Friday, March 18, 2022

Ford's patent exhaustion defense to Sisvel's Delaware claims fails plausibility test: time hasn't stood still since 2008 Qualcomm-Nokia deal, others' similar defenses went nowhere

In early February, Ford filed its answer to patent licensing firm Sisvel's Delaware complaint, which is just one of several cases brought by Avanci licensors against the iconic U.S. automaker (case in point, IP Bridge is increasingly likely to obtain a Munich injunction against Ford next month). The part that stood out from Ford's Delaware submission was the claim that the former Nokia assets among the patents-in-suit were exhausted under a 2008 Qualcomm-Nokia license agreement that predated the 2012 transfer of those patents to Sisvel.

Two weeks later, Sisvel replied to multiple exhaustion-related paragraphs from Ford's counterclaims as follows:

"Paragraph [...] contains conclusions of law to which no answer is required, To the extent that an answer is required, Plaintiffs deny the allegations in Paragraph [...]. Plaintiffs are without knowledge or information sufficient to form a belief as to the truth of the remaining allegations in Paragraph [...] and deny same."

Sisvel obviously doesn't know what exactly the Qualcomm-Nokia agreement says. Neither do I. But it is possible, just based on publicly accessible information, to make the reasonable inference that Ford's supposedly dispositive get-out-jail-free-card (with respect to some--not all--of the patents-in-suit) is just a Hail Mary pass:

  • Ford's theory is more of a fishing expedition than based on reliable facts. The wording is already odd: "[T]he assignment of the [...] patent to Sisvel in 2012 was subject to the July 2008 agreement between Nokia and Qualcomm" (emphasis added)

    If the assignment was "subject to" an agreement, that one would have been the transfer agreement between Sisvel and Nokia. What Ford means to imply here, but can't really claim, is that a certain encumbrance traveled with the transferred patents. But what encumbrance are they talking about? They don't seem to have any information beyond a 2008 press release that says "Nokia has agreed not to use any of its patents directly against Qualcomm." One can deduce from that passage that Nokia didn't grant Qualcomm a license. But everything else is unclear.

  • According to the press release, it was a 15-year deal. But the assumption that Nokia and Qualcomm would never have amended their 2008 agreement despite earth-shaking subsequent case law such as TransCore (a 2009 Federal Circuit decision according to which an unconditional covenant not to sue triggers exhaustion), and despite Nokia later exiting the mobile device business, flies in the face of all I know about industry practice and from following the FTC v. Qualcomm and Apple v. Qualcomm antitrust cases in granular detail. It is a typical human fallacy to assume that something (here, the Nokia-Qualcomm agreement) forever remains static. It's even worse when people believe that one factor is static while others are dynamic, only because that particular combination of static and dynamic elements would benefit them.

    As one of the attendees of the 2019 FTC v. Qualcomm trial in San Jose, I know that Qualcomm reacted to case law developments by changing the structure of its agreements.

  • If Ford was right, Nokia's licensing business couldn't possibly be as successful as it is given Qualcomm's market share. Sophisticated hardball-playing licensees like Apple wouldn't have paid nearly as much as they have. The best example may be the 2011 Nokia-Apple agreement, which fell into place only a few months after Apple's February 25, 2011 "Transition Agreement" with Qualcomm. It became known as a result of certain antitrust cases (such as this European Commission decision) that Apple agreed to buy all of its 4G/LTE chipsets from Qualcomm until the end of 2016. What triggered that spring 2011 settlement was the threat of two Mannheim injunctions (a hardware patent and one targeting the App Store), which had nothing to do with Qualcomm's chipsets. But the royalty was largely justified with the strength of Nokia's cellular SEP portfolio. Even when Apple renewed the Nokia deal in 2017, it was still using Qualcomm chips, though no longer exclusively. Analysts estimated that Nokia was making approximately $1 per iPhone. A huge upfront payment was made.

  • Another way to look at it is that it wouldn't make sense for Qualcomm to support Avanci (as a licensor) if it could simply provide car makers with a license to the largest portfolios in the Avanci pool through the sale of its chipsets.

  • The Qualcomm-Nokia agreement has come up in various other patent disputes over the years. Never once has an exhaustion defense centered around that particular agreement succeeded, no matter the jurisdiction.

    More than ten years ago I personally attended a preliminary-injunction hearing in Paris where Samsung was denied a PI because of a patent exhaustion defense by Apple involving Qualcomm chipsets. But that was about the Qualcomm-Samsung (not Qualcomm-Nokia) agreement, and part of the discussion there was whether Samsung had the right to terminate that agreement with respect to (only) Apple. Also, it was not a full trial: just a denial of a PI. That case is an outlier, and again, about a different Qualcomm contract.

    By contrast, every single defense according to which Nokia's patents were exhausted by Qualcomm's chips has failed:

    HTC tried this in the ITC and the England and Wales High Court (over non-SEPs, but exhaustion doesn't work differently for SEPs than for non-SEPs). This amicus brief by HTC in the Lexmark case (in which the Supreme Court expanded the concept of patent exhaustion in cross-border scenarios) summarizes its failure in the UK (before Justice Richard Arnold). The full October 2013 decision is available here. On May 2, 2013, the ITC's Administrative Law Judge Thomas B. Pender entered Order No. 13 in investigation no. 337-TA-847 of a Nokia request for an import ban on HTC products. That order was the equivalent of a summary judgment in district court and threw out HTC's exhaustion defense because it was meritless even when viewed in the light most favorable to HTC. In those U.S. and UK decisions, the extraterritorial nature of the sale was dispositive. HTC settled with Nokia right before a final ITC decision, which shows that HTC presumably expected to lose.

  • The German SEP case at this stage is Sisvel v. Haier, and the regional appeals court in Dusseldorf (which did not make the famous final decision; that one was handed down by the Federal Court of Justice) dismissed Haier's patent exhaustion defense. The redacted version of the decision (in German) doesn't name Qualcomm, but it's anyone's guess.

    The same conclusion was reached by the Karlsruhe Higher Regional Court in a Sisvel v. Wiko case (English translation published by Kather Augenstein, a law firm whose clients include Ericsson).

The bottom line is that in order for Ford to prevail on its patent exhaustion defense in the Sisvel Delaware case, it would have to be way smarter than smartphone makers including but not limited to Apple, who paid for a license to Nokia's patents despite using Qualcomm chips, and it would have to benefit from the Supreme Court's expanded patent-exhaustion doctrine under the 2017 Lexmark decision, presupposing (unrealistically) that Nokia and Qualcomm never amended their 2008 agreement--of which it is not even clear whether it ever could have helped Ford.

There were rumors in Germany that Volkswagen was going to raise a similar defense in Acer v. Volkswagen (not involving former Nokia patents, but another Qualcomm agreement). However, VW upgraded its Avanci license to 4G and thus never answered to the complaint: the complaint has been voluntarily dismissed.

The Ford case and the rumor about VW's plans show that the topic will surface from time to time. I don't have hard evidence that they're all wrong, but there's a mountain of indicia pointing in the direction of meritlessness.

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