Tuesday, March 30, 2021

Judge Albright's popularity among patent trolls: an unsustainable situation for the Western District of Texas and the Austin area economy

ValueWalk, a website for financial investors, mentioned a potential scientific explanation for why trees don't grow to the sky: "[T]heir height is limited by their ability to pull water from the roots to the leaves." Gravity is a reality not only in biology, but also in patent litigation. Even in Waco, TX, gravity is a force.

The patent docket of the Western District of Texas has grown eight-fold in only about two years. As Lex Machina reports, 793 new patent infringement cases were assigned to Judge Alan D. Albright of the United States District Court for the Western District of Texas in the year 2020--19.5% of all U.S. patent cases filed that year, and more than three times as many as to Judge J. Rodney Gilstrap in the Eastern District of Texas. For example, eight patent complaints were filed yesterday with Judge Albright's court, versus 18 in all other (roughly 100) federal judiciary districts combined.

A local newspaper article quotes Judge Albright as saying that "[t]here is nothing [he] enjoy[s] more than working on patent cases" (he was a patent litigator before being appointed to the bench) because "the lawyers are exceptional and the issues before me are always intellectually challenging." And he feels "unbelievably lucky" about this institutionalized excess.

The recent record patent damages verdict in VLSI v. Intel ($2.175 billion) may attract even more patent holders to the Western District. Whether it's Caltech suing Microsoft or a newly-founded patent assertion entity claiming Samsung infringes its LED patents, they all contribute to the Western District's "market leadership" because they seek windfall profits from Judge Albright's exceedingly patentee-friendly rules and decisions.

But is this case load really a good thing for the court and for the region?

It can't go on like that. With just half as many new filings, Judge Albright would still be the undisputed number one U.S. trial judge in terms of the number of patent cases on his docket. But what's happening at the moment is a frenzy to put it mildly, or simply an insanity. In a short while, Judge Albright's reputation may be ruined, the local economy seriously harmed, and ultimately that won't even be positive for the W.D. Tex. patent docket.

Even if Judge Albright tried to be a bit more balanced, the fact that many major technology companies have a presence in his district would ensure a steady stream of patent filings. However, the current explosion is going to backfire in multiple ways:

  1. If the Federal Circuit receives an appeal of a billion-dollar verdict from that district pretty much every month, the appellate judges won't be impressed. Much less overwhelmed. Instead, they'll stop taking that lower court seriously, and they'll overrule Judge Albright time and time again, occasionally with scathing remarks on what they believe he got wrong. It would take time, but after a certain number of reversals, that would even discourage plaintiffs from suing there.

  2. The judiciary is independent, but some of the technology companies with a significant presence in the Austin area may decide to leave the region only because their executives decide those wacko verdicts are far above the ordinary cost of doing business. Once a major company announces such a decision, killing thousands of jobs in the region, local media may take a very critical perspective on Judge Albright's passion for patent litigation.

  3. Many patent cases are settled ahead of trial, but still, some must be tried. There comes a point at which Judge Albright won't be able to guarantee the short time to trial that helped make his court so popular. And once he has to push back trial dates, the USPTO's Patent Trial and Appeal Board will accept more petitions challenging W.D. Tex patents-in-suit as opposed to denying them on a discretionary basis under NHK Fintiv.

  4. § 1400(b) isn't the only requirement for keeping a patent case in the district in which it was filed. There were at least two high-profile Federal Circuit decisions last year--one involving Apple and another Adobe--in which Judge Albright was held to have abused his discretion by denying transfers of cases out of his district to more convenient fora. In one case, the appeals court basically added insult to injury by deciding that the work performed by Judge Albright (such as claim construction, which is normally considered a key milestone) didn't count: the judge had simply given "undue priority" to the proceedings on the merits over Apple's motion to send the case to California.

    It is obviously not an official criterion for an appeals court in the venue transfer context whether the lower court reasonably manages and decides its patent cases. But the Federal Circuit judges are very much concerned with the quality of the U.S. patent judiciary. At some point they won't merely give Judge Albright a slap on the wrist, but some of them might be sympathetic to defendants moving for a venue transfer.

Judge Albright has gone too far. It's time for the pendulum to swing in the other direction. Otherwise this is going to be nothing short of a disaster. I'll pay close attention to new filings and decisions, and major trials, in that district.

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Will the FTC/DOJ divide over antitrust enforcement against standard-essential patent abuse persist under President Biden?

Yesterday, the Federal Trade Commission's Acting Chairwoman Rebecca Kelly Slaughter issued a statement on the fact that the FTC did not file a petition for writ of certiorari (Supreme Court review) in the Qualcomm case. On the decision itself I had already commented a few days ago, with a particular emphasis on the fact that Qualcomm's lawyers are now representing Epic Games against Apple and Google.

The FTC's press release is now the first high-profile statement by a federal government agency on standard-essential patent (SEP) matters since President Biden took office, deserving a closer look.

I totally agree with Mrs. Slaughter that the agency's "staff did an exceptional job presenting the case" at the trial stage. And it's a good thing to give Judge Lucy H. Koh credit. It obviously looks strange that the trial court agreed with the FTC all the way (except for a duty-to-deal theory that the FTC didn't defend on appeal) while the appeals court reversed everything it could and vacated the remainder (the FRAND contract interpretation) as moot. Judge Koh deserved better. The Trump presidency was really bad for her. She had already been nominated to the Ninth Circuit, but her confirmation got derailed by the 2016 presidential election. And then the Antitrust Division of the Department of Justice, under Trump appointee Antitrust Assistant Attorney General Makan Delrahim, fought hard against her ruling--and against the FTC.

It's often easy to be wise after the event, but if there's only one aspect of trial management that Judge Koh could have done better in retrospect, it's that she could have allocated more time to a discussion of the law with counsel. This was a complex case with multiple claims and theories. After all the witnesses had been heard, some more extensive back-and-forth between judge and counsel, partly in writing perhaps, might have helped to reach more solid conclusions--maybe the same result in the end, even on the duty to deal (for a component-level license), but on a more appeals-proof basis. Instead, the parties were basically just viewed as delivery boys: they had to present the facts, but the judge thought she knew all about the law. Then, I also sometimes disagreed with Judge Koh in the Apple-Samsung context (as did the appeals court, the Fedreal Circuit in that case), but all in all she is and remains an impressive judge especially on technology industry issues.

The FTC's Acting Chairwoman didn't concede the battle to Qualcomm without a stern warning to SEP abusers:

"I am particularly concerned about the potential for anticompetitive or unfair behavior in the context of standard setting and the FTC will closely monitor conduct in this arena."

Maybe the automotive SEP licensing and enforcement context would provide the FTC with another bite at the apple that is called component-level licensing. Tesla has apparently just been coerced into an Avanci license. Obviously, Tesla itself would find it hard to enforce the antitrust laws against those who sued it over patents, after just signing a settlement agreement. But the FTC could step in and investigate what happened, and possibly take action. If the FTC won, the Avanci-Tesla agreement might be annulled. Tesla wouldn't have to violate any enforceable agreement because it would simply have a legal obligation to answer the FTC's questions.

