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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Sony asks top EU court to enforce copyright law against cheat software that changes variables in PlayStation memory, not program code

The last time this blog talked about an IP enforcement case to which Sony was a party was 12 years ago when hundreds of thousands of PlayStations were seized in the Netherlands over a patent infringement allegation by LG Electronics. More recently, Sony has been mentioned as the only vocal complainer over Microsoft's acquisition of Activision Blizzard King (most recent blog post, tweet about latest court filing by Microsoft, Twitter thread flagging errors in GamesIndustry.biz article previously identified by two of my followers, tweet about likely Chinese approval, tweet about European game developers' support, Microsoft's president's latest tweet about Nintendo deal).

Now Sony is the plaintiff in the most interesting software copyright case that has been referred to the European Court of Justice since SAS (decided in 2012). On Thursday, the Bundesgerichtshof (Federal Court of Justice of Germany) announced (in German) its decision to make a request for preliminary ruling--briefly called preliminary reference--to the European Court of Justice (ECJ). Yesterday, Graf von Westphalen--the law firm that represents the defendant, Datel Group--issued a press release as well (in German, too), from which I learned the names of the parties, which the court itself was not allowed to reveal.

In the IP law community, this case will, however, be widely referred to as Sony v. Datel. And the question is whether cheat software--that allows video gamers to make faster progress or unlock features in games through technical manipulation--infringes copyright law.

These are the questions referred to the top EU court (in German, plus my unofficial translation):

1. Wird in den Schutzbereich eines Computerprogramms nach Art. 1 Abs. 1 bis 3 der Richtlinie 2009/24/EG eingegriffen, wenn nicht der Objekt- oder Quellcode eines Computerprogramms oder dessen Vervielfältigung verändert wird, sondern ein gleichzeitig mit dem geschützten Computerprogramm ablaufendes anderes Programm den Inhalt von Variablen verändert, die das geschützte Computerprogramm im Arbeitsspeicher angelegt hat und im Ablauf des Programms verwendet?

2. Liegt eine Umarbeitung im Sinne von Art. 4 Abs. 1 Buchst. b der Richtlinie 2009/24/EG vor, wenn nicht der Objekt- oder Quellcode eines Computerprogramms oder dessen Vervielfältigung verändert wird, sondern ein gleichzeitig mit dem geschützten Computerprogramm ablaufendes anderes Programm den Inhalt von Variablen verändert, die das geschützte Computerprogramm im Arbeitsspeicher angelegt hat und im Ablauf des Programms verwendet?

Unofficial translation by FOSS Patents:

1. Is the object of [copyright] protection of a computer program under Art. 1 (1) to (3) of EU directive 2009/24/EC ["the Software Directive"] encroached if neither the object code nor the source code of a computer program or a copy thereof is altered, but a different computer program running separately with the protected computer program modifies the values of variables stored in memory by the protected computer program and used by it in the execution of the program?

2. Is it an alteration within the meaning of Art. 4 (1) (b) of the Software Directive if [what follows now is the same conditional subclause as in question 1] neither the object code nor the source code of a computer program or a copy thereof is altered, but a different computer program running separately with the protected computer program modifies the values of variables stored in memory by the protected computer program and used by it in the execution of the program?

To understand the technical background of the dispute, it's helpful to look at how long this litigation has been pending: well over a decade. In January 2012, the Hamburg Regional Court sided with Sony, but was overruled in October 2021 by the Hamburg Higher Regional Court. This is an unusually long time almost ten years between the two decisions, and from the publicly available information I cannot deduce the reason for the delay. Anyway, the case was then appealed further (by Sony) to the Federal Court of Justice (case no. I ZR 157/21, caption: Action Replay).

The Wikipedia page about Datel indicates that the company has a long history of making cheat devices and was sued by Sony as early as in the 1990s. I suspect that the case that has now been put before the ECJ involves a product called Lite Blue Tool, which according to Wikipedia "caused a Sony PlayStation Portable (PSP) to enter into Jigkick or Factory programming mode, allowing the execution of the boot code from a removable storage."

It is extremely difficult to execute unauthorized code on today's PlayStations. It's like with the iPhone: one has to "jailbreak" (or "mod") the device.

Those practical hurdles don't render the legal question here irrelevant. Cheat programs that manipulate games are hated by the industry and by honest players.

I don't want to be a hypocrite: I did something similar in the 1980s on Commodore home computers. There was a BASIC command named POKE that made it possible to modify the value stored in memory (POKE address, value). Plenty of cheat codes were known at the time, and for a couple of games I looked into the program code (using what was called a monitor--a program that displays machine language code in a more legible form) to find out where, for instance, the number of lives was stored so I could just increase it from, say, 3 to 255 (maximum value of a byte). And back then it was even done prior to execution (those were single-tasking devices), meaning that what we altered was the copyrighted work that we had downloaded.

While I understand Sony's desire to combat cheating with copyright law, it may not be the best vehicle. It would take DMCA-style legislation (even going beyond the DMCA in my opinion), but the ECJ may just decide to legislate from the bench as it did when it held website operators liable for copyright infringements on third-party websites they link to (good for right holders) or when it declared a programming language unprotectable regardless of the level of creativity (SAS Institute v. World Programming) (bad for right holders).

Copyright has always been a suboptimal--but still pretty useful--means of protecting computer programs. In practice, it's really a mix now of various intellectual property rights that software makers rely on: copyright, patents, trade secrets (particularly in the age of cloud computing), and trademarks.

Copyright is meant to protect creative expression, such as art and literature. The fact that it extends not only to source code (which comes with legible variable and function names) but also to object code (which is derived from source code, but typically stripped of such clearly expressive elements) is a bit of a stretch, but justifiable because it's still the same structure, sequence, and organization as the source code. However, technical functionality--whatever happens at runtime--is the prerogative of patent law. Art. 1 of the EU Software Directive says that it "shall protect computer programs, by copyright, as literary works within the meaning of the Berne Convention for the Protection of Literary and Artistic Works" and "[p]rotection ... shall apply to the expression in any form of a computer program." The directive clearly says:

"Ideas and principles which underlie any element of a computer program, including those which underlie its interfaces, are not protected by copyright under this Directive."

Art. 4 of the EU Software Directive relates to restricted acts, meaning acts for which one has to be the creator or needs a license from the creator. Of the three types of restricted acts, the first (reproduction) and third (distribution) are not at issue. It's the one in the middle that matters:

"(b) the translation, adaptation, arrangement and any other alteration of a computer program and the reproduction of the results thereof, without prejudice to the rights of the person who alters the program;"

The passage that could help Sony here is "any other alteration of a computer program"--though we are talking about an alteration of an in-memory value as opposed to the protected program code, and the final part protects "the rights of the person who alters the program" (which could include the right to just change values stored in memory after you've paid for the device and the software).

If the ECJ focuses on the effect, Sony has a strong case: if, for example, a runner game puts obstacles in the way of a gamer and a cheat program just writes zeroes into the memory section where the data points for those obstacles (type of obstacle and location) are placed, you get the same effect as if you removed the obstacles by altering the program code that displays them, checks for collisions, or penalizes players for hitting them: the obstacles don't appear or at least don't affect the player. But we're talking about runtime technical effects while copyright is about design time and more static than patent law. I believe the appeals court in Hamburg was right when it held that it would have to take something more than just modifying variables in memory to perform a copyright infringement in the sense of an alteration of a copyrighted work itself. But there is no court above the ECJ, and like in the link liability case I mentioned further above, it may again take an expansive view on the scope of copyright protection.

