Saturday, January 18, 2020

Without eBay factor #2, German patent reform movement is left with nothing but Kremlinology, spin, and self-delusion: licensing vs. injunction

Thanks to both those favoring and those opposing patent injunction reform in Germany who gave me feedback. What I hear for the most part is that people appreciate my relentless pursuit of harsh analysis. The injunction-related part of the German patent reform bill is redundant boilerplate of the kind that's not really going to move the needle. Someone has to tell it like it is. The only good news so far is that Ingmar Jung, the rapporteur of the CDU/CSU (= the chancellor's party) group in the German Federal Parliament, told Handelsblatt that they're going to "scrutinize and discuss" the proposal.

I'm quoted in that same article, saying that the proposed reform, a draft version of which was revealed earlier this week, fails to deliver meaningful progress as a prevailing patentee simply needs to make a licensing offer that may be excessive, but just not excessive enough for the court to categorize as unreasonable based on a superficial analysis. In that case, the "infringer" will be considered an "unwilling licensee," and the injunction will come down regardless of the damage it may do.

While I agree with at least one of the thought leaders of the reform movement who says that he sorely misses (as do I) a reference to the commercial value of an invention underlying an injunction patent relative to the accused product, even that perspective isn't comprehensive enough. At the heart of the single biggest issue there's the total absence, from the statute as well as the government's rationale, of the second eBay v. MercExchange factor: the requirement for an injunction that monetary relief (= a damages award) be "inadequate" to make the patentee whole. That includes, but is not limited to, the intrinsic value of the invention at issue and its relevance to the accused product.

It's going to be very hard, if not next to impossible, to improve the situation in Germany without a mind change in this regard. For as long as policy makers and judges believe that an injunction is the King of Remedies (as they say in court, "Königsanspruch"), a prevailing patentee

  • just needs a scintilla of doubt about "good faith" and "unjustified hardship" in order to obtain an injunction (and the court won't even bother to appoint an economic expert witness),

  • will benefit from a fast-approaching expiration date of a patent,

  • a patentee with a licensing-centric business model will actually benefit from his willingness to extend a license (by making the defendant out to be an unwilling-licensee type of infringer--just lawless), and

  • nothing at all will improve with respect to standard-essential patents (SEPs) as the availability of a compulsory license will weigh against implementers, not patentees.

The last bullet point is not merely a prediction. A few months ago I seized the opportunity to ask Presiding Judge Dr. Matthias Zigann of the 7th Civil Chamber of the Munich I Regional Court at an official event whether his SEP guidelines (which will be finalized shortly) would change if proportionality was introduced into § 139 (the injunction paragraph) of the German Patent Act. His answer was no, and he argued that the availability of a license on FRAND terms takes care of proportionality. In other words, defendants should just take a license.

It will be incredibly hard to dissuade a court from injunctive relief, other than maybe some transitional period (with patentees always arguing that one could have started a workaround no later than when notice of infringement was provided or the complaint served), if the hardship one argues to face is weighed against the King of Remedies.

The law must make it clear, ideally through the statute but at least through the official rationale, that a patent is a valuable intellectual property right (IPR) even if patentees must, under certain circumstances, content themselves with damages awards. It needs to be taken into consideration that monetary compensation is the norm, not a rare exception, in the real world as far as the technology sector (from chipsets to cars) is concerned.

In the United States, the fact that someone licensed a patent doesn't necessarily preclude the patent holder from being granted injunctive relief. But it is taken into consideration, and a licensing-based business model certainly doesn't weigh in favor of an injunction, which is why "patent trolls" rarely obtain injunctions in U.S. district court at this stage.

While we're on the subject of comparative law, I appreciate Professor Thomas Cotter's latest Comparative Patent Remedies blog post, in which he "certainly agree[s] that 'the German statute falls far short of eBay v. MercExchange.'" I guess no one would doubt that this is not even a close question. But if we ask ourselves what eBay factor makes the greatest difference, I can tell you from my experience as a patent litigation analyst that the second factor is the crucial one. Its underlying idea is what the reform movement must explain to politicians: not in the sense of "everything's better in America" but, regardless of what other jurisdictions do, it's key for decision-makers to understand that a patent is valuable even if injunctions don't come down more or less automatically.

