking Judge Koh for clarification, coupled with Continental's failure to respond (or at least to respond promptly, which is something they generally don't seem to be capable of) to that letter, that resulted in Judge Koh's order. Procedurally it was very clear that Sharp couldn't possibly have been meant to be targeted by the antisuit motion: it was added to the case (if it still has been, which is doubtful given those service-of-process issues) after the deadline for the opposition brief to Continental's antisuit motion. At the time I still thought even Continental's lawyers couldn't possibly have intended a violation of due process. But just like Sharp, even Judge Koh has now concluded that "[i]t is unclear whether the motion for anti-suit injunction, and if granted, the anti-suit injunction, extends to Sharp," and notes that "[Continental] appears to believe that its motion for anti-suit injunction extends to Sharp."

Whether Sharp's apprehension and Judge Koh's feeling or my thinking that Continental had just mentioned Sharp's cases with a view to the Avanci pool firm (which is also a defendant to the motion, though Avanci itself doesn't hold or assert patents) are right, Continental has failed miserably and cluelessly one way or the other:

  • If Continental indeed thought Sharp could be enjoined without having had a chance to defend itself against the motion, then that would have been even more insane than the idea of enjoining Nokia from enforcing patents in against Daimler cars that don't come with an accused Continental component. So insane that I still don't believe they meant that.

  • If their references to Sharp's cases were just related to some indirect form of liability by Avanci, and/or if they thought that after obtaining an antisuit injunction against Nokia (whose cases are further along) they could easily also get an additional one against Sharp because they believed (possibly even for good reasons) that there was nothing Sharp could point to that would lead to a different outcome, they should at least have told Judge Koh within hours, or maybe a day, of Sharp's Friday letter. They should have told her instantaneously that they certainly didn't mean to be pathologically unreasonable and should have apologized for not having made this clear from the beginning, such as with a footnote explaining the rationale behind their references to Sharp's cases in both their (largely disappointing) antisuit reply brief and their withdrawal-in-part.

The stated reasons for the denial without prejudice are that (i) "the Court's limited resources would be unduly burdened if the Court were required to resolve an additional motion for anti-suit injunction directed solely at Sharp," and (ii) "it would be inequitable to allow Sharp to oppose a potential motion for anti-suit injunction directed solely at Sharp even though every other Defendant was ordered to file a consolidated opposition." The former is more important than the latter, given that there was nothing here that really created the smallest problem for the other defendants--Avanci, Nokia and a couple of patent trolls Nokia once fed with patents--to agree on a consolidated opposition.

Judge Koh's order doesn't even make the slightest reference to the two Munich anti-antisuit-injunction injunctions ("AAIIs"). But obviously she was aware of them, not only because Nokia wrote to her after obtaining the first one of them, but also because of Continental's withdrawal-in-part. And between the lines, Judge Koh's reference to court resources presumably also related to the fact that the Munich AAII situation required Continental to withdraw its motion at least in part, which Continental did "without prejudice," so there would have been a risk--subject to what the Munich appeals court will do now--of Continental reviving some Sharp-unrelated parts of the original motion.

Reading even more between the lines, the combination of (i) the current motion being denied without prejudice because Judge Koh doesn't want to allocate the resources required to adjudicate more than a single motion (facing a single consolidated opposition brief) and (ii) the Munich AAII situation limiting, if not eliminating, Continental's ability for the time being to make a new filing, the order is, at best, a lukewarm invitation to refile at a later stage. It's certainly not an encouragement, under the cirumstances, to do so immediately.

Nokia's German lawyers deserve credit here because, regardless of the fact that Judge Koh's order doesn't mention the AAIIs, their two recent wins presumably did contribute to Judge Koh getting the impression that Continental's motion was a mess at least at this stage.