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Patent exhaustion can be triggered by covenant to sue last: Germany's Federal Court of Justice creates legal uncertainty for wireless patent holders such as Qualcomm

The global ramifications for the patent licensing industry are huge:

Patent holders who enter(ed) into agreements with chipset makers and other suppliers while hoping to reserve the enforcement of their rights against downstream customers--particularly for the purpose of collecting royalties from end-product makers--can no longer rely on a covenant to sue last (sometimes also called covenant to exhaust remedies) as a means of sidestepping patent exhaustion.

I'm grateful to German IP litigator Oliver Loeffel ("Löffel" in German) for flagging the following decision to me:

The Bundesgerichtshof (Federal Court of Justice of Germany) today published (PDF) a judgment (dated January 24, 2023) according to which

• a covenant not to sue is, as a matter of law, not capable of circumventing patent exhaustion; and

• a covenant to sue last (which the court refers to as a "covenant to be sued last", a term that I can't find elsewhere and which doesn't make sense to me linguistically) is not, as a matter of law, certain to avoid exhaustion. Instead of focusing on what might theoretically happen (i.e., that there are hypothetical scenarios in which the beneficiary of the covenant to sue last might find itself on the receiving end of an infringement action), it depends on the answer to the following question of fact: whether the beneficiary of the covenant must realistically expect--in the ordinary course of events--to be held liable for infringement.

This may also have implications (in the sense of potentially persuasive authority) for other jurisdictions. With a view to the United States, the first part is merely consistent with TransCore, Quanta, and the spirit of Impression Products, but the second part touches on what would raise a question of first impression in the Supreme Court. So far, patent holders such as Qualcomm were pretty confident that a covenant to sue last would not entail patent exhaustion under U.S. patent law. While persuasive authority from a foreign jurisdiction is normally given limited weight, Germany's Federal Court of Justice actually has a reputation for being patentee-friendly, and its patent-specialized judges regularly meet with the judges of the United States Court of Appeals for the Federal Circuit.

The relevant case numbers are X ZR 123 (Federal Court of Justice), 6 U 104/18 (Karlsruhe Higher Regional Court, appellate opinion of November 25, 2020), and 7 O 165/16 (Mannheim Regional Court, judgment of September 28, 2018). The plaintiff (and appellee, at least in the Federal Court of Justice) is Japan's IP Bridge, the defendant is HTC, and the patent-in-suit is EP2294737 on "control channel signalling for triggering the independent transmission of a channel quality indicator", a patent that has been asserted against various defendants and over which IP Bridge won a famous German patent injunction against Ford last year.

The law firm of Kather Augenstein (which by the way represented Ericsson against Apple last year) published an English translastion of key passages of the Mannheim court's decision (PDF). I have not been able to find the appellate decision, though it has been referenced by IAM (as a key post-Sisvel v. Haier FRAND ruling) and even by this blog (because the Munich I Regional Court applied the Karlsruhe Higher Regional Court's claim construction in the Ford case, though it is not even in the Karlsruhe circuit).

Previously, no one paid much attention to the question of patent exhaustion. But the Federal Court of Justice--after siding with IP Bridge on the question of infringement--has now remanded the case to the Karlsruhe court (Presiding Judge: Andreas Voss ("Voß" in German)) because the patent-in-suit may have been exhausted by a covenant to sue last. As a result, it is now known that HTC--on top of technical defenses and a FRAND defense to injunctive relief--argued that the patent had been exhausted (maybe by IP Bridge, or maybe by Panasonic, which originally obtained this patent) through contracts with two chipset makers whose products were incorporated into the accused products (HTC smartphones).

This is a very special subject, so let me start with why such a thing as a covenant to sue last exists in the first place, and then discuss the holdings of the Federal Court of Justice in this case.

The instrument that is called covenant to sue last (or covenant to exhaust remedies) was borne out of necessity: Qualcomm and other patent holders (primarily wireless standard-essential patent (SEP) holders) have always preferred to license their patents to smartphone makers (and, more recently, automakers) over licensing them to upstream suppliers such as baseband chipset makers. But they'd also like to be able to enter into contractual arrangements with chipmakers so long as those dealings don't trigger patent exhaustion, which would make it impossible to enforce patent rights against the downstream, particularly the end-product maker.

They knew early on that a contractual provision would not be capable of preventing exhaustion when a straightforward license is granted. The concept of patent exhaustion is that patent rights are exhausted with the first sale (if the patent holder makes a product) or the first authorized (licensed) sale. The German decision published today also recalls that fact.

So the first "workaround" that lawyers came up with was to enter into a covenant not to sue instead of granting a license. For some time, there was widespread belief that this would do the trick. But over the years, the U.S. Supreme Court's patent exhaustion caselaw became more expansive. The 2008 decision in Quanta Computer v. LG Electronics clarified that patent exhaustion applies to method claims (as opposed to only product claims). In Impression Products v. Lexmark International, the top U.S. court held that post-sale restrictions may be enforceable under contract law but do nothing to avoid patent exhaustion. It also took an expansive view on whether a foreign first authorized sale will exhaust U.S. patent rights.

Between Quanta and Impression, the Federal Circuit equated, in its TransCore decision, a covenant not to sue to a license for exhaustion purposes, The instrument of a covenant to sue last became popular. This is how it works:

• The beneficiary neither gets a license nor a 100% reliable commitment not to be sued.

• But recovery will be sought from the beneficiary only if it cannot be obtained from the downstream.

Take automotive patent licensing, for example. If Nokia had (which I believe is not and was not the case) entered into a covenant to sue last vis-à-vis the chipmaker, it would only have been able to sue that company after seeking and failing to obtain recovery from Daimler (end-product maker), Continental (tier 1 supplier that makes telematics control units), and whatever tier 2 supplier supplied the Network Access Device (NAD) to Conti.

In the dispute between IP Bridge and HTC, the former succeeded in persuading the appeals court (Karlsruhe Higher Regional Court) that a covenant not to sue would already be sufficient to avoid patent exhaustion and, therefore, a covenant to sue last was even more certain to do the job.

HTC appealed, and the Federal Court of Justice (which is based in Karlsruhe like the court below) reversed and remanded with the following holdings and instructions:

• The Federal Court of Justice said it was not merely an obiter dictum that the Karlsruhe Higher Regional Court said a covenant not to sue would not trigger exhaustion. Instead, it was the bedrock of the lower court's conclusion that a covenant to sue last could not result in patent exhaustion either.

• The Federal Court of Justice says the focus must be on whether the patent holder has authorized the "release into commerce" ("Inverkehrbringen") of products that implement the patented invention. Typically, that will be the case if the patent holder entered into a covenant not to sue, and contractual provisions according to which the patentee reserves its rights against third parties are invalid.

• As a result, the Karlsruhe Higher Regional Court's conclusion that a covenant to sue last does not exhaust patent rights because even a covenant not to sue would not trigger exhaustion has been reversed.

• The Federal Court of Justice then turns to questions that the court below didn't have to reach:

• On remand, the Karlsruhe Higher Regional Court will have to determine whether the patent-in-suit falls under the capture clause of the patentee's relevant contracts with the two chipmakers.

• Patent exhaustion is not ruled out only because the chipmakers don't make phones and the patent claims-in-suit involve technical components that are not found in chips, but only in phones. The Federal Court of Justice acknowledges that patent exhaustion generally applies only to the particular product that was sold on an authorized basis. Exhaustion does not necessarily apply to downstream products that contain that product as one of multiple components. But that may be the net effect if the only meaningful way in which the chipsets in question can be used is to incorporate them into mobile end-user devices. In that case, the patentee's authorization of the sale of such chipsets may amount to tacit consent to the distribution of mobile devices that incorporate those chipsets. What could weigh against that conclusion, however, would be a disclaimer of liability in the agreements between the chipmakers and HTC.

• Even if the relevant agreements were to be interpreted to the effect that the patentee did not consent to the incorporation of those chipsets into mobile phones, the patent could still be exhausted if the technical effects of the patent-in-suit are materially achieved by those chipsets, with all other components of those mobile phones not playing a determinative role.

