Monday, April 4, 2022

Great news for standard-essential patent holders: Munich court looking to streamline multi-patent SEP disputes through unified FRAND hearing in 'lead case' and sequencing of trials

Case management matters. While procedures may be a dry subject, they do have serious business implications. I've learned about developments in Munich that will not only save court resources but also make standard-essential patent (SEP) holders money.

The world's leading forum for patentees seeking injunctions--the Munich I Regional Court--has for more than a decade prided itself on its "M√ľnchner Verfahren" ("Munich Procedure"), which would be called "Patent Local Rules" in U.S. federal district court (here's an example from the Northern District of California). Those rules are characterized by two hearings (the second one of which is a trial typically followed by a decision), page limits, and other rules that enable an efficient and correct adjudication of patent infringement actions.

Two years ago, the court also promulgated--just before a Nokia v. Daimler hearing, and after many months of deliberations and discussions with stakeholders (many of you had the chance to hear from Presiding Judge Dr. Matthias Zigann at conferences, even at an ETSI meeting)--its Standard-Essential Patent Local Rules on top of said Patent Local Rules. The court's emphasis on a licensee's genuine willingness to take a license was--by extension--affirmed that same year by the Federal Court of Justice in Sisvel v. Haier I. Later that year, Sisvel v. Haier II, while having the same case-specific outcome (in favor of plaintiff Sisvel), provided further clarification and, as part of that effort, promoted a certain degree of symmetry.

At a Nokia v. OPPO/OPPO v. Nokia hearing held by the Munich court's 21st Civil Chamber (Presiding Judge: Dr. Georg Werner) last month, it crystallized that the court's SEP rules were still evolving, for reasons including--but not limited too--the guidance provided by Sisvel v. Haier II. As I noted in my commentary (the post I just linked to), there's no reason for SEP holders to worry about whether Munich is a great venue for enforcing their intellectual property rights against unwilling licensees. It still is. But both parties to a litigation must act constructively through the process, all the way up to (and including) the trial.

I can see why some were shocked to find that the court had removed its SEP Local Rules (and its general Patent Local Rules) from its website. But that doesn't mean a change of direction. There was also concern over whether those development signaled divergence between the court's three patent-specialized divisions. No worries: a reasonable degree of continuity and maximum consistency between the court's divisions are ensured. The court issued a press release today with the following explanations (this is my summary, not a translation):

  • The three Munich patent litigation divisions--the 7th Civil Chamber under Presiding Judge Dr. Matthias Zigann, the 21st under Presiding Judge Dr. Georg Werner, and the recently-created 44th under Presiding Judge Dr. Anne-Kristin Fricke--jointly defined an updated set of Patent Local Rules late last month. There hasn't been a major change to them. It's more of a routine update that clarifies, for example, that one has to raise any proportionality argument in the answer to the complaint. Proportionality arguments against injunctive relief are made more frequently as a result of last year's German patent "reform" bill, but in my opinion they remain very unlikely to result in a denial of injunctive relief unless a plaintiff blunders or tries to shut down the country's most essential infrastructure without making a reasonable licensing offer. If last year's legislation matters at all, it has more to do with the part protecting confidential business information. In fact, the law on confidential business information ("GeschGehG") is mentioned ten times in the new Patent Local Rules, while "PatMoG" (the acronym of the patent reform bill) doesn't come up even once (only the disproportionality defense, in the purely administrative fashion I just explained).

    All of this is just typical of a necessary update that doesn't represent a departure from the court's rules. The two-hearing structure remains in place, as are many other signature elements of Munich's Patent Local Rules, such as rigid deadlines.

  • Counsel will automatically receive the rules in force at a given procedural juncture (or can request a copy). I've seen the document as well.

  • The court chose email over web simply in order to be able to revise the rules more flexibly. This way the judges can update the document without the administrative hassle of requesting an update to the court's website (which is a subdomain of the website of the Bavarian (State) Ministry of Justice).