The ball is now in the Munich Higher Regional Court. If Continental can't get the lower Munich court's AAIIs lifted, Judge Koh won't ever have to devote any time to a ruling (with or without a hearing) on the U.S. antisuit motion because there won't be any (of if Continental brought a new one, Nokia and/or Sharp could easily just obtain whatever other AAII they need in Munich to thwart it). However, I still think the AAIIs are more likely than not to be lifted. In that case, Continental can refile. If that happens, Continental will have the chance to bring a better motion, but prior to that Continental might have to try (if still possible, which may be in Judge Koh's discretion) to bring in at least one other Continental entity as an additional plaintiff to have a clearer functional-identity case. The timing problem, however, can't be solved, and while there's no bright-line rule, Nokia accurately pointed out that any Ninth Circuit antisuit injunctions that have been granted in similar cases involved either different sequences of events (with the U.S. cases being earlier-filed than, or simultaneously-filed with, the foreign counterparts) or very unusual circumstances of other kinds. (By the way, the consumer class action against Qualcomm that I mentioned further above was filed months before Qualcomm brought the relevant USITC complaints against Apple.)

With all that has gone wrong so far for them, I would advise Continental (and, by extension, Daimler) to get help, additionally or alternatively to current counsel, from a U.S. law firm that has previously demonstrated its ability to bring successful U.S. antisuit-injunction motions (though Quinn Emanuel probably couldn't help for a variety of reasons)--but no outside counsel would be able to solve all the problems if internal decision-making processes are part of the problem, which is quite possible here given that inexplicable hesitancy and slowness. And as I just mentioned, that slowness with respect to when they brought the original complaint (plus, the failure to include Sharp from the beginning) is incurable anyway.

At this point Daimler and Continental are more likely to get help in Europe (where the European Commission's Directorate-General for Competition could put pressure on Nokia and Sharp) than in California, though that U.S. case couldn't possibly have been assigned to a better judge.

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Saturday, September 7, 2019

Sharp asks Judge Koh to confirm that Continental's motion for U.S. antisuit injunction won't impact its own German Daimler patent suits

Two contributors to the Avanci IoT patent pool are currently suing Daimler in Germany:

At the beginning of this week, Daimler supplier Continental Automotive Systems was forced to withdraw a motion for a U.S. antisuit injunction motion with respect to the ten above-mentioned Nokia cases. As I explained in that post, it remains to be seen whether that partial withdrawal of the U.S. antisuit motion, further to a German anti-antisuit-injunction injunction ("AAII") obtained by Nokia in Munich, will be deemed sufficient--but in the meantime, before any hypothetical contemption motion would be adjudged, the Munich appeals court may very well lift the injunction.

Continental's withdrawal-in-part specifically stated that the motion was not withdrawn with respect to "the other defendants in this proceeding," and not in the same sentence, but in the wider context, the withdrawal notice reminded the U.S. court of "Sharp's separate and ongoing proceedings against Continental's customer Daimler."

At the time of the U.S. antisuit motion, the defendants were all from the following corporate groups: Avanci (a patent pool firm that doesn't hold or assert patents); Nokia; and two patent assertion entities Nokia fed with patents (Optis and Conversant). Sharp was added to the case as an additional defendant only the following month by way of Continental's first amended complaint. However, Sharp's lawyers are concerned that Continental's reference to Sharp's German cases might mean that the remaining parts of the pending antisuit motion would take aim at those Sharp v. Daimler cases.

In order to eliminate any doubt about that, Sharp's lawyers (whose appearance is limited in scope as Sharp denies to have been served properly) have now asked Judge Lucy H. Koh of the United States District Court for the Northern District of California to provide guidance (this post continues below the document):

19-09-06 Sharp Letter Re. A... by Florian Mueller on Scribd

When I read Continental's references to Sharp in its reply brief in support of the motion as well as in the partial withdrawal notice, I assumed that Sharp itself wasn't meant to be targeted, but that there could be an issue for Avanci, given that Continental, even after the partial withdrawal, seeks to enjoin Avanci and the other defendants "from acting in concert with anyone to pursue or institute such an action."

While it's understandable that Sharp's lawyers decided to file that letter out of an abundance of caution, it's hard to see why they couldn't clarify this between counsel for the parties ("meet and confer"). The letter doesn't say anything about what Continental's lawyers told counsel for Sharp--other than the fact that "[c]ounsel for Sharp only just received from Continental's counsel the full, unredacted briefing regarding the Motion on September 4, 2019."

