Wednesday, January 26, 2022

Patent holders don't have to be afraid of proportionality defense to injunctive relief in Dusseldorf, much less in SEP cases: judges outline their thinking

I have good news for patent holders who like to enforce their rights in Germany, and not only in Munich and Mannheim but (at least in some cases) also in Dusseldorf. Based on what two of the three judges presiding over patent-specialized divisions of the Landgericht Düsseldorf (Dusseldorf Regional Court) said in a joint presentation today, patent injunctions are going to be just as available in Dusseldorf as before last year's "reform" bill. This was certain for Munich and Mannheim, but I must admit there were some residual doubts on my part concerning Dusseldorf, which in some contexts made defendant-friendlier decisions in recent years than other German courts. Not anymore after today's presentation.

Other than the risk of outlier decisions in Dusseldorf, the situation was already clear last year:

Today the Heidelberg Academy, a major organizer of patent conferences, hosted a webinar on the hypothetical disproportionality of patent injunctions in particular cases. The two speakers were Presiding Judge Dr. Daniel Voss ("Voß" in German) of the Dusseldorf court's 4b Civil Chamber and his counterpart from the 4c Civil Chamber, Presiding Judge Sabine Klepsch. I've mentioned both judges very recently: Judge Klepsch and her side judges made a landmark decision against the Access Advance video codec patent pool (from which Access Advance is not really drawing the appropriate conclusions), and I thought Ericsson was fortunate to have two patent infringement complaints against Apple assigned to Judge Dr. Voss, whom I described as particularly patentee-friendly and jokingly called "Dusseldorf's answer to the Munich and Mannheim judges."

The joint presentation by those two judges left no doubt whatsoever:

  • The new injunction statute is materially consistent with the Federal Court of Justice's Heat Exchanger case law.

    There may be some exceptional cases (which have yet to be identified) where use-up or workaround periods are warranted.

  • An outright denial of injunctive relief is, however, next to inconceivable. The presentation said: "Dauerhafter Ausschluss des Unterlassungsanspruchs nur in absoluten Ausnahmefällen" (translation: "permanent denial of injunctive relief only in absolutely exceptional cases")

  • Third-party interests are realistically only going to be relevant if some patients' lives depend on pharmaceutical products or if a fundamental threat is posed to critical infrastructure. Even in such cases, third-party interests are not a get-out-of-jail-free card for infringers: they have to act reasonably. In practice, this means "license or die." Take a license and no third party is harmed. It's what I've been saying for a long time: the "Keep It Simple, Stupid" test.

    Third-party interests ultimately won't matter in the vast majority of cases (in which the patent holder just wants to get compensated and doesn't really want to shut down infrastructure or remove products from the market). Where there is a licensing offer on the table, there is no hardship unless the terms of the license are downright insane.

  • In standard-essential patent (SEP) cases there's a FRAND defense, which is all about an infringer's access to a license. There is no disproportionality defense on top of the SEP-related antitrust defense as the implementer can simply take a license.

    If a declared-essential patent turns out not to be actually essential (i.e., in a case involving an overdeclaration) and if, as a result, the implementer is not deemed to be entitled to a license on FRAND terms, the disproportionality defense may come into play (with the hurdle then being as high as previously discussed).

    I've talked to a Dusseldorf-based patent litigator with tremendous expertise in SEP cases, and what I learned is that since that German patent "reform" bill entered into force in mid-August 2021, the Dusseldorf Regional Court has consistently declined to entertain a disproportionality defense on top of a FRAND defense. So those judges not only talk the talk, but actually walk the walk.

One of the things I've been telling people in the legal community and the technology industry for about two years is that the first German court to deny an injunction on disproportionality grounds is going to scare away all plaintiffs. They're just going to sue elsewhere, and that court can close its patent divisions. The Dusseldorf court is not going to be an outlier. Just like Munich and Mannheim, it's going to stay the course. German patent litigation is all about leverage from injunctions.

It's been more than five months since the "reform" bill was published in the Federal Law Gazette. Not a single case has been reported from any German patent infringement case in which the outcome was impacted in the slightest by the reworded injunction statute. The ones who advocated reform would have had to push for a true paradigm shift. That effort could have failed. It would have seemed exceedingly ambitious. But at least it would have been worth fighting for. What those losers got out of the whole reform process--by contenting themselves with a solution that fails to address the actual problem--was editorial in nature. In legal terms, they got nothing other than making it even more expensive to defend.

Today's presentation by the Dusseldorf judges also validates what I stated in an article I contributed to a recent Wolters Kluwer publication.

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Apple's appellate forum strategy against Ericsson: Federal Circuit rather than Fifth Circuit for review of FRAND determination

This is a follow-up with some additional thoughts on the intra-venue fight between Apple and Ericsson over their respective FRAND actions in the Eastern District of Texas (on top of whether they should litigate infringement matters in the Eastern or the Western District, with Apple actually wanting neither but preferring the Northern District of California, just that it has no promising pathway to get there).

For a quick recap (for details and links that take you to the relevant complaints and motions, may I refer you to the post I just linked to),

  • Ericsson brought FRAND claims last year (initially just seeking a blessing of its own licensing offers, and with its most recently-proposed first amended complaint additionally attacking Apple's negotiation conduct);

  • Apple wants those thrown out,

  • but brought its own FRAND action in E.D. Tex.,

  • which additionally comes with declaratory judgment claims relating to three Ericsson 5G SEPs;

  • Ericsson defends its own FRAND case and

  • wants Apple's thrown out or wants the FRAND claims severed from the patent-specific DJ claims and consolidated into its case.

Apple's course of action did nothing to accelerate the process, but at this stage the court is probably going to resolve both motions to dismiss at the same time. There are, however, two questions of strategic importance involved, the answers to which depend on the outcome of that fight over the two competing E.D. Tex. FRAND actions:

  1. Who will be the plaintiff/counterclaim-defendant and who will be the defendant/counterclaimant? Right now either party wants to be the plaintiff. Especially in a jury trial, it can be a major advantage to be the plaintiff. I remember Qualcomm trying to convince Judge Curiel in the Southern District of California that it (the chipmaker)--not Apple, the original plaintiff--should get to make its case to the jury first. There are psychological reasons, though the defendant who is also a counterclaimant will get to reply in support of its counterclaims and, therefore, has the last word in that sense.

  2. After the previous post it came to my mind that Ericsson's proposal to sever the DJ claims has to do with appellate jurisdiction. I'll share my thoughts on that aspect below:

It would be unprecedented for an Ericsson v. Apple dispute to reach that stage, but Ericsson's disputes with TCL and HTC did get there. It could happen in the Apple case, too.

By pretty much randomly attacking three Ericsson SEPs with DJ claims, Apple can't achieve anything meaningful other than injecting claims into the case that would make the entire case subject to appellate jurisdiction by the Federal Circuit. Without the presence of such claims, the case would go up to the Fifth Circuit. And while Apple would prefer the Northern District of California at the trial stage, I believe it wouldn't even want to be in the Ninth Circuit at the appellate stage in light of FTC v. Qualcomm.

It's not like Ericsson would have to be afraid of the Federal Circuit, which is reasonably patentee-friendly, but the Fifth Circuit is more likely to affirm an E.D. Tex. ruling in Ericsson's favor, while the Federal Circuit has slashed damages awards coming out of E.D. Tex. on various occasions and might be inclined to also deem a lower SEP royalty rate (than whatever E.D. Tex. determines) appropriate.

