Nokia's choice of software patents asserted against Daimler exposes pretext for refusing to license automotive suppliers

PaRR's EU antitrust reporter Khushita Vasant received information from two sources according to which a third round of mediation talks--after the first two, held in January and February, failed--might take place between Nokia and Daimler as well as many (though not all) of its suppliers of telematics control units (TCUs). Knowing how these things work, I guess the situation is now simply one in which the European Commission remains hesitant, for purely political reasons, to take action, and is playing for time, as is Nokia, whose patent portfolio is going down the tubes with every month that passes.

Commissioner Margrethe Vestager is even way tougher than her famous predecessor in office "Steelie Neelie" was when it comes to enforcement against U.S. companies, but (so far, so bad) soft as a jellyfish on Nokia. She and Nokia might just hope that the patent infringement ruling scheduled by the Munich I Regional Court for April 9, 2020 would scare Daimler into a settlement. It's hardly a coincidence that the rumored new round of mediation talks has the same target date...

Regardless of that latest disgraceful development, I was taking a closer look at Nokia's ten patents-in-suit against Daimler from the perspective of whether there is a scintilla of doubt about Nokia acting abusively by refusing to license Daimler's TCU suppliers. There is not.

As Daimler's lead counsel in the German infringement cases accurately noted last fall, cellular standard-essential patents (SEPs) cover techniques that are essentially embodied in the baseband chip. From a car maker's vantage point at the bottom of the supply chain, that's a tier 3 product, which gets incorporated into a (tier 2) network access device (NAD; one might also call this a connectivity module, which in turn resides in a TCU (tier 1). In other words, TCUs already contain a whole lot more hardware than is actually needed to exhaust the patentee's rights by licensing the upstream.

The European Commission employs an elite of public servants. There's no way the Commission's experts wouldn't have figured out during all of that time since Daimler's 2018 (!) complaint that Nokia's allegation of a TCU not actually practicing the standard is, euphemistically so as to avoid an analogy to bovine excrements, a pretext.

The Golden Rule of patent law: the name of the game is the claim. "Claim" in the sense of a patent claim, not a claim in terms of a (mis)representation.

The patent claims determine the scope of protection a patent enjoys. When looking at the claims of Nokia's patents-in-suit, and even when looking at the specifications (whose sole purpose in litigation is to help interpret the claims), it becomes clear that Nokia's patents don't cover end products such as a car (quite often, the Nokia-Daimler dispute is misleadingly referred to as a "connected vehicle" dispute, though none of Nokia's wireless SEPs have anything to do with what sets cars apart from phones).

In fact, seven (70%) out of Nokia's ten patents-in-suit against Daimler are even officially declared to be software patents (which the remaining three are as well, as I'll explain in a moment). That is so because they come with computer program claims--patent claims covering software without any hardware being required to infringe. As a former anti-software-patent campaigner, I'm particularly sensitive to this, and I believe the European Patent Office granted those claims in violation of the European Patent Convention, but they do come in handy now as they belie Nokia's anti-antitrust-enforcement narrative. You can find the claims toward the end of each patent specification, and I'll give an example of one program (in terms of software) claim per patent:

• claim 5 of EP2797239 on "a method and a telecommunication device for selecting a number of code channels and an associated spreading factor for a CDMA transmission"

• claim 15 of EP2087626 on "additional modulation information signaling for high speed downlink packet access"

• claim 15 of EP2981103 on an "allocation of preamble sequences"

• claim 7 of EP2286629 on a "method and apparatus to link modulating and coding scheme to amount of resources"

• claim 8 ("computer-readable storage medium comprising software instructions" is a computer program by any other name) of EP2145404 on a "method and apparatus for providing control chanels for broadcast and paging services"

• claim 31 of EP1929826 on an "apparatus, method and computer program product to request data rate increase based on ability to transmit at least one more selected data unit"

• claim 22 of EP2087629 on "a method of transmitting data within a telecommunications system"

The software that controls data transfers over a cellular model resides in a baseband chip. That's the mastermind of the whole operation. It determines what is sent out via the antenna, and it interprets what is received.

All ten of Nokia's patents-in-suit against Daimler could also be called "protocol patents": they describe how two ends of a wireless connection communicate--what A has to tell B to cause B to do something, or vice versa. It's like I say "hello, how are you?" and you respond "fine, how are you?"

That kind of communication is, of course, implemented in software (it already has been for a very long time).

There's nothing in those Nokia's patents that has to do with superior hardware. I ran full-text searches over the patent specifications, and looked closely at the device (or "apparatus") claims to identify any references to the types of hardware components that Nokia claims aren't part of TCUs:

• Eight (80%) out of the ten patents-in-suit contain not a single occurrence of at least one the following words: antenna, microphone, loudspeaker, power.

• EP'626 refers to "antenna weights" and mentions the presence of an electrical power source (without claiming to invent anything new relating to electrical power supply). The patent covers bits (zeroes or ones) that are sent and received, and the apparatus claims don't require any specific hardware but merely refer to "means for interpreting ... bit[s]" and "means for coding." That, too, is a typical software patent.

• DE'446 (the German equivalent of EP'234) only mentions "power" in the sense of "power control" as a numerical parameter. Here, again, it's instructive to look at the apparatus claims, which as opposed to claiming specific hardware relate to a "medium access control layer configured to encapsulate packets."

• The means-plus-function structure found in EP'626 and EP'234/DE'446 is also found in the other patents. Nokia's patent attorneys obviously optimized those claims for scope, and that's why they don't claim specific hardware elements such as an antenna, but instead focus on functionality. However, as long as there isn't a need for some very specific (and inventive!) hardware, but it merely suffices that something be around to do a certain job, the baseband chip as the controller of the data transfer operation is where the claimed inventive steps are implemented.

Those ten patents are the ones Nokia's litigators--among the very, very best in the industry--selected from the company's huge portfolio because they thought they'd be their strongest weapons. We could look at dozens or even at hundreds of additional cellular SEPs owned by Nokia or other companies, and the findings would be materially consistent with this sample of ten Nokia "star" patents.

It's time to get real. There's no justification for not licensing automotive suppliers, especially not under the CJEU's Huawei v. ZTE case law.

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Mediation between Nokia and Daimler as well as its suppliers fails definitively: European Commission must act swiftly and forcefully

This afternoon I broke the news on Twitter that the mediation process between Nokia and Daimler as well as various of its suppliers failed definitively:

BREAKING NEWS: Today the #antitrust mediation process between #Nokia and #Daimler as well as its suppliers has ended without an agreement. The issues were the same ones that made the first series of talks (in January) fail, see https://t.co/VT4DWvtI8T #frand #patents @vestager

— Florian Mueller (@FOSSpatents) February 14, 2020

A first round of talks had failed in January for the reasons I mentioned then. The fact that the supposedly super-secretive mediation process was pretty transparent to me--thanks to certain sources--even sparked a peripheral controversy at last week's Nokia v. Daimler trial in Munich.

A second round of talks was held this week, and went nowhere--for the very same reasons that the first round had failed. Nokia simply wouldn't consider extending an exhaustive component-level license to Daimler's suppliers, and Nokia continued to refuse to put highly relevant SEP license agreements with smartphone makers on the table.

Let's give the mediator the benefit of the doubt: he gave this another try just because he was unrealistic, not because it helped produce billable hours.

The European Commission's request that the parties engage in mediation--instead of doing the job European citizens pay them for--was a bad idea in the first place. It set a terrible precedent and made Mrs. Vestager, who earned herself a reputation as a determined competition enforcer during the first time, appear very weak.

Interestingly, the fact that last week's Munich trial went very well for Nokia didn't bring the parties closer to a deal. Maybe no one believes that the Munich court will seriously interpret a key sentence in the Court of Justice of the EU's Huawei v. ZTE ruling as if "and" meant "or." It's also possible that Nokia's piecemeal injunction strategy--with an explicit carve-out for Samsung subsidiary Harman Becker for the time being--means even a ruling in Nokia's favor on April 9 wouldn't give the failed handset maker much leverage.

