Apple now suing Nokia itself on antitrust grounds; Nokia suing Apple over 40 patents in 11 countries

Yesterday, Apple's antitrust lawsuit in the Northern District of California against certain Nokia privateers (patent assertion entities that Nokia has fed with patents) became known. Then, Nokia announced its new wave of patent infringement suits against Apple. And I have now just found something very interesting in a court filing of the usually rather uninspiring kind: Apple has added Nokia Corporation, Nokia Solutions and Networks Oy (using a Texas address) and Nokia Technologies Oy to the defendants in its antitrust case. Here's the relevant part of the list of defendants (click on the image to enlarge; this post continues below the image):

What has happened procedurally is that the court rejected this proposed summons because it lists defendants not listed in the complaint. But that's just a clerical thing: no doubt Apple will amend the complaint accordingly. Apple's lead counsel, Wilmer Hale's Mark Selwyn, who is also a key player in Apple's protracted dispute with Samsung, has faced greater logistical challenges.

While the original complaint targeted Nokia in practical terms, it does make a difference that Apple decided, apparently in response to Nokia's patent infringement suits, to add three Nokia entities to the list of defendants. I can attribute it only to diplomatic considerations that Apple didn't do this initially. If you sue over an alleged conspiracy (the term itself is in the complaint, it makes sense to go after all conspirators, not just after some.

There's quite some escalation going on: a couple of hours ago, Nokia announced the filing of further complaints against Apple. The most notable changes are that Nokia has also filed an ITC complaint, seeking a U.S. import ban over eight patents, and that it's suing in nine more countries. Last time Apple and Nokia met at the ITC, neither made a lot of headway there; it turned out to be a patent graveyard. In addition to the U.S. (Eastern District of Texas, with a total of 18 patents in play, including H.264 video codec patents) and Germany (eight patents in Düsseldorf, four in Mannheim, and two in Munich, where the first hearings in this new dispute will likely take place in March or April), Nokia is now also asserting three patents in Helsinki, Finland; three patents in London; four in Turin, Italy; three in Stockholm, Sweden; one in Barcelona, Spain; three in The Hague, Netherlands; one in Paris, France;one in Hong Kong, China; and one in Tokyo, Japan.

According to Nokia's press release, there are 40 patents-in-suit, meaning that some patents are being asserted in more than one jurisdiction.

I watched Nokia's patent assertions against HTC a few years ago. There was significant escalation, but it took longer than one day. After more than a year and a half of litigation, that dispute spanned seven countries on three continents. With Apple, it took one day to go from two countries to eleven.

With HTC, this strategy paid off, and it was necessary since most of Nokia's patent assertions either failed or resulted in symbolic wins without commercial impact. I believe that what carried the day for Nokia in the end was that certain patents covered hardware designs and HTC suppliers Qualcomm and Broadcom couldn't easily have worked around them, at least not without cost implications. HTC did a very good job defending itself, but Apple will probably do an even better one and it will simply get more support from its chipset suppliers if it needs workarounds, simply because no one will want to lose Apple's business.

Nokia may find that it's barking up the wrong tree. This all-out war and global carpetbombing will probably not sit well with Cupertino. Normally Apple is willing to pay royalties and move on. Its dispute with Ericsson is an example. But Apple is ready, willing and able to litigate for years if it feels it has to. Nokia's decision-makers may believe that "brute force" is the way to get Apple to pay up quickly, but this approach may backfire. What if Apple now decides to prove that it can defeat one Nokia patent infringement claim after the other and get one Nokia patent after the other invalidated? Should that happen, Nokia will have to wait for its payday much longer than it might have thought. Its portfolio might be devalued in the end. And the return might be quite a disappointment. On top of all of that, Nokia risks being held to be an antitrust violator. There is considerable risk to the failed Finnish device maker.

Talking about antitrust, the U.S. lawsuit against Nokia's privateering could also, with or without a formal EU complaint by Apple, lead the European Commission to investigate Nokia. Commissioner Vestager will have to take some serious action against European tech companies for the sake of at least appearing to be more balanced than one would think based on her current focus on Apple, Google, and Facebook.

