Appeals court rejects Deutsche Telekom's appeal against IPCom: no SEP royalty refund

This is a quick follow-up to yesterday's report on the Karlsruhe Higher Regional Court's appellate hearing in Deutsche Telekom v. IPCom. Unsurprisingly, the regional appeals court threw out the appeal as a spokesman for the court told me this afternoon. This means the Mannheim Regional Court's dismissal of the complaint stands.

Deutsche Telekom can try to appeal this matter to the Federal Court of Justice. Presiding Judge Andreas Voss ("Voß" in German) mentioned yesterady that the case has the potential to reach the top court. Whether this means that his court will authorize a further appeal is another question. The reasons for the appellate decision are not known yet. I look forward to a public redacted version of the decision in case it becomes available.

Deutsche Telekom is essentially trying to upend the standard-essential patent (SEP) licensing system--of which license-based settlments are a significant part--and even non-SEP licensing could be affected by extension (though antitrust law rarely applies to non-SEPs).

There are two case-specific factors here that weaken Deutsche Telekom's case:

• They settled for convenience, not for hold-up. No injunction was being enforced. No injunction had been ordered. And no injunction was on the horizon. Now imagine what would happen if companies that took a license after an injunction came down, or on the eve of a likely injunction, sought refunds through antitrust litigation.

• The license agreement in question contains a clause 8.2 according to which IPCom was under no obligation to get other telecommunications network operators to take licenses on comparable terms. Deutsche Telekom argued that this merely meant they could not enforce an obligation on IPCom's part to enforce, but IPCom could have given Deutsche Telekom a refund regardless. Deutsche Telekom also argued that there was no waiver of potential damages claims. That attempt to vitiate an important clause (which had resulted from extensive negotiations, led by Dr. Roman Sedlmaier as outside counsel for IPCom) did not succeed in Mannheim, and I don't know yet whether it also proved dispositive in the appeals court. Be that as it may, if Deutsche Telekom could obtain a refund on antitrust grounds, numerous other licensees who never signed an agreement that contains such a clause--and/or licensees who took a license under the threat of injunctive relief--would bring such cases.

Judge Voss gave Deutsche Telekom's counsel from Clifford Chance every opportunity to make their case. In my recollection, Deutsche Telekom had at least about twice as much speaking time as IPCom, and easily three times as much time as a U.S. federal appeals court would have allotted to them. Frankly, their arguments were exceedingly repetitive.

Quinn Emanuel's Jérôme Kommer didn't want to waste a minute of the court's time. He largely just pointed to his opposition brief, and focused on providing a few clarifications. Less is more in certain situations, and this was one of them.

It would make a lot of sense for that non-case to go away now, but Deutsche Telekom's litigation budget may have room for yet another appeal...

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License-based settlements of SEP disputes in jeopardy: Karlsruhe Higher Regional Court heard Deutsche Telekom's 'antitrust' appeal against IPCom, anticipates review by Federal Court of Justice

I just attended a two-hour appellate hearing in the German city of Karlsruhe. The Karlsruhe Higher Regional Court is the appeals court that hears all appeals from the Mannheim Regional Court. In this case, the June 2022 decision to throw out Deutsche Telekom's long-shot antitrust lawsuit against standard-essential patent (SEP) licensing firm IPCom.

Given what's at stake, I was surprised to be the only independent person in the audience. Besides the three-judge panel of the Sixth Civil Senate (Presiding Judge Andreas Voss ("Voß" in German), Judge (and rapporteur) Professor Gloeckner ("Glöckner" in German), and Judge Professor Singer) and yours truly, everyone else was counsel for one of the parties (with a multiplicity of intervenors supporting IPCom). One lawyer who represented IPCom in infringement litigation many years back also attended on an informal basis.

From the beginning, I have considered Deutsche Telekom's complaint facially absurd. They want IPCom to repay all or at least most of a 220 million euro amount plus another 60 million (interest and possibly expenses) because their rivals did not license IPCom's patents, which Deutsche Telekom calls "discrimination." But the license agreement contains a clause (clause 8.2) that specifically says IPCom was under no obligation to get other telecommunications network operators to take licenses to its portfolio.

The fact that Judge Voss had to get Deutsche Telekom to resolve a discrepancy of several million euros between two references to the amount in dispute in an amended appellate filing they made about a month ago is just an embarrassment for a company that tries to bully a small patent holder. Given how much they are spending (and risking, given the German "loser pays" rule), one would think that they can at least get their act together without the court having to ask them at the hearing to reconcile their numbers.

That should not distract us from the real issue. My hunch was right that this appellate hearing was worth attending not because of Deutsche Telekom being likely to win (Judge Voss appeared rather skeptical, though he steered clear of stating a preliminary position on any aspect of the case), but because they try to create massive legal uncertainty for SEP holders of all sorts and sizes with a view to past and future settleements. Deutsche Telekom could lose, but there could be some holding--maybe just a dictum--that could have serious repercussions.

Toward the end, when making a routine check on whether some sort of settlement was achievable, Judge Voss--who personally presided over various of IPCom's infringement actions while he was sitting on the lower court--noted that "this dispute has the potential to be heard by the Federal Court of Justice." Earlier this year, that same court--in practical terms. Germany's top court for patent disputes--shocked the SEP licensing community by expanding the concept of patent exhaustion to covenants to sue last. That's why I believe there should be a lot more interest in that case, and it's astounding that I was the only one to go there. (It was, by the way, the last German court session I got to attend as a resident of Germany at least for the foreseeable future, given that I'll formally leave the country in a little over a week.)

With a view to that contract clause 8.2, Deutsche Telekom reiterated the argument that had failed in Mannheim: they said that private parties cannot enter into a valid and enforceable agreement that goes against antitrust law. What they want is a legal holding according to which (if one thinks it through) any SEP licensee could bring antitrust claims against licensors on the grounds of discrimination just based on their licensing activity that follows the settlement in question. Here, Deutsche Telekom argues that IPCom caused market distortion by not succeeding in getting Deutsche Telekom's German rivals to take a license. In other cases, the argument might as well be about the amount, and Deutsche Telekom's lead counsel specifically said that if IPCom had extended a license to Vodafone for 10 million euros (as compared to the 200-million-euro deal with his client), that would be a clear case of discrimination (Vodafone and Deutsche Telekom have similar market share in Germany).

I struggle with that approach. The practical reality is that patent disputes (not only but also SEP disputes) are always settled on a probabilistic basis: things could go better or worse for a given party if litigation continued. And if some key patents are invalidated, a portfolio may be devalued, possibly become impossible to license to anyone.

In this case, it's even worse: Deutsche Telekom even signed an agreement under which IPCom's subsequent conduct vis-à-vis other telcos wouldn't count. Deutsche Telekom argues that the clause merely does not impose on IPCom a contractual obligation to enforce. They say IPCom could still be liable for failing to enforce if the result is discrimination: unequal treatment without justification. Judge Voss made a good point: Deutsche Telekom's position comes down to requiring a SEP holder to become the "curator" of the downstream market (here, the market for cellular telecommunications networks).

Deutsche Telekom's counsel said that regardless of clause 8.2, IPCom could have avoided or otherwise addressed the alleged discrimination issue: by obtaining injunctive relief against unwilling licensees; by concluding FRAND license agreements with Deutsche Telekom's rivals; or by (proactively!) lowering its royalties when discrimination became apparent.