Whatever the reasons may be, if the European Commission respects itself, it just can't let Nokia obtain an injunction on a highly illegal basis--refusing to license Daimler's suppliers is a clear violation of EU antitrust law. In December 2012, the Commission pressured Samsung into dropping any pending requests for SEP injunctions against Apple. If the Commission doesn't put the same pressure on Nokia with a view to the Munich ruling scheduled for April 9, it will lose much of its credibility as an antitrust watchdog.

This has been a bad week for Nokia. On Tuesday, it lost a case against Daimler in Mannheim. On Thursday, one of its privateers, Conversant, lost a case against LG in Munich (over a Nokia patent). Plus, it failed to bully Daimler and its suppliers into a deal.

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Qualcomm is one undecided judge away from getting FTC's antitrust win reversed by Ninth Circuit: observations on today's hearing

The United States Court of Appeals for the Ninth Circuit heard oral argument in FTC v. Qualcomm this morning. Just as I expected, Qualcomm went into that hearing on a far stronger basis than the one on which last year's trial had ended. The purpose of this post is to share some observations. So shortly after the hearing, it obviously can't provide an in-depth analysis.

The FTC, Qualcomm, and the DOJ (intervening on Qualcomm's side) all faced tough questions, but from different judges and of varying relevance to the forthcoming decision. For instance, the fact that the panel is somewhat skeptical of the DOJ's national security argument (though a remand to consider national security was also mentioned as a procedural possibility) doesn't have a bearing on the underlying merits of the antitrust case. It would just be about tailoring the injunction. One has to weight the questions--and there's always a possibility of a judge asking a party tough questions to encourage it to present its best arguments, but I don't think that happened today.

Circuit Judge Consuelo Callahan appears to be strategically lost for the FTC's purposes. Some of her questions were clearly designed to support Qualcomm as opposed to looking for answers. In a way, Qualcomm had three different lawyers arguing its case: Thomas C. Goldstein (absolutely world-class), Michael Murray from the DOJ's Antitrust Division, and... Judge Callahan, who made such points as saying that Qualcomm's business practices may be capitalistic, but not necessarily anticompetitive, and stressed that being unique in an industry shouldn't be conflated with being anticompetitive. Nobody would disagree with the distinctions, but this case is about line-drawing.

Assuming that Judge Callahan is indeed totally on Qualcomm's side, the chipmaker just needs one more judge to join her--maybe not on all counts, but on some.

Judge Rawlinson appears open-minded and undecided. Her questions to both sides were very balanced and reflected a genuine effort to develop a better understanding of what she noted in closing is a challenging case for the court to resolve. Once I obtain a transcript and re-read it, I may find that Judge Rawlinson has a certain inclination, but just based on watching the livestream of the hearing, I think she hasn't formed a definitive opinion yet.

Judge Murphy III (from the Eastern District of Michigan, sitting by designation) appeared most deferential to the district court, and relatively speaking, more likely to support affirmance than the other members of the panel. But "more likely" doesn't mean that that's what he's going to do. He just seemed somewhat more receptive to certain parts of the FTC's theory, such as the point that Qualcomm's licensees can't practically challenge Qualcomm's patents in court when they depend on uninterrupted chip supplies.

One factor that is clearly working out in Qualcomm's favor is that the FTC's decision not to defend Judge Lucy H. Koh's holding of an antitrust duty to deal under Aspen Skiing created a vacuum. The FTC's special counsel, Professor Brian Fletcher (who talked very fast, a habit I'm also known for, but wasn't very persuasive except for the last few minutes), mentioned United Shoe.

If Judge Rawlinson joins Judge Callahan on one or more of the fundamental issues, it may be "game over" for the FTC. Otherwise, I guess Judge Murphy III is more likely to join Judge Rawlinson than Judge Callahan. In that event, Judge Callahan's Plan B appears to be to get a remand of the summary judgment on chipset licensing because of triable issues. That remand would be mission-critical for the FTC because its alternative theory for affirmance of the chipset-licensing decision depends on the contractual duty established on summary judgment.

It's not even certain that the Ninth Circuit will ever have to adjudge the case, as the Federal Trade Commission might consider a settlement with Qualcomm. The way today's hearing went certainly encourages the parties to give serious consideration to a settlement. The FTC will have to take into consideration that whatever the Ninth Circuit affirms may still be challenged (and potentially successfully) by Qualcomm, with the Supreme Court being very likely to hear the case--but whatever the FTC loses at this point, it may not even be able to appeal to the Supreme Court (and if so, there would be the potential issue of the DOJ representing the FTC, though that would be the Solictor General's--not the Antitrust Division's--job).

The FTC had a very strong trial. But the appellate game is different. It's of a nature that favors Qualcomm. And Qualcomm has one judge firmly on its side. There is hope for the FTC with respect to the other two members of the panel. But none of the judges defended the district court's judgment the way Judge Callahan attacked it.

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Nokia's piecemeal injunction strategy against Daimler's demand of €4.5 billion bond or deposit: what's Nokia's objective in auto patent battle?

This is my third post on Thursday's Nokia v. Daimler patent infringement trial in Munich. I've previously commented on Nokia's intentional misinterpretation of the Court of Justice of the EU's Huawei v. ZTE ruling and reported on the fact that this blog's publication of leaked information from secretive mediation talks between Nokia and the automotive industry gave rise to a peripheral controversy in court.

Toward the end, counsel for Nokia mentioned that Daimler asked for security to the amount of 4.5 billion euros (that's more than 4.9 billion U.S. dollars) in the event Nokia would seek to enforce a hypothetical injunction while an appeal would be pending. The likelihood of an injunction depends primarily on whether the court will adopt Nokia's utterly unreasonable misreading of CJEU case law. If the court does side with Nokia on this one, I don't have the slightest doubt that the appeals court would reverse (and probably faster than it usually does). Another question is whether the case will be stayed as an earlier wireless data communication standard (GSM-based EDGE) apparently came with exactly the selection strategy Nokia later claimed to have invented in connection with 3G/UMTS.

In both contexts, all I heard in court was one party's argument. Daimler presented its invalidity theory, which appeared to be a pretty strong case of non-novelty, but Nokia, despite Daimler asking them to respond, was evasive. And when Nokia argued that security to the amount of € 4.5 billion wasn't needed because Daimler could continue to source telematics control units (TCUs) from Samsung subsidiary Harman, and furthermore because Daimler could just deactivate 3G/UMTS support (leaving them with 2G/GSM and 4G/LTE), the court terminated the hearing without allowing counsel for Daimler (or the intervenors) to respond.

As counsel for Nokia explained, they are not asking for an injunction that would force Daimler to hold its manufacturing. Their prayer for injunctive relief is specific to German sales, and limited to Daimler cars that come with TCUs from certain suppliers (most likely, the direct suppliers among the intervenors in this action, who are Continental, Bosch, TomTom, Valeo subsidiary Peiker, and BURY), with Samsung subsidiary Harman being explicitly excluded for the time being, though Nokia does reserve the right to bring a new complaint targeting Daimler cars equipped with Harman TCUs.

What Nokia didn't specify is an amount that they would consider reasonable. The purpose of such security is only to ensure Daimler can still enforce a hypothetical future wrongful-enforcement damages award even if Nokia went bankrupt in the meantime. What Daimler will actually get may differ greatly from the amount of the security. Technically, Nokia could choose between either posting a bond or making a deposit. I guess they would have to make a deposit for an amount this large. A bond would be costly, and with Nokia's business being in decline, it's unclear whether any bank would vouch for Nokia to the tune of billions of euros without Nokia actually making a deposit with the same bank (in which case Nokia might as well put the money in a German court's bank account, which wouldn't charge fees).

Nokia's argument that enforcement damages would be mitigated by Daimler disabling 3G isn't convincing. There are some mobile telephone networks in Germany that still rely on 3G in wide swaths of the country (such as Telefónica's O2 service). Also, I don't know whether any carrier would certify a 4G end-user device (such as a connected car) without being backwards-compatible to 3G. That might leave Daimler with 2G.