As for Nokia's chances of getting leverage over Apple, injunctions will be way more important than damages, but they'll be hard to come by. In the U.S. it's pretty hard to obtain an injunction over any patent. In Germany and some other European jurisdictions, injunctive relief is a legal remedy for infringement, but if a patent is standard-essential, special rules apply (after the CJEU's Huawei v. ZTE opinion), and if it isn't standard-essential, it can be worked around.

Today's announcement by Nokia shows how much of a troll it has become. Ericsson is not as bad as Nokia, but not fundamentally better. And the European Commission's innovation policy comes down to ridiculous claims, unrealistic plans, and in some cases rather questionable regulatory action.

As for Nokia's transformation into a troll, it's very telling that Nokia used to prefer the District of Delaware as long as it was a mobile device maker itself. Nowadays, it prefers the Eastern District of Texas. Sic transit gloria mundi.

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Enough is enough: Apple files antitrust complaint against multiple Nokia privateers

PatentlyApple was first to report on Apple's antitrust case against Acacia and other patent assertion entities (PAEs) that Nokia is using to extract, in the aggregate, excessive license fees from Apple and other companies. As a service to readers, I wanted to publish the complaint here (this post continues below the document):

16-12-20 Apple Complaint v. Acacia Et Al. by Florian Mueller on Scribd

For a long time I had hoped someone would finally do this. Last year I called out Nokia and others on their privateering ways, and it turned out that Nokia had industrialized the concept of privateering to a far greater extent than anyone else. My list of PAEs fed by Nokia contained all of the defendants in Apple's antitrust suit--Acacia and Conversant (technically, Apple is also suing particular subsidiaries of those)--and more. That post prompted attempts by Ericsson and Nokia to explain away their privateering ways.

Privateering-related issues have been raised in other litigations, including a case involving Samsung and an Ericsson privateer in London, but this is now the major anti-privateering lawsuit. Without a doubt, all other major industry players focused on making products (as opposed to those who increasingly rely on patent licensing income) will join me in wishing Apple luck. This is not just about Apple, or about smartphones and tablet computers. It's a huge issue for automotive and other IoT (Internet of things) companies as well.

I just hope Apple will see this one through. There is a risk that Apple may settle (as it did with Ericsson, though I had hoped the case would provide clarity on the "smallest salable unit" approach to FRAND royalties). In a FOSS Patents guest post I published last month, top-notch analysts from Arete noted that "a critical [for Nokia] renewal at Apple [is] forthcoming." It could be that Apple will drop this antitrust suit as part of an overall agreement with Nokia on an extension of the license agreement originally agreed upon in 2011.

The story Apple tells the court is that Nokia, after failing as a mobile device maker, changed its positions on FRAND licensing of standard-essential patents and conspired with various PAEs in order to bring numerous royalty demands and infringement lawsuits against Apple and other industry players and with the objective of circumventing its original FRAND licensing commitments:

"21. With its cell phone business dying, Nokia began to seek out willing conspirators and to commence its illegal patent transfer scheme in full force; that scheme has continued in full effect to the present. The driving force behind Nokia's strategy was to diffuse its patent portfolio and place it in the hands of PAEs. Acacia and Conversant were its chief conspirators."

"24. [...] According to an expert report that Nokia submitted in a prior proceeding: '[T]he relationship between the number of patents and the total royalty rate is not linear. For example, a license to a single [SEP] may be 2.5% ... while a license to ten or more [SEPs] rarely exceeds 5%.' Thus, by creating a network of conspiring PAEs to hold slices of its former portfolio and sharing in the proceeds of the PAEs' assertions, Nokia seeks to work with PAE collaborators like Acacia and Conversant to extract royalty rents and tax product innovators in yet another way that would not have been possible had it kept its portfolio intact."

