Thursday, September 28, 2023

Sisvel's narrowband IoT patent pool boosts value proposition with Huawei and others bringing in many patents while lower rates enable new applications such as printable trackers

Patent pool administrator Sisvel just announced that Huawei, one of the largest patent holders in this space, has joined the narrowband Internet of Things (IoT) patent pool that was launched last November. The largest founding licensor was Ericsson.

This is the second Sisvel pool for Huawei to join. More than a year ago, Huawei started its working relationship with Sisvel as an initial licensor of its WiFi 6 pool (as Sisvel president Mattia Fogliacco recalls in today's press release) and is also an Avanci 5G licensor, which shows that the Chinese innovator is increasingly receptive to pool-based licensing solutions. Other major SEP holders may now be more interested in joining this pool, given that Huawei and Ericsson (as well as various other patent holders) already give the licensing program a lot of substance.

Sisvel's updated list of NB-IoT licensors contains several other names I haven't previously noticed, such as KPN, Deutsche Telekom, and BlackBerry. What licensees get is a "one-stop shop" (as Sisvel's cellular IoT program manager Sven Torringer calls it in today's press release) that gives them access to more than two dozen patent portfolios, with Huawei, Ericsson, and NTT Docomo being considered particularly strong in narrowband IoT. It's fair to say that Huawei had a leadership role in the development of the IoT-related parts of the 4G/LTE standard.

Sisvel's press release mentions "new royalty rates for the Cellular IoT patent pool, including for devices with a lower selling price," and that it has "expanded its offering to new product verticals." Previously, as I reported at the time, the rate was "$0.66 per unit for LTE-M" and "a distinction [was] made between asset trackers ($1.33 per unit) and smart meters ($2 per unit)." The $2 (smart meters) and $1.33 (smart sensors with a selling price above $20 and up to $130) price points are still found. But now there is also a $0.35 per-unit royalty rate for smart sensors with a selling price above $6 (up to $20) and a $0.08 per-unit rate for devices with a selling price of $6 or less.

For makers of low-priced IoT products, this means the value proposition has changed enormously in their favor: far more patents, and far lower rates for certain applications. It looks like two factors have resulted in this more flexible and attractive royalty structure:

  • In my commentary on the creation of the pool I already noted that the challenge for an IoT patent pool is market development: it's not enough to offer licenses or to dissuade implementer from infringement, but about adoption of the standard. Patent pool administrators operate in a two-sided market. They have to bring licensors and licensees together, and in order to do so, they have to listen to both sides.

  • Sisvel's new NB-IoT royalty rates are definitely reconcilable with Huawei's bilateral licensing terms for such products, which are highly differentiated as I explained last month. The pool is a one-stop option, but it's not the only way to get access to Huawei's intellectual property.

    Huawei is both a major patent holder and a large-scale implementer. If a pool worked for only one side, Huawei would find it hard or even impossible to join.

The rock-bottom rates that the pool now offers for devices with a selling price of $6 or less should enable new applications. What comes to mind as potentially the highest-volume and lowest-price NB-IoT application is called printable NB-IoT tracking labels. They are asset trackers in the form of stickers that could, for instance, track an Amazon package.

At a time when policy makers are working on an EU SEP Regulation, it's warranted to put major SEP news such as this one into the current political context. The European Commission's Directorate-General for the Internal Market (DG GROW) clearly underestimated the extent to which patent pools could be part of the solution as opposed to being part of the problem. The favorite pretext (not only of DG GROW but also Apple and its allies and astroturfers) to push for legislative intervention is that IoT SMEs allegedly need a different legal environment. But patent holders are smart enough to realize that IoT patent licensing won't work unless the royalty rates enable IoT product makers to thrive. While I still haven't seen a single SEP enforcement action against an SME as defined by the EU, and the IoT sector is generally not a legal battlefield at the moment, the market continues to find and improve solutions.

Patent pools not only bring licensors together with licensees, but also have to broker a compromise between licensors of very different kinds. Huawei with its high product volume (which is not fully visible to people in the Western hemisphere for purely geopolitical reasons, but is a reality in the rest of the world) obviously has a more balanced take than a non-practicing entity, which is not meant to disparage NPEs but plainly a fact. In order for a pool to unite product makers like Huawei and Ericsson with infrastructure companies like NTT Docomo and Deutsche Telekom as well as with research institutes and patent licensing firms, it has to identify royalty rates that work for all of them.

An EUIPO-led process for aggregate (entire standard) and bilateral (licensor A and licensee B) royalty determinations will cause delay and complicate matters. In the meantime, patent pool administrators and other market actors work out and fine-tune the solutions they offer.

With so much in flux especially concerning IoT, the prudent thing for the EU to do would be to wait and better understand what's going on. Instead of trying to adopt something before the end of the legislative term just for the sake of having some kind of outcome to show (no matter how flawed), they should go back to the drawing board and take note of new developments, such as IoT licensing terms becoming more attractive at a breathtaking pace.

Wednesday, September 27, 2023

OPPO defends another 5G patent against Nokia's opposition: Mannheim trial scheduled for December, UPC PI motion conceivable, and what would the EUIPO do under the proposed regulation?

Nokia and OPPO are giving each other a hard time in different patent validity fora. Recently, even some Nokia patents that gave rise to German injunctions have been deemed invalid in other--but definitely reputable--jurisdictions. It's a monumental, earth-spanning dispute. There hasn't been anything so large and long-running in the wireless sector for years.

The latest development involves OPPO's EP3624524 on "wireless communication methods, network device, and terminal device." It's a 5G declared-essential patent that OPPO asserted against Nokia in Mannheim, with a trial scheduled for December 5, 2023. In early February, an opposition panel of the European Patent Office (EPO) declared the challenged claims non-novel, but did not take a specific position on (non-)obviousness. Yesterday, the panel upheld the patent in an amended form.

The Bardehle Pagenberg patent attorneys who achieved that partial victory are Tobias Kaufmann and Dr. Nikolaus Buchheim.

In June, another OPPO patent-in-suit was also defended in an amended form, and a modification of the claim language that looked like a minor clarification to me resulted in a non-essentiality determination by the Mannheim Regional Court. So I want to be careful about any predictions at this point. The patent may or may not be standard-essential in its narrowed form. And if it's not essential, then it may or may not be infringed, but an infringement allegation would have to be based on what Nokia's baseband stations actually do as opposed to a (rebuttable) presumption that what reads on the standard is infringed by a product that has been declared standard-compliant. As there is no pretrial discovery in Germany (in fact, nothing even remotely like U.S. discovery), it is far easier to properly plead an infringement case over a SEP than over a non-SEP.

I've recently attended several preliminary injunction hearings before Local Divisions of the Unified Patent Court (UPC): two in Munich (with Bardehle Pagenberg having won one case while the other is under advisement), and one each in Vienna and Helsinki. Companies are increasingly concerned about the implications of a patent surviving, in one form or another, a validity challenge, as the UPC appears rather willing to grant preliminary injunctions over such battle-tested patents, provided (of course) that other requirements, such as urgency, are met.

The Nokia v. OPPO/OPPO v. Nokia dispute showcases various of the things that can happen in SEP enforcement, raising the question of what would happen--or would have happened--if the proposed EU SEP Regulation was already in force.

With respect to what implications the amended claims of EP3624524 would have under the EU SEP Regulation, there are at least two interesting questions:

  • If there had been an essentiality check based on the patent as originally granted, would the EUIPO routinely perform a new one in a situation like this?

  • If the claim amendments pushed the patent out of the area of essentiality, but the patent could still be asserted as a non-SEP, wouldn't the patent holder actually be in a stronger position than if it was deemed essential for purposes of the EU SEP Regulation?

Antitrust class action against Qualcomm (originally related to FTC action) thrown out on summary judgment; same judge previously denied discovery of my communications with Microsoft

In January, I reported on the partial dismissal of an antitrust class action against Qualcomm in the Northern District of California (a case that was brought in the wake of the FTC's ultimately unsuccessful enforcement action against the chipmaker), and at the time I already wrote that the ruins of that complaint "[would] hardly survive summary judgment." In February I agreed with Qualcomm's arguments for not reopening discovery, as did the court. After the SJ motion was filed in April, I "I guess[ed] Qualcomm's motion [would] succeed." And that is what has just happened.