As for Harman's ability to just supply enough TCUs, I don't know to what extent Harman itself can do it, or whether the powerful Samsung group as a whole could enable Harman to do so.

There's no reason to assume Nokia will ever license Harman, except under antitrust pressure (such as from the European Commission, or as per a court order). So this looks like a peacemeal resolution strategy: by means of a carve-out for Daimler cars with Harman TCUs, Nokia tries to make it easier for the court to grant an injunction (in the middle of the German patent reform debate, where the proportionality of injunctive relief is the #1 topic of debate), and probably hopes that the European Commission won't take decisive action before an injunction comes down. When Samsung was pursuing injunctive relief against Apple almost a decade ago, the Commission at some point put so much pressure on Samsung that all injunction requests over SEPs were withdrawn EU-wide. The Commission's hesitance to strike down on Nokia's clear abuse of EU antitrust law is already making the agency look very bad. Its dual standards are already more than obvious. But at the point where Nokia would enforce a SEP injunction agianst Daimler, enabled only by Nokia's refusal to license Daimler's suppliers, the Commission would either be exposed as the Western world's least credible and least independent competition authority--or it would have to call Nokia off, as it once did in the Samsung case.

If Nokia brought a follow-on complaint targeting Daimler cars with Harman TCUs, the Munich court could adjudicate that one pretty quickly. I'm not sure they would even hold their usual two hearings in that case. However, they couldn't resolve it faster than the appeals court would most likely overturn the original decision.

While it's easy to see how Nokia hopes its tailored injunction strategy may persuade the court to just go ahead and grant an injunction, and dissuade the Commission from intervening, it's harder to tell from the outside what Nokia really intends to achieve here.

It wouldn't make sense for Nokia to obtain an injunction against Daimler cars incorporating TCUs from half a dozen suppliers as long as Daimler has other sources. A follow-on complaint would be a given. And at that point (though I don't think Nokia could formally win a second case before the appeals court tosses a hypothetical first win), Nokia would likely have to make a multi-billion euro deposit. Last summer its cash reserves amounted to approximately 7 billion euros, but it's another question how comfortable Nokia's shareholders would be with half or more of that amount being deposited in a German court's bank account.

Nokia would need a German injunction that bites and lasts. A tailored injunction might just be an annoyance to Daimler without forcing a settlement. And even an injunction that can't be worked around logistically would matter only if it was more than ephemeral.

With its current strategy, Nokia is jeopardizing the reputation of the Munich I Regional Court (by asking it to misinterpret Huawei v. ZTE in an outrageous way) and of the European Commission, whose call for mediation suggested that it is a purely political organization as opposed to a regulator that truly cares about safeguarding competition. The grand prize Nokia is hoping for is a settlement with Daimler, and I don't see that happening anytime soon. This could become Nokia's Vietnam. On Tuesday, the Mannheim Regional Court will most likely hold a Nokia patent non-infringed. Nokia's SEP portfolio is largely untested in litigation. If the patents-in-suit I've seen so far are Nokia's strongest weapons, then they are in serious trouble. At the end of the Daimler dispute, Nokia's SEP portfolio might be totally devalued, and we're just about a couple of years away from the next round of renewals of Nokia license deals in the smartphone industry, where I predict they're going to get far less money than last time.

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Conservative majority of Ninth Circuit panel might favor Qualcomm over FTC

Last year's trial was a disaster for Qualcomm, with its own witnesses (including the experts) not having much credibility while the FTC put on what appeared to be a very strong case. However, at the appellate stage Qualcomm may benefit from a focus on specific legal questions. I guess we're going to see a mixed ruling.

Meanwhile, the panel for next Thursday's Ninth Circuit hearing has become known:

• Circuit Judge Johnnie Rawlinson, a Clinton appointee who was recommended by then-Senator Harry Reid (the #1 Democrat in the Senate over the course of many years), but is considered "moderate to conservative" (though her categorization as "conservative" appears to be attributable to her law-and-order stance)

• Circuit Judge Consuelo Callahan, whom Bush 43 appointed to the Ninth Circuit and even considered for the Supreme Court (he then chose Samuel Alito)

• District Judge Stephen Murphy III (Eastern District of Michigan), whom Bush 43 nominated for the Sixth Circuit, but couldn't get confirmed after losing the 2006 midterm election; he spoke at some Federalist Society event in 2010 (possibly also others), and in recent years the Federalist Society has supported Qualcomm in this antitrust context with numerous articles and amicus briefs

The worst-case scenario for Qualcomm would have been a panel with a liberal majority (and especially if one or more judges had been Obama appointees). That's definitely not the case here.

At the other end of the spectrum, there would have been a majority of Trump appointees, who might have been most receptive to the DOJ's Antitrust Division's arguments in support of Qualcomm. That's not the case either.

Judge Murphy III, sitting by designation, may understand the automotive industry's concerns about Qualcomm's refusal to extend exhaustive licenses to component makers fairly well, as the Detroit area is part of the district where he normally works.

But other than that, Qualcomm has more reasons to be happy with the composition of the panel than the FTC does. Come Thursday, we may see the appeals court's inclination.

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FOSS Patents' publication of leaked information on status of mediation effort gave rise to peripheral controversy in Nokia v. Daimler trial

Almost all of the time, this blog merely reports and comments on key issues facing the technology industry, but doesn't create or constitute an issue in and of itself. FOSS Patents has been mentioned in some U.S. court filings over the years, and judges (mostly in Germany, but from what I hear also in other parts of the world) have sometimes made reference to FOSS Patents without naming it. But today was the first situation in which two parties (a plaintiff and an intervenor) traded accusations involving FOSS Patents in different ways.

Various suppliers are intervening on Daimler's behalf in today's Nokia v. Daimler standard-essential patent infringement trial in Munich (continuing in a sealed courtroom as I write these lines). One of them is Peiker Acustic (yes, without an "o" before the "u"), a subsidairy of French automotive supplier Valeo. Just like in an October 2019 early first hearing in another Nokia v. Daimler case pending before the Munich I Regional Court, Dr. Benjamin Schroeer ("Schröer" in German) of the Hogan Lovells firm made an impassioned argument for his client's entitlement to an exhaustive component-level SEP license.

One of Dr. Schroeer's points was that the suppliers intervening in this case were specifically targeted by Nokia, whose complaint names certain suppliers and seeks an injunction and other remedies only with respect to Daimler cars incorporating telematics control units (TCUs) from those particular suppliers. Peiker's counsel noted that Nokia not only excluded Harman (a Samsung subsidiary) from that list but even explicitly stated that Daimler cars incorporating TCUs made by Harman were not being targeted at this stage.

Dr. Schroeer took Nokia to task over this selective, discriminatory targeting of particular Daimler suppliers (as opposed to all of them). While Harman's exclusion would simply be legally required if Harman had an exhaustive component-level license to Nokia's SEPs, he said that Harman quite apparently doesn't have such a license. In this context, he pointed to the fact that a FOSS Patents report on ongoing EU antitrust mediation between Nokia and Daimler as well as various Daimler suppliers mentioned Harman as one of the suppliers negotiating with Nokia. It's true that I listed all participants in mediation that I was able to find out about, and Harman was one of them.

A few minutes later, Nokia's lead counsel, Arnold &, Ruess's Cordula Schumacher, accused Dr. Schroeer of having violated the non-disclosure agreement covering the mediation process by confirming in open court the accuracy of a fact leaked to this blog.

One of the limitations concerning German court proceedings is that there are no transcripts. Otherwise one could verify what exactly Dr. Schroeer said. I don't remember him affirmatively confirming the accuracy of anything I wrote. It might be that the way he expressed himself was ambiguous and could be interpreted as either just referencing what I had written or making it sound like the fact I reported on it deprived the information of protection under the NDA.

In any event, Dr. Schumacher asked the court to add a sentence about this to the official minutes. In that same situation, Nokia's director of European dispute resolution, Dr. Clemens-August Heusch, made a remark to the effect of accusing Dr. Schroeer of having been FOSS Patents' source on the mediation status in the first place. Dr. Schroeer demanded a retraction and an apology (and also asked for something being included in the official minutes). He firmly denied having been my source. Nokia's Dr. Heusch declined the court's invitation to comment.

