Sunday, October 31, 2021

Creepy patent case involves two unethical businesses, dozens of jobs lost over an invalid patent, the worst decision of a judicial career, and Quinn Emanuel Germany's challenges

Happy Halloween!

There's no better day of the year for a story that's truly creepy--and, actually, abhorrent. There was a patent case in Germany that reached its final resolution a few weeks ago, but only after creating a crisis that cost 60 people their jobs and made dozens of families suffer. That case brought out the very worst in some people. It's impossible to find anything to do with the case that would make any reasonable person feel good.

After this unmitigated disaster, I believe the Federal Court of Justice of Germany needs to realize that it has a responsibility to be more receptive to those pesky emergency motions for enforcement stays, and the folks over at Quinn Emanuel Germany should ask themselves how they're going to succeed again with brilliant fair play (like a decade ago).

The one who would stand the most to learn from this, however, is Dusseldorf-based Judge Thomas Kuehnen ("Kühnen" in German), and my recommendation to him is to seek early retirement now that his astonishing misjudgment, which has had such catastrophic consequences, has been put into evidence. He should also turn over the editorship of his book on German patent litigation to some other judge or a professor. His reputation is never going to recover from this. He will always be remembered as a job-killer judge and a "do as I write, not as I do" type of guy. This inexcusable legal error marks the bitter and embarrassing end of an era.

I'm 100% against smoking, so the mere thought of cigarettes almost makes me want to puke, and if it were up to me, tobacco products should be prohibited, at least the traditional ones: there appear to be some issues with e-smoking, but there is hope that at least the impact on passers-by is nowhere near as bad (at least there's less of a smell). In my opinion, anybody who runs a tobacco company is inherently an immoral person, and this includes companies who sell essential supplies to that scum of an industry. Meet the two parties to the case in question: Schweitzer-Mauduit (SWM) from the U.S. and Julius Glatz from Germany. They make cigarette papers. Not only cigarette papers, but it's a substantial part of their business, so they are tobacco profiteers.

The key feature of cigarette paper is that it must glow slowly, but not go up in flames like if you had poured gasoline on a pile of wood. But what happens if someone throws away a cigarette butt that is still glowing, and a day later an entire forest is burning? Low ignition is also key when highly combustible material is hit.

SWM obtained that job-killer patent more than a decade ago from the EPO: EP1482815 on "smoking articles with reduced ignition proclivity characteristics."

Julius Glatz is a medium-sized, old, family-owned company in the middle of nowhere somewhere in Germany. Its current CEO, Nina Ritter-Reischl, is a lawyer by training and heiress to that company.

SWM wanted to enforce its patent in order to drive its smaller rival Julius Glatz out of the cigarette-paper business, which it actually succeeded in, but on a totally wrongful basis. SWM's lead counsel in these proceedings was the head of Quinn Emanuel Germany, Dr. Marcus Grosch.

SWM/Quinn won the first round (Presiding Judge Ulrike Voss, "Voß" in German), but enforcement only began and actual harm occurred after the appeals court--a panel of the Dusseldorf Higher Regional Court under Judge Kuehnen--handed down a decision (in German) that was outrageous beyond belief in December 2017. If a U.S. jury had had all these facts before it and rendered such a verdict, it would have been a perfect example of a case for a judgment as a matter of law (JMOL) because no reasonable jury could have reached that conclusion.

It was a typical squeeze case: one could only find an infringement by interpreting the patent so broadly as to be invalid. If one interpreted it narrowly enough to survive, it wasn't infringed by the defendant. It was about the range of manufacturing methods that would be considered infringing. Narrow range: no infringement. Broad range: patent invalid.

But Judge Kuehnen killed dozens of jobs regardless. Dogmatically, ruthlessly, mercilessly, and so full of himself he thought he was the god of patent law, at least in Germany if not in the world.

The appellate opinion is the epitome of judicial arbitrariness. At the time, the EPO's position was that the patent was valid, but based on a narrow claim construction. Judge Kuehnen's decision explains that he's not formally bound to claim construction decisions made in a parallel validity-related proceeding, not even if the Federal Court of Justice itself had already adjudicated the (German part of the) patent, and much less so if it's only the EPO. And it wouldn't necessarily have been a problem if he had just considered himself smarter than them: he's entitled to it, and may think highly of himself. The problem is that instead of identifying the squeeze, he decided to enjoin.

SWM enforced. Julius Glatz had to lay off dozens of people. Again, I don't care at all about the owners of that company: they just had to shut down an unethical business division. But SWM was going to get additional market share, and not one cigarette less was going to be made as a result of this. So between the two of them, SWM is worse because it wrongfully enforced an injunction.

Shame on the ones who were responsible for this tragedy. When you wrongfully force a company to lay off dozens of people in a rural (i.e., structurally weak) region, it means dozens of families--all in all, possibly hundreds of people--are suffering terribly, only for the ego of a judge in Dusseldorf and to line the pockets of a white-shoe law firm. And the problem is not even limited to those hundreds of people. It probably dealt a serious blow to the entire region, as those hundreds of people suddenly had a lot less purchasing power. Again, all of that for ego and greed. Like I said, it's creepy, abhorrent, it may even make some people want to puke, and it brought out the worst in some people.