On Tuesday, "[a]fter carefully considering the briefing and conducting oral argument on August 3, 2023," Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California granted Qualcomm's motion for summary judgment in its entirety:

In Re: Qualcomm Antitrust Litigation (case no. 17-md-02773-JSC, N.D. Cal.): Order re: Motion for Summary Judgment (Public Redacted Version)

This here is a legal victory that should put all of that U.S. antitrust litigation from the late 2010s to rest (short of a successful appeal, but chances are so slim that I guess an appeal will not even be brought). In economic terms it is, however, pretty unimportant compared to the fact that Apple, due to its failure to make its own iPhone-grade baseband processor, had to extend the chipset purchasing agreement with Qualcomm by another three years (2024-2026), which presumably means that Apple exercised an option to extend its standard-essential patent royalty payments as well. In the alternative (if Apple had been able to replace Qualcomm's chips), Apple might have tried to renegotiate those SEP licensing terms.

Things are going well for Qualcomm, and ultimately I believe the company will be able to deal with whatever impact the proposed EU SEP Regulation--in whatever form it may or may not be passed into law--will have.

As for Judge Corley's reasoning, the key elements are that there was really not even the slightest substance to claims that an agreement with Samsung had any market foreclosure impact. And even with respect to Apple, there was no credible pass-through theory (of elevated costs). The final part ("Conclusion") of the order granting the motion to dismiss essentially says that the class-action lawyers made their strategic choices. The initial choices (very much about "No License, No Chips" and allegedly supra-FRAND SEP royalties) didn't work out when the Ninth Circuit reversed the FTC's trial win. Later on, they still tried to get something out of this by suing Qualcomm over exclusive dealing. They presented a new expert report "though the Court had expressly declined to reopen expert discovery." Judge Corley declined to "open the flood gates to prolonged do-over litigation" as opposed to the speedy, efficient, and just resolution that the Federal Rules of Civil Procedure seek to ensure.

This outcome makes sense to me. As I noted further above, I predicted that the shifting-sands case wouldn't make it to trial.

Class actions can serve useful purposes. They can raise issues and promote justice. However, the vast majority of class actions I see in the technology industry are just opportunistic attempts by lawyers to extract settlements from large corporations. Qualcomm probably could have "settled" that class action at a far lower cost than that of its world-class defense. But once you do that, others will come and sue you as well. Qualcomm made the right choice and has now (again, absent an unlikely reversal on appeal) defeated this class action (or, more precisely, consolidated set of class actions).

The order to dismiss the Qualcomm class action(s) came one day after Judge Corley also made a decision (in a class-action matter that does not involve Qualcomm but also followed an FTC action) relating in part to yours truly's communications with Microsoft:

DeMartini et al. v. Microsoft (case no. 22-cv-08991-JSC, N.D. Cal.): Order Re: Discovery Dispute Joint Letter

Let me just refer you to an article about this odd sideshow of the Microsoft-ActivisionBlizzard merger case by Stephen Totilo of Axios Gaming.

Thursday, September 21, 2023

Unified Patent Court's Helsinki Local Division denies preliminary injunction request over patent opted out despite previously filed (and still pending) national litigation

As I predicted, the Unified Patent Court's Helsinki Local Division today denied an application for provisional measures (the equivalent of a preliminary injunction request) in AIM Sports v. Supponor. The plaintiff had opted out the patent-in-suit from the UPC system despite previously filed national litigation (UK, Germany) that is still pending (before the appeals courts). The four-judge panel found that the opt-out had preclusive effect on the patent's assertion in the UPC, an effect that could not be undone by later seeking to reverse the opt-out.

I attended the first part of the hearing and quickly saw that the motion was a long shot. Apparently the national injunctions that are in force have not served to strengthen AIM's competitive position, particularly with a view to an ongoing tender (which will come to its conclusion in a matter of months) by European soccer body UEFA for digital stadium perimeter advertising technology. This is a case between direct rivals, making a licensing-based settlement unlikely.

The funny coincidence is that I am actually now on my way to a soccer match (Brighton and Hove Albion vs. AEK Athens, a Europa League group stage match). That's why I didn't stay in Helsinki until the decision was announced at 4:30 PM local time (2:30 PM UK Time, 3:30 PM Central European Time).

Let me show you the judges. From left to right: Judge Samuel Granata (Belgium), Presiding Judge Petri Rinkinen (Finland), Judge Mélanie Bessaud (France), and Technical Judge Éric Augarde (France):

If the case had surmounted this procedural hurdle and other jurisdictional challenges, it would have raised the interesting question of a so-called springboard injunction, which is an injunction that prohibits commercial activity that benefits from prior infringing acts (while injunctions are normally just a prospective remedy in every respect).

But the court would have had other ways of disposing of the motion. For instance, the urgency part looked weaker than in last week's Vienna case (where the question wasn't resolved either) and UPC Munich case (one such case resulted in a preliminary injunction on Tuesday while a parallel case is under advisement, with Presiding Judge Dr. Matthias Zigann having said in open court that the question of urgency could be decided either way).

It is easy to understand why the Vienna and Helsinki Local Divisions resolved the PI requests based on only a single issue in each case. It is the fastest way to adjudicate a PI motion, and especially the "smaller" local divisions may prefer to leave it to the likes of Munich to decide legal questions of first impression, which will ultimately be adjudicated by the Court of Appeal anyway.

AIM was represented by four law firms (Roschier, Powell Gilbert, Rospatt, and--only by video conference--Noerr). Supponor's lead counsel was Hogan Lovells' Dr. Henrik Lehment, whose English rhetoric was concise, easy to follow, and persuasive. During the limited part of the hearing that I attended, he was the only lawyer to speak for the defendant, but that is not meant to discount the potential contributions made by Gleiss Lutz' Dr. Matthias Sonntag and Hannes Snellman's Panu Siitonen.

It remains to be seen whether AIM will appeal. I don't think an appeal is likely to turn this case around, but many people--judges and practitioners alike--would appreciate the clarification that it could provide.

Tuesday, September 19, 2023

BREAKING UPC NEWS: 10x.Genomics wins preliminary injunction against NanoString

The Unified Patent Court's Munich Local Division (Presiding Judge: Dr. Matthias Zigann) just announced a preliminary injunction in 10x Genomics v. NanoString. That is the case that was heard two weeks ago. The parallel case heard today raises some new questions, particularly also concerning urgency, with a decision scheduled for October 10.

I may add more detail later. For now I just wanted to share the information at the earliest opportunity. This is the first announcement of a UPC injunction in open court. In Vienna last week, an announcement was also made, but an injunction was not granted.

An appeal to the UPC's Court of Appeal in Luxembourg (Presiding Judge: Dr. Klaus Grabinski) pretty much a given.

Monday, September 18, 2023

Avanci 5G doubles number of licensees, quadruples number of licensed brands as BMW signs up: Volkswagen/Audi next?

The Avanci 5G automotive standard-essential patent (SEP) pool revealed Mercedes-Benz as its first licensee last month. Today the licensing program announced that BMW has joined as well, which takes the number of licensed brands from one to four: Mercedes, BMW, MINI, and Rolls-Royce. Today's press release also indicates that the number of licensors has increased from 58 to 61.

By now, almost the entire automotive industry has an Avanci 4G license. But back in 2017, BMW became Avanci's first 4G licensee. It took a while for that pool to be widely adopted. Things appear to be going significantly faster with Avanci 5G now.

In retrospect, BMW's decision made business sense unless one believes in the illegal concept of group boycott: Mercedes (then named Daimler) and Volkswagen did not save money by opposing the Avanci model. They ended up choosing the pool license over bilateral licensing negotiations and disputes, but unlike BMW they incurred litigation expenses (in Volkswagen's case, the dispute was short-lived and due to the fact they licensed only 3G patents for most of the cars the group makes). BMW saved money, time, and energy. They stayed above the fray.

While I have not yet seen a German SEP infringement case targeting BMW, they are clearly not a soft target for non-SEP holders. Typically represented by Bardehle Pagenberg's Professor Tilman Mueller-Stoy ("Müller-Stoy in German), BMW is known to defend itself vigorously against patent infringement assertions, though most of the time the outcome is, obviously, a license agreement. If such a company takes a license without litigation, it must have concluded that the licensed patents are valuable.