In the automotive context, SEP holders can't argue that the industry they're dealing with has traditionally taken licenses at the end-product level. The opposite is the case. And it's a multi-tier supply chain: baseband chips get incorporated into network access devices, which in turn are incorporated into telematics control units, and the TCUs are finally built into cars.

Addressing the component-level licensing issue in the SEP context would help not only Tesla but also other U.S. car makers such as Ford and GM. And, by extension, it would benefit Apple.

But there is a significant roadblock: under the aforementioned Mr. Delrahim, the DOJ cleared Avanci's business model by means of a non-binding business review letter.

That roadblock isn't insurmountable, and as a side effect of helping Tesla, GM, Ford, Apple and especially consumers, a victory over a licensing model designed to coerce OEMs into end-product-level SEP license agreements would be the best way to dedelrahimize U.S. SEP policy.

But what about the Biden DOJ? That question already came up in my podcast a couple of months ago, where I asked DC-based antitrust attorney Jay Jurata of Orrick Herrington Sutcliffe for his thoughts on how U.S. SEP policy might evolve after the transition of power.

Mrs. Kelly Slaughter's statement starts by acknowledging "the significant headwinds facing the Commission in this matter." That passage may or may not hint at a continuing FTC-DOJ divide over this case.

My most optimistic scenario would be that the "new" DOJ will pick up where the Obama Administration left off in terms of SEPs, and the same would ideally happen at the USPTO as well, in which case we could soon return to a better SEP licensing and enforcement framework. In that case, the term "headwinds" might have been limited to the fact that the outcome before the Ninth Circuit was obviously disappointing for the FTC and Qualcomm (through its allies) had succeeded in portraying FTC v. Qualcomm as an Obama case, which wouldn't help when you face a Supreme Court with a 6-3 conservative majority.

A moderately optimistic scenario would be that the FTC talked to the DOJ, as the Solicitor General (the second highest-ranking DOJ official) would represent it before the Supreme Court, and the DOJ discouraged a cert petition not because it still shared Delrahim's positions but because it genuinely believed that chances were slim (such as for the "Obama case" reason I just mentioned, and/or because of the significant challenge that it would have been to come up with a couple of good questions for review).

The pessimistic scenario is that DOJ-ATR and FTC are still far apart on the issue.

It won't take long before we find out. For example, if DOJ-ATR again supported Fortress Investment against Apple and Intel (who recently brought a second amended complaint, with Mr. Delrahim having played a key role in enabling Fortress to get earlier versions dismissed), then there would clearly be the same divide as before.

As an app developer, I'm personally most interested in the FTC and the DOJ combating the abuse of mobile app store monopolies. The decision to abandon the Qualcomm case freed up agency resources.

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Monday, March 29, 2021

Amended Apple-Intel complaint against Fortress alleges monopolization of markets such as 'Generating Alerts Based on Blood Oxygen Level Patents Market'

Earlier this month, Apple and Intel filed their second amended complaint against Fortress Investment. It all started in October 2019 with an Intel antitrust lawsuit in the Northern District of California, which was effectively replaced with a joint Apple-Intel filing in November 2019.

The November 2019 filing was 57 pages long, but not specific enough to meet the pleading requirements in Judge Edward M. Chen's opinion. The complaint has meanwhile grown to 161 pages plus a 17-page table. In many other cases, this would suggest that additional claims have been added. Here, however, the complaint is actually more narrowly focused, and the prayers for relief are the same as in the original complaint except an additional request for "[a]n order directing the termination of the anticompetitive conduct and injunctive relief that restores competition to the markets at issue."

The fact that Qualcomm's Ninth Circuit victory over the FTC won't be appealed to the Supreme Court doesn't make things easier for Apple and Intel, but it makes Apple and Intel v. Fortress even more important: whether this case reaches the appeals court before or after trial, and regardless of who prevails in this case, it will present an opportunity for the Ninth Circuit to clarify that FTC v. Qualcomm doesn't immunize patent-related practices from antitrust liability to the far-reaching extent that some would have us all believe.

Even if--in a totally hypothetical but conceivable scenario--all that Apple and Intel achieved in the Fortress case was a trend reversal from FTC v. Qualcomm, that would be a strategic breakthrough in its own right.

There's also a patent policy dimension to this case. Most patent infringement cases are nowadays brought by non-practicing entities (NPEs) that are affiliated with such groups as Fortress Investment, Acacia, or IP Edge. In other words, there's a trend toward consolidation and economies of scale in the NPE business. This is the rhetorically strongest sentence in the second amended complaint that complains about the effect of such consolidation in light of litigation campaigns such as 25 Uniloc v. Apple and 35 Uniloc v. Google cases (including Google affiliates):

"Fortress and its [patent assertion entities] operate based on volume and repetition, targeting the resolve of the targets instead of establishing the merits and value of the patents."

A slightly longer version of the same allegation is also found in the complaint:

"Patent assertion thus becomes simply a numbers game disassociated from the merits of the underlying patents, with PAEs and their investors betting that serial assertions with aggressive demands will strike a jackpot eventually making up for many other losses."

The question before Judge Chen at this point is whether the pleading requirements for an antitrust case are met. It's not that Apple and Intel didn't state these types of allegations before, but broad assertions just weren't deemed sufficient to go forward with the case.

But long before this case goes to trial, or before an appeals court might hear a dismissal with prejudice, policy makers should pay attention to what Apple and Intel describe in their complaint. How much leverage, such as in the form of injunctive relief, do we as a society want to give patent owners who don't make products that compete with the ones they accuse of infringement? In the U.S., there are limits under eBay v. MercExchange, which some lawmakers on Capitol Hill would like to overturn. In Germany, NPEs have the same access to injunctive relief as all other patent holders (and the patent injunction reform that may be enacted in the coming months won't change that). Interestingly, the complaint notes that "VLSI is seeking to enjoin Intel in multiple litigations in China." That's the Fortress-funded company that recently won a $2.2 billion verdict against Intel in the Western District of Texas. Another VLSI v. Intel trial in the Western District of Texas--where many major technology companies get sued as I discussed in my previous post--will go to trial next month.

Apple and Intel also complain that "by controlling patents across several PAEs (including those with which Fortress’s relationship is not readily apparent), Fortress conceals the true scope of its patent portfolio." Transparency in patent ownership has been an issue for a long time and is by no means specific to Fortress. Less than ten years ago, even Google opposed transparency because it thought it had a bargaining chip against Apple, Microsoft and possibly others by threatening to sue them over patents it described as very powerful but declined to disclose.

Obtaining (through filings or acquisitions), licensing, and asserting patents are legitimate activities. As the complaint notes, "[t]here is nothing inherently illegal with owning many patents or obtaining those patents through acquisition." The problem in patent policy is that politicians often have the "lone inventor" in mind whom some reckless large corporations just don't want to pay. But those "lone inventors" bring very few patent infringement complaint compared to major aggregators. Apple and Intel's Fortress case draws attention to what happens when billions of dollars are invested in the acquisition and enforcement of patent portfolios.

