Wednesday, April 8, 2020

Mannheim Regional Court stays Nokia v. Daimler case over likely invalid patent -- and two Munich trials have been vacated due to corona

Most of the time, Nokia signs license agreements without having to sue, and when they sue, they typically manage to settle quickly. That's why the Finnish company's standard-essential patent (SEP) portfolio is largely untested. The former handset maker that still sells cellular network infrastructure (base stations) touts the size of the portfolio, but has yet to prevail on a single SEP in court. Maybe they won a SEP case a long time ago, but I can't remember such an outcome during the ten-year history of this blog.

Three SEP assertions by Nokia have been adjudicated in Germany so far. There's this saying that "two out of three ain't bad," but Nokia's score for the time being is ZERO out of three, and that is arguably not "bad" but more accurately described as a disastrous score.

After losing a case against ViewSonic earlier this decade and its first case against Daimler two months ago, Nokia has just suffered another de facto defeat as it felt forced to stipulate to a stay of case 2 O 36/19 over EP2145404 on a "method and apparatus for providing control channels for broadcast and paging services," which was originally scheduled to go to trial on March 17.

Presiding Judge Dr. Holger Kircher stayed the case--with Nokia's consent--pending the Federal Patent Court's adjudication of nullity actions (complaints seeking the invalidation of the patent) by Daimler and an intervening supplier, TomTom. Those proceedings before the Federal Patent Court typically take years, and the vast majority of patents in this area are either declared invalid in their entirety or they end up being narrowed. A narrowing of the claim scope has the potential to render a declared-essential patent clearly non-essential.

It's constructive of a patentee to stipulate to a stay after the court has indicated a strong inclination to order a forcible stay in the alternative. It simply conserves court resources as a stipulated stay doesn't require a written rationale. Still, it's a concession that a patent was weak in the first place.

Originally, it looked like the period between December 2019 and May 2020 was going to be an extremely busy one for the Nokia v. Daimler patent assertion campaign. But the combination of Daimler defending itself (with help from its intervenors) very well and that force majeure that starts with a "c" has so far prevented Nokia from getting leverage. What's much worse for Nokia is that its dismal track record against Daimler so far will be held against it in future licensing negotiations (with smartphone makers as well as the car industry):

  • Besides the two Mannheim cases of which Nokia lost one and had to stipulate to a stay in the other, a third one was already scheduled to go to trial in December, but then Nokia made a mediation offer and the court pushed the trial date back to March 17. However, shortly before that new trial date, Nokia modified its infringement theory, which is not a sign of strength. That trial got vacated.

  • A Munich ruling was scheduled for tomorrow (April 9), but has been postponed to May 20.

  • Two Munich trials scheduled for April 22 (the related first hearings took place on October 30, 2019) have been vacated due to the coronavirus crisis. New trial dates have yet to be determined.

Theoretically, "it only takes one bullet to kill" as another SEP holder once told a court. However, with every single Nokia case that goes nowhere--and stipulating to a stay is tantamount to throwing the towel--its portfolio-based royalty demands lose credibility. What's happening to Nokia's SEPs here is not much different from what other SEP holders have experienced. The hit rate is very low. The only factor that makes it a little more surprising in Nokia's case is that the patent litigation knowledge they have in-house (including lawyers as well as litigation-savvy engineers) is second to none, and it goes without saying they hire some of the very best firms to represent them. With so much expertise, how come they can't find stronger SEPs? They picked ten patents for the campaign against Daimler, some if not all of which they previously asserted against Apple (though that dispute got settled prior to any trial). They apparently thought those ten were the best they had. And look what's happening...

Policy makers must take the following into account: SEP holders (and Nokia is just one example of many) always want to talk about portfolio royalties rather than about merit, but that is a recipe for overcompensation that results in a misallocation of resources and has quite the opposite effect of incentivizing innovation. When a defendant like Daimler doesn't bow to coercion of whatever kind and lets the judges do their job, it turns out time and again that it's one thing to declare thousands of patents to be essential to cellular standards and another to prove in court that those patents are valid and, actually, essential.

Nokia's greed--they want Daimler and other car makers to pay a multiple of the per-unit royalty they get from smartphone makers--has given rise to this dispute, which now threatens to devalue Nokia's SEP portfolio, with severe implications on Nokia's current and future licensing negotiations.

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