Germany's remaining three automotive brands are Volkswagen, Audi, and Porsche, all of which belong to Volkswagen Group. Audi and Porsche clearly compete in some of the same market segments as BMW and Mercedes. It would make a lot of sense for VW to join the pool now. Sooner or later, some 5G SEP holders will start to enforce their rights against unwilling licensees. Just like German judges pressed Mercedes (then named Daimler) to explain why a license that had been taken by their closest (and equally German) competitors: BMW and Audi. I doubt that Audi would want to have to justify--particularly in front of the same judges who heard Nokia v. Daimler--a refusal to take a license that Mercedes and BMW deem to make economic sense.

Just like actions speak louder than words, real-world license deals are way more meaningful than spin doctoring and political propaganda. Mercedes-Benz told the EU that the proposed SEP regulation (or something even more lopsided) was badly needed, yet became the first Avanci 5G licensee because they deemed it prudent. Similarly, BMW Group is now an early adopter of the Avanci 5G license, yet it is a member of the Fair Standards Alliance and of certain automotive industry organizations that take similar positions.

There's nothing difficult to understand: every company would like to bring any cost category--here, cellular SEP license fees--down, even if such costs are already fair and reasonable. Automakers are no different. That is unrelated to the merits of Avanci providing a one-stop solution that Mercedes and BMW have twice (4G and now 5G) considered superior over dozens and dozens of bilateral deals. And opportunism by some car makers certainly doesn't make the EU proposal any less misguided. Case in point, a single Nokia v. OPPO decision in Sweden (which went in the defendant's favor) showcases at least four of the countless flaws of that bill.

Accurate and holistic analysis needs to look at what those companies say and what they do. License deals that are concluded in the absence of litigation--and presumably even without the slightest threat of litigation other than the fact that any infringement may sooner or later become the subject of enforcement action.

Europe's and particularly Germany's automotive industry is facing undeniably large problems. Cellular SEP licensing is none of them, though. Even if those costs were reduced through political intervention (which I don't see happening, though it is some people's agenda), that wouldn't help to address any of the fundamental challenges facing the European auto sector, particularly because there's no comparative advantage for companies selling cars in a given target market in which certain patents must be licensed.

Today's Avanci-BMW announcement is good news for those who argue that the market can and will find solutions, as are other recent license deals such as Huawei's recent agreement with Xiaomi.

Patent pools exist to simplify licensing--which must have been the reason why BMW entered into one agreement rather than 60+ bilateral deals--while some EU officials and politicians are trying to complicate the process and mistakenly view pools as part of the problem, not part of the solution.

Saturday, September 16, 2023

Four of numerous flaws of proposed EU SEP Regulation are illustrated by OPPO's Swedish victory over Nokia: binary register won't reflect non-binary world, and jurisdictional differences matter

This is a follow-up to my Thursday post on a Nokia v. OPPO decision by the Swedish Patent and Market Court that held a pair of declared-essential patents (from the same family) invalid, but also an addition to my commentary (since March) on the unbelievable fundamental flaws of the proposed EU regulation on standard-essential patents (EU SEP Regulation).

The two SEPs in question were deemed invalid by the Swedish court, which was a major win for OPPO, but Nokia had obtained and enforced a German injunction over them. Due to Germany's bifurcation system, the infringement ruling came down prior to the resolution of a parallel nullity action. Nokia had also successfully asserted those patents against OPPO in the Netherlands and the United Kingdom, two jurisdictions where a full invalidity defense is available. Nevertheless, the four-judge panel in Sweden made its own decision and begged to differ from their colleagues in a couple of other countries.

Let's briefly look at this from the EU SEP Reg angle--actually, from four angles related to that ill-conceived legislative proposal:

  1. If the EU SEP Reg was already in force, and if the envisaged SEP Register had been implemented, those two patents would have to be removed from the register if Nokia made a request pursuant to Art. 25(1)(b): "invalidation of the patent by a competent authority" (which the Swedish Patent & Market Court undoubtedly is).

    The proposal does not say anything about how to resolve conflicting decisions from different jurisdictions.

    As a result, Nokia would be allowed to enforce those patents without having to comply with any of the provisions of the EU SEP Reg. Simply put, those patents would be treated as a non-SEPs with a view to the regulation, though national courts might nonetheless apply Huawei v. ZTE. The patent holder might consider that flexibility gain to far outweigh the negative effect of a lower essentiality rate and reduced number of declared-essential patents. Here, with Nokia having a huge SEP portfolio, the removal of a couple of patents from the database wouldn't adversely impact the overall valuation of the relevant portfolio.

  2. The fact that the Swedish decision differs from the ones in the UK and the Netherlands, and from the probability assessment of the Mannheim Regional Court, doesn't make it necessarily wrong. But it clearly cannot be ruled out that a Swedish appeals court might overrule the Patent and Market Court, given that some other judges have also deemed those patents valid. I personally believe the Swedish decision is very well-reasoned and other jurisdictions should be persuaded by it, but you don't know until they have all decided. Assuming only for the sake of the argument that the decision was reversed, the EU SEP Reg--based on the current proposal--would not even have a mechanism in place for putting those two patents back.

  3. When criticizing the EU SEP Reg, I've said repeatedly that the outcome of essentiality checks can depend on what jurisdiction's claim construction and other legal standards are applied. The proposal does not specify that, and there is no uniform standard across the EU. The Swedish decision was based on validity, and an invalid patent is by definition non-essential. What happened here can also happen in connection with an infringement analysis. The starting point is always claim construction. And after that one, there are other steps that can differ between countries.

    It doesn't make sense to assume that a patent is essential or not. It's not binary. It may be essential in some jurisdictions and non-essential in others.

    While I agree with the criticism voiced by one of the researchers commissioned by the EC's Directorate-General for the Internal Market, Dr. Justus Baron, of the aggregate royalty determination part of the proposal, Dr. Baron and I have expressed different views on whether jurisdictional differences make a practical difference for the envisioned essentiality checks of samples of patents. The fact that a Swedish court invalidated two SEPs deemed valid in a couple of other European jurisdictions supports my view that jurisdictional differences pose a confidence problem: you need even larger samples then, and even the assessment of all patents of a given portfolio may be unacceptably unreliable if each European patent is analyzed under only one jurisdiction's standard while in litigation you may get one outcome in the Netherlands and another in Sweden.

  4. At a recent SEP conference in Warsaw, Bardehle Pagenberg's Professor Tilman Mueller-Stoy ("Müller-Stoy" in German) said something I also mentioned in the post I just linked to: essentiality determinations are not too meaningful if validity isn't analyzed as well. The Swedish Nokia v. OPPO situation is now the latest example.

An EU proposal that treats a dynamic environment as static and a non-binary world as binary is not going to do any good. It's going to be a waste. The courts of law may in the end not be persuaded that the EU's essentiality checks, essentiality ratios, aggregate royalty rates, and bilateral FRAND determinations are relevant or helpful. If something flies in the face of what the real experts (as opposed to those who drafted the proposal) know, the actual decision makers may mimimize the impact of the EU SEP Reg, just like the 2021 patent injunction "reform" in Germany has made no real-world impact.

New FTC initiative and very recent D.C. Circuit dismissal of FTC antitrust case relate to use of patents in connection with Abbreviated New Drug Applications

On Tuesday (September 19), the Munich Local Division of the Unified Patent Court (UPC) intends to adjudge a preliminary injunction request in a life sciences case. I will do my best to share the news quickly. A preliminary injunction looms large according to what various observers (including specialized newsletters) say. We will see, but only one thing would really surprise me: if the antitrust-based affirmative defense in that case succeeded. While the UPC is a European court, defendant NanoString's lawyers argue that their client may prevail on a U.S. antitrust claim against patent holder 10x Genomics. Under U.S. law, those seeking to enforce antitrust law against patent holders exercising their monopoly rights face a very high hurdle to say the least.

