Friday, March 10, 2023

WiFi router maker AVM deemed unwilling licensee of standard-essential patents--but more WiFi 6 patent assertions by Huawei may be needed to force settlement

Everyone loves WiFi 6, but not everyone is prepared to pay the creators of that standard fair, reasonable, and non-discriminatory (FRAND) patent royalties. A panel discussion organized by the Licensing Executives Society International (LESI) in January reflected hopes that implementers would seize the opportunity to save license fees by taking a pool license early on, but also the determination to bring enforcement actions if need be.

Prior to joining Sisvel's WiFi 6 pool (which welcomed another licensor last month: Mitsubishi), Huawei already felt forced to conclude that some WiFi 6 device makers are unreceptive to licensing offers unless and until they get sued. That's why Huawei, which created a sizable part of the entire standard, sued, among others, German WiFi router market leader AVM. AVM's FritzBox has a market share of approximately 70% in Germany.

The Munich I Regional Court held a FRAND hearing in mid December. At the time, Presiding Judge Dr. Matthias Zigann had just been promoted to the appeals court (he will, of course, be a key UPC judge as well), and his deputy, Judge Benjamin Kuttenkeuler, presided over the hearing, which largely took place behind closed doors. Meanwhile, Judge Dr. Zigann's permanent replacement has been appointed, and has since the beginning of the year been presiding over the court's legendary (in patent circles) Seventh Civil Chamber: Presiding Judge Dr. Oliver Schoen ("Schön" in German).

Let me first show you the current composition of the panel (click on the image to enlarge):

From left to right: Judge Dr. Hubertus Schacht, Presiding Judge Dr. Oliver Schoen, and his deputy (and the rapporteur on this Huawei v. AVM case), Judge Benjamin Kuttenkeuler. This is quite a triumvirate, considering that all three of them have authored important opinions and presided over patent hearings and trials.

The trial was held in a larger courtroom than usual, and I heard that this was necessitated by the strong interest of many attendees of a Federal Circuit Bar Association event in Munich to see the Seventh Civil Chamber in patent action.

A decision will be announced next week, which strongly suggests that it is not going to be an injunction for the time being, but more likely, a stay. Based on a preliminary opinion rendered by the Federal Patent Court, the Munich I Regional Court expressed the inclination to identify a squeeze: either the patent is interpreted narrowly, in which case it would not be deemed essential to the standard, or broadly, in which case it would be considered likely to be invalidated for lack of novelty. This comes down to an assessment of the probabilities of different outcomes in the Federal Patent Court, whose final decision may take years and, after further written pleadings and oral argument, could deviate from the first impression.

This is a challenge facing other litigants in Germany as well. Nokia, for instance, saw some of its Daimler cases stayed, but various patents fared better in the Federal Patent Court than one would have thought. Those cases would have come back with a vengeance if the parties hadn't settled. Nokia is currently embroiled in litigation with OPPO and Vivo, both of whom are countersuing Nokia in Germany. Many Nokia and OPPO patents have come under invalidation pressure, with OPPO's patents-in-suit being young enough that they can only be challenged in EPO opposition proceedings. The jury is still out on the shape and form in which some of those OPPO and Nokia patents may ultimately survive. But in the short term, preliminary opinions that raise doubts about the validity of the patents-in-suit complicate matters on the enforcement front.

Germany's 2021 patent reform ("PatMoG 2") was a total failure with respect to the standard for injunctive relief: nothing has changed, and some litigators are frustrated that the Dusseldorf Regional Court effectively says that instead of a proportionality defense, defendants should seek a compulsory license (or that this is at least the first thing they must attempt--in a jurisdiction in which only two compulsory licenses have been granted over the past 50 years or so, one of which was reversed on appeal). There still has not been a single case in which the proportionality defense mattered. It's been a total waste of time and money. But the six-month target for preliminary opinions by the Federal Patent Court--which took effect less than a year ago--is making a greater impact than I would have thought.

If I were a Bundespatentgericht (Federal Patent Court) judge, I would issue rather vague and non-committal statements. I would just identify a naturally non-exhaustive list of potentially outcome-determinative questions. That would even make institutional sense because one may wonder now why the Federal Patent Court wasn't able to issue those opinions on a similarly timely basis in the past. Also, the kind of companies who lobbied the German government and German lawmakers for that reform bill are some who are far more frequently on the defending than enforcing side, so why do them a favor after they essentially claimed the Federal Patent Court was lazy? But somehow the judges there seem to take too much pride in their compliance with the new law.

As a result, plaintiffs looking to benefit from Germany's near-automatic patent injunction regime need to bring more parallel patent assertions in order to gain short-term leverage over infringers. Otherwise there is a risk of a first wave of assertions resulting in a mix of non-infringement rulings and stays. As a result of thumb, I would at this stage discourage enforcement campaigns over fewer than a handful of patents.

The part that strengthens Huawei in any licensing negotiations with AVM is FRAND. While the courtroom was sealed for that one, Judge Dr. Schoen made reference to the FRAND defense in his initial outline of the state of play. Judge Dr. Schoen carefully phrased its preliminary assessment of AVM's FRAND defense in high-level terms so as not to reveal any confidential business information in open court. What he did say was that AVM has two options of taking a license to the patent(s) in question, and can't refer to potential progress in one of those conversations in order to refuse to discuss the other option at all.

A patent can only be held by a single entity at any given time, so the only explanation for the two alternative ways to license Huawei's WiFi 6 patents is the Sisvel pool I mentioned further above. What I was unable to deduce from Judge Dr. Schoen's remarks is whether AVM is claiming that an agreement with Sisvel is near and, therefore, not meeting (in the court's preliminary assessment) its FRAND obligations vis-à-vis Huawei, or the other way round. Again, this litigation started before Sisvel's WiFi 6 patent pool was formed. This means AVM certainly hasn't acted like an unwilling licensee in its dealings with Huawei. As far as Sisvel is concerned, the question is why they don't just take the pool license, especially in light of the Licensing Incentive Framework for Technologies (LIFT). Pool licenses are typically form agreements that a willing licensee can execute in a matter of hours.

I don't know whether the court's assessment of AVM's willingness to take a license changed during the non-public part of the trial, but I doubt it: the facts concerning the "FRAND dance" (back-and-forth) are established well ahead of a trial, and the arguments are raised in the written pleadings.

This means that the question is not whether Huawei will prevail, but when. AVM can run, but it can't hide forever.