I don't disclose my confidential sources, which is also why I don't deny that anyone has been a source (or validate or contradict denials). What I did indicate in the Nokia mediation context is that I obtained information from more than one source.

The fact that Harman participated in mediation while not being an intervenor in the Nokia v. Daimler infringement proceedings was interesting for sure, but the blog post in question contained far more sensitive information than that one. It appears overreaching to try to keep the names of the parties to an antitrust mediation (requested by the European Commission) confidential.

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Munich I Regional Court publishes Standard-Essential Patent (SEP) Local Rules

The Landgericht München I (Munich I Regional Court) has just released its Standard-Essential Patent (SEP) Local Rules (PDF, in German)--formally, just "guidance," but in practical terms, those will be the rules for litigants to follow. This set of guidelines had been in the works for many months.

Here's my quick unofficial translation:

Guidance on the application of the antitrust-based compulsory-license affirmative defense under Huawei v. ZTE in connection with the Patent Local Rules of the Munich I Regional Court

(Version: February 2020)

These guidelines set out the Munich I Regional Court's two patent divisions' application of the antitrust-based compulsory-license affirmative defense according to the principles laid out by the Court of Justice of the Euoprean Union in Huawei v. ZTE (case no. C-170/13). These guidelines are in effect until the Patent Local Rules (which also apply to disputes under the Utility Model Act and the Semiconductor Protection Act) are updated.

I. Scope of applicability

The CJEU's [Huawei v. ZTE] ruling and these guidelines relate exclusively to actions seeking a prohibitive injunction, recall, and destruction [of infringing goods] over standard-essential patents to the extent that such patents bestow market dominance on their owner and to the extent that the owner or its predecessor in title made a FRAND pledge to a standard-setting organization. Transfer of a patent does not annul a FRAND [licensing] commitment. Other case patterns are governed by the principles of the decisions of the Court of Justice of the European Union in IMS/Health (case no. C-418/01) or, respectively, the Federal Court of Justice [of Germany] in Standard-Spundfass (case no. KZR 40/02) and Orange Book (case no. KZR 39/06).

II. Overview of the contract-negotiation procedure to be followed prior to bringing suit

As per the principles of the CJEU decision in Huawei v. ZTE and their interpretation by the two patent litigation divisions of the Munich I Regional Court, the patent holder and the implementer of the patented teaching must, in principle, go through the following stages prior to the filing of the complaint:

1) Notice of infringement, covering at a minimum the future patent-in-suit, provided by the patent holder to the implementer

2) Communication of the desire to take a license by the implementer to the patent holder, covering at a minimum the future patent-in-suit, whereas the implementer may reserve the rights to assert, immediately or subsequently, non-infringement and/or invalidity of the patents to be licensed

3) Comunication of a draft FRAND license agremeent by the patent holder to the implementer, covering at a minimum the future patent-in-suit

4) In the event of non-acceptance: communication of an alternative draft FRAND license agreement by the patent implementer to the patent holder, covering at a minimum the future patnet-in-suit, whereas the implementer may (once again) reserve the rights to assert, immediately or subsequently, non-infringement and/or invalidity of the patents to be licensed

5) In the event non-acceptance: accounting and provision of security by the implementer

6) optional and voluntary determination of the license terms by a third party [such as an arbitration tribunal]

With respect to item 3, the patent holder has the obligation to explain its licensing approach and to specify whether and on what terms it has already concluded license agreements that are comparable with respect to duration and fact pattern, and, furthermore, why -- if applicable -- it has included in its licensing offer any patents beyond the ones with respect to which the implementer requested a license. Should the implementer enter into a reasonable non-disclosure agreement, the patent holder has the obligation to additionally provide confidential details relating to agreements previously concluded, to the extent that the patent holder is formally able to do so within the framework of previously-entered non-disclosure obligations. Should such provision of information not be possible in the absence of a court order, the infringement plaintiff must seek such order at the earliest opportunity. Reference is made to the guidelines on the processing of motions for protective orders, brought during or outside of oral proceedings in patent cases before the Munich I Regional Court.

III. Possibility of rectifying [an omission] until the end of oral proceedings

Whether the [above] steps have been properly taken will be determined at the end of oral proceedings (Art. 136 para. 4 Code of Civil Procedure). Under the Court's Patent Local Rules, that moment is the end of the trial. Some shortcomings can, therefore, be rectified during the pendency of the case in compliance with statutory or judicial deadlines. Within the framework of the Court's Patent Local Rules, this opportunity exists particualrly during the period between the early first hearing and the trial, provided that the rectification of specific shortcomings was announced no later than during the course of the early first hearing. The two patent infringement divisions will -- to the best of their ability -- already discuss the antitrust-based compulsory-license affirmative defense in particular cases in the early first hearing so as to give the parties the opportunity to address specific deficiencies. If multiple complaints by the same patent holder are pending before the same division of the Court and have provoked a uniform compulsory-license affirmative defense, this shall occur in a joint early first (non-technical) hearing. Should multiple complaints with a uniform compulsory-license affirmative defense be pending before both divisions of the Court, the divisions will strive to coordinate closely.

IV. Overview of the procedures:

1. Prerequisites for a substantive discussion of the antitrust-based compulsory-license affirmative defense:

a) The defendant has raised an antitrust-based compulsory-license affirmative defense.

b) The complaint seeks a prohibitive injunction and/or recall and/or destruction [of infringing goods].

c) The defendant has -- in the event that at least one offer relating to at least the future patent-in-suit had been made and not accepted -- made at least one counteroffer relating to at least the future patent-in-suit and, further to its rejection by the plaintiff, has provided an accounting as well as security.

d) Should the defendant previously have licensed the patent-in-suit, but terminated it or otherwise contributed to its termination, such as by defaulting on royalty payments, it can no longer raise the compulsory-license affirmative defense.

e) Should the defendant have been offered a license covering the patent-in-suit, but failed to include this in its counteroffer, it can no longer raise the compulsory-license affirmative defense.

Regarding (a), the defendant has to raise the compulsory-license affirmative defense at the earliest opportunity, which is typically the answer to the complaint.

Regarding (c), the patentee's final binding offer must not be downright unacceptable (Art. 242 Civil Code). This also applies to the implementer's counteroffer. The counteroffer may be of a lesser scope or shorter term, but must, at a minimum, cover the (future) patent-in-suit. The defendant can reserve the rights to assert, immediately or subsequently, non-infringement and/or invalidity of the patents to be licensed. In the alternative to specifying the license fees, the defendant may also offer a determination of those fees by the patentee subject to [judicial review for reasonableness under] Article 315 Civil Code. The [defendant's] accounting and provision of security must, at a minimum, take into account the counteroffer, with respect to the period from the initial implementation to the estimated time of a provisionally-enforceable decision by the Court, as well as common commercial practice. In the event of a non-quantified counteroffer, accounting and security must take the offer into account. In the event of a worldwide offer or worldwide counteroffer, accounting and security can be limited to the German market; they may also be estimated. 110% of the relevant amount must be given as security.

Regarding (d), the said situation can, for instance, arise if the parties concluded a license agreement that provides an opt-out clause to the implementer's benefit with respect to particular patents. Implementers exercising their opt-out right cannot raise an antitrust-based compulsory-license affirmative defense as they had already been licensed.

Regarding (e), the same applies to the event that the defendant did not include the patent-in-suit in its counteroffer, considering that it could therefore have obtained a license.

2. Prerequisites for a substnative discussion of the antitrust-based compulsory-license affirmative defense in an early first hearing:

a) (precautionary) argument by the plaintiff in the complaint

b) affirmative defense raised by defendant in the answer to the complaint

Regarding (a), if the plaintiff seeks a substantive discussion of the antitrust-based compulsory-license affirmative defense in the early first hearing, the complaint shall already contain (precautionary) argument relating to the defendant's expected antitrust-based compulsory-license affirmative defense--not only if the complaint seeks a prohibitive injunction, recall and destruction from the outset but also if this is reserved for an amended complaint (based on the Court's outline of its prelimianry views in the early first hearing or between the two hearing dates if announced in the early first hearing). In exceptional cases, such as in the event of an unforeseeable compulsory-license affirmative defense, the plaintiff may be granted leave, further to a motion for leave, to file a further pleading.