For now, it seems that only parts of the reform movement reject and resist any attempt to gaslight them. In too many places, they're trying to spin a smokescreen into a substantive victory, which won't work because of how German patent infringement judges think. For the third time in the (almost) ten-year history of this blog, I have to quote Julius Caesar: "fere libenter homines id quod volunt credunt" (people readily believe that what they want to be the case is the case)

Self-delusion is not the answer. The logic underlying the second eBay factor can make a difference. Maybe it works in some organizations that people sell as a groundbreaking success what is just symbolical and psychological. I'm not going to be impressed or persuaded by anything that doesn't establish criteria capable of truly redressing the balance.

What Presiding Judge Ulrike Voss ("Voß" in German, and not to be confused for Karlsruhe appellate judge Andreas Voß) said on Thursday about the bill claiming not to change anything, but there perhaps being a hidden message in the government's decision to amend the injunction paragraph at all, may raise hopes. But such hopes are tantamount to Kremlinology, or "Kremlin Astrology," just like an announcement of a five-year plan having been met by the Soviet Union was interpreted against the background of the Secretary General of the Central Committee of the Communist Party looking displeased and the Secretary of Commerce having been sixth, not fourth, to enter the room that day.

Even Judge Voss's observation that the new statute might mean a slightly (!) more open door to a permanent denial of injunctive relief than the Heat Exchanger ruling by the Federal Court of Justice doesn't convince me. The point of reference is Article 3 of the Intellectual Property Rights Enforcement Directive (IPRED) of the European Union. That one is in force and effect, not merely a suggestion...

The reform movement must never lose sight of eBay factor #2 and IPRED Art. 3. And I just realize we haven't even talked about the injunction gap problem, which the draft bill fails to solve as well...

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Friday, January 17, 2020

Proportionality clause in draft German patent reform bill falls short of not only eBay v. MercExchange but also the EU's definition

The debate over a draft patent reform bill presented by the German Federal Ministry of Justice and Consumer Protection is raging. I outlined some fundamental issues on Wednesday. Meanwhile, the ministry has published its draft bill.

On his (strongly recommended) Comparative Patent Remedies blog, Professor Thomas Cotter indicated my reaction to the draft bill made more sense to him after reading the explanations provided by the ministry. The rationale provided for the measure, and the legislative intent expressed in the "Eckpunktepapier," are very clear that they don't mean to change anything about where the case law already stands under the current statutory framework. Yesterday, CIPLITEC hosted a speech by Presiding Judge Ulrike Voss ("Voß" in German) of the Dusseldorf Higher Regional Court (not to be confused for Andreas Voß of the Karlsruhe Higher Regional Court, formerly Mannheim Regional Court). The last question an attendee had for the appellate judge was about what the reform bill would change, and essentially she said this:

There's the statute, and there's the rationale given by the ministry. As a judge, she'll be sure to read the rationale part as well, but the statute will be the law to apply. The rationale says that there's no intent to change anything, and the language of the statute is consistent with existing case law. Yet the courts may ask themselves whether the fact that the law was amended means that some change of the situation was intended anyway, contrary to the official statement by the ministry. She certainly predicted that the statute would encourage defendants to argue proportionality more frequently than before.

The judge went on to say that there might be a bit more of an opening for exceptional cases in which the defendant would, on the basis of proportionality, be granted not only a transitional (workaround/"use-up") period as stated by the Federal Court of Justice in the Heat Exchanger decision, but in some cases might be able to elude injunctive relief on a permanent basis. She did, however, note that "it would take a lot" to get to that point, and in response to a follow-up question agreed that the standard for that would be clearly more demanding than the one for a transitional period. In my opinion, while Heat Exchanger addressed the hypothetical possibility of a use-up period and stopped short of suggesting a permanent denial of injunctive relief, it didn't preclude that from being the outcome in some extreme cases either. So the door was never closed, but the judge has a point that it may be slightly more open now.

What I really liked about the judge's presentation and her answers to various questions from the audience was that, unlike some of her colleagues whom I won't name here, she didn't come across as a judicial activist. She appeared open-minded to different approaches to patent remedies as opposed to favoring some potential measures or denouncing others.

As to what impact the proposed change to § 139 PatG (Art. 139 of the German Patent Act) would actually have, her position comes down to psychological rather than hard legal arguments. While the part of her presentation covering injunctive relief started out noting that Art. 139 presently doesn't contain an explicit reference to proportionality (which I initially thought was meant to pave the way for describing the proposed reform as a quantum leap), it became perfectly clear only a few slides later that there are--as I wrote on Wednesday--a couple of fundamental legal principles (good faith, unjustified hardship) that already exist under other German laws and apply universally, including patent law. That's all the proposed amendment to the statute would do: it wouldn't even import anything into patent law any more than you could import the Statue of Liberty into the United States: what's already there can't be imported. You can just remind people that something that's already there is still there. It's like putting up a webcam on or somewhere across Liberty Island to reassure everyone that the landmark statue hasn't been destroyed or abducted.

