Wednesday, December 2, 2020

Federal Council of Germany has patent reform bill on agenda for December 18 session

Just a quick procedural update on German patent reform: the Bundesrat (Federal Council) has patent reform on the agenda for its December 18 session--item no. 15 for the day. While I was pleased to see some improvement in early September, the legislative proposal that the German government (Chancellor Merkel's cabinet) ultimately decided to put on the table is worded in such a way that the courts would rarely even reach the question of proportionality, much less resolve it in a defendant's favor. I criticized various large companies for shooting themselves in the foot in this context.

So what's the significance of that December 18 decision by the Federal Council going to be?

The Federal Council is the co-legislative body in which the governments of the German federal states cast their votes. Just like in the U.S., patent law is federal law, not state law. Therefore, the Federal Council's influence is limited. Theoretically it could veto even a patent reform bill, but could then be overruled by a supermajority of the Bundestag (Federal Parliament). A veto won't happen here, realistically. Instead, the Federal Council will just express its views, which the Federal Parliament will then take into consideration.

While some members of the Federal Parliament have been informally looking at this dossier for a while, the formal process will only begin after the Federal Council has taken its non-binding position.

Obviously, a camp that believes it can get mileage out of the Federal Council's opinion will try to leverage it. Presumably, the state of Lower Saxony, a major Volkswagen shareholder, will be in favor of serious patent injunction reform. The most populous state, North Rhine-Westphalia, is home to Deutsche Telekom, but also to chemical giant Bayer, which opposes reform, and the Dusseldorf courts, which generate a lot of "business" for the state (which runs those courts) and the local economy. In the second-most populous and economically strongest state, Bavaria, they have BMW and Audi, but I doubt that those organizations know how to prevent their state government from siding with Siemens and the patent law community at large (Bavaria is home to the European Patent Office, the German Patent and Trademark Office, the Federal Patent Court of Germany, and as a result, to numerous patent law firms).

I'd like to be proven to have been wrong on this one, but I really fear that the Federal Council will be just about OK with the current bill (which won't solve the problem, not even in the long run) at best and speak out against even that kind of toothless reform at worst (in which case the Federal Council would likely propose particular wordings that would further dilute the injunction reform statute). When the Federal Council's position has been made public, I'll report and comment on it.

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Thursday, November 26, 2020

Dusseldorf Regional Court refers component-level licensing of standard-essential patents to Court of Justice of the EU

The Landgericht Düsseldorf (Dusseldorf Regional Court) has indeed, as widely anticipated in light of the inclination the court expressed during the early-September trial, referred to the top EU court a set of legal questions regarding the right of component makers to an exhaustive component-level standard-essential patent (SEP) license. This news was first shared on Twitter by Benjamin Raetz ("Rätz" in German), an intellectual propety lawyer with the firm of Kather Augenstein, whose clients include Volkswagen (in favor of component-level licenses) and Ericsson (opposed). Here's the tweet (this post continues below the tweet):

As a result, a Nokia v. Daimler case as well as a Huawei v. Nokia case (in which Huawei is seeking to obligate Nokia to make a FRAND licensing offer at the component level) will be stayed. Formally, the decision in the Huawei case will likely come down next month or in January. But the court made it clear in September that the two cases are interrelated. In fact, Huawei's case used to be a third-party counterclaim that was severed from the Nokia v. Daimler case. Theoretically, the court could also stay Huawei's case pending the resolution of today's referral, but that would not be a good idea given that there is a risk of Nokia getting leverage over Daimler in some case and coercing the Mercedes maker into a settlement, while Huawei would certainly see this matter through. Whether Nokia will get such leverage is hard to tell. For instance, if the Munich appeals court were to (more or less) uphold the lower Munich court's negligible security amount in a different Nokia v. Daimler case, and if Daimler failed to win a stay, then the Nokia-Daimler dispute could be over as early as next month, in theory.

Two other Nokia v. Daimler cases are due to be heard by the Dusseldorf Regional Court next month. If Nokia loses on the merits, there won't be a need for a stay.

Some major SEP holder opposed to component-level licensing, particularly Nokia (which made an unacceptable new licensing offer to makers of telematics control units) and non-party Qualcomm (which counted on EU internal market commissioner Thierry Breton's support and lobbied the German Federal Ministry of Economic Affairs (where some people saw through the smokescreen while some others were pathetically clueless), tried some maneuvering in hopes of dissuading the Dusseldorf court from this referral. But now that the referral has been made, this matter will be resolved in Luxembourg.

EU competition commissioner Magrethe Vestager said at yesterday's announcement of the Commission's Action Plan on Intellectual Property that the EC wanted the parties to talk to each other and was seeking to keep these case out of the courts. That's easier said than done. Judicial clarification is needed, and it will come.

Nokia could appeal this decision to the Oberlandesgericht Düsseldorf (Dusseldorf Higher Regional Court) by means of the German equivalent to a U.S. interlocutory appeal. However, the judge presiding over one of the two patent-specialized divisions of that appeals court, Presiding Judge Dr. Thomas Kuehnen ("Kühnen" in German), took a clear position on this question last year, and he's known to be in favor of this referral.

The Bundeskartellamt (Federal Cartel Office of Germany) had filed an amicus brief with multiple German courts requesting the referral of component-level SEP licensing questions to the CJEU. Frankly, I liked the Federal Cartel Office's submission to the courts better than what the Dusseldorf court made of this, but that may be subjective.

Meanwhile, the Dusseldorf Regional Court has published the questions to be referred. They go beyond the subject of component-level licensing and also raise general Huawei v. ZTE-related questions. I will publish the original German-language version of each question and provide my own translation below each paragraph (my translation is not exactly literal but uses shorter constructs where I believe doing so does not result in a loss of accuracy, such as by not providing a definition of a term like SEP):

A. Besteht eine Pflicht zur vorrangigen Lizenzierung von Zulieferern?

UNOFFICIAL TRANSLATION: Is there an obligation to license suppliers first?

1. Kann ein Unternehmen einer nachgelagerten Wirtschaftsstufe der auf Unterlassung gerichteten Patentverletzungsklage des Inhabers eines Patents, das für einen von einer Standardisierungsorganisation normierten Standard essentiell ist (SEP) und der sich gegenüber dieser Organisation unwiderruflich verpflichtet hat, jedem Dritten eine Lizenz zu FRAND-Bedingungen zu erteilen, den Einwand des Missbrauchs einer marktbeherrschenden Stellung i.S.v. Art. 102 AEUV entgegenhalten, wenn der Standard, für den das Klagepatent essentiell ist, bzw. Teile desselben bereits in einem von dem Verletzungsbeklagten bezogenen Vorprodukt implementiert wird, dessen lizenzwilligen Lieferanten der Patentinhaber die Erteilung einer eigenen unbeschränkten Lizenz für alle patentrechtlich relevanten Nutzungsarten zu FRAND-Bedingungen für den Standard implementierende Produkte verweigert?

UNOFFICIAL TRANSLATION: 1. Can a downstream company avert injunctive relief over a FRAND-pledged SEP on the grounds of an abuse of a dominant market position in accordance with Art. 102 TFEU if the relevant standard or parts thereof are implemented by an upstream component purchased by the defendant to the infringement claim and the defendant's suppliers are willing licensees but the patentee denies them an independent and unrestricted license on FRAND terms covering all types of use relevant under patent law?

a) Gilt dies insbesondere dann, wenn es in der betreffenden Branche des Endproduktevertreibers den Gepflogenheiten entspricht, dass die Schutzrechtslage für die von dem Zulieferteil benutzten Patente im Wege der Lizenznahme durch die Zulieferer geklärt wird?

UNOFFICIAL TRANSLATION: a) Is this particularly the case if it is common practice in the end product maker's industry to clear patent rights at the component level?

b) Besteht ein Lizenzierungsvorrang gegenüber den Zulieferern auf jeder Stufe der Lieferkette oder nur gegenüber demjenigen Zulieferer, der dem Vertreiber des Endprodukts am Ende der Verwertungskette unmittelbar vorgelagert ist? Entscheiden auch hier die Gepflogenheiten des Geschäftsverkehrs?