• Now comes the most important part:

  The Karlsruhe Higher Regional Court will have to determine whether the patentee gave its contractual partners (the chipmakers) an assurance that it would not assert the patent-in-suit against them--and such determination will have to focus on practical as opposed to exclusively theoretical considerations. The first and foremost question will be whether in the ordinarily expected course of events the chipmakers must fear to be sued over an infringement of the patent-in-suit.

In other words, the merely hypothetical possibility of the immediate beneficiary of the covenant to sue last being sued is not enough to avoid exhaustion. If it's rather unlikely that the immediate beneficiary of the covenant ever gets sued, then the covenant to sue last will be treated like a covenant not to sue, which in turn is treated like a license.

How can the chipmaker have a reasonable apprehension of being sued in the ordinary course of events? The normal course of events is that if you hold a patent and sue a device maker (and your infringement allegations have merit), you get paid--unless that device maker goes bankrupt along the way.

The short version is: the Federal Court of Justice does not want to let patent holders circumvent exhaustion through a covenant to sue last, but unless there are special circumstances that suggest otherwise, will treat it like a covenant not to sue, which is treated like a license.

Is this a desirable outcome? This post is already long enough without discussing the policy implications, but I do want to mention one: there may be cases in which chipmakers want peace of mind and where it would be in the public interest to allow patentees to give it to them, but in which patent holders may now tell them that after IP Bridge v. HTC it's too risky for them to enter into a covenant to sue last because they may exhaust their patent rights.

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SHOCKING: Nokia patents, other lawsuits force OPPO, OnePlus out of German market--first smartphone maker in history to exit major market over patent enforcement

The history of phones has been linked to patents ever since Alexander Graham Bell patented the telephone in 1876. One of humanity's dreams materialized. Fast forward 146 years, and nothing short of a nightmare has come true: a very significant phone maker has actually exited--not merely threatened to exit--one of the largest markets in the world--Germany--as a result of patent assertions.

I became aware of this shortly after yesterday's post on two standard-essential patent (SEP) injunctions Nokia had just obtained against OPPO from the Munich I Regional Court. Previously, the Mannheim Regional Court had granted Nokia a non-SEP injunction in June as well as a a SEP injunction (over two patents from the same family) in July.

Nokia may win one or more additional injunctions on Tuesday. OPPO has its own countersuits pending, but those are taking longer.

While U.S. and UK courts would hear extensive testimony from expert witnesses in such cases, and German courts appoint their own experts in cases of far lesser significance (such as construction law disputes over only a few thousand euros), neither the Mannheim court nor the one in Munich appointed an economic expert to analyze whether the parties' positions were fair, reasonable, and non-discriminatory (FRAND). In all three SEP cases, the decisions were based on the judges' own determination that Nokia had discharged its FRAND licensing obligations and OPPO was an unwilling licensee.

I'm now going to report and comment on the situation in multiple parts:

1. Market shares: OPPO 10%, OnePlus 2-3%, and (soon to follow?) Vivo 8%

2. Hard evidence of OPPO and OnePlus having left the German market

3. Other patent assertions against OPPO in Germany

4. Why OPPO's calculus may simply make economic sense

5. Implications for Apple, Samsung, and Xiaomi

6. Comparison to previous market impact of other patent enforcement (particularly--but not only--in Germany) and Apple's about-face in the UK

7. Tactical implications for Nokia-OPPO licensing negotiations

8. German patent injunction reform: collective failure by Apple, Google, Nvidia, Deutsche Telekom, SAP, automotive industry

Market shares: OPPO 10%, OnePlus 2-3%, and (soon to follow?) Vivo 8%

According to Canalys, OPPO's worldwide market share was 10% in the first quarter of 2022--slightly down from 11% year-on-year. And there's another 8% for Vivo, which is not an OPPO affiliate, but like OPPO belongs to BBK Electronics Corporation of Guangzhou, China, and is also being sued by Nokia in Germany. Vivo hasn't exited the German market (here's a German Vivo product page) as there is no injunction in place yet, but given that OPPO has made the determination that it was prudent to leave the German market and to reject Nokia's royalty demands, it seems likely that--faced with the enforcement of an injunction--Vivo, too, would independently reach that conclusion when running the numbers.

So, in the short term we're talking about the exit of smartphone brands accounting for more than 10% of the market (OPPO + OnePlus), and in the mid term we may be talking about more than 10% (OPPO + OnePlus + Vivo). Vivo has much less of a market presence in Germany than OPPO.

When phones accounting for 10% or more of unit sales in a large market--and an even higher percentage of the low- and mid-range segments--become unavailable, it cannot be denied that there is an impact on consumer choice and possibly even a very significant output restriction in these times of chipset shortages. That, of course, does not mean to blame patent holders or the patent system. I'm talking about the practical consequences of this. This is plainly massive.

Hard evidence of OPPO and OnePlus having left the German market

I had mentioned in several previous posts the possibility of OPPO determining that it was too costly to stay in the German market, and then I ran a Twitter search to see whether someone else had also reported on yesterday's Nokia v. OPPO injunctions #3 and #4. I found this tweet by OPPOblog's Dominik Lux and another one that pointed me to this Go2Android.de article. Yesterday, Caschys Blog also reported on this development.

I've also verified the situation myself. OPPO's German website contains the following note (click on the image to enlarge):

That note translates as follows:

"Currently, no product information is available on our website.

"Q: Can I continue to use OPPO products without limitation, receive support, and receive future updates?

"A: Yes, you continue to be able to use your OPPO products without limitation, receive support, and of course you will receive all future updates."

The removal of product information is key because German patent injunctions typically enjoin a defendant not only from making and selling the products that have been held to infringe, but also from advertising them.

As for the availability of future over-the-air (OTA) software updates, Nokia can't do anything about that unless and until it enforces a patent on a technique that is essential to Android. Cellular standards are implemented at the hardware level, not in Android itself. The WiFi non-SEP over which Nokia won its first German injunction against OPPO can be worked around, but even that one may be implemented at the chipset level.

The German OnePlus store delivers the following when one clicks on the "Phone" category (click on the image to enlarge or read the text below the image):

"Uh-oh! Nothing is found.

"Try searching with different filters."

Some OnePlus accessories are still available. They are not among the accused products (for now).

German injunctions are binding only on the defendants, not on third parties. Therefore, resellers still have OPPO and OnePlus products in stock--though it's unclear for how much longer that will be the case. The largest one of those resellers is Deutsche Telekom (T-Mobile), which carries five OPPO and six OnePlus products as you can see in the following screenshot (click on the image to enlarge):

In the part on tactical implications for the Nokia-OPPO licensing negotiations I'll discuss what the parties' options with a view to OPPO's resellers are.

Other patent assertions against OPPO in Germany

While Nokia is the only patent holder with a German injunction in force against OPPO and OnePlus at this stage, there are other patent cases pending against OPPO and OnePlus in German courts:

• In December, U.S.-based patent licensing firm InterDigital announced patent infringement complaints in Germany, the UK, and India.

• Another patent licensing firm from the U.S., VoiceAge EVS, is also suing OPPO in Germany. Just this week, OPPO achieved the (appealable) invalidation of one VoiceAge patent shortly after another Chinese smartphone maker--Xiaomi--had settled shortly before a pair of Munich injunctions would potentially have come down.

• There may be even more than meets the eye, as German lawsuits are not publicly listed. One has to contact the press offices of the courts in order to find out, and I haven't recently inquired about cases that other parties than Nokia, InterDigital, and VoiceAge EVS have filed against OPPO.

• Furthermore, it is impossible to find out from the outside what other patent holders may have threatened OPPO with patent assertions in Germany that could happen--or could have happened--in the near term.