On the remedies side, it's worth noting that Apple, besides damages, wants those patent transfers to be declared illegal and to be undone. Also, one of Apple's prayers for relief relates to injunctions: it asks the United States District Court for the Northern District of California to order an anti-suit injunction against Acacia and Conversant. The most prominent case in which an anti-suit injunction actually issued was Motorola Mobility v. Microsoft (Western District of Washington); it got upheld by the Ninth Circuit, and that's the circuit court for this case, too.

In terms of positive effects on innovation, an Apple win over Acacia and Conversant would eclipse Microsoft's win over Motorola Mobility, and that one was also very significant and positive.

I plan on talking about this some more after the defendants have filed their answer to the complaint. Also, while it's a different field of law and a different jurisdiction, I've meanwhile read the 130-page European Commission decision on what the EU says is "state aid" Ireland gave to Apple, and I'll comment on it soon. Suffice it to say for now that it's far-fetched to say the least; the EU Commission may lose the case just simply because the arm's length principle for inter-company charges is not part of Irish tax law; and there is not even the slightest indication of any wrongdoing by Apple in that whole document (wrongdoing by the recipient of alleged subsidies is, of course, not a legal requirement, but I wanted to mention it anyway).

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Microsoft sues patent troll Acacia for breach of license agreement through infringement actions

Reuters reports on a lawsuit filed by Microsoft against Acacia Research (a company frequently referred to as a "patent troll") in the Southern District of New York today, allegedly "Acacia broke a contract to license various smartphone and mobile computing technologies to Microsoft".

It was already known before today's filings that Microsoft took at least one license from an Acacia subsidiary (more than three years ago). Reuters says that in October 2013, "various Acacia subsidiaries filed lawsuits against Microsoft, charging that the software company had infringed more than a dozen patents", and Microsoft's breach-of-contract action is a "response to those [infringement] actions", but that's all that is known about the lawsuit for the time being. The complaint is not accessible on PACER, but I will keep an eye on this case and report in more detail when more information becomes available.

Reuters furthermore quotes a Microsoft in-house lawyer as saying that Acacia's lawsuits "are the worst kind of abusive litigation behavior, attempting to extract payment based on litigation tactics and not the value of its patents". This is exactly the kind of allegation that many companies large and small make these days against so-called patent trolls.

There are patent reform proposals that Microsoft and other major patent holders including IBM do not support -- they don't want to weaken the patent system as a whole because they consider it an engine of innovation. But Microsoft has to fend off large numbers of patent troll lawsuits and has spoken out in favor of loser-pays fee-shifting and more transparency in patent ownership -- reform measures that would discourage the kind of behavior that Acacia is allegedly engaging in.

Earlier today, Bloomberg wrote about "publicly-traded patent collectors plaguing Google, Apple". Acacia is publicly-traded. Microsoft is one of the large players it's plaguing.

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents and Google+.

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Red Hat feeds the patent trolls and fools the FOSS community

I have dug up a court filing that reveals one of the best-kept secrets in the open source industry: Red Hat coughed up $4.2 million in June 2008 to settle a patent infringement suit that had been brought by FireStar Software.

In a world in which hundreds of thousands of software-related inventions have been patented, chances are that Red Hat has concluded more transactions of the FireStar kind. Red Hat settled another patent lawsuit (with Acacia subsidiary Software Tree LLC) in October 2010 and most likely made a payment (which might have been higher than in the FireStar case). The vast majority of all license deals are negotiated privately without litigation or announcements, so Red Hat may have quietly signed patent license agreements with a number of other right holders and never even talked about it. For example, just in connection with the acquisition of JBoss, Red Hat set aside $43 million for the settlement of claims that included (but were not limited to) the FireStar lawsuit.

While patent license agreements are just a routine deal for traditional IT companies, the significance of this finding lies in how it reflects on Red Hat's credibility:

• In political and regulatory contexts, the market-leading Linux distributor insists on the false claim that open source licenses (especially the GPL) are absolutely incompatible with the payment of patent royalties (while this simply depends on the specific terms and conditions of a deal).