It's like no one would reference "due process" or First Amendment rights in each and every context where they apply. It's redundant.

So let's look at the statute because I disagree with those who say the statute is a great (or at least satisfactory) solution while the rationale is the source of various problems. Yes, the rationale is horrible, and interestingly, yesterday's presentation by the judge took a more holistic approach to the proportionality criteria under the current case law than the ministry's draft, though the ministry would have had the freedom to propose something going beyond existing case law. But the statute is just as bad (here's my translation):

"The claim [to injunctive relief] is precluded to the extent that its enforcement would be disproportionate because it would, due to special circumstances, taking into account the patent holder's interests against the infringer and the good-faith principle, constitute a hardship not justified by the exclusionary right."

The first thing to understand here is that this proposed amendment acts as its own dictionary for the term "disproportionate" by immediately defining it in the "because" subclause. That is a limiting definition as opposed to an open-ended one.

Now let's look at that amendment and especially its narrowing definition of proportionality from the perspective of how helpful it is to plaintiffs as compared to how much it helps defendants (I once again recommend the "litmus test" I stated on Wednesday). And you'll see it's optimized for patent holders' purposes:

  • It doesn't say that injunctive relief might be disproportionate. It merely states that its "enforcement" might be. That's a major difference because it places the emphasis on tailoring the remedy (with transitional periods) rather than denying injunctive relief.

  • The standard for "special circumstances" is very high, and it's also hazy. That language is, however, consistent with the rationale emphasizing that in most patent cases, proportionality is a total non-issue; where one needs to talk about it at all, it's only a minority of cases in which it affects the outcome; and when the outcome is affected, it's almost inconceivable that injunctive relief would be precluded as opposed to just being delayed.

  • The next pro-patentee bias is found in "taking into account the patent holder's interests against the infringer." That passage asymmetrically puts the patentee's rights first, as opposed to requiring an eBay-like balancing of the hardships.

  • As Judge Voss explained yesterday, the good-faith principle enshrined in § 242 German Civil Code applies universally, including to patent law, which is why the Heat Exchanger decision (in which the injunction came down anyway, by the way) was possible even prior to any reform. This is one of the "Statue of Liberty reminder" types of elements: you just reference something that's already applicable, which at best draws more attention to it, but doesn't change a thing. And, frankly, it's quite a hurdle to prove that a patent holder acts in bad faith. In the U.S., there's the concept of patent misuse. But that's not the standard for injunctions.

  • The unjustified-hardship standard is again nothing new. It's part and parcel of German law. And the language, "a hardship not justified by the exclusionary right," again places the emphasis on how important it is to let patent holders enforce their exclusionary rights, though the "patent holder's interests against the infringer" have already been stressed in the same sentence.

It's obvious that the German statute falls far short of eBay v. MercExchange. As I mentioned above, the emphasis is placed on enforcement rather than the right itself, and on the importance of the exclusionary function of a patent. While German law couldn't practically place the entire burden of proof on patent holders seeking injunctions (no discovery), a patent holder could reasonably be required to demonstrate an irreparable injury and the inadequacy of monetary compensation (the first two eBay factors). Instead of a holistic perspective, focusing on the entire set of remedies available to prevailing patentees, the German reform bill emphasizes the exclusionary function of patents, which simply doesn't reflect technical and commercial realities in today's technology industries.

But you don't have to look across the Atlantic to be disappointed by the German proposal. EU law, too, has a broader view of what it takes to be "proportionate" than what the German draft bill says.

As Wolf Sauter explained in a 2013 paper (and many others did before or after him):

"The application of proportionality in the EU differs based on whether EU legal acts or legal acts of the Member States are concerned. In the former case a manifestly disproportionate test is applied, in the latter case a least restrictive means test."