Regarding (b), the answer to the complaint should, even if only for the event of a reserved or possible amended complaint, already contain (precautionary) argument relating to the antitrust-based compulsory-license affirmative defense if the defendant, for it spart, already seeks a substantive discussion of the antitrust-based compulsory-license affirmative defense in the early first hearing.

3. Prerequisites for amending a complaint by adding prayers for prohitive injunction, recall, and destruction:

a) The intent to amend the complaint later shall already be stated in the complaint. The amendment is to be made no later than in the early first hearing or, at least, should be announced in the early first hearing for the period between the two hearings.

b) If the amendment necessitates an increase of the advance payment of court fees and/or the security provided for the other party's recoverable litigation expenses, such increase shall be processed and paid swiftly.

c) Bringing a complaint seeking information, an accounting and determination of damages serves a substitute for an infringement notice in accordance with step (1). Any outstanding steps in the negotiation further to Huawei v. ZTE must, at the latest, be taken during the period between the two hearings. The division hearing the case will allow time based on the circumstances of each case. The required time can be shortened by already providing in the complaint any (precautionary) argument related to the foreseeable compulsory-license affirmative defense. If the defendant has already argued on a precautionary basis its foreseeable compulsory-license affirmative defense in its answer to the complaint, the division may already outline a preliminary assessment in the early first hearing.

4. Particular pleading requirements:

a) The plaintiff has to raise, in particular, the compulsory-license affirmative defense and to plead and prove that its factual requirements are met, particularly that and on what grounds the plaintiff's final binding offer failed to comply with antitrust law (FRAND).

b) If the defendant failed to make a counteroffer, it has to plead and prove that the patentee's final binding offer was downright unacceptable from an antitrust point of view or that the plaintiff would have been required to grant a license to the defendant's suppliers. However, said "derivative" compulsory-license affirmative defense is ineligible if the defendant itself would have had the option to enter into a license agreement taking account--reasonably, sufficiently, and retroactively--of the implications of patent exhaustion or license grants elsewhere in the value chain and esnuring that any pertinent information may also be communicated to other parties in the defendant's supply chain. It must furthermore be ensured that double payment of license fees to the patentee cannot be achieved through the collection of damages.

c) The plaintiff has to meet a secondary burden of pleading with respect to its licensing approach and whether--and, if so, on what terms--license agreements comparable in term and scope have previously been concluded, to the extent that such information is not publicly available or already in the defendant's possession. With respect to previously-concluded agreements, this also applies to portfolios that have been transferred. Should a multiplicity of portfolio transfers and/or portfolio recompositions have created a confusing ("patchwork") situation, the division hearing the case will define the pleading requirements in a given case.

d) If the defendant criticizing the amount of the offered license fee has been offered a license agremeent with a reasonable, sufficient and retroactive most-favored-nation clause, which is particularly appropriate in the event of a first-time license, the defendant has to plead and prove that the offered license fee is nevertheless excessive. If the defendant argues that previously-concluded license agreements resulted from circumstances of pressure, it has to specifically plead and potentially prove what other and lower license rate or what other licensee-friendleir terms the parties to those other agreements would have agreed upon but for said circumstances of pressure.

e) If the defendant, after reserving this right (cf. steps 2 and 4) raises, in an infringement dispute, a nullity and/or non-infringement and/or exhaustion and/or licensing defense (collectively referfed to as "defenses") of particular patents in the portfolio that have been offered but are not presently asserted in litigation, it must plead with specificity and potentially prove that and why the defenses relating to particular portfolio patents offered have more than non-negligible impact on the amount of the license fee offered. If the offered portfolio is dynamic, this possibility exists only with respect to licensed patents and patent applications already granted or, respectively, published by the end of the oral proceedings. In this case, the plaintiff has to meet a secondary burden of pleading to the extent that it has to plead why those patents were included in the offered portfolio and whether and, if so, in which way the asserted defenses relating to particular portfolio patents affect the amount of the license fee offered. The defendant may not raise, in the infringement dispute, these defenses relating to particular portfolio patents if the plaintiff offered the defendant a license agreement that comes with a reasonable, sufficient and retroactive adjustment formula taking account of the subsequent raising of these defenses with respect to particular portfolio patents in a separate proceeding or within the framework of other contractual mechanisms.

f) If the defendant has raised the nullity, non-infringement, exhaustion and/or license-based defenses of these portfolio patents in a separate proceeding and/or -- to the extent permissible -- in countersuits, the burden of pleading and proof will be determined by the applicable general principles.

V. Consideration of motions for protective orders during and outside oral proceedings

Reference is made to the separate guidelines for the consideration of motions for protective orders during and outside oral proceedings in patent infringement disputes before the Munich I Regional Court.

VI. Period between the two hearings

The period between the two hearings of a Munich patent infringement case may be used by the parties for further negotiations, attempts at mediation before a judicial mediator, or for other alternative dispute resolution mechanisms.

VII. Contract terms

Against the background of the principle of contractual freedom and the autonomy of market actors, the Court's two [patent infringement] divisions refrain from specifying the particular content of the contractual terms. However, the wordins chosen [by the parties] must meet the requirements of a given case and strike a fair balance between the parties' opposing interests. It may be an option to rely on contract language provided and communicated by third parties for the same purpose.

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One year after trial loss against FTC, Qualcomm approaching Ninth Circuit hearing on far stronger basis: scope of reversal hard to predict

On February 13, the United States Court of Appeals for the Ninth Circuit will hold the appellate hearing in FTC v. Qualcomm. Apart from a misleading citation that I criticized, and a few other weak spots, Qualcomm's reply brief, which I have read more than once, was very powerful. All in all, Qualcomm's lawyers have done far better work than the FTC's appellate team--and than most of the FTC's amici, though some amicus briefs (especially the ones submitted by Intel and MediaTek) were very persuasive.

Qualcomm has made so much headway on appeal that I'm sure at least parts of the district court's ruling will be reversed, if not by the Ninth Circuit, then by the Supreme Court.

In the meantime, the Ninth Circuit has heard Qualcomm's appeal of Judge Lucy H. Koh's certification of a consumer class. The most likely outcome, based on what the circuit judges said, is that the class action will go forward, but limited to customers based in California and, possibly, other states with similar antitrust laws governing indirect-purchaser claims. However, the consumer case is based on the FTC's claims against Qualcomm, so if Qualcomm defeated the FTC's case on the merits, the consumers wouldn't be entitled to anything regardless of class certification.

With respect to Qualcomm's appeal of the FTC ruling, the Ninth Circuit granted, as expected, an unopposed motion by the United States Department of Justice last week, allowing the DOJ to deliver, on behalf of the United States of America, five minutes of oral argument in support of Qualcomm.

Even before the hearing starts, Judge Koh's reasoning for an antitrust duty to extend exhaustive licenses to rival chipset makers is already dead in the water: the FTC distanced itself from that rationale, betting on a right-for-the-wrong-reasons approach instead. Even prior to the FTC formally giving up on that part, I had acknowledged that Qualcomm had credibly claimed never to have intended to grant exhaustive chipset-level licenses.

This is an important landmark case, so I will spend some time in the weeks ahead re-reading the key documents and researching some of the theories in order to develop an opinion ahead of the hearing on what the outcome will be. Wholesale affirmance is very hard to imagine; the question is the scope of a reversal and/or vacatur.

A year ago at this time, the bench trial was in full swing, and I saw Qualcomm on the losing track from the start. That prediction turned out right (as did my later prediction that a Ninth Circuit motions panel with a conservative majority would grant a stay of the injunction). But trials and appellate proceedings are different types of ball games. Google won two district court decisions against Oracle in different years, but they were reversed by the Federal Circuit, and now the two key issues are before the Supreme Court. Google's winning trial team was led by Robert van Nest of Keker, van Nest & Peters--Qualcomm's lead trial counsel a year ago. It would be an irony of fate if it worked out just the opposite way this time, with him having lost the trial and his client now, possibly, prevailing on appeal.

