Friday, February 21, 2020

French court may hold ETSI FRAND declarations to be binding contracts to the benefit of third parties: cross-jurisdictional ramifications

Two weeks ago, the Tribunal judiciaire de Paris (TJP), which was known as the Tribunal de Grande Instance (TGI) until the turn of the year, handed down an order in TCL v. Philips & ETSI, a case that has the potential to affect cellular standard-essential patent (SEP) jurisprudence throughout and beyond the rest of Europe. That's because the European Telecommunications Standards Institute (ETSI) is based in Sophia Antipolis in the south of France, and the FRAND licensing pledges made by participants in cellular standard-setting to ETSI must be interpreted under French law wherever on this planet a party invokes an ETSI FRAND declaration by a patent holder.

I don't see a potential impact on how U.S. courts adjudicate cellular SEP licensing disputes as they have consistently recognized third-party beneficiary rights in connection with FRAND licensing pledges. However, on the other end of the spectrum there are those extremely biased German courts that have for many years stopped at pretty much nothing in their quest to favor patent holders over implementers, and as part of that have denied third-party beneficiary rights. Continuing to deny the existence of third-party beneficiary rights in connection with ETSI FRAND pledges will be quite problematic (to say the least) if and when the French court to which all French patent disputes are assigned has provided clarification with respect to a FRAND declaration that indisputably must be interpreted under French law. For implementers of standards it would definitely be a positive to be able to rely not only on antitrust law (abuse of dominant market position) but, additionally, on contract law (as defendants to U.S. SEP cases do all the time).

Once again, China's TCL, a company that expanded from TV sets into other segments of the consumer electronics market (though I can't remember ever having seen any of their products in a store, neither in the U.S. nor in Germany), is party to an important SEP case. A couple of months ago, the Federal Circuit vacated in part, reversed in part and remanded TCL v. Ericsson to the Central District of California. What the Federal Circuit took issue with is that Ericsson was denied a jury trial regarding a release payment (past infringement damages by any other name) for past unlicensed sales.

The dispute between Philips--an aggressive SEP enforcer that miserably failed in the mobile handset business just like Ericsson and Nokia--and TCL didn't originally appear to be remarkable in any way. TCL refused to bow to Philips's royalty demands (as had others before TCL), so Philips sued TCL in the UK for infringement of two select SEPs (in 2018). But then came the French connection: almost exactly a year ago, TCL brought a complaint under contract law against Philips and ETSI in France--ETSI's legal domicile.

The objective is to get Philips to make a FRAND licensing offer to TCL, which would be reviewed or, if Philips fails to make an offer, simply be determined by the French judiciary. ETSI itself does not hold patents, but TCL wants ETSI to make a contribution to the process. That sounds vague (as Philips's attorneys accurately note). It's easy to see why ETSI--or any other standard-setting organization--wouldn't want to be drawn into that kind of dispute.

The decision that came down in Paris earlier this month is basically the equivalent of a U.S. court order denying a motion to dismiss (this post continues below the document):

20-02-06 TJP Order in TCL v... by Florian Mueller on Scribd

Philips wanted to get rid of the French case and instead just have any FRAND licensing matters resolved, to the extent this would obviously be necessary before an injunction could come down, by the England & Wales High Court. But pointing to the fact that the UK case is the earlier-filed one wasn't enough.

What crystallized at this early stage of proceeding is that TCL and Philips have divergent views on the legal significance of the ETSI FRAND licensing pledge signed by the participants in its standards-development processes. Philips described it as merely a precontractual matter, while TCL insisted that it constitutes what is called a "stipulation pour autrui"--a covenant benefitting a third party, i.e., a contract that can be enforced by anyone implementing a standard such as 3G/UMTS or 4G/LTE (thus also by non-ETSI members).

TCL's related prayer for relief is "juger que les déclarations d’essentialité faites par les sociétés PHILIPS à l’ETSI constituent une promesse de concéder une licence à des conditions FRAND aux sociétés membres du groupe TCL, portant sur l’ensemble des brevets des sociétés PHILIPS déclarés essentiels pour les normes UMTS et LTE." My unofficial translation: "declare that the essentiality declarations made by the Philips entities to ETSI constitute a covenant to grant a license on FRAND terms to TCL entities, covering the entire portfolio of patents declared by the Philips entities to be essential to the UMTS and LTE standards"

At this stage, the court has not entered (declaratory) judgment yet. However, it has denied Philips's request for dismissal in its entirety and allowed the case to go forward (with a caveat I'll explain in a moment). It's slightly--but legitimately--speculative to say that the case would probably have been dismissed if Philips had succeeded in persuading the court that TCL didn't have a hard contract case.

I've seen at least one commentary, by a group of three French lawyers, who interpret the order as "the first time that a French court rules that the promise made by the owner of SEPs as per ETSI's IPR Policy governed by French law constitutes a 'stipulation pour autrui'." But my reading of the decision is more conservative. Outside the sections in which the court summarizes the parties' pleadings without stating its own opinion, it mentions the key term "stipulation por autrui" only once (the bottommost paragraph on page 10):

"Si les fondements juridiques des demandes dirigées contre l'ETSI et les sociétés PHILIPS sont différents (les premières sont fondées sur le contrat d’association qui régit les rapports entre l'ETSI et ses membres et les secondes sur la stipulation pour autrui par laquelle les sociétés PHILIPS se sont engagées à consentir des licences à des conditions FRAND issues des règles de fonctionnement de l'ETSI), il ne s'agit pas d'un obstacle à la reconnaissance d'une identité de situation de droit, ainsi que l'a jugé la Cour, ce d'autant moins qu'en l'occurrence les demandes sont toutes expressément soumises à la loi française ainsi que le prévoient les règles de procédure élaborées par l'ETSI." (emphasis added)

The highlighted part means "the covenant to the benefit of a third party by which the Philips Entities have promised to grant licenses on FRAND terms further to ETSI's by-laws." I can see why some would read this as a holding by the court that the relevant passage of the ETSI FRAND declaration (Article 6.1) indeed constitutes a contract to the benefit of a third party. There would be a grammatical argument here: the court could have used "seraient" instead of "sont" in order to distance itself, by means of indirect speech, from TCL's assertion. Imagine "seraient" as being the same as "sont," but with the equivalent of "allegedly" before it. I am sensitive to that grammatical difference because there was a time when I did a whole lot of work on EU policy matters, and when French, Belgian or Luxembourgian politicians gave speeches, the grammatical form indicated whether they stated a fact or merely restated someone else's account. But in this case I'm still hesitant to view this as a judicial conclusion. The reason for my conservative approach is the context. Not only is the wider context an order on a motion to dismiss, but the highlighted passage merely appears in parentheses in a conditional subclause ("Si" = "If").

The order is not a declaratory judgment, but a denial of a motion to dismiss, so it would be a dictum at best. But for the reasons stated above, I believe the context calls into question that the grammatical form alone indicates a judicial holding regarding third-party beneficiary rights.

