Wednesday, November 6, 2019

Component-Level SEP Licensing: final conference program as PDF

If you plan to attend next week's Component-Level SEP Licensing conference in Brussels, you may find it useful to download the final conference program (this post continues below the PDF document):

FOSS Patents 19-11-12 Confe... by Florian Mueller on Scribd

The conference is already overbooked, but for a few more days I'll still accept registrations via EventBrite as there are always some no-shows and the hotel can provide--to use a cloud computing-style term--some (limited) burst capacity if needed.

The PDF will render correctly on most devices. However, when viewed on Scribd (such as in this post), a special character in the name of one speaker may result in a "blot."

Also, I've already received some useful feedback from readers to yesterday's "Call for input: do you know of any cases in the PC industry in which SEP holders refused to license component makers or based their royalties on the end product?"

So far it looks like there are a couple of wireless companies that also try to impose device-level royalties on personal computers, but they just can't do that when WiFi cards are sold separately and later incorporated into PCs, and some tried the same with respect to MP3 (as implemented by the Microsoft Windows operating system). I'll follow up with more detail on that one later this month.

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Tuesday, November 5, 2019

Call for input: do you know of any cases in the PC industry in which SEP holders refused to license component makers or based their royalties on the end product?

What you find in the headline is not meant to be a rhetorical question. While I'm personally unaware of any case in the personal computer industry (with just one exception that I'll state in a moment) in which a standard-essential patent (SEP) holder insisted on the end product (desktop computer or laptop) being the royalty base and/or refused to grant an exhaustive license to component makers, I can't rule out that there have been such cases in that huge and decades-old industry. That's why I'm asking for your help. Input from readers has previously been very helpful, such as in connection with privateering (patent transfers from to non-producing entities).

My focus is on mobile devices, and I've looked at PC-related patent litigation only when countersuits targeting personal computers were brought in retaliation for mobile patent suits. In one such case, an absurd letter by Motorola Mobility to Microsoft entered the public record: Motorola wanted 2.25% per unit from Microsoft and explicitly stated that "the royalty is calculated based on the price of the end product (e.g., each Xbox 360 product, each PC/laptop, each smartphone, etc.) and not on component software (e.g., Xbox 360 system software, Windows 7 software, Windows Phone 7 software, etc.)." To put this into perspective, on most PCs that royalty rate would have been roughly at a level with Microsoft's entire income from selling a Windows OEM license. Motorola made that outlandish demand in a letter, but limited its royalty demand to 2.25% of the selling price of Windows in Judge James L. Robart's now-famous FRAND case as well as in a similar proceeding (that led nowhere before the parties withdrew all pending claims) before the Mannheim Regional Court. Motorola even denied the undeniable later on--apparently they realized they had been a bit too crazy, fortunately just temporarily.

Video codec patents are one example of a category of SEPs for which patentees could theoretically have insisted that the royalty base should be the end product. Graphics and memory standards are another example.

What about WiFi? All I know is that I've bought WiFi cards for several desktop PCs in a row, just because it's always a nice fallback when there's an issue with a landline or a router. I can just get a connection via a smartphone with tethering--and in many places, other options exist. Obviously, when I bought those cards for roughly $40-50 each, there was no way any WiFi patent holder could have collected a royalty based on the total cost of the related PC. I paid my $40-50 for that component regardless of whether I plugged it into a $500 or a $5,000 computer. Apparently, the companies that made the WiFi cards I bought were fully--and exhaustively--licensed. It's the same situation when you buy an additional or larger memory chip or a new graphics adapter and just install such components yourself.

Today's smartphones are handheld PCs. If there really is no example (other than a letter Motorola distanced itself from) of SEP holders having treated the PC industry the way they're now trying to treat the mobile device and automotive industries, then that would expose the likes of Qualcomm, Nokia, and Ericsson as total outliers in the wider technology industry.

In case you do know of any cases, please fill out the contact form. I protect my sources unless you request--in writing--to be named. What I'm primarily looking for is verifiable information, such as publicly accessible court filings. If you have unverifiable information that you nevertheless consider highly pertinent, please let me know, too--but I may then have to follow up with you to get a better idea.

Thanks in advance for your help! I will publish the results of this call for input on this blog, in a future post.

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Friday, November 1, 2019

Upcoming Brussels conference on component-level SEP licensing: final program and roster of speakers

The hottest SEP-related topic at this time is the question of whether--and on what terms--implementers of FRAND-pledged standards should have access to exhaustive component-level licenses. It's relevant to antitrust enforcement, litigation, and policy-making.

On Tuesday, November 12, FOSS Patents' Component-Level SEP Licensing conference will be held at the Sofitel Le Louise. Tickets are available via EventBrite. Here's the final program (with all panelists named):

08:30Registration & Reception
09:00Panel discussion on component-level licensing (antitrust and contract law)
10:00"All Comers" Or Not? Access to Licenses Under Contract Laws
Moderator: Dave Djavaherian (Founder, PacTechLaw)

Panelists:
11:00Patent Licensing: Implications for Business
Moderator: Ief Daems (Legal Director Antitrust EMEAR, Cisco Systems)

Seeking Component-Level Licenses: Experiences From the Field
Patent royalties in the IoT industry: an economics perspective
Joachim Henkel (Professor of Technology and Innovation Management, Technical University of Munich)
12:30Lunch
13:30The 2019 FTC v. Qualcomm Ruling: Key Holdings, Next Steps, Global Impact
Moderator: Jay Jurata (Partner, Orrick, Herrington & Sutcliffe)

Judge Lucy H. Koh's findings of fact, conclusions of law, and remedial orders
Jay Jurata (Partner, Orrick, Herrington & Sutcliffe)

Licensing practitioner's perspective on fallout from FTC v. Qualcomm ruling
Eric Stasik (Founder and Director, Avvika)

Could Judge Koh's reasoning be adopted under Art. 102 TFEU?
Evelina Kurgonaitė (Secretary General, Fair Standards Alliance)
15:00Afternoon Coffee Break
15:30Antitrust Complaints Over Component-Level Licensing
Moderator: Rebekka Porath (Director IP Policy EMEA, Intel Corporation)

Antitrust complaints over SEP licensing
Rafał Sikorski (Professor, Adam Mickiewicz University; and Senior Partner, SMM Legal)

Continental antitrust lawsuit against Avanci
Kent Baker (Head of IP Strategy & Licensing, u-blox)
16:00BONUS SESSION: Access to Injunctive Relief
Moderator: Edmund Mangold (Patent Counsel, BMW)

Evolution of national case law on SEP injunctions since Huawei v. ZTE
Bram Nijhof (Counsel, Taylor Wessing)

The proportionality requirement under the EU enforcement directive
Maurits Dolmans (Partner, Cleary Gottlieb Steen & Hamilton)

The German patent reform debate
Moderator: Florian Mueller (Founder, FOSS Patents)
Panelists: Messrs. Dolmans, Mangold, and Nijhof

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Wednesday, October 30, 2019

Game changer in automotive patent wars? Huawei brought antitrust complaint against Nokia in German court to get exhaustive module-level SEP license

The Munich I Regional Court scheduled a Nokia v. Daimler "double-header" for today: first hearings (several months after which there will be trials followed by decisions) in two of the Finnish company's ten patent infringement cases pending against the German car maker.

The wireless standard-essential patents-in-suit are EP1388234 and the related German patent DE60240446C5 on a "hybrid automatic repeat request (HARQ) scheme with in-sequence deliver of packets" as well as EP2797239 on "a method and a telecommunication device for selecting a number of code channels and an associated spreading factor for a CDMA transmission." On June 5, the same court held a hearing on Nokia's infringement action against Daimler over EP1671505 on a "redundancy strategy selection scheme," and indicated a strong inclination to rule in Nokia's favor, unless things change when the actual trial takes place on February 6, 2020.