There's one theory of harm underlying Apple and Intel#s complaint that Judge Chen is, in principle, prepared to entertain: the monopolization of specific licensing markets by the acquisition of patents covering techniques that could substitute for one another. However, Fortress has consistently complained that Apple and Intel failed to define such markets with sufficiently clear boundaries, and so far Judge Chen agreed and sent Apple and Intel back to the drawing board.

Apple and Intel have gone to extreme lengths, literally speaking, in order to complete their market definition homework. One of the markets they've defined is the "Generating Alerts Based on Blood Oxygen Level Patents Market." It may seem funny, but the reason I provided this example in the headline is simply that this shows how hard Apple and Intel are trying to meet the antitrust pleading standard.

The court also wants Apple and Intel to plead competitive harm in the form of excessive royalties having been obtained as a result of patent aggregation in certain markets. Here are a few passages that demonstrate Apple and Intel's efforts in that regard:

"[T]he success of this aggregation and its anticompetitive effects can be seen in the disparity between (1) the prices at which Fortress and [its affiliates] acquired substitute and complementary patents and/or valued such patents before aggregation and (2) the significantly higher amounts that Defendants have obtained as royalties or sought in damages for these same patents after they have been aggregated under Fortress’s control in the relevant patent markets."

"{T]he value to the prior owners of asserting the transferred patents was outweighed by the costs of doing so before aggregation because the value of the patents was constrained by competition in the markets for those patents and the owners lacked market power. The prior owners thus did not assert them. Likewise, the prior owners could not have obtained the licensing amounts for the aggregated patents that Defendants have obtained or seek without the benefit of eliminating competition through aggregation. If the prior owners had been able to obtain such supracompetitive royalties, they would not have sold their patents to Defendants for amounts far below what Defendants have obtained or seek in royalties, and instead either would have sought to license the transferred patents themselves or sold them to Defendants at far higher prices. Indeed, except for limited exceptions described below, the aggregated patents had not previously been offered to Apple or Intel to license, and thus, on information and belief, nor to other similarly-situated potential licensees. The prior owners thus were seeking no royalties for the aggregated patents before their sale."

"To the extent that Fortress and the other Defendants have patents that would actually be of value to potential licensees, the transfer of those patents to Fortress’s control limits access to them because those patents are now held by entities that, in light of the elimination of competition that constrained their prices, now have no incentive to license patents in a way that captures royalties that are commensurate with their actual value. Instead, those entities have incentives to obtain excessive monopoly rents by exploiting patent portfolios that aggregate substitute patents with many meritless patents."

Fortress and its affiliates will deny this. For example, I guess they will argue that prior owners simply didn't fully understand the value of those patents. But if Judge Chen or the appeals court finds that those arguments just go to the merits, then Apple and Intel will get their day--actually, a number of days--in court.

The deadline for Fortress and its affiliates to file an answer to the complaint or a renewed motion to dismiss (or similar motion) has been pushed back to April 26. In the event there will be another motion, the deadline for Apple and Intel's opposition is June 14 (in which case Fortress can reply by July 8).

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Sunday, March 28, 2021

Western District of Texas: overview of § 1400(b) place-of-business pleadings by patent holders suing major technology companies

The rise of the Western District of Texas to the world's busiest patent litigation forum, in only a couple of years, is due to the combination of Judge Alan Albright's patentee-friendly leanings and the last six words of 28 U.S.C. § 1400(b): "regular and established place of business."

A company may be sued over an alleged patent infringement in a particular district if that is where it resides (state of incorporation as clarified in TC Heartland; this allows so many patent cases to be brought in the small state of Delaware) or "has committed acts of infringement" (which is a given if a company offers services or sells products on a nationwide basis) and "has a regular and established place of business."

Shortly after TC Heartland, the Federal Circuit established "three general requirements relevant to the inquiry" of whether an alleged infringer has a "regular and established place of business" in a district (In Re: Cray Inc.):

"(1) there must be a physical place in the district;

"(2) it must be a regular and established place of business; and

"(3) it must be the place of the defendant."

The third requirement was outcome-determinative in Cray: it's not enough for an employee to work from a home office. The employer should pay the rent, for example.

The second requirement is not tautological. It is just put into the context of the first and third requirements, and the Federal Circuit provided further clarification on what is "regular" and what is "established." A business operating in a steady, uniform, orderly, and methodical manner would satisfy the regularity criterion, while "sporadic activity cannot create venue." The Federal Circuit also considered etymology: "established" actually has a root that also exists as a standalone word: "stable." A very clear case of stability that the appeals court provided is "a five-year continuous presence in the district." That doesn't mean a business couldn't move its location, but it would have to be stable "for a meaningful time period."

The Supreme Court and the Federal Circuit provided great guidance, and appeared to be aware of the problem of forum-shopping in patent litigation. Beyond what I just summarized, the Federal Circuit sometimes also moves venue on the basis that a different place has a much closer connection with the alleged acts of infringement. I will get back to that in another post on the Western District's growth.

Still, patent holders can sue a number of very significant technology companies in the Western District on a basis that is sufficient for Judge Albright to flatly deny a motion to transfer venue. I downloaded a sample of a few dozen W.D. Tex. patent infringement complaints, so I'm now going to quote the passages with which the plaintiffs (mostly non-practicing entities) seek to justify their forum choice (in alphabetical order):

  • Acer:

    "Upon information and belief, Defendant Acer America Corporation is a corporation organized under the laws of the State of California, having an office with ongoing business located at 1394 Eberhardt Rd, Temple, TX 76504."

  • Amazon:

    "Amazon.com Services, LLC is a company organized and existing under the laws of Delaware, with an office located at 11601 Alterra Pkwy., Suite 500, Austin, TX 87858-3358"

  • Apple:

    "Apple has regular and established places of businesses in this District, including at 12545 Riata Vista Cir., Austin, Texas 78727; 12801 Delcour Dr., Austin, Texas 78727; and 3121 Palm Way, Austin, Texas 78758."

  • Atlassian:

    "Atlassian resides in the Western District of Texas by maintaining a regular and established place of business at 303 Colorado Street, Suite 1600, Austin, TX 78701."

  • Blizzard Entertainment:

    "On information and belief, Blizzard is a corporation existing under the laws of the State of Texas, with a principal place of business located at 9400 W Parmer Ln, Austin, TX 78717."

  • Broadcom:

    "[Broadcom] has a regular and established place of business in the District, including a corporate office at 2901 Via Fortuna Drive, Austin, Texas 78746."

  • Cisco:

    "Venue is also proper in this district because CSI [Cisco Systems, Inc.] has a regular and established place of business in this district. For instance, CSI has operations in this judicial district. For example, CSI has facilities located at 12515-3 Research Park Loop, Austin, TX 78759."

  • Dell:

    "On information and belief, Defendant Dell Technologies, Inc. is a corporation organized under the laws of the State of Delaware, with its principal place of business at One Dell Way, Round Rock, Texas 78682."
  • Facebook:

    "On information and belief, [Facebook] has a regular and established place of business in this judicial district at 9420 Research Blvd, Austin, Texas 78759."

    "Facebook resides in the Western District of Texas by maintaining regular and established places of business at 300 W 6th Street, Austin, Texas, 78701 and 607 W 3rd Street, Austin, Texas 78701."