Enjoining Sharp as a result of the currently-pending antisuit motion wouldn't make sense given that the motion targeted only the defendants named in the unamended original complaint. Beyond that, Sharp disputes in the defendants' motion to dismiss Continental's first amended complaint that it has been properly served under the Hague Convention. According to Sharp's lawyers, Continental served the complaint on Sharp USA, which is a subsidiary of Sharp Japan, but not a California subsidiary that could be deemed the foreign company's "general manger" under California state law. Also, Sharp's lawyers argue that Sharp USA "does not engage in any patent licensing business at all," so it couldn't be Sharp Japan's "general manager" for purposes of U.S. service with respect to patent licensing activities.

Should footnote 10 of the motion to dismiss correctly liken this situation (in the California Continental v. Avanci et al. case) to a couple of cases in which Continental AG, the German parent company of Michigan-based Continental Automotive Systems, allegedly "prevailed on the argument that it cannot be served through [Continental Automotive Systems, Inc.]," and should the application of that same legal standard result in a finding that Sharp Japan wasn't properly served under the very Hague Convention that Continental Automotive Systems held against Nokia's attempts to serve the first German AAII on a Germany-based board member, then that would be a major embarrassment for Continental's legal department:

"Indeed, Continental knows its attempted service on Sharp USA, rather than Sharp Japan, is improper. Continental's ultimate parent company, Continental AG, a German corporation, has repeatedly prevailed on the argument that it cannot be served through the Plaintiff here, its U.S. subsidiary, but instead must be served under the Hague Convention. See Orion Tire Corp. v. Gen. Tire, Inc., No. 92-cv-2391 AAH, 1992 WL 295224, at *1 (C.D. Cal. Aug. 17, 1992) (granting Continental AG's motion to dismiss for insufficient service and requiring service under Hague Convention); see also Leon v. Continental AG, 176 F. Supp. 3d 1315, 1318 (S.D. Fla. 2016) (requiring service on Continental AG under Hague Convention). The same is true of Sharp Japan."

In case Continental would want to bring a separate antisuit motion against Sharp, Sharp's lawyers ask Judge Koh to firstly hear the motion to dismiss, and in any event they obviously want due process, but I wouldn't expect anything else than due process from an extremely meticulous judge.

Assuming that at some point (and it may take longer than Continental hopes) Sharp Japan is properly added to the U.S. case as an additional defendant, a new antisuit motion by Continental against Sharp would again have a problem with the principle that earlier-filed cases, at least in psychological terms and with respect to the "international comity" part, are more likely to serve as a basis for enjoining parties with respect to actions in later-filed cases than the other way round. Sharp's first German lawsuit against Daimler was filed on April 12, 2019; the other four were filed between June 5 and June 28; those lawsuits in Germany against a German company were probably served within a week or, at most, two, i.e., even prior to Continental's mid-May original complaint, but Continental's first amended complaint, which finally added Sharp, was filed on July 23.

While I believe Continental and Daimler can be reasonably optimistic that the German appeals court may lift the two AAIIs very soon (in my observation, the judges on the patent senate of that appeals court are not only very experienced but also principled and, especially by comparison to some judges on the lower court, unemotional), the fact that they were too hesitant and slow with their own U.S. antisuit initiative may ultimately prove fatal to the pending motion and any subsequent antisuit motion.

Continental should have brought its complaint against Avanci much sooner, simply because the filing date of the complaint is so important for antisuit-injunction purposes, and should have had the courage and the budget to just sue all Avanci contributors immediately--or at least the ones that were already suing Daimler, or where there was a reasonable likelihood of this happening (which would probably apply to all Avanci contributors without exception).

Sharp's letter is attributable to an abundance of caution on its U.S. lawyers' part, but the overall situation is chaotic, and while (figuratively speaking) the jury is still out on the antisuit injunction motion as well as on the service-of-process question raised by Sharp Japan, a point may be reached before the end of the year when--after adverse decisions due to slowness, hesitancy, possibly even sloppiness and lack of coordination between parties and across jurisdictions--some people might begin to wonder whether Daimler and Continental are sleepwalking through the automotive patent wars. They can do better, as Continental's first-rate opposition to Avanci's venue transfer motion shows. If they don't perform consistently at the high level of that late-August opposition brief, they'll be eaten alive, also in light of the exceedingly patentee-friendly environment in Germany. I just voiced genuine apprehension.