Those positions are very aggressive. The appeals court will make a decision (which could also just be a scheduling order) later today, and the parties will be able to find out about the outcome tomorrow morning. This is something to watch. If even despite that clause 8.2 Deutsche Telekom succeeded, even if not on the bottom line but in the form of some dictum, that could result in a flood of German antitrust complaints over the terms of SEP license agreements. The impact would far exceed that of the patent exhaustion ruling by the Federal Court of Justice. And maybe one or two aspects of this case will even be referred to the European Court of Justice...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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To counter Apple's devious ATT money and power grab, the European Commission should allow Deutsche Telekom, Orange, Telefónica, and Vodafone to form their proposed ad network joint venture

Last week, Apple was fined for privacy violations in France, making it clearer than ever--if any more clarity had been needed--that App Tracking Transparency (ATT) is nothing but an abusive money and power grab by an aftermarket monopolist. The macroeconomic damage is huge, and entire product categories such as hypercasual games are on the verge of extinction as a result of Apple's actions and the impact on the Android ecosystem.

I'm no fan of cartels as I've made abundantly clear in the Licensing Negotiation Group (LNG) and Journalism Competition and Preservation Act (JCPA) contexts. However, it's a question that must be answered case by case, and on Friday the European Commission was notified of a proposed joint venture between four major European mobile carriers that I believe should be cleared because its procompetitive effects will benefit the EU economy and European consumers.

Deutsche Telekom, Orange, Telefónica, and Vodafone have told the European Commission's Directorate General for Competition (DG COMP) that they "plan to create a jointly controlled [with each party owning an equal share], full-function joint venture [...] via their respective subsidiaries [...] [which] will offer a privacy-led, digital identification solution to support the digital marketing and advertising activities of brands and publishers" (PDF). This is how it will work:

• User consent must be provided to a brand or publisher (opt-in),and can be revoked via "a user-friendly privacy portal".

• The new network then generates " secure, pseudonymized token derived from a hashed/encrypted pseudonymous internal identity linked to a user’s network subscription which will be provided by participating network operators." The network operators can do this without needing anything from Apple. They don't have to run their apps by Apple's arbitrary, self-serving, and inconsistent app review. They simply have this information by virtue of providing the expensive infrastructure without which Apple's gadgets would be as useless on the road as a piece of scrap metal. And with the token that the networks generate, targeted ads can be served, which would revive in-app advertising on iOS after Apple killed it.

• There are some ways in which the Evil Empire could theoretically strike back:

  1. It could threaten the network operators with not letting them resell iPhones and potentially even with disabling the use of those networks with iPhones. In the U.S. I believe Apple's market power would make that kind of foreclosure illegal. In Europe, Apple's market share is lower, but given high switching costs and low switching rates, the threat would hurt. A joint venture of multiple major network operators, however, would be in a structurally better position to discourage such blackmail in the first place--and if Apple engaged in such conduct anyway, its market power (because of customer lock-in) would be shown more clearly than if it acted like this against a single carrier.

  2. Apple could block apps (also including updates to existing apps, of course) that use the new advertising network. But that would raise antitrust issues for sure (as Apple wouldn't even have a privacy pretext)--and once the EU's Digital Markets Act (DMA) really requires Apple to allow alternative app stores, such stores could then distribute apps that would make use of the new network.

  3. In theory, Apple could also block communications with the new ad network, but that would be so crazy that I don't even want to discuss its implications. Suffice it to say it wouldn't be a good idea for Apple to do that.

The only thing I'd like the Commission to ensure is that other network operators will also have a chance to join that network on fair terms. Other than that, I'm all for this initiative. The EU should let those carriers join forces against abusive platform makers.

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U.S. court dismissed Lenovo-Motorola's FRAND, antitrust, declaratory-judgment case against IPCom; Deutsche Telekom appeals dismissal of Mannheim 'antitrust' complaint against IPCom

Germany-based patent licensing firm IPCom is technically facing a two-front antitrust war over its monetization of standard-essential patents (SEPs). But there's no such thing as a war without functional weapons, and neither a U.S. case brought by Lenovo and its Motorola Mobility subsidiary nor Deutsche Telekom's German complaint have impressed the courts of law:

• Earlier this month, Judge Edward J. Davila of the United States District Court for the Northern District of California granted IPCom's December 2021 motion to dismiss an amended complaint by Lenovo and its Motorola Mobility subsidiary that alleged breach of contract, monopolization in violation of U.S. antitrust law (Sherman Act Sec. 2), and sought a declaratory judgment of non-infringement of two IPCom patents. I'll show you the documents further below.

  Judge Davila reached that decision for jurisdictional reasons: while IPCom was--and still is--asserting patents against Lenovo in other jurisdictions (UK, Germany), IPCom's contacts with the NorCal forum fall far short of what would establish personal jurisdiction. Consistently with that position, IPCom didn't even bring compulsory counterclaims to the DJ claims--and the court didn't even reach the merits of Lenovo's various claims.

  Lenovo hadn't explicitly requested leave to amend. The dismissed complaint was already an amended one--in fact, the amended came just two days before the order. If Lenovo had presented a theory that would have warranted another amendment, it would have been allowed to do so until July 22, but it appears that Lenovo is either giving up or, more likely, will appeal the dismissal to the Federal Circuit.

  Lenovo is represented in that action by the same law firm--Sheppard Mullin--that has just been on the receiving end of another dismissal: tire manufacturer Continental was definitively denied a rehearing en banc of its Fifth Circuit appeal of the dismissal of its "antitrust" complaint against the Avanci patent pool and some of its licensors (Nokia, Sharp, Optis).

• Yesterday the press office of the Karlsruhe Higher Regional Court confirmed to me that Deutsche Telekom has filed a notice of appeal of the Mannheim Regional Court's rejection of its "antitrust" complaint against IPCom in late May. The appellate case number is 6 U 204/22. I don't see that case going anywhere.

When a licensing firm has to fend off apparently meritless FRAND/antitrust complaints brought by large operating companies on two continents, the question is who's actually "trolling" whom...

Finally, the documents I promised further above:

The last version of Lenovo's dismissed complaint:

https://www.documentcloud.org/documents/22121155-22-07-06-amended-lenovo-v-ipcom-dj-complaint

IPCom's motion to dismiss:

https://www.documentcloud.org/documents/22121154-21-12-29-ipcom-motion-to-dismiss-lenovo-complaint

The order granting IPCom's motion to dismiss:

https://www.documentcloud.org/documents/22121153-22-07-08-order-granting-ipcom-motion-to-dismiss-lenovo-complaint

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Mannheim court throws out Deutsche Telekom 'antitrust' action against IPCom, schedules Nokia v. OPPO decision for June 21

After a Dusseldorf complaint against Samsung over Android's prediction of remaining battery runtime and a couple of Munich standard-essential patent (SEP) complaints against car makers Nissan and Fiat Chrysler, there's also news--even two distinct items--from the Mannheim Regional Court:

• As expected, Deutsche Telekom's so-called antitrust complaint against IPCom was thrown out on Tuesday. I attended the trial last year and there were any number of reasons to reach that conclusion as a matter of law, and the factual allegations--some of which seemed implausible--weren't even reached.

  IPCom congratulated its outside legal team. The lead trial counsel was Quinn Emanuel's Jérôme Kommer, and one of the attorneys who represented IPCom in its infringement actions, Hengeler Mueller's Dr. Wolfgang Kellenter, also contributed to the effort.

  Given that the parties had settled a U.S. patent infringement case (in which the defendant was Deutsche Telekom subsidiary Sprint) but not this case, it's a given that Deutsche Telekom will appeal. It's what a deep-pocketed large corporation can afford, even if only to delay the inevitable, which is the definitive disposition of the case. This is a dead lawsuit walking, but until it's res iudicata, IPCom will have to live with the totally theoretical risk it poses.