Why OPPO's calculus may simply make economic sense

The totality of the injunctions that have come down, as well as other pending and threatened cases, faces OPPO with the choice of

• taking global portfolio licenses on the patent holders' offered terms, thereby reducing margins and/or (as a result of price increases) the company's competitiveness in the rest of the world, or

• forgoing potential profits in Germany, possibly even in the long run, in favor of maintaining the company's margins and competitiveness in the markets where it generates the bulk of its sales.

It's what chess players call a gambit. Economically, it's an "op cost" (opportunity cost) analysis of two alternative scenarios.

According to the BITKOM industry association (of which Nokia is a member, too), the annual sales volume of smartphones in Germany is approximately 20 million devices with an average price of approximately 550 euros (US$560). The median would be more interesting to know, as Apple with its sky-high prices is not representative of the rest of the market. It is a safe assumption that OPPO's average price--even with OnePlus included--is significantly lower. That would mean a quantity of roughly 2 million units, at an average price of maybe 400 euros (US$407). If we assume a margin of maybe 10%, that would mean annual profits of approximately 80 million (euros or U.S. dollars).

On Thursday, InterDigital discussed OPPO's global sales volume in a conference call with investors, and an estimate of 200 million units was mentioned (I knew that the number was well over 100 million units per year). That means OPPO generates maybe about 1% of its global sales in the German market.

If we now compare those 80 million euros/dollars in annual profits from Germany to the impact of paying elevated patent royalties on the other 200 million units, the simplest way to look at it is that even if OPPO expected to save only about 40 cents in patent royalties on a per-unit basis, it would make sense to just leave--and even in the long run, stay out of--the German market. The difference between Nokia's and OPPO's positions may be a lot greater than that--and then there are various other patent holders, including the ones already suing OPPO in Germany. In the total of all the patent holders seeking leverage in Germany now or later, the per-unit cost increase could amount to several euros/dollars.

If OPPO assumed that it can get a substantially better deal in a matter of weeks or months, then it would pay off big-time to forgo some German sales, especially during the slow summer season.

OPPO may never really lose 100% of its German sales. Resellers and even consumers may buy products in other European countries, such as Austria or Poland.

Obviously, the question is then whether Nokia will get leverage over OPPO--or OPPO over Nokia, as it's a two-way dispute--in other jurisdictions, as cases are pending in many countries. I'll talk more about the tactical options both parties have from here on out further below.

Implications for Apple, Samsung, and Xiaomi

For Apple and Samsung, and probably even for Xiaomi, the calculus would be rather different if faced with a similar situation.

Apple--which has yet to renew its Ericsson, Nokia, and InterDigital license agreements, two of which have expired and the last one of which is about to expire--has far higher profit margins than OPPO, and doesn't target similarly price-sensitive customer groups as OPPO does especially (but not only) in Asia.

For instance, Apple generates only 0.2% of its worldwide sales in Colombia, but the cost of not being able to sell its 5G iPhones and iPads there is already substantial compared to the license fees Ericsson is seeking. Exiting the German market wouldn't be an option for Apple.

Samsung (which also has to renew the core part of its Nokia license rather soon) and Xiaomi are somewhere between Apple and OPPO in terms of per-unit prices, profitability, and market shares in affluent vs. developing countries.

Comparison to previous market impact of other patent enforcement (particularly--but not only--in Germany) and Apple's about-face in the UK

OPPO's withdrawal from the German market is of an unprecedented scope and scale. So far there had only been

• sales bans that temporarily affected limited parts of a given smartphone maker's line-up,

• temporary removals of features, and

• cases in which companies publicly or privately said they were contemplating exiting a market as an alternative to caving to a patent holder's demands, but in none of those cases did it actually happen when push came to shove.

The most recent case of a temporary exit from the German market concerning some--not all-- of a smartphone maker's products became known six months ago and involved HMD. That was due to the enforcement of patent injunctions by VoiceAge EVS.

The previous incident resulted from Qualcomm's enforcement of a patent injunction against Apple. That one, too, affected only some products: the iPhone 7 and 8, which were already the low-end iPhones at that time. While Apple was temporarily unable to sell them directly in its Apple Stores or online, those devices remained widely available through resellers. The problem was solved by Apple incorporating Qualcomm--not Intel--chips into the iPhone 7 and 8 for the German market. Had Apple and Qualcomm not worked it out, the appeals court would have lifted the injunction anyway: that's precisely what it did at a time when it no longer mattered.

In early 2012, Motorola (while in the process of being acquired by Google) was enforcing a Mannheim SEP injunction against Apple. As a result, Apple was unable to sell the iPhone 3G, the iPhone 3GS, and the iPhone 4 (but not the iPhone 4S), and all 3G/UMTS-capable iPads in Germany. But what was really going on was that Apple iteratively offered Motorola better terms until the appeals court--the Karlsruhe Higher Regional Court--deemed Apple's offer reasonable enough to stay the enforcement of the injunction.

What lasted more than a year was the impact of Motorola's push notification patent injunction. Apple had to disable that feature until the appeals court lifted it in 2013.

IPCom enforced a patent injunction against HTC in Germany before that, and a motion for contempt-of-court sanctions was brought, but there was no market impact.

Last year, Apple's outside counsel told a UK judge that her client might exit the British market if the court set too high a global royalty rate, but ultimately agreed to accept the UK court's determination, and the related trial took place a couple of months ago. (By the way, FOSS Patents was referenced on multiple occasions during that trial.)

Experienced licensing negotiators have witnessed countless situations in which companies said that if they were going to lose a case in a given jurisdiction, they'd rather leave that market than settle on a worldwide basis. Generally, no one ever took such statements too seriously. But with OPPO in Germany it appears that a point has been reached where a significant player has determined that pulling out is preferable over backing down.

Tactical implications for Nokia-OPPO licensing negotiations

Nokia and OPPO can hardly know what the other side's intentions are:

• Given that the current situation is unprecedented, Nokia may assume that OPPO is bluffing and not going to stay out of the German market for too long after the slow summer is over and OPPO's products that are currently in its resellers' warehouses have been sold.

  But if Nokia miscalculates in this regard, and OPPO actually does pay the price of staying out of the German market (also with a view to other pending patent cases), then the point will come at which Nokia is the more vulnerable side in Germany. OPPO's own enforcement of true 5G patents is likely to lead to injunctions against Nokia's mobile base stations.

• It would be reasonable for OPPO to assume that Nokia will want to turn the page on that dispute and focus on bigger fish to fry: Apple and Samsung--companies that, unlike OPPO, could not afford to pull out of Germany only to avoid taking a patent license on Nokia's preferred terms.

  But there's another side to this. Nokia knows that whatever deal it reaches with OPPO will be referenced in potential disputes with Apple and Samsung as a comparable license agreement. Nokia can argue that OPPO's average selling price is far lower than Apple's, and significantly lower than Samsung's. But the headline royalty rate is going to be part of the discussion.

  And this works both ways: OPPO won't be interested in weakning its position vis-à-vis other SEP holders (such as InterDigital).

With a view to Nokia's potential future disputes (Apple, Samsung etc.), there's also an upside and a downside from continued litigation with OPPO:

• With favorable decisions like yesterday, Nokia grows its selection of "surefire" patents it can assert against the likes of Apple and Samsung.

• But there could also be setbacks and losses. For instance, OPPO--maybe not least because the Nokia dispute forced it out of the German market for now--didn't take a license from VoiceAge EVS (unlike Xiaomi, which didn't take its chances), and defeated one VoiceAge patent in the Federal Patent Court (whose decision is now going to be appealed).