The test for the EU's own acts, including its competition enforcement, requires that "where there is a choice between several appropriate measures, recourse must be had to the least onerous." In the context of patent law, the Intellectual Property Rights Enforcement Directive (IPRED) is most relevant. At my recent Brussels conference, Cleary Gottlieb's Maurits Dolmans discussed EU proportionality rules in connection with German patent injunctions, and I recommend taking a look at his presentation (English-language slide deck; German-language slide deck). Art. 3 of the IPR Enforcement Directive says that "remedies shall be fair and equitable," which is much more eBay-like than saying, as the German proposal does, that something is disproportionate if, despite being viewed in the light most favorable to the patent holder's interest, there's a major bad-faith and/or unjustified-hardship issue. While the EU directive requires remedies to be "effective" and "dissuasive," they must be "proportionate" as opposed to just preventing the most extreme cases, at the high end of disproportionality.

The German government can argue that there are some "safeguards against [...] abuse" in the proposal. But that's all it can claim. What the draft proposal does, however, is to narrowingly redefine proportionality. It's a broader concept--even under current German case law the way Judge Ulrike Voss of the Dusseldorf Higher Regional Court described it yesterday.

I asked the judge whether she was aware of a single case in which a German court would have appointed an economic expert witness specifically to address proportionality-related arguments (while expert witnesses are typically provided by parties to U.S. proceedings, German courts appoint them all the time, even if you have a dispute over a few thousand euros under construction law). She wasn't aware of one, and that's the answer I expected, but I wanted to be sure. If the draft reform bill was adopted, that wouldn't really change. The standard is so high that all evidence-taking by German patent infringement courts related to proportionality would be limited to having the parties submit documents, and maybe in a few cases some limited testimony, but it would be so easy for the courts to grant an injunction anyway that they generally won't identify a need to appoint an expert witness on the economic question of proportionality.

All in all, it's merely wishful thinking to hope the ministry's proposal will result in a significantly more balanced application of the law. In order to expect much of a change, one must either resort to psychology (as I noted further above) or search for a hidden message in the proposal, as Judge Ulrike Voss suggested yesterday evening. The German legislature should go beyond psychology and symbolism. It should make it clear how serious the issue is and how to address it. Ambiguity can always come out of a legislative process, but the current draft is not even ambiguous. There's nothing good to say about it except for some far-fetched, almost esoteric attempts to explain away the ministry's intent to preserve, to the fullest extent possible, the status of Germany as a highly attractive patent litigation venue.

Germany's pro-patent litigation agenda has even drawn unprecedented public criticism from Switzerland's Federal Patent Court on Twitter, raising the question of whether German regional courts are engaging in "forum-selling" (in the closely related context of the injunction gap):

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Wednesday, January 15, 2020

Nokia on losing track in LTE-essential patent infringement case against Daimler in Mannheim and rumored to struggle in Munich case, too

Next Tuesday (January 21, 2020), the Mannheim Regional Court is scheduled to hold a trial in a Nokia v. Daimler case over EP2286629 on a "method and apparatus to link modulating and coding scheme to amount of resources." With mediation having practically failed (though the mediators might invite everyone to another meeting, it wouldn't be likely to yield a result), the assumption is still that the trial will go forward.

Nokia is going to lose that one in all likelihood. Presiding Judge Dr. Holger Kircher notified the parties and the numerous intervenors (various Daimler suppliers) that, on a preliminary basis, his panel has concluded the patent-in-suit is not essential to the 4G/LTE standard--neither on the basis of a literal infringement theory nor the German equivalent of the Doctrine of Equivalents (DoE).

Therefore, the court doesn't anticipate that FRAND/antitrust matters, the most important one of which is whether Daimler's suppliers are entitled to an exhaustive component-level SEP license from Nokia, would be reached in this case.

Another Nokia v. Daimler case in Mannheim was supposed to go to trial last month, and was postponed (because the parties had agreed on mediation) to March 27.

The next Nokia v. Daimler court clash after next week's trial (which in all likelihood will just result in the rejection of Nokia's complaint on the grounds of non-infringement) will take place in Munich on February 6 (see this list of trial dates). Rumor has it that Presiding Judge Dr. Matthias Zigann of the Munich I Regional Court's 7th Civil Chamber recently indicated that Nokia's royalty demands from Daimler are not FRAND-compliant, in which case Nokia would be denied injunctive relief even if the patent was deemed valid and infringed (as the court thought at an early first hearing last June). I don't know whether the court's preliminary assessment of non-compliance with the FRAND licensing obligation is purely numerical (the royalty Nokia is seeking on a per-car basis is way out of line, but I don't know whether that's where the court has a concern) or related to non-monetary terms.