UNOFFICIAL TRANSLATION: Are suppliers at each level of a suply chain entitled to a license, or does this apply only to the defendant's direct supplier? Does this depend on industry practice?

2. Erfordert es das kartellrechtliche Missbrauchsverbot, dass dem Zulieferer eine eigene, unbeschränkte Lizenz für alle patentrechtlich relevanten Nutzungsarten zu FRAND-Bedingungen für den Standard implementierende Produkte in dem Sinne erteilt wird, dass die Endvertreiber (und ggf. die vorgelagerten Abnehmer) ihrerseits keine eigene, separate Lizenz vom SEP-Inhaber mehr benötigen, um im Fall einer bestimmungsgemäßen Verwendung des betreffenden Zulieferteils eine Patentverletzung zu vermeiden?

UNOFFICIAL TRANSLATION: 2. Is it required by antitrust law to grant a supplier its own independent and unrestricted license on FRAND terms, for products implementing the standard, to the effect that end-product makers (and, as applicable, intermediate levels of the supply chain) no longer need to take an own, separate license from the SEP holder, thereby providing end-product makers with a defense against a patent infringement claim if the relevant component was incorporated into the end product on a licensed basis?

3. Sofern die Vorlagefrage zu 1. verneint wird: Stellt Art. 102 AEUV besondere qualitative, quantitative und/oder sonstige Anforderungen an diejenigen Kriterien, nach denen der Inhaber eines standardessentiellen Patents darüber entscheidet, welche potenziellen Patentverletzer unterschiedlicher Ebenen der gleichen Produktions- und Verwertungskette er mit einer auf Unterlassung gerichteten Patentverletzungsklage in Anspruch nimmt?

UNOFFICIAL TRANSLATION: 3. In the event the first question were to be answered in the negative: Does Art. 102 TFEU impose particular criteria--qualitative, quantitative, or otherwise--based on which a SEP holder can choose which potential infringers at different levels of the supply and value chain to enjoin?

B. Konkretisierung der Anforderungen aus der Entscheidung des Gerichtshofs in Sachen Huawei ./. ZTE (Urteil vom 16. Juli 2015, C-170/13):

UNOFFICIAL TRANSLATION: B. Clarification of requirements laid out by the CJEU in Huawei v. ZTE (judgment of 16 July 2015, case no. C-170/13):

1. Besteht ungeachtet dessen, dass die vom SEP-Inhaber und vom SEP-Benutzer wechselseitig vorzunehmenden Handlungspflichten (Verletzungsanzeige, Lizenzierungsbitte, FRAND-Lizenzangebot; Lizenzangebot an den vorrangig zu lizenzierenden Zulieferer) orgerichtlich zu erfüllen sind, die Möglichkeit, Verhaltenspflichten, die im vorgerichtlichen Raum versäumt wurden, rechtswahrend im Laufe eines Gerichtsverfahrens nachzuholen?

UNOFFICIAL TRANSLATION: Given that SEP holder and implementer have to meet certain obligations (infringement notice, request for license, FRAND licensing offer; licensing offer to a supplier) prior to litigation, is it still possible to make up, without prejudice, for obligations not previously met while litigation is pending?

2. Kann von einer beachtlichen Lizenzierungsbitte des Patentbenutzers nur dann ausgegangen werden, wenn sich aufgrund einer umfassenden Würdigung aller Begleitumstände klar und eindeutig der Wille und die Bereitschaft des SEP-Benutzers ergibt, mit dem SEP-Inhaber einen Lizenzvertrag zu FRAND-Be-dingungen abzuschließen, wie immer diese (mangels eines zu diesem Zeitpunkt formulierten Lizenzangebotes überhaupt noch nicht absehbaren) FRAND-Bedingungen aussehen mögen?

UNOFFICIAL TRANSLATION: Is a request for a license by an implementer relevant only if, based on an in-depth analysis of all circumstances, the implementer's willingness and readiness to conclude a license agreement on FRAND terms with the patentee is clear and unambiguous, irrespectively of what those terms (which at the time of the offer to take a license were not foreseeable yet) might be?

a) Gibt ein Verletzer, der mehrere Monate auf den Verletzungshinweis schweigt, damit regelmäßig zu erkennen, dass ihm an einer Lizenznahme nicht gelegen ist, so dass es – trotz verbal formulierter Lizenzbitte – an einer solchen fehlt, mit der Folge, dass der Unterlassungsklage des SEP-Inhabers stattzugeben ist?

UNOFFICIAL TRANSLATION: Does an infringer who remains silent over the course of several months upon receipt of an infringement notice give an indication of a nominal request for a license not being made in good faith, which in turn would entitle the SEP holder to injunctive relief?

b) Kann aus Lizenzbedingungen, die der SEP-Benutzer mit einem Gegenangebot eingebracht hat, auf eine mangelnde Lizenzbitte geschlossen werden, mit der Folge, dass der Unterlassungsklage des SEP-Inhabers ohne vorherige Prüfung, ob das eigene Lizenzangebot des SEP-Inhabers (welches dem Gegenangebot des SEP-Benutzers vorausgegangen ist) überhaupt FRAND-Bedingungen entspricht, daraufhin stattgegeben wird?

UNOFFICIAL TRANSLATION: Can the terms of a SEP implementer's counteroffer result in a finding of an unwillingness to take a license and the grant of injunctive relief without prior analysis of whether the SEP holder's licensing offer (which preceded the implementer's counteroffer) was FRAND-compliant in the first place?

c) Verbietet sich ein solcher Schluss jedenfalls dann, wenn diejenigen Lizenzbedingungen des Gegenangebotes, aus denen auf eine mangelnde Lizenzbitte geschlossen werden soll, solche sind, für die weder offensichtlich noch höchstrichterlich geklärt ist, dass sie sich mit FRAND-Bedingungen nicht vereinbaren lassen?

UNOFFICIAL TRANSLATION: c) Is the foregoing conclusion unwarranted at least in a case in which those licensing terms in the implementer's counteroffer that give rise to a finding of an unwillingness to take a license are not clearly out of compliance with FRAND either because it is evident or in accordance with jurisprudence of the highest court? [TRANSLATOR's NOTE: the original text has many shortcomings, one of which is that the term "höchstrichterlich" means a decision by the highest court, without clarifying whether the CJEU or the Federal Court of Justice of Germany is meant; in fact, even the Federal Constitutional Court of Germany could theoretically be the highest court in a given case]

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Wednesday, November 25, 2020

European Commission's Action Plan on Intellectual Property deemphasizes automotive industry concerns, prioritizes upload filters

Today the European Commission formally adopted and announced its Action Plan on Intellectual Property ("IP Action Plan").

A near-final draft of the document already leaked last week and generated some media attention. I elected to wait for the final document (also because I'm very busy with the impending launch of my iOS and Android game). Given that some significant changes have been made, I'm glad I did hold off.

So here's my rapid response, and I may go into more detail on some of these issues later or in a follow-up post:

  • While a draft version of the document placed a great deal of emphasis on the need to engage with the automotive sector (given the particular issues it is facing with a view to the licensing of standard-essential patents (SEPs)), the final plan downgrades that industry's problems or at least seeks to defocus from them:

    "Although currently the biggest disputes seem to occur in the automotive sector, they may extend further as SEPs licensing is relevant also in the health, energy, smart manufacturing, digital and electronics ecosystems." (emphasis added)

    "With a view to clarifying these issues and identify [sic] best practices, the Commission has launched a study, with a specific focus on strategic sectors including the healthcare and automotive sectors." (emphasis added)

    The fact that the Commission deemphasizes the automotive industry's SEP issues may be attributable to the immense lobbying firepower and persistent, highly professional efforts by major SEP holders such as Nokia and Ericsson, which is not a conspiracy theory but based in fact (and would serve to explain the repeated postponement of the publication of this document). The automotive industry's lobbying departments are basically one-trick ponies that only know about emissions standards and similar topics. Those organizations may need another decade or two before they figure out IP policy.