To be clear, it's not that I've given up on the FTC's case as a whole. What I do have to say in all fairness is that in January 2020, Qualcomm is in way better shape than it was in January 2019. They will most likely prevail on appeal at least in part. There are various legal questions involved, and it remains to be seen how much it will hurt the FTC that it practically lost its economic expert. But to what extent Qualcomm will likely succeed is a question I'm going to research and think about more thoroughly in the weeks ahead. At least I want to be in a position to deduce from the circuit judges' questions and comments where the case is headed.

Some Qualcomm fans and/or employees trolled me on Twitter during the trial. They misunderstood me. I'm not against Qualcomm, and even if I would like some of its business practices to change, it would be intellectually dishonest not to make a distinction between one's policy goals and the applicable law. The United States is called the Land of the Free, which is why the antitrust laws are applied cautiously. The Supreme Court has historically drawn the line where judicial overreach would result in overregulation. But before we get to the Supreme Court, the Ninth Circuit will speak. San Francisco, February 13, 2020.

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Nokia on losing track in LTE-essential patent infringement case against Daimler in Mannheim and rumored to struggle in Munich case, too

Next Tuesday (January 21, 2020), the Mannheim Regional Court is scheduled to hold a trial in a Nokia v. Daimler case over EP2286629 on a "method and apparatus to link modulating and coding scheme to amount of resources." With mediation having practically failed (though the mediators might invite everyone to another meeting, it wouldn't be likely to yield a result), the assumption is still that the trial will go forward.

Nokia is going to lose that one in all likelihood. Presiding Judge Dr. Holger Kircher notified the parties and the numerous intervenors (various Daimler suppliers) that, on a preliminary basis, his panel has concluded the patent-in-suit is not essential to the 4G/LTE standard--neither on the basis of a literal infringement theory nor the German equivalent of the Doctrine of Equivalents (DoE).

Therefore, the court doesn't anticipate that FRAND/antitrust matters, the most important one of which is whether Daimler's suppliers are entitled to an exhaustive component-level SEP license from Nokia, would be reached in this case.

Another Nokia v. Daimler case in Mannheim was supposed to go to trial last month, and was postponed (because the parties had agreed on mediation) to March 27.

The next Nokia v. Daimler court clash after next week's trial (which in all likelihood will just result in the rejection of Nokia's complaint on the grounds of non-infringement) will take place in Munich on February 6 (see this list of trial dates). Rumor has it that Presiding Judge Dr. Matthias Zigann of the Munich I Regional Court's 7th Civil Chamber recently indicated that Nokia's royalty demands from Daimler are not FRAND-compliant, in which case Nokia would be denied injunctive relief even if the patent was deemed valid and infringed (as the court thought at an early first hearing last June). I don't know whether the court's preliminary assessment of non-compliance with the FRAND licensing obligation is purely numerical (the royalty Nokia is seeking on a per-car basis is way out of line, but I don't know whether that's where the court has a concern) or related to non-monetary terms.

Things are not going well for Nokia at the moment, but a reversal of fortunes is always a possibility in these types of disputes.

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BREAKING NEWS: Nokia makes antitrust mediation with Daimler and automotive suppliers over standard-essential patent licensing fail

[HAPPY NEW YEAR -- AND BREAKING NEWS]

Nokia wanted to keep its EU antitrust mediation with Daimler and various automotive suppliers strictly confidential. Nice try, but I've been able to obtain reliable and mutually-corroborating information from more than one source. (I obviously protect my sources.)

On Friday (January 10) and Saturday (January 11), Nokia--represented by Bird & Bird's Richard Vary (formerly head of litigation at Nokia) and Roschier's Niklas Östman--met with Daimler and various suppliers (Bosch, BURY Technologies, Continental, Harman, Peiker, and TomTom) at a recently-opened Munich hotel. But nothing came out of a whole series of meetings moderated by a British mediator and two British lawyers appointed by the International Chamber of Commerce. The mediator will communicate with the parties by telephone in the days ahead and make a procedural decision. Theoretically, there could be another series of meetings on the 22nd and the 23rd. However, based on how these past two days went, it would be a total waste of time to reconvene.

In practical terms, it's already clear that mediation is pointless for two reasons that made the Munich meetings fail, neither of which comes as a surprise:

• Mediation would only have made sense if Nokia had departed from its dogged refusal to extend a true and exhaustive standard-essential patent (SEP) license to Daimler's tier 1 (= direct) suppliers. Continental had made Nokia a binding offer to take such a license before mediation began, but Nokia remains unwilling to grant any such thing as a true license to component makers. It proposes a "have made" right, which is just an extended-workbench type of arrangement as opposed to a component-level license.

• Furthermore, the meetings inevitably proved unproductive because Nokia refused to make it existing cellular SEP licensing agreements (such as the one with Huawei) available to the other parties. Nokia's excuse was that those agreements allegedly weren't relevant (not only U.S. courts but even some--if not all--German courts would disagree). Therefore, Nokia's counterparts would have had to negotiate without having the slightest idea of what Nokia's existing licensees actually pay for those SEPs.

  At best, Nokia is willing to disclose an obscure and highly atypical license agreement with a car maker who apparently accepted--but only for a transitional period and with the right to terminate as per the end of 2019--a "have made" right. That same car maker is likely to sign an Avanci pool license in the near term based on what I heard.

The information I've obtained suggests that Nokia has not been constructive, neither structurally (exhaustive license vs. "have made" right) nor procedurally (disclosure of existing SEP license agreements). If Nokia had agreed to grant component-level licenses (real licenses, not "have made" rights), and if it had then presented its existing SEP licensing agreements, mediation could have worked in theory. But no one could seriously have expected it to happen, which is why I predicted the failure of this mediation effort before. By now it's failed for all practical purposes, whether or not the mediator will order another series of meetings later this month.

EU competition chief Margrethe Vestager said last month that she expected an update on mediation by mid-February. She's not going to get any good news out of mediation, that's for sure.

What I've found out about the way the talks were structured is that the first day consisted of bilateral talks between Nokia and each of Daimler's suppliers. The suppliers invited to mediation included the ones intervening in the German infringement cases, plus Samsung subsidiary Harman, but not Huawei, which wanted to join but Nokia wasn't willing.

On the second day, Nokia might have hoped to drive a wedge between Daimler and its suppliers. Daimler met separately with each supplier (for antitrust reasons, they couldn't just all sit at the same table and discuss numbers), but neither Daimler nor the suppliers were prepared to agree with Nokia that the problem could simply be solved by Daimler reaching an agreement with each supplier on how to split the outrageous, supra-FRAND royalties Nokia demands.

The European Commission's Directorate-General for Competition (DG COMP) will have to make a decision. They hoped to avoid it, but it was clear that there's a binary, structural question at issue. Either the suppliers get a license and can make components they are free to sell not only to Daimler but also to others (in case they end up sitting on some excess quantities, for instance), or it's not a license.

The next Nokia v. Daimler SEP infringement trial is scheduled for January 21 and will take place in Mannheim unless the court decides to push the trial date back. Another Mannheim trial, originally scheduled for December, was postponed on short notice, but I heard from more than one source that the patent-in-suit in that one was so ridiculously weak that the court likely wouldn't have reached the FRAND defense anyway...

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Qualcomm's reply brief in appeal of FTC antitrust win makes misleading citation in attempt to discredit customer testimony

Due to a lot of activity related to German patent reform I have a backlog containing a number of recent U.S. patent and antitrust developments to comment on. And that's what I plan to focus on over the next week or two, which will fortunately be slow on the European front.