  • Google/YouTube:

    "Google LLC ('Google') is a Delaware corporation with a physical address at 500 West 2nd Street, Austin, Texas 78701."

    "YouTube, LLC ('YouTube') is wholly owned by Google and is a Delaware limited liability company with a physical address at 3600 Presidential Boulevard, Austin, Texas 78719."

  • HP:

    "[S]ince at least as early as 2016, [Hewlett Packard Inc.] has had an established place of business in this judicial district with a physical office at 3800 Quick Hill Rd. #100, Austin, TX 78728."

    "On information and belief, [Hewlett Packard Enterprise Company] formally registered to do business in the State of Texas SOS file Number 0802175187 in March 2015 and has a place of business at 14231 Tandem Blvd, Austin, Texas 78728."

  • Huawei:

    "Upon information and belief, Defendant Huawei Technologies USA Inc. is a corporation organized and existing under the laws of Texas that maintains an established place of business at 2391 NE Interstate 410 Loop, San Antonio, TX 78217."

    "On information and belief, Defendant Huawei Device USA, Inc., is a Texas corporation with a principal place of business located at 5700 Tennyson Parkway, Suite 600, Plano, Texas 75024."

  • Intel:

    "On information and belief, since April 1989, Intel has been registered to do business in the State of Texas under Texas Taxpayer Number 19416727436 and has places of business at 1300 S Mopac Expressway, Austin, Texas 78746; 6500 River Place Blvd, Bldg 7, Austin, Texas 78730; and 5113 Southwest Parkway, Austin, Texas 78735 (collectively, 'Intel Austin Offices')."

  • Juniper:

    "Defendant Juniper Networks, Inc. is a corporation organized and existing under the laws of Delaware that maintains an established place of business at 1120 S Capital of Texas Hwy #120, Austin, TX."

  • LG Electronics

    "LG has regular and established places of businesses in this District, including at 9420 Research Blvd, Austin, Texas 78759. LG also has several service repair locations in this District."

  • Microsoft:

    "Microsoft has a regular and established place of business in this District. Microsoft maintains corporate offices in this District, including at 10900 Stonelake Boulevard, Suite 225, Austin, TX, USA 78759 and Concord Park II, 401 East Sonterra Boulevard, Suite 300, San Antonio, TX, USA 78258. In addition, on information and belief, Microsoft has not disputed that venue is proper in this District in cases filed against it in this District."

  • Nvidia:

    "On information and belief, NVIDIA has a regional office in this District, including at least at 11001 Lakeline Blvd., Building 2, Suite 100, Austin, TX 78717."

  • Samsung:

    "On information and belief, Samsung Electronics America, Inc. conducts business operations in the Western District of Texas in its facilities at 12100 Samsung Blvd., Austin, Texas 78754. Samsung Electronics America, Inc. has offices in the Western District of Texas where it sells and/or markets its products, including an office in Austin, Texas."

  • Tesla:

    "8. Tesla maintains a permanent physical presence within this District. For example, it maintains galleries at (1) 12845 Research Boulevard, Austin, Texas 78759; (2) 11600 Century Oaks Terrace, Austin, Texas 78758; and (3) 23011 IH-10 West, San Antonio, Texas 78257. Tesla also maintains service centers in this District, including at 12845 Research Boulevard, Austin, Texas 78759; 23011 IH-10 West, San Antonio, Texas 78257; and 28 Walter Jones, Suite C, El Paso, Texas. Tesla conducts business from at least these locations. Tesla employs employees who work at Tesla’s locations in this District.

    "Austin, TX 78759; (2) Austin, TX Supercharger, 6406 N. Interstate 35 Frontage Road, Austin, TX 78752; (3) El Paso Supercharger, 6401 South Desert Boulevard, El Paso, Texas 79932; (4) Fort Stockton, TX Supercharger, 2571 North Front Street, Fort Stockton, Texas 79735; (5) Giddings, TX Supercharger, 3025 East Austin Street, Giddings, Texas 78942; (6) Junction Supercharger, 2415 N Main Street, Junction, Texas 76849; (7) Leon Springs, TX Supercharger, 24165 I-10 #300, San Antonio, Texas 78357; (8) Midland Supercharger, 3001 Antelope Trail, Midland, Texas 79706; (9) Pecos, TX Supercharger, 100 East Pinehurst Street, Pecos, Texas 79772; (10) San Antonio, TX Supercharger, 11745 I-10, San Antonio, Texas 78230; (11) San Marcos, TX Supercharger, 3939 Interstate 35, San Marcos, Texas 78666; (12) Van Horn Supercharger, 1921 Frontage Rd, Van Horn, Texas 79855; and (13) Waco Supercharger, 701 Interstate 35, Bellmead, Texas 76705. Upon information and belief, Tesla also has eight (8) Supercharging stations “coming soon” to this District.

    "b. Tesla’s locations in this District, including at least those identified in paragraphs 8 and 9 above, are regular and established. Tesla features commercial signage at each location identifying the location as a regular and established place of Tesla’s business.

    "c. Tesla’s locations in this District, including at least those identified in paragraphs 8 and 9 above, are places of business of Tesla. Tesla offers its own products and services for sale at its locations.

    "d. Tesla’s locations in this District, including at least those identified in paragraphs 8 and 9 above, are physical, geographical locations in this District from which Tesla carries out its business.

    "e. Tesla employees work at Tesla’s locations, including at least those identified in paragraphs 8 and 9 above. Upon information and belief, these Tesla employees are regularly and physically present at Tesla’s locations, including at least those identified in paragraphs 8 and 9 above, during business hours and they are conducting Tesla’s business while working there.

    "11. Further, upon information and belief, Tesla trains future employees (specifically, electric vehicle technicians) in this District at Tesla’s START Training Program housed at Texas State Technical College in Waco, Texas. Tesla provides the instructor, training equipment, vehicles, tools, and curriculum for the program. Students are employed by Tesla as hourly interns, and following completion of the program they are placed in a Tesla Service Center in North America."

  • Uber:

    "Uber has regular and established places of business in this District, including at 201 East 3rd St., Austin, TX 78701; 507 Calles St., #120, Austin, TX 78702; 10842 Potranco Rd. #112, San Antonio, TX 78251 and 121 Interpark Blvd. #501, San Antonio, TX 78216."

    "[Uber has] actively advertised to employ (and in fact hired) residents within the District as drivers."

  • Western Digital:

    "On information and belief, Defendant Western Digital Technologies is a Delaware corporation with a principal place of business at 7501 N. Capital of Texas Highway, Suite A 100, Austin, TX 78731 and 9442 N. Capital of Texas Highway, Austin, TX 78759."

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Saturday, March 27, 2021

Has European Commissioner Thierry Breton already announced that Apple will have to allow alternative app stores? A matter of interpretation.

One of the first LinkedIn posts I read this morning was from the Coalition for App Fairness, which was founded last year by Epic Games, Spotify, Match Group and others. When the CAF started, I firstly wanted to wait and see, but at the start of this year I already predicted on this blog that it would keep growing. My own app development company may at some point apply for membership, but even in that case I'd obviously retain my independent opinion. It was high time someone founded the CAF, given that a couple of other organizations claim to represent app developers while in reality being paid and remote-controlled by Apple in one case, Google in the other. It's laughable when an entity claims to represent app developers but doesn't support Epic against Apple, for example.