From the West Coast (Qualcomm v. FTC, 9th Cir., 2020) to Texas (Continental v. Avanci et al., 5th Cir., 2022) to the East Coast (FTC v. Endo Pharmaceuticals, D.C. Cir., 2023), federal appeals courts have been rather clear in recent years that antitrust law does not trump patent law. Patents are monopolies, but there is a strong presumption that they are lawful monopolies. It is not 100% inconceivable that a patent holder may run afoul of U.S. competition rules. That, however, hasn't been the outcome in any recent case. It wasn't even a close call in any of those recent cases.

In this post I want to be nonjudgmental and simply analyze the state of affairs, which some may consider desirable while others may have different policy views. What some may deem judgmental (but is not intended as such) is my take that on the bottom line U.S. appeals courts effectively put patent law above antitrust law. They say things that suggest both are on equal footing. But in practice, if the monopoly rights conferred by patents on their holders are treated with enormous deference so that traditional anti-monopoly rules hardly ever apply, there isn't much of an opportunity for public or private antitrust enforcement. Whether for better or for worse is in the eye of the beholder.

Let's take a quick look at two very recent developments, both of which happen to involve the concept of Abbreviated New Drug Applications (ANDA), a fast-track approval process for generic drugs.

August 25, 2023 decision by the United States Court of Appeals for the District of Columbia Circuit in FTC v. Endo (appeal no. 22-5137)

The D.C. Circuit affirmed the D.C. District Court's dismissal of an FTC case over an exclusive license agreement between Endo Pharmaceuticals (represented by a Dechert team led by George Gordon) and Impax Laboratories (represented by a Kirkland & Ellis team led by Jay Lefkowitz).

The FTC had brought the case based on the observation that prices for a certain category of drugs (and I'm not going to take a position on opioids here as the focus is on the intersection of patent and antitrust law) increased after a patent holder (Endo) exited the market and granted someone (Impax) an exclusive patent license. Price hikes like that are often indicative of consumer harm. But in this case, both the district court and the appeals courts determined that a single patentee (as opposed to a research consortium) is free to grant an exclusive license to a licensee, even if it means that there will be only one market actor left.

There had been a patent infringement dispute between the two companies, provoked by an ANDA that disputed that the relevant Endo patents were valid and infringed. That one was settled in 2017 in the way that gave rise to the FTC's enforcement action.

The FTC tried to describe the Endo-Impax deal as very similar to an exclusive license agreement that the Supreme Court deemed an illegal noncompete contract in Palmer v. BRG of Georgia (1990). In footnote 1, the D.C. Circuit explains why the two cases are distinguishable:

"[In Palmer] an exclusive licensing agreement was a pretext for a noncompete agreement between two competitors, because the parties in Palmer did not require one another’s intellectual property to participate in the market for bar preparation courses. Here, by contrast, Impax’s ability to compete was completely contingent on the clarity of its license to use Endo’s patents, and the complaint itself alleges that Endo surrendered the right to press its suit against Impax through the 2017 Agreement."

Palmer was not about patents. The material in question was presumably protected by copyright, but copyright law is narrow and the Supreme Court took issue with the fact that the net effect was horizontal geographic market division.

Therefore, Palmer is of limited help if we want to find out where patent license agreements might run afoul of the antitrust laws. There could be a hypothetical case where company A licenses to company B a patent (or patent portfolio) P that it doesn't really need to license to make a certain product or offer a service, but the license agreement contains clauses that amount to geographic market division.

The FTC couldn't make that showing. The closest argument to the license being pretextual was that the settlement precluded the licensee from challenging the patents in question, which is, however, a standard term of patent license agreements as the licensing practitioners among you can confirm. Only because a party is contractually precluded from challenging certain patents doesn't mean such challenges would necessarily have succeeded. Even without such a contractual clause, someone who has taken a license often doesn't even want to challenge the licensed patents as the main (or only) beneficiaries would be unlicensed competitors. And it doesn't prevent any third party from challenging those patent rights in an effort to compete in the relevant market.

The D.C. Circuit provides some high-level guidance:

"In a future case, the Commission is free to plead that a licensing agreement results in unjustifiable competitive harms, so long as it explains how those harms exceed what the Patent Act and settled precedent permit, which it has failed to do here."

So the starting point of any U.S. antitrust analysis of an exclusive license agreement will be that "both the Supreme Court and the Patent Act have blessed [such contracts] as lawful," and there must be something more--in fact, something egregious--than exclusivity to establish an antitrust violation. A pretextual license such as in Palmer (where the relevant price, by the way, increased from $150 to $400 as a result of horizontal geographic market division) is presumably not the only such scenario, but for now there's no other example of an exclusive IP license being anticompetitive. It would take "allegations establishing that [an agreement] created anticompetitive effects greater than that authorized by settled law and precedent" that is favorable to exclusive IP licenses.

September 14 policy statement by the FTC on brand pharmaceutical manufacturers' improper listing of patents in the Food and Drug Administration's (FDA) 'Orange Book'

On Thursday, the FTC issued a policy statement (PDF), press release, and an additional statement by Chair Lina Khan (PDF) concerning "improper" patent listings in the FDA's Orange Book.

The idea of the fast-track approval process called ANDA is that generic drugs should be approved quickly, but not so quickly that a patent holder cannot enforce its rights. That's why there is an automatic 30-month stay of approval in the event of patent litigation by the manufacturer of the original product. I find the term "brand drug manufacturer" a bit misleading as there are generics companies with fairly well-known brands, too.

The FTC believes to have identified a rampant form of abuse in the form of drug makers including patents in the FDA's Orange Book that aren't really needed. This is somewhat comparable to an overdeclaration of allegedly essential patents in connection with industry standards, but with the effect that the approval of competing products can be delayed (while standard-essential patent owners can only sue after an implementer has released an unlicensed product).

What lends the FTC initiative significant credence is that the FDA supports the new statement, effectively making it an inter-agency initiative.

Unlike in FTC v. Endo, which involved Sherman Act Section 1 and 2 claims, the FTC intends to tackle such improper listings as unfair methods of competition under Section 5 of the FTC Act. In any event, the D.C. Circuit's FTC v. Endo decision does say that anticompetitive behavior that goes beyond what is lawful under patent law can be an antitrust violation.

Where I see a practical challenge for the FTC is that any overdeclarations would have to be shown to have been made in bad faith. However, patent law is sufficiently subjective (for example, a fairly high percentage of claim constructions are overturned on appeal) that drug makers will often be able to argue that even though their position on the inevitability of an infringement of a certain patent by a type of drug may have been wrong, it wasn't wholly unreasonable in the first place. That is, for example, what defendants sometimes argue in order to escape willfulness enhancements of damages verdicts. The FTC says that patents are sometimes listed in the FDA's Orange Book even though their claims just don't read on the drug in question--but what will the courts of law say in a given case?

The FTC's policy statement may now dissuade drug makers from adding patents to the FDA's Orange Book that they'd have listed before. In that case, the FTC may achieve a positive effect without having to litigate. But if it does have to go to court, those cases threaten to become rather difficult to decide--and possibly even more difficult to win.

Thursday, September 14, 2023

UPC's Vienna Local Division demonstrates its potential to become attractive, efficient, inexpensive patent litigation forum

Yesterday I attended the UPC's Vienna Local Division's first-ever court session: a preliminary injunction hearing (CUP&CINO Kaffeesystem-Vertrieb GmbH & Co. KG vs. Alpina Coffee Systems GmbH) over a patent on a device to produce high-quality milk foam. The PI request was denied, but that does not mean to suggest that plaintiffs don't have a chance to obtain great results there. The reason was technical and highly case-specific. The outcome didn't surprise any of the lawyers in the audience that I talked to during breaks nor me.

There are various interesting takeaways, particularly for in-house counsel looking to identify venues complementary to the "usual suspect" fora such as Munich and for law firms seeking to expand to other UPC venues. In the past, there wasn't much to gain from enforcing patents in a market that's only 10% the size of Germany. In the UPC era, I could see two reasons for suing in Vienna:

  • It would make sense as a mix of multi-venue enforcement campaigns. If you put all your eggs in only two or three baskets, some of your cases won't come to judgment too soon. As for judicial philosophy, if you bring a case in Vienna and German is the language of proceedings, you're likely to find one German judge on the panel.

  • While court fees are obviously the same, you can find local litigation talent in Austria at lower rates--and if you identify the right people, you may even like them to become involved in one form or another with your German cases.