Things are not going well for Nokia at the moment, but a reversal of fortunes is always a possibility in these types of disputes.

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German ministry of justice outlines patent "reform" bill: thick but void smokescreen, designed only to cement the status quo on injunctions

Yesterday, many of my industry contacts obtained and discussed with me the "Eckpunktepapier" (outline memorandum) of a German patent reform bill. "Reform" is definitely a misnomer to anyone who expected a more balanced framework for patent injunctions. One could welcome the proposal only if one blissfully ignored

  • the long-standing legal meaning of the relevant terms,

  • the fact that there is precisely zero deviation from current case law on injunctions (which the paper not only acknowledges but even prides itself on), and

  • the spineless, if not mindless, obsequiousness to the patent hardliners at the Federal Court of Justice that the reasons given for the measure reflect.

It's a rehash of the Emperor's New Clothes. It's a smokescreen devoid of any substance. A Fata Morgana for those longing for relief from plaintiffs' unfettered access to injunctive relief. And a boon for those benefiting from a huge number of mostly meritless patent infringement actions being brought in Germany for leverage. The ministry officials don't even pretend to be concerned with economic policy, job creation and sustainment, innovation, consumer choice. They're the guardian angels of a patent litigation system that is out of control--and now gets the ministry officials to cheer ("Citius, Altius, Fortius" for the patent judiciary--not for the economy, not for society, just for patent judges, patent litigators, patent attorneys involved in litigation, patent trolls, and failed or failing businesses increasingly reliant upon a patent licensing revenue stream).

To be fair, one must make a distinction here between what constitutes a political achievement for the pro-reform movement and an assessment of suitability-to-task of the measure as it stands. This is like applauding a boxer for having been allowed to challenge his rival, for not getting knocked out in the first round, and for the winner quickly hugging the loser before walking away to cash in and celebrate with his supporters.

In that sense, it was no small feat to get the ball rolling at all. Originally, the German Federal Ministry of Justice envisioned a minor update to patent law with changes ranging from the cosmetic replacement of the term "Patent Office" with "German Patent and Trademark Office" to a more digital process at the German PTO (almost every patent-in-suit I ever saw in my industry was an EPO patent anyway...). They didn't go to the drawing board with an intention to redress the balance between plaintiffs and defendants. Then there were some dynamics that shifted the focus to injunctive relief and the injunction gap resulting from the German bifurcation system. Arguably, the pro-reform movement "hijacked" the process. But, so far, to no avail.

The fact that the ministry's draft meets a key reform demand by means of a token reference to proportionality in connection with patent injunctions (which is required by EU law anyway) is eclipsed by the way the term is then not clarified, but simply vitiated: they say that proportionality stands in the way of a patent injunction if, all things considered, there's a bona fide issue ("Treu und Glauben"), which is about the oldest and most obvious cornerstone of German civil law, and, especially, an "unjustified hardship" (ungerechtfertigte Härte), which is another concept that doesn't need to be restated--and doesn't improve a thing.

The standard of an unjustified/disproportionate hardship is about the highest one you can imagine. In dogmatic terms, it requires a case to be atypical. A plaintiff who can convince a court that it's "your average patent case" with a patent holder routinely seeking an injunction against an "infringer" won't be affected.

The paper states clearly that the ministry officials aren't willing to bring about any such thing as serious change. They're basically saying this: the infinite wisdom of the Federal Court of Justice extends to patent injunctions, but some complain that the lower courts haven't grasped that wisdom yet, so we'll just codify what the Federal Court of Justice has been saying all along. It apparently never crossed the ministry officials' mind that the Federal Court of Justice itself has never once denied access to injunctive relief over proportionality considerations, so the highest patent judges in the land may not have enjoyed the benefit of their own divine wisdom yet...

When I saw the statutory proposal, the intent was clear to me: much ado about nothing.

Even if one didn't agree with me based on the statute, the reasons given in the document don't leave room for any doubt about the ministry's approach.

With the greatest respect, but with the clarity required in political debates, the document comes down to a dereliction of duty. Policy-making is about defining policy goals first, then designing a strategy for how to achieve those goals. Quite often, the disagreement is more about the means than about the end. Here, there are no policy goals at all. There's nothing that would be commensurate with the enormous economic implications of this kind of regulation. Instead, the document reads like a cowtown's local court doing its best, in a ruling on a dispute between neighbors over the height of a fence, to be faithful to the guidance provided by the Federal Court of Justice.

