Tuesday, November 8, 2022

Ericsson likely to win German patent injunction against Apple in early 2023: Mannheim court deems cellular standard-essential patent valid and infringed

What happened in Mannheim today may pave the way for a near-term settlement of the 5G patent licensing dispute between Ericsson and Apple. At 11 AM Central European Time, the Mannheim Regional Court's Second Civil Chamber (Presiding Judge: Dr. Holger Kircher) started an Ericsson v. Apple trial (case no. 2 O 5/22), and in the panel's preliminary opinion, the patent-in-suit--EP2191608 on a "method and arrangement in a telecommunication system" is essential to the 4G/LTE standard, i.e., inevitably infringed by Apple's implementations of those cellular standards, and valid.

This was the first standard-essential patent (SEP) trial between Ericsson and Apple in the current dispute, and a "hole-in-one" for the Swedish telecommunications pioneer--and its lead counsel, Kather Augenstein name partners Dr. Peter Kather for the technical part and Dr. Christof Augenstein for non-technical defenses (primarily FRAND), as well as patent attorney Markus G. Mueller ("Müller" in German) of Hoffmann Eitle--is now rather likely.

In the first part of today's trial, the court discussed the technical merits of Ericsson's complaint with the parties, and the infringement part couldn't have gone better for Ericsson. Simply put, what the patent covers is an optimized way of calculating a security-related encryption key by deriving it from data that is available at the time the determination must be made (as opposed to sending the key in an additional message). Judge Dr. Kircher kept his introduction short and cautioned that it was--in the interest of time--not exhaustive. Apple's primary non-infringement argument is a proposed claim construction according to which a key parameter would have to be transmitted in its entirety from the handset to the base station. However, the relevant claim term is "indicating"--which falls far short of a complete transmission. Furthermore, Judge Dr. Kircher noted that the patent specification describes embodiments that transmit less than the full number.

The validity part also looks pretty good for Ericsson, but Judge Dr. Kircher promised Apple´s lead counsel--Dr. Andreas von Falck of Hogan Lovells--and its patent attorneys from Maikowski & Ninnemann, Gunnar Baumgaertel ("Baumgärtel" in German) and Sandro Staroske to give further thought to their invalidity contentions. The procedural backdrop here is that the patent-in-suit survived two rounds (opposition chamber and board of appeal) of a prior challenge (to which Apple once even contributed), and the prior art Apple cites now was indeed presented at the opposition hearing. The opposition panel of the European Patent Office deemed that proffer untimely and didn´t comment on its relevance in the most elaborate fashion, yet noted a key shortcoming: the lack of an unambiguous disclosure that one key parameter of the computation of the encryption key should be the uplink counter.

Apple´s patent attorneys argue that the uplink counter is indeed "unambiguously" disclosed by the cited prior art as any other possible values such as a downlink or bidirectional counter would not make any technical sense. Judge Dr. Kircher replied: "´Unambiguously´ is unambiguously the wrong term here." He explained the legal standard: the infringement court merely performs an assessment of the likelihood of success of a parallel nullity proceeding. It does not take evidence or hear technical experts for that matter. Even if Apple´s arguments for the prior art meaning the uplink counter are--as they may be in the court´s opinion--more persuasive than Ericsson´s position, that is just not enough to warrant a stay. Only if the court arrived at the conclusion that there is no other reasonable interpretation left would it order a stay of the infringement case pending the resolution of the parallel nullity proceedings. This reminded me of the issue that was at the heart of the Supreme Court decision in Microsoft v. i4i about a decade ago: it takes a lot more than a (pontential) preponderance of the evidence for an invalidity defense to succeed in a patent infringement case. That parallel is coincidental.

Ericsson´s counsel noted that Apple´s theory according to which the disclosure in the prior art is unambiguous presupposes an unrealistically high standard for the person having ordinary skill in the art (PHOSITA).

Another problem is that Apple points to a document that is younger than the priority date of the patent in question. In that document, Nokia Siemens Networks commented--months later--on what is Apple´s actual prior art reference. And that newer Nokia document actually references Ericsson´s standardization proposal relating to the patent-in-suit: 20/20 hindsight.

All in all, Apple can´t really assert that its nullity complaint is a slam dunk.

For the second part--after the lunch break--Apple's FRAND defense to Ericsson's injunction request was on the agenda, but Judge Dr. Kircher said at the outset of the trial that the courtroom would be sealed for that discussion involving confidential business information. As a result, I can't know how exactly Apple seeks to convince the court that it is a willing licensee. But in recent years, especially after the two Sisvel v. Haier decisions by the Federal Court of Justice, it has been practically impossible for implementers of SEPs to prevail on a FRAND defense.

Apple is known for taking a tough stance in licensing negotiations, a habit that has most recently been reflected by the fact that the iPhone maker's new agreement with patent licensing firm InterDigital was struck only on the very last day of the term of the previous contract. Apple ended up paying only 15% more to InterDigital than under the previous license agreement (as InterDigital's CEO said on a conference call with analysts), despite having massively increased its revenues during that period.

All things considered, I'd be really surprised if Apple's FRAND defense succeeded. If the court doesn't change mind on the technical merits and if Apple's FRAND defense fares no better than that of other SEP implementers, an injunction will come down. [Update] The court has informed me that a decision will be announced on February 28, 2023. That is an unusually long time, the most likely reason being that the court granted leave for post-trial pleadings during the FRAND part in the afternoon. [/Update] If Ericsson wins, Apple will appeal. It will ask the appeals court--the Karlsruhe Higher Regional Court--to stay enforcement for the duration of the appellate proceedings, which is possible but doesn't happen too often.

Assuming that the injunction won't be stayed, Ericsson can enforce, but will have to provide collateral by either posting a bond or making a deposit with a different (lower) Mannheim court. Given Apple's obscene profitability and its substantial sales volume in Germany, that amount could be substantial (in the billions). Whether Ericsson will provide such security or wait until the appeals court has affirmed an injunction (at which point no collateral is needed) remains to be seen. For example, Nokia didn't immediately enforce a Mannheim injunction against Daimler two years ago because a bond or deposit of €7 billion would have been required.

It's a question of when--not if-- Ericsson will get to enforce a German patent injunction (or more likely multiple such injunctions) against Apple. Ericsson is already enforcing a preliminary injunction against Apple in Colombia and has five more Mannheim trials against Apple coming up (one per month, starting in December). The Munich court has already heard two of its cases (with Ericsson on the winning track over a SEP (the court denied Apple's motion to dismiss) as well as a non-SEP), with several more hearings scheduled between now and the Holiday Season. A couple of Dusseldorf trials will take place in March. Last month, the Mannheim court heard a countersuit by Apple and scheduled a decision for November 29, but I don't expect Apple to gain leverage from that one.

Apple may come away unscatched from an ITC trial that started on Friday, but ten of its PTAB IPR petitions against Ericsson patents have already failed, and at least three of those patent families play a key role in this dispute.

On December 5, a FRAND trial will be held in the Eastern District of Texas (Chief Judge Rodney Gilstrap). Ericsson prevailed over HTC a few years ago in a dispute of a similar kind, and given that the current dispute is over 5G, not 4G, and that Apple makes far more expensive devices than HTC, it may very well win again.

As today's Mannheim trial showed, time is not on Apple's side, and hold-out tactics are unlikely to pay dividends.

In other Ericsson v. Apple news, a U.S. trade judge has just released the public redacted version of a recent order that requires the iPhone maker to disclose its payments to, and describe ots current and historic relationship with, ACT | The App(le) Association, a notorious astoturfing operation.