Before I go into more detail, let me show you yesterday's judges. From left to right: Judge András Kupecz (from the Netherlands; he's very fluent in German and also served on the Munich LD last week; Presiding Judge Dr. Walter Schober (Austria); Judge Professor Maximilian Haedicke (Germany):

In Austria, Presiding Judge Dr. Schober is an appellate judge. Austrian appeals courts generally don't conduct hearings: they decide on the pleadings. Make no mistake: the way he managed yesterday's hearing was highly efficient (it took only one morning, with the bench ruling come down shortly after noon). He's a "no bullshit" facts-focused type of judge with an analytical approach--and makes it quite clear how his court views the outcome-determinative issues in a case.

One pattern that has already emerged after the Munich and Vienna PI hearings is that side judges play a more active role than in German courts, where they may also ask questions but the conversation is typically dominated by the presiding judge. Those international UPC panels have different dynamics. Also, some of the UPC side judges are or were presiding judges on national courts.

Like at last week's Munich hearing, Judge Kupecz pressed counsel to take clear positions. In particular, he insisted on some clear line-drawing concerning claim construction and infringement analysis, and that turned out to be the outcome-determinative issue. Judge Haedicke, who is the editor of a German patent law treatise but also has ample experience as a Dusseldorf appellate judge, als contributed greatly to the discussion. A long time ago I criticized him for his work as an expert witness on Google's behalf, but that's water under the bridge.

All three members of yesterday's panel are legally qualified judges. The patent-in-suit clearly lacked the technical depth that would have required a fourth judge from the pool of technically qualified judges.

The panel could have denied the PI motion as non-urgent. The plaintiff failed to show how an upcoming trade show (HostMilano) and the presence of two of the defendant's coffee machines at Oktoberfest (some kind of promotion by a reseller) represented an imminent threat of irreversible harm, and the accused product has been on the market--in one form or another--since 2019. But the UPC has yet to develop its PI case law. Judge Dr. Schober noted that there might be a strong German influence (which means that you'll want to bring your PI motion within a month of becoming aware of an infringement), but that it's too early to tell.

Some of the lawyers in the audience expected a denial on non-urgency grounds. Plaintiff arguably couldn't make a particularly strong showing in that regard, and defendant didn't really specify how the design of the accused products evolved over the years. I wasn't persuaded by either side's urgency-related representations, but that's obviously a bigger problem for the moving party.

It appears wise to me that the Vienna Local Division does not intend to take a position on the question of urgency, which it simply doesn't have to reach in this case. However, future cases may present questions of first impression (first for the UPC) that must be resolved, and I'd have expected that panel to do so in a well-reasoned fashion.

Long before the decision came down, I was already thoroughly impressed with Torggler Hofmann patent attorneys Dr. Markus Gangl and Florian Robl (PhD)--who are formally qualified as European Patent Litigators--who represented the defendant. By just listening to them, one would have thought they were attorneys-at-law: a large part of their argument was legal, not technical. The way they mocked the plaintiff's arguments was typically Austrian (and appeared very effective). That would be done a bit differently in Germany, but that's just a cultural aspect. For the right of patent attorneys to represent clients in UPC infringement litigation without having to team up with attorneys-at-law, yesterday's hearing was a great start, not only because of the result but also because of those two patent attorneys' superb lawyering.

I want to be fair: plaintiff's lead counsel--Taylor Wessing's Dr. Thomas Adocker--has presumably built his very good reputation on stronger cases than this PI motion. He'll probably win some other UPC cases, just not this one.

Toward the end of the hearing, Judge Dr. Schober asked both sides to specify the costs they wanted to be reimbursed if they were to prevail. The amounts seemed rather low compared to the cost of German patent litigation (EUR 50K for plaintiff, only about half of that for defendant), even for a case that was technically relatively simple. Maybe the actual costs were higher, but they didn't believe they could obtain a fee award offsetting their total expenses.

Based on what I saw yesterday, I would encourage UPC litigants to give Vienna a try, provided that they bring stronger cases than the one that failed yesterday.

OPPO wins in Swedish court as two of Nokia's standard-essential patents (on which it prevailed in Mannheim) are declared invalid; also, Nokia's UK SEP injunction can't be enforced pending appeal

More than two years have passed since Nokia sued OPPO, and more than one year since OPPO was forced out of the German market by the enforcement of various patent injunctions, at least some of which were dubious from the beginning. Nokia still doesn't have leverage over OPPO. In the foreseeable future, there will be only one FRAND determination in place between these parties, and that one will be made by a court in Chongqing, China.

In the first part of this post I have an update on the Swedish part of the earth-spanning set of disputes. Subsequently I'll also discuss the UK situation, which is pretty good for OPPO in practical terms.

In June 2022, it became known that Nokia filed complaints in Finland and Sweden over two patents from the same patent family: EP2981103 and EP3220562, both on an "allocation of preamble sequences." For the avoidance of doubt, Nokia asserted both patents in both jurisdictions.

Over those patents, Nokia won its first standard-essential patent (SEP) injunction against OPPO in Mannheim last year. The Mannheim Regional Court interestingly agreed with Nokia that it was un-FRAND-ly for OPPO to offer a lump-sum royalty, but the same Nokia took the very opposite position later in a UK litigation where it argued that only a lump-sum was acceptable.

In retrospect the Mannheim rulings against OPPO appear more questionable than ever. In July, a French court invalidated two Nokia patents, one of which is a non-SEP that I considered very clearly invalid, but over which the Mannheim court nevertheless granted an injunction (which its appeals court, the Karlsruhe Higher Regional Court, inexplicably allowed to be enforced).

Today the Swedish Patent and Market Court declared the two SEPs underlying the June 2022 injunction--EP'103 and EP'562--invalid with respect to its juridiction (Sweden). And it even did so on three independent grounds relating to partly different claims:

  1. The original patent applications lacked support for the combination of cyclic interpretation and the second embodiment described iin the specification. Therefore, claim 1 of EP'103 and claim 4 of EP'562 were deemed to contain impermissibly added subject matter.

  2. Either patent's claim 1 is a device claim with method features, but those method features do not affect the properties or the configuration of the device, which is why the court found they must be disregarded in the novelty analysis. As a result, the patents are invalid based on anticipation.

  3. Claim 8 of EP'103 and claim 9 of EP'562 are independent method claims, but the Swedish court found them to cover a purely intellectual aact (as opposed to performing a specific technical function).

To be fair, the Mannheim court was not alone in siding with Nokia over those two SEPs. A Dutch court and a UK court did so, too. But now there is a very well-reasoned pair of rulings from the Swedish Patent and Market Court that states three reasons for invalidation when any single one of them would have been sufficient. It remains to be seen whether those patents will at some point be invalidated elsewhere.

EP'103 and EP'562 are now going to be harder for Nokia to enforce, as there is a possibility of courts in other jurisdictions being persuaded by the Swedish court's reasoning. This shows that Nokia is paying a significant price for its protracted dispute with OPPO.

Not only is this becoming ever more costly (including hard-to-quantify costs such as the invalidation of key patents) but the question of the "end game" must be asked as well. At this point it appears that the key jurisdiction is going to be China. That's because the Chongqing court's FRAND determination will be made soon, and while the Chongqing decision cannot be enforced during an appeal, it will most likely become enforceable prior to any other FRAND determination anywhere in the world that Nokia could point to.

I have now obtained copies of Mr Justice Richard Meade's latest Nokia v. OPPO decisions relating to remedies. He's given the topic a lot of thought and arrived at a position somewhere in the middle between the two parties' views:

  • While Nokia technically has a UK SEP injunction against OPPO now (based on Mr Justice Meade's application of existing appellate case law in the UK), that one has been stayed pending OPPO's appeal. The balance of hardships weighed against forcing OPPO out of the UK market the way it was forced out of the German market last year.

  • A very interesting question in that appeal is whether OPPO's willingness to take a license on whatever terms are in fact FRAND, but based on the upcoming Chongqing rate-setting decision, is a sufficient basis for not enjoining OPPO in the UK. A second point is that OPPO argues it actually already has a license under French law (based on Nokia's ETSI FRAND pledge), just that the exact financial terms have not been set. That argument had also been made by Xiaomi in the dispute with Philips. The question about whether OPPO is a willing licensee based on its commitment to take a license on the terms to be decided in Chongqing appears more likely to succeed as far as I can tell. And Mr Justice Meade takes that question seriously enough that he even authorized "leapfrogging" over the Court of Appeal and going straight to the UK Supreme Court (a decision that also has to do with the Optis v. Apple dispute, where the UKSC accepted to hear an appeal by Apple).