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Thursday, September 5, 2019

At least five German Nokia v. Daimler patent infringement trials to take place between December 2019 and May 2020

Continental was just forced by a German anti-antisuit-injunction injunction ("AAII") to withdraw, in part, the U.S. antisuit motion it had brought in its San Jose FRAND/antitrust lawsuit against the Avanci patent pool firm and some of its contributors (especially Nokia and a couple of trolls Nokia fed with patents). As I explained in the post I just linked to, the scope of the withdrawal-in-part may give rise to an enforcement dispute. Considering that the Munich court wrote in its first AAII that German law doesn't recognize antisuit injunctions, it appears fairly likely that the appeals court will lift that AAII pretty soon.

Meanwhile the press offices of the Regional Courts of Dusseldorf, Mannheim and Munich have thankfully provided me with the numbers of the patents Nokia is asserting against Daimler in Germany and the hearing or trial dates to the extent they have been scheduled. Let's start with the the upcoming hearings and trials, in chronological order:

  • October 30, 2019 (morning): Munich I Regional Court, first hearing (mostly about claim construction and infringement analysis) in case no. 21 O 3891/19 over EP1388234 and the related German patent DE60240446C5 on a "hybrid automatic repeat request (HARQ) scheme with in-sequence deliver of packets"

  • October 30, 2019 (afternoon): Munich I Regional Court, first hearing (mostly about claim construction and infringement analysis) in case no. 21 O 3889/19 over EP2797239 on "a method and a telecommunication device for selecting a number of code channels and an associated spreading factor for a CDMA transmission"

  • December 10, 2019: Mannheim Regional Court, trial in case no. 2 O 37/19 over EP1273199 on a "method and arrangement for maintaining synchronization in association with resetting a communication connection"

  • January 21, 2020: Mannheim Regional Court, trial in case no. 2 O 35/19 over EP2286629 on a "method and apparatus to link modulating and coding scheme to amount of resources"

  • February 6, 2020: Munich I Regional Court, trial in case no. 7 O 3890/19 over EP1671505 on a "redundancy strategy selection scheme"; the first hearing was held on June 5, 2019, and the court's inclination is to hold Daimler to infringe (and to reject its FRAND defense)

  • March 17, 2020: Mannheim Regional Court, trial in case no. 2 O 36/19 over EP2145404 on a "method and apparatus for providing control chanels for broadcast and paging services"

  • May 19, 2020: Mannheim Regional Court, trial in case no. 2 O 34/19 over EP2981103 on an "allocation of preamble sequences"

German regional courts typically rule on patent infringement cases within four to eight weeks of trial. Decisions come down sooner only if a case is easily dismissed, and they take longer only under special circumstances such as when there are doubts over the validity of a patent and some guidance from the EPO (in an opposition proceeding) or the Federal Patent Court of Germany is expected in the meantime.

Three more German cases are pending with the Dusseldorf Regional Court, but no trials have been scheduled yet in any of them:

  • case no. 4c O 17/19 over EP2087629 on "a method of transmitting data within a telecommunications system"

  • case no. 4a O 26/19 over EP2087626 on "additional modulation information signaling for high speed downlink packet access"

  • case no. 4a O 27/19 over EP1929826 on an "apparatus, method and computer program product to request data rate increase based on ability to transmit at least one more selected data unit"

In the spring Daimler, Bury, Continental and possibly also other suppliers lodged antitrust complaints with the European Commission's Directorate-General for Competition (DG COMP) over Nokia's alleged abuse of standard-essential patents.

Another contributor to the Avanci pool, Sharp, has recently also filed a bunch of German patent infringement complaints against Daimler.

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Tuesday, September 3, 2019

The big elephant in the FTC v. Qualcomm antitrust room: compulsory licensing of standard-essential patents

This is the second follow-up to the publication of Qualcomm's Ninth Circuit opening appellate brief in the FTC antitrust case, and a direct follow-up to the post on Qualcomm's argument against an antitrust duty to deal to extend exhaustive standard-essential patent (SEP) licenses to rival chipset makers.