While Philips's motion to dismiss has failed for the time being, ETSI's still requires further analysis. The court will hold a hearing in June on the question of whether ETSI is properly named as a defendant. Further briefing will be provided by the parties in the meantime.

Now there's a tricky procedural aspect. In order for the French court to find that the French contract case can go forward despite the UK patent infringement case having been filed earlier, there had to be a close connection between the claims against Philips (which is neither a French nor a UK party) and ETSI (a French organization). The court found that ETSI's role in monitoring the implementation of its licensing rules would be sufficiently closely related to Philips's obligation (at least as alleged by TCL) to extend a FRAND license to TCL. Such a close relationship is sufficient to establish French jurisdiction as ETSI is a French defendant. But what if the further proceedings resulted in a holding that there are no justiciable claims here against ETSI?

I can't predict whether French procedures would result in a dismissal of the case against Philips, too, given that suing ETSI was key to TCL's theory for French jurisdiction. But, at a minimum, such a holding would raise the bar for other parties who may bring French contract cases in the future against holders of patents declared essential to ETSI standards.

At this stage, the court has merely found that ETSI may be properly named as a defendant. But the actual decision on whether ETSI remains in the case will be made later this year. And thereafter we may see a declaratory judgment on the ETSI declaration, a prospect that makes this a case worth watching as it has the potential to provide much-needed clarification (which in some less conservative people's eyes it already has!).

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Friday, February 14, 2020

Mediation between Nokia and Daimler as well as its suppliers fails definitively: European Commission must act swiftly and forcefully

This afternoon I broke the news on Twitter that the mediation process between Nokia and Daimler as well as various of its suppliers failed definitively:

A first round of talks had failed in January for the reasons I mentioned then. The fact that the supposedly super-secretive mediation process was pretty transparent to me--thanks to certain sources--even sparked a peripheral controversy at last week's Nokia v. Daimler trial in Munich.

A second round of talks was held this week, and went nowhere--for the very same reasons that the first round had failed. Nokia simply wouldn't consider extending an exhaustive component-level license to Daimler's suppliers, and Nokia continued to refuse to put highly relevant SEP license agreements with smartphone makers on the table.

Let's give the mediator the benefit of the doubt: he gave this another try just because he was unrealistic, not because it helped produce billable hours.

The European Commission's request that the parties engage in mediation--instead of doing the job European citizens pay them for--was a bad idea in the first place. It set a terrible precedent and made Mrs. Vestager, who earned herself a reputation as a determined competition enforcer during the first time, appear very weak.

Interestingly, the fact that last week's Munich trial went very well for Nokia didn't bring the parties closer to a deal. Maybe no one believes that the Munich court will seriously interpret a key sentence in the Court of Justice of the EU's Huawei v. ZTE ruling as if "and" meant "or." It's also possible that Nokia's piecemeal injunction strategy--with an explicit carve-out for Samsung subsidiary Harman Becker for the time being--means even a ruling in Nokia's favor on April 9 wouldn't give the failed handset maker much leverage.

Whatever the reasons may be, if the European Commission respects itself, it just can't let Nokia obtain an injunction on a highly illegal basis--refusing to license Daimler's suppliers is a clear violation of EU antitrust law. In December 2012, the Commission pressured Samsung into dropping any pending requests for SEP injunctions against Apple. If the Commission doesn't put the same pressure on Nokia with a view to the Munich ruling scheduled for April 9, it will lose much of its credibility as an antitrust watchdog.

This has been a bad week for Nokia. On Tuesday, it lost a case against Daimler in Mannheim. On Thursday, one of its privateers, Conversant, lost a case against LG in Munich (over a Nokia patent). Plus, it failed to bully Daimler and its suppliers into a deal.

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Nokia and its trolls are losing left and right: LG defeats Conversant case in Munich over Nokia patent two days after Nokia itself lost to Daimler

This is a dreadful week for Nokia on the patent assertion front. A pathetic Nokia patent was held non-essential (thus non-infringed) by the Mannheim Regional Court on Tuesday, and yesterday (Thursday) afternoon, the 7th Civil Chamber (Presiding Judge: Dr. Matthias Zigann) of the Munich I Regional Court threw out a Conversant v. LG case over a Nokia patent (click on the image to enlarge; this post continues below the image):

The patent-in-suit, EP1173986 on a "method and arrangement for managing packet data transfer in a cellular system," was incorrectly alleged to be essential to the 4G/LTE cellular standard. Nokia's privateer asserted its broadest method claim (claim 1) and two apparatus claims of similar breadth, but to no avail. The court concluded that the transmission of a traffic volume indicator (TVI) in accordance with the LTE specification does not involve a direct selection of a channel as claimed by the patent. As a result, the LTE standard does not require any technical step going beyond the prior art.

The Nokia patents transferred to Conversant, which is basically acting as a licensing agency for the Finnish failed handset maker, have generally performed very poorly in litigation. Last month the Munich I Regional Court held an early first hearing in a Conversant v. Daimler case, and that patent doesn't appear to have impresssed anyone either.

Nokia failed on Tuesday (Mannheim), indirectly (because it used Conversant as its front) failed on Thursday (Munich), and we'll probably hear very soon that mediation with Daimler and its suppliers failed this week, too.

The mostly Nordic protectionists in the European Commission who are preventing the Directorate-General for Competition (DG COMP) from formally investigating Nokia's unFRANDly refusal to license component makers need to wake up. If anyone still thinks that Nokia is "the Pride of Europe" in terms of wireless innovation, the performance of its patents in litigation shows that it's not. It would be a far smarter decision for Europe to focus on opportunities in connected cars and the wider Internet of Things (IoT). Nokia is basically fin(n)ished.

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Thursday, February 13, 2020

Qualcomm is one undecided judge away from getting FTC's antitrust win reversed by Ninth Circuit: observations on today's hearing

The United States Court of Appeals for the Ninth Circuit heard oral argument in FTC v. Qualcomm this morning. Just as I expected, Qualcomm went into that hearing on a far stronger basis than the one on which last year's trial had ended. The purpose of this post is to share some observations. So shortly after the hearing, it obviously can't provide an in-depth analysis.

The FTC, Qualcomm, and the DOJ (intervening on Qualcomm's side) all faced tough questions, but from different judges and of varying relevance to the forthcoming decision. For instance, the fact that the panel is somewhat skeptical of the DOJ's national security argument (though a remand to consider national security was also mentioned as a procedural possibility) doesn't have a bearing on the underlying merits of the antitrust case. It would just be about tailoring the injunction. One has to weight the questions--and there's always a possibility of a judge asking a party tough questions to encourage it to present its best arguments, but I don't think that happened today.