If the case got appealed to the Federal Circuit, it would theoretically have to apply Fifth Circuit law (including the Ericsson-HTC decision) wherever applicable. However, the Federal Circuit has a reputation for very much prioritizing its own case law. When it comes to FRAND licensing issues, that would be a mix of SEP-specific decisions and, more generally, its application of the Georgia-Pacific factors to patent damages. Again, that's not necessarily bad for Ericsson, but it is more likely to get a better outcome in the Fifth Circuit.

Judge Gilstrap has some leeway here if he decides to separate the FRAND claims from the DJ Claims. He, too, knows how the Fifth Circuit has treated him versus what happened to some of his decisions in the Federal Circuit. If he dismissed Apple's separate case, Apple could appeal the dismissal to the Federal Circuit because of the presence of some patent DJ claims, but if the only issue before the Federal Circuit is whether Apple's claims were compulsory counterclaims to Ericsson's earlier-filed FRAND action, that wouldn't really be an appeal out of which Apple could get a lot of mileage, especially not if Ericsson's own FRAND case goes forward in the meantime (as would Ericsson's various infringement actions around the globe).

Severance of those claims would be justified. Ericsson's SEP portfolio is huge and whether those three patents are actually essential is not the answer to the real questions in that dispute. In the Apple v. Qualcomm case in the Southern District of California that I mentioned further above, Apple also brought DJ claims (two rounds of a dozen patents each). Qualcomm solved the problem by simply giving up on one set of patents (which Judge Curiel figured out was total gamesmanship, but legally possible) and the court did not let Apple challenge another set of patents. It's a "gambit" to sacrifice patents with respect to one implementer, but Ericsson might do what Qualcomm did--if it has to, as Judge Gilstrap might simply consolidate the two FRAND cases and keep those DJ claims on a separate track (where Ericsson could then safely bring compulsory counterclaims of infringement). Apple could then try to bring some DJ (counter)claims, but the court might not even grant Apple leave for such a tactically motivated amendment that just inflates the case.

Just for the avoidance of confusion, this here is really just about appellate jurisdiction over the mutual FRAND claims. Any infringement cases, including ITC investigations, or PTAB IPR decisions (Apple has started to challenge various Ericsson patents through IPR petitions) would have to be appealed to the Federal Circuit anyway.

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Apple: Eastern District of Texas preferred over Western -- Ericsson: with pleasure IF you make a binding commitment to it -- Apple (deafening silence)

Apple has a serious problem with Ericsson having made all the right venue-related decisions so far: the ITC for potential U.S. import bans; the Eastern District of Texas for FRAND issues (where Ericsson won a landmark case against HTC); and the Western District of Texas for damages (companion complaints to import ban requests). Ericsson is also enforcing its rights in four other countries, with preliminary injunction requests pending in Brazil and the Netherlands. In Germany, Ericsson hedged its bets by filing cases with the three leading regional courts for patent cases. Munich and Mannheim are safe choices for plaintiffs, and Ericsson was so lucky as to have both of its cases assigned to Judge Dr. Daniel Voss ("Voß" in German), who is widely regarded as the plaintiff-friendliest of the three judges presiding over patent-specialized divisions (called "civil chambers") of the Dusseldorf Regional Court. Judge Dr. Voss is basically Dusseldorf's answer to the Munich and Mannheim judges.

Now Apple is jockeying for a better position. Part of that effort is a PTAB IPR campaign piggybacking on Samsung's 2021 challenges to many Ericsson patents, taking aim at patents Ericsson hasn't even asserted against Apple. And very surprisingly, almost shockingly, Apple proposed to have the whole dispute resolved by means of a rate-setting decision in the Eastern District of Texas, a venue Apple dreads so much that it even closed its stores there (Apple Stonebriar in Fisco, TX, and Apple Willow Bend in Plano, TX) after the Supreme Court's TC Heartland decision that made it a lot easier to get patent infringement cases moved out of a district unless the defendant has a permanent business presence there (as opposed to merely selling products or offering services nationwide).

Oh well, it now looks like Apple still doesn't really love the Eastern District of Texas...

A week ago, Apple filed a request for an early case management conference in the Eastern District and accused Ericsson of trying to undermine that court's jurisdictions through cases filed elsewhere (including overseas enforcement actions). The next day, Ericsson's counsel contacted Apple's counsel (PDF on Scribd), describing that "characterization [as] both misleading and ironic" as Ericsson "would have preferred to file its patent cases in the Eastern District of Texas, but [Ericsson's] filing in the Western District was necessitated by Apple’s highly publicized closing of all its retail stores in the Eastern District." And then Ericsson made Apple the following proposal:

"Nonetheless, Ericsson is willing to dismiss its Western District suits and refile in the Eastern District if Apple is willing to stipulate to venue in the Eastern District for this dispute and waive any objection under TC Heartland."

In other words: Ericsson is fine with either the Eastern (preferred) or Western District of Texas, but will move its case form the Western to the Eastern District provided that Apple promises not to request a venue transfer to the Northern District of California.

Apple can always bring such a request in the Western District of Texas as well, but it has a strong presence there with many thousands of employees, making a denial of a transfer motion pretty much a given.

The only thing Ericsson didn't want to do was to give Apple an opportunity to avoid Texas altogether.

Apple declined. While there's plenty of rhetoric in a reply (PDF on Scribd) Apple's counsel sent four days later, Apple simply isn't willing to make a binding commitment to the Eastern District of Texas. All that Apple really appears to love about the Eastern District is that it's a gateway to California because of TC Heartland.

On Monday, Ericsson filed its opposition to Apple's request for an early case management and, on that occasion, demonstrated to Chief Judge Gilstrap in the Eastern District of Texas that Apple doesn't truly want to litigate there if it can avoid it. Here's Ericsson's opposition filing, to which the documents I previously linked to serve as exhibits (this post continues below the document):

22-01-24 Ericsson Oppositio... by Florian Mueller

Ericsson's position on an early case management conference is that Apple should firstly specify the issues to be addressed and try to resolve them with Ericsson through meet-and-confer. Only if any issues remained, they could be raised with the court, and the court may not even consider a hearing necessary to resolve any motions resulting from procedural disagreements.

That Ericsson filing also mentions Apple's PTAB IPR campaign (the first five filings, and I've discovered two more that came after Ericsson's opposition brief).

For Judge Gilstrap it's now easy to see what Apple really wants: it wants no enforcement action to take place (which is unrealistic since a FRAND determination is only appropriate for SEPs, but Ericsson is also entitled to royalties on its non-SEPs), and at least not in the Eastern or Western District of Texas. When Ericsson's FRAND action in the Eastern District became known a few months ago, I already wrote that "[i]f Apple wants to go west, it will want to go much further west, i.e., to the Northern District of California, its home district." (emphasis in original)

In addition to the Eastern-Western-Northern thing, Apple and Ericsson also disagree sharply on how to treat the two competing FRAND actions in the Eastern District of Texas. In December, Apple moved to dismiss Ericsson's FRAND case and instead brought its own, which besides four FRAND claims also contains three declaratory-judgment claims against the following Ericsson 5G standard-essential patents (at a time when Ericsson wasn't even suing Apple over patents as a license agreement was still in force for about another month):

Declaratory Judgment Patents

  1. U.S. Patent No. 10,374,768 on "efficient SRS resource indication methods"

  2. U.S. Patent No. 10,644,724 on "shift values for quasi-cyclic LDPC codes

  3. U.S. Patent No. 11,039,312 on "handling of multiple authentication procedures in 5G"

Last week, Ericsson filed its opposition to Apple's motion to dismiss Ericsson's FRAND case (this post continues below the document):

22-01-19 Ericsson Oppositio... by Florian Mueller

Ericsson points to the fact that Apple's FRAND claims pretty much mirror Ericsson's, so Apple itself doesn't really seem to believe that those types of claims weren't justiciable. Also, Ericsson says the license agreement that was in force at the time of filing the complaint did not preclude Ericsson from bringing a FRAND action regarding a future license agreement.