  Presumably the appeal will be heard by the Karlsruhe Higher Regional Court's Sixth Civil Senate under Presiding Judge Andreas Voss ("Voß" in German). I remember him and his sense of humor from his days on the Mannheim court, and the case is laughable. The appellate hearing should have great entertainment value.

• Also on Tuesday, the same division of the court--the Second Civil Chamber und Presiding Judge Dr. Holger Kircher--heard a Nokia v. OPPO non-SEP case. The patent-in-suit's "teaching" boils down to this: if there's a WiFi network that broadcasts messages so you know it's available, don't broadcast your own message to ask whether it is around. Nokia undoubtedly makes legitimate inventions all the time, but this isn't one of them. It's a typical "German gamble" hoping that an injunction will issue and become enforceable during the injunction gap, i.e., before the patent gets invalidated.

  I don't know what happened at the trial, but it's interesting that the subsequent decision will be announced on June 21. Three weeks from trial to ruling is unusually short for German patent infringement cases; the median is probably somewhere between six and eight weeks. But the patent is extremely simple (which is also reflected--though not conclusively evidenced--by the fact that it's only a nine-page document). So whichever way the court may want to decide the case, it won't be a lot of work compared to the average patent infringement ruling.

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Despite Sprint settlement in Texas, Deutsche Telekom is pursuing farcical 'antitrust' case against IPCom in Mannheim

While another standard-essential patent (SEP) dispute is just escalating from 5 to 21 patents-in-suit (Sol IP v. Ford Motor Company, see my previous post), three SEP infringement actions brought by IPCom in the Eastern District of Texas settled out earlier this month. The defendants were AT&T, Verizon, and Deutsche Telekom-owned Sprint. Their network infrastructure suppliers (Nokia in Sprint's case) were also involved.

Here's the IPCom-Sprint settlement notice (this post continues below the document):

22-04-06 IPCom & Sprint... by Florian Mueller

Back in November, Presiding Judge Dr. Holger Kircher (Mannheim Regional Court, Second Civil Chamber) made an assumption: after explaining that Deutsche Telekom's attempt to reclaim royalties (plus interest) to the tune of approximately 200 million euros from IPCom on "antitrust" grounds was far from meritorious, he urged the parties to stipulate to a (revocable) stay as they might settle their overall dispute ahead of an upcoming spring 2022 infringement and damages trial in the Eastern District of Texas. Indeed, many U.S. cases settle ahead of a jury trial, sometimes just a day or two before.

With tens of millions of dollars in play in the Texas infringement action, and the German "antitrust" case being fatally deficient on multiple independent grounds, it appeared to be a no-brainer and almost a law of economics that an agreement doing away with the Texas lawsuit would also be the final nail in the coffin of that crazy Mannheim case. That would have made even more sense when considering that it was actually a disagreement between the Fortress-funded patent licensing firm from the Munich area and the country's leading carrier on whether Sprint--which was acquired later--was a beneficiary of that old license agreement that gave rise to the Mannheim complaint in the first place. So, Judge Kircher thought his court would never have to author a formal judgment should there be a global settlement ahead of the Texas trial.

But no.

After I contacted the Mannheim court to find out about the state of affairs in that litigation, I received an answer that defies logic: the case came out of hibernation and continued in a written format (i.e., no additional trial), with the ruling now scheduled for May 31.

The outcome is really a foregone conclusion. The truth is simply that in 2013, Deutsche Telekom's then-outgoing CEO wanted the case settled no matter the cost to avoid personal liability without having to negotiate some hold-harmless clause in his severance agreement. It was a settlement for convenience, not under pressure. Later, in the Sprint context, Deutsche Telekom decided to turn around and claim it was all the result of blackmail and discrimination.

Maybe Deutsche Telekom hoped little IPCom would be driven out of business by a judgment in the partly (originally entirely) stated-owned monopolist's favor. But when I attended the trial, I saw that IPCom and various intervenors supporting it weren't going to give in. Quinn Emanuel partner Jérôme Kommer vigorously defended IPCom whilst making it perfectly clear that the case was not only legally baseless but even wrong on the facts as IPCom--contrary to what Deutsche Telekom alleged--was indeed actively--even very actively--pursuing license agreements with other carriers (in the form of those Texas lawsuits, and possibly in ways that are not publicly discoverable).

So this case is apparently bound to go up to the Karlsruhe Higher Regional Court (presumably to the Sixth Civil Senate under Presiding Judge Andreas Voss ("Voß" in German)), where I'm sure the outcome won't be different--and then Deutsche Telekom can petition the Federal Court of Justice to take a look, where the antitrust senate is actually being chaired by another former Mannheim judge (Patricia Rombach) who understands SEP issues extremely well. The prospects of finding a "Greater Fool" are bleak.

The Mannheim court could dispose of the case just on the basis that Deutsche Telekom signed a license agreement that explicitly did not require IPCom to do anything with respect to Deutsche Telekom's competitor. Back then, the attorney who led those licensing negotiations for IPCom, Dr. Roman Sedlmaier, rejected a demand by Deutsche Telekom for a clause that would impose such a requirement on IPCom--and not only that: Dr. Sedlmaier then had a premonition (rightly so) that Deutsche Telekom might later challenge the agreement and therefore inserted a clause under which Deutsche Telekom clearly gave up its rights to base any claims on IPCom's potential failure not to license its patents to other carriers. So Deutsche Telekom accepted the opposite of what it was seeking, which was a remarkable success for Dr. Sedlmaier, the importance of which is understood only now. I'm not aware of any other case in which a single aspect of a complex licensing negotiation ended up getting so much attention--and so many years later.

On that basis, the Mannheim court wouldn't even have to reach the multiplicity of other defenses presented by IPCom. However, when an appeal is a given, courts sometimes make their decision particularly appeal-proof by dismissing a case on a plurality of grounds. A good example that also involves absurd "antitrust" claims is Continental v. Avanci, which Chief Judge Barbara Lynn (Northern District of Texas) threw out based on a lack of antitrust standing as well as the legal deficiencies of the automotive supplier's Sherman Act Section 1 and 2 claims (to which the Fifth Circuit then added that Conti even lacked basic Article III standing--the ultimate shortcut). While there wasn't a detailed discussion of the other defenses as the Deutsche Telekom v. IPCom trial in Mannheim in November, Judge Kircher's introductory remarks suggested to me that IPCom was going to win one way or the other.

My guess is that someone at Deutsche Telekom is just pursuing this case for internal reasons, not because anyone would seriously believe that such a farcical and frivolous case could ever get the telecommunications network operator anywhere. Germany's loser-pays system would normally discourage such conduct, but when you own a telecommunications network that was funded by taxpayers and the government (which remains a large shareholder) makes sure you won't face major competitive constraints, you can afford this.

I'm genuinely sorry for Judge Dr. Kircher and his side judges that they have to devote more time to that case. All of the other Mannheim cases that I am watching appear to be pending before the Second Civil Chamber, such as Nokia v. OPPO/OPPO v. Nokia (with the first Nokia-OPPO trial having been rescheduled to May 3) and Ericsson v. Apple/Apple v. Ericsson. They don't need Deutsche Telekom for an occupational therapist.

