Monday, October 21, 2019

Six months after settlement, Apple and Qualcomm opposing each other in UK court: interventions in Unwired Planet v. Huawei

It's been little more than six months since Apple and Qualcomm's settlement during opening statements in their San Diego FRAND/antitrust litigation. Not only is Apple, somewhat surprisingly as most settlement agreements would rule this out, still challenging the validity of some patents Qualcomm asserted in Germany, but the two companies' diametrically opposed views of what flows from a FRAND licensing obligation have resulted in interventions in the UK Supreme Court review of the Unwired Planet v. Huawei global FRAND rate case (consolidated with Conversant v. ZTE).

Apple's intervention was mentioned by Brick Court Chambers' Mark Howard (counsel for appellant Huawei) about a half-hour into the four-day hearing that began today. On LinkedIn I learned from IAM (Intellectual Asset Management) Magazine's Joff Wild that there are two other intervenors, Qualcomm and Ericsson. Given those companies' well-documented positions, it's obvious that Apple is supporting the two handset makers (Huawei and ZTE), while Qualcomm always sides with patent trolls. Ericsson tends to be very monetization-focused, too, and is the company that fed Unwired Planet with the little patent portfolio at issue in this litigation--a practice often denounced as "privateering" (or, more recently, as a "Wild West" method by a German appellate judge) and purely designed to exacerbate the problem of royalty-stacking.

There is a lot at stake in this case (for the technology industry, this is bigger than Brexit), and the panel of five justices, led by Deputy President of the Supreme Court of the UK Lord Reed, will hear argument over the course of four days--or a total of roughly 20 hours, which is about 10-20 times as long as a U.S. Supreme Court hearing in a comparable case would be. While this case involves certain questions specific to standard-essential patents (SEPs) that the UK Supreme Court must delve into, it wouldn't actually be hard to find a dispositive error. But the UK Supreme Court doesn't seem to be looking for a shortcut. They're trying to narrow the actual issue of dispute down with a jigsaw as opposed to just disposing of the case with a chainsaw. While courts at all levels, and especially top-level courts, generally seek to rule narrowly rather than broadly, there's always the risk of not seeing the forest amid all the trees.

After the first day, there is no clear indication as to what's going to happen. Huawei's counsel had all the speaking time today, and drove a few points home, but hasn't dealt the lower courts' misguided rulings a knock-out blow yet.

One circumstance that has me concerned is that Lord Justice Kitchin, who was on the appellate panel that upheld Mr. Justice Birss's reasoning, is now on the Supreme Court--not on the panel hearing this case, but he appears to seize each and every opportunity, be it a Munich conference that I attended earlier this year or a recent interview with ManagingIP magazine, to advocate affirmance instead of letting his colleagues form their own opinion without a questionable kind of attempt to influence their thinking (indirectly, as I don't presume he actually talked to them about this case).

It's hard to draw conclusions from the fact that the justices ask Huawei's counsel some tough questions--with Lord Briggs being a relentless identifier of potential self-contradiction. It does appear that for now the court is unconvinced of the need to overrule the courts below, but that doesn't mean the justices agree with the two appellees. My guess is that Unwired Planet and Conversant will face similarly tough questions. Should this assumption be wrong, then there would be a strong inclination toward affirmance.

The most important hurdle for Huawei to overcome now is to convince the justices of the distinction between a coarse and ultimately unfair path to a result that resemlbes the outcome of a real-world negotiation--and the actual, proper derivation of the terms of a license agreement from a multiplicity of patent-, product-, and party-specific parameters.

It's a fallacy--but a very dangerous one that Huawei must counter forcefully--that Justice Birss's ruling simply produced, under the threat of the enforcement of injunctive relief, what would have been the outcome of FRAND licensing negotiations between the parties. In my preview post I labeled as "primitive"--in connection with the question of estimating how many patents are truly essential to 4G--the approach of just meeting somewhere in the middle between the parties' positions (without a reasonably sophisticated analysis of why both parties are equally off base, though quite often one party is further from the truth than the other). But even if the methodology had not been quite so blatantly unsophisticated, the biggest problem is an approach that comes down to "it only takes one bullet to kill": if just one patent from a portfolio has been proven, the enforcement of an injunction kills a product or, depending on how important a market is, potentially even an entire company.