Apple has already replied in support of its motion to dismiss, but that filing is sealed for now. (It also took me a while to find some of last week's filings, probably for the same reason.)

Not only does Ericsson defend its own FRAND case against Apple's motion to dismiss, but it is requesting the dismissal of Apple's FRAND claims or, in the alternative, the consolidation of those claims into Ericsson's case (this post continues below the document):

22-01-19 Ericsson Motion to... by Florian Mueller

Note that this motion to dismiss relates to Apple's FRAND claims, not to the three patent-specific declaratory-judgment claims listed above.

Ericsson argues that Apple's FRAND claims should have been brought as counterclaims to Ericsson's FRAND claims, i.e., they were compulsory counterclaims. The worst-case scenario for Apple would be that its decision to bring a separate complaint--instead of counterclaiming in a pending one, regardless of whether Apple moved to dismiss it--waived those claims. But Ericsson doesn't rely on that theory alone. As a fallback (and that may be the more realistic outcome), Ericsson proposed to sever those FRAND claims from the patent-specific declaratory-judgment claims and to consolidate them into Ericsson's earlier filed Texas FRAND case.

Given that the parties will ultimately have to work out the terms of a cross-license, it wouldn't make sense to have two parallel complaints. And they seem to agree on that, too: it's just that the most extreme position either party can take is that its own complaint should survive while the other should fall. But my guess is we'll see a single FRAND case in the Eastern District of Texas that will involve both parties' FRAND claims.

For the near term I expect to find out about more infringement countersuits by Apple such as the one in Mannheim, but the most interesting question will be whether Ericsson can land a "lucky punch" with its preliminary-injunction requests in Brazil and the Netherlands.

Yesterday, an Ericsson financial report gave an indication as to how much (or how little, if you will) Apple paid Ericsson under the expired license agreement.

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Apple piggybacking on Samsung's 2021 campaign to get Ericsson patents invalidated, drive up litigation costs: seven PTAB IPR petitions discovered

After the expiration of the Ericsson-Samsung patent cross-license agreement, Ericsson went to court about a year ago, and Samsung's response included 30 petitions with the Patent Trial & Appeal Board of the United States Patent & Trademark Office, each taking aim at an Ericsson patent. We're now seeing a similar development, though on a smaller scale so far, between Ericsson and Apple, and once again it looks like a net licensee is using some of its vast resources to drive up litigation costs.

Over the course of the last seven days, Apple brought seven IPR petitions against Ericsson patents, and will likely file more in the days or weeks ahead. None of those seven U.S. patents has been asserted by Ericsson against Apple (or is the subject of a declaratory-judgment action by Apple), but each was challenged by Samsung last year. It's somewhat ironic that Apple, which for many years denounced Samsung as a copycat, is actually building on Samsung's 2021 inter parties review (IPR) campaign against Ericsson, even rehashing invalidity contentions previously advanced by Samsung.

I'm a longstanding supporter of robust post-grant review of issued patents, but there's no denying that the process sometimes does get abused by deep-pocketed players to the detriment of innovators challenging patents because they can afford it, not because there's a need. Ericsson has so many patents that it will always find some others to assert regardless of how many Apple challenges. The problem is that such petitions clog the PTAB system and slow down the resolution of objectively urgent cases.

These are the seven Apple v. Ericsson IPR petitions I've found so far:

  1. IPR2022-00455 (of January 19, 2022)

    Petition (Scribd)

    U.S. Patent No. 10,165,601 on "methods and apparatuses for performing preamble assignment for random access in a telecommunications system"

    (not yet asserted by Ericsson against Apple; challenged by Samsung in 2021)

  2. IPR2022-00459 (of January 19, 2022)

    Petition (Scribd)

    U.S. Patent No. 8,798,658 on "minimizing drive test logged data reporting"

    (not yet asserted by Ericsson against Apple; challenged by Samsung in 2021)

  3. IPR2022-00464 (of January 19, 2022)

    Petition (Scribd)

    U.S. Patent No. 10,193,600 on "codebook subset restriction signaling"

    (not yet asserted by Ericsson against Apple; asserted against Samsung--and challenged by Samsung--in 2021)

  4. IPR2022-00465 (of January 19, 2022)

    Petition (Scribd)

    U.S. Patent No. 8,731,124 on "signaling of sequence generator initialization parameters for uplink reference signal generation"

    (not yet asserted by Ericsson against Apple; challenged by Samsung in 2021)

  5. IPR 2022-00340 of Januar 21, 2022

    Petition (Scribd)

    U.S. Patent No. 10,470,203 on "scheduling request resource configuration"

    (not yet asserted by Ericsson against Apple; challenged by Samsung in 2021)

  6. IPR2022-0458 (of January 25, 2022)

    Petition (Scribd)

    U.S. Patent No. 9,888,486 on a "method and arrangement in a telecommunication system"

    (not yet asserted by Ericsson against Apple; challenged by Samsung in 2021)

  7. IPR2022-00468 (of January 25, 2022)

    Petition (Scribd)

    U.S. Patent No. 10512027 on "on-demand request for system information"

    (not yet asserted by Ericsson against Apple; challenged by Samsung in 2021)

According to an Ericsson reference to those filings, at least the first five of those petitions target patents declared essential to an ETSI standard. Apple may hope to use any PTAB decisions (even if only to institute an investigation) as an argument against Ericsson in the FRAND context, claiming that large parts of the portfolio are invalid. But how much merit would that argument have? Ericsson can always argue that Apple did not attack a representative sample, but cherrypicked certain patents for this purpose.

Again, there'll be more of this, and presumably in short order. And one couldn't blame Ericsson for doing somthing similar now, except that they can't recycle arguments previously made by Samsung or some other party: Apple has no track record of SEP assertions.

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Tuesday, January 25, 2022

Can superstar lawyer Tom Goldstein turn Epic Games v. Apple around like he did FTC v. Qualcomm and Oracle v. Google?

Here's a short follow-up to my take on Epic's opening brief in its Ninth Circuit appeal of Apple's App Store antitrust acquittal. The previous post focused entirely on the legal issues, but I did also want to highlight that Epic Games has hired the man who may have been the most successful Supreme Court attorney in recent history: Thomas C. "Tom" Goldstein of Goldstein & Russell.

The profile on his firm's website mentions the two cases in which I saw him achieve major victories for his clients: FTC v. Qualcomm and Oracle v. Google. In the Qualcomm case, I predicted a reversal even ahead of the hearing, and was amazed at Mr. Goldstein's performance. Qualcomm was represented by Cravath--Epic's firm against Apple (and Google)--at trial. The combination of Cravath and Mr. Goldstein was dynamite. I view his work on Google's behalf much less favorably on the truth-o-meter, and agree with the dissent by Justices Thomas and Alito to a far greater extent than with the per curiam opinion.

The question is now whether he can do it again. I very much hope for the sake of competition, innovation, and essential app developer freedoms that he will indeed convince the judges of this being one of those rare cases in which a single-brand market--and only a single-brand market--is warranted. Then Google and Qualcomm are not only way bigger but also a lot more sophisticated than Epic when it comes to high-stakes litigation. There were success factors in place--which are not meant to downplay the brilliance of Mr. Goldstein's lawyering--that may be missing this time around.