On Monday, December 16, Qualcomm filed its reply brief in the FTC case with the Ninth Circuit (this post continues below the document):

19-12-16 Qualcomm Reply Brief by Florian Mueller on Scribd

The United States Court of Appeal for the Ninth Circuit recently scheduled oral argument in this appeal for February 13, 2020. In the post I just linked to, you can find links to numerous amicus curiae briefs supporting the FTC, and subsequently I commented on a couple of submissions from the automotive industry.

The FTC clearly got more (in qualitative and quantitative terms) support from amici than Qualcomm did. And a Korean court affirmed an antitrust ruling by the Korea Fair Trade Commission (KFTC). Qualcomm tries to focus on what has recently gone well for the chipmaker: the FTC didn't even make an attempt to defend Judge Lucy H. Koh's reasoning on chipset licensing, presenting a right-for-the-wrong-reasons theory instead.

Qualcomm seeks to leverage that fact to discredit Judge Koh's ruling as a whole, and in this context reminds the appeals court of FTC commissioner Wilson's dissent, and support for Qualcomm from the DOJ Antitrust Division (which is run by a lawyer who previously represented Qualcomm). However, all of that is meta-level: it's not about law, facts, or policy in the slightest, just about raising doubts.

Intel's Frankenstein analogy (the dissected monster is innocuous)--a funny way of encouraging the appeals court to see the forest among the trees--applies not only to Qualcomm's opening brief but also to the reply brief. The outcome of the appeal will hinge on whether the appeals court looks at the aggregate effect of a web of interrelated and mutually-reinforcing practices--or gets bogged down somewhere along the way.

This won't be my last post on this case before the appellate hearing. For now I'd just like to highlight two parts of Qualcomm's reply brief--one that I found ridiculous, and one that is misleading:

• First, the most preposterous sentence in the reply brief (page 47 based on the numbering of the document, or page 58 based on the numbering of the PDF):

  "Having the contractual protection of a license in place before selling chips legitimately protects Qualcomm from claims that the chip sale 'exhausted' Qualcomm's patents and relieved OEMs of the need to pay for those rights."

  The answer is simply that those selling products must keep exhaustion in mind and set their prices accordingly. They can't justify "No License-No Chips" this way, as it's all too obvious they could sell their chips at a price that compensates for both the circuitry and the patent license.

• With customer testimony having been a disaster for Qualcomm in the January trial, it's understandable that Qualcomm argues the appeals court shouldn't give it infinite weight. But the particular way in which Qualcomm's reply brief makes that point is misleading:

  "See United States v. AT&T Inc., 310 F. Supp. 3d 161, 211 (D.D.C. 2018) (in weighing evidence of competitive harm, 'competition authorities and courts . . . refus[e] to take the views expressed by customers at face value and insist[] that customer testimony be combined with economic evidence providing objective support for those views'), aff’d, 916 F.3d 1029 (D.C. Cir. 2019)."

  No one can blame Qualcomm for failing to state that those "customers" aren't merely customers, but most of them hold very significant cellular standard-essential patent portfolios of their own. What I do find objectionable, however, is that Qualcomm suggests the passage from "competition authorities" to "support for those views" was written by a court. In reality, the D.C. District Court merely wrote in the AT&T decision that "[c]aution is [...] necessary in evaluating the probative value of the proffered third-party competitor testimony," and then cited to a treatise (Ken Heyer, Predicting the Competitive Effects of Mergers by Listening to Customers). The relevant passage is from the treatise, not from any court's opinion. And the D.C. Circuit, when affirming the decision, didn't even talk about the probative value of customer testimony at such a general level.

  The difference between what the D.C. District Court actually wrote itself and what it merely quoted is key, as Judge Koh arguably exercised caution, while the quote from Mr. Heyer's treatise sounds like customer testimony should be afforded no weight in its own right.

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Nokia stresses confidentiality of EU antitrust mediation with Daimler and suppliers

I asked Nokia, which has recently issued a couple of public statements on its EU antitrust row with Daimler and four of its suppliers, for comment on Continental's new licensing offer. Nokia declined to comment, and stressed that they "respect confidentiality, including that of the mediation process, which will itself be confidential."

This means we're unlikely to hear anything for some more time. EU competition commissioner Vestager said she was going to wait until mid-February.

So if you don't read about the case here in the months ahead, don't be surprised. Should I later decide not to follow the matter at all, I will announce it on this blog, but at a minimum I'll always remain interested in any legal overlaps with Huawei's antitrust lawsuit against Nokia (a case that has the potential to go up to the Court of Justice of the EU, as Huawei v. ZTE did years ago) and anything that appears relevant in connection with German patent reform (proportionality of injunctive relief; bifurcation).

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BREAKING: Continental makes Nokia binding patent licensing offer ahead of EU antitrust mediation with Daimler, other suppliers

BREAKING NEWS

FOSS Patents has found out from unnamed but reliable sources that, just this week, German automotive supplier Continental has made a legally binding offer to Nokia for taking a license to its cellular standard-essential patent (SEP) portfolio. The offer forces the Finnish former mobile device maker to come clean on whether it genuinely intends to address and alleviate the competition concerns raised under EU antitrust law (Art. 102 TFEU) by Daimler and four of its suppliers (Continental, Valeo, Gemalto, BURY Technologies).

Nokia announced yesterday that Daimler and its tier 1 (= direct) suppliers agreed to mediation, which theoretically could put the highest-profile EU antitrust matter pending at the moment to rest. EU antitrust chief Margrethe Vestager, usually not one to shy away from decisive action, is oddly going to hold off until the outcome of the mediation effort will be reported to the European Commission's Directorate-General for Competition (DG COMP) by mid-February.

Under Continental's offer, if and when accepted by Nokia,

• Nokia would receive a per-unit patent royalty. Nokia would be free to choose between

  • accepting the (unknown) amount offered by Continental or

  • demanding more money, in which event a court of law would have to resolve this purely quantitative (as opposed to structural) dispute by setting a fair, reasonable and non-discriminatory (FRAND) rate.

• Continental would receive a component-level SEP license, which would be exhaustive (i.e., the downstream, such as Daimler, would fully benefit in terms of being licensed with respect to the implementation (= use) of the covered patents by Continental's telematics control units (TCUs). The proposed structure would also provide Continental with the operational freedom necessary to safeguard a functioning, competitive market for TCUs and the freedom of movement of goods (famously, one of the "Four Freedoms" of the bloc's Single Market).

Hypothetically, if Nokia offered the same deal structure to the other suppliers among the complainants, or if Nokia accepted offers of the same nature from other suppliers, the EU antitrust row would be resolved. Daimler, Continental, Valeo, Gemalto, and BURY Technologies could all withdraw their complaints, and Nokia's ten pending patent infringement cases in Germany against Daimler would be instantly mooted with respect to Daimler cars that don't come with cellular connectivity components from other suppliers. The aforementioned companies, and Nokia, could all mind their respective businesses again.

Should Nokia reject the proposed structure without simultaneously proposing a reasonably acceptable alternative capable of enabling competition and free movement of goods, its mediation offer would be exposed as a transparent attempt at stalling. While they probably won't listen to me, I would recommend to Daimler's suppliers to walk out in that scenario. Every second spent at the mediation table would be a waste of time.

As far as Daimler is concerned, the question is not whether they should walk out. It's why they participate in mediation in the first place. The dispute is not about whether Daimler can get a license. They can. Even Nokia doesn't dispute that. It's the suppliers, stupid.

Yesterday, Nokia won two court decisions unrelated to the merits of Continental's request for a license: Continental's U.S. FRAND/ antitrust case, which likewise aims to secure an exhaustive component-level license on FRAND terms, will be transferred from the Northern District of California to the Northern District of Texas, and Continental's ability to obtain a U.S. antisuit injunction against Nokia's German patent lawsuits against Daimler will be severely restricted to say the least, as the Munich appeals court affirmed an anti-antisuit injunction.