• Another risk factor for Nokia is that the appeals courts--with the Munich Higher Regional Court being a huge question mark since the new judge presiding over its patent-specialized division has virtually no track record in patent infringement jurisprudence--could overturn some of those first-round wins for technical reasons and/or disagree with the lower courts on FRAND-related questions.

What's unclear is how big a part of OPPO's problem some other German lawsuits (InterDigital, VoiceAge EVS, and any potentially unknown or yet-to-be-filed ones) are. The aggregate of the bid-ask differences between OPPO and those other patent holders could be comparable to, or greater than, the one in the Nokia case. In that case, settling with Nokia would at best solve half the problem fro OPPO. However, against InterDigital and VoiceAge EVS, OPPO can't countersue as those companies aren't selling products in Germany: their revenue model is patent licensing.

Then there are all those other jurisdictions in which Nokia and OPPO are currently embroiled in litigation. Simultaneously with the German cases, Nokia brought complaints in London, Paris, and Barcelona. OPPO sought a declaratory judgment in the Netherlands, where Nokia responded with non-compulsory counterclaims. In China, OPPO is seeking a FRAND determination, and Nokia brought infringement claims. Nokia is suing in India and Indonesia. In the latter jurisdiction, OPPO has so far defended itself, though Nokia could refile. Nokia also sued in Russia, but withdrew there over the Ukrainian situation--but then brought cases in Sweden and Finland.

Nokia may be able to obtain injunctions in some other jurisdictions, but it remains to be seen what the courts in those countries will say about Nokia's and OPPO's FRAND compliance. Divergent decisions are possible.

There are also tactical decisions to be made by Nokia in Germany. It's possible that resellers like Deutsche Telekom and MediaMarkt will just buy OPPO products in other countries within the EU's single market, such as Austria or Poland. Nokia wouldn't want to sue the carriers as they are its network infrastructure customers. What Nokia could consider is a petition for border seizures by customs authorities (here's a German-language article (PDF) by the Bardehle Pagenberg firm on that topic).

We may not see an immediate settlement during the summer, but the closer we get to the Christmas Selling Season, the more likely it is that a deal will happen. Otherwise, OPPO would have nothing left to lose in Germany, but could at some point enforce injunctions against Nokia in Germany.

Should there be no settlement in the near term, we'd likely also see the parties file cases with the Unified Patent Court (UPC) in order to obtain EU-wide injunctions.

German patent injunction reform: collective failure by Apple, Google, Nvidia, Deutsche Telekom, SAP, automotive industry

It's been almost exactly a year since a German patent "reform" bill entered into force. While OPPO wasn't visible in the lobbying efforts related to that piece of legislation, companies like Apple, Google, Nvidia, Deutsche Telekom, SAP, and the German automotive industry had completely false hopes that a modified injunction statute (§ 139 of the German Patent Act) would lead to a departure from Germany's near-automatic injunction regime.

I've commented on that monumental lobbying failure on various occasions, such as earlier this year when two Dusseldorf judges made it clear that patent holders would continue to obtain injunctions in virtually every case where they prevail on the technical merits. More recently, there have been court rulings--also from Dusseldorf--that clarified that the situation was still the same as before. German judges have pointed out in their decisions as well as in public speeches that the language that got inserted into § 139 last year merely codifies the prior case law, under which a plaintiff either has to make stupid mistakes or seek a sales ban on, say, the printing of bank notes or a COVID vaccine in order to be denied an injunction. It's not even clear whether a proportionality defense could succeed in a single case in which a defendant wouldn't be entitled to a compulsory license anyway.

A few months ago, even ip2innovate, a lobbying front for the likes of Google, Nvidia, Daimler, and SAP--conceded in light of an injunction against car maker Ford that the legislative amendment hasn't really lived up to those companies' expectations. Well, I already predicted it in early 2000 right here on this blog. They just wouldn't believe me then. They now know that I was right with my predictions, and they were strategically on the wrong track.

OPPO's exit from the German market illustrates it again. Being exposed to German patent litigation is a vulnerability that some may prefer to avoid regardless of the opportunity costs from not serving such a large and otherwise lucrative market.

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OPPO, HMD win Federal Patent Court ruling against VoiceAge EVS: all challenged claims declared invalid, final decision to be made by Federal Court of Justice

After an impressive and unprecedented series of six favorable decisions against HMD--a company that makes Android smartphones under the (licensed) Nokia brand and whose shareholders include Qualcomm, Google, and Nokia--patent licensing firm VoiceAge EVS now faces a first unfavorable court ruling:

The Bundespatentgericht (Federal Patent Court of Germany) has just informed me that at the end of a hearing in case no. 4 Ni 11/21 (EP) on Tuesday (August 2), the court's Fourth Nullity Senate announced a decision in plaintiffs OPPO and HMD's favor concerning VoiceAge EVS's EP3132443 on "methods, encoder and decoder for linear predictive encoding and decoding of sound signals upon transition between frames having different sampling rates". The written ruling will issue at a later stage. The net effect is that

• claims 1-4 and 10-17 have been declared invalid, and

• claims 7-9 have been declared invalid to the extent they reference claims 1-4.

VoiceAge EVS had won--and had since been enforcing--a Munich injunction against HMD about a year ago. A ruling in a case over the same patent against OPPO is scheduled for August 18. Until the nullity decision on Tuesday, it actually looked like VoiceAge EVS was going to win that case, especially since the Federal Patent Court's preliminary opinion had been that the patent is valid, which suggests to me that this is a close call and the nullity appeal can go either way.

Not all claims were challenged by OPPO and HMD. What I don't know is whether VoiceAge EVS could build a meritorious infringement case on any of the claims that weren't challenged, and how swiftly those other claims--if pursued--would be adjudicated.

For now, OPPO doesn't have to fear an injunction over EP'443. A different VoiceAge EVS v. OPPO decision has been scheduled for September 29, an several other cases will go to trial in early 2023. All in all, VoiceAge EVS is asserting a handful of patents against OPPO.

Xiaomi was being sued over the same patent (and others), and apparently took a license.

For OPPO, this outcome is a boost and much-welcome good news after Nokia won two Mannheim injunctions against the smartphone maker. It shows that OPPO can snatch victory from the jaws of defeat. The Karlsruhe Higher Regional Court confirmed to me that OPPO has brought a motion to stay enforcement in at least one of the two cases, which motion hasn't been definitively resolved yet. I'm sure that a motion has been--or will be--brought in the other case (a SEP case) as well. For now it looks like Nokia is not yet enforcing those injunctions, and let's see whether it will be able to do so later this summer. OPPO isn't easily beaten--this much is certain.

I've found out who represented the successful nullity plaintiffs:

• OPPO's patent attorney is Dr. Ju Min Kim of Vossius. Its lead counsel in the infringement proceedings is Dr. Andreas Kramer (same firm).

• HMD's patent attorneys are Dr. Georg Jacoby and Dr. Thomas Behrens (both of Samson & Partner). Its lead counsel in the infringement proceedings is Hoyng Rokh Monegier's Klaus Haft, who has been mentioned on this blog in a number of contexts, such as Qualcomm v. Apple. Mr. Haft was part of HMD's team at the nullity hearing as well.

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2022's most interesting patent enforcement question: how to raise a successful FRAND defense in Munich and Mannheim under Sisvel v. Haier (short of § 315)

Standard-essential patent (SEP) litigation will be an even bigger topic in 2022 than in recent years, and a major reason is a wide discrepancy between the "ask" and the "bid" prices for 5G licenses. Of course, agreements do silently fall into place here and there (be they license or arbitration agreements), but some 5G litigation is already underway and storms are brewing elsewhere. Let's not forget about WiFi 6 either--or the problem that one video codec pool (Access Advance) makes exorbitant demands. Bluetooth may be the only Sea of Tranquility in the digital standards space.

Munich and Mannheim will remain the world's primary SEP injuntion hotspots. London is also key, but let's talk about that one on a different occasion.