A number of suppliers of telematics control units (TCUs) to Daimler are intervening in the infringement case on the automotive company's behalf: Continental (which tried twice, but unsuccessfully so far, to shield Daimler from Nokia's lawsuits by means of a U.S. antisuit injunction), BURY, Bosch, TomTom (world-famous for its navigation systems), and Valeo subsidiary Peiker. Another intervenor, Huawei, makes cellular communications modules that are at the heart of many TCUs made by others; Huawei is also known to offer TCUs, but its counsel mentioned only its connectivity modules today.

Another factor that sets the Chinese mobile technology company apart from the other intervenors is that Huawei is presently obtaining several times more SEPs--and has a far higher share of existing 4G patents--than Nokia. By contrast, the TCU makers intervening in this case largely don't own cellular SEPs. What lends this particular importance is that it shows it's about product-focused innovators (car makers, TCU makers, and the likes of Huawei, Samsung, and LG) versus companies like Nokia and Ericsson, whose current product business is a shadow of its former self, so they increasingly focus on patent monetization.

Something I had heard through the grapevine was finally confirmed today:

Huawei has recently filed an antitrust complaint against Nokia with the Dusseldorf Regional Court, asking the court to order Nokia to make a FRAND licensing offer to Huawei--which (as was also mentioned today) already has a license agreement in place with Nokia for its end products (phones, tablets etc.)--that would result in an exhaustive SEP license covering Huawei's cellular connectivity modules.

Huawei is more likely than not to succeed with its Dusseldorf antitrust action. Presiding Judge Dr. Thomas Kuehnen ("Kühnen" in German), who chairs one of the two patent-specialized "senates" (divisions) of the Dusseldorf Higher Regional Court and is the principal author of the leading German reference work on patent infringement proceedings, published an article this year in the periodical of the German Association for the Protection of Intellectual Property (GRUR). In that article, Judge Dr. Kuehnen explained why implementers at all levels of the supply chain are entitled to an exhaustive FRAND license--and after analyzing various procedural avenues, he concluded that the most practical approach is for the implementer to ask a court--as Huawei is doing now--to obligate the SEP holder to make a FRAND offer. That appears more reasonable than a prayer for relief over a specific set of terms, given that a SEP owner has more information available to make a FRAND offer that complies with the criteria laid out by the Court of Justice of the European Union (CJEU) in Huawei v. ZTE.

Huawei's counsel in the Dusseldorf antitrust action--and representing Huawei to the extent it is an intervenor in Nokia's patent infringement actions--is Preu Bohlig's Professor Christian Donle. Preu Bohlig is one of Germany's oldest IP law boutiques. In the smartphone patent wars that firm successfully defended HTC against a couple of Apple patents. When I heard of Professor Donle's component licensing antitrust action, I invited him to speak at my Brussels conference on November 12 (that's already the week after next), and he thankfully accepted, so he will share a panel with Bristows' Pat Treacy, BakerBotts' Paul Lugard, and Orrick's Jay Jurata. But back to the German cases:

If at the end of Huawei's antitrust action Nokia is required to grant an exhaustive module-level SEP license on FRAND terms (and a real license as opposed to an "extended workbench" type of deal under which the de facto licensee would still be the car maker, with the component supplier merely acting as a licensing agent on the OEM's behalf), Nokia's patent infringement actions against Daimler will, to the extent they involve Daimler cars that come with a then-licensed Huawei component, be not only meritless, but even downright unlawful.

For that reason, Huawei has intervened in the German Nokia v. Daimler cases, requesting that--to the extent Huawei is affected--the cases be severed and stayed. I don't know what percentage of Daimler cars come with a cellular communications module from Huawei--all that has been mentioned so far is that Continental is one of Huawei's various customers among TCU makers, so the percentage could be extremely high.

In today's first hearing, the Munich court (I'll comment separately on their attitude toward antitrust defenses to patent infringement cases) basically said that since Nokia has chosen to sue Daimler, they are for now inclined to be ignorant of the issues raised by Huawei--though we're simply talking about the very (il)legality of what Nokia is doing by refusing to license Huawei while suing its (indirect) customer, Daimler. But it was just a first hearing, so there still is a chance for Huawei to obtain a stay even from the Munich court (which is an outlier court even within Germany in this specific context), or maybe it won't even be necessary in case Nokia fails to prevail on infringement and/or cases get stayed over validity concerns.

I've quickly drawn up a few diagrams to explain the relationship between the different parties and cases. First, here's a hypothetical scenario in which Nokia would--which it probably won't unless forced to--finally honor its FRAND pledge and extend an exhaustive SEP license to Huawei, which would in turn supply TCUs (which it may or may not do, but definitely could do anytime) to Daimler (click on the image to enlarge):

Patent exhaustion works downstream, so the net effect is that Daimler, as the end-product maker, would find itself fully licensed. While an argument was made today about exhaustion under German law requiring that the first licensed sale already involves a product practicing all claim limitations, Nokia did not--as I'm convinced it could not--make an argument that its SEPs claim cars, and Huawei's connectivity modules are full-featured communications devices that--to put it in a slightly oversimplified way--contain all the hardware you find in a phone apart from a screen.

Patent exhaustion works across any number of levels of a supply chain. Here's the second of my three charts--the present commercial reality of Huawei supplying its modules to Continental, which in turn sells a TCU to Daimler, but with the assumption of Nokia finally (which is not the case yet) granting a component-level license to Huawei (click on the image to enlarge):

The third and final chart combines the two previously-shown paths down the supply chain with Nokia's ongoing (allegedly unlawful) patent litigation campaign against Daimler and Huawei's Dusseldorf antitrust action against Nokia (click on the image to enlarge; this post continues below the diagram):

The chart mentions the basis for the Huawei v. Nokia antitrust case: Art. 102 TFEU, the unilateral-conduct (abuse of dominant position) paragraph of EU law.

Daimler and four other suppliers (Continental, Valeo, BURY, and Gemalto) filed EU antitrust complaints against Nokia earlier this year. Huawei would be in its right to do so, but no such filing is known. What is known by now is the Dusseldorf antitrust case, and just like Huawei v. ZTE started in that same town, where I attended the January 2013 trial that resulted in the referral of various SEP injunction-related questions to the CJEU, Huawei v. Nokia, too, has the potential to make EU antitrust history.

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German judge wants EU competition commissioner Margrethe Vestager to do his job: Nokia v. Daimler

The biggest news from today's Nokia v. Daimler doubleheader patent infringement hearing in Munich was Huawei's potentially groundbreaking German antitrust lawsuit against Nokia over the former handset maker's refusal to extend an exhaustive component-level standard-essential patent (SEP) license to Huawei, which is at least an indirect--through telematics control unit (TCU) makers like Continental--supplier to Daimler. But there's more (I typed 11 pages of notes)...

The two divisions of the Munich I Regional Court that hear patent infringement cases (the 7th Civil Chamber and--which held today's hearings--the 21st Civil Chamber) appear to have an interesting self-concept. While they very much focus on patent cases, their responsibility extends to all fields of civil law, depending on what issues get raised in their cases. Competition law is not an exception. But their protective instincts consistently benefit patent holders, even trolls and other abusers, and apparently never those whose businesses are profoundly impacted by antitrust violations.

Hogan Lovells's Dr. Benjamin Schroeer ("Schröer" in German), counsel for Nokia v. Daimler intervenor Peiker (a Valeo subsidiary), was one of several attorneys for Daimler suppliers who explained to the court how their clients are affected by Nokia's refusal to extend exhaustive component-level licenses to them, choosing to sue Daimler instead. But what matters to the court is that Nokia holds patents and elected to sue Daimler over them--end of story, for the time being...

