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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Patent licensing firm IPCom announces settlement with LG while litigation against Samsung apparently continues

IPCom, a well-known patent licensing firm based in the Munich area, today announced on its website a settlement agreement with South Korea's LG Electronics. All infringement cases and validity challenges pending between the two have been withdrawn. IPCom's managing director Pio Suh is quoted in the press release as "confirm[ing] that LG and IPCom have finally reached a resolution that also includes all of IPCom's assets."

Several years ago it became known that an IPCom affiliate named FIPA was suing both Samsung and LG over patents formerly owned by Hitachi. Samsung was known to have licensed IPCom's former Bosch patents a long time ago, and the same may apply to LG. There is no indication at this stage of a settlement with Samsung.

In recent years, IPCom has achieved various settlements such as with HTC (after more than 12 years of litigation) and various telecommunications carriers. Its cases against Apple were also withdrawn. IPCom's current management has been consistently positioning the firm as a constructive and cooperative patent holder.

The reference in today's announcement to "all of IPCom's assets" suggests that LG is licensed not only to those IPCom patents that formerly belonged to Bosch and Hitachi but also to IPCom's "homegrown" patents. Starting in the middle of the last decade, IPCom started filing patent applications on its employees' inventions. The timing and the fields of technology make it a possibility that at least some of those patents are 5G-related. Should that be the case, some of the companies who took licenses from IPCom a long time ago may not be licensed to those younger patents, subject to what exactly the capture clauses of those license agreements say. So we may hear more from IPCom in the years ahead.

LG exited the smartphone market two years ago, but the settlement was likely about back royalties for the most part anyway. A license agreement between LG and InterDigital served as the primary point of reference when Justice Mellor made his recent InterDigital v. Lenovo FRAND determination.

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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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Quinn Emanuel scores huge EU win as German managing partner gets mixed press: Daimler's defeats hurt firm's reputation in standard-essential patent litigation in Germany

The most important court ruling of the week--at least for the tech sector, if not beyond--was Qualcomm's successful appeal of a European Commission antitrust decision. The San Diego chipmaker was represented by Quinn Emanuel's Brussel's office, a couple of whose partners already had a very good reputation before that landmark victory, but now they're really a go-to firm for appealing DG COMP decisions. It's a highly specialized field in which Jean-François Bellis is arguably still the number one (I heard that the European Commission's lawyers fear him more than anybody, and they'll meet him again in the ECJ in the International Skating Union case on July 11).

QE is now undoubtedly playing in that league, the European Champions League, and was right to celebrate its enormous achievement--it's not just that they won, but also how--on social media with this banner:

There's not only light but also shadow when it comes to QE's German offices. They just opened another one in Berlin, which suggests they're still growing in Germany. However, next time a major business publication wants to write about them or their managing partner, they should seek out advice from professional public relations consultants...

On June 10, Wirtschaftswoche, the German equivalent of Bloomberg Businessweek (previously BusinessWeek), published a fair but thoroughly-researched article on Dr. Marcus Grosch, who built and still chairs QE's German offices. The headline, With Maybach and Karate, refers to his car (an upgraded S-Class that is basically Mercedes's answer to Rolls-Royce), in which he has a chauffeur drive him to courthouses, and his favorite sport, in which he won a regional championship in his youth.

Marcus Grosch has often been mentioned on this blog--in the early 2010s for his very effective work on Googlorola's behalf (Google and Motorola, the latter of which temporarily belonged to the former), but in less positive contexts in recent years: two serious cases raising the question of wrongful enforcement (one of them targeting Apple, the other one against a cigarette paper manufacturer), and because Daimler--relying on QE Germany to defend it--was slapped with four German patent injunctions within only 11 weeks (ultimately, Daimler took an Avanci license, so in retrospect it would have been way smarter for the Mercedes maker never to spend a single cent on litigation with Avanci licensors).