So the CAF pointed to an article published by EU Internal Market Commissioner Thierry Breton on LinkedIn, entitled DSA/DMA Myths -- What is the EU digital regulation really about?

According to CAF's interpretation of the article, Mr. Breton is "stressing the importance that all gatekeepers allow other app stores on their platforms. This would mean that for the first time, there will be real competition for the App Store." (emphasis added)

It's obvious that I would want this to happen. Competition works wonders. This isn't just about the commission on in-app payments. When they reject your app and won't let you publish it at all or force you to give up on your original concept, your focus is not on 15%, 30% or any percentage for that matters. As Epic will argue in the May trial, alternative app stores can do a better job at curation (app reviews). I don't know whether the Epic Games Store, if it already existed on iOS, would have accepted my app (we'd have to build a Windows version and submit it to them to find out), but considering that similarly-themed games are available on Steam (a pretty meaningful point of reference), the Samsung Galaxy Store, the Microsoft Store etc., I'd be reasonably optimistic. At a minimum I would know that whoever (Apple, Epic, or any third party) rejected it would have to assume that some other app store might carry it. That would discipline all of them, and rejections would become more reasonable. Some people blame the reviewers, such as the Coronavirus Reporter complaint against Apple; I prefer to focus on structural and systemic issues, but regardless of how structural or not a problem is, competitive constraints can only help.

The European Union's envisioned Digital Markets Act could become the most important piece of legislation in the technology space ever, way above such laws as the U.S. Digital Millennium Copyright Act (the substance of which I don't mean to criticize; I vocally supported its enforcement in a case involving Blizzard Entertainment).

But the question is: is Mr. Breton actually saying in that LinkedIn article that there will be alternative app stores on iOS (and Android)?

Here's the only passage in his statement that mentions apps:

"Gatekeepers will keep digital opportunities; providers of operating systems will always be able to offer all sorts of software and apps as they wish. In addition, the DMA empowers the users who do not like the preinstalled apps to switch to a different service or use a different app offered by another provider." (emphasis in original)

The narrowest interpretation would be that users must be provided with alternatives to any preinstalled apps, either by selecting different services within an app (such as by selecting a different search engine in a search app) or installing "a different app" made by another developer. In that case, one would interpret "provider" as "service provider" in the same sense that users could switch to a different service within an app.

But one doesn't even have to interpret "by another provider" as "by a different app store" in order to arrive at the CAF's desired outcome. The Apple App Store is an app itself (as is the Google Play Store). And it's a preinstalled one. So, arguably, Apple would have to offer an alternative by another service provider (such as the Epic Games Store) to the App Store. At a minimum, the CAF's interpretation is defensible, even though I'm not going to take a definitive position on whether it's the only proper interpretation (absent additional evidence).

What Mr. Breton primarily sought to accomplish with his LinkedIn article is to debunk the "myth" that Apple couldn't offer, say, a music streaming service. Instead, the DMA would impose obligations requiring "that business users and end users are not unfairly deprived of their free choice, a fundamental postulate of [the EU's] single market." An alternative app store would be as consistent with that vision as it gets. Many roads lead to a multi-app-store ecosystem, and the DMA is one of them, at least potentially.

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Samsung gets 'westerndistricted' by non-practicing entity asserting LED patents in Waco, TX

When companies like Ericsson, but also numerous non-practicing entities, want to sue Samsung over U.S. patents, they traditionally went to the Eastern District of Texas. This Harvard Business School Working Knowledge article discusses how Samsung seeks to generate goodwill from the local community (from which the court picks its jurors) such as by building the only outdoor ice skating rink in Texas and an annual Wonderland of Lights festival, which "started with the Samsung Holiday Celebration Show, featuring music by the local symphony as 250,000 Christmas lights lit up the county courthouse."

But there's an east-to-west "case drain" with the Western District of Texas having gone from a secondary patent litigation forum at best to the undisputed "market leader" among all roughly 100 U.S. federal judicial districts. And occasionally, even Samsung gets sued in the Western District, such as by a non-practicing entity named LED Wafer Solutions on Thursday (click on the image to enlarge):

All one can google about that company is this lawsuit. It appears that this entity strategically chose to designate Waco, TX (where Judge Alan Albright presides over the Western District's patent cases, unless he transfers them within the district to Austin and stays on top anyway) as its legal domicile:

"Plaintiff LED Wafer is a limited liability company organized and existing under the law of the State of Delaware, with its principal place of business located at 7215 Bosque Blvd., Suite 156, Waco, TX 76710.

How many people this entity actually employs, and how much time they actually spend in Waco, is another question.

While Samsung's presence in East Texas is stronger than in West Texas, the complaint says the following:

"On information and belief, Samsung Electronics America, Inc. conducts business operations in the Western District of Texas in its facilities at 12100 Samsung Blvd., Austin, Texas 78754. Samsung Electronics America, Inc. has offices in the Western District of Texas where it sells and/or markets its products, including an office in Austin, Texas."

So there's even a Samsung Boulevard in Austin... though the ice skating rink is in another district.

In order to have a perfect basis for selecting this particular forum, other than seeking to benefit from it the way Caltech is trying against Microsoft and others are trying against Tesla all the time, the plaintiff would have to be able to allege that Samsung's Austin operation is where the alleged act of infringement primarily occurred. Should Samsung's Austin presence have nothing to do with the specific issues of this case, the plaintiff can still try to leverage the combination of formally being a local Waco company and of Samsung having at least some significant presence in the Western District. Judge Albright, like his colleagues in the Eastern District, isn't quite inclined to transfer cases out of his district, but the Federal Circuit can do so.

If Samsung brings a motion to transfer venue, where would it suggest the case be transferred? The Eastern District of Texas? It would be rather uncommon for a defendant to an NPE patent case actually asking for the case to be sent to the Eastern District of Texas, rather than to be transferred out of there...

I'm keeping an eye on developments in the Western District, now the world's #1 hotspot for patent infringement damages. I've already done some research and will soon share a number of observations. For now, what I found interesting about this Samsung case is that this defendant may be the first alleged patent infringer (or the first in a long time, or at least one of a very, very few) to consider the Eastern District of Texas a desirable destination: LED patents and a light festival, wouldn't that make sense? Furthermore, this complaint shows that the Western District's immense popularity among NPEs affects not only out-of-state investors such as Tesla, Intel, and Google, but also foreign investors like Samsung.

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FTC apparently decided not to seek Supreme Court review of Ninth Circuit ruling in Qualcomm's favor

In October, the United States Court of Appeals for the Ninth Circuit denied a petition for rehearing en banc by the United States Federal Trade Commission in its Qualcomm case. The FTC could have filed a petition for writ of certiorari with the Supreme Court of the United States, but it was already reported a couple of weeks ago that this probably wouldn't happen. That's what the Wall Street Journal learned at the time.

