Thursday, September 24, 2020

More unhinged standard-essential patent injunctions to come down in Germany in wake of Sisvel v. Haier: Munich trial in Conversant v. Daimler

Before talking about yesterday's Munich trial in Conversant v. Daimler, let's look at the strategic landscape:

In general, Daimler's efforts to fend off Nokia, its patent trolls like Conversant, and the abusive Avanci gang at large, are on the right track. The Dusseldorf Regional Court's foreseeable referral of questions relating to the entitlement of suppliers to an exhaustive component-level license is likely to result in exactly the kind of clarification that the automotive industry and the wider IoT sector need, provided that the top EU court won't be indirectly affected by lobbying: Nokia, Ericsson, and their traditional allies are going to get a number of EU member state governments, and possibly the EU Commission, to make submissions to the court that will advocate the cause of abusive SEP holders, given that the European automotive industry's lobbyists know less about IP policy than their counterparts in the telecommunications industry have already forgotten. Therefore, even some countries with a significant number of automotive jobs may end up siding with Nokia.

I hope the Fair Standards Alliance will manage to counterbalance the SEP abusers' lobbying efforts. Otherwise a number of key FSA members will have no one but themselves to blame. They don't even need to win the lobbying battle; all it takes is to neutralize the Nokia camp's efforts.

There have been cases in which the CJEU didn't care about all those submissions and just interpreted the law the way it saw fit; but there have also been cases in which the positions taken by various member states influenced the Commission, which in turn shaped the Advocate General's thinking, and the AG's recommendations are adopted by the court in a solid majority of cases.

In the short term, it's reasonably encouraging that Presiding Judge Andreas Voss ("Voß" in German) of the Karlsruhe Higher Regional Court got Nokia to commit not to enforce, while the appeals court is weighing Daimler's motion for an enforcement stay pending its appeal (i.e., for approximately a year), a Mannheim injunction that misapplies Huawei v. ZTE and may also simply be wrong on the purely technical question of essentiality. Nokia had no other choice as the appeals court made it clear that it would otherwise have ordered a micro-stay for the month or two it takes to resolve the motion for a stay. Those micro-stays are rarely seen in Germany, where the irreparable-harm standard is not just exacting but next to impossible to meet, making decisions on stays in almost all cases entirely dependent on the likelihood to prevail.

In Munich there's even more of a need for the regional appeals court to restore sanity. It will be interesting to see how the Munich Higher Regional Court's 6th Civil Senate under Presiding Judge Konrad Retzer will adjudge Daimler's motion for an enforcement stay concerning an injunction that Sharp won and could enforce by posting collateral of a negligible amount.

The Munich I Regional Court's 21st Civil Chamber, before which yesterday's trial took place, will announce a Nokia v. Daimler ruling tomorrow. While the court didn't indicate a clear inclination in July, the way yesterday's Conversant v. Daimler trial went definitely increases the likelihood of an injunction--and makes it extremely hard to imagine that Daimler could prevail on its FRAND defense. If anything can help Daimler tomorrow, it will be one of the technical defenses (non-essentiality or invalidity).

I have to update my top three list of the most outrageous German SEP trials I ever watched:

  1. Conversant v. Daimler, Munich I Regional Court, 21st Civil Chamber -- September 23, 2020

  2. Motorola v. Microsoft, Mannheim Regional Court, 2nd Civil Chamber -- February 7, 2012 (Presiding Judge Dr. Holger Kircher obligated Microsoft to withdraw its challenge to the validity of the patents-in-suit as a precondition for even evaluating an Orange-Book-Standard FRAND defense; only a U.S. antisuit injunction against Motorola prevented a disaster, and by now it's clear the Mannheim court's position was totally irreconcilable with EU antitrust law)

  3. Nokia v. Daimler, Munich I Regional Court, 7th Civil Chamber -- February 6, 2020 (one tidbit tells it all: the court's official minutes, which were extremely one-sided, even note that "Counsel for Plaintiff declared herself in agreement with the Court" on FRAND)

As you can see above, yesterday's trial had to beat some formidable competition to claim the top spot, and it did so handily with respect to FRAND/SEP issues. Note that this ranking does not take into consideration the way those trials went with respect to the purely technical merits. In that regard, Presiding Judge Tobias Pichlmaier yesterday set an extremely high standard: after going into the courtroom with a skeptical perspective on Daimler's invaldity defense, he was super-receptive.