Dr. Schroeer suggested that Daimler is just serving as a proxy for Nokia to sue because, in reality, it's about the telematics control units (TCUs) supplied by the likes of Peiker and Continental. In that context he even hinted at a violation of the intervenors' right to be heard. Whether he meant to indicate to the Munich court that they're considering a complaint with the Federal Constitutional Court of Germany wasn't clear--but that's where a complaint over a denial of the right to be heard would ultimately go.

When Dr. Schroeer stressed his client's antitrust injury, Judge Dr. Hubertus Schacht, who filled in for Presiding Judge Tobias Pichlmaier today, said the following:

"Complaints [over Nokia's allegedly anticompetitive conduct] are also pending with the [European] Commission. It appears there are legal remedies for [what you've described]."

It's a well-known fact that Daimler and at least four suppliers (Continental, Valeo, BURY, and Gemalto) have lodged such complaints this year. The EU Commission will at some point--possibly in the near term--decide whether to open formal investigations. Assuming the Directorate-General for Competition (DG COMP) does investigate, and finds that Nokia has violated Art. 102 of the Treaty on the Functioning of the EU (TFEU), and further assuming that such Commission decision would be upheld by the Court of Justice of the EU, Nokia might indeed get fined. But in the meantime, the German courts will have to adjudicate the pending Nokia v. Daimler patent infringement actions (at least ten are known, and more may be--or may even have been--filed). If a patent injunction is ordered against Daimler, and actually enforced, the car maker will be left with no choice but to bow to Nokia's demands--and those may be totally out of line, as counsel for Huawei said today that he's ready to produce the existing Huawei-Nokia patent license agreement covering mobile end products within five minutes of Nokia waiving the confidentiality requirement, and the court would see that what Nokia is seeking from Daimler is a disproportionately higher license fee for its cars than the one it's actually getting from Huawei for its mobile phones and tablets.

As I noted in another post on today's hearing, the positions the Munich court took today were highly preliminary. It's happened before in some Munich cases--though never with respect to an antitrust defense to the best of my knowledge--that the court adopted a different position at the time of the second hearing, which is the actual trial. Should Nokia be granted injunctive relief in these cases, it would amount to a dereliction of duty with respect to the application of competition law. In that light, I found it disappointing and disconcerting that a German judge would tell automotive suppliers to complain with the EU's competition authority instead of recognizing the ramifications of Nokia's refusal to license component makers.

Relying on EU competition commissioner Margrethe Vestager is not the answer to serious antitrust issues raised in a German patent infringement litigation.

If Daimler's suppliers are--as any remotely reasonable reading of the CJEU's Huawei v. ZTE makes perfectly clear--entitled to an exhaustive SEP license, the Munich court can't just argue that the bottom-line commercial effect of Daimler taking a license from Nokia would be that Daimler can continue to make and sell cars that come with cellular connectivity. With Huawei's private antitrust lawsuit against Nokia, it's fairly possible that the central question here--access to exhaustive component-level licenses that enable suppliers to sell to any customer anytime (one of the fundamental freedoms of the EU: freedom of movement of goods)--will reach the EU's top court within a few years. Should the CJEU then find that Nokia's refusal to deal was an antitrust violation, some people may end up looking very bad because they would have condoned or even abetted illegal conduct despite having had every chance to do their job and thwart SEP abuse.

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Qualcomm's German outside counsel: all mobile communications technology resides in baseband chipset

In the FTC v. Qualcomm antitrust litigation, particularly in its opposition to the FTC's motion for summary judgment on chipset-level licensing, Qualcomm disputed that cellular standards are implemented by baseband chips. Qualcomm claimed that only "complete devices" can implement cellular standards (which failed to persuade Judge Lucy H. Koh of the United States District Court for the Northern District of California).

That's why I just can't help but share a soundbite from today's Nokia v. Daimler patent infringement hearing in Munich. Today, Quinn Emanuel's Dr. Marcus Grosch represented Daimler against Nokia's standard-essential patent (SEP) assertions. But he also represented Qualcomm in its German patent infringement actions against Apple. Here's a fundamental truth he told the Munich court today:

"All that we're talking about with respect to mobile communications technologies is ultimately in the baseband chip."

That quote made my day--and justifies an unusually short blog post by my standards.

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Sunday, October 27, 2019

Intel antitrust lawsuit takes aim at Softbank-owned Fortress Investment's patent aggregation, obfuscation, and litigation tactics

As this week draws to a close, I realize that the most important IP topic of the week was the role of financial engineering behind some of the most aggressive patent transfers and assertions. Huawei's counsel in the Unwired Planet v. Huawei case told the Supreme Court of the UK that Unwired's aggressive attempts to monetize former Ericsson patents amounted to "leveraged financial engineering." Earlier in the week, Intel filed an antitrust and unfair competition complaint in the Northern District of California against Fortress Investment and three of its subsidiaries (two of which are patent assertion entities named VLSI Technology and DSS Technology Management). Fortress Investment was in free fall until it was acquired by Japan's Softbank for $3.3 billion in 2017.

In its lawsuit filed on Monday (October 21, 2019), Intel alleges antitrust violations

  • either in the market for patents for high-tech consumer and enterprise electronic devices and components or software therein and processed used to manufacture them

  • or, in the narrower alternative, in the market for licenses to Fortress's aggregate portfolio.

Antitrust analysis generally starts with market definition. There must be a market in which someone has a dominant position and acts abusively.

Intel isn't saying that investments in patent licensing firms or large-scale acquisitions of patents by patent assertion entities would always be illegal, or that trollish litigation tactics raise competition concerns. The first couple of pages of the complaint discuss the policy implications of patent assertion entities (PAEs) at a generic level, but the specific case is about certain structural and behavioral characteristics of Fortress's industrial-scale patent acquisition and assertion business model.

Citing to what network technology company Sonus Network alleged in a case against one of Fortress's numerous shell companies, Inventergy, the complaint quotes that particular entity's CEO as telling Sonus that "Fortress[,] does not settle" in litigation and, in the absence of a license deal palatable to Fortress, Sonus would face "an IP bloodbath." The flowery language of that threat does not per se constitute an antitrust violation, and the complaint doesn't say or suggest so. It merely serves to illustrate how little Fortress's business model has to do with innovation and to what extent the business model is simply to create, and capitalize on, a patent reign of terror. Case in point, a particularly well-known Fortress entity, Uniloc, previously caught my attention because it shows up in the RPX Daily Litigation Alert very often as they've brought dozens of lawsuits against Apple and Google, as well as other defendants.

Fortress apparently sets up and shuts down patent assertion entities at an unusually high frequency. They transfer patents between them, sometimes as a result of subsidiaries being unable to meet their payment obligations to the holding company. Similarly, they just dismiss complaints in one venue to refile somewhere else. And when patent claims are found invalid, they sometimes come up with many dozens of amended claims that allegedly don't have any more merit (as they just add some meaningless terms to the claim language), but enable them to keep suing forever.

Again, vexatious and oppressive litigation tactics don't in and of themselves constitute anticompetitive conduct. The point I found particularly interesting from an antitrust angle is that Intel explains how Fortress systematically acquires, through different subsidiaries, patents covering alternative techniques so as to make it practically impossible to work around all of those patents without Fortress being able to allege (whether with or, more likely, without merit) some infringement(s) at any rate. I couldn't find the term "patent thicket" in the complaint, but that's the one that came to my mind when I read the related passage:

"23. Further, aggregating a massive portfolio of electronics patents allows Fortress and its PAEs to amass a range of patents that are both substitutes for and complements to one another. When a firm wants to build an electronic device, such as a smartphone, there are many ways to do so. Each alternative requires multiple technologies. However, the alternatives do not require the same combination of technologies. For example, Alternative 1 might require technologies A, B and C, while Alternative 2 might require technologies D, E and F. The technologies used for Alternative 1 (A, B and C) are complements: they are each needed to create the device using Alternative 1. Similarly, the technologies used for Alternative 2 (D, E, and F) are economic complements. The technologies comprising Alternative 1 are also a substitute for the technologies comprising Alternative 2, because the bundle of technologies used in Alternative 1 can be used as a substitute for the bundle of technologies used in Alternative 2.