    I actually doubt that the automotive industry would have had to expect anything positive to come out from the Commission's DG GROW (formerly called DG MARKT) "brokering" an agreement between the automotive sector and major SEP holders. That's because the commissioner in charge of DG GROW, Thierry Breton, is totally in the tank for Nokia and Ericsson, even up to the point where he describes fake news as "a fact! A fact! It is a fact!".

  • The paper recognizes that small and medium-sized enterprises (SMEs) don't account for lots of patent filings. But basically the answer this plan attempts to give is just a combination of ever more internationalization and subsidies. Nowhere does the plan recognize that many SMEs would rather be protected from patents than by patents.

  • One of the top two or three fallacies in the patent policy context is reiterated by the IP Action Plan:

    "Between 2010 and 2019, the number of European patents granted rose from 58 000 to 137 000, approximately - although the rise is less marked than in other parts of the world, notably Asia, where economies are quickly catching up on IP generation."

    A European patent is a patent that can be asserted in Europe--not a patent granted to a European company. None of the top four filers with the European Patent Office (EPO) is European.

  • Artificial Intelligence (AI) patents are software patents, which actually shouldn't be granted in Europe in the first place. Here's what the paper says about Europe's low share of AI patent applications:

    "[A]lthough 26% of high-value research publications on AI comes from Europe, only 4 out of the top 30 applicants (13%) and 7% of businesses, engaged in AI patenting worldwide, are European."

    The reason for that is mostly that major platform companies (in the digital platform economy, Europe is at a level with Africa and irrelevant compared to the U.S. and Asia) generate a lot of income from their core businessees and invest some of that money into AI, enabling them to offer the most attractive working conditions to researchers--and to file for many patents in that field. I can't see how the IP Action Plan would change a thing about that.

  • The Commission loves its upload filters:

    "A crucial part of this work concerns the implementation of Article 17 of the Copyright Directive, which sets out a specific legal regime for the use of copyright-protected content by user-uploaded content sharing platforms. The Commission has carried out an extensive stakeholder dialogue to gather the views of relevant stakeholders on the main topics related to this article's application. Taking into account the results of the dialogue, the Commission will soon issue guidance to support Member States in implementing this provision."

    Just last week, a senior Commission official actually acknowledged that Article 17 may not survive a pending court challenge. I opposed it (even spoke at a couple of demonstrations against it).

  • While this is outside the industry focus of this blog, I believe it would make a whole lot of sense for the Commission to "to introduce a unified [Supplementary Protection Certificate] grant mechanism and/or create a unitary SPC title," which the IP Action Plan mentions as possibilities.

The IP Action Plan is per se underwhelming and unspecific, but that doesn't mean that the initiatives it outlines as potential measures couldn't be impactful in the end--possibly even with respect to SEPs. We'll have to stay tuned.

[Update] The Fair Standards Alliance (FSA) just issued a statement, saying the organization "welcomes the European Commission’s goal to bring more transparency to standard essential patent (SEP) licensing." [/Update]

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Saturday, November 14, 2020

Google brings motion to dispose of Epic Games' antitrust complaint over Android app distribution terms at earliest procedural stage

On Friday evening (Pacific Time), Google brought a motion it had already announced more than two months ago: a motion to dismiss Epic Games' antitrust complaint in the Northern District of California over Google's Android app distribution terms. At the same time, Google seeks to shot down a consolidated class action complaint brought on behalf of some smaller app developers.

Google also faces class actions by consumers. In fact, the latest one of them, Gamble v. Google, was filed on Thursday. But yesterday's motion relates only to claims brought by Epic and other developers.

Unlike Google, Apple decided not seek the outright dismissal of Epic's claims. Part of the reason might have been that a motion to dismiss causes considerable delay, but Judge Yvonne Gonzalez Rogers (who is presiding over all those Apple App Store antitrust cases, while Judge James Donato is in charge of the Google Play cases) wanted to put Epic's August 2020 case on a schedule that was basically dictated by the decade-old Pepper v. Apple class action, which had meanwhile already reached the Supreme Court. The Pepper opinion is at the heart of one part of Google's attack on the developer class actions it's facing, as I'll discuss further below.

So here's Google's motion to dismiss Epic's complaint as well as the consolidated developer class action complaint (this post continues below the document):

20-11-13 Google Motion to D... by Florian Mueller

With respect to Epic's claims, and the corresponding claims brought by the developer class actions, Google's strategy basically stands on two pillars:

  • In an effort to make Epic's case fail under the Ninth Circuit's FTC v. Qualcomm opinion (which for the time being, and possibly for a very long time to come, constitutes controlling law in the Ninth Circuit, now that the FTC's petition for an en banc rehearing has been denied), Google argues that Epic actually alleges Google has an antitrust duty to deal, but attempts an end-run around the high hurdle for such a duty by seemingly relying on other theories:

    • Google says Epic has no Sherman Act Section 1 case based on Google's app distribution agreements with developers as Section 1 applies only to concerted action by parties, not to terms unilaterally imposed by one party (here, Google).

    • As for Epic's "tying" claim (of which Judge Gonzalez Rogers has so far been unconvinced in the parallel Epic v. Apple case), Google argues that app distribution and in-app payments are simply part of the same business method, so there isn't a second thing that could be tied to a first. Here, too, Google says Epic actually wants to establish a duty to deal, to the effect that Google would have to allow Epic and others to use alternative payment services for their in-app purchasing products.

  • Google says it's not enough when Epic alleges Google's business model and contract terms merely discourage or make it less likely that, for instance, Android OEMs install third-party app stores on their devices or consumers install Android apps without going through the Google Play store. Instead, Google's lawyers argue, Epic would have to--but cannot--allege that Google actually prohibits or prevents such actions.

I would like to comment on one particular sentence from Google's motion:

"Plaintiffs thus importantly concede that OEMs pre-install Play not because of any obligation under the MADAs but because it is the best app store available."

Sorry, but that sounds too meritocratic. It's not like the Google Play app is such a great store app in technical terms that everyone prefers to use it for convenience or similar reasons. It's pretty good, but the key reason why users go there has a name: network effects.

As expected, Google's motion stresses the various ways in which Android is (without explicitly drawing the comparison, as it wouldn't be relevant to the judicial decision Google is seeking) less restrictive than iOS. On iOS, there's no sideloading, nor are there third-party app stores.

In my own app business I can see the difference between Google's greater openness and Apple's more restrictive terms. We recently uploaded a beta version of our app to both Apple's App Store Connect and Google's Google Developer Console, and requested permission to send it to testers, which we have so far been doing via Microsoft App Center. In Google's case, the app was accepted very quickly (the only problem being a technical one--after more than 24 hours, the related Google Play page still can't be accessed, probably because of a long queue that Google's servers need to process; [Update] I just checked again and finally the Google Play page for our beta test is functional [/Update]). In Apple's case, it was rejected because of a rule for which there is no equivalent with respect to Android apps. But Apple has recently tried to improve its relationship with developers, so we've done something that Apple just enabled in the late summer: we submitted a suggestion to modify the rule--and we're going to submit a slightly modified version of our app that will clearly be outside the scope of that narrowly-worded rule (the game will still be just as much fun on one platform as on the other). We're going to launch the game very soon as it is absolutely feature-complete except for IAP offerings, which are easy to do but we technically can't implement them without distributing test versions through Apple's and Google's platforms.

I'm not saying that Android is totally open. There are rules and restrictions. And frankly, if you're not on the Google Play store, you're at a fundamental disadvantage as an app developer. But there is a gradual difference, and Google's less restrictive approach makes it a possibility that Google might successfully defend itself against Epic's complaint possibly before Epic Games v. Apple even goes to trial.