Circuit Judge Consuelo Callahan appears to be strategically lost for the FTC's purposes. Some of her questions were clearly designed to support Qualcomm as opposed to looking for answers. In a way, Qualcomm had three different lawyers arguing its case: Thomas C. Goldstein (absolutely world-class), Michael Murray from the DOJ's Antitrust Division, and... Judge Callahan, who made such points as saying that Qualcomm's business practices may be capitalistic, but not necessarily anticompetitive, and stressed that being unique in an industry shouldn't be conflated with being anticompetitive. Nobody would disagree with the distinctions, but this case is about line-drawing.

Assuming that Judge Callahan is indeed totally on Qualcomm's side, the chipmaker just needs one more judge to join her--maybe not on all counts, but on some.

Judge Rawlinson appears open-minded and undecided. Her questions to both sides were very balanced and reflected a genuine effort to develop a better understanding of what she noted in closing is a challenging case for the court to resolve. Once I obtain a transcript and re-read it, I may find that Judge Rawlinson has a certain inclination, but just based on watching the livestream of the hearing, I think she hasn't formed a definitive opinion yet.

Judge Murphy III (from the Eastern District of Michigan, sitting by designation) appeared most deferential to the district court, and relatively speaking, more likely to support affirmance than the other members of the panel. But "more likely" doesn't mean that that's what he's going to do. He just seemed somewhat more receptive to certain parts of the FTC's theory, such as the point that Qualcomm's licensees can't practically challenge Qualcomm's patents in court when they depend on uninterrupted chip supplies.

One factor that is clearly working out in Qualcomm's favor is that the FTC's decision not to defend Judge Lucy H. Koh's holding of an antitrust duty to deal under Aspen Skiing created a vacuum. The FTC's special counsel, Professor Brian Fletcher (who talked very fast, a habit I'm also known for, but wasn't very persuasive except for the last few minutes), mentioned United Shoe.

If Judge Rawlinson joins Judge Callahan on one or more of the fundamental issues, it may be "game over" for the FTC. Otherwise, I guess Judge Murphy III is more likely to join Judge Rawlinson than Judge Callahan. In that event, Judge Callahan's Plan B appears to be to get a remand of the summary judgment on chipset licensing because of triable issues. That remand would be mission-critical for the FTC because its alternative theory for affirmance of the chipset-licensing decision depends on the contractual duty established on summary judgment.

It's not even certain that the Ninth Circuit will ever have to adjudge the case, as the Federal Trade Commission might consider a settlement with Qualcomm. The way today's hearing went certainly encourages the parties to give serious consideration to a settlement. The FTC will have to take into consideration that whatever the Ninth Circuit affirms may still be challenged (and potentially successfully) by Qualcomm, with the Supreme Court being very likely to hear the case--but whatever the FTC loses at this point, it may not even be able to appeal to the Supreme Court (and if so, there would be the potential issue of the DOJ representing the FTC, though that would be the Solictor General's--not the Antitrust Division's--job).

The FTC had a very strong trial. But the appellate game is different. It's of a nature that favors Qualcomm. And Qualcomm has one judge firmly on its side. There is hope for the FTC with respect to the other two members of the panel. But none of the judges defended the district court's judgment the way Judge Callahan attacked it.

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Tuesday, February 11, 2020

Nokia loses first German patent infringement case against Daimler: weak patent not essential to LTE

The devaluation of a dying company's overrated patent portfolio has begun today. At 9 AM local time, the Mannheim Regional Court announced its final judgment in the first of ten German Nokia v. Daimler patent infringement cases to have been adjudicated. As expected, the court with by far the best technical understanding of cellular standards in the world tosses Nokia's complaint over EP2286629 on a "method and apparatus to link modulating and coding scheme to amount of resources." Contrary to Nokia's assertion, the patent is a far cry from being essential to the 4G/LTE standard.

Industry insiders know that Nokia, which failed in the mobile handset market because it was more focused on saving costs than delivering a great user experience, had already lost many of its best engineers when most 4G/LTE-related patents were filed. In its official communications, Nokia talks about the tens of billions of euros it invested in research and development in years and, especially, decades past. But the 2010s were the decade when Nokia took a definitive downturn from which it's not going to recover, short of a Finnish Steve Jobs emerging somewhere.

As I mentioned in my previous post (on a Munich case that Nokia can only "win" if the court is happy to be overruled within a couple of months at the most), Nokia's SEP portfolio is largely untested. The only judgment I remember was one that Nokia lost in Mannheim to a tiny rival (ViewSonic). In a recent conversation, a German patent litigator who has asserted SEPs for different plaintiffs on numerous occasions told me that Nokia itself presumably doesn't even have a clue as to the strength of its cellular SEPs, just because they've typically always settled before decisions came down.

So far, the SEP litigation score is "Defendants 2, Nokia 0."

It's fairly possible that Nokia, if it can't settle with Daimler (which Daimler shouldn't do because Nokia owes its suppliers an exhaustive FRAND license), will lose all of its ten pending SEP cases against Daimler when all appeals (including the nullity cases before the Federal Patent Court) have been exhausted. In the meantime, Nokia will have to negotiate renewals with various major licensees in the smartphone segment, and those licensees are probably watching what happens in those automotive cases--and wondering what they're actually paying Nokia for (though they all pay a fraction on a per-unit basis of what Nokia wants from Daimler in contravention of EU antitrust law).

The next round of mediation talks (unreasonably requested by a European Commission shirking its competitoin enforcement duty so far) will take place now, and most likely, nothing will come out of it. The fact that Nokia's ten SEPs-in-suit may not inclde a single valid patent that is actually essential to a cellular standard won't help.

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Sunday, February 9, 2020

Nokia's piecemeal injunction strategy against Daimler's demand of €4.5 billion bond or deposit: what's Nokia's objective in auto patent battle?

This is my third post on Thursday's Nokia v. Daimler patent infringement trial in Munich. I've previously commented on Nokia's intentional misinterpretation of the Court of Justice of the EU's Huawei v. ZTE ruling and reported on the fact that this blog's publication of leaked information from secretive mediation talks between Nokia and the automotive industry gave rise to a peripheral controversy in court.

Toward the end, counsel for Nokia mentioned that Daimler asked for security to the amount of 4.5 billion euros (that's more than 4.9 billion U.S. dollars) in the event Nokia would seek to enforce a hypothetical injunction while an appeal would be pending. The likelihood of an injunction depends primarily on whether the court will adopt Nokia's utterly unreasonable misreading of CJEU case law. If the court does side with Nokia on this one, I don't have the slightest doubt that the appeals court would reverse (and probably faster than it usually does). Another question is whether the case will be stayed as an earlier wireless data communication standard (GSM-based EDGE) apparently came with exactly the selection strategy Nokia later claimed to have invented in connection with 3G/UMTS.