The Wirtschaftswoche article, too, mentions the four injunctions against Daimler in 11 weeks. As I revealed information from the highly secretive Nokia-Daimler mediation talks in 2020 (which drove the mediator crazy), it's obvious that I had sources--more sources than Nokia thought at the time--among the joint defense group. Never once during the Nokia v. Daimler dispute did I hear that any member of the joint defense group was enthusiastic about the work QE was doing. Instead, some members of that group were questioning Daimler's choice, given that QE Germany previously had a track record only in enforcing--not defending against--SEPs. At least two members of the joint defense group were constantly concerned that there was a conflict of interest, not so much because of QE having worked for Nokia in the U.S. on some occasions, but due to some of QE Germany's recent clients like Qualcomm and BlackBerry being interested in strong SEP enforcement.

Even when it comes to SEP enforcement, QE needs to excel in order to justify premium prices. The Wirtschaftswoche article says Dr. Grosch charges €1,200 (US$1,250) per hour, while even senior partners of large and reputable firms practicing patent law in Germany bill less than $1k. Talking about results, the champions of SEP enforcement campaigns in Germany have recently been certain Wildanger partners, with Arnold Ruess also having impressed me a great deal. And a "hidden champion" in that field is Dr. Christof Augenstein of Kather Augenstein--one of the largest and most sophisticated net licensors, Ericsson, relies on him and his team again and again, but as they typically win settlements early on, there haven't recently been any German patent injunctions involving Ericsson patents. Bird & Bird's Christian Harmsen consistently delivers results for Nokia as well as Huawei. I could name others, but wanted to just focus on the most prominent players in cellular SEP enforcement.

If QE's clients feel they get their money's worth, that's OK, but what I consider incompetent--even downright stupid--is when in-house litigators fail to insist on QE bringing patent attorneys along. QE is free to recommend whatever QE believes--in good faith, I'm sure--works best. In-house counsel, however, shouldn't take unnecessary risks. Samsung was smart; for them it was non-negotiable (and while they use QE in the U.S. all the time, they've actually relied on other firms in Germany, apart from a couple of Apple cases about a decade ago).

The Wirtschaftswoche article also mentions QE Germany's principle of not teaming up with patent attorneys. Dr. Grosch told the reporter that attorneys at law are just as capable of explaining technology to a court as patent attorneys. An unnamed lawyer told Wirtschaftswoche, rather diplomatically, that "there is the risk of failing to identify an argument." I don't even want to get into what else the article says, but let me just explain it from my vantage point as a litigation watcher:

• In German patent infringement proceedings, patent attorneys are usually just listening--not delivering oral argument--when it comes to the infringement contentions. They typically come into play only when validity (with a view to a requested stay pending a parallel nullity or opposition proceeding) is discussed. One may indeed be led to believe that patent attorneys aren't critically needed if one looks at the infringement proceedings. But patent attorneys have certain advantages in the nullity or opposition proceedings. That's where some (nullity) or all (opposition) decision-makers have a technical background. It's where technical considerations such as whether an alternative solution might result in degradations or improvements--or whether it would work at all--gain importance (while the infringement courts are usually just interested in cases of clear non-novelty, not in the inventive step). Patent attorneys--identifiable by their partly blue robes--have the psychological advantage of sharing an engineering background with technical judges and patent examiners.

• Dr. Grosch told Wirtschaftswoche that a plaintiff's or defendant's own engineers are in the best position to explain the technology at issue to litigation counsel. In some cases that's simply not true: for example, if a downstream customer gets sued (such as Daimler over cellular SEPs), only the suppliers have the relevant technical knowledge. But even in cases where it is true that engineers can better explain the technology at issue, patent attorneys have the advantage of understanding both the technology at issue and patent law. They look at the question from both angles, not just one--and they, too, get briefed by a client's engineers.

• Top-notch patent attorneys involved in German patent litigation are all highly specialized. If a party or its litigation counsel asked an expert in telecommunications whether he or she would help them in a case over a medical device, he or she would refer them to a colleague in order to stay in his or her lane. They wouldn't claim to be generalists. It's simply not realistic to assume that highly specialized patent attorneys with a full engineering background (often a Ph.D. in a technical field) couldn't make contributions.