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Deutsche Telekomedy in Mannheim: court informally dismisses antitrust claims against IPCom but urges global settlement including infringement action against Sprint in Texas

This Tuesday, the Mannheim Regional Court gave short shrift to Deutsche Telekom v. IPCom, an "antitrust case" in which the mobile network operator is seeking roughly $300 million in restitution (recovery of past royalty payments plus interest). The court's public hearing list described the cause of action in case no. 2 O 130/20 as "anticompetitive discrimination involving standard-essential patents in connection with patent license agreement dated June 7, 2013." Some other claim(s) had already been voluntarily dismissed by the plaintiff ahead of trial. The remainder was stayed at the end of the trial, but on a basis that allows either party anytime to ask the court to resume the proceedings, which would result in a swift ruling that could have only one outcome: a formal dismissal of the case as clearly meritless. As part of its hold-out strategy, Deutsche Telekom even stipulated to that kind of revocable stay, while IPCom would have preferred a decision. Typically, defendants are happy to just put a case against them on hold, but I'll get to the parties' motives later (here's a shortcut to that part of the post)--and they have a lot do with an IPCom v. Sprint case pending before Judge Rodney Gilstrap in the Eastern District of Texas and slated to go to trial next spring.

If I wanted to go into detail on everything that is deficient about Deutsche Telekom's Mannheim complaint, I'd have to write an even longer post, every single paragraph of which would have to start with "Let that sink in" or "Lo and behold," which would get a bit repetitive. Let's focus on the forest rather than get lost in a multitude of trees--and please take any references to Deutsche Telekom's outlandish theories and allegations as if "Let that sink in" had been put in front of a parenthetical expression in a mathematical formula.

What Deutsche Telekom has been trying to do would--if it worked, which it never will--make it practically impossible for parties to enter into reliably stable settlement agreements that put standard-essential patent (SEP) cases to rest. The licensee could always come back later and relitigate settled issues. And even if--as here--a clause specifically and incontrovertibly ruled that behavior out, the licensee would argue--as Clifford Chance "of counsel" Dr. Joachim Schuetze ("Schütze" in German) did on Deutsche Telekom's behalf--that parties cannot dispose of antitrust law no matter what they put into an agreement.

Deutsche Telekom argues that IPCom acted in a discriminatory manner by--well, the court noted it's not even clear what particular action other than not rescinding the 2013 license agreement Deutsche Telekom is complaining of. Deutsche Telekom says it has been discriminated against because no other carrier besides them has so far taken a license from IPCom. Is that IPCom's fault? Deutsche Telekom alleges that IPCom didn't make enough of an effort to force its rivals to take a license. IPCom's lead counsel, Quinn Emanuel's Jérôme Kommer, stated for the record toward the end of the trial that this is not even factually correct, as there are infringement actions (such as against Vodafone in the UK), but the discussion between the court and the parties didn't even get to facts like that because the case necessarily fails as a matter of law.

What would it really mean--talking about the forest, not just the trees--if Deutsche Telekom, in an alternative universe, could prevail? If they could get out of a license agreement because others engaged in holdout for years on end? Let me give you a couple of examples from the automotive industry, where patent infringement is rampant. Almost five years ago, BMW became the first publicly-announced licensee of the Avanci platform (a pool that contains dozens of cellular SEP portfolios--by coincidence it even includes some Deutsche Telekom patents--and represents a one-stop solution for car makers). Earlier this month, Avanci announced its latest license deals and stated that roughly 25 million connected vehicles had been licensed. An all-time licensing volume of 25 million cars is not a lot given that approximately 70 million passenger cars are sold every year, and infringement is even more widespread when considering that most Volkswagen cars have a license only up to 3G while actually coming with 4G connectivity. So, BMW could have turned around after Avanci's recent announcement like Deutsche Telekom did against IPCom. If Deutsche Telekom got its way, BMW could bring claims against Avanci or every one of its licensors (except maybe Qualcomm, whose de facto licensing rate is higher as its chips are in a lot of cars) that the actual licensing rate is very low and BMW has costs that others have so far avoided by means of holdout. "Discrimination. Avanci's licensors aren't suing Toyota, Volkswagen, you name them."

What if Daimler tried to get out of this year's settlement with Nokia, arguing that the patent holder hasn't been licensing other car manufacturers at a pace that the Mercedes maker would deem non-discriminatory?

Those analogies even fall far short of an accurate characterization of the absurdity of Deutsche Telekom's non-case. I don't know the language of BMW's agreement with Avanci, but it wasn't a settlement of pending litigation. By contrast, antitrust issues had actually been raised by Deutsche Telekom in its multi-year litigation with IPCom, but when Deutsche Telekom--not under duress but purely for the convenience of its then-outgoing CEO--wanted to settle, IPCom negotiated a Section 8.2 of the 2013 agreement that Presiding Judge Dr. Holger Kircher of the Mannheim court's Second Civil Chamber read out during the Tuesday trial. That clause explicitly stated that IPCom was under no obligation whatsoever to conclude license agreements (much less on a particular set of terms) with Deutsche Telekom's competitors. Deutsche Telekom originally demanded that the very opposite be put into the agreement (whether an obligation to sue third parties would have been enforceable is another question), but the final contract stated otherwise. It's not hard to imagine that IPCom saw what Deutsche Telekom was preparing for, and wasn't going to fall into that trap.

It is that clause 8.2 that Judge Kircher noted in his initial discussion of the case which is unusual and single-handedly dispositive, obviating the need to reach any of the other questions, of which there are many and the court appeared very unconvinced of Deutsche Telekom's ability to meet any of a plurality of other criteria for the refund (plus interest) the carrier is seeking. Let me give just some examples: it's unclear what particular conduct on IPCom's part constituted discriminatory behavior; Deutsche Telekom contradicts itself by alleging an abuse of market power without ever recognizing the essentiality of a single one of IPCom's patents to any industry standard; and even if Deutsche Telekom inexplicably prevailed somehow, the refund might be offset by a damages award for past infringement. The latter is an interesting aplication of the Latin rule of dolo agit qui petit quod statim redditurus est ("he who has to immediately return what he is seeking brings a bad-faith claim"): normally that concept benefits implementers of standards because they can avert a SEP injunction if they're entitled to a license (and if their behavior meets certain requirements to benefit from that affirmative defense). The injunction would then be enforced in bad faith as a license agreement would resolve the issue. Here, it cuts in the other direction: if Deutsche Telekom managed to extricate from the license agreement, it would retroactively become a multi-year infringer and owe damages (which, by the way, could even be supra-FRAND).

Similarly, the 2013 license agreement comes with a saving clause, so even if a clause was deemed anticompetitive, it would merely have to be replaced with the closest enforceable alternative.

Judge Kircher acknowledged that Deutsche Telekom's complaint raises legal questions of first impression, and the parties could not cite to any applicable precedent. But if you ask me, the case is simply an idiocy of unprecedented proportions in connection with SEP licenses and patent settlements. In any event, Judge Kircher noted that the court would never reach those novel questions because of that clause 8.2.

I admire Deutsche Telekom's lead counsel for arguing with a straight face that the decision the court described as inevitable (a dismissal of the complaint) "would allow non-practicing entities to impose a license agreement on one party and then save the costs of enforcing their patents against others." It doesn't make sense because either the patents are weak, in which case the first licensee in an industry doesn't have to take a license anyway, or they can be enforced, in which case it's always going to make economic sense to sue others--not all of them at the same time, but sooner or later a patent holder will collect back-royalties or sue for past-infringement damages even if the patents had expired.