For a recap, Qualcomm's opening brief

  • says Judge Lucy H. Koh of the United States District Court for the Northern District of California mistakenly based her holding of an antitrust duty to deal (with competitors) on the Aspen Skiing Supreme Court ruling, with Qualcomm attacking the abandonment of profitable voluntary conduct more fiercely than the other factors, pointing to the Ninth Circuit's post-Aspen no-duty-to-deal findings in Metronet and Aerotec; and

  • tackling the FTC's holistic (in other words, "grand evil scheme") alternative reasoning (the next best thing to a right-for-the-wrong-reasons argument) by pointing to the Supreme Court's 2008 LinkLine decision that says you can't prove an antitrust violation based on a wholesale-retail margin, but you need to prove either a duty to deal on the wholesale side or predatory pricing at the retail level--and the price-squeeze theory disallowed by LinkLine can't be avoided by mere labels (on that part, I agree, though Qualcomm's unique business model does raise issues beyond LinkLine's scope in my view).

Unlike at the stay stage, the FTC now has to defend Judge Koh's actual reasoning (though right-for-the-wrong-reasons fallbacks don't hurt). Contrary to what Qualcomm naturally asserts, one can shoehorn the case at hand into the Aspen pattern, but it's not trivial as there are gaps that one needs to bridge.

Even I as an outspoken critic of Qualcomm's business model don't doubt for a second that Qualcomm's pre-Quanta agreements with competing cellular baseband chipset makers weren't intended to be exhaustive. But does that make them involuntary? Qualcomm can't claim that it signed those agreements at gunpoint or to comply with regulations. The Supreme Court didn't say in Quanta that it overruled, or expanded, an older doctrine. Instead, the highest court in the land said that this had been the law for 150 years, and even the (relatively speaking) more recent case that governed Quanta is from the 1940s, long before there was such a company as Qualcomm. I readily believe Qualcomm that they had misinterpreted the law, but does that make the agreements they signed until then involuntary?

Additionally or alternatively, one can hold against Qualcomm that it entered into FRAND licensing declarations such as the two with respect to which Judge Koh entered summary judgment that they undoubtedly required Qualcomm to extend FRAND licenses to rival chipset makers. Again, Qualcomm's self-delusionary opinion might have been that it could circumvent that obligation, but we're talking about a voluntary course of dealing. (To be clear, I'm not saying that breach of contract is an antitrust violation.)

Then there's the "good for the goose" alternative to a conventional voluntary-conduct finding. Qualcomm itself required everyone, even companies like Ericsson that never did so, to grant exhaustive licenses to them that benefited their chipset customers. I was personally in that Paris courtroom where Apple avoided a French preliminary injunction against an iPhone model because Samsung's license agreement with Qualcomm covered Apple as Qualcomm's customer. What Qualcomm did in its dealings with other patent holders may very well serve as a substitute for a more conventional "abandonment of profitable voluntary course of dealing" theory.

But I wouldn't have used the verb "to shoehorn" if the Aspen-to-Qualcomm pattern matching was extremely simple and comfortable. I still believe it's doable and defensible, and better than the LinkLine pitfall, but it does take some effort.

Besides Aspen shoehorning and navigating around LinkLine, there's actually a third approach. The FTC won't be able to go down that road because it's politically difficult enough for the FTC to even just defend its trial win, so there's no realistic way the FTC could agree on a more aggressive theory. However, the FTC's future amici curiae will be free to argue what they want, and amici often go beyond what the party they support says. And even if nobody raised that issue here because everyone believes it's more conservative to just stick to Aspen (a shoe that can fit, but doesn't fit like a glove), there will be other cases down the road, involving either Qualcomm or other SEP holders, such as that Continental v. Avanci case presently before Judge Koh (Qualcomm is one of Avanci's contributors, although the focus there is mostly on Nokia).

That tertium is the big elephant in the room: straightforward compulsory licensing.