• I heard about something that further illustrates why patent attorneys are not just dispensable in patent litigation. I know about one Munich-based patent attorney--who often helps Samsung with its German cases--who was advising a company that had sold some of its patents without retaining the right to practice those inventions. He then teamed up for a significant period with that company's engineers, and they jointly developed a workaround that ultimately even represented an improvement over the patented invention. Another example is that an in-house counsel I know very well once visited a patent attorney firm in Munich and noticed that there were LEDs on the wall of a storage room, shining extremely bright. The patent attorney then explained that they had set up that installation because of a photovoltaics patent infringement case and needed to conduct an experiment. I strongly doubt that QE Germany has ever done anything remotely similar.

When I see QE appear in a German patent case and they don't bring patent attorneys along, I know that their clients have simply elected to put themselves at a disadvantage. QE is to the best of my knowledge the only firm not to bring patent attorneys along to German patent infringement trials--and not even to nullity and opposition hearings. Their clients accept this and have to live with the results. They should ask themselves one question:

If that is the right approach, why has no other German patent litigation firm adopted it in all those years? It must give anyone in his right mind pause that after more than a decade of QE Germany doing this, no one else has even concluded that this is worth trying.

Samsung insisted on the involvement of Zimmermann & Partner, and QE accepted it--maybe begrudgingly, but still. Daimler didn't insist, but then they also wasted tens of millions on litigation instead of taking an Avanci license right away. Qualcomm didn't insist either, but I attribute it to the fact that they rarely ever have to litigate as most licensees also buy their chips. A long time ago, Qualcomm was represented by Bardehle against Nokia, and Bardehle is the leading German firm with both attorneys at law and patent attorneys on board. But Bardehle would have been conflicted against Apple. Qualcomm doesn't need my help to compare how things went in those disputes.

What about Google? They have an in-house litigator who was a QE associate. He also contributed his ideas to proposed legislation that didn't really move the needle for German patent injunctions. I would also encourage Google to think very hard about why no other German patent litigation firm than QE deems the involvement of patent attorneys unnecessary.

If clients decided to pay QE's premium rates and have patent attorneys involved in addition, it would have obvious implications for litigation economics, and some in-house counsel might find it harder to internally justify the total cost of being represented by QE Germany. But as Dr. Grosch rightly told Wirtschaftswoche, clients are well advised to focus on quality rather than price.

He should, however, have given himself that same advice when it comes to public relations. The former PR chief of his (current or former) client Daimler founded one of the leading firms specializing in crisis communications, litigation PR, and also advised executives such as a former Daimler CEO with respect to their personal PR needs. Presumably, a firm of that kind would have told Dr. Grosch a couple of things:

• Don't show up for an interview with two watches--an Audemars Piguet (which may have cost as much as, if not more than, a German patent judge earns in a year) plus a smartwatch.

• Given QE's hourly rates and per-partner profits, it must have made sense for him to hire a chauffeur to drive him to the courts. This way he doesn't waste a minute. But PR professionals would have cautioned him against the risk of how that would be perceived should it ever be reported in the media.

The only client heaping praise on Dr. Grosch in the Wirtschaftswoche article is IPCom founder Bernhard "Bernie" Frohwitter, whose own law firm earned an estimated ten million euros in fees per year while IPCom never got leverage over Nokia during all those years. Mr. Frohwitter describes Dr. Grosch as a bird of paradise, meaning a dazzling personality, who delivers--and says he loves that combination. Wirtschaftswoche also quotes the heiress to the cigarette paper company I mentioned further above. QE even sued her and her husband personally, trying to hold them responsible for patent infringement and hoping to scare them into a settlement. She now says she would recommend Dr. Grosch, which may be attributable to the Stockholm syndrome as well as to her desire to criticize the German patent enforcement framework.

I'm not surprised that a QE client like Daimler wouldn't speak out, as they tend to be very low-key (and it remains to be seen whether they will use QE Germany next time). However, the key point here is that QE Germany should have obtained professional PR advice, and PR pros would have tried very hard to find at least one client (other than Mr. Frohwitter) who would have volunteered to speak with Wirtschaftswoche and say complimentary things.