"24. There are many possible permutations of complement and substitute technologies for electronics patents. For instance, Alternative 3 might require technologies A, C and D. In that scenario, the technologies bundled in Alternative 3 are a substitute for the technologies bundled in Alternatives 1 and 2 respectively; A, C, and D are complements in the production of Alternative 3; and technology D is a substitute for technology B. Technologies can thus be both substitutes and complements. If Alternative 4 used technologies A, B, and D, then B and D are complements for Alternative 4, and substituting D for B changes Alternative 1 to Alternative 3."

Another allegation is that Fortress requires companies to license numerous patents deemed meritless (so weak that they "never would have been asserted by their former owners") in order to license those that are not that weak. Package deals are common in many industries, and the allegation here is very much about Fortress's patent aggregation strategies. It's not about aggregation of the efficient kind where licensees would be presented with a one-stop solution: while the Fortress web of companies as a whole engages in large-scale patent aggregation, companies face royalty demands from numerous Fortress companies and are never offered a deal covering the patents held by all Fortress entities.

According to Intel's complaint, "Fortress and its PAEs foreclose the possibility—which existed before aggregation—that litigation can be an economic alternative to licensing patents." In other words, Fortress allegedly bases its monetization strategy in no small part on the nuisance value of meritless patent lawsuits that result in what I would call hard (i.e., legal fees) and soft (i.e., distraction of employees) costs to those forced to defend against Fortress's infringement actions.

The complaint mentions the following Fortress PAEs--note that any of those PAEs may itself have spawned numerous companies (in the U.S. as well as abroad):

  • VLSI Technologies allegedly discussed three alternative ways of helping NXP maximize its income from a part of its patent portfolio: Financing, Privateering, and Corporate Carve Out (an acquisition of a copany division along with its patents). Guess what--the chosen route was Privateering. Two years ago, VLSI asserted eight former NXP patents "against virtually every one of Intel's microprocessors ever sold since 2011" and sought $7.1 billion. That first case got stayed when PTAB IPRs were instituted against six of the patents-in-suit. Thereafter, VLSI brought a couple of Delaware cases, at least one of which also involved a multi-billion-dollar damages claim. But with injunctions not being realistically available in the U.S. (except from the ITC in the form of import bans), VLSI is also suing Intel in China.

  • DSS sued Intel as one of various defendants (electronics companies as well as retailers like Wal-Mart). Intel settled earlier this year, but presumably on very favorable terms as the patent claims-in-suit had been declared invalid by the PTAB.

  • Uniloc's dozens of lawsuits were mentioned above. To be precise, various Uniloc entities have so far sued Apple 25 times in the U.S. (Eastern and Western Districts of Texas), apparently mostly or exclusively over cellular standard-essential patents acquired from Philips, and over the course of only three months brought a total of 35 lawsuits against Google. That's 60 just between Apple and Google--and there have been more than 70 other Unioc infringement suits already.

  • Inventergy acquired many hundreds of patents from companies like Nokia, Panasonic, and Huawei, then sued Apple, HTC, and ZTE in the District of New Jersey and is seeking an ITC exclusion order (import ban).

  • IXI sued Samsung, BlackBerry, and Apple.

  • Seven Networks sued ZTE, Samsung, and Google, and apparently got those three companies to settle before also suing Apple.

  • KIP CR (= Crossroads) P1 has sued a number of companies including Huawei and Oracle. That entity even challenged the constitutionality of PTAB IPRs, but the Supreme Court denied that cert petition.

This problem is undoubtedly a whole lot bigger and more severe--and, therefore, more harmful to industry and consumers--than conventional "patent trolling." It will be interesting to see what else comes to light in the course of this litigation. Finally, here's the complaint:

19-10-21 Intel Antitrust Co... by Florian Mueller on Scribd

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Saturday, October 26, 2019

Munich I Regional Court developing Local Standard-Essential Patent Rules applying Huawei v. ZTE CJEU case law

This is the second post on the Munich I Regional Court's celebration of the 10th anniversary of its Local Patent Rules (on Thursday). In the previous pos (on the history of Munich's Local Patent Rules and on Presiding Judge Tobias Pichlmaier's explanation of the rationale behind granting Nokia's anti-antisuit injunctions against Daimler supplier Continental) I already announced that I would separately write about Presiding Judge Dr. Matthias Zigann's outline of various ideas surrounding the court's forthcoming Local Standard-Essential Patent Rules.

Judges Pichlmaier and Dr. Zigann preside over different divisions (21st and 7th Civil Chamber, respectively). Local Rules obviously apply to both patent-specialized divisions alike.

NOTE: Those new rules are still work-in-progress. The court has floated some ideas at this stage, but nothing is final yet. The court's current plan is for Judge Dr. Zigann to unveil a near-final draft on December 12, after which there is still going to be a chance for stakeholders to provide input that might result in further modifications.

Despite key parts still being in flux, I wanted to share the court's preliminary plans with you, and I wish to thank Judge Dr. Zigann for having authorized the publication of the two slide decks you can find below.

First, the English-language slide deck Judge Dr. Zigann used in his presentation at an ETSI IPR committee meeting earlier this month (this post continues below the document):

ETSI IPR SC Meetings Zigann... by Florian Mueller on Scribd

Second, the German-language slides shown at the Thursday (October 24) event (this post continues below the document):

Pichlmaier Und Zigann 10 Ja... by Florian Mueller on Scribd

One of the ideas that were incorporated into the draft rules between the ETSI meeting and the October 24 event is that an implementer can specifically name patents that should be excluded from the scope of the license, and by doing so unilaterally can avoid paying license fees for them.

What will be subject to further discussion is an adoption of the Düsseldorf appeals court's stance on the non-discrimination requirement attaching itself to standard-essential patents and survives tranfers. The final Munich rules may differ from the Düsseldorf doctrine.

One idea that neither presentation elaborates on in full detail is that a patentee may divide a portfolio up into two groups--sort of an A list and a B list of SEPs. The patents on one of the two lists would be eligible for a retroactive reduction of the license fee by means of an implementer opting out. Closely related to the concept of the two lists is the preliminary idea of a "joker" that might reduce the royalties due to zero: that would be the case if any nullity and/or declaratory judgment actions brought by the implementer succeeded in taking down a contractually-predefined number of declared-essential patents from the A list.

For now I will refrain from sharing my thoughts on the Munich court's preliminary SEP rules here. I just wanted to be of service to my esteemed readers and share the two documents as well as some additional information on where things stand. Again, this is very much in flux. The court has received input from various stakeholders, and will continue to listen to feedback and suggestions until those rules are finalized, which may very well happen by the end of this calendar year.

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Presiding Judge Pichlmaier explains rationale behind granting Nokia's anti-antisuit injunction against Continental's U.S. antisuit motion

On Thursday evening, the Landgericht München I (Munich I Regional Court)--by now one of Germany's three leading patent litigation venues--celebrated the 10th anniversary of the "Münchner Verfahren" ("Munich procedure") for patent infringement cases. It's what U.S. district courts typically call Local Patent Rules.

