Thursday, February 6, 2020

In pursuit of injunction against Daimler, Nokia relies on patently absurd interpretation of CJEU's Huawei v. ZTE ruling

While Nokia's in-house and outside counsel are among the very best in the technology industry, the company's failure in the mobile handset business and the challenges it faces in mobile network infrastructure have resulted in an increased focus on patent monetization, which in turn forces even world-class lawyers to take positions that border on the insane. Nokia's counsel advanced a misinterpretation of a crystal clear passage of the Huawei v. ZTE opinion by the Court of Justice of the European Union in an effort to gain leverage over Daimler.

I am writing this while today's Nokia v. Daimler standard-essential patent trial in Munich is continuing in a temporarily-sealed courtroom. The focus during the first half of today's trial was on infringement and validity. There is every indication that the Munich I Regional Court's 7th Civil Chamber under Presiding Judge Dr. Matthias Zigann is inclined to hold Nokia's EP1671505 on a "redundancy strategy selection scheme" infringed by Daimler cars--and not to doubt the patent-in-suit's validity to the extent that the case would be stayed pending a parallel nullity action before the Federal Patent Court of Germany. While it's theoretically possible that the court changes mind on the merits, the outcome--whether or not Nokia will be granted injunctive relief--most likely hinges on whether Nokia is in or out of compliance with EU antitrust law.

Earlier this week, the Munich I Regional Court published its Standard-Essential Patent (SEP) Guidelines, which I translated within little over two hours of publication. I was nonjudgmental at that point, mostly because I firstly wanted to see how the court would apply those rules in today's trial. As Judge Dr. Zigann explained, the guidelines are meant to apply to cases filed subsequently to their publication. But those guidelines reflect a certain perspective on the law, which is why they obviously do play--despite that disclaimer--a significant role here.

Freshfields Bruckhaus Deringer's Dr. Frank-Erich Hufnagel, who represents Continental (one of the various Daimler suppliers intervening on the defendant's behalf), called into question whether the court's outline of the implications of the parties' conduct in licensing negotiations was consistent with European law. Dr. Hufnagel just can't see how--under EU antitrust law as interpreted by the CJEU--the Munich court could hand Nokia an injunction against Daimler despite having found (on a preliminary basis) that Daimler's counterproposal (for taking a license to Nokia's SEPs) appears FRAND-compliant, unless the court thoroughly evaluated both parties' proposed terms and reached a determination that Daimler's offer was not FRAND.

The primary authority on this question is paragraph 71 of the CJEU's Huawei v. ZTE ruling, which says (and with which paragraph 66 is merely consistent, except that it looks at the question from the implementer's perspective):

"It follows from all the foregoing considerations that the answer to Questions 1 to 4, and to Question 5 in so far as that question concerns legal proceedings brought with a view to obtaining the recall of products, is that Article 102 TFEU must be interpreted as meaning that the proprietor of an SEP, which has given an irrevocable undertaking to a standardisation body to grant a licence to third parties on FRAND terms, does not abuse its dominant position, within the meaning of Article 102 TFEU, by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture of which that patent has been used, as long as:

  • prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and

  • where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics." (emphases added)

The highlighted word "and" at the end of the first bullet point means that the safe haven (of not violating antitrust law) for the SEP holder is tied to the combination of two conditions: the SEP holder must have acted in a FRAND-compliant way, and the implementer must have failed to do so.

Arnold & Ruess's Cordula Schumacher, who delivered oral argument for Nokia on FRAND licensing matters today while Dr. Arno Risse ("Ri├če" in German) focused on infringement and validity, contradicted Continental's position. She represents her client vigorously, and even if one disagrees (as I do) with much of what she says, her attempt to explain away the logical AND condition in the CJEU's safe harbor for SEP holders is more than just unpersuasive: Nokia's position is that the two bullet points constitute alternative, not cumulative, conditions in the sense of the SEP holder being above board provided that one condition or the other is met.

Not only does that interpretation imply that the CJEU wouldn't simply have used "or" when it meant "or," but a closer look at the second bullet point shows that it is logically dependent on the first. In the citation further above, I also highlighted the words "that offer." The demonstrative pronoun "that" makes it totally clear that the second bullet point can't stand on its own: the word "offer" in that second bullet point specifically and indisputably references the offer mentioned in the first bullet point. Therefore, the implementer's FRAND compliance comes into play only on the basis of the patentee previously having made a FRAND licensing offer.

If the Munich court adopted Nokia's interpretation, which isn't merely far-fetched but fundamentally flawed, and granted Nokia an injunction despite not holding Daimler's counteroffer to be non-FRAND, the appeals court would probably stay the injunction in no time (even though it's not the fastest appeals court when it comes to resolving motions to stay enforcement). Also, the Munich court would become a total outlier among Germany's three leading patent infringement venues.

Nokia's complaint might still be rejected for whatever other reason. But based on where things stand, this particular question is going to be the decisive one. If the court agrees with Continental that "and" means "and" (which is furthermore warranted by "that offer" as I just explained), there may have to be a retrial with expert witnesses to assess the FRANDliness of Daimler's counteroffer. If, however, the court sides with Nokia on all questions, including on the notion that "and" means "or," then an injunction could come down on April 9, 2020 (the scheduled ruling date).

This is just the first post on today's trial; stay tuned.

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