Then, PR consultants may be just as superfluous as patent attorneys in the world according to Dr. Grosch.

Toward the end, the Wirtschaftswoche article raises the question of where things will go from here. Ten years on I'm still impressed by his great work on Motorola's behalf, and how he snatched victory from the jaws of defeat when a German injunction against Google Maps was imminent. He's extremely smart, and he fights hard. At the same time, QE Germany has grown, and he may have to act as lead counsel in far more cases than back in the Motorola days.

While this is about boxing and not karate, I believe he's facing a Rocky III type of situation. Without a doubt, he has the potential to become the undisputed champion again, but such outcomes as the four injunctions against Daimler during the course of 11 weeks must give him pause. If he finally decided to involve patent attorneys, that would be a good sign.

I don't want to mention specific patent attorney firms now, but the firms that companies like Apple, Samsung, Huawei, Nokia, and Ericsson rely on in their German patent cases are an excellent pool to begin with.

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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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After more than 12 years, HTC and Fortress's IPCom settle standard-essential patent dispute over former Bosch and Hitachi patents

I'm still waiting for an official confirmation of IPCom's recent "eight-figure US$ settlement deal" that IAM mentioned on Twitter, citing to "reports out of China." While I was on the lookout for that, I just spotted the following terse statement on IPCom's website that according to the timestamp went live yesterday afternoon:

"We are pleased to announce that HTC and IPCom have settled their long-running dispute by entering into a license agreement covering all of IPCom's assets."

What an understatement. In the standard-essential patent (SEP) space, any dispute that last more than two years is already "long-running" by my definition--and I doubt anyone watching that space would dispute that a four- or five-year patent spat is "long-running." This one here lasted more than a dozen years--an eternity that has finally come to an end.

Over the years I attended several IPCom v. HTC trials in Germany, mostly in Mannheim, where Deutsche Telekom recently sued for a refund to the tune of 270 million euros. HTC and Nokia were the first two smartphone makers IPCom sued after acquiring a 3G SEP portfolio from Bosch, a company that used to make phones but exited that business even earlier than the likes of Nokia and Ericsson. The fact that HTC and Nokia had to defend against many of the same patents turned those two competitors--otherwise rivals--into brothers-in-arms. In-house and outside counsel of both companies coordinated their defenses like they were one company. Even when Nokia sued HTC over non-SEPs in 2012 (and ultimately got HTC to pay some additional royalties), their friendship survived. They were seen drinking beer on high-speed trains from Mannheim to the Cologne-Dusseldorf region just hours after fighting hard in court.

While I occasionally disagreed with him and disapproved of a couple of remarks he made at the Nokia-HTC settlement party (after inviting me as a surprise keynote speaker), I do wish to give credit to the late Martin Chakraborty, a Hogan Lovells partner and HTC's outside counsel against IPCom and Nokia at the time.

Nokia once claimed that IPCom was seeking a royalty payment of 12 billion euros, which IPCom disputed. The IPCom v. Nokia dispute lost relevance as Nokia's smartphone sales were dwindling, and ultimately Microsoft took over Nokia's handset business. Microsoft told investors that "[i]n November 2014, Microsoft and IPCom entered into a standstill agreement staying all of the pending litigation against Microsoft to permit the parties to pursue settlement discussions," and somehow those talks eventually came to fruition.

Unlike Nokia, HTC even faced contempt proceedings when IPCom was enforcing an injunction. What IPCom demonstrated (and many other litigants don't even seem to know) is that it's far harder to actually enforce a SEP injunction in Germany than to obtain one. In the merits proceeding, you can base your infringement theory on the specification of the standard. At the enforcement stage, you have to prove an actual infringement. HTC had guts.