Vintage year 2021 and 2022 SEP cases in Munich and Mannheim will raise important new questions and have the potential to lead to more nuanced outcomes. That is so because cases that have been decided so far in the Sisvel v. Haier era--starting with the two Sisvel v. Haier cases themselves--presented fact patterns characterized either by implementers' reliance on a strictly sequential application of the ECJ's Huawei v. ZTE guidance or by defiance, ignorance, sometimes maybe terrible advice. Now we're going to see what happens when reasonably sophisticated defendants who benefit from realistic advice go out of their way to comply with German SEP case law during the entire course of negotiations. That wasn't the case before as far as I can tell.

Global players typically have significant exposure to patent assertions in Germany. That was already the case when the Munich I Regional Court issued its SEP guidelines about two years ago. Those guidelines did not even come as a surprise. For example, Presiding Judge Dr. Matthias Zigann of the court's Seventh Civil Chamber even went to an ETSI meeting to explain his plans beforehand. He listened to a lot of input, but then he and his colleagues decided. At that point, the prudent thing for implementers of FRAND-pledged SEPs to do would have been to heed that guidance in everyday licensing negotiations. It appears, however, that many parties were hoping that they wouldn't be slapped with a Munich SEP injunction before the appeals court would overturn those SEP Local Rules. Wishful thinking.

Shortly thereafter, the Mannheim Regional Court's Second Civil Chamber under Presiding Judge Dr. Holger Kircher adopted pretty much the same stance. But even after Sisvel v. Haier, a May 2020 decision by the Bundesgerichtshof (Federal Court of Justice), many implementers still didn't care to read the writing on the wall. Like it or not, German courts now take an amalgamated position on whether someone was initially a willing licensee: it's not just about making a declaration but a holistic assessment of a defendant's conduct throughout the process.

Many (though by far not all) implementers' licensing behavior did finally start to change in 2021. Not only was there Sisvel v. Haier II, which clarified and reinforced Sisvel v. Haier I, but some decisions reached in the last third of 2020 (applying Sisvel v. Haier to negotiating conduct that predated that ruling) gave licensees pause. Also, despite some organizations' spin-doctoring, the failure of the German patent injunction "reform" effort became perfectly clear. The Nokia-Daimler settlement had various implications, one of which is that a preliminary reference to the ECJ (from a Nokia v. Daimler case in Dusseldorf) that partly meant to challenge Sisvel v. Haier ceased to be.

Defendants Haier and Daimler exhibited extreme behavior:

• If even half of how the Federal Court of Justice portrayed Haier's conduct before and during litigation is true (and it's far more likely that it is 100% correct), that would have been a textbook example of hold-out. It was all about stalling until the patent-in-suit expires. It was as reckless as it was egregious. Whether one believes the Federal Court of Justice should have phrased its Sisvel v. Haier decision differently so as to avoid that it would open the floodgates is another question. But one cannot blame the court for the outcome it delivered.

• Daimler's approach to SEP assertions had two distinct aspects:

  • One was Daimler's insistence that patentees should talk--and grant an exhaustive license--to its suppliers. Indeed, component-level deals happen, but Daimler itself ended up taking one car-level license after the other (Sharp => Conversant => Nokia => Avanci). That battle is over.

  • Knowing that the courts weren't necessarily going to buy its supply-chain licensing arguments, Daimler also made car-level offers to SEP holders. Just based on what was discussed in open court and what I read in certain court rulings, I can't help but conclude that Daimler was being only gradually more constructive than Haier. That, again, doesn't mean that I like the rationale underlying certain decisions. For instance, while Daimler's licensing offer to Conversant was indeed insanely low (the worst I had seen since the courtroom comedy in Huawei v. ZTE with a 50-euro royalty check being delivered to Huawei's counsel by hand), I don't think the patentee's royalty demand per se constitutes a point of reference. The outcome can still be justified with Sisvel v. Haier, and with common sense: Daimler was possibly spending as much on lawyers just on the day of the trial as they were offering to pay Conversant for a multi-year license.

Some cases in 2022 will present rather different fact patterns from those Haier and Daimler cases. It's too early to tell which ones. That's because the U.S. is the only jurisdiction where one can find out about the facts prior to a court hearing. But licensees aren't stupid. Maybe some of them are, but most of them aren't. Some may have miscalculated. Some were too slow to adopt. Some were dreamers. And some probably thought they would shield themselves from internal criticism simply by overspending on lawyers (which in at least one case didn't work out). Now the parameters are clear. Reality has set in.

There will still be some cases that have been recently brought, or will be brought soon, after multi-year litigations that yielded no result. In such "lag-behind" cases involving plaintiffs with a saintly patience, some of the implementers' negotiating conduct, such as response times to infringement notices and licensing offers, may still have been a mistake in light of Sisvel v. Haier. However, if agreements expired just recently or are expiring now, it's a safe assumption that at least some defendants have done their best to be deemed willing licensees in the post-Sisvel v. Haier era.

In that case, the question is then going to be what was the key question for several years: whether the patentee's royalty demand is FRAND.

It would be bewildering if throughout the course of 2022, the Munich and Mannheim courts deemed every single implementer an unwilling licensee, or if § 315 (effectively relegating the determination of a FRAND rate to subsequent proceedings) was the only safe harbor. The § 315 defense has a long legal tradition in Germany. It's an instrument that is used to resolve a number of issues in many fields of law without having to immediately agree on all the terms. It was a safe harbor under Orange-Book-Standard, a German landmark ruling that preceded Huawei v. ZTE. Presiding Judge Andreas Voss ("Voß" in German) of the Karlsruhe Higher Regional Court is very much in favor of § 315 representing a safe harbor, and even Retired Presiding Judge Peter Meier-Beck of the Federal Court of Justice suggested this much at a conference. But is the answer to the Sisvel v. Haier question really that all royalty determinations should get relegated to a subsequent § 315 rate-setting case? It would result in ever more protracted litigation--during which patenteees will likely get decisive leverage in some other jurisdiction, such as a UK global FRAND deal under Unwired Planet or a U.S. import ban from the ITC, and German courts couldn't do anything about that (anti-antisuit injunctions won't solve that problem).

The fact that the Unified Patent Court is soon going to commence its operation renders this question even more important. It is a safe assumption that at least the UPC judges in Munich and Mannheim will interpret Huawei v. ZTE within the amalgamated Sisvel v. Haier framework. And it is fairly possible that the UPC will agree with them, and that the ECJ will never reverse it (it may not even get such a case). The UPC presents a new situation because it is an international court. SEP holders will, however, file major cases with the UPC (though they can and probably will litigate in national courts in parallel).

While I don't expect a proportionality defense to succeed in any German patent case involving digital technologies where a non-absurd licensing offer is on the table, I do believe that we will see reasonably nuanced decisions on SEP injunction requests, provided that defendants made an unmistakable good-faith effort during negotiations. Everything appears impossible until it happens for the first time. Sisvel v. Haier has scope for a lot more than "§ 315 or injunction." There will be some more Daimlers and Haiers on the receiving end, but there may also be laudable exceptions.

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Creepy patent case involves two unethical businesses, dozens of jobs lost over an invalid patent, the worst decision of a judicial career, and Quinn Emanuel Germany's challenges

Happy Halloween!

There's no better day of the year for a story that's truly creepy--and, actually, abhorrent. There was a patent case in Germany that reached its final resolution a few weeks ago, but only after creating a crisis that cost 60 people their jobs and made dozens of families suffer. That case brought out the very worst in some people. It's impossible to find anything to do with the case that would make any reasonable person feel good.