Former Presiding Judge Dr. Peter Guntz--who left the regional court's bench several years ago to become a (presumably far better-paid after taxes) member of the Technical Boards of Appeal of the European Patent--and a patent litigator (Olaf Giebe) explained how Munich's Local Patent Rules came into being. There had been some informal exchanges between patent-specialized judges and lawyers, and one of the topics they discussed was Munich's conspicuous lack of popularity as a patent litigation venue as compared to Düsseldorf and Mannheim at the time.

Mr. Giebe wrote up a one-pager that laid out three priorities to work on toward improvement. One of them was that lawyers simply had a better idea of what to expect in procedural terms from the two aforementioned courts, and Munich needed to catch up on clarity. Speed obviously matters, too. The third item, however, was somewhat sensitive: it came down to suggesting plaintiff-friendlier claim constructions, but without specific proposals. There just was a feeling in the patent litigation community at the time that the courts in Düsseldorf and Mannheim were more willing to construe patent claims in a way that enabled plaintiffs to prevail.

Former Presiding Judge Dr. Guntz stressed that the fathers of Munich's Local Patent Rules didn't want to attract patent cases by means of patentee-friendly rulings--but it sounded like Munich was deemed too restrictive in plaintiffs' eyes.

Munich is Europe's patent capital as it's the primary seat of the European Patent Office and home to the Federal Patent Court of Germany (where nullity complaints or complaints over rejected patent applications are filed) and the Max Planck Institute for Innovation and Competition--and, by now, the Munich I Regional Court is a very significant venue for patent infringement cases and has two patent-specialized divisions, the 7th Civil Chamber under Presiding Judge Dr. Matthias Zigann and the 21st Civil Chamber under recently-appointed Presiding Judge Tobias Pichlmaier.

It wasn't always clear whether the state government and the leadership of the court truly appreciated the importance of being a significant patent venue. Thursday's keynote speakers--Chief Judge of the Munich I Regional Court Dr. Andrea Schmidt and Bavarian Attorney General Georg Eisenreich--made it clear not only in their speeches but through their mere presence that there is awareness at the highest levels.

Chief Judge Dr. Schmidt mentioned that she just recently sat in the audience to follow a patent trial and heard the term "FRAND" for the first time--up to that point, she said, she only knew the English words "friend" and "friendly."

After the keynotes and the historic flashback delivered by former Presiding Judge Dr. Guntz and Mr. Giebe, there was a panel on which Meissner Bolte's Dr. Tobias Wuttke (one of two lawyers who frequently serve as lead counsel for Deutsche Telekom in patent infringement cases) and the two presiding judges of the patent-specialized divisions gave an update on current legal developments. I'll talk about Judge Dr. Zigann's new SEP litigation guidelines (still work in progress) later. Judge Pichlmaier refocused his panel presentation on short notice and talked about something that has drawn the interest of--and, from what I hear, been welcomed by--many members of the German patent law community: the two anti-antisuit injunctions the court granted against a U.S. subsidiary of automotive supplier Continental (who was seeking to shield Daimler from Nokia's German patent infringement lawsuits) as well as against Continental AG, the German group parent.

The Oberlandesgericht München (Munich Higher Regional Court) has recently postponed the appellate hearing by two weeks from Halloween to November 14 at Nokia's request as their lawyers have to participate in a doubleheader hearing (on two of their ten pending infringement cases against Daimler) next Wednesday (which would have been just the day before the appellate anti-antisuit hearing). Continental's counsel will also be present next Wednesday, but only as an intervenor, while Nokia is the plaintiff.

Judge Pichlmaier reminded everyone of what used to be the most popular stalling tactic employed against German patent infringement actions: companies that expected a patent holder to sue them in Germany (or some other European country with reasonably fast patent courts, such as the Netherlands) over a particular patent or set of patents often brought declaratory judgment actions in Italy. That tactic was called "the Italian torpedo." What they asked the Italian courts to adjudicate was whether they infringed the German (or Dutch, British etc.) parts of European (= EPO-granted) patents--only to seek a stay of any subsequent German cases under EU regulations.

This week, the question of extraterritorial adjudication of patents was at the center of a UK Supreme Court hearing (Unwired Planet v. Huawei/Conversant v. ZTE). The previous post was my seventh post this week just on that case.

From what I heard a long time ago, Nokia also filed some "Italian torpedo" DJ actions against non-practicing entity IPCom earlier this decade. The reason that torpedo tactic worked was simply that Italian courts aren't the fastest ones in Europe, and they're particularly slow when a plaintiff does nothing to speed things up. Those Italian proceedings were so very slow that defendants didn't merely delay a German injunction--in many if not most cases, they simply avoided it altogether because a patent would either expire in the meantime or be invalidated by the Federal Patent Court of Germany.

In recent years I haven't heard of any example of an "Italian torpedo," except that an appeals court in Milan held that Italian courts didn't have jurisdiction over foreign parts of EPO-granted patents since those foreign parts couldn't be infringed in Italy. Judge Pichlmaier, too, mentioned that the Italian torpedo has lost relevance.

He then said that antisuit injunctions, typically obtained in the U.S., have recently played the role that the Italian-torpedo tactic used to play. What he didn't mention, however, is that antisuit injunctions are very rare, while the Italian torpedo was allegedly a rampant problem at a time.

When Nokia's creative lawyers filed their anti-antisuit motion with Judge Pichlmaier's division, the first question was in rem jurisdiction as the motion related to Continental's U.S. antisuit motion, which targeted not only cases pending in Munich but also some pending in Düsseldorf and Mannheim. (By the way, the Nokia v. Daimler Mannheim cases are pending before Presiding Judge Dr. Holger Kircher's 2nd Civil Chamber, and Dr. Kircher handed down two patent injunctions in Motorola v. Microsoft in 2012 that never got enforced because of Judge James L. Robart's U.S. antisuit injunction in the Western District of Washington.)

The three-judge panel quickly determined that the nationwide geographic scope of the patent infringement cases in action (those Daimler cars are sold all across Germany) enabled the Munich court to decide this matter even with respect to cases pending in other German venues.

Judge Pichlmaier--who was involved when the court granted the original ex parte (without notice or hearing) injunction against Continental Automotive Systems, Inc., but was on vacation when the case against the German group parent was decided--explained on Thursday why the Munich court believes their anti-antisuit injunction has a basis in German law even though U.S.-style antisuit injunctions do not: they distinguish the narrow scope of the anti-antisuit injunction, which does not prevent Continental from pursuing the U.S. case as a whole (only the antisuit motion, from the maximalist scope of Continental's (original) U.S. antisuit motion, which sought to prevent Nokia from pursuing its German infringement cases against Daimler in any or all respects.

I wonder what the court would have done--and what Judge Pichlmaier would then have said on Thursday--if Continental had merely sought a Microsoft v. Motorola- or Huawei v. Samsung-style U.S. antisuit injunction barring the enforcement of patent infringement injunctions. I believe the German court wouldn't have liked that either, and would presumably have argued that--as German patent judges and litigators often say--injunctive relief is "the king of patent remedies," which is why an anti-enforcement injunction would also have been deemed a major encroachment on Nokia's rights. That is just speculation, of course. However, looking at the totality of what has recently happened in the U.S. (two denials) and in Germany (though anything can still happen at the appellate hearing on November 14), it's fair to say that Continental's original U.S. motion was overreaching, thus didn't work out.

Judge Pichlmaier noted that they had--though not through filings with their court--heard of Continental's unsuccessful pursuit of an anti-anti-antisuit injunction and concluded his presentation saying that the anti-antisuit injunction was meant to defend what everyone was celebrating at the Thursday event: Munich's role as a leading patent litigation venue.