Should Google's motion succeed, Epic will certainly appeal. But after FTC v. Qualcomm, defendants to antitrust cases are in a more comfortable position in the Ninth Circuit than plaintiffs.

That said, I'm sure Epic's lawyers (some of whom played a key role in Qualcomm's victory over the FTC) totally anticipated the points Google has raised in its motion to dismiss, so we can expect to see a very interesting opposition brief.

In a short separate document (as Epic isn't seeking damages, at least not at this stage), Google addressed the developer class actions' damages claim (this post continues below the document):

20-11-13 Google Memorandum ... by Florian Mueller

Google argues that the Supreme Court's Pepper v. Apple opinion allows only consumers (such as the Pepper class) to "seek recovery in the form of an alleged overcharge on the service fee the app store charge." The tricky part of the Pepper case--to the extent it reached the Supreme Court, where it was just about antitrust standing and not about the merits--was that the Illinois Brick doctrine doesn't let indirect purchasers seek antitrust damages. The Supreme Court could have overruled that doctrine, and maybe it will do so some other time. But in this case, a 5-4 majority of the justices determined that consumers were actually direct purchasers from Apple--as opposed to considering app developers to be the ones who pay Apple's 30% commission.

Google says developers can't seek damages based on an overcharge that, if there was one (which Google obviously disputes) would belong to consumers according to the Supreme Court opinion in Pepper. According to Google's motion, developers might still be entitled to damages based on lost profits, but the developer class actions fail to do so. Therefore, Google asks the court to dismiss those damages claims.

This means the developer class actions could fail not only on the merits (in which case Epic would lose as well) but also because of their damages theory.

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Thursday, November 12, 2020

Two more weeks until the single most important court ruling in the (short) history of the IoT industry: component-level SEP licensing

Originally, the Dusseldorf Regional Court had scheduled its Nokia v. Daimler ruling (with implications for a spin-off from that case, the Huawei v. Nokia case that resulted from the severance of Huawei's third-party counterclaims) for today. But for court-internal reasons, the ruling date has been pushed back by two weeks.

The Internet of Things industry should pay close attention on November 26, 2020. No judicial decision to date has been of comparable importance to the "I" in "IoT."

There's no IoT without an Internet connection. Apart from a small subset of IoT devices that will be just fine with a BlueTooth connection, some kind of WiFi or cellular (such as 4G/LTE) connectivity is a hard requirement. That's where you have to deal with thousands of allegedly standard-essential patents (SEPs)--a challenge even for large and sophisticated organizations, and nothing short of a nightmare for small and medium-sized IoT companies, especially startups.

At a Brussels conference I organized about a year ago, young and innovative IoT companies like AirTies (from Turkey) and Kamstrup (from Denmark) discussed the problem of SEP licensing from their perspective. The problem they face is that SEP holders (particularly trolls, of which are many--and they get fed with patents by the likes of Nokia and Ericsson) are at least as unwilling to extend exhaustive component-level SEP licenses to the IoT industry's suppliers as they are in the automotive context. Their calculus is always that they can maximize their leverage by going after end-product makers, such as companies that produce smart meters (such as Kamstrup). They make outrageous demands, sometimes listing dozens or even hundreds of patents that one can relatively easily identify as being technologically unrelated to the standard they claim they're essential to.

A defendant like Daimler can afford to be defended by a world-class litigation like Quinn Emanuel--and nevertheless got hit by four SEP injunctions just over these past few months. The average IoT company can only dream of hiring QE, and will find it hard to pay even for the initial analysis (not even in-depth!) of claim charts. Actually, they might not even be provided with claim charts as the Federal Court of Justice of Germany abolished that requirement this year in Sisvel v. Haier (contrary to how the Court of Justice of the EU's Huawei v. ZTE guidance should be applied)...

It's simply a fact that IoT startups can't handle SEP licensing themselves, so their suppliers (such as baseband chipset makers) must do the job and then provide a fully-licensed product. That's what patent exhaustion is all about.

The Dusseldorf court's widely expected referral to the CJEU of key legal questions related to component-level SEP licensing can be a game changer to the benefit of the IoT industry. It doesn't matter that Nokia v. Daimler is an automotive case. While it's not incorrect to refer to that kind of dispute as a "connected vehicle case," Nokia's SEPs aren't specific to self-driving cars or collision prevention. It's basic wireless communications technology. The legal questions are the same, but the problem is an even more pressing one for the IoT sector.

I've quickly drawn up a couple of charts to explain how the IoT industry's SEP licensing problems relate to those of the automotive sector. This is particularly important with a view to a Berlin roundtable next week to discuss a Qualcomm proposal that I believe neither the European Commission nor the German government can support without throwing IoT under the bus.

In a nutshell, Qualcomm, Nokia, and other SEP holders pursuing similar licensing tactics would still prefer to license their patents only at the end-product level (i.e., to Daimler, Volkswagen etc.), but not least with a view to the Dusseldorf court's upcoming referral to the CJEU they're now talking about tier 1: the automotive industry's direct suppliers. Telematics control units (TCUs) are tier 1 products from the automotive industry's perspective (the higher the number, the higher up in the supply chain). TCUs contain network access devices (NADs; tier 2), and those rely on a baseband chipset (tier 3). Here's the "nesting" of one product inside another as a simple chart (click on the image to enlarge; thist post continues below the image):

Baseband chipsets are relevant to the automotive industry just like they are to IoT products with cellular connectivity. At the level of the NAD (automotive tier 2), however, there's already some differentiation: NADs designed to be used in cars come with certain automotive-specific functionality that no IoT product needs. And TCUs are definitely just an automotive thing. It wouldn't be an economical choice to incorporate TCUs into non-automotive IoT products, and it would be a waste of space (on top of money).

This second chart shows three scenarios: two types of IoT products (with and without NADs, but again, NADs for IoT are not the same as NADs for cars), and the automotive supply chain (click on the image to enlarge; this post continues below the image):

For the reasons explained further above, end-product licensing is absolutely not a viable option for small and medium-sized IoT companies. And as the above chart shows, TCU-level licensing (tier 1) as proposed by Nokia this fall and, as I mentioned, by Qualcomm wouldn't work either. At a minimum, licenses would have to be available at the NAD level, and then the royalty would have to be commensurate with what a patented invention adds to the commercial value of that component as opposed to that of the end product.

If the top EU court holds that all levels of the supply chain are entitled to an exhaustive component-level license on FRAND terms, the problem will be solved for IoT, at least in the European market with potential repercussions around the globe.

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Wednesday, November 11, 2020

Court throws out tort-based part of Apple's counterclaims against Epic Games

Epic Games just reduced the potential risk it incurs from its antitrust dispute with Apple over its App Store business terms: Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California granted an Epic motion for judgment on the pleadings on some of Apple's counterclaims. As a result, Apple's counterclaims (unless an appeals court revives the ones the judge just threw out) are limited to breach of contract, which Epic already acknowledged in October it would be liable for should it lose its antitrust case against Apple. Punitive damages, which Apple was seeking, are not available on this basis, so they won't have to be discussed at next year's trial.

The court viewed the tort-based ones of Apple's counterclaims skeptically from the beginning. Nevertheless, Apple defended them, presumably in an effort to preserve them for an appeal.

What Judge Gonzalez Rogers told Apple today was that the iPhone maker had not shown any independently wrongful act on Epic's part beyond a breach of contract. Apple had stressed that "independently wrongful" doesn't mean it's an independent act, but that it would be wrongful even if it happened without a contractual framework being present. And in this regard, Apple pointed out that Epic's generation of in-app purchasing revenue on iOS continues even though the related contract was terminated in the summer. But that didn't persuade the judge. At the end of the Zoom hearing (Tuesday afternoon by Pacific Time) she announced her decision to grant the motion.