• The GPL also serves as Red Hat's pretext for refusing to offer its customers implementations of patent-encumbered standards such as the popular AVC/H.264 video codec.

• Another important credibility issue is that the world's largest open source company actually fails to be open about its patent-related dealings and positions, a fact that others have criticized before. It hides behind self-imposed confidentiality obligations and employs legalese terminology that in the eyes of many laypeople will appear far more favorable to Red Hat than a straightforward representation of the facts would.

I take the revelation of Red Hat's patent royalty payment as a confirmation that the open source industry actually accepts software patents as a fact of life and opposes them only as lip service to curry favor with the FOSS community. As much as I regret that, at this stage I just try to describe what's actually going on in the industry and to see through smokescreens.

Red Hat is a publicly traded company trying to make quarterly and annual numbers, not an open source project, let alone an activist group. Red Hat's shareholders support the community's causes only to the extent they consider such efforts economically advantageous from a very short-term perspective. If they can achieve the desired goodwill with make-belief at a lower cost, then that's what they'll do. Don't let them fool you. To them, this is just business.

They also put plain business interests above openness in connection with their hidden Linux kernel patches.

The payment was kept confidential but surfaced in a different lawsuit

In 2006, FireStar Software filed a lawsuit with the US District Court for the Eastern District of Texas, alleging the infringement of a patent related to linked databases (US Patent No. 6,101,502) by Hibernate, a JBoss product. When FireStar first approached JBoss, the company was in the process of being acquired by Red Hat, a fact that FireStar may have regarded as a financial opportunity.

The patent-in-suit was later assigned to a Texas company named Datatern. An investment group named Amphion Innovations US, which owns a stake in FireStar and set up its wholly-owned subsidiary DataTern as a patent licensing company (i.e., a non-practicing entity), also became a party to the suit.

The settlement related to any or all patents held by those companies that might be infringed by Red Hat's products. Red Hat published a redacted version of the settlement agreement and a "reader's guide" to it. the only part that had been redacted was Section 3, "PAYMENT". There were different references to that payment in the publicly available parts of the agreement (and the parties agreed to pay their own legal fees), but the amount was not stated anywhere else. Section 7 stipulates a confidentiality obligation concerning the section on payment.

Later the plaintiffs sued the law firm that had represented them against Red Hat for alleged malpractice. In connection with that case (case no. 2:09-cv-00038, Eastern District of Texas), the parties initially didn't mention the amount paid by Red Hat, but then an additional group of companies came in: IP Navigation Group and affiliated entities. Those companies belong to Erich Spangenberg. who according to law.com runs one of the "largest, and most litigious, patent-holding companies" and recommends a "sue first, ask questions later" approach. The article quotes patent defense company PatentFreedom, according to which "entities connected to Spangenberg have sued more than 500 [by now even more than 600] companies for patent infringement since 2005". This aggressive patent monetizer became involved with the FireStar/Red Hat dispute when the right holders were unhappy about the state of affairs and brought him in as additional firepower to pressure Red Hat into a settlement.

On October 1, 2009, Foley & Lardner (the firm that represented FireStar), amended its "counterclaims, third-party complaint, and cross-claims", and paragraph 11 of that document made the following revelation:

"Of the $4.2 million settlement that the Plutus Parties [Spangenberg] obtained on behalf of Plaintiffs [Amphion/Datatern], the Plutus Parties took $3.4 million."

Statements made in such a court filing must have evidentiary support, so we can rely on the accuracy of that information.

GPL compliance of patent royalty payment

In an effort to appease the FOSS community, in which there is a widespread belief that the GPL doesn't allow inbound patent licensing, Red Hat emphasized in its announcement that its settlement also covers "community members" (upstream and downstream) as "third party beneficiaries". Indeed, Section 9.12 of the settlement agreement contained some provisions. In the press release announcing the deal, Red Hat's patent attorney Richard Fontana said:

"Red Hat's settlement satisfies the most stringent patent provisions in open source licenses, is consistent with the letter and spirit of all versions of the GPL and provides patent safety for developers, distributors and users of open source software"

Eben Moglen of the Software Freedom Law Center reviewed the agreement and concluded that it would also be compatible with GPLv3 (although only GPLv2 was relevant to that particular deal). He liked the fact that its terms "provide additional protection to other members of the community upstream and downstream from Red Hat" and welcomed "Red Hat's efforts on the community's behalf."