In both contexts, all I heard in court was one party's argument. Daimler presented its invalidity theory, which appeared to be a pretty strong case of non-novelty, but Nokia, despite Daimler asking them to respond, was evasive. And when Nokia argued that security to the amount of € 4.5 billion wasn't needed because Daimler could continue to source telematics control units (TCUs) from Samsung subsidiary Harman, and furthermore because Daimler could just deactivate 3G/UMTS support (leaving them with 2G/GSM and 4G/LTE), the court terminated the hearing without allowing counsel for Daimler (or the intervenors) to respond.

As counsel for Nokia explained, they are not asking for an injunction that would force Daimler to hold its manufacturing. Their prayer for injunctive relief is specific to German sales, and limited to Daimler cars that come with TCUs from certain suppliers (most likely, the direct suppliers among the intervenors in this action, who are Continental, Bosch, TomTom, Valeo subsidiary Peiker, and BURY), with Samsung subsidiary Harman being explicitly excluded for the time being, though Nokia does reserve the right to bring a new complaint targeting Daimler cars equipped with Harman TCUs.

What Nokia didn't specify is an amount that they would consider reasonable. The purpose of such security is only to ensure Daimler can still enforce a hypothetical future wrongful-enforcement damages award even if Nokia went bankrupt in the meantime. What Daimler will actually get may differ greatly from the amount of the security. Technically, Nokia could choose between either posting a bond or making a deposit. I guess they would have to make a deposit for an amount this large. A bond would be costly, and with Nokia's business being in decline, it's unclear whether any bank would vouch for Nokia to the tune of billions of euros without Nokia actually making a deposit with the same bank (in which case Nokia might as well put the money in a German court's bank account, which wouldn't charge fees).

Nokia's argument that enforcement damages would be mitigated by Daimler disabling 3G isn't convincing. There are some mobile telephone networks in Germany that still rely on 3G in wide swaths of the country (such as Telefónica's O2 service). Also, I don't know whether any carrier would certify a 4G end-user device (such as a connected car) without being backwards-compatible to 3G. That might leave Daimler with 2G.

As for Harman's ability to just supply enough TCUs, I don't know to what extent Harman itself can do it, or whether the powerful Samsung group as a whole could enable Harman to do so.

There's no reason to assume Nokia will ever license Harman, except under antitrust pressure (such as from the European Commission, or as per a court order). So this looks like a peacemeal resolution strategy: by means of a carve-out for Daimler cars with Harman TCUs, Nokia tries to make it easier for the court to grant an injunction (in the middle of the German patent reform debate, where the proportionality of injunctive relief is the #1 topic of debate), and probably hopes that the European Commission won't take decisive action before an injunction comes down. When Samsung was pursuing injunctive relief against Apple almost a decade ago, the Commission at some point put so much pressure on Samsung that all injunction requests over SEPs were withdrawn EU-wide. The Commission's hesitance to strike down on Nokia's clear abuse of EU antitrust law is already making the agency look very bad. Its dual standards are already more than obvious. But at the point where Nokia would enforce a SEP injunction agianst Daimler, enabled only by Nokia's refusal to license Daimler's suppliers, the Commission would either be exposed as the Western world's least credible and least independent competition authority--or it would have to call Nokia off, as it once did in the Samsung case.

If Nokia brought a follow-on complaint targeting Daimler cars with Harman TCUs, the Munich court could adjudicate that one pretty quickly. I'm not sure they would even hold their usual two hearings in that case. However, they couldn't resolve it faster than the appeals court would most likely overturn the original decision.

While it's easy to see how Nokia hopes its tailored injunction strategy may persuade the court to just go ahead and grant an injunction, and dissuade the Commission from intervening, it's harder to tell from the outside what Nokia really intends to achieve here.

It wouldn't make sense for Nokia to obtain an injunction against Daimler cars incorporating TCUs from half a dozen suppliers as long as Daimler has other sources. A follow-on complaint would be a given. And at that point (though I don't think Nokia could formally win a second case before the appeals court tosses a hypothetical first win), Nokia would likely have to make a multi-billion euro deposit. Last summer its cash reserves amounted to approximately 7 billion euros, but it's another question how comfortable Nokia's shareholders would be with half or more of that amount being deposited in a German court's bank account.

Nokia would need a German injunction that bites and lasts. A tailored injunction might just be an annoyance to Daimler without forcing a settlement. And even an injunction that can't be worked around logistically would matter only if it was more than ephemeral.

With its current strategy, Nokia is jeopardizing the reputation of the Munich I Regional Court (by asking it to misinterpret Huawei v. ZTE in an outrageous way) and of the European Commission, whose call for mediation suggested that it is a purely political organization as opposed to a regulator that truly cares about safeguarding competition. The grand prize Nokia is hoping for is a settlement with Daimler, and I don't see that happening anytime soon. This could become Nokia's Vietnam. On Tuesday, the Mannheim Regional Court will most likely hold a Nokia patent non-infringed. Nokia's SEP portfolio is largely untested in litigation. If the patents-in-suit I've seen so far are Nokia's strongest weapons, then they are in serious trouble. At the end of the Daimler dispute, Nokia's SEP portfolio might be totally devalued, and we're just about a couple of years away from the next round of renewals of Nokia license deals in the smartphone industry, where I predict they're going to get far less money than last time.

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Saturday, February 8, 2020

Conservative majority of Ninth Circuit panel might favor Qualcomm over FTC

Last year's trial was a disaster for Qualcomm, with its own witnesses (including the experts) not having much credibility while the FTC put on what appeared to be a very strong case. However, at the appellate stage Qualcomm may benefit from a focus on specific legal questions. I guess we're going to see a mixed ruling.

Meanwhile, the panel for next Thursday's Ninth Circuit hearing has become known:

The worst-case scenario for Qualcomm would have been a panel with a liberal majority (and especially if one or more judges had been Obama appointees). That's definitely not the case here.

At the other end of the spectrum, there would have been a majority of Trump appointees, who might have been most receptive to the DOJ's Antitrust Division's arguments in support of Qualcomm. That's not the case either.

Judge Murphy III, sitting by designation, may understand the automotive industry's concerns about Qualcomm's refusal to extend exhaustive licenses to component makers fairly well, as the Detroit area is part of the district where he normally works.

But other than that, Qualcomm has more reasons to be happy with the composition of the panel than the FTC does. Come Thursday, we may see the appeals court's inclination.

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Thursday, February 6, 2020

FOSS Patents' publication of leaked information on status of mediation effort gave rise to peripheral controversy in Nokia v. Daimler trial

Almost all of the time, this blog merely reports and comments on key issues facing the technology industry, but doesn't create or constitute an issue in and of itself. FOSS Patents has been mentioned in some U.S. court filings over the years, and judges (mostly in Germany, but from what I hear also in other parts of the world) have sometimes made reference to FOSS Patents without naming it. But today was the first situation in which two parties (a plaintiff and an intervenor) traded accusations involving FOSS Patents in different ways.