In FTC v. Qualcomm, Mr. Goldstein was able to benefit not only from the state of affairs of U.S. antitrust law in general but also from the defendant-friendly stance of Republican judges. In that case, even the lone Democrat on the panel was philosophically a Republican. For Epic it would be best to have at least two Democrats on the panel.

Arguably, Makan Delrahim--then the Antitrust Assistant Attorney General--deserved no less credit for Qualcomm's antitrust acquittal than Mr. Goldstein. His Antitrust Division's amicus briefs combined with national security arguments raised by other departments of the federal government got the FTC's injunction stayed, and the court agreed with his position that patent issues should be addressed under patent law if they can be. Qualcomm also got a number of other amicus briefs in support of its cause.

It would be terrific if the Biden Administration could now side with Epic against Apple, but I wouldn't hold my breath.

In Oracle v. Google, the Supreme Court made a decision that went beyond what Google was looking for (Google just tried to prevent Oracle from winning judgment as a matter of law (JMOL) against its fair use defense, but emphasized deference to the San Francisco jury rather than seriously believing it was entitled to JMOL). That fair use JMOL is grossly consistent with the entire body of fair use case law in the United States concerning transformative use and the impact of a derivative work on the original creator. Justice Thomas correctly pointed out that the majority of the court didn't even want to take an explicit position on copyrightability because it would have run into fundamental inconsistencies with its fair use finding.

With the greatest respect for Mr. Goldstein, I consider it highly unlikely (less than a 3% chance) that he could have achieved this result--even with the falsehoods and fallacies I criticzed--if the Supreme Court majority had not simply made a political and institutional decision: Google had mobilized software developers and industry players (on fair use--unlike on copyrightability--even Microsoft supported Google, though I'm sure Microsoft made that decision without being influenced by Google), and academics. The Supreme Court majority feared that the sky would fall down on the software developer community and therefore turned fair use law on its head. Only Justices Thomas and Alito were not going to buy the crap. Let's face it: all software developers access APIs, but the fewest of us clone APIs. Oracle's case was only about the latter, not at all about the former, but Google's supporters conflated the two, either intentionally or incompetently.

Google and Mr. Goldstein prevailed on FUD and alarmism. And on falsehoods and fallacies, as I mentioned more than once before.

They manipulated the majority of the Supreme Court for their purposes, but they couldn't have done so with their own written and spoken words alone. They needed a massive outpouring of support, and Oracle's management had clearly made the strategic mistake not to understand that the case might be--as it ultimately was--decided by 100% extralegal considerations. What makes Oracle's strategic mistake even worse is that they actually did run a very successful campaign (lots of customer engagement included) to obtain regulatory clearance of the acquisition of Sun Microsystems, without which they'd never have owned Java (it was, however, MySQL and not Java that threatened to scupper the deal). While complainants (in one case against my explicit advice) very much relied on facts, Oracle played the kind of game that worked out for Google against Oracle more than a decade later.

Epic may find it hard to orchestrate a comparable groundswell. First, it's really difficult for companies who are at Apple's mercy each and every time they upgrade an existing app or submit a new one to take an aggressive stance against Apple in this context. Second, Epic will need far, far broader--and even more impressive--support than its Coalition for App Fairness alone. That is tricky. They need a mix of app developers of all sizes who are not afraid to speak out (and academics and consumer organizations). But without comprehensive mobilization, Mr. Goldstein will lack the single most important success factor that enabled Google to defeat Oracle.

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Ericsson's Q4 report provides indication of impact of Apple patent dispute and potentially other non-renewals of licenses: $100-150 million per quarter

Ericsson just released its report for the fourth quarter and the full year of 2021 (PDF). It's the first written communication to investors on Ericsson's financials since the outbreak of renewed patent litigation with Apple (BTW, a German Apple v. Ericsson countersuit was discovered yesterday), so I wanted to take a look at the numbers.

First, Ericsson's overall financial situation appears more than strong enough to duke it out with Apple if need be:

"Free cash flow before M&A was [USD 3.5 (2.4) billion] for full-year 2021, the highest in Ericsson’s history, further strengthening the net cash position to [USD 7.1 (4.5) billion]." (emphasis omitted; Swedish krona figures converted to U.S. dollars based on current exchange rate; figures in parentheses relate to previous period)

That picture looked rather different when Ericsson was forced to settle with Apple in 2015.

It does seem that Apple isn't really paying Ericsson a huge amount of royalties, as the combined impact of the dispute with Apple and some other (unnamed) non-renewals is limited:

"Ericsson’s IPR licensing revenues continue to be affected by several expiring patent license agreements pending renewal and 5G license negotiations. This will lead to estimated revenues from IPR licensing of [USD $110-150 million] in Q1, unless renewals are signed in the first quarter. The actual financial impact will depend on the timing as well as terms and conditions of new agreements." (Swedish krona figures converted to U.S. dollars based on current exchange rate)

How does that projection compare to how the previous quarter and the same (first) quarter panned out a year earlier?

"IPR revenues [in the quarter that just ended] amounted to [USD 260-280 million], including a new smaller agreement with retroactive impact." (Swedish krona figures converted to U.S. dollars based on current exchange rate)

So the Q1 estimate (unless there's a quick settlement) is about $120-150 million lower than the actual Q4 figures (while Apple was still paying its license fees). But Q4 is the strongest one for smartphones, so let's also check on the situation of a year ago (PDF):

"IPR licensing revenues amounted to [USD $85 million ($270 million)] in the quarter. The decline is mainly related to expired contracts pending renewal and lower volumes with one licensee. For the largest contract under renewal, both legal and negotiation processes are continuing." (emphasis omitted; Swedish krona figures converted to U.S. dollars based on current exchange rate; figures in parentheses relate to previous period)

The main reason was the dispute with Samsung (which ended shortly thereafter), and the "lower volumes with one licensee" relate to Huawei as everyone in the industry knows. Generally speaking, Ericsson managed to replace the lost revenue opportunity with Huawei by concluding various other agreements.

So, all in all, it looks like the non-renewal (for now) with Apple and some other parties--whose names are not known--costs about $100-150 million per quarter.

I've seen estimates by others according to which Apple only paid about $200 million per year (or about $50 million per quarter) to Ericsson under the previous agreement. I believe it's more, as Apple presumably accounts for well over half of the negative revenue impact from non-renewals Ericsson is talking about. But it's not a whole lot more, and the next agreement will likely be a lot bigger in light of 5G, favorable case law, and Ericsson's stronger financial situation. It's just hard to tell how long it will take Ericsson to get there. A "lucky punch" with a preliminary injunction in Brazil and/or the Netherlands could resolve the dispute pretty soon, but it could also take years.

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Monday, January 24, 2022

First overseas countersuit by Apple against Ericsson discovered in Mannheim, patent-in-suit relates to network bandwidth allocation

More and more details of the Ericsson-Apple patent dispute become known. Yesterday I provided an update on Ericsson's patent assertions against Apple, which include (inter alia) that Ericsson is seeking a preliminary injunction in Brazil over three patents and told Apple's counsel it would seek preliminary injunctions in the Netherlands, too.

Apple countersued last week. The first 2022 Apple v. Ericsson case to be discovered was a complaint with the United States International Trade Commission, requesting an import ban on Ericsson base stations over three mmWave-related patents.