The court debunked Deutsche Telekom's argument that settlement agreements cannot override, or disable, antitrust law. Obviously parties cannot enter into valid and enforceable agreements in a way that would harm the competitive process. But they can enter into agreements--especially settlement agreements--under which they dispose of individual claims, such as the right to seek a refund under specified circumstances. Neither the court nor IPCom's counsel said so, but my view is this: if Deutsche Telekom wanted to do so, it could complain about IPCom's post-contractual conduct to the Bundeskartellamt (Federal Cartel Office of Germany). The contract wouldn't preclude them from that--no valid and enforceable contract ever could. As Judge Kircher explained on behalf of the court (based on his prior internal discussion with Judge Boettcher, who is the rapporteur on this case, and Judge Elter), Deutsche Telekom was full well aware of a scnario in which its rivals might not take licenses from IPCom on similar terms. That's why they originally wanted a clause 8.2 in the agreement that would have stated the very opposite. They ultimately contended themselves with an agreement that leaves no room for the kind of refund claim they're pursing now. They made their bed and have to lie in it.

Judge Kircher said toward the end (when he urged IPCom to stipulate to a revocable stay so the court might never have to hand down a judgment in this case) that everyone in the room (including yours truly) heard from the court in no uncertain terms that IPCom would win. Also, in his introductory discussion of the case, Judge Kircher noted that besides the legal questions he addressed (and none of which the court appeared inclined to answer in Deutsche Telekom's favor), there were several others, all of which he described as predictable--but he wouldn't even get to them.

So why is Deutsche Telekom pursuing that kind of losing case in the first place?

There are three versions of the story. The simple, obvious, and not reasonably deniable truth is that Deutsche Telekom is being a bully (ab)using some of its vast resources against a small German licensing firm, and the chronology of events shows that this complaint was brought a few months after IPCom sued Sprint, which had meanwhile become a Deutsche Telekom subsidiary, in the Eastern District of Texas. There had been some negotiations between the parties over whether Sprint was or was not licensed under that 2013 agreement (which presumably has some "affiliate entities" type of clause), and if so, on what terms Sprint might get licensed. Deutsche Telekom's lead counsel said that it was during those licensing talks last year that Deutsche Telekom became aware of the fact that no other carrier had taken a license from IPCom (which, again, is why IPCom is suing some of them, and no one can seriously expect them to sue the whole world at the same time). Therefore, the semi-retired Clifford Chance lawyer said Deutsche Telekom's C-level executives identified a need to obtain legal clarification of whether this constituted discrimination.

Even Judge Kircher cautiously put the German action into the context of the Texas case and suggested--in other words--that Deutsche Telekom thought an offense was a necessary part of a good defense. He noted that this German case was about having an action with the reverse caption: Deutsche Telekom v. IPCom in Mannheim as opposed to IPCom v. Sprint (a Deutsche Telekom subsidiary) in Texas. The whole reason the judge urged the parties to stipulate to a revocable stay (with the promise to reach a swift decision if a party changed mind) was that he thought it might make sense for them to also settle the Texas case, which according to his representation involves a $70  million damages claim. Assuming that IPCom is seeking willfullness enhancemenets (aka "treble damages"), that would be more like $210 million, and Deutsche Telekom's behavior does appear unusually reckless. So Judge Kircher would like them to take a break from litigation and talk. They spent about an hour outside the courtroom (quite a long interruption--the court originally gave them 20 minutes). But when they returned to the courtroom, IPCom doubted Deutsche Telekom's sincere intentions to settle. Still, based on Judge Kircher promising that, if need be, the court can resume the proceedings and reach a decision in the very short term, IPCom accepted that the case would be stayed--for now.

Deutsche Telekom's counsel actually considered it offensive that Judge Kircher made it sound like they had brought a meritless case in Germany only in retaliation for a patent infringement action in the United States. Actually, if it worked the other way round, a U.S. federal judge would just tell it like it is. I've heard U.S. judges dismiss complaints or appeals as "frivolous", or saying that a party is pursuing some other goals and using the court as a pawn in a global chess game. In Germany, judges have to be more careful: if they speculate on a party's motives while dismissing the merits of a case, it can give rise to motions of censure, seeking (though typically unsuccessfully) the recusal of a judge because of bias. Such complaints can go up all the way to the country's Federal Constitutional Court. Judge Kircher carefully nuanced his remarks, and acknowledged that Deutsche Telekom is in its right to bring novel claims. While I can't read his mind, I know he's got Deutsche Telekom all figured out. But again, a German judge has to tread carefully in a delicate situation like that, and knowing that the plaintiff will leave no stone unturned because money doesn't matter, and seeing that the Clifford Chance firm appears to be more concerned with pleasing a long-standing blue-chip client than with maintaining its reputation in antitrust law.

Whatever I say or write here won't reach the Federal Constitutional Court, so I'll be blunt: Deutsche Telekom's case is nonsensical crap. It's an insult to human intelligence. At all three layers of the law (policy, law, facts), it's a downright insanity. I had a logistically convenient chance to attend the trial, and I went there because I expected I'd have a lot to laugh--and Judge Kircher is always very interesting and often entertaining to listen to. It was a sitcom, not a serious litigation. I had the gut feeling that if Deutsche Telekom had insisted on a ruling, Judge Kircher and his colleagues might even have ruled straight from the bench.

In my opinion, it is not fair that IPCom has to wait until it can recover from Deutsche Telekom its attorneys' fees under the German "loser pays" rule. I also think IPCom is reasonably entitled to a German ruling ahead of the U.S. trial. Judge Kircher is right that normally a defendant has no interest in a case like that going forward. But when a case is this crazy, when it's easily discernible as an attempt to drive up litigation costs in Germany, and considering that it's uncomfortable to stare down the barrel of a gun even if you know it's not loaded, then it is in the interest of justice to throw out a case (though Deutsche Telekom would obviously exhaust all appeals).

What's even more important is to discourage other SEP licensees from turning around many years later just because they can afford it and because a firm like Clifford Chance may gladly do anything to please them. Just the fact that this case even went to trial (because defendants to German complaints--unlike in U.S. litigation--can't bring motions to dismiss, motions for judgment on the pleading, or motions for summary judgments) is now going to lead many patent holders to ensure that license agreements come with a clause like that Section 8.2 of the IPCom-Deutsche Telekom license agreement. What appeared to be an abundance of caution on IPCom's side at the time is now probably going to become a standard clause of SEP settlement contracts, as a result of Deutsche Telekom's action and this trial report, but I owe it to my readership, which includes many (actually, practically all) of the technology industry's top licensing executives to explain what can happen when someone like Deutsche Telekom acts in bad faith further down the road.

The sad reality is that some settlement negotiations will now take longer, or in a worst-case scenario, might even fail when parties find it hard to agree on a "Deutsche Telekom-IPCom" clause. The bottom line could be even more--and more protracted--litigation, courtesy of a deep-pocketed and utterly unreasonable German carrier. The case is a comedy, even a travesty, but the potential impact of Deutsche Telekom's outrageous behavior on global SEP licensing negotiations is more of a tragedy.

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Deutsche Telekom dishonors patent license agreement with IPCom eight years on: spurious antitrust case goes to trial in Mannheim on 23rd

With respect to patent licensing firm IPCom, Deutsche Telekom has a propensity to do things that make observers shake their heads in disbelief.

I still remember overhearing a conversation at the Mannheim courthouse on June 21, 2013. That Friday, the court held a Motorola v. Apple FRAND rate-setting trial that drew huge interest from the German patent litigation community. During a break, lawyers involved with Nokia's and HTC's defenses against IPCom just couldn't fathom the WHY and the WHEN of the Deutsche Telekom-IPCom settlement that was announced earlier that week. At that juncture, there was no injunction looming large--there wasn't even one on the horizon. By settling for sheer convenience, Deutsche Telekom unnecessarily complicated things for Nokia and HTC by giving IPCom substantial new resources and a comparable license agreement with a view to the ND in FRAND.