Various suppliers are intervening on Daimler's behalf in today's Nokia v. Daimler standard-essential patent infringement trial in Munich (continuing in a sealed courtroom as I write these lines). One of them is Peiker Acustic (yes, without an "o" before the "u"), a subsidairy of French automotive supplier Valeo. Just like in an October 2019 early first hearing in another Nokia v. Daimler case pending before the Munich I Regional Court, Dr. Benjamin Schroeer ("Schröer" in German) of the Hogan Lovells firm made an impassioned argument for his client's entitlement to an exhaustive component-level SEP license.

One of Dr. Schroeer's points was that the suppliers intervening in this case were specifically targeted by Nokia, whose complaint names certain suppliers and seeks an injunction and other remedies only with respect to Daimler cars incorporating telematics control units (TCUs) from those particular suppliers. Peiker's counsel noted that Nokia not only excluded Harman (a Samsung subsidiary) from that list but even explicitly stated that Daimler cars incorporating TCUs made by Harman were not being targeted at this stage.

Dr. Schroeer took Nokia to task over this selective, discriminatory targeting of particular Daimler suppliers (as opposed to all of them). While Harman's exclusion would simply be legally required if Harman had an exhaustive component-level license to Nokia's SEPs, he said that Harman quite apparently doesn't have such a license. In this context, he pointed to the fact that a FOSS Patents report on ongoing EU antitrust mediation between Nokia and Daimler as well as various Daimler suppliers mentioned Harman as one of the suppliers negotiating with Nokia. It's true that I listed all participants in mediation that I was able to find out about, and Harman was one of them.

A few minutes later, Nokia's lead counsel, Arnold &, Ruess's Cordula Schumacher, accused Dr. Schroeer of having violated the non-disclosure agreement covering the mediation process by confirming in open court the accuracy of a fact leaked to this blog.

One of the limitations concerning German court proceedings is that there are no transcripts. Otherwise one could verify what exactly Dr. Schroeer said. I don't remember him affirmatively confirming the accuracy of anything I wrote. It might be that the way he expressed himself was ambiguous and could be interpreted as either just referencing what I had written or making it sound like the fact I reported on it deprived the information of protection under the NDA.

In any event, Dr. Schumacher asked the court to add a sentence about this to the official minutes. In that same situation, Nokia's director of European dispute resolution, Dr. Clemens-August Heusch, made a remark to the effect of accusing Dr. Schroeer of having been FOSS Patents' source on the mediation status in the first place. Dr. Schroeer demanded a retraction and an apology (and also asked for something being included in the official minutes). He firmly denied having been my source. Nokia's Dr. Heusch declined the court's invitation to comment.

I don't disclose my confidential sources, which is also why I don't deny that anyone has been a source (or validate or contradict denials). What I did indicate in the Nokia mediation context is that I obtained information from more than one source.

The fact that Harman participated in mediation while not being an intervenor in the Nokia v. Daimler infringement proceedings was interesting for sure, but the blog post in question contained far more sensitive information than that one. It appears overreaching to try to keep the names of the parties to an antitrust mediation (requested by the European Commission) confidential.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Tuesday, February 4, 2020

Munich I Regional Court publishes Standard-Essential Patent (SEP) Local Rules

The Landgericht München I (Munich I Regional Court) has just released its Standard-Essential Patent (SEP) Local Rules (PDF, in German)--formally, just "guidance," but in practical terms, those will be the rules for litigants to follow. This set of guidelines had been in the works for many months.

Here's my quick unofficial translation:

Guidance on the application of the antitrust-based compulsory-license affirmative defense under Huawei v. ZTE in connection with the Patent Local Rules of the Munich I Regional Court

(Version: February 2020)

These guidelines set out the Munich I Regional Court's two patent divisions' application of the antitrust-based compulsory-license affirmative defense according to the principles laid out by the Court of Justice of the Euoprean Union in Huawei v. ZTE (case no. C-170/13). These guidelines are in effect until the Patent Local Rules (which also apply to disputes under the Utility Model Act and the Semiconductor Protection Act) are updated.

I. Scope of applicability

The CJEU's [Huawei v. ZTE] ruling and these guidelines relate exclusively to actions seeking a prohibitive injunction, recall, and destruction [of infringing goods] over standard-essential patents to the extent that such patents bestow market dominance on their owner and to the extent that the owner or its predecessor in title made a FRAND pledge to a standard-setting organization. Transfer of a patent does not annul a FRAND [licensing] commitment. Other case patterns are governed by the principles of the decisions of the Court of Justice of the European Union in IMS/Health (case no. C-418/01) or, respectively, the Federal Court of Justice [of Germany] in Standard-Spundfass (case no. KZR 40/02) and Orange Book (case no. KZR 39/06).

II. Overview of the contract-negotiation procedure to be followed prior to bringing suit

As per the principles of the CJEU decision in Huawei v. ZTE and their interpretation by the two patent litigation divisions of the Munich I Regional Court, the patent holder and the implementer of the patented teaching must, in principle, go through the following stages prior to the filing of the complaint:

1) Notice of infringement, covering at a minimum the future patent-in-suit, provided by the patent holder to the implementer

2) Communication of the desire to take a license by the implementer to the patent holder, covering at a minimum the future patent-in-suit, whereas the implementer may reserve the rights to assert, immediately or subsequently, non-infringement and/or invalidity of the patents to be licensed

3) Comunication of a draft FRAND license agremeent by the patent holder to the implementer, covering at a minimum the future patent-in-suit

4) In the event of non-acceptance: communication of an alternative draft FRAND license agreement by the patent implementer to the patent holder, covering at a minimum the future patnet-in-suit, whereas the implementer may (once again) reserve the rights to assert, immediately or subsequently, non-infringement and/or invalidity of the patents to be licensed

5) In the event non-acceptance: accounting and provision of security by the implementer

6) optional and voluntary determination of the license terms by a third party [such as an arbitration tribunal]

With respect to item 3, the patent holder has the obligation to explain its licensing approach and to specify whether and on what terms it has already concluded license agreements that are comparable with respect to duration and fact pattern, and, furthermore, why -- if applicable -- it has included in its licensing offer any patents beyond the ones with respect to which the implementer requested a license. Should the implementer enter into a reasonable non-disclosure agreement, the patent holder has the obligation to additionally provide confidential details relating to agreements previously concluded, to the extent that the patent holder is formally able to do so within the framework of previously-entered non-disclosure obligations. Should such provision of information not be possible in the absence of a court order, the infringement plaintiff must seek such order at the earliest opportunity. Reference is made to the guidelines on the processing of motions for protective orders, brought during or outside of oral proceedings in patent cases before the Munich I Regional Court.