Juve Patent today found out from the Mannheim Regional Court that Apple brought at least one case there against Ericsson: case no. 2 O 9/22 (which means that it has been assigned to the Second Civil Chamber under Presiding Judge Dr. Holger Kircher) over EP2945332 on an "apparatus and methods for network resource allocation." It's a homegrown Apple patent with a 2008 priority date, and the "network resource" whose allocation the patent focuses on is bandwidth. It's about dynamic bandwidth allocation in a network such as "a routed wireless IP network." It's entirely unrelated to the patents Apple is asserting in last week's ITC complaint.

In Mannheim, Apple is typically a defendant. About ten years ago Apple was asserting six patents there against Samsung, all of which were assigned to the Seventh Civil Chamber (under Presiding Judge Andreas Voss ("Voß" in German) at the time), and Apple won none of those cases. The patents-in-suit of then were unrelated to dynamic network bandwidth allocation.

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Access Advance pool doesn't really intend to solve duplicate-royalty problem: video codec implementers remain victims of unfair licensing scheme

This is a follow-up to 'Access Advance' patent pool can rename itself 'Suffer Setback' after Dusseldorf court ruling: flagrant FRAND abuse concerning video codec patents. In the previous post I discussed the logic of the Dusseldorf Regional Court's holding that certain Access Advance licensors owe Vestel damages for FRAND abuse, and cannot obtain injunctive relief against the Turkish TV manufacturer.

Weeks before I commented on this, Access Advance already sent an email to its existing and prospective partners, claiming that the outcome of the Dusseldorf cases was largely a win (as all of the asserted patents were deemed essential to the HEVC standard), and the denial of injunctive relief was disappointing but based on a narrow holding, which according to Access Advance wouldn't even have come down if a recent change to its Duplicate Royalty Policy had been made before--not after--trial. I disagree in at least three respects:

  1. Access Advance can't explain away the significance of a denial of injunctive relief by a German court on unprecedented grounds. Dusseldorf is a video codec patent enforcement hotspot, and MPEG LA's licensors never faced any such issue.

  2. While the court considered it dispositive that implementers who already had an MPEG LA license (such as Vestel) didn't enjoy legal certainty with respect to the avoidance or recovery of duplicate royalties when taking an HEVC Advance license, the court did express some skepticism concerning other aspects of the Access Advance business model--it just didn't have to analyze them to the full extent.

  3. The duplicate royalty policy of the HEVC Advance pool is publicly available, and it doesn't withstand scrutiny. The problem is structural. The inadequacy of that duplicate royalty policy is crystal clear if one takes into consideration the way the Access Advance pool optimized its dealings with third parties (licensors as well as licensees) for just the needs of its four owners (General Electric, Philips, Dolby, and Mitsubishi). That conflict of interest is only going to exacerbate, as those four companies own a much smaller piece of the VVC patent cake than the one for HEVC.

It's high time that someone told the story of what's wrong with the Access Advance scheme. The more I've looked into this, the more I consider Access Advance a liability not only for HEVC but even more so with a view to the industry's transition to VVC (H.266).

"Unprecedented" would be an understatement for Access Advance's Dusseldorf disaster

In Germany, patent enforcement is all about injunctive relief. Damages don't matter unless you're asserting an expired patent. Access Advance's defeat is all the more shocking when compared to other video codec judgments in the same jurisdiction. I've been able to research 32 video codec enforcement campaigns (27 over MPEG-2, 5 over AVC) that started in Dusseldorf and were in each case brought by multiple MPEG LA licensors against partly large and sophisticated defendants (even including Huawei). 32 is a rounding error compared to more than 7,000 license agreements concluded by MPEG LA without litigation, but in absolute terms it's a large enough sample to serve as a point of reference here.

In at least six of those disputes, injunctions came down. Time and time again, MPEG LA's terms were considered FRAND, from the Dusseldorf Regional Court (where all those cases were filed) all the way up to the Federal Court of Justice. Is it just because MPEG LA's lawyers are better? Well, Krieger Mes's Axel Verhauwen and patent attorney Gottfried Schuell ("Schüll" in German) of Cohausz & Florack are extremely well-respected in the German patent litigation community. But I believe even they could not have defended Access Advance's duplicate royalty policy--a type of issue that never once came up in an MPEG LA case.

Access Advance's scheme to attract patent holders who are large-scale implementers

The duplicate-royalty issue facing those who previously took an MPEG LA (or direct) license cannot be fully understood without looking into how Access Advance entices a certain category of patent holders to join its pool as licensors. Not the only but by far the most important patent holder of this kind is Samsung, which holds far more HEVC patents than any other Access Advance member (arguably, Samsung alone accounts for about 40% of the pool)--but which is also an ultra-large-scale implementer with its phones, tablets, and TVs.

For a long time, during which the focus was almost exclusively on AVC/H.264, companies like that were actually happy to work with MPEG LA. They had an interest in encouraging widespread adoption of those standards, but due to their high-volume implementations of video codec standards they wanted to limit their spend on license fees.

So what was Access Advance able to offer an organization like Samsung--other than impeding the adoption of a standard and driving up licensing costs, none of which would normally be too appealing?

The story was that the likes of Samsung could still license all of MPEG LA's patents at the usual rate, but by joining HEVC Advance they also got the other patents in that (normally very expensive) pool at an extremely low cost in exchange for getting only a small payout from Access Advance relative to the actual size of their portfolios. If Samsung got its fair share of HEVC Advance's royalty distribution, it would get--like I said--about 40%. But it would drive up its royalty costs as an implementer, as Access Advance is like four times as expensive as MPEG LA. The oversimplified version is that Access Advance invited them to join the pool and the primary incentive was to save costs as an implementer, not to generate much of a license fee income as a patent holder--though the latter is what Access Advance's owners (GE, Dolby, Philips, Mitsubishi) very much care about.

Intuitively, one may ask: "What's wrong with that? Shouldn't patent holders who are also implementers be free to optimize their bottom line?"

Of course they can do that. The problem with the Advance scheme is just that its key success factor is not a more reasonable royalty rate--it's that others must be treated unfairly in order for Access Advance's owners to maximize their revenues and for certain patent holders who are large-scale implementers (first and foremost, Samsung) to optimize their bottom line.

And that takes us full circle back to the problem with duplicate royalties.

Access Advance's duplicate-royalty economics

Access Advance is not merely about double-dipping, such as if a patent holder licensed a supplier and had actually exhausted its patent rights, but tried to get paid again somewhere downstream. The problem is more fundamental than that:

  • By the time HEVC Advance started, and especially by the time some other major patent holders defected from MPEG LA as a result of the type of deal I outlined in the previous section, wide swaths of the implementer landscape had already taken an MPEG LA license, and therefore remain licensed to some companies' patents even after those patent holders left MPEG LA. But Advance is all about "let's charge several times more." Its business model critically depends on extracting higher royalties from some who already have a license to many of those patents.

  • It would seem logical that if a licensee can get a cheap license to a set of patents or an expensive one, the licensee will prefer the less expensive option. Alternatively, some might argue that the principled approach is that the first license you take is a done deal and must be respected, so any pool licenses you take subsequently must factor out the patents to which you are already licensed. Whether one agrees with the first approach (let the customer choose) or the second (earlier-concluded license shall remain in force), there is just no principled--FRAND--basis on which the second pool can tell licensees they should pay for another (and more expensive) license to patents they've already licensed, and should then seek a refund from the first pool when the second pool is way more expensive than the first. But that's what Advance has been trying for a while, and what it's still trying, though the Dusseldorf court has just complicated--if not thwarted--that scheme.