  • It's interesting how the parties' perspectives have changed in both Nokia v. OPPO and Optis v. Apple. The plaintiffs brought their UK actions because they hoped to be able to force the defendant into a global portfolio license on terms that would be reasonably attractive to the respective right holder. But after the actual FRAND determination was made in Optis v. Apple, and also in light of the prior InterDigital v. Lenovo decision by Mr Justice James Mellor, it's now actually the defendants who are more interested in taking a global license on UK-determined terms than the plaintiffs are in granting one. As a result, OPPO would actually be quite happy now to get a UK FRAND decision, but Nokia would rather wait.

  • Mr Justice Meade already had everything set to hold the UK FRAND trial in a few weeks' time. The parties have obviously already made quite an effort preparing for that trial. But all things considered, including that the FRAND terms to be decided there would presumably not result in a near-term license agreement and would become known close to the end of the relevant license period (which is mid-2021 to mid-2024), he decided to stay that trial.

  • Time will tell whether it was the right decision on Nokia's part to request a stay of the UK FRAND trial. While perfectly understandable in light of the recent outcomes in InterDigital v. Lenovo and Optis v. Apple, that tactical decision now enables OPPO to argue that it was quite willing to obtain useful guidance from the UK court.

  • Nokia can enforce a UK non-SEP injunction, but OPPO will apparently just work around it, rendering that Nokia win inconsequential in practical terms.

Again, I have great respect for Mr Justice Meade's thoughtful approach and balanced decisions. The question is not whether any of the parties or I would agree 100%. On this set of issues, you may get as many opinions as the number of people you ask. But this judge tried to be fair, and the outcome is a nuanced one.

If Nokia doesn't have a strategy that is likely to give it decisive leverage over OPPO (interim payments etc. are just symbolic), it should try to settle this dispute. OPPO has surprised a lot of people, including me, with its determined and sophisticated defense. At some point the U.S. also pulled out of Vietnam.

Huawei and Xiaomi sign patent cross-license agreement

This article was delayed by the fact that I attended a Unified Patent Court hearing in Vienna yesterday (which was really interesting and I'll write about it later). That same day, Huawei and Xiaomi announced a global patent cross-license agreement that covers, among other things, 5G. They provided the following quotes:

Huawei IP chief Alan Fan:

"We are delighted to reach this licensing deal with Xiaomi. This licensing agreement once again reflects the industry's recognition of Huawei's contributions to communications standards and will help us enhance our investment in researching future mobile communications technologies."

Xiaomi IP chief Ran Xu:

"We are glad to reach a patent cross-licensing agreement with Huawei. This shows that both parties recognize and respect each other's intellectual property. As part of our commitment to our values around IP, Xiaomi will, as always, respect IP, seek long-term and sustainable IP partnerships for shared success, drive technology inclusion with IP, and allow more people to benefit from technology."

It was reported a while ago that Huawei had requested a special Chinese proceeding that was not tantamount to infringement litigation, but designed to give the parties valuable guidance so they could strike a deal. That objective has clearly been accomplished.

In December 2022, Huawei already announced an agreement of this kind with OPPO.

Neither Xiaomi nor OPPO can be blamed for the geopolitical aberrations that have effectively forced Huawei out of the handset market. And the vacuum created by those circumstances was an opportunity for device makers anywhere on this planet. But it's also true that Xiaomi and OPPO benefited from that development, and some people would argue that Xiaomi did so to an even greater extent.

While Huawei is an Avanci licensor, Xiaomi is not (and OPPO only for 4G so far, but they can still join 5G and I guess they will sooner or later).

Huawei remains consistent with its approach that IP absolutely must be respected--but not overleveraged.

Last month Huawei also announced a cross-license agreement with Ericsson.

While the EU focuses on complicating the standard-essential patent licensing process (see 1, 2, 3), key market actors such as Huawei continue to work out solutions. EU policy makers should ask themselves how Chinese companies manage to agree on cross-licensing terms with each other in the absence of what the kind of register and FRAND determination proceedings the proposed EU SEP Regulation would put in place in Europe.

French publishers' U.S. antitrust class action against Apple is largely dismissed, making it economically irrelevant short of successful appeal: Northern District of California

Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California just denied in part--and in economic terms, almost completely--a U.S. antitrust class action brought on behalf of leading French publishers such as Le Figaro and L'Équipe (about that one, see my personal note toward the end).

Here's the decision, which I'll explain briefly: Société du Figaro et al. v. Apple (case no. 4:22-cv-4437-YGR, N.D. Cal.): Order granting part and denying in part APple's motion to dismiss with partial leave to amend

The court gives the French publishers three weeks (until October 4) to amend their complaint, but they can only amend limited parts that won't change anything about the fact that there's no more serious money left for them to be made even if they won. But in order to turn this into something that has significant economic potential, they need a successful appeal.

In this first reaction, I'm not going to take a position on whether I agree with Judge Gonzalez Rogers. I disagreed with key parts of her Epic Games v. Apple ruling (which is now going to be appealed to the Supreme Court), but her dismissal of Pistacchio v. Apple, a class action over Apple Arcade, was well-reasoned (at least the market definition part).

The introductory part of the decision indicates between the lines a bit of an annoyance with the fact that certain class-action lawyers brought this case shortly after setting a U.S. developer class action against Apple over largely the same issues. This here looked like a double-dipping (as far as the lawyers--not the parties--are concerned). But that does not, in and of itself, render the entire case meritless.

The economically biggest part is that Judge YGR does not allow the French publishers to sue in U.S. court for damages relating to foreign sales. Those publishers obviously have some U.S. revenues, as there are French expats and other people who read one or more of those publications. But obviously most of the money they make is generated in France, followed by other French-speaking parts of the world (such as Québec).

If they go ahead now and take this to trial, the maximum damages award they could ever realistically hope for would still not offset litigation costs. A victory would be somewhat symbolic. The only value they could get value out of a win related to their U.S. revenues would be that this might persuade a French court to rule against Apple in a similar way. But is that going to be worth it? I doubt it.

Earlier this year I highlighted the problem that Apple doesn'T want to be liable in any jurisdiction. Epic Games experienced the same. If app makers sue outside the U.S., Apple says only U.S. courts have jurisdiction, and in the U.S., Apple points to the Foreign Trade Antitrust Improvements Act (FTAIA), which is a law that was enacted to prevent extraterritorial overreach by U.S. courts.

Based on this U.S. decision, the French publishers and others will find it easier to convince foreign courts that they have jurisdiction over App Store abuse claims relating to those non-U.S. markets, despite a choice-of-jurisdiction clause in the contract Apple imposes on app developers. So there may be something positive here.

Another potential strategy for the French publishers would be to bring in additional plaintiffs on the occasion of the amendment, which could be publishers with very substantial U.S. revenues.

When I first commented on the French publishers' U.S. class action, I found one part of the complaint particularly intriguing: they raised the issue of App Tracking Transparency (ATT), a money and power grab by Apple under the pretext of privacy. Judge Gonzalez Rogers allows the plaintiffs to amend their ATT claim if they bring an amended complaint. That may now be another reason to widen the class definition and include publishers with substantial U.S. sales (an amendmend that Apple would presumably oppose, but the plaintiffs could try to get it approved by the court). For publishers, ATT is a huge problem. So maybe the focus will change a little bit. However, the alternative would be to drop this one and bring a new one with U.S. publishers (or UK and other publishers with substantial U.S. revenues) on board from the start, and with a focus on ATT.

I guess something will happen. I don't expect this complaint to just be dropped at this stage without an appeal, amendment, or a new complaint with an ATT focus (or even a combination of two or more measures of that kind).

Personal note: As I mentioned L'Équipe: while I currently have no paying subscription to any media outlet, simply because there are too many around the globe that are relevant to me at different times, L'Équipe is actually one of two publications I plan to subscribe to for the purpose of brushing up my French. I actually learned most of my Spanish from sports newspapers AS, Marca, and Sport. If I subscribed to it through their Android apps, Google would tax my subscription fees...