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Avanci, Nokia, Sharp insist that Judge Koh should dismiss Continental's FRAND/antitrust complaint--even with prejudice

In late August, Avanci, Nokia, Sharp, and a couple of non-practicing entities filed a joint motion to dismiss automotive supplier Continental#s San Jose FRAND/antitrust complaint over component-level SEP licensing. In early October, Continental opposed the defendants' motion and accused the Avanci patent pool of a "conspiracy" to "boycott[] suppliers so [patentees] can collect hold-up royalties downstream."

Yesterday the defendants filed their reply brief, and they keep pursuing each and every attack vector (this post continues below the document):

19-10-25 Avanci Et Al. Reply ISO Motion to Dismiss Continental's Complaint by Florian Mueller on Scribd

The defendants' most fundamental argument still is that Continental lacks standing in the absence of some concrete injury. Unlike Microsoft in its FRAND dispute with Motorola, Continental hasn't even been threatened to be sued.

A sworn declaration by Nokia's Lasse Holopainen makes very clear that Nokia is unwilling to license end-product makers. While the question of whether there is an antitrust injury involves more difficult questions, it's hard to see why Continental shouldn't at least be able to enforce its third-party beneficiary rights under the defendants' ATIS and TIA FRAND declarations (the ones underlying last year's summary judgment against Qualcomm).

The defendants deny Continental's allegations of a boycott as all contributors to the Avanci patent pool remain free to enter into direct license agreements with entities like Continental if they so choose. They say that the boycott theory is a new approach by Continental, and any conspiracy would have to meet a pleading standard requiring a "specific time, place, or person involved in the alleged conspiracies."

Interestingly, even Continental's fairly recent attempts to serve the complaint on Sharp are deemed insufficient by Sharp. They insist on international service under the Hague Convention (as did Continental Automotive Systems with respect to the Munich anti-antisuit injunction). Apart from service of process, the reply brief states that Continental "did not make [a request for a license from Sharp] until after it filed this lawsuit, or that Continental has repeatedly refused since then to provide any of the basic information Sharp has requested from Continental in order to prepare an offer"--but Sharp believes to have made a FRAND-compliant offer to Continental based on its own assumptions.

Judge Lucy H. Koh of the United States District Court for the Northern District of California will hold a motion-to-dismiss hearing on November 21, unless she decides to take the matter under advisement based on the party's briefs.

The reply brief makes seome reasonably strong points, so I wouldn't be surprised in the slightest if at least parts of Continental's complaint were dismissed, but I lack the time to research this in greater detail. The defendants are even pushing for a dismissal with prejudice as opposed to one that would allow Continental to amend its complaint.

On Wednesday (October 30), Nokia and Continental will square off in court again as the Munich I Regional Court's 21st Civil Chamber under Presiding Judge Tobias Pichlmaier will hold first hearings on two of Nokia's ten German patent infringement complaints against Daimler. Continental will be present as an intervenor supporting Daimler.

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Trolls and Qualcomm invite UK Supreme Court to render Non-Discrimination part of FRAND meaningless: Unwired Planet v. Huawei

This is my seventh post on this week's UK Supreme Court hearing in Unwired Planet v. Huawei, after which I'll focus (until there's further news from the London case) on some other topics, such as a couple of filings in the Northern District of California (one of which, like Unwired Planet v. Huawei, involves leveraged financial engineering behind patent lawsuits) as well as the Munich I Regional Court's 10-year anniversary, and forthcoming SEP-related extension, of its Local Patent Rules.

For your convenience, here's a list of the six previous posts on the UK hearing:

This case has worldwide implications for two separate reasons: not only does it involve the adjudication of patent-related questions (validity, infringement, exhaustion, valuation) in other jurisdictions by UK courts but affirmance would, besides bringing the UK as a jurisdiction into disrepute, likely set off a global race to the bottom, in which other countries might offer even more patentee-friendly decisions. Throughout the hearing, Lord Briggs most actively asked questions and made remarks. Initially, one could see that he wasn't too familiar with the intricacies of patent and particularly standard-essential patent law, but he demonstrated unparalleled intellectual curiosity and understood some key issues--including the one of a potential race to the bottom (he noted that affirmance would only attract a lot of patent infringement cases to the UK on the assumption that other countries wouldn't "follow suit."

The combination of that realization with Deputy President Lord Reed's acknowledgement of the international ramifications and diplomatic dimension of the matter are two of the reasons for which I expect some kind of reversal. Also, I believe it will bear significant weight with the UK justices that U.S. judges wouldn't adjudicate foreign patents unless both parties consent to it, and some U.S. judges even declined to do so at the parties' joint request. But the UK Supreme Court's attention to detail suggests they are looking for a way to identify maybe just one seemingly small disagreement with the lower courts in order to clean up the mess without having to be too harsh on Lord Kitchin, who authored the opinion of the Court of Appeals and has meanwhile been promoted to the Supreme Court. A finding of forum non conveniens would be possible, though the fundamental issues raised by imperialistic judicial overreach weigh in favor of a broader holding than that.

That said, I don't expect the ruling to be quite so narrow that the lower courts' efforts to read the "ND" (non-discriminatory) out of "FRAND"--by letting Unwired Planet get away with a fundamentally higher royalty demand from Huawei than what Samsung once agreed to pay--would become outcome-determinative. But what the trolls' lawyer and Qualcomm's submission said about the non-discrimination part of FRAND is disconcerting, and appears likely to resurface in other cases in various jurisdictions--for an example, the Dusseldorf Higher Regional Court places great emphasis on the non-discrimination aspect of the FRAND licensing requirement. That's why I wish to express just a few thoughts on that part. In previous FRAND cases I commented on, the focus was on the FR in FRAND, but in Unwired Planet v. Huawei, discriminatory pricing is an issue.

The trolls and Qualcomm try to gut the ND part of FRAND in two ways:

  1. They argue that the ND requirement is not a hurdle in its own right, but merely a factor to be considered when looking at a set of licensing terms as a whole.

  2. In any event, the trolls argue that FRAND has its origins in antitrust law, so the ND part can only be violated if there is competitive harm as defined in that field of law.

The most natural way to understand the "A"("And") in FRAND is that it's a logical connective--as a programmer, I'd call this a logical operator (which means the same). Therefore, a licensing offer by a SEP holder to an implementer must be fair AND reasonable AND non-discriminatory. Each requirement must be satisfied; a failure to satisfy one of them is a failure to meet the FRAND requirement. Whether the "fair" adds anything (as the more common term in the U.S., prior to this decade, was "RAND") or is duplicative of "reasonable" in this context is the subject of academic debate. At least I'm not aware of any case in which a court held terms unreasonable but nevertheless fair, so I assume that "fair" sounds nice (it also gives the acronym a better flow) without raising the bar.

Not so for FR vs. ND. Those elements are distinct. There can be discrimination within a range of fair and reasonable terms; and if a party licenses some implementers at a rate below the fair and reasonable range, but then starts to demand fair and reasonable terms from others, such a behavioral change may result in discrimination. Also, terms can be applied in a non-discriminatory way, yet be too high to be deemed fair and reasonable.

No proposal was made in the course of that hearing for how a conflation of FR and ND should work without simply letting a SEP holder argue that reasonableness alone can satisfy the FRAND requirement.

Conflation is counterintuitive when considering that FR protects an implementer against overcharging while ND protects against being put at a disadvantage. Neither effect would be acceptable.

Should the court decline the invitation to read the ND out of FRAND, the trolls would at least like the justices to apply the competition law standard: there would have to be competitive harm in terms of, more or less, forcing an implementer out of the market.

While it is true that FRAND (or its syonym RAND) is an antitrust term. Professor Rafal Sikorski has looked at the origins of that concept, and found that it goes back a very long time. The first time I made a FRAND argument was not even related to patents, but at the intersection of sports governance and the commercialization of soccer broadcasting rights. Without a doubt, it's not SEP-specific terminology.