The amount was described by Reuters sources as being in the "low to medium triple-digit" million euro range. What I heard at the time was roughly 200 million euros. Later there was speculation that Deutsche Telekom's then-outgoing CEO had simply instructed the patent department to settle the dispute, period, just so he wouldn't have to negotiate a hold-harmless clause for that case as part of his exit package.

Fast forward by eight years, and Deutsche Telekom wants all of that money back. With interest on top. A total of about 300 million euros.

The legal basis? An-ti-trust. Sorry, but . . . WTF?

This move is more bewildering than the decision to settle was in mid-2013. The notion that someone could take a license--presumably just in order to simplify the departure of a CEO--and later turn around and claw back all the royalties just flies in the face of all I know about the intersection of intellectual property and competition law. Deutsche Telekom even seeks to turn the entire deal into a nicely profitable investment by seeking interest way in excess of market rates during the relevant period.

Even without access to the complaint itself, I'm pretty sure antitrust law just doesn't have scope for Deutsche Telekom's cloud-cuckoo-land claims. The Mannheim Regional Court's Second Civil Chamber (Presiding Judge: Dr. Holger Kircher) will have to hear the matter in two weeks from today, but that's because German civil procedure doesn't provide such instruments as a motion to dismiss for failure to state a claim.

This may very well be the most meritless patent-related antitrust case ever to have been brought in Germany, yet Deutsche Telekom's course of action raises serious policy concerns.

Licensing is the most common way to settle patent infringement disputes. I have consistently advocated a balanced approach to SEP enforcement: defendants must have rights. But when a license agreement is reached, that is supposed to be the end of the story. That's the whole point of a settlement.

Deutsche Telekom appears to be bullying, driven by buyer's remorse and using its gigantic resources to put pressure on a small company. Even if the magenta-colored carrier just came close to prevailing on a fraction of its claim, it would shake the foundations of patent licensing with profound implications for the entire innovation economy.

Normally, the term "unwilling licensee" means in a SEP context that a party should be enjoined because it isn't seeking a license on FRAND terms in good faith. Deutsche Telekom now shows that one may be a willing licensee for many years only to turn around later.

It's hard to imagine that the contract in question has a loophole that allows for such a refund with interest. The agreement was undoubtedly drafted and signed by people who knew exactly what they were doing. That makes it all the more worrying that Deutsche Telekom is now attempting to get its money back.

Deutsche Telekom portrays itself a purely defensive player of the patent game, but it has a reputation for bullying. Its suppliers always have to fear getting a call that gives them an ultimatum to take a license to some third-party patents (St. Lawrence is an example) lest they lose the magenta giant's business. Might makes right? Maybe in the telecommunications market, but presumably not in the Mannheim court.

It's highly doubtful that this here benefits Deutsche Telekom on the bottom line. They may seek retribution against IPCom for suing Sprint (which effectively got acquired by Deutsche Telekom/T-Mobile) in the Eastern District of Texas. But Deutsche Telekom has to deal with so many patent holders all the time--and they aren't all non-practicing entities, by the way. All patentees want their licensees to honor their license agreements. Not only doesn't Deutsche Telekom's IPCom "antitrust" case make sense in its own right but why would a company risk losing the trust of all its current and future licensors?

This conduct gives private antitrust enforcement a bad name.

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The lemmings of patent injunction reform: Microsoft, BMW, Deutsche Telekom joined ip2innovate during German reform process

Political decision-making processes tend to be so complex that it's often very difficult to identify a clear causation between what went wrong and why. In connection with Germany's patent reform, which has been carefully crafted by the country's government to change almost nothing at all (see my initial reaction to yesterday's official legislative proposal), one can infer from publicly-accessible documents that the Brussels-based ip2innovate lobby group (Google, Daimler, SAP etc.) committed the colossal blunder that most likely condemns the reform effort to fail. "Be careful what you wish for." IP2I advocated the term "Einzelfall" that is now the central term that will render the reform ineffectual because the government's official legislative rationale clearly defines it as "hardly ever happens." Now the losers are trapped in a no-through one-way street as they can't lobby against their own proposal. They dug their own reform's grave.

Germany's leading information & communications technology news site, Heise online, quotes my analysis in an article on yesterday's legislative proposal, including my criticism of IP2I's lack of strategic sophistication. For what I know, however, chip makers Nvidia and Intel, while they're longstanding IP2I members, can't be blamed for the "Einzelfall" crap.

Were IP2I only a fringe group of the patent reform movement, the others could still combat that "Einzelfall" term effectively. But birds of a feather flock together, and lemmings famously follow other lemmings. With the sole exception of Volkswagen (the whole group including subsidiaries like Audi and Porsche), IP2I's membership directory lists practically every large German organization that demands injunction reform.

Over the course of this year, the misguided IP policy groups of three large organizations--two of them among Germany's largest corporations--joined IP2I:

• Microsoft,

• BMW, and

• Deutsche Telekom.

Deutsche Telekom's IP department habitually hurts the company's interests. They even contributed their cellular standard-essential patents (SEPs) to the abusive Avanci pool. They might have found it convenient, and maybe they thought it was "cool" to join some large patent holders in a pool, but Avanci is all about driving up licensing costs, which runs counter to Deutsche Telekom's interests. Also, Deutsche Telekom is still the only company known to have made a huge royalty payment to patent troll IPCom. They could have avoided it by simply insulating their then-outgoing CEO from the potential fallout from IPCom's patent assertions against him. Instead, they paid hundreds of millions of dollars at a time when Nokia and HTC were actually defending themselves very successfully against that same patent portfolio. Deutsche Telekom also has a reputation for having caved to other patent holders in situations in which many others wouldn't have done so.

As I already noted yesterday, Deutsche Telekom might benefit to some degree from the fact that the reform bill makes harm to third parties a factor. In Dusseldorf that might help; in Munich and even in Mannheim, it most likely won't. Those courts will tell them to take a license. If patent holders seek injunctions that threaten to shut down Deutsche Telekom's network, it's just a means to an end. The end is a costly license deal; leverage from an injunction is the means. So those patent holders will make a licensing offer, and the courts will then tell Deutsche Telekom that the harm they suffer isn't irreparable: they don't have to switch off their network infrastructure as they can take a license. I already explained based on the January draft bill how this would work.

The world's top three smartphone makers--Apple, Samsung, and Huawei--are notably absent from IP2I's membership directory. They have to defend themselves against German patent infringement complaints all the time. In order for them to be in a better position, the hurdle for a useful injunction reform statute would be considerably higher than for Deutsche Telekom (which can at least argue that third parties depend on access to its network) and German car makers, which have substantial manufacturing operations that would be susceptible to a German injunction. Again, I believe even Deutsche Telekom and those automotive companies will ultimately just be coerced into taking licenses on unreasonable terms. But at least they have far more of a hardship argument than foreign companies that export their smartphones and similar devices to Germany.

As foreign companies with limited head counts in Germany, those three would have found it difficult to make much of an impact. If Huawei had joined, it could even have been counterproductive, considering that those opposing reform (such as Nokia) would presumably have tried to politicize the debate.