The document even states that a factor such as the public interest is not an option because it's not part of current case law...

If the German legislature adopted the proposal, it would deal a blow to the centuries-old notion of the Separation of Powers. The legislative branch of government would reduce itself to the judiciary's secretariat. Instead of telling the judges what to do, it would merely restate what the judges have been saying all along. It's not a conspiracy theory, especially in light of what government insiders know, to presume that the patent judges of the Federal Court of Justice had a hand in this. Whether the ministry officials merely decided to stick to existing case law or whether the Federal Court of Justice simply authored the bill (in Germany, there's no written or unwritten rule preventing that from happening) is secondary. The result is nothing more than a smokescreen.

The ministry officials were standing at the drawing board. Instead of sketching a superior solution, they threw their pens away and contented themselves with being mere photographers. It's now a challenge--but also an opportunity--for the reform movement to appeal to the German Federal Parliament's institutional self-conception of a legislative institution that looks ahead, not back.

What I have already told some of my industry colleagues in private is that the litmus test for any German patent injunction reform is the following scenario, which is not the only but structurally the most common problem defendants face:

  • Someone prevails on a single patent infringement claim.

  • The accused product, however, embodies tens--if not hundreds--of thousands of potentially patentable inventions.

  • The patent holder demands a royalty of 1% of gross sales (which the defendant notes amounts to hundreds--if not thousands--of times the patent holder's share of the totality of patentable inventions in the product). Short of that demand being satisfied, the patent holder wants a good old German-style automatic injunction.

  • Is a given (actual, proposed, or envisioned) reform measure going to help the defendant as compared to the status quo or not?

If one reads the proposed statute, especially if one reads it in light of the stated reasons, the answer is a resounding NO:

The reasoning explicitly says that in most patent cases, proportionality isn't even relevant enough to be a topic of conversation. Only in a minority of cases does it come into play at all. In a minority of said minority of cases, some cautious deviation from an automatic injunction may be conceivable--but if that happened at all, it would have to be limited to a transitional (for workarounds) or "use-up" period in almost all cases. While the document says that hypothetically injunctive relief could be denied to a prevailing patent plaintiff on a permanent basis, it would be the next best thing to a paranormal phenomenon. With a whole lot of patent holders demanding royalties in the 1% range over a single patent asserted against a complex multifunctional product, there's nothing paranormal to see in our litmus test case.

Not only does the document dash any hopes of a non-negligible number of cases resulting in anything other than an automatic (albeit delayed, in a minority of a minority of cases) injunction. It also explains the "bona fide" approach in a way that would clearly resolve our litmus test case in the patent holder's favor:

  • The document concedes that maybe (but only maybe! lest we forget, just maybe!) it could be held against a patent holder in the "bona fide" context that a royalty demand is "undoubtedly excessive."

    The standard for "undoubtedly excessive" can be described like this: it's fine for the patent holder to demand too much. It's also OK to demand way too much. Only when a number becomes so exorbitant that no judge, in his wildest dreams, can think of any remaining doubts about its (un)reasonableness, then it may weigh against the plaintiff's prayer for injunctive relief. In other words, the number has to be downright insane.

    Prior to the CJEU's Huawei v. ZTE ruling, that kind of standard governed German SEP cases. I'm talking about the (now obsolete) Orange-Book-Standard ruling by the Federal Court of Justice and how the courts at al levels applied that one. As a patent holder you could almost literally complain about a missing comma in a defendant's licensing offer and the court would agree with you that it wasn't certain you lacked justification for rejecting the offer.

  • At the same time, the document makes it clear that the defendant has a duty to actively seek a license. That, too, is Orange-Book-Standard (except it's not limited to SEPs this time around). So the "bona fide" part of the proposed analysis could be the final nail in the coffin of a defendant's aspirations to avoid injunctive relief. Anything the defendant does or does not do in his quest for a license, including poor timing, could weigh in favor of an injunction.

The ministry officials have given stakeholders until March 10 to submit comments. Thereafter they will furnish their final proposal and start the legislative process.

The proposal also suggests shortening the timelines for nullity (patent invalidation) actions before the Federal Patent Court of Germany. I may or may not comment on that part some other time, but it's not going to solve the problem for various reasons. Engineers call this a "race condition": instead of truly synchronizing two processes based on what actually happens, one just hopes that one will reach a certain milestone A before another process reaches milestone B. The proper solution is for one process to wait for the other to get its job done (which, of course, should happen as fast as possible).