The idea that a single royalty demand is not discriminatory short of forcing someone to exit a market must be rejected for two reasons:

  • The FRAND licensing commitments made by participants in standard-setting are a proactive/pre-emptive remedy because otherwise standard-setting would be anticompetitive (as it is about powerful players sitting at a table and effectively excluding competing technologies). The standard for competition remedies is not that the failure to comply with a remedy must be proven to constitute a new antitrust violation. Implementers have a contractual right to non-discriminatory treatment. I understand that some believe this makes the ND part of FRAND more or less identical to a "most favored nation" clause, but that may just be an inevitable consequence of respecting the requirement.

  • Where (as in the vast majority of all cases) a standard is set by a group of companies, there will typically be multiple--possibly even numerous--SEP holders (even more when companies like Nokia and Ericsson engage in privateering). Whether one views the effects through the lens of competition law or that of contract law, one must not lose sight of royalty stacking. A single discriminatory royalty rate may not cause competitive harm in a strict antitrust sense--but in the combination of several license agreements that disadvantage one company, that effect may arise, and the only way to prevent discriminatory royalty-stacking is to ensure that every single license agreement is non-discriminatory.

    There are situations when one particular market participant, or a group of similarly-situated market participants, will be disadvantaged repeatedly. While FRAND-pledged SEPs weren't involved at the time, I remember how HTC was most patent holders' favorite first target among Android device makers earlier this decade. HTC was first to take an Android patent license from Microsoft--but I guess that if they hadn't, they (and not Motorola Mobility) would have been sued first. HTC was the first Android device maker Apple chose to sue (in March 2010). And there were countless other patent infringement actions others brought against HTC at the time. In my recollection they were almost always one of the defendants when patent holders brought complaints against multiple alleged infringers.

    HTC was an attractive target because it had a very significant share in the market for Android devices, but hardly any patents to defend itself (unlike Samsung--the world's #1 patent holder according to some statistics-, Motorola, which was acquired by Google shortly after threatening to leverage its patents against rival Android OEMs, or LG, which has asserted patents against others on a variety of occasions).

    If--in an alternative universe--the license deals that resulted from this had all involved SEPs (in reality, they were about non-SEPs), HTC could have ended up paying discriminatory rates in several cases. No single instance of discrimination might have satisfied the requirement of competitive harm in a strict sense, but in the aggregate HTC could have been forced out of the market.

The trolls' lawyers argue that Unwired Planet simply offered Samsung a sweet deal at the time because Unwired Planet was tight on cash--and, obviously, signing deals with major players like Samsung helps to build credibility for a portfolio. But the circumstances of the party that has to meet a FRAND obligation don't count (while different pricing may be justifiable if one licensee is financially more--or less--stable than another). It's easy to see why commercial operators like Unwired Planet would want to enjoy the flexibility to offer better deals when they need a cash infusion and then charge others more. However, if they want to do that, they need to play that game with patents that are not FRAND-encumbered. Their dire straits or their greed cannot serve to justify FRAND violations--just like one can't drive through a red traffic light only because one's car is running out of fuel.

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Friday, October 25, 2019

Judicial imperialist Birss called "madness" what is just a hypothetical consequence of patent holder's rent-seeking: Unwired Planet v. Huawei

In the England & Wales High Court's Unwired Planet v. Huawei ruling that had given rise to the four-day UK Supreme Court hearing that concluded yesterday, Mr. Justice Birss, a judicial imperialist (who wants UK courts to set FRAND licensing rates even for patents in other countries, on other continents, and--if only he could--in other solar systems or galaxies) wrote that a country-by-country resolution of standard-essential patent (SEP) licensing disputes would be "madness."

I disagree with those who believe this is a factual finding that the UK Supreme Court will have to defer to. It's not a finding of fact such as a damages determination. It's just an opinion--the opinion of an outlier judge and patent extremist.

"Madness" is a particularly absurd label in light of a simple fact: prior to that decision, no other court anywhere in the world did anything similar (there have been a few cases in which courts in one EU member state thought they could adjudicate issues relating to other EU countries, but they didn't get far), yet the industry has been able to avoid parallel SEP litigation in many countries for the most part. The only exception I remember is that--at some point earlier in this decade--Samsung was asserting SEPs against Apple in nine countries, but the dispute had started with Apple asserting non-SEPs and was not the commonplace situation in which a SEP holder just seeks to be compensated.

Most of those disputes get resolved based on a decision in one key jurisdiction, or maybe two. And rarely three. But that's about it.

Justice Birss made up a problem that never existed just so he could solve it. In his extremism he didn't merely legislate from the bench. He actually tried to conclude a global trade agreement between 200+ countries, singlehandedly. The patent system is a country-by-country system. Justice Birss is not alone in seeing the potential benefits of a unified global patent system--but he hasn't been elected to represent even a single nation on Earth, much less the 200+ countries he'd have to be authorized to speak for to achieve what he wants by allowing patent holders--including patent trolls--to leverage the threat of injunctive relief.

There's another reason for which Justice Birss's "madness" opinion is misguided. If a patent holder spends money on patent attorneys' fees, examination fees, registration/renewal fees etc. in order to obtain patents in multiple countries, why would it be unacceptable for that same patent holder to be required to prove validity, essentiality, and value on a country-by-basis unless a commercial agremeent is reached? Implementers won't want to incur the cost of unnecessary scattershot litigation around the globe--provided that a licensing offer is fair, reasonable, and non-discriminatory.

It's amazing that the Supreme Court had to spend approximately 20 hours this week just listening to oral argument over this question. The U.S. Supreme Court would just have needed about one hour, and after no more than 15 minutes it would have been clear that sanity would be restored shortly after the hearing. In the UK, however, where the Supreme Court justices are addressed as "My Lord" and "My Lady," they just have a different style.

The U.S. Supreme Court has heard and decided many patent cases in recent history, so its justices are well-versed in patent law. The five-judge panel of the UK Supreme Court that heard Unwired Planet v. Huawei (consolidated with Conversant v. ZTE) this week required a whole lot of explanations, and the justices often admitted this appeal involved some terminology they weren't too familiar with.

Terminology isn't always critical (when Huawei's counsel said "Federal District," he obviously meant the Federal Circuit), but in some contexts it does make an important difference. When the reliability of any inference from a UK ruling on the validity and essentiality of a patent with a view to the value of a global portfolio came up during yesterday's closing argument, Huawei's counsel first engaged in hyperbole (he said such inference was "100% wrong and it would be a dangerous work route to go down"), but then did the very opposite and agreed with statements by Lord Briggs and Lord Hodge that overstated the reliability of such inference.

Here's the first part:

Lord Briggs: "I think it is common ground, is it not, that the concept of family relates to a single invention, to use that in a completely non-technical sense."

Mr. Howard: "Being completely non-technical it relates to the same invention, but the fact that it relates to the same invention does not lead to the conclusion that the patent of that invention in the United Kingdom and the United States and Germany and China is valid."

And shortly thereafter, the second part:

Lord Hodge: "[...] National courts do look at other experienced national patent courts as a check when they are dealing with a patent validity, patent infringement case. There is no doubt about that. But, yes, you can have a patent which is upheld in the UK but turned down in Germany.

Mr. Howard: "That is right, but you have to remember the position becomes more acute in our particular case because what you are doing in China is things might have been translated into Mandarin and as a result of that you may not have quite got it right; there are all sorts of issues that can arise. There are also different approaches. There are whole lot of issues and we can summarize them without going into detail."