  • Now, there currently is no document describing the court's SEP Local Rules. That, however, doesn't mean that the court distances itself from its past case law. The key factor here appears to be that SEP disputes are, more often than not, multi-patent litigations. The court's press release notes that SEP cases will be organized individually for the sake of judicial economy. The court is now experimenting with a new approach to certain sets of (related) SEP cases. The press release notes that the court may actually promulgate new SEP guidelines further down the road.

I've done some further research and found out what approach to SEP cases the court is presently contemplating (all of which remains in flux). The first step is to identify a "Leitverfahren" ("lead case") among a set of related SEP actions. In the lead case, the parties exchange four pleadings (two per party) and then spar with each other at a first hearing exclusively dedicated to the compulsory-licensing defense, i.e., it's exclusively a FRAND hearing. That's what apparently took place in Nokia v. OPPO/OPPO v. Nokia last month.

If the parties can't reach an agreement and the case has to proceed to trial, there will be a second hearing--the actual trial--for that lead case. At that stage, it's not only about FRAND but also about the technical merits (infringement and the possibility of a stay pending parallel validity proceedings).

What about the other cases (than the lead case) that are part of a multi-case dispute?

They don't get two hearings (just written pleadings ahead of the trial), and the trial will be held only after the lead case has been resolved.

The objective is to explore the possibility of a settlement based on the lead case. The remaining cases will proceed to trial only if the lead case fails to bring the entire dispute to an end. I could imagine scenarios in which a defendant lets the lead case come to judgment and plaintiff loses. It's also conceivable that a plaintiff obtains an injunction, but the patent can be worked around (this may sound like illogical for a SEP, but "essential" is not "essential-essential").

Above all, I could see cases in which a plaintiff maybe asked for an excessive royalty in the lead case, but then has the chance to optimize its FRAND demand in time for a subsequently-adjudicated case. That scenario actually favors plaintiffs. They get another bite at the apple (an apple that in some SEP cases is spelled with a capital A) if they file multiple cases and prevail on more than one patent-in-suit. If a defendant makes a mistake in the lead case, it will be enjoined, which often means it's game over and it doesn't help to be wiser after the event. A SEP holder, however, can actually take its chances in the lead case and if the demand was supra-FRAND, it could still fine-tune its position next time, with guidance from the court's prior ruling involving the same parties. The court will decide each case based on the full FRAND negotiations record as of the end of the trial in a given case. If the SEP holder is granted an injunction later, it may still be better off than if it had asked for too little the first time.

Three major benefits to SEP holders

If you ask me, the envisioned strategy for managing multi-SEP disputes actually makes Munich an even more attractive SEP enforcement venue--quite the opposite of what some feared last month. I see there reasons, which are closely related and arguably even overlapping:

  • One of the three aspects is what I explained above: SEP holders can take their chances in the lead case and still obtain an injunction in a subsequently-decided case.

    In principle, plaintiffs already had the opportunity to optimize their FRAND story after each trial or decision. But now they have an absolute guarantee that the court will firstly provide them with the necessary guidance in a lead case before any other case is even taken to trial. At last month's Nokia v. OPPO/OPPO v. Nokia FRAND hearing, Judge Dr. Werner placed the emphasis on the court judging each party by the entirety of its negotiation conduct from the first infringement notice to the trial. In a multi-case one-way dispute ("one-way" meaning the defendant isn't countersuing), a SEP holder that is confident of its ability to prevail sooner or later, and which is not in financial dire straits, can afford a "maximalist" strategy. Don't leave money on the tabe, as the saying goes. "You win some, you lose some" doesn't apply because the SEP holder just needs one decisive victory. It's like "win once and take all."

  • While the FRAND hearing provides guidance to either party based on which it can optimize its FRAND position with a view to the trial, the practical implications aren't symmetrical. If a defendant learns at the first hearing that it has to meet a plaintiff's demands or it will be enjoined, and if it can't risk being shut out of the German market, the patentee will get what it's looking for. In the other scenario, however, where a patentee learns that it has to accept an implementer's offer or it won't win an injunction, the SEP holder can still choose: it can choose the bird in the hand over two birds in the bush, or it can simply bet on getting leverage in other jurisdictions such as the ITC, the UK, the Netherlands, maybe even in an exotic country. Put differently, the SEP holder can walk, but the implementer will remain under pressure as long as the SEP holder has cases pending that may lead to injunctions. That already benefits SEP holders within the lead case.