Yeah, I know that the mere thought of it stirs up a hornets' nest. I'm not one to shy from controversy and have advocated compulsory SEP licensing for a long time. This is a litigation and policy blog, not a popularity contest.

In 2014, the Congressional Research Service (a department of the Library of Congress) published a paper by an unnamed visiting scholar, Compulsory Licensing of Patented Inventions (PDF). While significant parts of the document focus on international trade with a particular emphasis on pharmaceutical patents, it provides a pretty good overview. It addresses two kinds of compulsory licensing:

  • compulsory licensing in the narrow sense of license agreements having to be concluded due to legal obligations, and

  • compulsory licensing as the net effect of an inability to obtain and enforce injunctive relief (with courts awarding an ongoing royalty).

The paper notes that "for some, the distinction between a compulsory license and an 'ongoing royalty' is one without a difference." In some cases that may be right, but when it's about component-level SEP licenses, the question is whether or not a license is exhaustive. Given the Supreme Court's generally comprehensive and expansive take on patent exhaustion, there's a strong argument that a component maker paying a court-ordered ongoing royalty (and, thanks to the denial of an injunction, being allowed to continue to implemented the patented technique) must be able to sell the effectively-licensed product, and the downstream must benefit from exhaustion. I have even raised the question on this blog whether Qualcomm's promise not to assert patents against chipset makers triggers promissory estoppel and whether such promissory estoppel should also have an exhaustive effect. Arguably, those theories would be reconcilable with the Lexmark approach and the fact that courts believe a covenant not to sue is a license by any other name for the purposes of an exhaustion analysis.

Courts around the globe have struggled with SEP injunctions for a long time. If any jurisdiction had allowed any SEP holder to preclude anyone else from implementing a standard by insisting on the exclusionary rights that normally go with a patent, there would have been chaos:

  • Some patent holders, especially trolls (since no one can countersue them for infringement), would have extracted way supra-FRAND royalties, and as a result of royalty stacking, it would have become economically impossible to implement any standards affected by such behavior.

  • Some other patent holders would have leveraged their SEPs to shut out any new entrants.

The standardization system would have broken down. The economy at large would have suffered massive damage.

But there's a conundrum: patents are exclusionary rights. They are, by definition, monopolies. However, the specific problem with SEPs is that if you had, say, 500 truly essential patents reading on a standard, and if those 500 were held by, say, 50 different patent holders, then any single one (!) of those 50 patent holders could preclude anyone else from practicing the standard, be it for the purpose of exortion or that of monopolization.

U.S. and EU (especially, but not only, German) law went in completely different directions as courts recognized the problem and were looking for a solution:

  • U.S. courts typically threw out or didn't even reach antitrust claims, but they held SEP holders to their FRAND licensing pledges on the basis of contract law.

  • EU, particularly German, courts didn't have that option, however, for lack of third-party beneficiary rights. The contributors to a standard-setting process make their FRAND promises to standard-setting organizations (SSOs). But implementers of a given standard are third parties, and EU (particularly German) law doesn't recognize the right of a third-party beneficiary to enforce an agreement between others. In order to poke a hole into the exclusionary rights of patent holders (in that regard, Germany is even out of compliance with EU law), they resorted to an old Roman-law doctrine ("dolo agit qui petit quod statim redditurus est") that means you're not allowed to claim what you'd have to return immediately for some other legal reason. And that other legal reason (for which one is not allowed to seek injunctions over SEPs) would be an antitrust violation.

    The original German Orange-Book-Standard doctrine was based on a case where there wasn't even a FRAND pledge. It was a de facto standard. Later, the Court of Justice of the EU brought a bit more balance into that analysis with its Huawei v. ZTE decision, which is also based on antitrust law (based on "settled case-law that the exercise of an exclusive right linked to an intellectual-property right by the proprietor may, in exceptional circumstances, involve abusive conduct for the purposes of Article 102 TFEU," which is the unilateral-conduct paragraph of EU law).

I was never completely satisfied with either jurisdiction's problem-solving approach--and I don't just mean the details of how to implement it, but structural limitations:

  • Why not have the best of both worlds?