But neither a venue transfer nor an anti-antisuit injunction (no matter how spectacular the latter actually is) have the potential to answer the underlying question of access to component-level licenses. Earlier this decade, when some SEP holders abusively sought and enforced injunctive relief over SEPs, they argued that unwilling licensees were engaging in "holdout." Now there is a totally willing licensee--Continental--who has made every effort, up to the point of bringing a U.S. antitrust lawsuit, lodging an EU complaint, and now making Nokia an offer even though it's a SEP holder's obligation to make a first offer when requested. And there's a company that now risks being fined for an EU antitrust violation by being an unwilling licensor, unless Nokia departs from its prior refusal to grant the type of license requested.

The mediation effort will be farcical if Nokia continues to offer only insufficient (from a competition perspective) types of arrangements, such as "have made" rights that come down to extending a true license only to the car maker while hobbling component makers (who under such structure could not simply sell their components to any customer of their choosing).

Before mediation has even begun (the parties have just agreed to it), Nokia is already cornered. This week's offer is the best decision I've seen from Continental in this context to date. I've criticized some of their moves, I've disagreed with some of their arguments (in the U.S. litigation), but this is brilliant, provided that the European Commission is determined to protect innovation and competition.

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Nokia's winning streak continues: Munich Higher Regional Court surprisingly affirms anti-antisuit injunction

A few hours after Judge Lucy H. Koh of the United States District Court for the Northern District of California granted Avanci, Nokia et al.'s motion to transfer Continental's U.S. FRAND/antitrust lawsuit to the Northern District of Texas, the Oberlandesgericht München (Munich Higher Regional Court) surprisingly affirmed the Munich I Regional Court's Nokia v. Continental anti-antisuit injunction. At the hearing held four weeks ago, the court actually indicated an inclination to reverse.

The reasons for the decision are unknown. Maybe Nokia's modified wording of the injunction played a role.

After the U.S. venue transfer decision, it would have been difficult at any rate to obtain in the very short term a U.S. antisuit injunction against the Nokia v. Daimler (as well as Sharp v. Daimler and Conversant v. Daimler) patent infringement cases pending in Germany. But it might still have happened just in time before Nokia will secure its first German SEP injunction. Now, with the German anti-antisuit injunction in place, a new U.S. antisuit motion would have to have a narrower scope.

All appeals have been exhausted as far as the preliminary injunction is concerned. Conti could insist on clarification of the same matter in a regular proceeding, which would take a while, but then a further appeal would be possible (either if permitted by the court of second instance, or by bringing the equivalent of a U.S. cert petition). The question of whether German courts can order anti-antisuit injunctions--while arguing that antisuit injunctions are unavailable under German law--requires clarification at the highest level.

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Avanci, Nokia win transfer of Continental's FRAND/antitrust case from San Jose to Dallas

The Avanci patent pool firm and its co-defendants--most notably, Nokia--never wanted Judge Lucy H. Koh of the United States District Court for the Northern District of California, famous for (among other high-profile cases) FTC v. Qualcomm, to adjudicate Continental Automotive Systems' FRAND/antitrust complaint. The first challenge they brought related to intra-district assignment. The N.D. of Cal. has multiple divisions, the two most important ones of which are San Jose (Judge Koh's location) and San Francisco. Avanci and Nokia (as well as some other, less significant defendants) asked for the case to be handled in San Francisco rather than San Jose, but that request was declined, and subsequently the case was assigned to Judge Koh.

The difference between San Jose and San Francisco is a one-hour drive under perfect conditions, though it's taken me up to four hours.

The defendants brought a motion to transfer venue in the summer--which has just been granted. They argued that the Northern District of Texas, where some Avanci U.S. entities are based, was the more convenient forum. In late August, Continental filed a very thoroughly-researched opposition brief. I thought it was great, and didn't expect a venue change. My predictions have a very high hit rate, but there were two weaknesses here that Judge Koh identified and one of which I couldn't have seen at the time while the other wasn't easy to spot:

• After that opposition brief that appeared strong, Continental filed its initial witness disclosures, and various players whose location would have favored the Northern District of California didn't appear on that list. Judge Koh did the only right thing to do, which was to ignore in the convenience context any witnesses Conti didn't even have on its list anymore. For example, Conti had pointed to the location of Apple witnesses, but ultimately named none.

• What has been a structural problem all along (especially in the antisuit context) is Conti's extremely compex corporate structure. In an amicus curiae brief recently filed with the Ninth Circuit in FTC v. Qualcomm, Conti explained how Michigan-based Continental Automotive Systems relates to the German group parent, and it's like a great-great-grandchild. When arguing its close connection to the Northern District of California, Conti discussed some operations there, but those are different corporate entities. Once again, the question is whether Conti's decision to have only Continental Automotive Systems (and not some other Conti entities as well, starting with the German group parent) sue Avanci and some Avanci members was a good one. It unnecessarily complicates any antisuit motion, and now it has also adversely impacted the opposition to Avanci and Nokia's venue transfer motion.

All things considered, Judge Koh found that the Northern District of Texas was the more convenient forum, especially for non-party witnesses (whose logistics are more relevant in this context than those of party witnesses, and where counsel is based doesn't matter). Also, the interest of a given district in resolving a case is generally highest where the alleged actions occurred, and that's Avanci's location in this case. Conti had pointed to Silicon Valley's stroing interest in SEP licenses for IoT businsses, and named various companies, but that was too thin for Judge Koh's taste. She might have afforded that argument some weight, but it would have had to be underpinned with some hard evidence, given that the issue is a global one as Conti itself had written at some point.

What's more important now than the basis on which Judge Koh exercised her discretion is what this means for the wider dispute:

• Texas is in the Fifth Circuit, and SEP antitrust law there isn't favorable, but that's irrelevant to the extent that Conti makes arguments under contract law.

• The Fifth Circuit isn't bad for Conti with respect to a possibly renewed motion for an antisuit injunction. I believe the Munich appeals court will overturn Nokia's German anti-antisuit injunction in a few hours, so Conti will then be free to try again. Generally, the Fifth, Seventh and Ninth Circuits--and some also say the First Circuit--are considered to be the most permissive circuits in the antisuit context. The Ninth would be preferable over the Fifth, but again, the Fifth isn't considered exceedingly restrictive.

• The bigger problem Conti faces with respect to an antisuit motion is that it will take some time before the new court is up to speed on the case and in a position to adjudge that kind of motion.

• While the Ninth Circuit's decision in FTC v. Qualcomm (the hearing will be held in February) isn't formally binding on a court in the Fifth Circuit, there will be some persuasive impact.

• Judge Koh didn't stay anything, so it's possible that even in Dallas a trial could take place in (late) 2021 (Judge Koh had scheduled it for October 2021).

• Nokia, which is suing Daimler over 10 SEPs in Germany, pretended to be constructive, though the only two outcomes of mediation by the International Chamber of Commerce as Daimler's surrender (which wouldn't help Conti and other suppliers) or simply no deal. But the European Commission won't launch formal investigations into Nokia's refusal to license component makers (though those components come with all the same hardware as phones, which Nokia does license, apart from a screen) in the meantime. And the Mannheim court postponed this week's trial to March, making it a possibility that the Munich I Regional Court will enter an injunction against Daimler before the Mannheim court might have taken a more favorable position on component-level licensing. So there have recently been setbacks for Conti on three fronts where it could have inched closer to an exhaustive component-level license: its EU antitrust complaint; its U.S. contract and antitrust case; and Mannheim (though that case was obviously brought by Nokia, it represented an opportunity for Conti).

• Here's what I would advise Conti to do in light of the current landscape and recent--not final but nevertheless hurtful--blows: Conti either has to push far harder and smarter (they have great lawyers in Germany, but the problems they face are 100% political, 0% legal) for getting Nokia investigated by the European Commission's Directorate-General for Competition (DG COMP) or if they don't want or don't know how to do that (Nokia certainly does play the game holistically, but Daimler and Conti are employing 19th-century methods against an agile, clever, no-holds-barred rival in the 21st century), they should bring a Dusseldorf lawsuit against Nokia as Huawei did. At this point they might even still get a Dusseldorf case merged for case management purposes (though technically retaining a separate case number) with Huawei's case.

Finally, here's Judge Koh's order, which is the end of the California road for this case:

19-12-11 Order Granting Ava... by Florian Mueller on Scribd

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