The invaldity part (and there was no discussion of essentiality, which was apparently conceded given the breadth of the patent-in-suit) can be summed up as follows: Quinn Emanuel's Dr. Marcus Grosch initially argued that the prior art fell in the scope of the asserted claim(s) of EP2934050 on an "apparatus and method for providing a connection" (a divisional of a patent Nokia once gave to Conversant), suggesting that the basis of the invalidity analysis should be the plain and ordinary meaning of the "core network element identifier" claim limitation. On this one, I actually agreed with the court, which insisted that each claim term would have to be interpreted in light of the patent description--though one of the side judges embarrassed himself when he vaguely described a certain approach as the line of the Federal Court of Justice but, when asked by Daimler's counsel, was unable to name a single decision to that effect.

Conversant sought to narrow the term (so as to avoid an overlap with the prior art), but in that effort had to take a position that was inconsistent with the prosecution history of the patent-in-suit. As a result, the court was no longer fully convinced of the patent being valid. My feeling is that Daimler now has at least a 30% chance of winning a stay pending the opposition proceeding before the European Patent Office.

Then came the FRAND part, and it was outrageous beyond belief. It proved that there's no such thing as hitting rock bottom in FRAND matters in Germany. Every time you think this has to be the end, some court will find a path to a new low, especially since utter intellectual dishonesty has been a trait of many German FRAND decisions for years.

Not long ago, both patent infringement panels of the Munich I Regional Court and the 2nd Civil Chamber of the Mannheim Regional Court departed from the previous application of Huawei v. ZTE in the sense of evaluating the implementer's counteroffer first and ordering an injunction even if the SEP holder's original demand didn't appear to be FRAND-compliant in the first place. That doesn't make sense under any reasonable reading of Huawei v. ZTE, but some judges will get away with this until an appeals court sets the record straight.

The 21st Civil Chamber of the Munich I Regional Court is now trying to take this one step further by means of a shortcut--which is actually more of a short circuit: Emboldened by the Federal Court of Justice's recent Sisvel v. Haier decision, they seek to import a murky soup of considerations into the question of whether the implementer was willing to take a license. In Sisvel v. Haier, there were some unusual circumstances, such as that the implementer's first counteroffer was made only after the relevant patents had already expired. Here, the patent-in-suit is still going to be a valid for a few more months, and Daimler made a counteroffer well ahead of the trial, which used to be deemed more than timely in Germany.

What the CJEU meant in Huawei v. ZTE was for the SEP holder to provide a notice of infringement and, along with that one or in response to an indication that the implementer was willing to take a license on terms to be determined later, an offer that the SEP holder would not just have to make but also explain. Daimler argues that Conversant's unspecified reference to the FRAND metholodogy of an England & Wales High Court ruling (Unwired Planet v. Huawei) involving different parties and patents fell short of the kind of derivation of the royalty demand that Huawei v. ZTE requires, and the first time that Conversant went into details on its numbers was just a few months ago, with the portfolio size actually having changed dramatically since the original demand.

It's not even the most problematic part of the Munich court's position that Sisvel v. Haier, where the counteroffer came four years after the infringement notice and at a much later procedural stage (four weeks prior to the appelate hearing, and after patent expiration, would be viewed as a basis for considering Daimler an unwilling licensee. And I've discussed before that the proper application of the Huawei v. ZTE would have to begin with looking at the SEP holder's royalty demand in the first step.

The real issue is that the "willingness" analysis, as explained by the court, involves the above considerations as well as the court's assumption that Daimler's counteroffer must be unreasonably low simply because it's far below the SEP holder's demand, even though the court said it had not performed, and does not wish to perform, a quantitative analysis of Conversant's offer.

Presiding Judge Pichlmaier drew an analogy that rendered pretty much everyone on the defending side speechless: he said that if a road accident made a person lose an arm and the injured person demanded 1 million euros while the one responsible for the accident offered only 2 euros, it would be obvious, just based on the discrepancy, that something is wrong with the 2-euro counterproposal.