Tech industry analyst Prakash Sangam, whom I saw at the FTC v. Qualcomm (San Jose, January 2019) and Apple v. Qualcomm (San Diego, April 2019) trials, kept an eye on developments and tweeted the following a few hours ago:

A different source had told me that the deadline would be March 27, i.e., Saturday, and I haven't been able to verify whether a cert petition deadline falling on a weekend would automatically be extended to Monday. I trust Mr. Sangam had checked on this before he tweeted.

Assuming that Qualcomm's acquittal is now definitive, just a few comments:

  1. With respect to component-level licensing of SEPs, Judge Lucy H. Koh's contract interpretation stands as persuasive authority if anyone else claims rights under Qualcomm's or other parties' FRAND pledges to ATIS and TIA.

  2. I'd have liked the case to establish an antitrust duty to deal to the effect of exhaustive component-├Âlevel SEP licenses, but the FTC's own theory on appeal was just about an alleged antitrust violation based on a breach of contract. Only a successful attempt to shoehorn this duty to deal into the Aspen Skiing doctrine would have helped. Judge Koh tried, and it was worth trying, but Qualcomm had very strong legal arguments on appeal, unlike the FTC and its amici.

  3. In an alternative universe where the appellate judges had listened to all the trial testimony, the outcome might have been different.

  4. For Apple and Intel's antitrust complaint against NPE conglomerate Fortress Investment, the primary challenge is going to be to distinguish that case from Qualcomm, which is controlling law in the Ninth Circuit at this stage.

  5. There will also be other patent-related antitrust matters with respect to which it will be key to mitigate the damage former U.S. Antitrust Assistant Attorney General Makan Delrahim dealt to those complaining about anticompetitive patent-related business models.

  6. The UK class action lawsuit against Qualcomm over the same business model can't really be distinguished, so the argument there will focus on a different jurisdiction with different statutes (UK antitrust law is still essentially EU antitrust law, though it will diverge with time) and different case law.

  7. Apple itself will try to get as much mileage out of this outcome in its defense against Epic Games' and some class action plaintiffs' U.S. antitrust lawsuits over the App Store. But only because the App Store, like everything in tech, has some connection with IP doesn't mean it's beyond reach for antitrust law. I actually think Epic's lawyers, some of whom represented Qualcomm by the way, are in a perfect position to distinguish the cases, and the differences are really structural.

  8. Epic can actually take courage in the fact that those Cravath lawyers have previously proven, in such a high-profile antitrust case, that they know how to play and win the long game. In one or more of my comments on the January 2019 FTC v. Qualcomm I already noted that Qualcomm's lawyers had at some point appeared to look past the trial, which they probably knew they were going to lose, and on to the appeals court, where they teamed up with another firm and rocked the boat. Judge Yvonne Gonzalez Rogers, who is presiding over the Epic case, stressed in the summer that the case could go either way, and while she has more of a track record of letting Apple off the hook (Pepper, and now probably also Pistacchio), I don't think Epic will have to go into that trial based on the assumption that it's all merely about preserving arguments for an appeal. But what I'm absolutely sure of is that Epic will proceed very foresightfully. Unless lawmakers open the App Store, it will ultimately be up to the Supreme Court--and in that case the deadline for a cert petition, whoever has to bring it (Epic or Apple), won't just pass without a filing.

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Wednesday, March 24, 2021

Component-level licensing of standard-essential patents most controversial subtopic of European Commission webinar on FRAND licensing and valuation

The conflict between monetization-focused standard-essential patent (SEP) holders and implementers (the latterg group also including major SEP holders who are nevertheless primarily interested in making products) appears to be everlasting. At times it even looks like both sides are ever more deeply entrenched. But at least they're still talking to each other, and not just about each other.

Yesterday the IP policy unit of the European Commission's Directorate-General for the Internal Market, Industry, Entrepreneurship and SMEs (DG GROW) held a webinar on "FRAND licensing & valuation" with a very balanced roster of high-profile speakers and a sizable worldwide audience. The webinar took place via Microsoft Teams and was moderated by DG GROW official Elena Kostadinova, who might have been a TV news anchor in a former life.

You can find the detailed agenda on this webpage. If time permitted, I could have done a post on each of the three parts.

A survey by the Commission crystallized what SEP holders and implementers are primarily interested in. Among implementers, "license to all" was by far the most popular subject. I know I'm a bit difficult to please with terminology, and in my recent commentary on the SEP Expert Group report I explained why I oppose the terms "access for all"/"license to all" as "access for all" paints too rosy a picture while "license to all" sounds like built-in redundancy (though it's actually about giving the implementing side the choice of the level at which to take a license). But I recognize I'm the only one out there to criticize those terms, so to my dismay they're here to stay.

The component-level licensing panel--the third and final part of yesterday's webinar--was indeed the one where the different views of the two camps became clearest, not only in the webinar itself but also in the parallel Q&A chat.

Professor Damien Geradin, founder of the Geradin Partners antitrust boutique, acknowledged that both sides of the debate make interesting arguments. In his experience, "most reasonable people" agree that license agreements shouldn't be concluded at multiple levels of a given supply chain--but there are divergent views on which level it should be.

Qualcomm licensing chief Alex Rogers accused those advocating the smallest salable patent-practicing unit (SSPPU) as the royalty base of just seeking to "devalue technology" with the effect of "disincentivizing from doing this extraordinarily important research" that enables a $4.8 trillion value of all cellular technology worldwide, while SEP royalties are on the order of just $8-13B.

His concern was well-stated, but not well-founded in my opinion. The problem is that the multi-trillion-dollar value he referred to involves gigantic investments of various sorts, and everyone else could also point to that total value and complain about being undercompensated. I'm not worried about Qualcomm or other major SEP holders laying off talented engineers anytime soon.

Bird & Bird partner Richard Vary, formerly Nokia's litigation chief and now its outside counsel in connection with automotive SEP licensing matters, equated the concept of patent exhaustion with a "windfall" for downstream members of a supply chain. In my view, the opposite is true: the reason courts around the globe adopted patent exhaustion was to avoid "double dipping"--in other words, an ill-gotten windfall for patent holders. Mr. Vary is extremely knowledgeable and persuasive, but I don't agree with his agenda in the SEP licensing context. I'll give you another example in a moment.

Marianne Frydenlund of Nordic Semiconductor discussed SEP licensing from her company's perspective, and Nordic Semi is pretty successful, but nowhere near as large as Qualcomm.

Munich University of Technology professor Joachim Henkel explained from an economic perspective why small and medium-sized IoT companies are not really equipped to deal with SEP licensing at the level of their own end products--and better off if their suppliers take care of it. Professor Henkel just published a paper on this subject, and yesterday's presentation was like a summary of that paper.

It's unfortunate that some major SEP holders just don't care about the collateral damage those IoT startups suffer from a refusal to license component makers and from the practice of privateering (providing patents to trolls, which no one does on a larger scale than Nokia and Ericsson, and some of the trolls they feed then shake down every implementer they find even some very small companies). Mr. Vary, whose opinions in this context are materially consistent with--or even 100% identical to--Nokia's, was dismissive of those concerns over IoT startups' ability to deal with the SEP licensing challenge. However, when small organizations without much of a legal department receive demand letters listing hundreds of declared-essential patents (the fewest of which are actually essential), that is a problem. Patent trolls taxing innovative startups is economically and politically undesirable.