Whether Apple and Samsung should have done more, in quantitative as well as qualitative terms, is a question those companies will answer for themselves when this reform process is over. Where the process stands today, the most likely outcome is that they'll just spend more money on proportionality arguments (lawyers, experts) but those suing them will have basically the same leverage in negotiations as today. There's an asymmetry here: patent trolls, or companies that practically behave like trolls by suing companies they're not competing with, only stand something to gain, and nothing to lose. They typically wield portfolios, not individual patents, and they can sue in three or more different German venues as they need leverage in only one of them.

This is frustrating to watch. It must be far more frustrating for companies to find themselves on the receiving end of those lawsuits. I warned many of them a year ago, and earlier this year. I told them what was going wrong, and how they'd have had to fix it. There was some hope last month because the previous draft looked like the government had made concessions on the statute and simply hadn't updated the legislative rationale yet. Now that the legislative rationale suggests it's easier to spot a pink elephant in your garden than a German patent case in which an injunction would be denied over proportionality considerations, and with most reform advocates being bound to IP2I's misguided March 2020 submission proposing "Einzelfall," it's extremely hard to imagine a turnaround.

Besides IP2I, there's only one other major industry group pushing for reform, and that's the VDA (German automotive industry association). They have members such as Bosch that prevent them from taking really strong positions, and they lack IP policy expertise at the staff level. So it would be a surprise if they could solve the problem IP2I has created.

I'm quite sure I'll point to yesterday's posts as well as this one many times in the coming years whenever some high-profile German patent injunctions come down or the possibility of such injunctions forces companies into license agreements. I'll be looking out for that pink elephant, and maybe I'll spot one once every while, but I won't blame the judges for what is the only reasonable interpretation of this statute in light of the official commentary: you normally don't even have to conduct a full-blown proportionality analysis because defendants will fail to distinguish their situation from that of any other defendant who has the choice of simply taking a license.

Before the Bundestag (Federal Parliament) formally receives the bill, the Bundesrat (Federal Council) will analyze the proposal and make an official statement that is going to influence the parliamentary process. Chances are that the Federal Council will either say that even this reform proposal goes too far or that it's acceptable but will warn against seriously restricting access to patent injunctions. Some conservative politicians in the Federal Parliament will almost certainly prevent any impactful reform from being passed into law, and time is on their side as the end of the legislative term is approaching (and COVID complicates everything).

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AT&T, Sprint, Verizon sued in Texas by German patent troll IPCom over wireless patents allegedly infringed by Nokia, Ericsson, Mavenir infrastructure products

The previous post was about Nokia trolling Lenovo, and now Nokia itself is getting trolled again by a German company it knows all too well: IPCom, which sued Nokia from 2008 until Nokia's sale of its ruined handset division to Microsoft. At the height of the IPCom v. Nokia dispute, the latter took far more reasonable positions on the FRAND defense to SEP assertions than nowadays.

IPCom signed its presumably most lucrative license deal with Deutsche Telekom because its outgoing CEO faced a risk of personal liability.

Today, IPCom brought parallel patent infringement complaints in the Eastern District of Texas (Chief Judge Gilstrap's Marshall Division) against U.S. wireless carriers AT&T, Sprint, and Verizon, alleging the infringement of six (AT&T) or five (Sprint, Verizon) former Bosch and Hitachi standard-essential patents (SEPs) by infrastructure products from Nokia, Ericsson, and Mavenir. The former Bosch patents have expired, but IPCom can still seek damages for past infringement.

I've uploaded all three complaints to Scribd (AT&T, Sprint, Verizon). For your convenience, let me show you the AT& complaint right here (this post continues below the document):

20-10-01 IPCom v. AT&T ... by Florian Mueller

These are the patents-in-suit:

• Former Bosch patents:

  • U.S. Patent No. 7,333,822 on a "method for transmitting messages in a telecommunication network" (SMS/MMS)

  • U.S. Patent No. 10,382,909 on a "method for transmitting messages in a telecommunication network" (MMS messages using WAP Push messages)

  • U.S. Patent No. 6,983,147 on a "method of transmitting signaling information, a master station, a mobile station and message elements" (LTE)

• Former Hitachi patents:

  • U.S. Patent No. 6,813,261 on a "method of mobile communication and apparatus therefor" (LTE)

  • U.S. Patent No. 7,006,463 on a CDMA communication system and its transmission power control method"

  • U.S. Patent No. 7,778,310 on a "code division multiple access mobile communication system" (asserted only over 3G/UMTS functionality used by AT&T)

Nokia, Ericsson, and Mavenir will presumably intervene on defendants' behalf, as they face indemnifcation claims by the carriers (at least that's the way it usually works).

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The most lucrative patent shakedown strategy against German corporations: sue their CEOs

According to conventional wisdom, the way to extract patent royalties from German corporations is the pursuit of injunctive relief. While a reform process is underway, the corridor for any "reform" (a misnomer, thus in quotes) is so very narrow that it won't have any impact on negotiation dynamics. The pro-reform camp missed the opportunity: instead of acting like piranhas that smell blood in the water and then kill their prey, they kept making the kinds of modest political demands (only ultra-rare exceptions for extreme cases of egregiously abusive conduct) with which they got the reform process started, and they continued to limit themselves by operating only within the framework of associations (a recipe for failure). Now it's too late to move into a higher gear, and the German patent injunction regime is here to stay.

But most patent assertion entities have failed to identify and seize what would likely result in even higher royalty payments by German (and to some extent other European) companies, even though proof of concept was delivered more than six years ago. Admittedly, I didn't know either, though I could have found out as early as in the second half of 2013, but (in my defense) that's because I focus primarily on disputes between large operating companies rather than on patent troll cases.

In the summer of 2013, Reuters reported: "IPCom lands cash bonanza from D[eutsche] Telekom settlement." The deal settled all 20 cases between Fortress-funded IPCom (which was asserting former Bosch patents) and Deutsche Telekom. The financial terms weren't disclosed but two sources told Reuters that IPCom was going to receive "a low-to-medium triple-digit million euro" amount. (This blog, too, reported on the settlement.)

I remember overhearing a conversation between lawyers in Mannheim (just before some other trial) who defended other parties, such as HTC, against IPCom. Nokia and HTC defended themselves against IPCom for many years, and numerous parties intervened in various IPCom cases, particularly the cases against carriers. So there were a lot of patent litigators in Germany who had knowledge of where those cases stood, and they weren't impressed with the headway IPCom had made at the given time. Against that backdrop, they were all puzzled as to why Deutsche Telekom would, without an injunction looming large, cough up a rumored amount of hundreds of millions of euros.

The answer: a "CEO suit" strategy played out perfectly for the patent assertion entity. One might also call it the "sleepless nights" strategy.

Deutsche Telekom's 2012 Annual Report (PDF, in German) contained the following passage on patent-related risks (page 163; click on the image to enlarge; this post continues below the image):

The passage I underlined in that screenshot states that IPCom sued not only Deutsche Telekom but also "individual members of its executive board" (in the U.S., one would colloquially call them "C-level execs").

One of those individual defendants was then-CEO René Obermann, who served from late 2006 until the end of 2013. So the settlement fell into place a few months before Mr. Obermann would no longer have been covered by Deutsche Telekom's D&O (directors & officers liability insurance). If IPCom had prevailed after he left Deutsche Telekom, he'd have ended up with a potentially ruinous financial liability. He'd have gone from being a multi-millionaire to personal bankruptcy in an instant.

When the end of his term was approaching, he increasingly got nervous about the fact that the dispute with IPCom hadn't been settled yet. IPCom capitalized on this factor, big-time.

Most likely, this was by far and away the biggest license deal IPCom ever struck, despite the fact that there was no realistic chance that IPCom would have obtained and enforced an injunction anytime soon.