    • U.S. courts can solve the SEP injunction problem on the basis of contract law whenever there is a FRAND commitment, but what if there isn't because one or more companies created a standard without making a FRAND pledge? Then you need to resort to antitrust law. Even when you don't need it, why not let it serve as another deterrent to prevent SEP abuse?

    • EU/German judges can't legislate from the bench and enrich their laws with enforcement rights for third-party beneficiaries. But in cases where a FRAND pledge has been made, a breach of that commitment could be held against a SEP abuser in addition to all other considerations, such as on the basis of considering it particularly malicious and deceptive conduct to make a public statement that encourages others to implement a standard only to renege on it later.

  • The actual starting point of the problem is neither unilateral abusive conduct after the adoption of a standard nor a FRAND pledge. It starts with the fact that a group of companies sits at a table to agree on a standard that is, by definition, exclusionary: exclusionary with respect to alternative technologies. Of course, standardization can be beneficial. But without a FRAND pledge, it wouldn't be. That's why some regulators such as the EU Commission make it pretty clear in their horizontal-cooperation guidelines that standards development may be a great thing, but only if all contributors make FRAND licensing promises. In other words, the upside of standard-setting may outweight the downside of inevitably excluding alternative technologies--but while you may be allowed to exclude competing technologies, regulators are not going to let you exclude competing companies (they must at least have access to a license on FRAND terms).

    A FRAND pledge is not just a contract like any other. It's a contractual commitment that is needed to legalize what would otherwise be an illegal cartel.

    Exclusionary use of SEPs, be it through the enforcement of injunctive relief or a refusal to extend licenses, is not just unilateral conduct. It's an abuse of rights that are rooted in a process that involves the creation of a cartel.

In Aspen Skiing, you had one company operating three resorts in an area, and the smaller player having just one. But the big bully on the block simply had the financial strength to build in part and acquire in part those three resorts--as opposed to having gotten into that high-leverage position by means of initially participating in a cartel, legalizing it through a FRAND pledge, and later reneging on the pledge.

What I miss in the FTC v. Qualcomm component-level licensing context is the cartel-based background of FRAND-pledged SEPs. Again, the whole reason why regulators require the FRAND pledge (because otherwise they might go after standard-setters even before they ever assert an essential patent) is to ensure that other companies are not excluded from the market. Apart from the often rather clear language of FRAND pledges, it follows from that "exclude technologies, but don't exclude companies" logic that SEPs must be licensed to all comers at all levels of the supply chain.

The CJEU in Huawei v. ZTE and the DOJ in the Motorola Mobility contexts made the availability of injunctive relief over SEPs subject to an analysis of both sides' conduct: hold-up vs. hold-out. That's how they sought to strike a balance between the exclusive nature of patent rights and the anticompetitive effects of SEP abuse. It's one of the most fundamental conflicts one can imagine: antitrust law is anti-monopoly law, while patents are monopolies. That's why compulsory licensing is sometimes inevitable.

In the EU, Microsoft was subjected to compulsory IP licensing with respect to a Windows network protocol long before the more recent wave of SEP cases. And even in the U.S., there's an interesting precedent that I only learned about from the Congressional research paper mentioned above: the May 2002 final judgment in United States v. 3D Systems Corp. and DTM Corp., a merger case (okay, the third major pillar of competition law--after unilateral conduct and cartels--that comes up here). The DOJ's Antitrust Division approved an acquisition subject to a divestiture, and in order to make sure that patent enforcement wouldn't render the divestiture useless from a competition point of view, the primary defendant was obligated to extend IP licenses to a future acquirer of the unit to be divested.

It's not a Supreme Court duty-to-deal precedent like Aspen Skiing, but it is very interesting. And it happened under a Republican administration (Bush 43).

This is already a fairly long blog post, and all I actually wanted was to add a broader perspective to the question of compulsory SEP licensing to competing component makers. Considering the reason for which the participants in standard-setting processes feel forced to make a FRAND licensing promise in the first place, there really is a pressing need under competition law to ensure that someone like Qualcomm must grant SEP licenses on FRAND terms to rival chipset makers, regardless of whether or not there had been some voluntary and profitable course of dealing that was discontinued at some point.

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