Saturday, September 9, 2023

Standard-essential utility models are major loophole in proposed EU SEP Regulation, presumably because of fundamental rights issues: structural problems

At this week's Warsaw conference on standard-essential patents (SEPs), Professor Jorge Contreras (Utah)--who is generally in favor of the proposed EU SEP Regulation, which I attribute to his well-known preference for softer SEP enforcement rather than unbiased analysis of the bill's incurable flaws--criticized one major loophole: the draft regulation doesn't cover standard-essential utility models.

That is indeed a loophole, and quite a big one. The version that leaked in late March actually defined SEP in a way that explicitly also covered utility models (SEUMs), which are registered--but not examined--property rights covering technical inventions and available in certain jurisdictions, particularly Germany, but also Spain and Italy. The current proposal does not pertain to SEUMs.

SEUMs are not just a hypothetical possibility. They do exist and actually get enforced. In December 2018, I attended a SEUM trial in Munich, where the defendants were represented by Professor Peter Chrocziel (one of the best patent litigators Germany ever had; at the time of that SEUM trial, he was a Bardehle Pagenberg partner, and now running his own IP and antitrust law boutique in Munich, focusing on strategic advice).

If the EU SEP Regulation entered into force, contributors to standards could easily work around it by obtaining German utility models and enforcing those, without enforcement being delayed or the commercial terms being impacted by the envisioned FRAND rate determinations. German national courts would presumably apply the Sisvel v. Haier standard, but that is--relatively speaking--the best a defendant to a SEUM assertion could hope for.

Utility models come with two key limitations. One is that they will be enforceable for only 10 years, not 20, from the priority date. The other is that there is no presumption of validity, so the hurdle for defendants seeking a stay pending a parallel validity determination is rather low. However, if there already is some case law relating to a patent based on the same original invention, or if there is no reasonably strong invalidity argument, German courts will order injunctions. And in Spain, it appears that it is even harder to invalidate a modelo de utilidad than a patent (it must be very obvious--not merely obvious--over the prior art).

There's an independent second reason for which contributors to standards may be more interested than ever in additionally obtaining utility models: they do not fall under the jurisdiction of the Unified Patent Court (UPC) (this week I attended the first-ever preliminary injunction hearing in the UPC). For right holders who want to hedge their bets in enforcement, it's a major opportunity to be able to seek national (particularly German) injunctions in parallel to enforcing European patents in the UPC. A complementary utility model is often a superior alternative to opting out a patent. You can ha

While Professor Contreras accurately identified the loophole and the potential for circumvention of an EU regulation, the solution is not the one he suggested.

Putting back the definition that originally leaked wouldn't work. I attribute it to a conscious decision--not an oversight--that DG GROW removed utility models from its definition of the term SEP. There are two possible factors here:

  • The delays and restrictions of enforcement that the proposed regulation would impose are highly problematic with a view the EU's charter of fundamental rights as well as international obligations such as TRIPS. That is also an issue with a view to patents, but what exacerbates the problem in the case of utility models is that a delay by about a year is far more harmful when an IPR expires after 10 years (not 20). Given how much time it takes from the creation of a standard to its commercial adoption, the enforcement window is extremely short for SEUMs, so it would be very difficult to justify a delay of enforcement by roughly a year.

  • There may also be limitations on the EU's ability to regulate utility models, while there already is some EU primary law relating to patents.

So what is the solution? As often in life, the roadmap to a solution starts with being honest and realistic:

There are numerous details to criticize about the proposal, and the SEUM loophole is another one to add to the list. But as I explained in a recent post, the problems are fundamental. They're structural. It's not going to get us anywhere to try to address them one by one because fixing some of those issues will create others, and in some cases the choice is between having a regulation that makes no sense or to get into serious conflicts with fundamental rights, international obligations, and the constitutions of one or more EU member states.

That's why we should all be able to agree that DG GROW's proposal is--as Mr Justice Marcus Smith accurately noted--"a wholly bad idea." The solution is not to turn left or right, but a 180-degree turnaround. Go back to Square One and devise something workable and reasonable. When computer programmers find that a certain problem-solving strategy won't work, they will at some point throw away an entire code segment and start again from scratch.

The Warsaw conference put on full display that those who drafted the bill lack regulatory humility. Their attitude is irresponsible; their competence must be questioned in light of such unbelievable stupidities as suggesting that an entire SEP family is either essential or non-essential based on the assessment of a single patent; and there is no evidentiary basis for doing what they propose to do. Those who defend the proposal resort to disingenuous methods such as incorrectly limiting the fundamental rights issues to a mere delay of enforcement.

The net-licensee camp needs some voices of reason now.

Friday, September 8, 2023

Head of EU Commission unit that drafted SEP Regulation acknowledges lack of competence, displays irresponsible regulatory zeal at conference: policy makers should reject that attitude

The Warsaw conference on standard-essential patents (SEPs) that I blogged about last month started yesterday and will end in a few hours. Apart from audio quality, it was probably the best event so far at which the proposed EU SEP Regulation was discussed.

If there ever had been any doubt that something was fundamentally wrong with the process and the mindset that brought about the proposal in question, it would have been eliminated by some of what was said at that conference. I can only hope that EU policy makers are going to realize now that no matter whether one might want to put a thumb on the scales of SEP licensing and enforcement for one side or the other, the proposal that is currently on the table cannot possibly serve as the basis for a co-legislative process that is not equipped to fundamentally restructure an ill-conceived proposal. The only reasonable thing to do would be to withdraw it and restart the discussion in order to identify workable and legally defensible solutions.

The people who drafted the regulation are known to be unhappy about criticism of their work and their competence. And I generally prefer to talk about substance rather than people's competence. But I regret to say that in this case, the proposal is so bad--structurally, legally, technically, and even in terms of typos and numerous linguistic errors--that those people's work is rightfully criticized and their ability to get this right is legitimately called into question. It shouldn't be necessary, but somehow there were people at different levels of the Commission who authorized an official proposal that is a disgrace for the institution. The proposal's blatant disregard for fundamental rights, which has since been called out by Europe's top patent judge, is worse than the linguistic shortcomings, but the latter would have been extremely easy to identify and should have given some people pause.

I never met Kamil Kiljański, the former chief economist of the European Commission's Directorate-General for the Internal Market (DG GROW) who is now running the IP policy unit, and listened to him yesterday for the first time. And I was shocked by some of what he said.

He started with the usual disclaimer that he was expressing his personal views and not representing the Commission. But such disclaimers are of limited significance. The fact of the matter is that the head of the unit that drafted that proposal is simply unable to defend it--and that some of his answers only served to validate (if not exacerbate) concerns.

He said: "I am sure there are people in the audience who know the proposal better than I do." If that was just the pretense of modesty, it wouldn't even be worth mentioning. But the quality of the proposal suggests that were few people in the audience who understand the topic less than he does. Seriously, a policy unit that proposes an essentiality determination for an entire patent family based on a single SEP lacks the competence to deal with patent law. In fact, a well-known patent litigator who spoke at the conference said "[he] can only laugh" about that approach. It also calls into question whether someone without a solid background in patent law--in this case, an economist--should be tasked with the development of a hyperaggressive legislative proposal in one of the most specialized and complex fields of law.

When someone asked Mr. Kiljański about the proposal essentially resulting in one additional year of hold-out by unwilling licensees, he argued that the "built-in postponement" was just "a safe space especially for SMEs" (for the avoidance of doubt, the requirement to engage in FRAND rate-setting prior to litigation is not based on the defendant's size). And he added: "Last time I checked litigation wasn't that fast either." If anything, that is an argument against further delay. Patents have a limited lifespan. For SEPs it takes particularly long from invention to monetization. Imposing a further delay for a "non-binding" opinion is disproportionate.

What makes it all the more disproportionate is that Mr. Kiljański admitted that the basis for the whole proposal is nothing more than some EC officials' assumption that the SEP licensing market is undergoing significant changes due to IoT applications. He conceded that they're trying to act in advance of some developments they merely "anticipate" (as opposed to hard evidence for existing problems) and said that "with most of the regulations you have to see what happens." For example, he said he hoped the unitary patent would increase innovation, but one doesn't know yet.