Under German patent law, members of the executive board are personally liable, a fact that patent holders can exploit. However, it works only against executives who live in Germany or at least some other EU member state. Otherwise, cross-border enforcement is unlikely to succeed. Hypothetically speaking, enforcement against a U.S.-based CEO would probably work only if he flew to Germany on a private jet that could be confiscated. The managing directors of local subsidiaries can be sued, but only if their entities actually sell products--not if they are merely marketing agencies within a global group structure.

Germany- and EU-based C-level executives can also be scared into settlements by threatening with criminal action. Willful patent infringements are a punishable crime in Germany (and the pseudo-reform that is in the making won't change a thing about that either), though the hurdle is reasonably high.

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Continental accuses Avanci patent pool of "conspiracy" to "boycott[] suppliers so [patentees] can collect hold-up royalties downstream"

Less than two months ago, I described automotive supplier Continental's FRAND/antitrust case against the Avanci patent pool as a conspiracy theory--in a nonjudgmental sense, notwithstanding the term's most common connotation, which is utterly pejorative.

In its opposition brief to the Avanci-Nokia-Sharp motion to dismiss the complaint, "Conti" (as people in the automotive industry commonly refer to it) uses the term "conspiracy" 20 times (plus three occurrences of "conspirator", singular or plural). At this procedural stage, it would be too much to ask for that they'd have to put forward any evidence--the standard right now is whether their pleadings are sufficient. In that regard, Conti appears to be in pretty good shape, and its opposition brief is thoroughly researched and persuasive (this post continues below the document):

19-10-04 Continental Opposi... by Florian Mueller on Scribd

The most interesting allegation is that of an "overarching conspiracy to boycott upstream suppliers like Continental." Continental describes itself as "a user of the standards impacted by Defendants' illegal boycott." Elsewhere, the alleged boycott is labeled "collusive." According to Continental, "the conspiracy consists of multiple means and agreements, all intended to achieve a single cohesive purpose—boycotting suppliers so Defendants can collect hold-up royalties downstream."

Continental argues that neither Avanci's status as a pool that doesn't hold patents of its own nor the fact that its agreement doesn't explicitly preclude its contributors form direct license agreements with upstream suppliers like Conti provide antitrust immunity. There doesn't appear to be a safe harbor like that for Avanci, but there also isn't a wealth of case law in place for holding pools responsible. Conti cites to a February 2015 pretrial decision in Zenith Electronics, LLC v. Sceptre, Inc. in the Central District of California, to a 1999 decision by the FTC (In Re Summit Technology, Inc.), and a DOJ paper according to which certain pool agreements require antitrust scrutiny. So this case before Judge Koh is almost a seminal case; at a minimum, a pivotal one.

I'm fairly optimistic that Conti's accusations are sufficient to survive a motion to dismiss. But they'll need to find a smoking gun, or multiple ones, in discovery. Otherwise Avanci--though not necesarily the conduct of each of its contributors--will be deemed above-board.

The opposition brief highlights certain conduct that is interesting to read at any rate. For an example, Sharp sued Daimler allegedly without even trying to enter into a direct license agreement, and apparently presented an Avanci pool license as the only way Daimler can settle the dispute.

Non-practicing entity Optis Wireless behaved a bit differently. A sworn declaration by PacTech Law's David Djavaherian (firm website), who represents Conti in licensing negotiations with Avanci members, reveals that Optis was only willing to go to arbitration, provided that Conti would dismiss Optis from the California case--but without even making an offer that would enable Conti at this point to evaluate the situation and the prospects of alternative dispute resolution. Should Optis make exorbitant demands, arbitration would almost certainly (though Optis said the parameters could be discussed) create a situation in which Conti could only end up with a highly unfavorable deal since a licensee can't counterbalance an outrageous demand by a licensor by proposing a negative royalty rate.

Mr. Djavaherian used to be in-house litigation counsel at Broadcom (at a time when Broadcom was firmly in the FRANDly camp). So he does know exactly what implications arbitration has as compared to litigation. He's not involved with this FRAND/antitrust litigation, but trying to work out license agreements, which appears very difficult. Recently, he served as vice chair of a CEN-CENELEC workshop that produced the CWA2 set of SEP policy recommendations.

I recently heard both Mr. Djavherian and Conti's lead counsel in this Northern California litigation, Sheppard Mullin's Stephen Korniczky, speak, but due to the Chatham House Rule I can't be more specific. What I can say is that both really understand SEP licensing issues extremely well--the reason that I have criticized Conti's U.S. litigation strategies is simply that I believe they're too slow and that I've never seen a litigant make multiple totally outrageous demands in just one context (here, with respect to the pursuit of an antisuit injunction that would have been absurdly overbroad for more than one reason). Without litigants trying long shots, the law couldn't evolve, at least not as rapidly as the pace of our industry requires it. But what they asked Judge Koh to do for them totally flew in the face of even the most basic legal principles--as did some crazy arguments such as pointing to an antitrust complaint lodged with the EU Commission in connection with the question of whether Nokia's German patent infringement lawsuits against Daimler were or were not the earlied-filed cases than Continental's U.S. lawsuit against Avanci, Nokia, and other parties.

Furthermore, given that their own representation to the court (in paragraph 145 of their first amended complaint against Avanci et al.) is that their client became aware of Sharp's German litigation campaign on or about June 3 (which is consistent with a mid-August Juve Patent article according to which the German legal community had then already been aware of it for some time), I don't understand why they brought their antisuit motion against Avanci, Nokia and two other defendants the following week instead of first adding Sharp to the case (which they finally did about 50 days after becoming aware of Sharp's first complaint against Daimler). There definitely wasn't a sense of urgency with respect to Nokia. While a first hearing in Munich on June 5 was dreadful for Daimler and, by extension, Continental, the court scheduled the actual trial for February 2020. At the earliest, Nokia will be able to obtain an injunction after a December 10 Mannheim trial. Judge Koh was right to dismiss the antisuit motion without prejudice. Conti does have a timing problem with respect to Nokia, but that's because of the dates of the relevant complaints, not of the antisuit motion.

On Halloween, the Munich Higher Regional Court will hear Conti's appeal of Nokia's anti-antisuit-injunction injunction ("AAII"). If the German appeals court finds that AAIIs are categorically impossible, then Conti will win, but should the appeals court make this subject to a case-by-case determination, then Nokia will probably benefit from Conti's slowness, hesitancy, and the unreasonable scope of the original antisuit motion (which wasn't limited to just preventing Nokia from enforcing injunctive relief against Daimler cars that come with Conti telematics control units, but was meant to bar Nokia from any such assertions against Daimler regardless of supplier and remedies sought).

Going back to the conspiracy theory (nonjudgmentally speaking) in the U.S. case, discovery might get interesting, but it's also possible that Avanci and its members structured their collusion so cleverly that no one can dig up evidence of anticompetitive conduct. At the 2021 trial I would expect Avanci to present a number of witnesses who will seek to exonerate it. Also, even a company that is not at all associated with SEP abuse--Deutsche Telekom--has recently joined the Avanci pool.

I'm against Avanci's strategy of licensing only car makers, not the likes of Conti. I do consider Avanci's royalty demands to be supra-FRAND. Whatever Conti can point to at this procedural stage is probably and hopefully enough to keep the case alive, but it's thin. For the time being, it falls far short of what it will take to prevail on the allegation of a conspiracy in two years' time. Conti needs to find or elicit something totally incriminating, lest Avanci will be acquitted.

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