III. Possibility of rectifying [an omission] until the end of oral proceedings

Whether the [above] steps have been properly taken will be determined at the end of oral proceedings (Art. 136 para. 4 Code of Civil Procedure). Under the Court's Patent Local Rules, that moment is the end of the trial. Some shortcomings can, therefore, be rectified during the pendency of the case in compliance with statutory or judicial deadlines. Within the framework of the Court's Patent Local Rules, this opportunity exists particualrly during the period between the early first hearing and the trial, provided that the rectification of specific shortcomings was announced no later than during the course of the early first hearing. The two patent infringement divisions will -- to the best of their ability -- already discuss the antitrust-based compulsory-license affirmative defense in particular cases in the early first hearing so as to give the parties the opportunity to address specific deficiencies. If multiple complaints by the same patent holder are pending before the same division of the Court and have provoked a uniform compulsory-license affirmative defense, this shall occur in a joint early first (non-technical) hearing. Should multiple complaints with a uniform compulsory-license affirmative defense be pending before both divisions of the Court, the divisions will strive to coordinate closely.

IV. Overview of the procedures:

1. Prerequisites for a substantive discussion of the antitrust-based compulsory-license affirmative defense:

a) The defendant has raised an antitrust-based compulsory-license affirmative defense.

b) The complaint seeks a prohibitive injunction and/or recall and/or destruction [of infringing goods].

c) The defendant has -- in the event that at least one offer relating to at least the future patent-in-suit had been made and not accepted -- made at least one counteroffer relating to at least the future patent-in-suit and, further to its rejection by the plaintiff, has provided an accounting as well as security.

d) Should the defendant previously have licensed the patent-in-suit, but terminated it or otherwise contributed to its termination, such as by defaulting on royalty payments, it can no longer raise the compulsory-license affirmative defense.

e) Should the defendant have been offered a license covering the patent-in-suit, but failed to include this in its counteroffer, it can no longer raise the compulsory-license affirmative defense.

Regarding (a), the defendant has to raise the compulsory-license affirmative defense at the earliest opportunity, which is typically the answer to the complaint.

Regarding (c), the patentee's final binding offer must not be downright unacceptable (Art. 242 Civil Code). This also applies to the implementer's counteroffer. The counteroffer may be of a lesser scope or shorter term, but must, at a minimum, cover the (future) patent-in-suit. The defendant can reserve the rights to assert, immediately or subsequently, non-infringement and/or invalidity of the patents to be licensed. In the alternative to specifying the license fees, the defendant may also offer a determination of those fees by the patentee subject to [judicial review for reasonableness under] Article 315 Civil Code. The [defendant's] accounting and provision of security must, at a minimum, take into account the counteroffer, with respect to the period from the initial implementation to the estimated time of a provisionally-enforceable decision by the Court, as well as common commercial practice. In the event of a non-quantified counteroffer, accounting and security must take the offer into account. In the event of a worldwide offer or worldwide counteroffer, accounting and security can be limited to the German market; they may also be estimated. 110% of the relevant amount must be given as security.

Regarding (d), the said situation can, for instance, arise if the parties concluded a license agreement that provides an opt-out clause to the implementer's benefit with respect to particular patents. Implementers exercising their opt-out right cannot raise an antitrust-based compulsory-license affirmative defense as they had already been licensed.

Regarding (e), the same applies to the event that the defendant did not include the patent-in-suit in its counteroffer, considering that it could therefore have obtained a license.

2. Prerequisites for a substnative discussion of the antitrust-based compulsory-license affirmative defense in an early first hearing:

a) (precautionary) argument by the plaintiff in the complaint

b) affirmative defense raised by defendant in the answer to the complaint

Regarding (a), if the plaintiff seeks a substantive discussion of the antitrust-based compulsory-license affirmative defense in the early first hearing, the complaint shall already contain (precautionary) argument relating to the defendant's expected antitrust-based compulsory-license affirmative defense--not only if the complaint seeks a prohibitive injunction, recall and destruction from the outset but also if this is reserved for an amended complaint (based on the Court's outline of its prelimianry views in the early first hearing or between the two hearing dates if announced in the early first hearing). In exceptional cases, such as in the event of an unforeseeable compulsory-license affirmative defense, the plaintiff may be granted leave, further to a motion for leave, to file a further pleading.

Regarding (b), the answer to the complaint should, even if only for the event of a reserved or possible amended complaint, already contain (precautionary) argument relating to the antitrust-based compulsory-license affirmative defense if the defendant, for it spart, already seeks a substantive discussion of the antitrust-based compulsory-license affirmative defense in the early first hearing.

3. Prerequisites for amending a complaint by adding prayers for prohitive injunction, recall, and destruction:

a) The intent to amend the complaint later shall already be stated in the complaint. The amendment is to be made no later than in the early first hearing or, at least, should be announced in the early first hearing for the period between the two hearings.

b) If the amendment necessitates an increase of the advance payment of court fees and/or the security provided for the other party's recoverable litigation expenses, such increase shall be processed and paid swiftly.

c) Bringing a complaint seeking information, an accounting and determination of damages serves a substitute for an infringement notice in accordance with step (1). Any outstanding steps in the negotiation further to Huawei v. ZTE must, at the latest, be taken during the period between the two hearings. The division hearing the case will allow time based on the circumstances of each case. The required time can be shortened by already providing in the complaint any (precautionary) argument related to the foreseeable compulsory-license affirmative defense. If the defendant has already argued on a precautionary basis its foreseeable compulsory-license affirmative defense in its answer to the complaint, the division may already outline a preliminary assessment in the early first hearing.

4. Particular pleading requirements:

a) The plaintiff has to raise, in particular, the compulsory-license affirmative defense and to plead and prove that its factual requirements are met, particularly that and on what grounds the plaintiff's final binding offer failed to comply with antitrust law (FRAND).

b) If the defendant failed to make a counteroffer, it has to plead and prove that the patentee's final binding offer was downright unacceptable from an antitrust point of view or that the plaintiff would have been required to grant a license to the defendant's suppliers. However, said "derivative" compulsory-license affirmative defense is ineligible if the defendant itself would have had the option to enter into a license agreement taking account--reasonably, sufficiently, and retroactively--of the implications of patent exhaustion or license grants elsewhere in the value chain and esnuring that any pertinent information may also be communicated to other parties in the defendant's supply chain. It must furthermore be ensured that double payment of license fees to the patentee cannot be achieved through the collection of damages.

c) The plaintiff has to meet a secondary burden of pleading with respect to its licensing approach and whether--and, if so, on what terms--license agreements comparable in term and scope have previously been concluded, to the extent that such information is not publicly available or already in the defendant's possession. With respect to previously-concluded agreements, this also applies to portfolios that have been transferred. Should a multiplicity of portfolio transfers and/or portfolio recompositions have created a confusing ("patchwork") situation, the division hearing the case will define the pleading requirements in a given case.