Considering a $4.2 million payment compatible with the GPL is, however, in contradiction with what Red Hat and its lobbying fronts claim in different political and regulatory contexts. For example, when the European Commission was updating its European Interoperability Framework (a set of procurement guidelines), Red Hat and its different lobby groups claimed that only royalty-free standards are compatible with the GPL and other important FOSS licenses. I debunked that false claim and instead advocated a proper distinction between patent licensing terms and conditions that work for FOSS from those that don't. That is exactly the approach the EU took in the final version of those guidelines.

I believe Red Hat should have told European policymakers the truth about its FireStar settlement and unknown number of other patent license deals in place instead of trying to gain a political advantage with incorrect claims that royalties are inherently GPL-incompatible.

Patent royalties and the debate on video codecs

In the EU debate I mentioned before, Red Hat used MPEG's royalty-bearing codecs as an example of patent-encumbered statements that it claims it cannot implement because of the GPL. However, if Red Hat can pay $4.2 million to FireStar (and who knows how much to who knows how many other patent holders), why can't it pay a royalty to MPEG LA for an AVC/H.264 license? The maximum payment in the MPEG LA structure for such a license would be $6.5 million.

I looked into those terms last year, and the maximum amount has meanwhile been increased from $5 million to $6.5 million. The current amount was stated by Ed Bott on his ZDNet blog.

Where there's a will, there's a way -- and in this case I believe Red Hat simply doesn't want a solution. Unfortunately, this limits choice among codecs for its customers, for no good reason. Red Hat simply wants to maximize its profitability at the expense of innovation and progress.

Google argues that its WebM/VP8 codec is needed in order to have a video codec standard that is implementable in open source. It's uncertain whether Google's offering is indeed patent-unencumbered and therefore won’t be subject to royalties at some time down the road.

MPEG is already working on a royalty-free codec of its own. In my opinion, the open source industry should give AVC/H.264 serious consideration despite royalties. The price to be paid is limited, and one of the benefits is that it's a multi-vendor standard while WebM/VP8 is just one company's offering, even if seemingly available on open source terms.

Red Hat isn't forthcoming

Red Hat uses the word "open" a lot, but in connection with patent licensing it isn't really transparent. A few months ago, Red Hat settled litigation with an Acacia subsidiary named Software Tree LLC. Previously, Red Hat had fended off infringement allegations by a different Acacia company, IP Innovation LLC, because it was not found by a jury to infringe any valid patents. But Software Tree LLC asserted patents that had previously survived invalidation attempts and were considered reasonably strong by a Texas-based patent lawyer I asked.

Red Hat didn't announce any terms of the deal with Software Tree LLC, and its complete failure to be forthcoming had many people concerned. You can read some good questions and well-reasoned criticism from Open Source Initiative co-founder Bruce Perens on GigaOM and on other sides including internetnews.com (also picked up by LinuxWeeklyNews), Australia's iTWire, and techdirt.

The most likely explanation is that the deal was worse than the FireStar settlement, especially as far as the interests of the wider open source community are concerned. If Red Hat could have made the same claim about protection of other open source developers (upstream and downstream) as in the FireStar case, I guess it would have done so.

Even in the FireStar case, Red Hat should at least have made it clearer that it ended up paying significant royalties. Not huge, but definitely significant.

Richard Stallman, the president of the Free Software Foundation, also voiced a caveat concerning the FireStar announcement:

"If we can judge from Red Hat's statement, the deal is good for the free software community. I would not want to treat that as certain; they might have chosen not to mention some negative side."

Again, that related to Firestar. But I wonder what RMS thinks of Red Hat's refusal to disclose any information at all concerning its settlement with Software Tree LLC.

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