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Sunday, January 12, 2020

BREAKING NEWS: Nokia makes antitrust mediation with Daimler and automotive suppliers over standard-essential patent licensing fail

[HAPPY NEW YEAR -- AND BREAKING NEWS]

Nokia wanted to keep its EU antitrust mediation with Daimler and various automotive suppliers strictly confidential. Nice try, but I've been able to obtain reliable and mutually-corroborating information from more than one source. (I obviously protect my sources.)

On Friday (January 10) and Saturday (January 11), Nokia--represented by Bird & Bird's Richard Vary (formerly head of litigation at Nokia) and Roschier's Niklas Östman--met with Daimler and various suppliers (Bosch, BURY Technologies, Continental, Harman, Peiker, and TomTom) at a recently-opened Munich hotel. But nothing came out of a whole series of meetings moderated by a British mediator and two British lawyers appointed by the International Chamber of Commerce. The mediator will communicate with the parties by telephone in the days ahead and make a procedural decision. Theoretically, there could be another series of meetings on the 22nd and the 23rd. However, based on how these past two days went, it would be a total waste of time to reconvene.

In practical terms, it's already clear that mediation is pointless for two reasons that made the Munich meetings fail, neither of which comes as a surprise:

  • Mediation would only have made sense if Nokia had departed from its dogged refusal to extend a true and exhaustive standard-essential patent (SEP) license to Daimler's tier 1 (= direct) suppliers. Continental had made Nokia a binding offer to take such a license before mediation began, but Nokia remains unwilling to grant any such thing as a true license to component makers. It proposes a "have made" right, which is just an extended-workbench type of arrangement as opposed to a component-level license.

  • Furthermore, the meetings inevitably proved unproductive because Nokia refused to make it existing cellular SEP licensing agreements (such as the one with Huawei) available to the other parties. Nokia's excuse was that those agreements allegedly weren't relevant (not only U.S. courts but even some--if not all--German courts would disagree). Therefore, Nokia's counterparts would have had to negotiate without having the slightest idea of what Nokia's existing licensees actually pay for those SEPs.

    At best, Nokia is willing to disclose an obscure and highly atypical license agreement with a car maker who apparently accepted--but only for a transitional period and with the right to terminate as per the end of 2019--a "have made" right. That same car maker is likely to sign an Avanci pool license in the near term based on what I heard.

The information I've obtained suggests that Nokia has not been constructive, neither structurally (exhaustive license vs. "have made" right) nor procedurally (disclosure of existing SEP license agreements). If Nokia had agreed to grant component-level licenses (real licenses, not "have made" rights), and if it had then presented its existing SEP licensing agreements, mediation could have worked in theory. But no one could seriously have expected it to happen, which is why I predicted the failure of this mediation effort before. By now it's failed for all practical purposes, whether or not the mediator will order another series of meetings later this month.

EU competition chief Margrethe Vestager said last month that she expected an update on mediation by mid-February. She's not going to get any good news out of mediation, that's for sure.

What I've found out about the way the talks were structured is that the first day consisted of bilateral talks between Nokia and each of Daimler's suppliers. The suppliers invited to mediation included the ones intervening in the German infringement cases, plus Samsung subsidiary Harman, but not Huawei, which wanted to join but Nokia wasn't willing.

On the second day, Nokia might have hoped to drive a wedge between Daimler and its suppliers. Daimler met separately with each supplier (for antitrust reasons, they couldn't just all sit at the same table and discuss numbers), but neither Daimler nor the suppliers were prepared to agree with Nokia that the problem could simply be solved by Daimler reaching an agreement with each supplier on how to split the outrageous, supra-FRAND royalties Nokia demands.

The European Commission's Directorate-General for Competition (DG COMP) will have to make a decision. They hoped to avoid it, but it was clear that there's a binary, structural question at issue. Either the suppliers get a license and can make components they are free to sell not only to Daimler but also to others (in case they end up sitting on some excess quantities, for instance), or it's not a license.

The next Nokia v. Daimler SEP infringement trial is scheduled for January 21 and will take place in Mannheim unless the court decides to push the trial date back. Another Mannheim trial, originally scheduled for December, was postponed on short notice, but I heard from more than one source that the patent-in-suit in that one was so ridiculously weak that the court likely wouldn't have reached the FRAND defense anyway...

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