How irresponsible is that?

You can't just regulate aggressively and claim that there is a sense of urgency unless there is a clearly identifiable problem that must be fixed immediately.

You can't justify a hastily-prepared proposal (again, all those typos and linguistic errors reflect highly unfavorably on the entire European Commission) only because of an election cycle.

And people who don't even know some of the basics of patent law are not in a position to make a proposal that lawmakers could seriously consider.

Even some of those who believe that SEP legislation could be helpful are aware of major issues. At a London conference in June, I heard criticism of the proposal from professors who clearly are sympathetic to implementers' legitimate interests. Regrettably, there are organizations who dislike the current state of affairs so much that they try to downplay or explain away the serious issues that exist. That is disingenuous. There should be a procedural agreement between both camps--proponents and critics of the proposal--that the best way to make use of the remainder of the current legislative term is to reassess the situation and discuss specific ways forward (which was not the focus of the so-called consultations that took place prior to the current proposal).

The most balanced position at the Warsaw conference was taken by Bardehle Pagenberg's Professor Dr. Tilman Mueller-Stoy ("Müller-Stoy" in German), who advises and represents plaintiffs and defendants alike. (Earlier this week he represented plaintiffs seeking a preliminary injunction in the UPC's Munich Local Division in a life sciences case.) Professor Mueller-Stoy said clearly and credibly that he would welcome a well-thought-out piece of SEP legislation. And if there ever was any doubt about him not siding only with SEP holders, he eliminated it by saying that he has more than ten SME clients who are on the receiving end of SEP licensing demands: those lobbying on net licensors' behalf pretty consistently deny that SMEs are facing practical issues with SEP licensing, given that it is generally not profitable for SEP holders to enforce their rights against small implementers.

The SME-related "evidence" found in the Commission's impact assesment is dubious at best. And as a litigation watcher, I haven't seen any SEP infringement lawsuits against SMEs (if the EU's own SME definition is properly applied). The smallest company I've seen as a defendant to a SEP enforcement action owns 70% of the German WiFi router market, which puts it way above the EU's SME criteria. But what Professor Mueller-Stoy said must be taken seriously. If the Commission decided to go back to the drawing board, it should put its researchers--and next time all of them should be actual researchers and not just corporate representatives of service providers looking to grow their businesses--in contact with him and other lawyers, and obtain more information (with confidentiality safeguards) from actual SMEs who truly faced SEP royalty demands. Symmetrically, the Commission should then also enable major SEP licensors to provide evidence from their vantage point.

If there is actual evidence of a growing SEP licensing problem for SMEs, the next question would be how to address that particular issue (again, if it verifiably exists) without moving the goalposts in favor of large unwilling licensees. None of the rules that the proposed regulation envisions is a targeted solution for SME issues. They have some SME-specific rules that also help patent holders qualifying as SMEs (of which there are many, and of which there would be even more if the proposal was passed into law). The Commission accepts submissions from Apple's well-known astroturfers claiming to represent SMEs. They should make a good-faith effort now to identify true SMEs and have licensing experts analyze whether their stories of receiving SEP licensing demands (or the alleged impact on product design decisions) are plausible--the ones in the current impact assessment largely aren't, which DG GROW couldn't figure out for lack of competence in the field.

The answer would not be to make SMEs generally immune to SEP royalty demands, but the Commission could operate a true competence center (as opposed to just an outsourcing operation) that would advise SMEs on SEP licensing matters, and possibly some safe harbor that shields SMEs from immediate enforcement litigation. But the rules would have to apply exclusively to cases where SMEs are the defendants.

Professor Mueller-Stoy highlighted several shortcomings of the proposal. He does not believe that experts capable of making reliable essentiality assessments will be available to the extent they would be needed, and he noted that those who truly understand the subject are very expensive (himself included). As an experienced litigator, he just cannot see (nor can I as a litigation watcher) that essentiality checks are meaningful without any validity determination, when invalidity is typically the first defense to infringement claims. And he explained that the proposed regulation could have unintended consequences, such as that SEP holders may divide their portfolios into smaller packages and assign them to "SMEs", or that SEP holders might strategically file patents of different degrees of essentiality (theoretically it sounds like a binary question, but in practice it isn't) for tactical purposes, resulting in additional layers of complexity and transaction costs.

The Commission has simply talked and listened to too many economists, including some who are simply interested in selling their services (to the Commission and to the private sector), instead of learning from those who actually litigate SEP cases, such as Professor Mueller-Stoy.

There is no point in leaving that kind of work to the EU Council or the European Parliament. It must be done by the Commission, and it failed to do so the first time.

I wish to point out that this is the first time that I don't merely disagree with a Commission proposal but see strong indications of the wrong people having been in charge of creating it. The proposal in question is unbelievably deficient, and what I heard from the head of DG GROW's IP policy unit yesterday almost reflected an intervenionist attitude that might be worthy of a communist dictatorship running a plan-based economy, but is unacceptable in this context.

Wednesday, September 6, 2023

First-ever UPC preliminary injunction hearing held in Munich: decision scheduled for September 19

After two court sessions that exclusively served the purpose of swearing in judges and a video conference hearing on a validity challenge, the first "real" patent infringement hearing in the history of the Unified Patent Court (UPC) started yesterday as the Munich Local Division heard one of the 10x Genomics v. NanoString cases before it.

On this special occasion, let me show you not just one but even two pictures of the panel--standing as well as seated--that I took before the start of the session (from left to right: Judge András Kupecz (Netherlands), Presiding Judge Dr. Matthias Zigann (Germany), Judge Tobias Pichlmaier (Germany), and Technical Judge Eric Enderlin (France); click on an image to enlarge):

The language of the proceedings was German. The building (Denisstr. 3) is primarily used by the Munich II Regional Court, and for purely administrative purposes by the Munich Higher Regional Court, and now hosts the most popular UPC Local Division. In case you're wondering what the difference between the Munich I and II Regional Courts is: Munich I is the court for cases for which Munich proper is the forum, while Munich II hears cases from the surrounding areas. Only Munich I is among the relatively few German regional courts with which patent infringement actions can be filed.

There is limited capacity for the media and the general public, though the UPC transmits a CCTV signal to a second room on the same floor, which is called an "overflow room" (a term also used by U.S. federal district courts).

Plaintiffs 10x Genomics and Harvard are represented by Bardehle Pagenberg's Professor Dr. Tilman Mueller-Stoy ("Müller-Stoy" in German), and defendants by Bird & Bird's Oliver Juengst ("Jüngst" in German).

After a full day yesterday, the hearing continued this morning. The decision will be announced on September 19 after another PI hearing involving the same parties and a different patent from the same family. That other patent has already been litigated successfully before the Munich I Regional Court.

By just watching Judge Dr. Zigann's initial outline of the Court's preliminary assessment of the case, one wouldn't have thought that this was a premiere for the UPC as a whole and its Munich Local Division in particular. But there were signs of that event being special. For example, Judge Andreas Mueller ("Müller" in German), who used to preside over the Munich I Regional court's 21st Civil Chamber for many years and has been presiding over a different panel (which hears antitrust and copyright cases) for seven years was in the audience. Given the tremendous popularity of the Munich Local Division, more judges are needed and I believe he'd be a great candidate, as would be some others: they have quite a talent pool in Munich.

At this early stage, all those UPC hearings and trials inherently raises legal questions of first impression. At some point there will be well-trodden paths, but at this point even such fundamental questions as whether the moving party can modify its prayer for injunctive relief during a PI hearing must be answered for the first time in UPC history.

In the absence of UPC case law, the EU's Intellectual Property Rights Enforcement Directive is referenced more frequently than in patent infringement proceedings in national courts.

Most patent trials in German courts last only a few hours. This one took 1.5 days and it was "only" a PI hearing. But I can see why the judges want to analyze the matter carefully and ensure that the defendant's right to be heard is fully respected. From what I heard, defendants had to do most of the talking today, and what the court said yesterday also served to indicate that a PI may very well issue in this case.

The court tends to agree with plaintiffs' proposed claim construction, and non-technical defenses (such as pointing to a parallel U.S. antitrust litigation) did not seem to get much traction, but let's await the written decision.