This takes us full circle back to the official long-form name of the organizer of yesterday's conference: it's not DG Patent Monetization or DG SEP Overleveraging. It's the DG for the Internal Market, Industry, Entrepreneurship and SMEs. It's unfortunate that IoT startups aren't even 1% as active in Brussels as Nokia or Ericsson. But I hope the Commission will take their concerns in mind when shaping its policies in this field, and when crafting its input to the European Court of Justice with respect to component-level licensing of SEPs.

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Monday, March 22, 2021

Three fateful decisions will drive up Tesla's patent licensing costs: Avanci license, Austin factory, and German Gigafactory

I've criticized those old-fashioned German car makers on numerous occasions, and chances are there'll be more reasons further down the road. Now I can't help but offer the prediction that Tesla is going to far outspend, on a per-car basis, everyone else in the automotive industry, and that's because of three decisions its management took without fully considering the ramifications it has for future patent licensing negotiations and infringement disputes.

As the saying goes, you can't argue with success. But Tesla's market capitalization doesn't mean that the company doesn't make mistakes in its operational business that a company like Apple, with its far greater experience in--and more sophisticated and strategic approach to--patent licensing and litigation, would avoid. Tesla is going to pay hefty tuition fees before it will learn how to play this game like the pros in Cupertino.

Avanci license

As IAM (Intellectual Asset Management) reported, industry observers believe that the new Avanci licensee (whose name the patent pool firm behind Avanci, Marconi, hasn't disclosed yet) is none other than Elon Musk's electric vehicle maker.

What gives rise to this speculation is that several lawsuits by Avanci members against Tesla have recently been dismissed in different U.S. federal districts.

Last year, Tesla settled with Conversant (as IAM reported), which was suing Tesla in the Western District of Texas. Actually, Conversant appears willing to license automotive suppliers, as its settlement with Huawei shows. So Tesla should have insisted on Conversant extending a license to its component makers. Then, Conversant's patent portfolio is pretty old and weak, so it might just have appeared cost-efficient to take a direct license, just like Daimler thought when it settled with Sharp. Both settlements--Tesla/Conversant and Daimler/Sharp--unnecessarily endorsed the concept of licensing cellular SEPs at the level of a car. Just like I criticized Daimler's decision in no uncertain terms, I didn't like Tesla's deal with Conversant because of what it means for other automotive SEP disputes. But Daimler has, at least so far, declined to take an Avanci license. Tesla apparently has done just that, and that means it has opened a can of worms and will have to pay off countless patent trolls, but also major operating companies holding patents it infringes.

I've looked up a few U.S. dockets and been able to verify that apparently there are no more cases pending between Avanci members and Tesla. Here's an Optis Wireless v. Tesla stipulation of dismissal from the Eastern District of Texas (this post continues below the document):

21-02-26 Optis v. Tesla Sti... by Florian Mueller

The following screenshot shows a Sisvel v. Tesla dismissal, dated March 2, in the District of Delaware (click on the image to enlarge):

After taking an Avanci license, Tesla is not going to be able to credibly defend itself against other SEP holders by arguing that those patent holders should insteasd talk to Tesla's suppliers.

Austin factory and relocation to Texas

Earlier today I mentioned that the Western District of Texas is the world's #1 hotspot for patent damages, and that is so because companies with a presence there (as opposed to merely having resellers offer its products) can't just move patent cases out of that district under TC Heartland.

Texas is building an Austin factory and even plans to move its HQ to Texas. It's understandable in political terms, because even though I predict Texas will become a blue state in the not too distant future, Texas Democrats may be as centrist as California Republicans, at least in fiscal policy. However, the Western District of Texas effectively imposes a huge patent tax on business.

Gigafactory Berlin-Brandenburg

From a marketing point of view, it made a lot of sense for Tesla to build a "Gigafactory" in Germany. "Made in Germany" has always been, in no small part, about cars. It's a major market. And maybe Tesla hoped to generate political goodwill in the largest EU member state.

However, Germany is exactly the jurisdiction to which patent holders flock in pursuit of injunctions. The judicial district in which you're based there doesn't matter: there's no forcible venue transfer, thus no TC Heartland equivalent either. The problem is that a patent injunction in Germany will not only disrupt Tesla's sales in that particular market, but will force it to halt production in its Gigafactory. Also, Tesla wouldn't be able to circumvent an injunction by exporting the products it makes in Germany to other markets.

Tesla could have built a factory somewhere else in Europe. Just a little bit to the east of its Berlin-Brandenburg site there's Poland. In that jurisdiction it's likely that politicians would immediately take action and protect a major foreign investor against patent injunctions, should the Polish judiciary follow the German example. But in Germany there's no chance: even local players like Volkswagen, Daimler and BMW have failed (partly because their IP lobbying expertise is lacking and wanting) to persuade lawmakers to address the issue. As I explained in my most recent post on the subject, the proposed reform will not affect patent holders who make a licensing offer by the trial date. There won't be a proportionality analysis in such cases. And those are the cases Tesla will be dealing with.

The best cross-jurisdictional patent litigation strategy against Tesla will be to sue them for damages in the Western District of Texas and to seek an injunction in Germany. Maximum leverage.

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Caltech seeks to extend billion-dollar patent win over Apple, Broadcom to Microsoft: new lawsuit in Western District of Texas over Surface, Xbox

According to a patent infringement complaint filed on Friday, Microsoft--famously headquartered in Redmond, WA--has offices at 10900 Stonelake Boulevard, Austin, TX, USA 78759 and 401 East Sonterra Boulevard, San Antonio, TX. Those offices don't seem to be very large, but the per-square-foot cost of doing business there could be staggering: both these places are in the Western District of Texas, the most attractive venue for U.S. patent plaintiffs even ahead of the Eastern District of the same state.

The Western District has displaced the Eastern District. Waco-based Judge Alan Albright is no less patentee-friendly (an understatement) than Judge Gilstrap, but many major tech companies from the West Coast have additional operations in the Austin area, while the Eastern District is rural and easy to avoid. For example, you won't find any Apple Store in the Eastern District by now (though some are just across the border of the federal judiciary district). A certain presence by a defendant is, however, what it makes it easy for patent plaintiffs to avoid that their cases get transferred out of their chosen district under the Supreme Court's TC Heartland case law (PDF).

The California Institute of Technology ("Caltech") is now suing Microsoft in Waco, claiming that the Microsoft Surface portable computers and the Xbox gaming console infringe a handful of WiFi-related--but apparently not standard-essential--patents (this post continues below the document):

21-03-19 Caltech v. Microso... by Florian Mueller

The Caltech v. Microsoft complaint immediately brings two spectacular (or, from the perspective of true innovators, shocking) patent damages verdicts to mind:

Caltech is trying to get the best of both worlds: while leveraging its victory in L.A. (though I wish Apple and Broadcom luck on appeal and don't expect the verdict to be upheld, at least not in full), Caltech transparently attempts to benefit from the Waco patent bonanza.