This decision is unrelated to the heart of the dispute, which is that Epic disputes the legality and enforceability of Apple's App Store terms under the antitrust laws. Judge Gonzalez Rogers said in August that the case could go either way, and the order on Epic's motion for judgment on the pleadings doesn't increase the likelihood of any particular outcome on the core issues in the case.

[Update]

A couple of hours after the hearing, Apple provided the following public statement:

"We respectfully disagree with the Court’s decision and believe Epic's conduct should be actionable under California tort law. It is clear, however, that Epic breached its contract with Apple. For twelve years, the App Store has helped developers turn their brightest ideas into apps that change the world. Our priorities have always been to provide customers with a safe and trusted place to download software and to apply the rules equally to all developers. In ways the Court described as deceptive and clandestine, Epic enabled a feature in its app which was not reviewed or approved by Apple, and they did so with the express intent of violating the App Store guidelines that apply equally to every developer who sells digital goods and services. Their reckless behavior made pawns of customers, and we look forward to making it right for them in court next May.

"Apple also thanks the Court for providing next generation attorneys the opportunity to argue a motion. We fully support this important policy that gives newer lawyers and those from underrepresented groups meaningful experience in court."

The young attorneys who delivered oral argument were Cravath's John I. Karin and Gibson Dunn's Anna Casey. Given the court's preconceived notion on this subject, I don't think oral argument made a difference. What was very clever on Mr. Karin's part was that at some point he preferred not to add anything to the court's preliminary opinion, which was already favorable to his client's position. So instead of trying to get the most out of this opportunity to practice, he opted for the safest and smartest path.

Apple's statement suggests to me between the lines that they will appeal yesterday's judgment on the pleadings after next year's trial.

[/Update]

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Monday, November 9, 2020

Don't blame EU competition chief Margrethe Vestager if SAP customers' antitrust complaints are fundamentally flawed, get copyright law wrong

You'd be hard-pressed to find anyone less SAP-friendly than me, given that I harshly criticized the German enterprise software maker (just the week before last) for botching--together with Google and Daimler--the German patent injunction reform and even called Microsoft, BMW, and Deutsche Telekom "lemmings" for following SAP's lead. The last occasion on which I collaborated with SAP was over a decade ago when we were co-complainants against Oracle's acquisition of Sun Microsystems--and the individuals I worked with at the time have meanwhile retired. Also, SAP is absolutely irrelevant to my business as a game app maker (I finally submitted a beta version to Apple on Thursday for TestFlight approval, and we'll submit our Android version to Google this week).

But I am interested in reasonable and balanced competition enforcement. While I

  • dislike the notion of EU Commission vice president Margrethe Vestager being in charge of both the EU's antitrust watchdog and digital industry policy (a result of precisely the kind of backroom horse trading the EU is notorious for),

  • believe some recent EU competition decisions against U.S. respondents lack merit (in one of those cases, the EU General Court recently agreed with me), and

  • have been criticizing the Commission's reluctance to take action against Nokia,

it's overly simplistic and sometimes just propagandistic to cry wolf over protectionism each and every time Mrs. Vestager and the Directorate-General for Competition (DG COMP) investigate a U.S. company or fail to take action against a European industry player. It depends. Sometimes it's actually true, such as in the Nokia case, though the politician to blame for inaction in that context is EU fake news commissioner Thierry Breton. But there are cases in which it's not the real issue, and I see some initial indications of a strong case against the case against my non-friends at SAP.

Politico--to be clear, I'm not attacking that publication--reported on allegations (also found elsewhere) that Mrs. Vestager had a conflict of interest with respect to SAP. This is different from the situation in October 2019, when I actually disagreed with the focus and message of a Politico article on the automotive component-level standard-essential patent (SEP) licensing issues involving Nokia and, by short extension, Ericsson. A few weeks later I met Politico's Thibault Larger in Brussels and we understood each other's positions quite well; I also apologized should my post have appeared to insinuate anything improper or unreasonable on Politico's side.

At the heart of those complaints against SAP--one was lodged with the Bundeskartellamt (Federal Cartel Office) in 2018, and another with DG COMP--is some customers' disagreement with SAP's policy that it charges for how its software is used, which often involves third-party applications. The complainants--a group named VOICE including the likes of Siemens and Volkswagen--argue that the 2009 EU directive on the legal protection of computer programs (summary) protects interoperability to the extent that SAP couldn't do that. With my combined IP and antitrust background, I can't help but find that argument not only spurious but downright nonsensical.

What the directive in question actually refers to is the decompilation (a step that is typically at the beginning of a reverse-engineering effort) of program code. If a certain set of conditions are met, the right holder's ability to enforce copyright may be limited for interoperability's sake.

There's no such theory in Europe as copyright misuse, which is a very American concept. SAP is free to define the terms of its copyright licenses, even if those terms make whatever reference to third-party products--unless there's an antitrust violation, and the aforementioned directive explicitly says that it's not meant to restrict competition enforcement. At the same time, I can't find anything in that directive that would lower the hurdle for establishing an antitrust violation, contrary to what the complainants say.

They acknowledge that there are alternative Enterprise Resource Planning (ERP) offerings by world-class vendors such as Microsoft (way bigger than SAP, not in the ERP market, but genrally speaking) and Oracle (whose relational database management system powers most SAP installations). But they argue there's a lock-in (it's too costly to switch), and that the others are just as bad. So what do they want to make? A collective-dominance case? It's not clear from what they say publicly.

About ten years ago, I raised concerns over many customers' lock-in into IBM's mainframe technology. But here, it does appear that there are successful migration case studies. All that the VOICE group alleges is that switching costs are so high "that no [chief information officer] would survive" such a decision. What's different from the IBM mainframe case (in which the EU, by the way, ultimately did nothing) is that SAP isn't really doing anything that would make it harder for Oracle or Microsoft to compete in the ERP market--at least I can't find any such allegations on VOICE's part.

Pollitico quotes anti-SAP blogger Shaun Snapp as saying that the general counsel of a typical SAP customer has "no clue" about the exact meaning of the terms of a software license agreement. I don't think antitrust law is meant to make up for the shortcomings of in-house legal departments.

Another argument from the same source comes down to making the exploitation of a lack of sophistication a violation of competition law: SAP offers combination discounts, and according to Mr. Snapp, the average SAP customer's "procurement team [which chooses the vendor] only cares about getting the price down."

I'd have to find out more about the complaints to be able to comment on market definition and the allegations of abusive conduct in more detail. But what they've made public so far is pathetic.

I do wish to stress that copyright is far narrower in scope than patents, so it's simply not like the way SAP factors the use of third-party products in when determining a license fee could in any way be compared to, say, SEP abuse by Nokia and its partners in crime. What Nokia does has very negative implications for automotive suppliers and their direct and indirect customers all the way down to consumers--and those who will likely suffer the most, though they're far smaller and therefore in a weaker position, are all those Internet of Things startups that face shakedown after shakedown from SEP holders. But that's because patents are broad, and a SEP doesn't even have to be broad: just by virtue of being essential to a standard, it can keep someone out of a market (if an injunction gets enforced).

I'm not saying that no one could ever violate the antitrust laws through copyright assertions, but it's like 1,000 or 10,000 times harder to do on that basis than with patents, especially with standard-essential patents, and the allegations those SAP customers make in public fall far short of persuading me that SAP needs to be investigated by the European Commission or the Federal Cartel Office of Germany. I may comment on this again on some other occasion.

In the automotive SEP licensing context, Mrs. Vestager need not feel any conflict of interests: on the bottom line, the digitization of Europe's economy would benefit from component-level licensing, not only with a view to the automotive sector but also considering IoT, so even if it had to happen over Mr. Breton's objection, the Commission should take action, which is overdue now that the fourth SEP injunction has come down against Daimler since mid-August. In the SAP (by coincidence, a difference of just one letter vs. "SEP") context, it appears to me that there simply may not be a case to begin with. Rejecting those complaints is probably just a reasonable application of competition law, as opposed to an inhibition to go after a "European champion."

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Monday, November 2, 2020

Lenovo wins, Nokia loses in Munich appeals court: patent-in-suit most likely invalid, FRAND issues *may* exist on top

On Friday (October 30), the Munich I Regional Court (Landgericht München I) ordered its third standard-essential patent (SEP) injunction in the same calendar month, and the second against car maker Daimler over the course of eight days. Each of these decisions was based on the same clearly erroneous application of the Court of Justice of the EU's Huawei v. ZTE guidance, and each came with a determination of a negligible security amount that is an insult to human intelligence and calls into question whether the rest of the world should take any Munich patent decision seriously anymore or just attribute it to some judges' burning desire to attract patent infringement complaints to their venue, no matter the damage to device makers and to innovation itself.

But the tide may turn. At least there is hope based on certain dicta of an order by the Munich appeals court.

Today Lenovo's public relations agency sent out a press release (which others have already quoted) according to which the Munich Higher Regional Court (Oberlandesgericht München) has granted the computer maker's motion to stay the enforcement of the H.264 video codec SEP injunction Nokia had obtained on October 1 and which the Finnish company (whose products were way too bad to stay competitive in the consumer electronics market) had recklessly started to enforce a couple of weeks ago.

What is known about the Munich appeals court's decision is that the panel (Presiding Judge: Konrad Retzer) concluded unusually quickly that the lower court's ruling most likely cannot stand. Unlike in the United States, where the enforcement of an injunction may be stayed if the defendant establishes irreparable harm and generates significant doubt about whether the court below got it right, the standard in Germany is pretty one-dimensional: short of the possibility of a company going bankrupt, only the likelihood of success on the merits determines whether a motion for an enforcement stay is granted.

The lower Munich court even states in a document outlining its Patent Local Rules that it strives to satisfy patentees' demand for swift injunctions without previously staying case pending a parallel validity determination in another forum. But in this Nokia v. Lenovo case, the patent-in-suit appears to extremely likely to be invalidated that the Munich appeals court based its decision to stay the enforcement of the injunction just on the lower court's abuse of discretion with respect to its ignorance of the high likelihood of invalidation.

The appeals court no longer had to reach any other questions (infringement and FRAND) in order to resolve the motion for an enforcement stay. But as the same court has done in some other contexts, it did elect to comment on infringement and, which has ramifications for various automotive SEP cases, write a few more pages about FRAND.

I haven't been able to obtain a copy of the decision yet (will keep on trying, of course). What I have found out is that the Munich appeals court is full well aware of that its counterparts further up north--the Karlsruhe Higher Regional Court (which hears all patent appeals originating from Mannheim) and the Dusseldorf Higher Regional Court--have applied Huawei v. ZTE to the effect that a SEP holder who fails to make a FRAND-compliant licensing offer is not entitled to injunctive relief regardless of the implementer's counteroffer. By contrast, the Munich I Regional Court's recent SEP injunctions were all based on a holding that the respective implementer was an unwilling licensee, without a full-blown assessment of the SEP holder's original offer.

The Munich appeals court has not indicated whether it intends to overrule or affirm the lower court in that particular regard. But it does realize that affirmance would result in what is called a circuit split in U.S. appellate law.

Even if the Munich Higher Regional Court opted for a circuit split, it might still reverse the lower court's FRAND stance in one or more other respects, which could open the door to successful FRAND defenses.

The question now when and in what case the Munich appeals court will ultimately have to address the questions it outlined in Friday's order:

  • Lenovo can avert the continued enforcement of Nokia's injunction by posting security to the amount of approximately $5 million, affording the computer maker the opportunity to further litigate this case. But there is a potential risk of any of the four other Nokia v. Lenovo cases forcing the latter into a settlement. Nokia lost its first case (of six) in Mannheim, now won in Munich, and has four more cases pending, with decisions expected in the coming months.

  • Daimler is seeking an enforcement stay of both Conversant's and Nokia's Munich injunctions. Presumably, the two patent trolls (Nokia is one with respect to Daimler as it never made cars and isn't even in the user equipment business anymore) will soon enforce their injunctions against Daimler. The car maker will then depend on the Munich court acting about as swiftly as it did in the Lenovo case. If those cases can be stayed on other grounds (such as validity), FRAND won't be reached, but at some point it probably will be--unless Daimler settles again, like it did with Sharp.

Nokia is now sitting on two injunctions it can't currently enforce: one against Daimler that it won in Mannheim in August but with respect to which the Karlsruhe Higher Regional Court is weighing a motion for an enforcement stay, and the Munich injunction against Lenovo.

Nvidia intervened in support of Lenovo, and one of Lenovo's defenses is that Nokia owes Nvidia an exhaustive component-level SEP license, which would cover Nvidia's customer Lenovo by extension. Component-level licensing wasn't relevant at this procedural juncture, but may become key further down the road in the Nokia-Lenovo dispute. It certainly does play a major role in the Daimler SEP cases, and on next week's Thursday the Dusseldorf Regional Court will most likely (based on what Presiding Judge Sabine Klepsch indicated at the trial in early September) refer to the Court of Justice of the EU certain questions concerning component-level access to SEP licenses. That may make it much harder for Nokia and Conversant to enforce their SEP injunctions against Daimler, depending on how the various regional appeals courts will rule on motions for enforcement stays once such fundamental questions have been submitted to the Luxembourg-based top court of the EU.

Apart from the FRAND defense, another problem badly needs to be addressed in Munich: the lower court has recently determined security amounts based on the patentee's royalty demands as opposed to the actual harm to a defendant's business. In this particular Nokia v. Lenovo case, the appeals court no longer needs to deal with that part as the injunction has been stayed for the duration of the appellate proceedings.

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Friday, October 30, 2020

Fourth patent injunction against Daimler in 11 weeks as Munich I Regional Court sides with Nokia in 3G SEP infringement case

There's no Happy Halloween for Daimler and its counsel, and the reason is not even COVID.

The notorious patentee-friendliness of certain German courts is regrettable, and an increasing burden on the country's economy. But let there be no doubt about the fact that the patent litigation firm of Arnold & Ruess has done some first-rate work for Nokia against Daimler. Today the team led by Cordula Schumacher and Dr. Arno Risse ("Riße" in German) obtained its second injunction against Daimler as the Munich I Regional Court held the Mercedes maker to infringe German patent DE60240446C5 on a "hybrid automatic repeat request (HARQ) scheme with in-sequence deliver of packets" (case no. 21 O 3891/19). The 21st Civil Chamber of the Munich court (Presiding Judge: Tobias Pichlmaier) had not indicated an inclination at the late-July trial.

On August 18, 2020, the Mannheim Regional Court found for Nokia in another standard-essential patent (SEP) infringement case against Daimler; that injunction hasn't been enforced and possibly never will be.

Several other Nokia v. Daimler cases have been put on hold over doubts concerning the validity of the patents-in-suit. Should any of those patents survive without being narrowed out of the scope of the specifications of the relevant cellular standard, they'll do even better.

Meanwhile, I'm wondering when Quinn Emanuel will get tired of losing. In the 11-week period between the aforementioned defeat in Mannheim and today's Munich ruling in Nokia's favor, Daimler and QE also lost two other cases as the Munich I Regional Court's 7th Civil Chamber (Presiding Judge: Dr. Matthias Zigann) granted Sharp an injunction against Daimler (which triggered a settlement, see 1, 2), as did the 21st Civil Chamber in a Conversant v. Daimler case just one week ago. That's four German SEP injunctions over the course of only two months and a half.

Daimler and QE could take comfort in the fact, however, that computer maker Lenovo also lost in Munich (against Nokia, but over a codec--not wireless--patent) on the first day of the month.

Three high-profile SEP injunctions (Nokia v. Lenovo, Conversant v. Daimler, and now Nokia v. Daimler) clearly make Munich by far the most attractive venue for plaintiffs, and the court is damn proud of that fact (as I noted in my report on the presentation of the results of a survey, I don't think the "evaluation" of the court's performance does the judges justice because their technical and legal competence is not an issue--only their pro-patentee application of the law is).

Just like in the Conversant case, but with far higher stakes (and so much more time and money having been spent on the Nokia dispute), Daimler now needs the appeals court to stay the enforcement of this injunction. The prerequisite collateral (for enforcement during the appellate proceedings) of little over $20 million is easily affordable to Nokia while the actual damage to Daimler would be in the billions of dollars per year. And as I noted in the Conversant context, Daimler could be roughly six weeks closer to a decision by the Munich appeals court that might set the record straight at least on the proper security amount, if not also on the application of the CJEU's Huawei v. ZTE case law, if not for Daimler's inexplicable decision to settle with Sharp in the summer.

This is now a race against the clock. We're only 13 days away from a highly likely referral of key component-level SEP licensing questions to the CJEU. The Dusseldorf Regional Court will announce its decision on November 12, and I'm extremely optimistic about what's going to happen there. But that referral doesn't automatically trigger a stay of all other cases. It may, however, bear substantial weight with the Munich Higher Regional Court. Additionally or alternatively, it would also help Daimler if the Munich appeals court simply set a reasonable security amount (i.e., in the billions of euros).

Almost two years ago, Daimler filed an EU antitrust complaint against Nokia that hasn't gone anywhere. Nokia has been able to count on support from the EU's internal market commissioner Thierry Breton even to the extent that he would spout total nonsense. But Daimler is apparently such an old-fashioned, poorly-run company that they don't even know how to press an antitrust case in Brussels. I've seen antitrust amateurs who are better at this game than them, any day of the week.

Daimler is also one of the three companies responsible for the most stupid strategic misstep in the ongoing German patent reform process, so they'll have no one to blame but their own incompetence for the German patent injunction problem probably not getting solved anytime soon. In that context, one of their key competitors, BMW, made the mistake of joining them. That's another very old company that appears unfit for the Digital Economy. There are days when I feel very un-German. Today is definitely one of them. I don't think anyone can help certain companies. They're losers and they don't even realize to what extent that is their own fault.

If I find anything in the court's written decision, which will be handed down early next week, that sets this case apart from the Conversant case, I'll write about it. But the outcome suggests the issues were just the same, except that Nokia, unlike Conversant (and previously Sharp), hasn't granted an exhaustive component-level SEP license to Huawei.

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Thursday, October 29, 2020

The lemmings of patent injunction reform: Microsoft, BMW, Deutsche Telekom joined ip2innovate during German reform process

Political decision-making processes tend to be so complex that it's often very difficult to identify a clear causation between what went wrong and why. In connection with Germany's patent reform, which has been carefully crafted by the country's government to change almost nothing at all (see my initial reaction to yesterday's official legislative proposal), one can infer from publicly-accessible documents that the Brussels-based ip2innovate lobby group (Google, Daimler, SAP etc.) committed the colossal blunder that most likely condemns the reform effort to fail. "Be careful what you wish for." IP2I advocated the term "Einzelfall" that is now the central term that will render the reform ineffectual because the government's official legislative rationale clearly defines it as "hardly ever happens." Now the losers are trapped in a no-through one-way street as they can't lobby against their own proposal. They dug their own reform's grave.

Germany's leading information & communications technology news site, Heise online, quotes my analysis in an article on yesterday's legislative proposal, including my criticism of IP2I's lack of strategic sophistication. For what I know, however, chip makers Nvidia and Intel, while they're longstanding IP2I members, can't be blamed for the "Einzelfall" crap.

Were IP2I only a fringe group of the patent reform movement, the others could still combat that "Einzelfall" term effectively. But birds of a feather flock together, and lemmings famously follow other lemmings. With the sole exception of Volkswagen (the whole group including subsidiaries like Audi and Porsche), IP2I's membership directory lists practically every large German organization that demands injunction reform.

Over the course of this year, the misguided IP policy groups of three large organizations--two of them among Germany's largest corporations--joined IP2I:

  • Microsoft,

  • BMW, and

  • Deutsche Telekom.

Deutsche Telekom's IP department habitually hurts the company's interests. They even contributed their cellular standard-essential patents (SEPs) to the abusive Avanci pool. They might have found it convenient, and maybe they thought it was "cool" to join some large patent holders in a pool, but Avanci is all about driving up licensing costs, which runs counter to Deutsche Telekom's interests. Also, Deutsche Telekom is still the only company known to have made a huge royalty payment to patent troll IPCom. They could have avoided it by simply insulating their then-outgoing CEO from the potential fallout from IPCom's patent assertions against him. Instead, they paid hundreds of millions of dollars at a time when Nokia and HTC were actually defending themselves very successfully against that same patent portfolio. Deutsche Telekom also has a reputation for having caved to other patent holders in situations in which many others wouldn't have done so.

As I already noted yesterday, Deutsche Telekom might benefit to some degree from the fact that the reform bill makes harm to third parties a factor. In Dusseldorf that might help; in Munich and even in Mannheim, it most likely won't. Those courts will tell them to take a license. If patent holders seek injunctions that threaten to shut down Deutsche Telekom's network, it's just a means to an end. The end is a costly license deal; leverage from an injunction is the means. So those patent holders will make a licensing offer, and the courts will then tell Deutsche Telekom that the harm they suffer isn't irreparable: they don't have to switch off their network infrastructure as they can take a license. I already explained based on the January draft bill how this would work.

The world's top three smartphone makers--Apple, Samsung, and Huawei--are notably absent from IP2I's membership directory. They have to defend themselves against German patent infringement complaints all the time. In order for them to be in a better position, the hurdle for a useful injunction reform statute would be considerably higher than for Deutsche Telekom (which can at least argue that third parties depend on access to its network) and German car makers, which have substantial manufacturing operations that would be susceptible to a German injunction. Again, I believe even Deutsche Telekom and those automotive companies will ultimately just be coerced into taking licenses on unreasonable terms. But at least they have far more of a hardship argument than foreign companies that export their smartphones and similar devices to Germany.

As foreign companies with limited head counts in Germany, those three would have found it difficult to make much of an impact. If Huawei had joined, it could even have been counterproductive, considering that those opposing reform (such as Nokia) would presumably have tried to politicize the debate.

Whether Apple and Samsung should have done more, in quantitative as well as qualitative terms, is a question those companies will answer for themselves when this reform process is over. Where the process stands today, the most likely outcome is that they'll just spend more money on proportionality arguments (lawyers, experts) but those suing them will have basically the same leverage in negotiations as today. There's an asymmetry here: patent trolls, or companies that practically behave like trolls by suing companies they're not competing with, only stand something to gain, and nothing to lose. They typically wield portfolios, not individual patents, and they can sue in three or more different German venues as they need leverage in only one of them.

This is frustrating to watch. It must be far more frustrating for companies to find themselves on the receiving end of those lawsuits. I warned many of them a year ago, and earlier this year. I told them what was going wrong, and how they'd have had to fix it. There was some hope last month because the previous draft looked like the government had made concessions on the statute and simply hadn't updated the legislative rationale yet. Now that the legislative rationale suggests it's easier to spot a pink elephant in your garden than a German patent case in which an injunction would be denied over proportionality considerations, and with most reform advocates being bound to IP2I's misguided March 2020 submission proposing "Einzelfall," it's extremely hard to imagine a turnaround.

Besides IP2I, there's only one other major industry group pushing for reform, and that's the VDA (German automotive industry association). They have members such as Bosch that prevent them from taking really strong positions, and they lack IP policy expertise at the staff level. So it would be a surprise if they could solve the problem IP2I has created.