After this unmitigated disaster, I believe the Federal Court of Justice of Germany needs to realize that it has a responsibility to be more receptive to those pesky emergency motions for enforcement stays, and the folks over at Quinn Emanuel Germany should ask themselves how they're going to succeed again with brilliant fair play (like a decade ago).

The one who would stand the most to learn from this, however, is Dusseldorf-based Judge Thomas Kuehnen ("Kühnen" in German), and my recommendation to him is to seek early retirement now that his astonishing misjudgment, which has had such catastrophic consequences, has been put into evidence. He should also turn over the editorship of his book on German patent litigation to some other judge or a professor. His reputation is never going to recover from this. He will always be remembered as a job-killer judge and a "do as I write, not as I do" type of guy. This inexcusable legal error marks the bitter and embarrassing end of an era.

I'm 100% against smoking, so the mere thought of cigarettes almost makes me want to puke, and if it were up to me, tobacco products should be prohibited, at least the traditional ones: there appear to be some issues with e-smoking, but there is hope that at least the impact on passers-by is nowhere near as bad (at least there's less of a smell). In my opinion, anybody who runs a tobacco company is inherently an immoral person, and this includes companies who sell essential supplies to that scum of an industry. Meet the two parties to the case in question: Schweitzer-Mauduit (SWM) from the U.S. and Julius Glatz from Germany. They make cigarette papers. Not only cigarette papers, but it's a substantial part of their business, so they are tobacco profiteers.

The key feature of cigarette paper is that it must glow slowly, but not go up in flames like if you had poured gasoline on a pile of wood. But what happens if someone throws away a cigarette butt that is still glowing, and a day later an entire forest is burning? Low ignition is also key when highly combustible material is hit.

SWM obtained that job-killer patent more than a decade ago from the EPO: EP1482815 on "smoking articles with reduced ignition proclivity characteristics."

Julius Glatz is a medium-sized, old, family-owned company in the middle of nowhere somewhere in Germany. Its current CEO, Nina Ritter-Reischl, is a lawyer by training and heiress to that company.

SWM wanted to enforce its patent in order to drive its smaller rival Julius Glatz out of the cigarette-paper business, which it actually succeeded in, but on a totally wrongful basis. SWM's lead counsel in these proceedings was the head of Quinn Emanuel Germany, Dr. Marcus Grosch.

SWM/Quinn won the first round (Presiding Judge Ulrike Voss, "Voß" in German), but enforcement only began and actual harm occurred after the appeals court--a panel of the Dusseldorf Higher Regional Court under Judge Kuehnen--handed down a decision (in German) that was outrageous beyond belief in December 2017. If a U.S. jury had had all these facts before it and rendered such a verdict, it would have been a perfect example of a case for a judgment as a matter of law (JMOL) because no reasonable jury could have reached that conclusion.

It was a typical squeeze case: one could only find an infringement by interpreting the patent so broadly as to be invalid. If one interpreted it narrowly enough to survive, it wasn't infringed by the defendant. It was about the range of manufacturing methods that would be considered infringing. Narrow range: no infringement. Broad range: patent invalid.

But Judge Kuehnen killed dozens of jobs regardless. Dogmatically, ruthlessly, mercilessly, and so full of himself he thought he was the god of patent law, at least in Germany if not in the world.

The appellate opinion is the epitome of judicial arbitrariness. At the time, the EPO's position was that the patent was valid, but based on a narrow claim construction. Judge Kuehnen's decision explains that he's not formally bound to claim construction decisions made in a parallel validity-related proceeding, not even if the Federal Court of Justice itself had already adjudicated the (German part of the) patent, and much less so if it's only the EPO. And it wouldn't necessarily have been a problem if he had just considered himself smarter than them: he's entitled to it, and may think highly of himself. The problem is that instead of identifying the squeeze, he decided to enjoin.

SWM enforced. Julius Glatz had to lay off dozens of people. Again, I don't care at all about the owners of that company: they just had to shut down an unethical business division. But SWM was going to get additional market share, and not one cigarette less was going to be made as a result of this. So between the two of them, SWM is worse because it wrongfully enforced an injunction.

Shame on the ones who were responsible for this tragedy. When you wrongfully force a company to lay off dozens of people in a rural (i.e., structurally weak) region, it means dozens of families--all in all, possibly hundreds of people--are suffering terribly, only for the ego of a judge in Dusseldorf and to line the pockets of a white-shoe law firm. And the problem is not even limited to those hundreds of people. It probably dealt a serious blow to the entire region, as those hundreds of people suddenly had a lot less purchasing power. Again, all of that for ego and greed. Like I said, it's creepy, abhorrent, it may even make some people want to puke, and it brought out the worst in some people.

Now, the story isn't over, and the really most unethical part came a little later. At some point, the parties opposing the patent in the EPO all realized they weren't going to defeat the patent there as the EPO construed it narrowly enough to uphold it. But that enabled Julius Glatz to challenge the patent in the Federal Patent Court of Germany (Bundespatentgericht). The Federal Patent Court invalidated it, but even then, SWM kept enforcing regardless, for a number of months (while the infringement case had already been appealed to the Federal Court of Justice).

Winning a first-instance ruling despite a squeeze was one thing. Enforcing it is already something that I believe Quinn Emanuel should have told SWM to find someone else to do for them. But continuing to enforce--even if it had been for only one more day--despite the patent having been declared null and void, and after the aforementioned tragedy had happened, is unbelievable and indefensible.

Now, why didn't the enforcement get stayed? That's because, as I mentioned, the case was already past Judge Kuehnen's regional appeals court. The defendant had brought the German equivalent of a cert petition (Nichtzulassungsbeschwerde). The Federal Court of Justice is just annoyed when anybody brings a motion to stay enforcement, which is why Julius Glatz might not even have tried. That is a structural issue. The Federal Court of Justice should learn from this case and encourage motions for emergency stays in such situations. It has a responsibility to put an end to wrongful enforcement.

As Juve Patent reported on October 6, the Federal Court of Justice, to which SWM appealed the Federal Patent Court's invalidity ruling, affirmed the invalidation of the patent. That decision is final: all appeals (just that one is available) exhausted. It means that the parties have to sort out wrongful-enforcement damages, and German courts are traditionally very unreceptive to that: parties, even after suffering such costly injustice, get next to nothing. That, too, is something that needs to be reconsidered in Germany, especially with respect to patent law but possibly also beyond.

Whether Julius Glatz will recapture its market share now is unclear. I don't even care because of the inherently immoral nature of that business, which also makes that company a bad poster child for the so-called "injunction gap."

Would that recent German patent "reform" have changed anything? No. First, for several years after grant, that patent was being challenged before the EPO, to which the six-month target doesn't apply. Second, while the economic harm to Julius Glatz and, by extension, third parties was clear, SWM's patent would have been at the heart of the accused products. And as Germany's chief patent judge Klaus Bacher recently said, that legislative measure is merely "a clarification and consolidation of the case law." One of his side judges told some people that some far more impactful lobbying would be needed to achieve a better result next time. It's been my opinion all along that those pushing for reform were misguided: a mix of mostly amateurs and partly saboteurs. So the next Julius Glatz is sure to suffer the same fate.

Initially, Julius Glatz was defended by Arnold Ruess, which has definitely been on by far the most impressive trajectory of all young German patent litigation firms. I'm sure they just couldn't do anything about Judge Kuehnen, who based on how that (mis)judgment reads was just hell-bent to enjoin and may have known SWM's lead counsel too well as a result of certain seminars they co-organized.

The Arnold Ruess firm triumphed over Quinn Emanuel when Arnold Ruess represented Nokia and Quinn was defending Daimler. Not only did Arnold Ruess win two injunctions, one of which they'd have been able to enforce without security a few months after the settlement, but by the time of the settlement they were actually on track to winning two or three more injunctions. If you hire the most expensive patent litigation firm in the country, but end up losing anyway, it's a waste of money.

