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.

Share with other professionals via LinkedIn: