Wednesday, April 8, 2020

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

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

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

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

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

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

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

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

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

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

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

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

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

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Monday, April 6, 2020

Munich I Regional Court postpones Nokia v. Daimler patent ruling from April 9 to May 20, 2020


In light of the coronavirus crisis, I double-checked with the Munich I Regional Court's (Landgericht München I) press office and found out that the Nokia v. Daimler standard-essential patent ruling scheduled for this week's Thursday (April 9) has been pushed back to May 20, 2020.

The court did not cite any particular reason for the postponement. A postponement of a ruling date is not unheard of in complex cases, and this is a big one in every respect. It's always better if courts take their time than to rush to judgment.

Without speculating on whether this has anything to do with corona, it's simply a fact that the Free State of Bavaria has not imposed any new restrictions in more than two weeks. The current rules (social distancing, partial lockdown) will be in force until at least April 19, 2020. Presently, courts can hold hearings and trials they deem time-sensitive, and they are free to announce decisions, with the presiding judge of a given panel determining courtroom modalities such as a minimum distance to keep between any two persons.

What's more relevant now than court-internal reasons is the impact on parallel proceedings in other places. This gives the European Commission's Directorate-General for Competition (DG COMP) more time to decide on whether to launch formal investigations into Nokia's refusal to license automotive suppliers. DG COMP resumed its preliminary investigations last month after a couple of rounds of mediation had failed.

DG COMP won't necessarily be the only competition authority in the world to take a closer look at this in the near term.

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How many times can a patent holder violate EU antitrust law in a single litigation? (Nokia v. Daimler)

Last week the Munich I Regional Court's press office confirmed to me that the Nokia v. Daimler ruling scheduled for this week's Thursday (April 9) had not been postponed. The government of the federal state of Bavaria has not imposed any additional corona-based restrictions since. From what I hear, Presiding Judge Dr. Matthias Zigann is the only member of the court's 7th Civil Chamber to go to the courthouse almost every day, while his side judges are working from home. German courts have sometimes postponed patent rulings on very short notice, but for now the operating assumption is that a decision (which may or may not be a final judgment) will come down on Thursday.

With the automotive industry being hit so hard by the coronavirus crisis, Nokia's pursuit of an injunction--while there are plenty of willing licensees (Daimler and a number of suppliers)--is ethically questionable, though there is a possibility of the injunction not having immediate effect in practical terms. So much for corona and ethics; let's also not talk today about the enormous strength of Daimler's invalidity contention, or about proportionality under Art. 3 IPRED and its political ramifications (a Nokia "win" on Thursday--an injunction against entire cars over one of thousands of tiny features of a single cellular standard--would give the whole German patent reform debate new impetus). Now I'll just focus on the antitrust implications of what might happen.

If Nokia obtained and enforced that injunction, it would likely set a new record in the number of EU antitrust violations a patent holder can commit in connection with a single patent infringement case...

The Court of Justice of the EU made it clear in Huawei v. ZTE that a standard-essential patent (SEP) holder violates Art. 102 TFEU (the abuse-of-dominant-position paragraph of EU law) by refusing to grant a FRAND license to an implementer. A license is a license, and not a "have made" right or a contractual arrangement under which a component maker merely becomes a payment processor for the car maker.

There's a number of implementers in that Nokia v. Daimler case whom Nokia has refused to license, yet it seeks to shut down products containing their components. At a minimum:

The six companies I just listed are intervenors in the Munich case. There's even a seventh intervenor: Renault, which makes a car for Daimler. Presumably Nokia is not unwilling to license Renault as it makes entire cars (even when wearing the hat of a Daimler supplier), so in order to know whether Nokia violated the antitrust laws with respect to Renault, one would need to know the status of licensing negotiations between those two organizations. It's hard to imagine that Nokia would want a lower per-unit royalty from Renault than from Daimler, so there likely is another violation, albeit one that requires a quantitative analysis.

So there are six or seven antitrust violations in the vertical supply chain. But Nokia also appears to be violating EU antitrust law with respect to Daimler even if one ignores the suppliers for a moment as the CJEU held in Huawei v. ZTE that the only scenario in which a SEP holder steers clear of an abuse of a dominant position under Art. 102 TFEU involves the combination of two factors, neither of which is present in this case (click on the image to enlarge; this post continues below the image):

Nokia wants the Munich court to interpret the above paragraph in an absurd way. The top EU court said that a SEP injunction is warranted only after a SEP holder made a FRAND offer while the implementer failed to make a good-faith counteroffer. (A blatantly non-FRAND counterproposal would not suffice to avert an injunction.)

The CJEU gave implementers two chances to avoid being enjoined: they can show that the SEP holder's offer was not FRAND, or they can make a diigent good-faith counteroffer without delaying tactics. They can also meet both criteria at the same time, but they don't have to.

Countless articles have been authored on Huawei v. ZTE. I'll just give one example written by a major U.S. law firm (Morrison & Foerster):

"Only if the SEP holder has followed those steps and the alleged infringer continues to use the SEPs in question, and fails to make a FRAND counter-offer and provide security, may the SEP holder seek an injunction. Otherwise, doing so may constitute an abuse of the SEP holder’s dominant position [...]"

In the February trial, the court showed an inclination to agree with Nokia because "the SEP holder hasn't committed any wrongdoing if its own offer is FRAND." That's wrong, however. The CJEU ruling means that the SEP holder commits a wrongdoing either by not making a FRAND offer or by failing to continue to negotiate despite a diligent, good-faith, timely response by the implementer. One could also simplify it like this: if the SEP holder's offer is not FRAND, that's a violation, end of story; but even if it is, the SEP holder can still violate EU antitrust law by rejecting a FRAND counteroffer.

Nokia seeks to convert the two hurdles for SEP holders into two opportunities for them. In order to achieve this, they effectively suggest that Europe's highest court is inarticulate: in the world according to Nokia, "and" doesn't mean "and" when "or" suits Nokia's agenda, as if the judges in Luxembourg didn't know what "and" means.

The "and" in question has a blue background in the screenshot further above. Three L's way against Nokia's attempt to turn the CJEU ruling on its head: language, logic, and layout.

"And" means "both of." So much for the language.

"And" is a logical conjunction.

From a linguistic and logical point of view, it's made even clearer by the fact that the second one of the two parts makes reference to the first by saying "that offer" (I put a green rectangle around the relevant occurrence of "that" in the screenshot). "[T]hat offer" is the SEP holder's initial offer, and interpreting the second part as if it (more precisely, the implementer's failure to fulfill its obligations under it) could independently legalize a SEP injunction simply pulls the rug (the precondition of there already being a FRAND offer on the table) from under its feet.

Finally, the text layout would make the logical conjunction clear in its own right. In the screenshot, I applied an orange background color to the words "as long as," and a blue one to "where" a few lines below. Nokia's suggestion that the SEP holder could meet either the first or the second criterion is also nonsensical because "as long as" is before a colon followed by two bullet points, while "where" comes after the second of the two bullet points. If the two bullet points were alternative requirements for Nokia to satisfy (as they aren't anyway, for the reasons explained before), "as long as" would have to come after the first bullet point (just to the left of "prior to bringing that action"). But in the CJEU's ruling, "as long as" simply ranks higher than "where," so the two just can't be considered interchangeable.

Seeking an injunction against a willing SEP licensee constitutes only one antitrust violation vis-à-vis a given party. But here, Nokia is practically doing so against seven or eight parties. And against one of them--Daimler--Nokia is apparently violating Huawei v. ZTE even twice as it (i) seeks an injunction despite Daimler having given a diligent, good-faith, and timely response, while (ii) Nokia is demanding a fairly high multiple of the per-unit royalty from Daimler that it gets from major smartphone makers. That higher per-unit fee is even more discriminatory when considering that people use smartphone connections for far more hours per day than their cars are online (while one must not actively use a smartphone while driving, virtually no one turns it off either, so the period during which a smartphone has a cellular connection is pretty much a true superset of the hours when the car is connected).

Anything could happen on Thursday. In some other courts I'd offer a 90% prediction that the case would be stayed over serious doubts concerning the validity of the patent-in-suit. In that regard, Munich is "special" because the court rarely stays cases. But Munich, too, is part of the EU.

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Friday, April 3, 2020

Today is the 10th anniversary of the launch of FOSS Patents--and here's a Microsoft patent threat from 2004 no one reported before

Ten years ago to the day, the first FOSS Patents blog post went live. (In the table of contents on the right side you can also find an entry for January 2010, but that one was added subsequently--and backdated so the contact form would be listed behind all of the actual content.)

When I talk to readers at courthouses or on other occasions, I realize most people don't even know what the "FOSS" stands for. That means Free and Open Source Software, a "politically and philosophically correct" term that describes both persuasions of the same movement. At the outset, the idea was indeed to focus on patent threats and assertions against open-source programs such as Linux. I always viewed the Open Invention Network (OIN) very skeptically as it appeared to part of the problem to a several times greater extent than it was part of the solution. And I was aware of some threats no one had reported on at the time. In fact, there is one that I hadn't written about in the more than 16 years since it was made, but with so much water under the bridge by now--and with Microsoft being a member in good standing of the open-source community these days--I'm going to reveal it on this occasion:

In early 2004, Microsoft's patent licensing department contacted MySQL AB, the originally Finnish-Swedish and, at that time, heavily Americanized open-sourced database company (whose CEO I was advising at the time). What Linux was in comparison to Windows, MySQL was to Oracle, Microsoft SQL Server, and IBM Db2. The term isn't used much anymore, but back then the "LAMP Stack" meant Linux, the Apache webserver, the MySQL database, and one of the P languages (mostly PHP, with a few people using Perl, or even Python): an open-source technology stack powering more websites than any other comparable configuration. MySQL had risen to popularity alongside Linux. It was a symbiotic relationship. Microsoft, of course, favored Windows + Internet Information Server + SQL Server + Visual Studio (C# or Visual Basic).

What Microsoft--and again, the Microsoft of then is not the Microsoft of now when it comes to these types of issues--told MySQL (a company that had received tens of millions of dollars of venture funding while Microsoft already had roughly 10,000 times greater resources) was that they claimed to hold a patent that covered functionality at the very core of the MySQL database engine. From a software development perspective, a database engine is a relatively monolithic (as opposed to modular) thing. If someone asserted a patent against the basic architecture of your engine, it could mean that you have to almost start all over. You'd lose years.

Microsoft was clear about its demand: a 2% royalty on MySQL's (tiny) sales. Two things were not clear, however: whether Microsoft had an agenda to actually start a patent war against open source and, particularly, the LAMP Stack, so that an initial royalty agreement would not have been an amicable resolution of an IP issue but could have been the beginning of the end for MySQL and LAMP; and Microsoft declined to disclose that mysterious killer patent.

The concern I just outlined--that Microsoft would wage an all-out patent war against open source--was not merely paranoia. A Microsoft exec in charge of corporate strategy at the time had told some Silicon Valley venture investors a year or two before that "if it comes to worst with open source, [they'd] just use some of [their] patents." So what was presented as a shakedown might have been a concealed attempt at a shutdown.

Microsoft was the only company at the time to have an issue with Linux; the rest of the industry viewed Linux as a chance of liberation from Microsoft dominance. When it came to MySQL, however, two other major patent holders--IBM and Oracle--potentially had just the same strategic motivation to attack the successful startup, as those companies were pro-Linux, but faced a disruptive-innovation threat from MySQL. While that would have been a gigantic violation of antitrust law, one of MySQL's founders even feared that Microsoft, IBM and Oracle might have agreed to launch near-simultaneous patent attacks on them. And they had only a very few patents (from a smaller startup they had acquired)--likely of zero retaliatory value.

MySQL didn't accede to Microsoft's demand, and Microsoft never stepped up the pressure or sued. Part of the reason may very well have been (and in my view, most likely has been) that there were two things going on in the EU that Microsoft had to be cautious about. The European Commission going after Microsoft for its conduct in some other conduct; and the EU's legislative bodies (Council and Parliament) were working on a Directive for the Patentability of Computer-Implemented Inventions, i.e., software patents directive. Concerns by the open-source community played an important role in the political debate.

At some point MySQL was seriously considering making Microsoft's patent royalty demand public. We had already prepared a press release, and it was going to be centered around an open letter to EU policy-makers urging them to abolish software patents in Europe (though that wouldn't have solved the problem for MySQL anywhere else, and it actually generated most of its revenues in the U.S. anyway). We didn't escalate the conflict, and ultimately that was better for everyone involved.

Oddly, about five years later Microsoft actually tried to defend MySQL's independence. Oracle was in the process of acquiring Sun Microsystems, which had acquired MySQL the previous year for $1 billion. While Sun wanted MySQL's business to grow, there were reasons to assume Oracle simply wanted to control it so as to eliminate a competitive threat. Microsoft and SAP (even though mostly concerned about Java in the beginning) were the two large complainants, and MySQL's founder, Michael "Monty" Widenius, was the third complainant, with help from me. So MySQL's founder and I ended up in an alliance with Redmond about five years after we had thought Microsoft would potentially use patents to destroy it.

If not for that old Microsoft patent threat against MySQL--16 years under wraps--, I might never have gotten involved with patent policy in the first place. And I had it very much in mind when I launched FOSS Patents. At that time, I already knew that Microsoft wasn't necessarily a foe (as the Oracle-Sun merger review showed). In fact, I felt that some FOSS people, maybe because they received funding from the likes of IBM and Oracle, weren't being fair: they turned a blind eye to some other large tech companies' (especially their financial backers') questionable patent dealings and pro-software-patent lobbying, but even when Microsoft had good intentions in specific areas, they looked at whatever Microsoft did or announced like Sherlock Holmes with a magnifier glass and, if all else failed, simply made up concerns that weren't warranted. Part of the FOSS Patents agenda was to focus more on companies whose patent abuse got less attention, but "deserved" more. The first big story here was the second post ever: on an IBM threat against an open-source mainframe emulator.

This blog's focus evolved dynamically. In fact, just about four weeks before I launched FOSS Patents, Apple had filed its first patent infringement complaint against an Android device maker (HTC). Android became the most heavily-attacked piece of open-source software that year as Oracle sued Google (a case that later became only a copyright dispute as Oracle's patents failed in court), Microsoft sued Motorola, Motorola sued Apple (which countersued using largely the same patents as against HTC), and the following year Apple sued Samsung.

Of the roughly 2,300 FOSS Patents posts I've written to date (also, there were a few guests posts), roughly 63% (1,456 posts) went live in the years 2011-2013, the three years in which the "smartphone patent wars" were raging on a very large scale. By 2014 they had already subsided, and in 2014 various disputes came to a partial or complete end.

With those Android companies countersuing, my litigation reporting simply had a mobile focus (and occasionally even gaming consoles). If I had anticipated that, I'd have named the blog "Mobile Patents" or "Phone Patents."

Actually, "FRAND Patents" would have made even more sense. I already took a clear position against injunctions over standard-essential patents in 2010. And a few years later, a Research In Motion/BlackBerry lawyer accused me, after a Mannheim trial, of having "devalued" SEPs and that companies were cutting back on their standardization activities (obviously not true, as we all know now with the benefit of 2020 hindsight).

More recently, this blog has almost been an "automotive" blog, only because car makers are currently the ones that SEP holders like Nokia primarily seek to prey on.

So there's probably no point in ever renaming a blog, much less when it is as well-known as this one. I'm very grateful for having so many loyal readers, and a number of highly important people in the industry as well as in the judiciary, executive and (to a lesser degree) legislative branches of government. I really am.

There's one thing I had envisioned for the 10th anniversary that I haven't found the time for: a redesign. This blog still uses the "Blogspot" platform's original blog layout. Blogspot became Google's "Blogger" service, and undoubtedly supports more fashionable layouts. However, since I have manually entered and edited all the HTML tags here from the outset, it's a bit risky to switch to a newer layout (I ran a test and the result looked awkward)--I or someone I'd pay for it might have to go over 2,000+ posts and make countless manual adjustments. Nevertheless, it may happen later this year--certainly sometime before the potential 20th anniversary :-)

There were times when I was seriously considering discontinuing this blog, or handing it to some other organization, such as an IP-focused publishing company. But in recent years there have been some really exciting developments--and I've found a way to keep blogging while continuing to run an app development company (I'll have a new game to announce this summer).

Some of you encouraged me to keep going--even some who have rather different positions on SEPs or on patent policy in general. Thanks for that, too. I'll keep sharing my honest observations and opinions with all of you for quite some more time!

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Thursday, April 2, 2020

Component-level patent licensing and pricing has always served the PC industry well--only trolls and other SEP abusers deviate from the norm

Back in November I made a call for input regarding cases in which standard-essential patent (SEP) holders displayed the kind of behavior vis-à-vis the PC industry that we see from certain wireless patent holders with respect to smartphones and cars.

I mentioned one such example: Motorola Mobility's demand that Microsoft pay a 2.25% royalty on the end product, explicitly defined as a computer (not the Windows operating system), for implementing a video codec standard in Windows. Motorola abandoned that position in the course of litigation, but a demand letter taking that insane position had entered the public record before.

In response to my call for input, only a few other examples have been reported to me, and they confirm that it's basically just patent trolls and companies who for whatever reason behave like trolls:

  • The other such case I previously reported on is In re Innovatio: Innovatio "sued numerous coffee shops, hotels, restaurants, supermarkets, large retailers, transportation companies, and other commercial users of wireless internet technology located throughout the United States." So it was a case of a patent troll going against commercial end users, though the patents in question were implemented in a WiFi chip. While Innovatio wanted an average royalty of $3.39 per access point, the district court awarded less than ten cents per WiFi chip.

  • Alcatel-Lucent, which was later acquired by Nokia, sued PC makers Dell and Gateway, though the component at issue was Microsoft Windows: the MP3 standard was implemented in Windows. Microsoft intervened and ultimately resolved the issue.

  • Finally, Ericsson v. D-Link. Ericsson took the position that it was not required to offer a FRAND license to 802.11 chip makers (e.g., Intel, Broadcom, Qualcomm Atheros) because their products did not "fully" comply with 802.11n (only an end product could fully comply according to Ericsson's position, which is what we nowadays hear from Nokia in connection with cars). According to Ericsson, the 802.11n chips alone were not "fully compliant" with the 802.11n standard and therefore not entitled to a FRAND offer.

    Furthermore, there was testimony that in 1997-99, Lucent proposed their technology to the IEEE and suggested that their royalty should be 5% of the entire end product (not of the 802.11 component).

Those cases aside, it has always been the norm in the PC industry that patents are licensed at the ocmponent level, and that component makers are free to sell to any PC maker, any hardware distributor, any retailer, or any end user. There aren't just wireless standards. Codec standards were already mentioned above. But there's a variety of other standards such as graphics adapter standards (VGA etc.), PC bus standards, local area network standards, and random access memory standards.

No one in the PC industry--apart from rare exceptions such as the ones stated further above--ever argued that their patents on memory chips or on display standards all of a sudden became more valuable because of some added value or technological progress in other areas. No one said memory chip patents were worth more only because of a faster CPU--or a larger monitor.

The primary reason for this is simply that most PC components have been and continue to be sold not only to PC makers like Dell but also as separate parts through retailers. You can buy all PC parts separately and assemble your own PC at home; you can also add memory chips or replace a graphics adapter with a better one. That applies to desktop PCs. With portable computers it doesn't work like that. But the PC industry started with desktops, and any differences in how/where/by whom the pieces are put together never had an impact on licensing.

There are some striking parallels between cars and PCs: highly modular products. Nokia argues that it should get a per-unit SEP royalty from Daimler that is several times higher than what it gets from smartphone makers (even though end users typically use their smartphone for many more hours per day than the cellular communications functionality of their cars)--and its arguments comes down to saying that SEPs have always (which is not even true, as there are notable exceptions) been licensed at the end-product level in the smartphone industry. But that doesn't mean it makes sense for smartphones. It's circular logic to claim that a demand is resaonable because some people have been making it for some time.

A smartphone--or the comparable functionality of a car--is internally just as modular as a PC. It's just not possible to go and buy a case from this vendor, a graphics chip from another, and memory from yet another. All of that has practical reasons that are unrelated to the way standards are implemented, and the way SEPs should be licensed.

Making patents in one field of technology more expensive based on the value of everything else that's in the device (even if one can't practically "plug and play" or self-assemble like in the PC segment) is economically unsustainable. And it's easy to explain why: let's focus on only five of the many components of a smartphone:

  • W for "wireless connectivity" (which in reality is more diverse: cellular, WiFi, Bluetooth, NFC...)

  • P for "processor (CPU)"

  • M for "memory"

  • O for "operating system" (though there's also a multitude of apps)

  • D for "display"

So cellular SEPs are part of W. That W component can be found in a cheap phone ("dumbphone"), in a high-end smartphone, or in a car. A car is not even the limit: it could be an airplane or it could be installed in a building. W always does the same; should there be a difference in terms of what features of a standard are actually used, then there might be price differentiation, but no one has provided a real-world example and cars certainly don't use any features of those standards that a smartphone wouldn't use as well.

Now let's assume we have the SEP holders in the W area demand an extra $20 not because of an increase in the value of the W part in its own right, but because of everything else around it.

On that same basis, anyone holding SEPs on memory standards, display standards, the standards implemented by an operating system (such as video codecs), or standards closely related to the CPU (such as data bus standards) could also demand more money just based on all the other components, including but not limited to the wireless part.

SEP holders of the W kind would want 10% of W+P+M+O+D. If the OEM acceded to those demands instead of insisting on a reasonable royalty based on the value of the relevant component, the price would have to be raised to maintain the same level of profitability (or any profitability at all). SEP holders of the P, M, O, and D kinds would then also want higher royalties. Each and every time the OEM accepts this, and increases the price of the end product accordingly, you get another round of successive rate increases. That's economic mayhem with prices spiraling to the sky.

If each of the five categories of SEP holders wanted 5% of the end-product price, it would mean 25% in total. So at some point--sustainable or not--the spiral would stop. But it would never stop if everyone argued "use-based pricing" as long as technology improves here, there, and everywhere, or gets incorporated into a bigger end product. Theoretically, the fact that a single (unless totally negligible) app becomes available on an app store could trigger a round of "use-based" price increases across all fields of technology.

In this simplified hypothetical example, we're talking about only a smartphone. But a car is way more multifunctional than a smartphone, which further exacerbates the problem I just described.

The only solution is to license patents in the supply chain, and to use the smallest salable patent-practicing unit (SSPPU) for the royalty base. That doesn't mean that the ways in which a given technology--such as wireless connectivity--actually gets used don't matter. But in the market for PC components, graphics cards didn't become more expensive only because a software company released a new word processor that offered some exciting functionality. A word processor without a screen won't work; but the screen is still just a screen, regardless of the incremental functionality of a word processor. Those who make the screens (or hold patents essential to screen-related standards such as video cable standards) must content themselves with the fact that the incremental functionality achieved by others generates additional sales. Incremental volume is a benefit. That sounds simple, and it actually is--because otherwise, with "use-based pricing," you get the spiral I described further above unless technological development grinds to a halt, which might just happen in that case.

In the PC space, modularity wasn't merely an architectural, technological reality. The way those components were sold and optionally assembled by anybody made it easy to see. But that doesn't mean that other technology stacks aren't modular, too. The modular commercial model of the PC industry is the (only) appropriate one for smartphones and connected cars.

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Wednesday, April 1, 2020

Nokia swimming against judicial tide with its dogged refusal to license automotive component makers

Not only has the European Commission's Directorate-General for Competition (DG COMP) resumed its preliminary investigations of Daimler's and four of its suppliers' antitrust complaints over Nokia's refusal to license automotive suppliers, but the former handset maker may come under pressure in a variety of jurisdictions.

Nokia apparently hopes to gain leverage from a German court ruling scheduled for next week's Thursday (earlier this week, the Munich I Regional Court's press office confirmed that the decision was, for now, still slated for that day), though the coronavirus crisis may limit the immediate impact on Daimler's German sales while the appeals court would review a hypothetical Nokia win. Daimler brought an extremely strong invalidity contention, fulfilled its obligations under the Court of Justice of the EU's Huawei v. ZTE ruling to be shielded from an injunction, and couldn't have been sued by Nokia in the first place had the Finnish company lived up to its FRAND licensing promise and licensed Daimler's suppliers. Furthermore, banning an entire car over one of thousands of little elements of a wireless standard would not be a proportionate remedy in accordance with Article 3 of the European Union's IPR Enforcement Directive.

The third point--the obligation to grant an exhaustive component-level license on FRAND terms to suppliers at any level of the supply chain--is what the dispute is all about. In addition to those ten Nokia v. Daimler patent infringement cases (of which Nokia has already lost one and will likely lose many more), let's not lose sight of Huawei's German antitrust lawsuit aiming to obligate Nokia to make a component-level FRAND licensing offer. That case will presumably go to trial later this year. The Dusseldorf Regional Court has taken favorable positions on component-level licensing before, and as I mentioned in the post I just linked to, the presiding judge of one of the patent-specialized panels of its appeals court (Judge Thomas Kuehnen of the Dusseldorf Higher Regional Court) explained in an article last year that SEP holders have an obligation under Art. 102 TFEU (the abuse-of-dominant-position paragraph of EU law) to license any implementer of a standard who so requests.

Assuming Nokia loses in the two Dusseldorf courts, it could appeal the matter further to the Federal Court of Justice (the highest German court to hear patent cases since the Federal Constitutional Court would deal with only a narrow set of constitutional questions such as the right to be heard). The Dusseldorf Higher Regional Court could allow a further appeal. Otherwise Nokia would have to petition the top court first (comparable to a cert petition in the U.S.).

Nokia's chances at the top level are waning, though. I'm not aware of a single statement by a patent judge of the Federal Court of Justice endorsing a refusal to license component makers, but at least two of them have endorsed Judge Kuehnen's theory of a right to sue for a FRAND offer:

  • On November 5, 2019, Judge Fabian Hoffmann gave a talk at a Munich conference entitled "FRAND 2019" and presented a slide that contained the following ringing endorsement of Judge Kuehnen's article on a duty to license component makers (click on the image to enlarge; this post continues below the image):

    The highlighted word means "compelling" or "persuasive." The context is that of a "license to all comers" and the second line states that licensing anyone who asks for it is simply in line with Art. 102 TFEU. I respect copyright, so I copied only the part of Judge Hoffmann's slide that was necessary to show his endorsement of Judge Kuehnen's position.

  • I have heard from a perfectly reliable source that another member of the patent division of the Federal Court of Justice--and notably a member known for being extremely sympathetic to patentees (which also applies to Judge Kuehnen, by the way)--stated in a conversation at a relatively recent conference that he, too, agrees with Judge Kuehnen.

Any of those German courts could refer the question of component-level licensing to the CJEU in Luxembourg. It's doubtful whether that would be necessary given the clarity of CJEU's Huawei v. ZTE ruling with respect to the obligation to grant a license any implementer.

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Thursday, March 26, 2020

Europe stands several times more to lose than to gain from condoning Nokia's refusal to license automotive suppliers

On both sides of the Atlantic one can watch interesting examples of "reverse protectionism":

Antitrust enforcement should simply be a question of legal merits. But the industrial-policy argument that some forces within the European Commission make in Nokia's (and, by extension, Ericsson's) favor just doesn't withstand even superficial scrutiny.

Three charts that I've quickly produced with OpenOffice Calc, relying on data points published on the Internet, show that the European Union would ultimately help Asian and American patent holders extract license fees from European product makers more so than it would strengthen Nokia and similarly-situated Ericsson:

  1. According to the latest IPlytics figures, Nokia (including Alcatel-Lucent) owns 8.63% of all 5G declared-essential patent families, and Ericsson 5.32%. That's a total of 13.95% for the only two European companies on the list--all others are American and Asian patent holders:

    Therefore, no matter how much (over)compensation those two licensors--Nokia and Ericsson--may be able to obtain, the EU economy will remain a net licensee in the greater scheme of things.

  2. Europe's automotive industry dwarfs Nokia and Ericsson with respect to investment in research and development. According to ACEA (European Automobile Manufacturers Association), "EU automotive investment in R&D has increased by 6.7% to reach €57.4 billion annually." Macrotrends says "Ericsson research and development expenses for the twelve months ending December 31, 2019 were $4.107B, a 8.3% decline year-over-year." Statista shows that Nokia's R&D spend is also in decline, down to €4.41 billion. Here's a column chart (click on the image to enlarge):

  3. Finally, it's also interesting to compare the number of jobs in the EU's automotive industry (ACEA: "13.8 million Europeans work in the auto industry (directly and indirectly), accounting for 6.1% of all EU jobs") to the entire population sizes of the two countries whose "national champions" hold 5G patents (click on the image to enlarge):

The underlying patent licensing issue affects more than the automotive sector. There's an emerging Internet of Things industry, and countless European IoT startups are simply not equipped to deal with end-product-level SEP licensing but could make highly innovative products if the wireless chips they incorporate into their products were exhaustively licensed.

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Saturday, March 21, 2020

YOUR TAX DOLLARS AT WORK: Justice Dept. defends foreign-owned patent trolls against Apple and Intel

Apple and Intel--two American high-tech icons--are suing Softbank-owned Fortress Investment on antitrust grounds in the Northern District of California. Their complaint admittedly raises legal questions of first impression. Fortress brought a motion to dismiss the complaint just on the basis of the legal theories it is based upon. Apple and Intel obviously oppose that motion.

Over the last couple of days, various parties filed amicus curiae briefs with the court. Apple and Intel are notably supported by

But Fortress has an ally that you wouldn't expect to back a foreign-owned patent troll group trying to extract money from some of America's greatest tech companies (having filed dozens of lawsuits against the likes of Apple, Google, and by extension, Intel): the United States Department of Justice, claiming to speak on behalf of the United States (i.e., the federal government).

Makan "Macomm" Delrahim, a former Qualcomm lawyer and now the Assistant Attorney General heading the DOJ's Antitrust Division, stops at nothing in his tireless efforts to help patent holders maximize their returns at the expense of the wider economy and actual innovation (this post continues below the document):

20-03-20 Statement of Inter... by Florian Mueller on Scribd

Mr. Delrahim and his subordinates' submission supports Fortress with respect to the claims brought by Apple and Intel under federal antitrust law. The fact that Fortress is Japanese-owned doesn't mean that the DOJ couldn't have good reasons for supporting them: it's about fundamental legal questions that also affect American patent holders. The real issue here is that even if Fortress were American-owned, it would simply be irreconcilable with the America First philosophy to back hyperagressive patent trolls (who sometimes bring dozens of lawsuits against just one defendant such as Apple or Google).

It's shocking, and I wanted to share the news. In a future post I may go into detail on the motion to dismiss (possibly after Fortress's reply brief). The case is still on my watchlist.

The ongoing coronavirus crisis--in which Fortress was about to prevent essential research, but then backtracked under public pressure, while Apple offered a major contribution--is not going to go away anytime soon. Short of a vaccine or effective and reliable cure, many restrictions will remain in force for some time, and many people's lives won't return to normal. The damage that virus is causing to the global economy is beyond belief. Governments around the world will soon face an ecomomic policy challenge of unprecedented proportions. For a swift recovery, it's advisable to support product-making and service-providing companies (like Apple, Intel, and Google) against patent trolls like Fortress and its numerous shell companies who just siphon off money from those who create many jobs. The real economy needs to highlight that simple fact to President Trump and his closest advisers. Enough is enough.

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Practitioners and companies far from giving up on Unified Patent Court -- intergovernmental renegotiation will open door to improvements

For the time being, the Unified Patent Court (UPC)--a single patent judiciary for the contracting states of the European Patent Organization (which runs the European Patent Office)--is actually the Nullified Patent Court. And doubly so:

  1. Three weeks ago, the European Patent Litigators Association (EPLIT) announced that it had "learned that the UK government intends to stop its cooperation towards the creation of the Unified Patent Court." The UPC Agreement involved ultimate jurisdiction of the Court of Justice of the EU (CJEU) over certain segments of patent law. The UK couldn't have submitted to CJEU without its government exposing itself to allegations of betraying the majority that voted in favor of Brexit four years ago.

  2. What came as more of a surprise than British anti-CJEU consistency, the Federal Constitutional Court of Germany yesterday announced that a majority of its Second Senate had declared (as per an order dated February 13, 2020) the German legislature's Act of Approval to the Agreement on a Unified Patent Court (UPC Agreement) "void" as the Bundestag (Federal Parliament) had passed it with a simple majority as opposed to the two-thirds majority required by the Basic Law (Germany's de facto constitution) for acts that effectively amend the country's constitution. Here, the conferral of ultimate jurisdiction over a certain field of law to a new non-German court was held to be tantamount to an amendment to the Basic Law--and, therefore, a violation of constitutional rights asserted by complainants. A minority of three dissenting judges, however, considered this application of the two-thirds majority rule to be exceedingly strict and a potential impediment to further European integration (a very policy-driven position that is unfaithful to the law).

    Simply put, the majority of judges viewed not the UPC Agreement but its ratification to be unconstitutional.

    Apart from the need to modify the treaty in light of Brexit and the fact that the coronavirus crisis dictates other priorities, the government coalition parties couldn't re-ratify an updated UPC Agreement without support from the opposition as they hold only 398 (56%) of the Bundestag's 709 seats. Theoretically, the libertarian FDP (80 seats = 11%) could provide the missing votes.

The combination of the UK's withdrawal (as the UK was a "must have" contracting state under the original UPC Agreement and supposed to be the seat of one of three sectorial appeals courts) and the higher quorum for re-ratification in Germany suggests significant delays, but doesn't spell definitive doom for the UPC project in the opinion of practitioners:

  • Gerd Zimmermann, founder of patent firm Zimmermann & Partner, says "there still is a strong political will in continental Europe to put the UPC in place, as neither Brexit nor the Constitutional Court's ruling weakened the resolve to put a single European patent judiciary in place."

  • Bardehle Pagenberg, a leading IP prosecution and litigation firm that analyzed the fallout from brexit just one day before the Constitutional Court's ruling, said in a press release that "most of industry is rightly in favor of the system even without the UK."

Patentverein, a group of German medium-sized companies critical of the country's bifurced patent litigation system (which deprives defendants of a full invalidity defense to infringement claims), also issued a press release expressing hope that "a new European effort [would] be made without the UK on board."

So there is widespread consensus that re-ratification (subsequently to renegotiation) is a question of when, not if. interestingly, the two patent firms as well as Patentverein say or at least imply it's also a question of how (i.e., on what terms):

  • Bardehle Pagenberg provides a non-exhaustive laundry list of areas in need of improvement: "Since the UPCA has to be revised anyway, the opportunity could – and should – be seized to make the system more attractive. Issues to be considered are the criticized opt-out / opt-in regulations, sound grounds for the compulsory inclusion of European bundle patents, the good, but improvable rules of procedure, the (high) reimbursable attorney fees (which may be prohibitive for SMEs), the renewal fees for the Unitary Patent, as there is no valid reason for subsidizing national budgets via the renewal fee share in the Unitary Patent, just to name the most important ones."

  • Patentverein more subtly expresses the organization's "hopes that the good parts of the [EU-wide] Unitary Patent will be preserved," which I interpret as diplomatically suggesting that there is room for improvement.

  • Mr. Zimmermann says "it's rather likely that governmental and private-sector stakeholders will make a variety of political demands, though it's hard to imagine that any dealbreaker would surface." He considered it "essential to work toward a new multilateral agreement, but negotiation dynamics should not produce a result that would come at efficiency's expense." For an example, "most European patents are filed in the EPO's three official languages, irrespectively of the UK's participation, so for practical purposes the agreed-upon language regime should be maintained."

In addition to those reactions to yesterday's ruling, let's not forget that the UPC's Rules of Procedure have previously been--and without a doubt will again be--a subject of debate. Six years ago, a broad industry coalition warned against the risks of the UPC turning Europe into a trolls' paradise.

In that context, access to injunctive relief is the most important issue--as it is in the German patent reform debate. Earlier this week, the Federation of German Industries (BDI)--the largest industry association in Europe--was forced to retract a submission (particularly on injunctive relief) that the Federal Ministry of Justice and Consumer Protection had already published on its website, as the statement misleadingly suggested that large parts of the German economy backed a permissive approach to patent injunctions. This setback for patent enforcement extremists proved that the companies advocating--as did the aforementioned UPC Industry Coalition--a more balanced patent system are ever more influential. There's a strong connection between a future "UPC 2.0" effort and the ongoing process for a reform of Germany's Patent Act: whatever comes out of the national legislative process will inform--if not dictate--the position the German government will have to take when the UPC Agreement is renegotiated. The stakes could hardly be higher, and a growing number of stakeholders are perfectly aware of this while some others are still clueless as to what it takes to influence patent legislation.

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Tuesday, March 17, 2020

German patent reform movement strikes back: Federation of German Industries (BDI) withdraws injunction-friendly submission to government

The German patent reform movement has miles to go, but it is far from beaten. Last weekend I commented on the submissions (feedback to a patent reform proposal) Germany's Federal Ministry of Justice and Consumer Protection published last week, and noted that the submission by the BDI (Federation of German Industries, an umbrella association of associations) appeared to isolate the automotive industry by taking an injunction-friendly (though troll-critical) position. I pointed out that in reality there's a strong interest in patent injunction reform across different segments of the economy.

In a development that is as surprising as it is telling, the BDI's paper has been withdrawn from the website of the Federal Ministry of Justice and Consumer Protection. The only plausible explanation is that some of the pro-reform forces succeeded in convincing the BDI that it was not speaking for the entirety of German industry associations minus automotive and information & communications technology, but had merely been hijacked by patent extremists.

The ministry would very much have liked the BDI to reach a consensus. A paper that wasn't supported by two major member associations wasn't exactly a consensus position--but the BDI portrayed it as the position of a vast majority of the German economy, which it simply wasn't (as I already made clear on Sunday).

This withdrawal represents a very significant setback for those seeking to preserve the status quo of (near-)automatic patent injunctions.

On this occasion, I'd like to clarify what I meant on Sunday by calling on all pro-reform forces to throw their weight behind the Max Planck Institute's (MPI) submission:

  • First, I meant the MPI paper as a whole, of which the proposed statute is an extremely important--but not the only--part. The document makes it clear what real-world issues that defendants are facing in German patent litigations are meant to be addressed by the proposed proportionality requirement. A proportionality requirement that the statute itself does not elaborate on will, of course, have to be accompanied by a rationale (a commentary provided by the legislature itself) that courts will rely on as they interpret the new statute. The combination of statute and rationale will determine the actual effect.

  • Second, there's nothing wrong with companies saying that they agree with everything the MPI paper says while some of the may still favor positions that go further and/or statutes of greater specificity. And different organizations will set different priorities. But the MPI paper could serve as a common denominator in an effort to overcome fragmentation.

  • Third, with the ministry having put forward a first draft that narrowingly redefines the word "(dis)proportionate" (vitiating it to the point that it merely applies to a few extreme cases at the outer margin of disproportionality), it is now critical to ensure that the statute will have scope for all (dis)proportionality theories that the law--and particularly EU law--allows. That's the most important breakthrough one can achieve now for the sake of balancing the system.

  • Fourth, while the ministry will obviously read--and most likely has already read--the MPI's paper attentively, it's key to consider that politics is not only about what is said, but also very much about who says it. If the ministry and the actual legislature (the Federal Parliament) see that there are strong signs of an economic majority supporting that position, then there is a potential for momentum of the kind that no academic paper can ever have without being backed by corporations and possibly other types of stakeholders.

  • Fifth, I wish to make clear that my proposal to adopt the MPI's paper as the common denominator of the pro-reform movement was not and is not intended to put it above academic write-ups on the subject of German patent injunction reform. The MPI's submission is simply my recommendation among those documents that were officially provided to the ministry in response to its first draft. I have heard rumors of confidential submissions, but a movement can only be unified behind a published position. Also, other documents commenting on, and suggesting improvements to, the ministry's first draft have been circulated. In fact, I wrote one myself that basically blends Art. 3 IPRED and eBay factor #2. But the pro-reform movement should now, ideally, rally behind a paper that was officially submitted to, and published by, the ministry.

The withdrawal of the BDI's injunction-friendly position may mark a turning point in the debate, and in the legislative process. A strong backing of a consensus position of an economic majority would be the best next step. The fact that the BDI had to retract a paper--not merely after having submitted it, but even after the government had published it!--is very encouraging. It creates a vacuum. The economic majority should fill that vacuum by major companies from different industries lending their collective support to a common-denominator position. The time has come to show the decision-makers at the ministry and in the parliament that only a few entrenched interests oppose meaningful injunction reform. The way to show it is to have an impressive list of supporters of a common position. Beyond the common position, anyone may still have--and communicate--further-reaching ideas. But you have to start someplace.

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Daimler slows down production due to coronavirus, potentially reducing impact of patent injunction Nokia is pursuing

Daimler announced today that most of its production in Europe will be suspended for (initially) two weeks, starting this week. "An extension of this measure will depend on further developments," the announcement notes.

The reasons for this are apparently a mix of protecting Daimler's workforce, containing the spread of the virus, lower demand, and supply-chain issues.

The overall situation may have an impact on Daimler's antitrust and patent dispute with Nokia (see th previous post on Continental's statement accusing Nokia of impeding innovation in the automotive supply chain). On April 9, Nokia hopes to obtain a patent injunction--over a patent that will most likely turn out invalid in the further process and based on an absurd misreading of the CJEU's Huawei v. ZTE ruling--from the Munich I Regional Court. Even if Nokia succeeded without merit, the question would be what impact the injunction would actually have--not only because it is limited to a list of specified suppliers of telematics control units, but also because reduced production volumes during the coronavirus crisis might make the situation easier to manage.

If Nokia coerced Daimler into a settlement, the problem of SEP holders like Nokia refusing to license component makers still wouldn't have been solved. The suppliers would have no reason to withdraw their EU antitrust complaints. If anything, such a course of events would add another element of abuse.

Time is of the essence for Nokia. A hypothetical win would very likely be reversed. The appeals court won't stay the injunction the next week or so, but it won't need too many months either. Under the overall circumstances mentioned above, there is a possibility that Daimler won't come under pressure until the appeals court has spoken.

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Continental says Nokia impedes innovation and sustainability in automotive industry and IoT by refusing to license component makers

While Nokia has always been outspoken about the automotive industry's antitrust complaints over its refusal to grant exhaustive component-level licenses to suppliers, I gave up at some point on the complainants' willingness to provide any information or share their views. It just didn't seem to be in their DNA. All the more surprising to me was the fact that Continental issued a statement today on the definitive failure of mediation efforts with Nokia.

The Mannheim Regional Court had originally scheduled two Nokia v. Daimler trials today, which were canceled in part because of the coronavirus situation. Continental is an intervenor in all those German SEP infringement actions against one of its largest customers, Daimler. Tires made Continental a household name, but it's a lesser-known fact that they are also a huge supplier of electronics components to car manufacturers. They and their competitors depend on exhaustive SEP licenses in order to be able to invest in further progress in this field. Today's statement refers to "connected, autonomous and sustainable mobility." I interpret "sustainable" in the sense of increasing energy efficiency at the component level as well as technologies that help reduce fuel consumption. In other words, Continental wants Nokia to make its contribution to the fight against climate change--an extremely high priority for the von der Leyen Commission--by enabling innovation a the component level.

Nokia refuses to grant exhaustive licenses to component makers. Instead, it seeks to force end-product makers such as Daimler into licenses, and in discussions involving component makers proposes alternative structures that fail to address the most important competition and innovation concerns.

Here's the full text of Continental's unprecedented statement:

The mediation between Continental and Nokia in the context of Continental's EU complaint against Nokia's licencing practice for Standard Essential Patents (SEPs) has now taken place. Continental still has no direct license for Nokia's SEPs for mobile telecommunications standards such as 3G and 4G. This is unsatisfactory for Continental.

Continental will therefore continue to seek licenses under the commitments from Nokia and other SEP-owners to grant licenses on 'fair, reasonable and non-discriminatory' (FRAND) terms and continue pursuing its complaint with the EU Commission.

Only being granted its own SEP-licenses under FRAND terms will allow Continental to realize its full potential as one of the market leaders and driving forces of innovation in connected, autonomous and sustainable mobility. Without access to the respective licenses Continental and other suppliers are not able to develop, manufacture or sell important technology for future automotive and non-automotive applications.

Nokia's refusal to license its SEPs to Continental and other car parts suppliers, wanting to just license car manufacturers is blocking innovation in the field of connectivity for a more intelligent, safer, and more sustainable mobility. Likewise, this practice is damaging emerging European markets in the automotive industry and the Internet of Things more generally.

Continental will continue to pursue its civil litigation seeking a FRAND patent license from Nokia and others in the U.S. District Court for the Northern District of Texas where Continental has submitted to an independent rate setting by that court. Continental will continue to support its customers against assertions of standard essential patents by SEP-owners applying coercive pressure and injunction claims to obtain supra-FRAND rates.

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Monday, March 16, 2020

Mannheim Regional Court vacates two Nokia v. Daimler patent trials scheduled for tomorrow, one of them due to coronavirus

More than six months ago, the Mannheim Regional Court's press office informed me of four Nokia v. Daimler trial dates, including one that had been scheduled for tomorrow (March 17, 2020). In that one (case no. 2 O 36/19), Nokia is asserting EP2145404 on a "method and apparatus for providing control channels for broadcast and paging services."

About three months ago, it looked like March 17 was going to be really busy, as the court moved another Nokia v. Daimler trial (ase no. 2 O 37/19) from December 10 to that date. The patent-in-suit in that one is EP1273199 on a "method and arrangement for maintaining synchronization in association with resetting a communication connection."

Neither of the two trials is going to take place tomorrow:

  • The trial in case no. 2 O 36/19 over EP'404 was vacated due to the coronavirus situation. The state of Baden-Wurttemberg told its courts to hold hearings and trials only in time-sensitive cases. While Nokia obviously wants leverage over Daimler, the case apparently didn't qualify for a trial under these circumstances.

  • The issue that resulted in the postponement of the trial in case no. 2 O 37/19 over EP'199 was procedural. There's a procedural rule in Germany according to which a party can raise new factual issues only until one week prior to the trial. Otherwise such pleadings can be rejected for being out of time in the court's discretion--or the court might postpone the trial so as to give the other side sufficient time to prepare. Daimler's counsel objected to the untimeliness of a Nokia filing raising new infringement contentions, and the court immediately vacated the trial. A new trial date has not been set yet.

    It strikes me as odd that Nokia would come up with a new infringement theory about three months (!) after the original December 10 trial date. Shifting-sand positions are generally a sign of weakness, though it does occur from time to time that parties turn an otherwise losing case around that way. It is, however, highly unusual that a party would do so now when the case was already about to go to trial on December 10, 2019. That trial was vacated on very short notice (just on the previous day). And the postponement had nothing to do with new theories at the time. Nokia requested it back then on the basis of the parties having agreed to make a mediation effort.

Last month, Nokia lost the first of its Mannheim cases against Daimler. A decision by the Munich I Regional Court in a Nokia v. Daimler case will come down on April 9, with Nokia advocating a gross misreading of the Court of Justice of the EU's Huawei v. ZTE ruling.

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Sunday, March 15, 2020

Distorted picture of stakeholder positions on German patent injunction reform: submissions to Federal Ministry of Justice

Leading litigators agree that the first draft of a German patent reform bill put forward by the Federal Ministry of Justice and Consumer Protection (BMJV) would change either nothing at all or, at best, extremely little about access to patent injunctions. This blog already said within a couple of hours of the dissemination of the document.

Stakeholders had until March 10 (last Tuesday) to provide feedback to the ministry. Throughout the course of the week, the ministry uploaded those documents whose submitters had not requested confidential treatment.

To my dismay, the proponents of meaningful injunction reform have lost the second round in a row. They had originally achieved a breakthrough in the sense that the ministry, which at the outside envisioned a low-key reform package along the lines of a "service update" for computer programs, has dared to touch the holy cow of German patent law--§ 139 PatG (Art. 139 German Patent Act, the injunction paragraph)--at all. But what has otherwise happened is a disaster for the pro-reform movement:

  1. The actual proposal is lopsided in patentees' favor and designed to eliminate or at least minimize any potential impact.

  2. And now, due to utter political incompetence in some places, outdated internal rules in others, and obsolete conventions on the part of key local pro-reform forces, the ministry has received more than enough backing to either turn its first draft into the federal government's formal proposal or make merely cosmetic changes to it.

    There's obviously nothing that pro-reform forces could have done about their rivals' actions. Their failure lies in the fact that they didn't (even though I told many of them a long time ago) restructure and broaden their alliance in an effort to overcome resistance to reform. Those who want a more balanced statutory framework are now on the losing track unless the dynamics of the parliamentary process result in a turnaround. An economic majority actually wants reform, and only a minority opposes it--but the majority doesn't know how to win, or the few individuals who do know just aren't allowed to do what needs to be done, while the patent-extremist minority plays it smart (those organizations have highly experienced, global IP policy teams, unlike the German automotive industry, for instance) and has the relevant ministry officials on its side.

While the actual legislature--the Bundestag (Federal Parliament)--has every right and every opportunity (and would have every reason) to fundamentally improve the bill, parliamentary experts will start their analysis of where the relevant stakeholders stand with the submissions to the ministry. And those submissions present a distorted picture, for the reasons stated above.

In this post I'll focus only on the proportionality of injunctions, not on other aspects of the reform bill that the submissions touch on, except where there is an inevitable overlap.

Submissions in favor of major improvement over the status quo (i.e., fewer injunctions)

Max Planck Institute for Innovation and Competition: That one is fantastic. They explain the issues with the present proposal and propose a straightforward proportionality requirement (which would bring German patent law into compliance with EU law). Among other things, they also argue for taking third-party interests into account, and they explain why proportionality considerations are also critical with respect to standard-essential patents (SEPs). Unfortunately, they don't represent an industry, but I will propose a solution: why don't a number of major companies (either German corporations or international ones with substantial operations in Germany)--regardless of whether they've already supported the submissions of one or more industry associations--throw their full weight behind the Max Planck Institute document and say that they support it 100% even though they might have settled for less before in order to build consensus within industry groups? The Max Planck Institute is a world-class academic institution, not a campaign HQ. They wouldn't seek endorsements, but I am going to contact some key pro-reform players the next few days and urge them to publicly (such as through this blog, where I could publish the names of organizations who confirm their agreement with the Max Planck paper to me just like their PR departments would confirm the existence of a pending litigation) declare themselves 100% (no ifs, no buts, no nothing) in agreement with the Max Planck submission. Let's make the Max Planck Institute's submission the economic majority's lodestar and tell it to the Bundestag.

Germany's leading SME organization (Bundesverband mittelständische Wirtschaft, BVMW): This submission makes strong policy arguments from the perspective of small and medium-sized companies and blend them with reasonably profound legal criticism of the proposal, expressing serious doubts about whether we would see much (if any) improvement. What the BVMW does not provide is a statutory counterproposal, but what the Max Planck Institute suggests would undoubtedly meet the BVMW's criteria.

Patentverein (medium-sized companies advocating balanced patent policy) and BITMi (IT-specialized SME organization): One could interpret these two submissions as an endorsement of the ministry's statutory proposal. However, those are very small organizations and simply don't have the resources to assess the actual legal impact of a statutory proposal. Their papers make it very clear they want proportionality (and above all else, they'd like to close the injunction gap). Both are, however, members of the Mittelstandsallianz (SME Alliance) led by BVMW, and BVMW gets it right that the present proposal falls short of what's needed. For that reason, I count those two organizations, despite the shortcomings of their submissions, in the pro-reform column: their policy positions are clearly pro reform, and if they didn't back the BVMW's criticism, the BVMW surely would have mentioned it, as the BVMW's submission explicitly mentions the Mittelstandsallianz and an aggregate membership of 900,000 organizations.

Verband der Automobilindustrie (VDA, Automotive Industry Association): This submission explains the issues in great detail and proposes various improvements to the statute. It's good--but not very forceful in the end. I therefore call on those automotive industy players who are in favor of meaningful reform (which applies to the vast majority of them) to back the structurally superior Max Planck Institute's submission, especially since there is no philosophical conflict here. The best is the enemy of the good.

ip2innovate: That group has mostly non-German members such as Google, Microsoft, and Intel. Its German members are SAP, Daimler, and Adidas (a company that is also affected by the threat of patent injunctions). Daimler is also a member of the VDA, but it's a reasonable assumption that Daimler actually supports the further-reaching proposal--the ip2innovate submission. ip2innovate's paper is OK for the most part, though there is a huge issue with its statutory proposal: it does spell out some criteria to consider, but in doing so risks discounting the importance of criteria not mentioned, such as the relative importance of a patented invention to an accused product. The Max Planck Institute, with its far greater sophistication, avoided falling into that trap. As for the backing of German companies, Daimler and Adidas are undoubtedly suffering under the current situation. SAP, while it's the most valuable German company, actually never gets sued over patents in Germany. At least one can't find any recent cases on Darts IP. Even if they were enjoined, software patents can usually be worked around very easily and seamlessly. So they're lobbying for reform without actually being affected (so far). That is a limiting factor in the further debate. It doesn't make their position meaningless, but does diminish its weight--though the weight that remains is still significant.

Vodafone: Not a German company, but operator of the second-largest cellular network in the country and a provider of critical infrastructure to many German companies, including many SMEs (as the submission mentions). Their one-pager simply points out that the initial proposal doesn't go far enough. It would have been great if they could have made a joint submission with Deutsche Telekom (and possibly others). But Deutsche Telekom's position was voiced very clearly in 2018 on the corporate website, where they complained about the extent to which Germany's patent law impedes innovation.

ACT | The App Association: A low-quality submission by an organization that claims to represent 5000 SMEs "in Germany, the EU, and worldwide" (my translation), but then mentions only one German member company in its submission. Not worth discussing, and certainly won't impress anyone in German politics.

Nvidia: The strength of this particular submission is its analysis--clearly provided by a law firm--of proportionality as prescribed by the Intellectual Property Rights Enforcement Directive (IPRED) of the European Union. That part of the filing is world-class. When it comes to political clout, however, Nvidia is negligible. It basically just has a small sales operation in Germany. One of its managing directors (apparently the only Germany-based one among the five), Ludwig von Reiche (FWIW, a descendant of a German military family), overrates the significance of that company to German policy-makers by a factor of 10,000, and his understanding of how political decisions are influenced by a factor of at least 5. That said, whatever law firm authored the analysis of EU proportionality law for them did a great job. I'm not aware, though, of Nvidia having ever put its money where its mouth is in this context other than paying for this one document.

Neutral on proportionality

BITKOM (German information and communications technology industry association): Due to dissent within their membership, they couldn't take a position. Most ICT companies clearly want reform, but the likes of Siemens, Nokia and Ericsson also have significant weight within that organization. In connection with the EU software patent directive, BITKOM was one of my numerous opponents and we defeated them (both with respect to a non-legislative resolution by the Bundestag and a legislative decision by the European Parliament). It looks like I may never agree with them on patent policy, but at least they're neutral this time.

progenerika (generic drug industry association): Their submission focused only on the injunction gap. In the field of pharmaceutics, proportionality--provided that a patent is reasonably certain to be valid--is typically a non-issue given that there is almost a 1:1 relationship between a patent and a product, so one can hardly argue that only a minor feature of a complex multifunctional product was affected.

Submissions in favor of the status quo (and the ministry's first draft)

BDI (German industry association): The BDI is an umbrella association of associations. Two of its members, VDA (which wants reform) and BITKOM (which is internally divided), officially distanced themselves from the BDI's submission. The biggest issue with the BDI's submission is that they seek to limit the impact of any statutory change to enforcement stays (as opposed to a denial of injunctive relief in a given case). As for third-party interests, they may see a point with respect to telecommunications networks, but are afraid of further-reaching effects. They do speak out clearly against non-practicing entities (NPEs), and they mention the problem of complex products. So the BDI submission isn't all bad, but on the bottom line it's more of an anti-proportionality than pro-reform position. And the BDI's submission hurts the cause by appearing to isolate the automotive industry, though in reality there's a strong interest in reform in multiple industries (such as telecommunications, semiconductors, and further above I even mentioned Adidas as a member of ip2innovate). [Update on 03/17] The BDI paper had to be withdrawn, validating what I wrote about a strong interest in patent injunction reform across multiple industries. [/Update]

ZVEI (electronics industry association): They make it clear they seek to preserve the status quo and they'd like the ministry to make it even clearer that nothing should change. This one may have been influenced very strongly by Siemens.

Siemens: Whether this submission by Siemens's patent department serves the company's long-term interests is another question. In the IoT era they will increasingly find themselves on the receiving end of patent assertions. But for now, they are radical proponents of strong patent enforcement. While I disagree with them, they did the right thing by making a submission in their own name as opposed to just relying on associations.

vfa (pharmaceutical industry association) and VCI (chemical industry association): Those two organizations' joint submission promotes superstrong patent enforcement. They'd like to further weaken the ministry's first draft.

Ericsson: A foreign company, though still far more relevant to German policy makers than, say, Nvidia's local sales office. Unsurprisingly, they take a radical position in favor of strong patent enforcement. Just like Nokia, Ericsson is a company that failed in the mobile handset business and has fallen behind technologically in the field of network infrastructure, so they're ever more interested in patent monetization.

VPP (organization of 2,500 German IP professionals): This submission, unsurprisingly, favors strong enforcement. VPP's president is simply Siemens's chief patent counsel. So this doesn't really add anything.

German patent attorneys' association: Obviously in favor of the status quo. The more patent litigation in Germany, the merrier--from their vantage point.

German Bar Association: What I just said obviously applies to German attorneys at law involved with patent litigation: they wouldn't want anything to happen that would have more than a non-negligible impact on the attractiveness of their jurisdiction to plaintiffs. Policy makers are well-advised to just ignore that submission.

Berlin-based patent attorney: A patent attorney filed a submission on her own, claiming to mostly represent SMEs, which is ridiculous when you have the country's largest SME organization (BVMW) actually advocating reform. There obviously are SMEs who want strong patent enforcement--some but not all of whom are simply patent trolls. But patent attorneys aren't legitimate SME representatives, simple as that.

German inventors' association: Their membership base is just a few hundred individuals.

DABEI (another inventors' association): This submission is slightly more moderate than the one by the German inventors' association. It proposes an enforcement stay for up to six months in cases of extreme hardships, contingent upon various requirements.

Sanofi-Aventis: They caution against any further-reaching restrictions of access to injunctive relief, but would like the ministry to provide greater clarity. And in case they get sued, they'd like the interests of patients who need access to their medications to be taken into account.

Japan Business Machine and Information Systems Industries Association (JBMIA): They hate patent trolls, but they want their members (such as Sharp, Sony, Panasonic, Fuji, and Toshiba) to have just the same access to injunctive relief as now. They're apprehensive of anything that would look even remotely like eBay v. MercExchange (though the ministry's first draft is lightyears away from it).


One can see that those seeking to preserve the status quo are better-organized and more outspoken, as opposed to just focusing on association-level consensus building.

Some of those advocating reform mean well, but on average aren't as sophisticated as their rivals.

The pro-reform camp needs a much better statute than the one the ministry proposed, but the ministry officials can (legitimately!) portray the balance of the submissions as validating their approach. That is due to a distortion: in reality, the economic majority wants reform, but it failed to make this clear.

It's too late to orchestrate more (and better) pro-reform submissions, but it would make a huge difference now if some major players could officially subscribe to the Max Planck Institute's stellar submission. Rallying behind that paper is the best shot the pro-reform camp has at this stage. But there is a risk of most if not all of the key players being unable to do so just due to internal rules that are unfit for a patent policy debate in the 21st century.

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