  • Advance's economics just wouldn't work if they had to do the right thing, which is to reduce the royalty rate if a licensee is already licensed to many of the patents in the pool. That's because large parts of the portfolio come from patent holders like Samsung, who don't actually get much money out of the pool (because they joined with their interests as net implementers in mind). If, say, a licensee had to pay $100 million, 40% of which would be distributed to Samsung (minus management fees, which I'll talk about in a moment), and the licensee already had a license to Samsung's patents, then the royalty payment could be reduced to, say, $60 million. But here, while Samsung's patents would be used by the Advance pool in order to inflate the portfolio value when a court has to evaluate or determine a royalty rate, Samsung wouldn't get $40 million anyway, so there isn't really anything that Access Advance can deduct without its owners losing money on the deal.

  • What makes all of this even more complicated is that Access Advance is known to charge very high management fees. In the aggregate of multiple types of fees and charges, Access Advance keeps roughly 40% of the royalty income, which is several times more than MPEG LA's cut according to what people in the industry say about it. The higher the management fee, the more of an incentive the pool administrator has to avoid any reductions (no matter how reasonable in light of prior licenses), and the harder it is to make an adjustment work economically for all parties involved.

For the reasons I've just explained, it is essential to the Advance scheme that implementers are forced to take a license at a far higher rate than the MPEG LA rate.

Access Advance's duplicate-royalty policy is fundamentally flawed and deficient

Having laid the foundation in the previous passages, let's now look at HEVC Advance's Duplicate Royalty Policy. That one is a joke.

The first glaring deficiency is that it talks only about patents that are "also included in the patent list of another patent licensing pool, or joint licensing program," without addressing the scenario in which someone took a direct (bilateral) license, which is not at all uncommon in this industry. Bilateral licenses can result from license agreements or even from patent exhaustion. The Access Advance folks know that, and it must be attributed to bad faith that their Duplicate Royalty Policy fails to address that problem.

Even with respect to pools and joint licensing programs, that policy is merely reflective of the problem and does not provide a workable solution. In a duplicate-license sceario, Access Advance does nothing for licensees other than to "refer the request to the applicable Licensor(s)" (footnote 3), which falls far short of what the Dusseldorf court wanted, which was legal certainty for licensees. Unless a licensor and a licensee reach an agreement (in which case one doesn't need a policy anyway because they're on the same page), each licensor then gets to choose the lesser of two refund amounts:

  • the net distribution the Licensor received from Access Advance, or

  • the net distribution the Licensor received from another pool or joint licensing program.

Footnote 5 clarifies that net distribution "expressly exclude[s] all fees and other allocations/deductions made by Access Advance prior to apportionment and distribution of net royalty collections to all Licensors based on their respective patent portfolios." One of the problems is that Access Advance takes a huge cut, which the policy declares immune from a refund. With a much more reasonable pool management fee, even licensees might accept not getting that part refunded, but in the case of Access Advance, it's a major economic issue.

Furthermore, Access Advance is so intransparent and asymmetrical that you can't just look at the percentage of the patents you've licensed and you know what refund you'll get: a Samsung may contribute lots of patents but not actually get much (if any) money out of the pool.

Another problem with "net distribution" is that if Samsung makes products and obtains a cheaper license for them by contributing its patents to the pool, why should--to use the current Dusseldorf examples as examples--Vestel and Xiaomi (who compete with Samsung) indirectly pay for that by Samsung's true benefits from is membership in the Access Advance pool not being taken into consideration in the refund context? It's so unfair and unreasonable.

There will be some licensors who get a lot of money out of Access Advance (especially its founders). They're obviously going to elect the more profitable option for them: they'll refer implementers to MPEG LA for a refund. Someone like Samsung, however, could argue--based on Access Advance's policy--that they don't really get much money out of that pool, so there's pretty much nothing they can offer as a refund.

Access Advance should not become the fox in charge of the VVC hen house

The root cause of all of the problems outlined in here (and I don't even claim that this is an exhaustive list of issues) is that Access Advance serves the interests of its four founders, then does asymmetrical deals with patent holders who are major implementers, and in the end tries to let the Vestels and Xiaomis of the world pay the bill, which in turn impedes the widespread adoption of the standard.

The exorbitant pool management fees I mentioned in the previous section are just an example of a construct that is just meant to make GE, Philips, Dolby, and Mitsubishi more money. The implications of asymmetrical terms (with some getting a lot of money out of Access Advance, while others are just interested in reducing their own licensing costs) for refunds are another example. And now that the industry is transitioning to VVC, there's another problem to bear in mind: the collective share in HEVC patents belonging to Access Advance's founders is far greater than their positions in VVC. IPlytics held an "Unpacking VVC SEPs and standards contribution data" webinar last summer. IPlytics explained how difficult it is to analyze who owns how much of VVC, but they gave it a try, and one can see that some companies who held no AVC or HEVC patents are now pretty big significant contributors to VVC (TikTok operator Bytedance, for instance), while GE, Philips and Mitsubishi don't seem to play a major role in VVC. Dolby is still somewhat significant, but not a leading VVC contributor either.

For Access Advance's founders, HEVC is therefore more lucrative than VVC. That's why it makes economic sense for Access Advance to offer a combined VVC-HEVC license with a certain discount: its founders own a larger share of a combined VVC-HEVC pool than a VVC-only pool.

With respect to VVC, Access Advance is an early entrant and may be able to avoid the problem that licensees got a less expensive license through another pool before Access Advance came to them and wanted them to pay even more for a license they already had. But the root cause of the Dusseldorf disaster is deep and structural. It's that Access Advance games the SEP licensing system to the benefit of a small group of companies. It's not a transparent pool administrator who treats everyone at arm's length regardless of whether a patent holder is a shareholder in the pool firm or not. Instead, Access Advance is a scheme that makes its founders money, makes NPEs money, saves patent holders who are major implementers money by giving them terms that are fundamentally different from the terms offered to founders and other net licensors, and then has to prey on other implementers in order to make money.

This is not the right way forward for the industry.

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Sunday, January 23, 2022

Ericsson has requested preliminary injunctions against Apple in Brazil, declared intent to do so in the Netherlands: 5G patent royalty dispute picks up speed

I thought I had covered the Ericsson v. Apple 5G patent royalty dispute pretty exhaustively during the course of this week, only to find multiple informative filings in the Eastern District of Texas, all of which were made on Wednesday (January 19). So let me recap what was already known before the weekend and add what I've just found out from the Wednesday documents:

  • Ericsson brought a FRAND complaint against Apple in the Eastern District of Texas in October 2021, and Apple brought its own FRAND complaint in the same district in December while seeking the dismissal of Ericsson's complaint.

    NEW: On Wednesday, Ericsson filed its opposition to Apple's motion (PDF on Scribd), saying that Apple actually does agree that there is a justiciable FRAND controversy, but it prefers to be the plaintiff. In addition, Ericsson requests leave to amend its complaint, and I'll show the proposed amended complaint further below. Technically, if the amended complaint was allowed to be brought, Apple's motion to dismiss would be moot (Apple could bring a new motion taking aim at the amended complaint).

  • Ericsson's three ITC complaints and two companion complaints (one of which mirrors two ITC complaints) were already known, as was Apple's countercomplaint with the ITC. I haven't found any new U.S. complaints by one of these parties against the other.