  • Previously the Munich court focused only on claim construction and the infringement analysis at a first hearing, even in SEP cases apart from exceptions that were few and far between. Early first hearings with a purely technical focus can give patentees leverage in non-SEP cases, with defendants often realizing their fate will likely depend on their motion to stay pending a validity determination. In multi-SEP disputes, however, guidance on FRAND is more critical than on infringement. It's hard to magine that a Nokia, Ericsson, or InterDigital wouldn't at some point prevail on at least one SEP-in-suit out of several asserted patents. Whether it's the first, second, or third case where it proves a SEP to be actually essential is less important than obtaining guidance on FRAND at the earliest opportunity, for the reasons discussed before.

    I believe we'll see more settlements of multi-SEP disputes after Munich first hearings now. Previously, defendants who saw at a first hearing that they were on the losing track with respect to infringement (as a SEP appeared to be truly essential to the standard) could tell themselves that "not all is lost" because there's still FRAND. Now, the FRAND part gets addressed at an earlier stage. If a defendant is on the losing track with respect to FRAND, it's only a question of when, not if, it will have to take the license.

Note that this is all preliminary; it's just being contemplated; and it's highly case-specific, so the court may adopt different rules for different disputes.

Single-patent vs. multi-patent cases: best of both worlds

I completely understand the court's judicial-economy considerations here because I follow cases in the U.S. and Germany, so I see the difference between multi-patent cases (be it in U.S. district court or in the ITC) versus single-patent (or at least single-patent-family) cases in Germany. What the Munich court wants is to leverage synergies between related SEP cases, ideally yielding the best of both worlds:

It's simply a requirement in Germany to adjudicate each patent (family) separately. A party can bring a complaint over five patents from five different families, and can almost literally set its watch by the court severing those additional claims, resulting in five cases (which is why German courts don't want parties to file multi-patent cases in the first place: they ask them to assert each patent (family) in a separate complaint).

Either approach (single-patent vs. multi-patent) has an upside and a downside:

For the purely technical aspects of unrelated patents (if they're not from the same patent family, they cover unique inventions), there aren't any non-negligible synergy effects other than a single jury selection process and maybe having to explain an accused product only once. Then, U.S. jury trials aren't just about the technical merits. They practically always involve damages claims, and then there are overlapping elements concerning the accused products.

German patent infringement cases are very technical, making them patent-specific. Damages are practically relegated to subsequent proceedings (in almost all cases, parties just seek a determination that they're entitled to damages, but don't actually sue for damages until after they've proven an infringement of a valid patent and are entitled to an accounting that enables them to calculate their damages claim).

Multi-SEP cases are different. The FRAND determination is almost always about a (global) portfolio license (if not even a global pool license). The patent-specific question is whether an injunction will issue against an unwilling licensee, but the rate is unrelated to the strength or commercial value of a particular patent-in-suit. It would be inefficient and rulings could theoretically be inconsistent if different divisions of the court adjudicated parallel SEP cases involving the same portfolio. In Nokia v. Daimler, most cases were pending before the 21st Civil Chamber (then under Presiding Judge Tobias Pichlmaier), but one was assigned to the 7th Civil Chamber (Presiding Judge: Dr. Matthias Zigann), which had previously looked at that patent when Nokia was asserting it against Apple. The 21st Civil Chamber enjoined Daimler, and before the 7th Civil Chamber adjudged its case, the parties settled. Nothing went wrong. But it was a dispute involving several patents, two different panels of judges were involved, and it would indeed have made sense to identify a "lead case" for the purpose of a de facto consolidation of the FRAND part, and to firstly decide that one before taking the other cases to trial.

For SEP holders it still makes sense to assert multiple SEPS, hedging their bets not only with respect to the technical merits but also with a view to FRAND. The court, however, can use its scarce resources most efficiently to give guidance to the parties to SEP disputes enabling them to overcome their disagreements on licensing terms.

I'm pretty optimistic that what is currently just being contemplated won't disappoint when it's reduced to practice.

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