Caltech is being represented by Quinn Emanuel and a small local firm, Mann Tindel Thompson. Quinn Emanuel is more often seen representing plaintiffs against Apple than against Microsoft, but this blog reported on various cases in which QE worked for Motorola against Microsoft, including the case in which Judge Robart's famous antisuit injunction came down.

I'll follow developments in the Western District more closely now, given that it's the world's #1 hotspot for patent damages just like Munich is the world's #1 venue for patent injunctions.

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Nokia's opportunistic patenting and forum-(s)hopping failed: Federal Patent Court invalidates patent asserted against Daimler

Even the best companies may lose a patent case. But there's a right way and a wrong way to do it. While it can always happen that a plaintiff acting in good faith overrates the strength of a patent or the merits of an infringement contention, some defeats come with a fishy smell--such as Nokia's latest defeat in Germany against Daimler and its suppliers.

Last Wednesday (March 17, 2021), the Bundespatentgericht (Federal Patent Court of Germany) invalidated Nokia's EP1929826 on an "apparatus, method and computer program product to request a data rate increase based on ability to transmit at least one more selected data unit."

The title of that patent all by itself shows that it's a software patent--and should never have been granted under the European Patent Convention--, but other companies obtain and assert such patents as well, so the problem is EPO-related and not specific to Nokia. The former handset maker's conduct in connection with this patent is doubly troubling for other reasons:

  1. As I already reported in December, Nokia withdrew the related case (and another one) in Dusseldorf only to refile immediately in Munich. This practice goes beyond forum-shopping: some call it "forum-hopping." But the Munich case is not going to go forward anytime soon after last week's nullity decision.

  2. The ethically most problematic part is this: the Federal Patent Court's ruling was based on the claimed invention already having been in the relevant standard specifications as of the correct priority date. As a result, the court invalidated not only the patent in its granted form but also rejected all attempts by Nokia to salvage the patent by narrowing the claims. Nokia had originally claimed an earlier priority date, but the court held that there wasn't a legitimate claim to that earlier date.

    This suggests that Nokia tried to obtain a patent--a monopoly enabling it to tax the tech industry--over something it hadn't actually "invented" (in quotes because, seriously, what that patent describes doesn't deserve being called an invention even as per the priority date Nokia claimed).

    The practice of "opportunistic patenting" by participants in standard-setting processes is a known issue. Researches such as Rudi Bekkers have written about it and have shown that there's a conspicuous--or even suspicious--uptake in the filing of patent applications around ETSI meetings and other standardization-related events.

This EP'826 story is anything but conducive to Nokia's credibility.

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Sunday, March 21, 2021

Central issue in upcoming Epic Games v. Apple trial: Apple's refusal to allow Epic Games Store and other alternative app stores on iOS

On Friday, Epic Games and Apple submitted tentative witness lists for their antitrust trial that will start on May 3 in Oakland. But Epic attached something far more informative: summaries of the opinions offered by its expert witnesses. In the previous post I discussed how two professors are going to debunk Apple's security pretext for its App Store monopoly. This here is the third and final part of the trilogy on Friday's filings.

When Epic Games filed its complaints against Apple and Google in August, many people thought this was just about bringing down Apple's 30% App Store commission and requiring Apple to allow Fortnite to return to the App Store despite its alternative in-app payment system. In response to Epic's activation of the latter, Apple not only removed Fortnite from the App Store but even announced the termination of another Epic developer account: the one used for the development of Unreal Engine. A temporary restraining order (TRO), which Judge Yvonne Gonzalez Rogers later converted into a preliminary injunction (PI), barred Apple from terminating the Unreal Engine account.

It's a common misbelief that Epic just wants to get Apple to reduce the 30% commission. Epic's original complaint raised some more fundamental issues, and Epic wants to open up iOS more generally for developers and consumers. The most important part here is that Epic--and others--could provide alternative app stores and thereby act as a competitive constraint on Apple in the iOS app distribution market. In its August 2020 complaint, Epic already said the following:

"Epic approached Apple to request that Apple allow Epic to offer its Epic Games Store to Apple' iOS users through the App Store and direct installation. Apple's response was an unequivocal 'no'."

"The Epic Games Store provides access to more than 250 games from more than 200 developers, and those numbers are growing rapidly. The Epic Games Store offers personalized features such as friends list management and game matchmaking services. Absent Apple’s anti-competitive conduct, Epic would also create an app store for iOS."

In Friday's summaries of what Epic's economic experts say, the possibility of the Epic Games Store (and similar app distribution channels) competing with Apple's monopolistic App Store plays a key role. Stanford professor Susan Athey discusses the importance of "middleware" with en mphasis on "an independent Multi-Platform App Store" (this post continues below the document):

376-2 Susan Athey Opening O... by Florian Mueller

Professor Athey describes today's "market for mobile smartphone operating system platforms [as] a duopoly, with market leaders Apple and Android together accounting for almost 100% of mobile smartphone revenue share outside of China." Practically, either platform is a monopoly in its own right, as "[}a user who considers leaving one platform and joining another faces app-related switching costs, including the costs of migrating and synchronizing her apps, purchases [download fees as well as in-app purchaes] and app data (and, in many cases, the costs of re-purchasing apps on the new platform)."

While multi-platform app stores, multi-platform in app-payment systems, or cross-platform streaming platforms could help, "Apple imposes a set of technical and contractual restrictions that block critical categories of middleware, interfering with the competitive process and maintaining the market power of the iOS Platform."

Another Epic expert witness, Michael Cragg, a summary of whose opinions I've uploaded to Scribd (PDF), says Apple's experts focus "on the wrong product and not Epic's role as a would-be direct competitor to the App Store." Apple would like the court to consider the entire game distribution market (across all platforms) as the relevant antitrust market, but Epic's expert says those Apple experts "do not focus on the right market definition question."

Both Michael Cragg and another Epic expert, Nancy Mathiowetz (summary of opinions (PDF)), emphasize in this context that the mere access to, or even the regular use of, alternative devices by iOS users doesn't really mean much for the purposes of this case. As Michael Cragg notes, "by [Apple's experts'] logic, refrigerators and TVs (let alone stereos and TVs) are in the same market because users 'have access' to or 'regularly use' both." But in order for the distribution of games on other platforms to be part of the same relevant antitrust market, there would have to be evidence that "a small but meaningful change in the price or quality of app distribution on either device" would make "users switch from using one distribution channel to another" to an extent that it would be a competitive constraint on Apple's own decisions.

Here's another important point:

"When it comes to distribution, iOS games do not have unique characteristics that make them separable from other iOS apps. All iOS apps (including iOS games), however, do have unique characteristics that make them separable from non-iOS apps, including non-iOS games."

Due to restrictions imposed by Apple, there is no way to access a multi-platform app store on iOS; as a result, switching costs are too high for switching to take place to a meaningful degree, which is why "iOS app distribution remains a market unto itself."

Finally, the opening and rebuttal opinions by Epic's primary expert on platform economics, David Evans, also place great emphasis on "the competitive effects of Apple's foreclosure of alternative channels of iOS app distribution":

376-8 David Evans Opening O... by Florian Mueller

376-9 David Evans Rebuttal ... by Florian Mueller

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