  • On Friday, it became known that Ericsson had filed patent infringement actions against Apple with the Mannheim Regional Court (two cases), Dusseldorf Regional Court (two cases), Munich I Regional Court (apparently more than two cases), the District Court of the Hague (Netherlands), and a court in Brazil.

    NEW: A U.S. court filing by Apple, which I'll show below, also mentions four cases in another jurisdiction, Belgium (three standard-essential patents (SEPs), one non-SEP). The same filing says Ericsson has sought preliminary injunctions against Apple in Brazil over three SEPs, and that Ericsson informed Apple's counsel that Ericsson intends to seek preliminary injunctions against Apple in the Netherlands, too (where, according to Apple, Ericsson has asserted four SEPs--and where I know Ericsson sought a preliminary injunction against Samsung last year).

The information on Belgium being the fifth country in which Ericsson is suing Apple as well as on Ericsson's already-pending or soon-to-be-brought motions for preliminary injunction surfaced thanks to a request by Apple for an early case management conference in the Eastern District of Texas (this post continues below the document):

22-01-19 Apple Motion for E... by Florian Mueller

What Apple primarily hopes to achieve is to portray Ericsson as a litigant who doesn't truly want the United States District Court for the Eastern District of Texas to set a FRAND rate for a 5G SEP cross-license, but instead "has chosen to evade the jurisdiction of this Court by pursuing collateral litigation in the Western District of Texas, at the U.S. International Trade Commission, and in at least four countries abroad." Apple alleges that "[i]n each case, Ericsson is pursuing injunctive relief that will turn this Court’s judgment into a nullity."

Just like the passage of Apple's ITC complaint that proposes to have everything resolved in the Eastern District of Texas (where Apple even closed two of its Apple Stores in order to deprive that court of jurisdiction over patent cases targeting Apple), the sentences I just quoted must be taken with a grain of salt. Ericsson merely asked the Texas court (in its original October 2021 complaint) to determine that its own behavior complied with its FRAND licensing obligations--that is separate from seeking to stop ongoing infringements, and has nothing whatsoever to do with non-SEPs.

The license agreement has expired, and that's why enforcement has begun. There's nothing outrageous about it, and I don't see a basis on which Apple could meritoriously request an antisuit injunction of any kind. Also, the cases in the Western District of Texas will be stayed pending the resolution of the related ITC complaint (Apple just has to ask for that), so they're realistically not going to interfere with the FRAND action in the Eastern District of Texas in the slightest.

As I mentioned further above, Ericsson would like to amend its FRAND complaint in the Eastern District of Texas (which Apple opposes). Here's the proposed amended complaint (this post continues below the document):

22-01-19 Ericsson Amended C... by Florian Mueller

The key difference between this (proposed) first amended complaint of January 2022 and the original complaint of 2021 is that the original complaint--as I just said--basically asked the court to bless Ericsson's FRANDliness, while the amended complaint additionally requests relief with respect to Apple's conduct, arguing that Apple has violated its reciprocity obligation relating to its own ETSI SEPs:

(c) adjudge and declare that Apple has not satisfied its reciprocity obligations or otherwise complied with its FRAND commitment with regard to a cross-license to the parties’ essential patents;

(d) adjudge and declare that Apple breached its duty to negotiate in good faith;

(e) adjudge and declare that Apple repudiated and forfeited its right to enforce Ericsson’s FRAND commitment as a third-party beneficiary;

(f) award Ericsson damages resulting from Apple’s breach of contract;

(g) award Ericsson damages resulting from Apple’s breach of its obligation to negotiate in good faith

On Friday, IAM reported that Apple's long-time chief litigation counsel Noreen Krall had left the company in early December and has not been replaced yet. During Mrs. Krall's 11 years at Apple, I sometimes agreed and sometimes disagreed with Apple's positions. As I've already said on Twitter and LinkedIn, I can't imagine that anyone else in her position could have achieved better results for that company. Her most amazing achievements include a settlement with Samsung that according to sources I can't disclose cost the latter roughly a billion dollars, the annulment of the European Commission's 13-billion euro decision in the Apple Ireland (a decision by the EU General Court that the European Commission is appealing), and most recently the antitrust acquittal in the Epic Games case (the consolation prize that Epic won under California UCL is negligible at best).

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Friday, January 21, 2022

Ericsson sues Apple in three German courts, the Netherlands, and Brazil over 5G and other patents (in addition to handful of U.S. cases)

Ericsson has told Juve Patent that is has filed multiple patent infringement actions (over technologies including but not limited to 5G) against Apple with

  • three German courts:

    1. the Munich I Regional Court (the world's premier patent injunction revenue),

    2. the Mannheim Regional Court (which is closest to Munich in every respect),

    3. the Dusseldorf Regional Court (which according to Juve Patent has already assigned case numbers 4b O 4/22 and 4b O 5/22 to Ericsson's lawsuits, which means that patentee-friendly Judge Dr. Daniel Voss ("Voß" in German) will preside over the cases),

  • the District Court of the Hague (in the Netherlands),

  • and a court in Brazil.

For an overview of Ericsson's U.S. patent infringement actions against Apple (three USITC complaints and two federal lawsuits in the Western District of Texas), may I refer you to a very recent post. Apple filed a countercomplaint with the ITC over three patents and all of a sudden declared itself a big fan of the United States District Court for the Eastern District of Texas.

The choice of the three German courts is unsurprising, and if I interpret Juve Patent correctly, Ericsson filed two cases each in Dusseldorf and Mannheim, but more than two in Munich (as would I in their shoes).

One or more filings with the Dutch court were also more than predictable, given that Ericsson sought an anti-antisuit injunction there last year. And just like the three German courts, the Dutch court is also one of the venues Ericsson chose for last year's dispute with Samsung (which got settled pretty quickly).

In Brazil, Apple is not the first company against which Ericsson enforces patents: the Swedish company already did so against TCL, as articles from Brazil like this one confirm.

What does surprise me a bit is that the London-based High Court of Justice is not on the list, but Juve Patent says Ericsson may bring cases in additional European countries. For SEP holders, the UK has recently become a very attractive jurisdiction. But Germany is such a large market, and the SEP case law there (Sisvel v. Haier I and Sisvel v. Haier II) creates a strong incentive for implementers to act constructively in negotiations. Still, my bets would be on the UK for the next European jurisdiction in which Ericsson might file, depending on how Apple responds to this week's developments.

Ericsson would have no benefit whatsoever from disrupting Apple's business through injunctions: it just wants to be paid reasonable royalties on its patent portfolio, taking into account what others are already paying Ericsson. Apple, by contrast, pays only a very small amount of patent royalties on each iPhone it sells, with Qualcomm getting far more than anybody else though its patent portfolio is not even battle-tested.

While Ericsson's multi-jurisdictional enforcement sends out a clear message to Cupertino, it's much smaller for the time being than Nokia's ongoing campaign against OPPO (with filings in Germany, the UK, France, Spain, as well as India, Russia, and Indonesia). Also, last time Nokia sued Apple, it brought far more cases--and in more jurisdictions--than Ericsson has so far. So, by comparison, Ericsson is actually exercising restraint.

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Market definition is strongest part of Epic's opening brief on appeal of Apple's App Store antitrust acquittal

In the Epic v. Apple App Store antitrust case, Epic Games filed its opening brief with the United States Court of Appeals for the Ninth Circuit yesterday.

I already shared some thoughts on the Epic Games v. Apple appeal earlier this month and it's really only going to get interesting when Apple responds, but I'd like to share a few observations now.