d) If the defendant criticizing the amount of the offered license fee has been offered a license agremeent with a reasonable, sufficient and retroactive most-favored-nation clause, which is particularly appropriate in the event of a first-time license, the defendant has to plead and prove that the offered license fee is nevertheless excessive. If the defendant argues that previously-concluded license agreements resulted from circumstances of pressure, it has to specifically plead and potentially prove what other and lower license rate or what other licensee-friendleir terms the parties to those other agreements would have agreed upon but for said circumstances of pressure.

e) If the defendant, after reserving this right (cf. steps 2 and 4) raises, in an infringement dispute, a nullity and/or non-infringement and/or exhaustion and/or licensing defense (collectively referfed to as "defenses") of particular patents in the portfolio that have been offered but are not presently asserted in litigation, it must plead with specificity and potentially prove that and why the defenses relating to particular portfolio patents offered have more than non-negligible impact on the amount of the license fee offered. If the offered portfolio is dynamic, this possibility exists only with respect to licensed patents and patent applications already granted or, respectively, published by the end of the oral proceedings. In this case, the plaintiff has to meet a secondary burden of pleading to the extent that it has to plead why those patents were included in the offered portfolio and whether and, if so, in which way the asserted defenses relating to particular portfolio patents affect the amount of the license fee offered. The defendant may not raise, in the infringement dispute, these defenses relating to particular portfolio patents if the plaintiff offered the defendant a license agreement that comes with a reasonable, sufficient and retroactive adjustment formula taking account of the subsequent raising of these defenses with respect to particular portfolio patents in a separate proceeding or within the framework of other contractual mechanisms.

f) If the defendant has raised the nullity, non-infringement, exhaustion and/or license-based defenses of these portfolio patents in a separate proceeding and/or -- to the extent permissible -- in countersuits, the burden of pleading and proof will be determined by the applicable general principles.

V. Consideration of motions for protective orders during and outside oral proceedings

Reference is made to the separate guidelines for the consideration of motions for protective orders during and outside oral proceedings in patent infringement disputes before the Munich I Regional Court.

VI. Period between the two hearings

The period between the two hearings of a Munich patent infringement case may be used by the parties for further negotiations, attempts at mediation before a judicial mediator, or for other alternative dispute resolution mechanisms.

VII. Contract terms

Against the background of the principle of contractual freedom and the autonomy of market actors, the Court's two [patent infringement] divisions refrain from specifying the particular content of the contractual terms. However, the wordins chosen [by the parties] must meet the requirements of a given case and strike a fair balance between the parties' opposing interests. It may be an option to rely on contract language provided and communicated by third parties for the same purpose.

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Thursday, January 30, 2020

Over WiFi-related patents, L.A. jury awards Caltech $838 million from Apple, $270 million from Broadcom

A Los Angeles jury just awarded the California Institute of Technology (Caltech) $838 million from Apple and $270 million from Broadcom--a total of approximately $1.1 billion--over patents related to the WiFi standard (IEEE 802.11).

WiFi is just a limited part of the technology in a smartphone, and there are numerous patents allegedly essential to that standard as well as non-essential patents with some connection to WiFi. It wouldn't be possible to profitably make phones if one extrapolated a royalty of $1.40 per iPhone--which appears to have been the outcome--to the totality of patents potentially implemented in such a highly complex and multifunctional device.

Based on the complaint as well as Apple and Broadcom's answer to the complaint, I haven't found an indication that the patents are subject to a FRAND licensing commitment. They might cover efficiency gains related to the actual implementation of the standard. I'll update this post, or do a follow-up post, once I've found out.

This is the biggest WiFi damages verdict to my knowledge. Apple and Broadcom have announced their intent to appeal, so we'll see how much of that amount is ultimately awarded. Those verdicts tend to get slashed later on.

The verdict form isn't available on the docket (case no. 2:16-cv-03714, Central District of California) yet.

In jury trials, but not on appeal, university trolls have two psychological advantages over other patent trolls:

  • While conventional trolls have to come up with creative names like "American [Insert Something] Innovations," jurors intuitively associate universities with research and inventiveness.

  • They can claim to pursue a greater good, as opposed to those greedy corporations infringing their patents, as if those university trolls were Robin Hood's patent-related equivalent.

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Monday, January 20, 2020

One year after trial loss against FTC, Qualcomm approaching Ninth Circuit hearing on far stronger basis: scope of reversal hard to predict

On February 13, the United States Court of Appeals for the Ninth Circuit will hold the appellate hearing in FTC v. Qualcomm. Apart from a misleading citation that I criticized, and a few other weak spots, Qualcomm's reply brief, which I have read more than once, was very powerful. All in all, Qualcomm's lawyers have done far better work than the FTC's appellate team--and than most of the FTC's amici, though some amicus briefs (especially the ones submitted by Intel and MediaTek) were very persuasive.

Qualcomm has made so much headway on appeal that I'm sure at least parts of the district court's ruling will be reversed, if not by the Ninth Circuit, then by the Supreme Court.

In the meantime, the Ninth Circuit has heard Qualcomm's appeal of Judge Lucy H. Koh's certification of a consumer class. The most likely outcome, based on what the circuit judges said, is that the class action will go forward, but limited to customers based in California and, possibly, other states with similar antitrust laws governing indirect-purchaser claims. However, the consumer case is based on the FTC's claims against Qualcomm, so if Qualcomm defeated the FTC's case on the merits, the consumers wouldn't be entitled to anything regardless of class certification.

With respect to Qualcomm's appeal of the FTC ruling, the Ninth Circuit granted, as expected, an unopposed motion by the United States Department of Justice last week, allowing the DOJ to deliver, on behalf of the United States of America, five minutes of oral argument in support of Qualcomm.

Even before the hearing starts, Judge Koh's reasoning for an antitrust duty to extend exhaustive licenses to rival chipset makers is already dead in the water: the FTC distanced itself from that rationale, betting on a right-for-the-wrong-reasons approach instead. Even prior to the FTC formally giving up on that part, I had acknowledged that Qualcomm had credibly claimed never to have intended to grant exhaustive chipset-level licenses.

This is an important landmark case, so I will spend some time in the weeks ahead re-reading the key documents and researching some of the theories in order to develop an opinion ahead of the hearing on what the outcome will be. Wholesale affirmance is very hard to imagine; the question is the scope of a reversal and/or vacatur.

A year ago at this time, the bench trial was in full swing, and I saw Qualcomm on the losing track from the start. That prediction turned out right (as did my later prediction that a Ninth Circuit motions panel with a conservative majority would grant a stay of the injunction). But trials and appellate proceedings are different types of ball games. Google won two district court decisions against Oracle in different years, but they were reversed by the Federal Circuit, and now the two key issues are before the Supreme Court. Google's winning trial team was led by Robert van Nest of Keker, van Nest & Peters--Qualcomm's lead trial counsel a year ago. It would be an irony of fate if it worked out just the opposite way this time, with him having lost the trial and his client now, possibly, prevailing on appeal.