What should have been made in this context is a distinction between the national parts of European patents (= EPO patents) and others. Something may get lost in translation to Mandarin, but also in translation to Finnish. The real issue is not translations. It's that unless you have multiple national parts of an EPO-granted patents, different patent offices may require the inclusion of different claim limitations before they grant a patent. So there can be significant differences in depth. Only the EPO provides a centralized examination that results in multiple national patents with identical (apart from translation) claims. Those national parts are still subject to jurisdictional differences, but at least the critical part--the claims--won't differ.

When different patents from the same family are examined by different patent offices, it could be that China granted a particular patent only in a narrower form, in which case it may not be truly essential, or in a broader form, in which case it may not be valid as granted.

Furthermore, there are derivative patents, such as divisionals and continuations. In that case, differences in scope can be even greater.

One cannot license or assert an "invention." One can license or assert patent claims. The name of the game is the claim--it's what defines the scope of the right. The discussion quoted above was meant to be "completely non-technical," but when the term "invention" comes up, technical aspects can't be avoided 100%.

After four days, the UK Supreme Court appeared very well aware of what's at stake, even in diplomatic terms--at a time when the UK may soon have to conclude a vast number of international trade agreements. It has also been made clear that this is a case of rent-seeking by patent holders trying to use the UK courts as a tool. But there is a limited risk of the justices still believing that a validity and essentiality determination on a UK patent provides a reasonably reliable basis for setting the terms of a contract involving members of the same patent family in other countries. The distinction between a patent family in the sense of multiple national parts of one EPO-granted patent and patents that were granted by different patent offices is an important one as the key non-UK jurisdiction in Unwired v. Huawei/Conversant v. ZTE is China.

The part about courts looking at decisions in other countries on related patents is for the most part just a European thing--because the national parts of an EPO patent have identical claims.

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Leveraged patent engineering meets leveraged financial engineering: Unwired Planet v. Huawei (UK Supreme Court hearing)

Many--obviously not all--policy makers and judges way overestimate the "innovation" behind standard-essential patents (SEPs). In reality, the intrinsic value of the "inventions" covered by SEPs is usually anything but impressive, and most of what licensees agree or are forced to pay for SEP licenses is due to patentees mostly capturing the value of the standard.

A rational valuation needs to focus on the commercial value of the incremental technical benefits of a claimed invention over the state of the art. That delta is all it's worth. Typically, that value is very low because there are numerous ways--sometimes practically an infinite number of them--to solve the kind of technical problem at hand, such as encoding a data stream for the purpose of radio transmission or giving priority to the handsets of first responders over regular users of a network at its capacity limit. But once a patent becomes a SEP because a particular technical solution (again, usually one of many viable options) it covers is adopted as part of a standard, all implementers of the standard need a license. Otherwise, if the patented technique hadn't made it into the standard, very few companies or maybe even none at all would pay for a license, given the availability of numerous replacements or workarounds.

It happens all the time that technically superior inventions are not adopted as part of the standard, especially because standard-setting is a horse-trading exercise along the lines of "I'll vote for some of your technical proposals today if you support some of mine tomorrow."

Those sitting at the standard-setting table aren't always true innovators. You find companies there that spends billions of dollars on research and development, and a portion of it on the kinds of techniques become part of a standard. But you also find plenty of opportunists who capitalize on their involvement in the process, and whose "engineers" don't truly invent useful things but primarily seek to anticipate where the standard-setting discussion is headed in order to file for SEPs. Those aren't engineers in a traditional R& D sense--they're practically patent engineers.

I prefer not to name examples, but I'll describe a couple without identifying them. There's a former handset maker that has massively reduced its investment in genuine R&D and is nowadays far more interested in opportunistic patenting. There's a non-producing entity that participates in standard-setting and litigates quite often, but contrary to what they claim, companies focused on making products believe that the NPE's "engineers" spend the bulk of their time just writing opportunistic patent applications.

Two researchers, Byeongwoo Kang and Rudi Bekkers, authored a paper on this subject on behalf of the Eindhoven Centre for Innovation Studies (ECIS), entitled "Just-in-time inventions and the development of standards: How firms use opportunistic strategies to obtain standard-essential patents (SEPs)". They examined the patenting behavior of participants in standard-setting and identified unusual filing activity around key standard-setting meetings:

"Our data reveals a strong relationship between patent timing and the occurrence of meetings. We observed a remarkable phenomenon that we call 'just-in-time-inventions': the patent intensity of about-to-become claimed essential patents is much higher during or just before these meetings than in other periods. At the same time, they are of considerably lower technical value ('merit'). This suggests that the just-in-time inventions are only beneficial to their owners, whereas for the public they merely invoke unnecessary costs. Finally, we observed that the phenomenon of just-in-time inventions is highly concentrated among specific types of firms, above all vertically integrated ones, and the incumbent champions of the previous technology standard."

Obtaining SEPs is a high-leverage form of patent engineering. The fruits of that effort are sometimes sold to non-practicing entities, which is called privateering. Yesterday, counsel for Huawei in the UK Supreme Court hearing in Unwired Planet v. Huawei (consolidated with Conversant v. ZTE) explained the business models behind those SEP assertions:

"You need to feed into the mix that these are actions by NPEs, non-practising entities, owned by private equity funds [separately, Mr. Howard clarified that there's nothing wrong with private equity and he frequently represents such firms] who see an opportunity to profit through this tactic. That is revealed -- I mean it is fairly startling. If you could go to the supplementary bundle and to Apple's intervention, [...] and what has happened, what one first got was the Unwired Planet case. Following that Conversant jumped on the band wagon against Huawei. What has given rise to the $8 billion claim against Apple and this is based upon -- so what you get is a golden ticket or a golden patent, you establish this '818 [patent] works and you then get up, gather round a whole lot of other patents and of course the owners of them, who have them in a portfolio, people like Ericsson and Nokia, would be quite happy to sell off a proportion of their patents which they have in a portfolio in order to allow this to take place where they also get part of the return [...]"

Mr. Howard also discussed specifically the strategic situation of Nokia and Ericsson, the companies that provided patents to Conversant and Unwired Planet:

"Yes, and one can infer that is what is happening in the other one. The reason -- one needs to it look at the commercial reality of this. Nokia and Ericsson have these portfolios of patents. Why are they commercially doing this? It is, when they embark on cross-licences as is what had been happening with people like Huawei, then they get a certain value but then they are getting mostly done through the cross-licensing effect, but as their interest in mobile phones has declined because they missed a trick in the market and they got overtaken by Huawei, Apple, Samsung and so on, they exploit [he means through making products] the patents less and they have an opportunity -- and this is in the evidence, the judge dealt with this -- Ericsson for instance saw this as a means to extract more money. I do not say again there is necessarily anything wrong, but what one does need to see is that this case, Unwired Planet and Conversant and the claim against Apple is all about a form of leveraged financial engineering. One should not, I would respectfully suggest, have one's blinkers on about that." (emphasis added)

A few minutes prior to the last passage I quoted, Mr. Howard named the investors behind the privateers:

"At paragraph 5 Apple explain who Unwired and Conversant are and they have brought up these patents. If you look at footnote you will see that PanOptis, which is the company that owns Unwired, is owned by funds managed by affiliates of Brevet Capital Management, a private equity company and Conversant is owned by a group of investors led by Sterling Partners, another private equity company. I am not saying there is anything wrong with private equity. Fortunately, they often send me instructions. But what I do say is that what one has to recognize is that this case is about what is perceived to be an opportunity to leverage. What is happening is the English courts' injunctive powers are being used in order to, frankly, make a nice return." (emphasis added)

If that leverage incentivized true innovation, it could still be a good deal for society at large. But for the reasons explained further above, that's not the case, at least not to the tune of $8 billion (the claim against Apple alone), which has several more zeroes than the intrinsic value of the claimed inventions--the one they'd still have it they had never made it into the standard.

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