MacRumors thankfully uploaded the brief to Scribd (this post continues below the document):

Epic's Opening Brief in... by MacRumors

Here's my first impression of Epic's different attack vectors (quoting from the Statement of the Issues):

  1. "Whether the district court erred in holding that a contract of adhesion is not a 'contract' under Section 1 of the Sherman Act."

    The hurdle for a plaintiff is lower when companies (which in many cases would otherwise compete with each other) enter into agreements that are restrictive of competition (Section 1 of the Sherman Act) than when one has to prove unilateral misconduct by a monopolist (Section 2). Here, Epic would like to benefit from the lower hurdle even though app developers have no choice but to accede to Apple's unilaterally-imposed terms.

    Epic's brief shows that Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California relied on two cases in which there was no contract in a narrow sense and a third in which the one who imposed the terms was not acquitted by the Ninth Circuit (a district court held it potentially liable in a related case)--the Ninth Circuit merely acquitted those who were forced to accept those terms were acquitted (a non-issue here as Epic is not suing app developers who signed Apple's agreements--it's only suing Apple itself). Epic cites to other precedent according to which contracts (including involuntarily-accepted terms) are contracts, and Section 1 broadly applies to all contracts. Epic also points to Ninth Circuit cases involving tying and exclusive dealing, and in which the defendants unilaterally set the terms of the relevant agreements, but that part is less persuasive because there are specific requirements for tying and exclusive dealing (Epic's tying claim was dismissed because the district court did not see how in-app payment processing was a separate product from the App Store, and exclusive dealing is not an issue in Epic v. Apple).

    On this basis, Epic warns against "disastrous consequences" because "Section 1 would not reach firms with the market power to coerce non-negotiable terms," which would "incentivize anticompetitive behavior." One way to respond to this is: "So what? You still have Section 2. Higher hurdle, but still."

    I'm surprised that Epic puts this part front and center. Should Epic believe that this is its strongest point, then I wouldn't be too optimistic about the prospects of its appeal. I am in favor of reasonably strong antitrust enforcement, but I don't think unilateral conduct should just be imported into Sec. 1. Epic emphasizes the word "[e]very"--the first word of the statute and right before "contract"--but in my view ignores that "contract" is part of an enumeration that continues with "combination in the form of trust or otherwise, or conspiracy." In my view, that context clearly favors Apple's position that Section 1 does not have scope for unilaterally-imposed terms, which are a Section 2 question (i.e., even Apple's position is not one of lawlessness--just a higher standard to meet). I'd be surprised if a conservative Supreme Court majority took such an expansive view on antitrust law--with ramifications far beyond Big Tech--as the one espoused by Epic.

    Even if the lower Section 1 standard applied, let's not forget that under the district court's reasoning, Epic failed to meet that one, too...

  2. "Whether the court erred in holding Apple Inc.'s ('Apple') prohibitions on competing software application ('app') distribution channels and competing in-app payment solutions for the iPhone operating system ('iOS') survive rule of reason scrutiny."

    Epic does manage to demonstrate some inconsistencies in the district court's reasoning that have implications for the rule-of-reason analysis. I've said before that one can find errors in that judgment (just like there are typos), but the question is whether anything changes the outcome. The rule-of-reason context is exactly the one in which Judge YGR's fear--which she expressed at a hearing where she urged the parties to agree to a jury trial (which would have been Apple's original preference)--may come true and the appeals court might not afford much deference to her factual findings. However, I have some doubts about whether Epic can prevail on "balancing" when the judge actually made some factual findings that were potentially fatal to Epic's case. That said, the balancing of Apple's justifications (which I've consistently criticized as being essentially pretextual) really depends on the attitude of the appellate panel. And the appeals court may very well see that the App Store situation is fundamentally unfair to developers. Epic's silver bullet in this regard is that Apple does allow alternative payment systems for the purchase of non-digital goods and services--which should (and hopefully will) make it easy for the appellate panel to see that Apple's security and other arguments are pretextual.

  3. "Whether the court erred in finding Apple is not a monopolist in markets for iOS app distribution and payment solutions for the sale of digital content within iOS apps."

    The key Supreme Court precedent for a single-brand aftermarket is Kodak, the key Ninth Circuit precedent is Newcal. Epic makes a bold claim in its brief:

    "The information barriers and switching costs here [for consumers] are more substantial, and the Kodak claim stronger, than in Kodak itself."

    While bold, Epic's argument in that regard is very compelling, and pretty easy to understand. Judge YGR decided the singe-brand market question against Epic based on an unreasonably high standard with elements that other (higher) courts had rejected.

    I think the reason for which the district judge made it impossible for Epic (or realistically anybody ever) to prove the existence of a single-brand market is that she was worried about making a decision that would have unintended consequences for other platforms: Android, Xbox, PlayStation, what have you. It's key that judges think about the implications of the precedent they set, but they should do so within reason. If Judge YGR had found a single-brand market, there very well might have been some immediate class actions against Sony and Microsoft (against Google, they are already pending)--but then those companies could still potentially have defended their app distribution terms. In order to give those companies the chance to defend their model, it takes new cases, however, and it would be wholly unreasonable to expect Epic to address fact patterns beyond its own case. The judge saw that Epic generates more revenue on other platforms, and faces partly tougher restrictions there, but it was not her responsibility here to prophylactically protect Sony and Microsoft by making an incorrect decision against Epic's single-brand market theory.

    Apple could argue that even if one agreed with Epic's single-brand market theory, Apple does allow web apps, and the district court considered web apps and some other ways of reaching customers sufficient.

  4. "Whether the court erred in rejecting Epic’s tying claim on the ground that app distribution and in-app payment solutions are not separate products."

    Epic argues that Apple ties its payment processing to its app distribution services: Apple won't distribute your app unless you use its payment services (which in turn enables Apple to collect is app tax). Apple essentially argued there's just one App Store, and you can't separate app distribution from payment processing any more than you could treat the checkout area as a separate business from the rest of a supermarket.

    The Dutch competition authority (ACM) and the South Korean legislature have just shown Apple that app distribution and in-app payment systems can indeed be separated--and apps selling non-digital goods (such as the Amazon app) showed it before.

    From a policy point of view, I can't see--and apparently various lawmakers and regulators can't see either--why the in-app payment system for non-digital goods and services must be viewed as inextricably linked to app distribution. There would be a huge policy problem, however, if companies like Apple could just defend themselves by saying "we decided to combine the two, so it's not tying."

    Apple's in-app payment system is not exactly the equivalent of a supermarket's checkout area. In-app purchases are made later.

    While I agree with Epic on its tying claim, I'm afraid that both the Ninth Circuit and later on the Supreme Court (where this case is surely headed) can easily be misled by Apple into believing that Epic's take on tying is irresponsibly expansive. It looks to me like the kind of question appeals courts prefer to sidestep. I'm more optimistic about the single-brand market, though I do recognize that that one is an uphill battle, too.

Epic argues that it's entitled to judgment on the merits, but as a fallback proposes a remand for a new rule-of-reason analysis. In the latter case the outcome would probably be the same unless the appeals court provides some game-changing instructions to the court below.

While Epic and Apple continue to litigate for probably a few more years or possibly anoher decade (especially remands delay the resolution of such a case a lot), U.S. lawmakers may simply open up mobile app store with the Open App Markets Act. But the outcome of that legislative process isn't certain (the American Innovation and Choice Online Act is moving ahead faster than the Open App Markets Act)--and in any event Epic and others would want to seek damages from Apple for its exclusionary conduct.

Apple's two biggest challenges on the litigation front in 2022 can be described in one word: "Epicsson."

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