The justices made some statements today that suggested they believe a SEP holder has already proven that its portfolio as a whole has a market value relative to the number of declared-essential patents in it after only proving a single declared-essential patent--in a single jurisdiction--to be valid and to actually read on the standard. That's plain wrong. It means to focus in the most superficial terms on the result--which most of the time is a global portfolio license--rather than the proper derivation.

A single success in just one venue may very well be attributable to circumstances that cannot be replicated elsewhere --maybe not even with other patents from the same family (as there are jurisdictional differences), but certainly not with respect to patents from other families. It's a bad idea to turn such a one-hit wonder into a lucky punch that lets the winner take it all.

"It only takes one bullet to kill" is right when injunctions are enforced. But it's just not true that, absent an unwarranted enforcement of injunctive relief, parties immediately agree on a license agreement based on the number of declared-essential patents in a portfolio just because one of those patents is deemed valid and infringed. The number of actually-essential patents--lethal bullets in that analogy--does make a difference. Over the years I've watched case in which parties needed to prevail in court on multiple SEPs before the dispute settled. Patent holders like to call his "holdout," but there may be very legitimate reasons for which an implementer is not persuaded by sheer portfolio size.

Huawei's counsel had his strongest moment when he responded to a question from a justice with the clarification that the possibility of the scope of a license being less than a global portfolio license does not mean that the implementer gets to call the shots. No, it's simply that the implementer is entitled to dispute the validity and essentiality of the patent (and to possibly raise other defenses, such as equitable ones). The implementer is, however, deprived of this entitlement if a SEP holder can use leverage in a single jurisdiction to coerce a settlement that precludes the implementer from disputing validity and/or essentiality in one or more other jurisdictions.

That entitlement wasn't abolished by the CJEU's Huawei v. ZTE ruling. But that leads us to the other point I wish to make (as there'll be opportunities on the following days to look at this case from more angles): I got the impression that the UK courts--at all three levels--are influenced far too strongly by that Huawei v. ZTE decision and the idea that FRAND goes both ways (though the reciprocal-license requirement in an ETSI FRAND declaration is irrelevant to this, and Lady Black made a very important when she stressed that the FRAND undertaking estops the declarant, but does not prevent the implementer from disputing validity and infringement). Brexit hasn't happened yet, so CJEU rulings can still govern UK cases, but what needs to be considered is that Huawei v. ZTE came from Germany, a jurisdiction that doesn't distinguish between legal and equitable remedies. But UK law does give judges more discretion with respect to the grant of injunctive relief. Huawei v. ZTE may be the only line of defense (until Germany finally brings its national patent law into compliance with the IPR enforcement directive of the EU) for a company held to infringe a SEP. It's an antitrust defense. In the UK, however, courts don't even need to resort to antitrust law in order to find that a patent holder--in this case, one that doesn't make any products--can simply be made whole with money, even if it may take a couple of rounds of litigation to get there.

The ruling that is being reviewed here does not contain a proper derivation of a result from the starting parameters. In this case, as Huawei's counsel outlined, the major market is China, as is the place of manufacturing, and Unwired Planet has already lost multiple patents there and may end up having failed to prove the infringement of a single valid patent. In such cases, a real-world defendant will, in the absence of judicial imperialism, base its negotiating position largely on the parties' positions of strength and weakness in the most relevant jurisdiction.

It was British understatement when Huawei's counsel said toward the end of the first hearing day that the UK wouldn't be a major patent litigation venue in the smartphone industry (except in the event of affirmance) as it is neither where those phones are manufactured nor the place where most of them are sold. The UK market isn't small or poor, and many parties have litigated there (such as by seeking declaratory judgment of invalidity) just to be handed decisions that would serve as persuasive authority in other countries, such as Germany. And one can submit UK rulings in many other jurisdictions even without having to translate them (while translation costs are a non-issue, it's always preferable to present an original decision).

There would be "demand" for UK patent rulings. The question is not whether the UK would be a very significant patent jurisdiction. It's whether it wants to compete in a race to the bottom with other jurisdictions by giving patent holders undue leverage, just to become Ground Zero for SEP litigation. Even if that panned out, it wouldn't last long because some other country would sooner or later offer SEP holders an even "better deal" (better for plaintiffs, but worse from a public-interest point of view).

This first day could have gone better, and I'd have expected more visible headway for Huawei already, but I still can't imagine the UK Supreme Court would uphold a decision that is, to put it diplomatically, not conducive to the reputation of that jurisdiction on the world stage.

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