SWM v. Julius Glatz is not the first case of questionable patent enforcement and litigation tactics by Quinn Emanuel Germany. In Qualcomm v. Apple, QE in the United States had actually agreed to certain terms of discovery for the use of material in the German proceedings. QE Germany then backtracked (what an about-face) and refused to sign a confidentiality commitment in Germany. Apple got enjoined over a patent that the EPO later invalidated--and the fact that Apple was enjoined without the slightest evidence of infringement resulted in a reversal on three independent grounds. In two different U.S. proceedings (federal court and ITC) Apple was cleared of infringement because the facts were on the table, which they should have been in Germany as well.

Despite Qualcomm having a formidable patent portfolio and--I really mean this--being an absolutely outstanding innovator with many of this industry's most brilliant engineers, that was the only case Quinn won against Apple during that German campaign. They even sought contempt-of-court sanctions against Apple, adding insult to injury.

I also find it surprising that OPPO apparently outperformed Daimler in a SEP dispute with Sharp.

I have some unsolicited advice for QE Germany, a firm whose rise to the top in Germany I watched and even cheered on during the first half of the last decade:

1. Refrain from enforcement when the circumstances are problematic. You know it when you see it. You shouldn't stoop that low. It's not just about your billable hours. There's a world outside where people may be suffering when you make unethical decisions.

2. Your performance on Daimler's behalf against Nokia--and arguably also on Qualcomm's behalf against Apple--was nowhere near as successful as the services you rendered to Motorola. Are you perhaps acting like a "ghost driver" who thinks that all the other drivers coming in the opposite direction are misguided? QE Germany is the only litigation firm not to work in interdisciplinary teams with patent attorneys, except when clients like Samsung and IPCom insisted on it. It worked out for them in the Motorola cases. It's not been working out all that well lately. Change course. Patent attorneys do add a lot of value in German patent litigation.

   In my view, QE Germany clients who accept that they do not team up with patent attorneys do so at their peril. The results just don't support that approach anymore.

I hope we're going to see the QE of the first half of the 2010s again in the first half of the 2020s. And no more ethically questionable and wrongful enforcement.

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Germany's chief patent judge: amended injunction statute is merely a 'clarification and consolidation of the case law'

This is a quick but important follow up to my two previous posts on the CIPLITEC conference on Germany's recently-enacted patent "reform" bill:

• STUNNING: High-ranking German judge publicly states that patent law may do more harm than good, but critics would have to lobby for fundamental reform

• Patent injunctions remain the norm in Germany, judges from Federal Court of Justice and Karlsruhe Higher Regional Court clarify

The final part of the conference provided definitive clarity. First, Presiding Judge Dr. Matthias Zigann of the 7th Civil Chamber of the Munich I Regional Court said that it's his task to apply the law as it is, and it's clear that this year's amendment to the German Patent Act is designed to ensure continuity. In other words (my words), there's nothing disruptive or revolutionary there.

During his closing remark, Munich-based law professor Ansgar Ohly shared the latest information he had just received from a co-worker. At a Shanghai conference, Presiding Judge Klaus Bacher of the 10th Civil Senate of the Federal Court of Justice--the highest-ranking German patent judge--reported said that the 2021 patent bill is merely "a clarification and consolidation of the case law" (i.e., Heat Exchanger).

Let that sink in. It's game over for all those who thought infringers could avoid patent injunctions in Germany. There's not going to be any change on the bottom line. What the judiciary is concerned about is the potential for delay of some proceedings, and I'm not even worried about that: the courts will figure out shortcuts.

Germany's chief patent judge has spoken, as have several other important judges these days (Judge Fabian Hoffmann of the 10th Civil Senate of the Federal Court of Justice, Presiding Judge Andreas Voss ("Voß" in German) of the 6th Civil Senate of the Karlsruhe Higher Regional Court, and Presiding Judge Dr. Matthias Zigann of the 7th Civil Chamber of the Munich I Regional Court and soon--most likely--of the 6th Civil Senate of the Munich Higher Regional Court).

This is a hard reality check for the patent "reform" movement. On June 11, lobby group ip2innovate celebrated the German Federal Parliament's adoption of the "reform" bill with a press release that was as triumphant as it was detached from reality (or maybe we should just call it "spin"). Nvidia's Ludwig von Reiche said that "German patent law has finally arrived in the 21st century" and that "a change in the law is now being implemented that for the first time takes into account the complexity of modern products in the digital age." I'm not at all blaming Mr. von Reiche for trying to give the new statute a certain interpretation. But his interpretation doesn't matter. Nor does mine. What matters is what the judges say. And that just happens to be consistent with what I've been saying for a long time.

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STUNNING: High-ranking German judge publicly states that patent law may do more harm than good, but critics would have to lobby for fundamental reform

Yesterday I reported on the first panel of the CIPLITEC online conference on German patent reform, where it became very clear once again that injunctions will remain the customary patent remedy as I had been predicting all along. The conference is continuing today, and what just happened this morning was nothing short of astounding.

In a virtual panel discussion, Judge Fabian Hoffmann of the patent-specialized 10th Civil Senate of the Bundesgerichtshof (Federal Court of Justice) replied to certain infringer-friendly positions taken by others on the question of how punitive the compensation owed by an infringer to a patentee should be in cases in which an injunction is denied or, far more likely, tailored by means of a use-up or workaround period. Here are the most amazing parts of what he said:

• Judge Hoffmann acknowledged that "patent law may indeed do more harm than good."

• He said he could see why some would like to see "more competition."

• He even went as far as to say thathe was "politically with [those who voice such demands]."

• Having said that, he explained--and I concur with him--that this year's German patent reform bill is not designed to bring about fundamental change.

• Judge Hoffmann not only followed but even contributed to the legislative process, such as by participating in a parliamentary hearing (my report on that one did not mention him as I focused on other aspects than the ones he addressed). He recalled today that on the one hand there are academics and lawyers who claim that most companies would rather see a "more balanced" and "more moderate" patent enforcement regime, but at the said hearing--which I had accurately described as a total victory for reform opponents due to a miserable failure by pro.reform forces--there was a widespread consensus in favor of strong patent enforcement.

• The result is that the legislative intent is clear: there was no political will to depart from German patent enforcement tradition. And that's the law that he as a judge has to apply faithfully (I'm paraphrasing him here, but not straying far from what he actually conveyed).

• I've previously criticized the absolutely pathetic lobbying and campaigning effort on the part of pro-reform forces like German automotive industry association VDA, the misguided ip2innovate lobbying group, and Apple. It was a mix of amateurs, (in a very few cases) saboteurs, and people who meant well but could not get their companies or their (idiotic) industry associations to make the right decisions. They also had a budget that was not even 5% of what would have been needed to bring about serious change. You won't be surprised that Judge Hoffmann obviously wouldn't make statements like that. But what he said nevertheless validates my scathing remarks on that pro-reform lobbying effort. Judge Hoffmann told the audience that if they wanted to fundamentally rethink patent law, which may indeed be warranted even in his opinion, they need "a second reform" and will have to do what it takes to get a different outcome.

This is a lot of food for thought for some people, and I'd like to leave it at that for the time being. I'm going to continue to make the very same distinction as Judge Hoffmann made today: there's the question of what innovation policy is desirable, and there's the question of what the law--in its current form--says. There's the world in which some would like to live, and the world in which we actually live. The German patent enforcement system is going to be the same except that time and money will be wasted on proportionality arguments (mostly by defendants). There's room for lots of academic discussion, and parts of the CIPLITEC conference--with the greatest respect--were more about the trees than the forest. But patentees will still get the same leverage from bringing infringement cases in Germany as before. In fact, compared to where statutory and case law stood when the reform process began, patentees even have a lot more leverage now.

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