I'm quite sure I'll point to yesterday's posts as well as this one many times in the coming years whenever some high-profile German patent injunctions come down or the possibility of such injunctions forces companies into license agreements. I'll be looking out for that pink elephant, and maybe I'll spot one once every while, but I won't blame the judges for what is the only reasonable interpretation of this statute in light of the official commentary: you normally don't even have to conduct a full-blown proportionality analysis because defendants will fail to distinguish their situation from that of any other defendant who has the choice of simply taking a license.

Before the Bundestag (Federal Parliament) formally receives the bill, the Bundesrat (Federal Council) will analyze the proposal and make an official statement that is going to influence the parliamentary process. Chances are that the Federal Council will either say that even this reform proposal goes too far or that it's acceptable but will warn against seriously restricting access to patent injunctions. Some conservative politicians in the Federal Parliament will almost certainly prevent any impactful reform from being passed into law, and time is on their side as the end of the legislative term is approaching (and COVID complicates everything).

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Wednesday, October 28, 2020

Qualcomm's next home run: Ninth Circuit denies FTC's petition for rehearing of antitrust case

See, I told you so. NOT. I have a high hit rate (including with respect to both the FTC v. Qualcomm district court decision and the appellate opinion), but I must admit I wasn't on the money in the en banc context. Given the high profile of the FTC v. Qualcomm antitrust case, I was actually optimistic that the Federal Trade Commission's petition for a rehearing en banc would succeed (while I expressed skepticism regarding the prospects of a better outcome for the FTC). It was obvious that the three-judge panel or a majority thereof was going to stand by its ruling, but I thought some other circuit judges would be interested in rehearing the matter. This morning the Ninth Circuit denied the FTC's petition (which had drawn some support from amici curiae, even including Tesla), and it gave it short shrift as no judge even wanted to hold a vote on whether or not to conduct a rehearing en banc (this post continues below the document):

20-10-28 9th Cir. Denial of... by Florian Mueller

Now the FTC will have to decide whether to file a petition for writ of certiorari (request for Supreme Court review). It's quite possible that the FTC's 3-2 majority in favor of the petition for a Ninth Circuit rehearing (consisting of the Republican chairman and the two Democratic commissioners) would also authorize a cert petition. But six of the nine justices are conservatives, three of whom were nominated by President Trump, and they would see that the Trump Administration backed Qualcomm in this dispute. They would likely also take note of the fact that two of the three judges on the Ninth Circuit panel were conservatives (and the third was a relatively conservative-leaning Democrat). But the Supreme Court also has a history of fixing issues with the patent system, particularly with the overleveraging of patents and the patentee overcompensation it leads to. That is not a partisan question, though antitrust law often is. I remember Senator Klobuchar (D-Minn.) lamenting the Supreme Court's restrictive application of the Sherman Act in a statement she made at Justice Barrett's confirmation hearing.

Relatively speaking, I'd have had more hope for the FTC with respect to a Ninth Circuit en banc. But I was too bullish then, so who knows, I may just be too bearish now.

The next major patent-related antitrust case that could reach the Ninth Circuit--and possibly even the Supreme Court--in the near term is Apple & Intel v. Fortress Investment et al.. I blogged about Apple and Intel's opposition to Fortress's second motion to dismiss earlier today and mentioned that FTC v. Qualcomm affects that one. In that particular context, it's definitely bad news for Apple that, for now at least, the panel opinion in FTC v. Qualcomm is controlling Ninth Circuit law. But in Epic Games v. Apple, it may actually help the iPhone maker. That's how it goes.

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Apple and Intel defend their amended complaint against Fortress patent troll conglomerate, announce further allegations of FRAND abuse

With respect to its App Store terms and policies, Apple is now arguably the most prominent antitrust defendant in the tech universe. Simultaneously, Apple is pressing antitrust charges--through private litigation--particularly in connection with abusive patent-leveraging practices. While the issues are very distinct, having the shoe on one foot today and on another foot tomorrow requires Apple, which is represented by different law firms (Wilmer Hale against Softbank-owned Fortress Investment, Gibson Dunn and Orrick against Epic Games and various class action plaintiffs), to espouse a more flexible approach to antitrust enforcement in one context than in the other. Case in point, a Ninth Circuit panel's wholesale acquittal of Qualcomm took a more restrictive and limiting perspective on how to apply the antitrust laws (particularly--but not only--in connection with patents), and the panel opinion contained legal statements that Apple can and does cite to as it defends itself against Epic, but complicate matters in its joint case with Intel against Softbank's Fortress.

In the summer, San Francisco-based Judge Edward M. Chen of the United States District Court for the Northern District of California granted Fortress's first motion to dismiss Apple and Intel's complaint, but also allowed the plaintiffs to amend the complaint. The absolute low of the Trump Administration's involvement with patent policy was when the Department of Justice intervened on behalf of that foreign-owned patent troll group that has been bringing many dozens of vexatious lawsuits against not only Apple, but also others, notably Google. That was the very opposite of "Make America Great Again." It was anti-American, and unfortunately the matter doesn't have the prerequisite high profile that lawmakers would have raised questions (plus, there are some Democrats on Capitol Hill who are beholden to the world's patent trolls, such as "Looney Coons").

Apple and Intel amended their complaint, and Fortress--not unexpectedly--brought a renewed motion to dismiss, on which the court will probably decide in December. Fortress alleged that Apple and Intel had failed to cure the deficiencies identified by the court in its order to dismiss without prejudice.

Last night, Apple and Intel filed their opposition to Fortress's second motion to dismiss (this post continues below the document):

20-10-27 Apple-Intel Opposi... by Florian Mueller

The #1 question here is market definition--which is just as essential to antitrust law as claim construction is to patent law. Fortress claims Apple and Intel's amended complaint still lacks the prequisite specificity, and the DOJ had also focused very much on that one earlier this year. But Apple and Intel point to how much more detailed their amended complaint is (it's 77 pages longer than the original complaint), and that it's now not just about an "Electronics Patents Market" but about 13 patent markets. And what will likely benefit Apple and Intel in this regard is that Judge Chen's order on the first motion to dismiss had states that the law doesn't require an absolutely clear-cut market definition in cases where there are very specific allegations of anticompetitive effects. "Rough countours" of a market have been deemed sufficient in such cases.

If the amended complaint survives, Apple and Intel wish to amend it as one Fortress subsidiary, VoiceAge EVS, sued Apple just after the filing of the amended complaint (no coincidence if you ask me) over five LTE patents. Apple and Intel say that the related patent transfer was made in an effort to circumvent FRAND licensing obligations.

Apple & Intel v. Fortress is not only about standard-essential patents (SEPs). Most of Fortress's lawsuits are about non-SEPs. But when Apple joined Intel (which had previously brought a complaint, but withdrew it in order to refile together with Apple), SEP-related allegations became part of the case. In that context, the Ninth Circuit's FTC v. Qualcomm panel opinion is particularly unhelpful, but the issues in the Fortress case aren't exactly the same. For instance, never did the FTC (or Apple) allege that Qualcomm sought to evade FRAND obligations by means of patent transfers.

Two organizations have filed amicus curiae briefs in support of Apple and Intel's opposition to the motion to dismiss: the Fair Standards Alliance (FSA) and ACT | The App Association. Apple and Intel are members of the FSA, and corporate sponsors of ACT. ACT claims to have thousands of smaller companies as members, though it's another question how strongly involved and committed those "members" really are, given that many years ago a professor and former White House technology policy adviser (under Clinton) told me he just filled out a web form and was accepted--no payment or anything. Also, for a long time ACT used to promote the interests of patent holders, not those of implementers. By contrast, the FSA has several dozen corporate members, of different sizes but all of them significant and some of them among the world's largest tech companies (such as Microsoft and Google). The FSA has been very consistent about SEP policy. Fortress didn't want the FSA to file an amicus brief, at least not without getting to review it beforehand, but the FSA has now filed a motion for leave and I guess the court will grant it (the document below contains both the motion for leave to file and the actual amicus brief):

20-10-27 FSA Amicus Curiae ... by Florian Mueller

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