To be clear, it's not that I've given up on the FTC's case as a whole. What I do have to say in all fairness is that in January 2020, Qualcomm is in way better shape than it was in January 2019. They will most likely prevail on appeal at least in part. There are various legal questions involved, and it remains to be seen how much it will hurt the FTC that it practically lost its economic expert. But to what extent Qualcomm will likely succeed is a question I'm going to research and think about more thoroughly in the weeks ahead. At least I want to be in a position to deduce from the circuit judges' questions and comments where the case is headed.

Some Qualcomm fans and/or employees trolled me on Twitter during the trial. They misunderstood me. I'm not against Qualcomm, and even if I would like some of its business practices to change, it would be intellectually dishonest not to make a distinction between one's policy goals and the applicable law. The United States is called the Land of the Free, which is why the antitrust laws are applied cautiously. The Supreme Court has historically drawn the line where judicial overreach would result in overregulation. But before we get to the Supreme Court, the Ninth Circuit will speak. San Francisco, February 13, 2020.

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Saturday, January 18, 2020

Without eBay factor #2, German patent reform movement is left with nothing but Kremlinology, spin, and self-delusion: licensing vs. injunction

Thanks to both those favoring and those opposing patent injunction reform in Germany who gave me feedback. What I hear for the most part is that people appreciate my relentless pursuit of harsh analysis. The injunction-related part of the German patent reform bill is redundant boilerplate of the kind that's not really going to move the needle. Someone has to tell it like it is. The only good news so far is that Ingmar Jung, the rapporteur of the CDU/CSU (= the chancellor's party) group in the German Federal Parliament, told Handelsblatt that they're going to "scrutinize and discuss" the proposal.

I'm quoted in that same article, saying that the proposed reform, a draft version of which was revealed earlier this week, fails to deliver meaningful progress as a prevailing patentee simply needs to make a licensing offer that may be excessive, but just not excessive enough for the court to categorize as unreasonable based on a superficial analysis. In that case, the "infringer" will be considered an "unwilling licensee," and the injunction will come down regardless of the damage it may do.

While I agree with at least one of the thought leaders of the reform movement who says that he sorely misses (as do I) a reference to the commercial value of an invention underlying an injunction patent relative to the accused product, even that perspective isn't comprehensive enough. At the heart of the single biggest issue there's the total absence, from the statute as well as the government's rationale, of the second eBay v. MercExchange factor: the requirement for an injunction that monetary relief (= a damages award) be "inadequate" to make the patentee whole. That includes, but is not limited to, the intrinsic value of the invention at issue and its relevance to the accused product.

It's going to be very hard, if not next to impossible, to improve the situation in Germany without a mind change in this regard. For as long as policy makers and judges believe that an injunction is the King of Remedies (as they say in court, "Königsanspruch"), a prevailing patentee

  • just needs a scintilla of doubt about "good faith" and "unjustified hardship" in order to obtain an injunction (and the court won't even bother to appoint an economic expert witness),

  • will benefit from a fast-approaching expiration date of a patent,

  • a patentee with a licensing-centric business model will actually benefit from his willingness to extend a license (by making the defendant out to be an unwilling-licensee type of infringer--just lawless), and

  • nothing at all will improve with respect to standard-essential patents (SEPs) as the availability of a compulsory license will weigh against implementers, not patentees.

The last bullet point is not merely a prediction. A few months ago I seized the opportunity to ask Presiding Judge Dr. Matthias Zigann of the 7th Civil Chamber of the Munich I Regional Court at an official event whether his SEP guidelines (which will be finalized shortly) would change if proportionality was introduced into § 139 (the injunction paragraph) of the German Patent Act. His answer was no, and he argued that the availability of a license on FRAND terms takes care of proportionality. In other words, defendants should just take a license.

It will be incredibly hard to dissuade a court from injunctive relief, other than maybe some transitional period (with patentees always arguing that one could have started a workaround no later than when notice of infringement was provided or the complaint served), if the hardship one argues to face is weighed against the King of Remedies.

The law must make it clear, ideally through the statute but at least through the official rationale, that a patent is a valuable intellectual property right (IPR) even if patentees must, under certain circumstances, content themselves with damages awards. It needs to be taken into consideration that monetary compensation is the norm, not a rare exception, in the real world as far as the technology sector (from chipsets to cars) is concerned.

In the United States, the fact that someone licensed a patent doesn't necessarily preclude the patent holder from being granted injunctive relief. But it is taken into consideration, and a licensing-based business model certainly doesn't weigh in favor of an injunction, which is why "patent trolls" rarely obtain injunctions in U.S. district court at this stage.

While we're on the subject of comparative law, I appreciate Professor Thomas Cotter's latest Comparative Patent Remedies blog post, in which he "certainly agree[s] that 'the German statute falls far short of eBay v. MercExchange.'" I guess no one would doubt that this is not even a close question. But if we ask ourselves what eBay factor makes the greatest difference, I can tell you from my experience as a patent litigation analyst that the second factor is the crucial one. Its underlying idea is what the reform movement must explain to politicians: not in the sense of "everything's better in America" but, regardless of what other jurisdictions do, it's key for decision-makers to understand that a patent is valuable even if injunctions don't come down more or less automatically.

For now, it seems that only parts of the reform movement reject and resist any attempt to gaslight them. In too many places, they're trying to spin a smokescreen into a substantive victory, which won't work because of how German patent infringement judges think. For the third time in the (almost) ten-year history of this blog, I have to quote Julius Caesar: "fere libenter homines id quod volunt credunt" (people readily believe that what they want to be the case is the case)

Self-delusion is not the answer. The logic underlying the second eBay factor can make a difference. Maybe it works in some organizations that people sell as a groundbreaking success what is just symbolical and psychological. I'm not going to be impressed or persuaded by anything that doesn't establish criteria capable of truly redressing the balance.

What Presiding Judge Ulrike Voss ("Voß" in German, and not to be confused for Karlsruhe appellate judge Andreas Voß) said on Thursday about the bill claiming not to change anything, but there perhaps being a hidden message in the government's decision to amend the injunction paragraph at all, may raise hopes. But such hopes are tantamount to Kremlinology, or "Kremlin Astrology," just like an announcement of a five-year plan having been met by the Soviet Union was interpreted against the background of the Secretary General of the Central Committee of the Communist Party looking displeased and the Secretary of Commerce having been sixth, not fourth, to enter the room that day.

Even Judge Voss's observation that the new statute might mean a slightly (!) more open door to a permanent denial of injunctive relief than the Heat Exchanger ruling by the Federal Court of Justice doesn't convince me. The point of reference is Article 3 of the Intellectual Property Rights Enforcement Directive (IPRED) of the European Union. That one is in force and effect, not merely a suggestion...

The reform movement must never lose sight of eBay factor #2 and IPRED Art. 3. And I just realize we haven't even talked about the injunction gap problem, which the draft bill fails to solve as well...

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