Now, the story isn't over, and the really most unethical part came a little later. At some point, the parties opposing the patent in the EPO all realized they weren't going to defeat the patent there as the EPO construed it narrowly enough to uphold it. But that enabled Julius Glatz to challenge the patent in the Federal Patent Court of Germany (Bundespatentgericht). The Federal Patent Court invalidated it, but even then, SWM kept enforcing regardless, for a number of months (while the infringement case had already been appealed to the Federal Court of Justice).

Winning a first-instance ruling despite a squeeze was one thing. Enforcing it is already something that I believe Quinn Emanuel should have told SWM to find someone else to do for them. But continuing to enforce--even if it had been for only one more day--despite the patent having been declared null and void, and after the aforementioned tragedy had happened, is unbelievable and indefensible.

Now, why didn't the enforcement get stayed? That's because, as I mentioned, the case was already past Judge Kuehnen's regional appeals court. The defendant had brought the German equivalent of a cert petition (Nichtzulassungsbeschwerde). The Federal Court of Justice is just annoyed when anybody brings a motion to stay enforcement, which is why Julius Glatz might not even have tried. That is a structural issue. The Federal Court of Justice should learn from this case and encourage motions for emergency stays in such situations. It has a responsibility to put an end to wrongful enforcement.

As Juve Patent reported on October 6, the Federal Court of Justice, to which SWM appealed the Federal Patent Court's invalidity ruling, affirmed the invalidation of the patent. That decision is final: all appeals (just that one is available) exhausted. It means that the parties have to sort out wrongful-enforcement damages, and German courts are traditionally very unreceptive to that: parties, even after suffering such costly injustice, get next to nothing. That, too, is something that needs to be reconsidered in Germany, especially with respect to patent law but possibly also beyond.

Whether Julius Glatz will recapture its market share now is unclear. I don't even care because of the inherently immoral nature of that business, which also makes that company a bad poster child for the so-called "injunction gap."

Would that recent German patent "reform" have changed anything? No. First, for several years after grant, that patent was being challenged before the EPO, to which the six-month target doesn't apply. Second, while the economic harm to Julius Glatz and, by extension, third parties was clear, SWM's patent would have been at the heart of the accused products. And as Germany's chief patent judge Klaus Bacher recently said, that legislative measure is merely "a clarification and consolidation of the case law." One of his side judges told some people that some far more impactful lobbying would be needed to achieve a better result next time. It's been my opinion all along that those pushing for reform were misguided: a mix of mostly amateurs and partly saboteurs. So the next Julius Glatz is sure to suffer the same fate.

Initially, Julius Glatz was defended by Arnold Ruess, which has definitely been on by far the most impressive trajectory of all young German patent litigation firms. I'm sure they just couldn't do anything about Judge Kuehnen, who based on how that (mis)judgment reads was just hell-bent to enjoin and may have known SWM's lead counsel too well as a result of certain seminars they co-organized.

The Arnold Ruess firm triumphed over Quinn Emanuel when Arnold Ruess represented Nokia and Quinn was defending Daimler. Not only did Arnold Ruess win two injunctions, one of which they'd have been able to enforce without security a few months after the settlement, but by the time of the settlement they were actually on track to winning two or three more injunctions. If you hire the most expensive patent litigation firm in the country, but end up losing anyway, it's a waste of money.

SWM v. Julius Glatz is not the first case of questionable patent enforcement and litigation tactics by Quinn Emanuel Germany. In Qualcomm v. Apple, QE in the United States had actually agreed to certain terms of discovery for the use of material in the German proceedings. QE Germany then backtracked (what an about-face) and refused to sign a confidentiality commitment in Germany. Apple got enjoined over a patent that the EPO later invalidated--and the fact that Apple was enjoined without the slightest evidence of infringement resulted in a reversal on three independent grounds. In two different U.S. proceedings (federal court and ITC) Apple was cleared of infringement because the facts were on the table, which they should have been in Germany as well.

Despite Qualcomm having a formidable patent portfolio and--I really mean this--being an absolutely outstanding innovator with many of this industry's most brilliant engineers, that was the only case Quinn won against Apple during that German campaign. They even sought contempt-of-court sanctions against Apple, adding insult to injury.

I also find it surprising that OPPO apparently outperformed Daimler in a SEP dispute with Sharp.

I have some unsolicited advice for QE Germany, a firm whose rise to the top in Germany I watched and even cheered on during the first half of the last decade:

  1. Refrain from enforcement when the circumstances are problematic. You know it when you see it. You shouldn't stoop that low. It's not just about your billable hours. There's a world outside where people may be suffering when you make unethical decisions.

  2. Your performance on Daimler's behalf against Nokia--and arguably also on Qualcomm's behalf against Apple--was nowhere near as successful as the services you rendered to Motorola. Are you perhaps acting like a "ghost driver" who thinks that all the other drivers coming in the opposite direction are misguided? QE Germany is the only litigation firm not to work in interdisciplinary teams with patent attorneys, except when clients like Samsung and IPCom insisted on it. It worked out for them in the Motorola cases. It's not been working out all that well lately. Change course. Patent attorneys do add a lot of value in German patent litigation.

    In my view, QE Germany clients who accept that they do not team up with patent attorneys do so at their peril. The results just don't support that approach anymore.

I hope we're going to see the QE of the first half of the 2010s again in the first half of the 2020s. And no more ethically questionable and wrongful enforcement.

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