The fallacy here is clear. First, the court's "logic" would mean that even if in the same situation the defendant offered 10 million euros (ten times as much as what the plaintiff in the court's example demanded), it would also appear "unreasonably low" if the plaintiff simply demanded 5 billion euros. Second, the reason why everyone would intuitively say that 2 euros is not a reasonable proposal for damages in a case of severe personal injury is not that the plaintiff asked for a lot more, but that everyone intuitively realizes a loss of a limb is a massive injury, and that a 2-euro amount is chicken shit.

Well, I said something further above about the intellectual honesty of some German FRAND decisions. Instead of formally analyzing the parties' positions on FRAND licensing terms, as the CJEU outlined in Huawei v. ZTE, the court doesn't even want to seriously analyze a single one of them. Instead, the court wants to base a decision--to enter a Germany-wide Mercedes sales ban over a patent covering a tiny part of the telecommunications functionality of a car--on a hazy mix of considering Daimler should have made more efforts to advance the licensing talks and the discrepancy between the parties' offers suggesting unreasonableness on the defendant's side.

Presiding Judge Pichlmaier lamented the difficulties in determining a FRAND rate, considering it's a "range." I agree it's a range. In most SEP cases where an infringement is identified, courts would unfortunately have to go through that exercise (they can appoint expert witnesses for that purpose, but in Germany they just want to hand down as many patent rulings as possible, at the expense of fairness and proper jurisprudence)--unless they cut corners in highly questionable ways. Now, I can imagine some extreme cases in which a given party's offer can be deemed non-FRAND even without stating a precise range of FRAND royalty rates, but even then the court would at least have to conduct parts of the FRAND analysis. For instance, if a SEP holder demands something that is grossly inconsistent with all comparable licensed agreements, the failure of such a royalty demand to comply with the "ND" part of "FRAND" may obviate the need for specifying a precise range. Also, there could be a situation where some questions (such as the percentage of actually-essential patents in a portfolio) would be disputed, but the court would have formed an opinion on all other factors. If the offer to be evaluated then falls clearly outside the possible range of results, even if seen in the light most favorable to the party that made such an offer, it may not be necessary to determine the FRAND range (just a range of conceivable ranges, so to speak).

But rewarding a SEP holder for making an out-of-this-world demand is... well, I'll let you complete the sentence.

By the way, Conversant appears to be seeking €.75 per car, which is roughly a third of what Nokia demands, and Conversant's portfolio is small compared to Nokia's, and even older.

The Munich court was as unreceptive to component-licensing arguments as always. As for the intervenors, they were largely the same group as in the German Nokia v. Daimler cases, with only three differences:

  • Unlike Nokia, Conversant's prayers for relief don't have a carve-out for cars that come with telematics control units (TCUs) supplied by Samsung subsidiary Harman Becker. Therefore, Harman is an intervenor in the Conversant cases, and is represented by DLA Piper's Dr. Markus Gampp. He also appeared on Harman's behalf in a recent Sharp v. Daimler trial.

  • Judge Pichlmaier noted that Huawei wasn't present. That surprised me, actually, given that Huawei is known to be adverse to Conversant.

  • Equally surprisingly, counsel for Valeo subsidiary Peiker was in the audience, but Peiker wasn't mentioned as an intervenor.

Finally, an update on how this panel of the Munich court conducts trials in the midst of the COVID-19 pandemic. I definitely noticed major improvements over the July Nokia v. Daimler trial. There was an obligation to wear masks, and in the spectators' area there was clearly enough of a distance between any two persons. The room wasn't as crowded as in the Nokia cases. However, Munich is a SARS-CoV-2 hotspot (so bad at the moment that hotels in some other parts of Germany aren't allowed to accept guests from Munich and that the city administration now requires people to wear masks in various downtown streets within walking distance from the courthouse). With a view to the risk of aerosolized infections, ventilation is key, and originally the court opened both the door to the courtroom (which was not an option because of too much noise somewhere else in the building) and at least one window, but with ambulance and policar car sirens, that wasn't an option either except for a few breaks. Next time I'll bring a CO2 meter so I can prove that the ventilation they have there is insufficient, which I'm quite certain it was yesterday. But then, the patent-in-suit will expire in a few months' time, and from a "patent trolls über alles" perspective, it made a lot of sense to hold the trial regardless of ventilation problems...

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