For IPCom's relatively new management, it's meaningful progress to put some cases behind that it inherited from its predecessors led by Munich-based patent litigator Bernhard "Bernie" Frohwitter. IPCom still has Fortress Investment as its key backer, but it's been noticeable for a couple of years that IPCom's new leadership has taken steps to position the organization--which by the way has its own researchers on staff who keep applying for new patents--as a constructive and solution-oriented licensing firm. They even emphasize corporate social responsibility in such contexts as diversity. The message is like "we're still a non-practicing entity, but don't call us a troll."

IPCom's agreements with HTC and (I'll take IAM's word for it) Apple show that the new IPCom is putting some old problems behind it and focusing on its future in the patent licensing industry. I'll be watching IPCom's activities with interest. There is an interesting parallel: Sisvel, which like IPCom is headquartered in Europe (though it has been around for much longer, and is also a pool administrator) and a "key account customer" of the Mannheim court, also appears to have a new leadership style versus where they were a decade ago. Sisvel announced some interesting settlements last year, most importantly with Xiaomi. Actions speak louder than words. Both IPCom and Sisvel have now demonstrated over the course of several years that their current leaders have nothing to do with exceedingly aggressive--or "trollish" if you will--tactics employed by their predecessors. They still enforce patents if they have to--but with a more constructive attitude.

I believe EU policy-makers have an interest in both Sisvel and IPCom doing well. They are the most prominent European patent licensing firms, and IP licensing is a very high priority when the EU defines its economic policies and strategies. At the same time, the EU also has to take the interests of major SEP implementers into account, of course.

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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 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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IPCom's $2.2 billion lawsuit against Apple thrown out by German court: no infringement found

Two different chambers (panels of judges) of the Mannheim Regional Court just announced a total of three rulings on standard-essential patent (SEP) infringement cases brought by IPCom, a patent licensing firm based in the Munich area that acquired the wireless patent portfolio of Bosch years after the latter had exited the car phone market and is now monetizing it. Today's decisions are, without a doubt, a setback for IPCom's enforcement efforts:

Two lawsuits against Apple, including one involving a €1.57 billion ($2.2 billion) "partial" damages claim, and one against HTC (a company IPCom has been suing for about six years) were dismissed because the court concluded that Apple and HTC didn't infringe a certain IPCom patent family by implementing the 3G/UMTS standard. It's a given that IPCom will appeal, but Apple, HTC, Nokia (or soon Microsoft, which is in the process of buying Nokia's wireless devices business), Ericsson, Vodafone and others will likely continue to challenge the validity of the related patents in different fora. This will go on for some more time, unless someone settles, which Deutsche Telekom did last year but others appear to be less interested in.

The patents-in-suit in the cases dismissed today, both going back to the same original application and entitled "access of a mobile station to a random access channel in dependence of its user class", are European patent EP1841268 (called the "#100A" patent and at the heart of the gazillion-dollar suit against Apple) and German patent DE19910239 (also asserted in the case against HTC that was adjudged simultaneously with the two Apple cases, except that claims against 4G/LTE devices were severed and not adjudicated today). This patent family relates to priority access to channels for emergency responders. The claim construction issue underlying all three of today's rejections involves a claim limitation that contains the word "bit", which both patent-specialized chambers of the court (in fact, this court has adjudicated far more wireless patent cases than any other court in the world) interpreted literally because otherwise the claim scope, which was narrowed by a recent post-grant decision by the European Patent Office, would not be distinguishable from earlier versions of the claims that referred, more generally, to "information".

This conclusion comes as no surprise. I attended the two Apple trials earlier this month and just didn't blog about them because I had an exclusive arrangement with a law firm interested in research on SEP enforcement. I am, however, free to blog about the non-FRAND aspects of this matter, and I prepared this post on the train this morning from Munich to Mannheim because I anticipated this outcome. Having watched numerous cases over which the same judges, Judge Dr. Kircher (Apple cases) and Judge Voss ("Voß" in German; HTC case) presided, it made sense to me that they'd ensure the difference between the broader term "information" and the narrower term "bit" be given meaning.

Ahead of the Apple trial I had listed the names of many German law firms involved with disputes over IPCom's "#100A" patent. With today's decisions, the law firm of Freshfields Bruckhaus Deringer continues its (truly impressive) defensive winning streak on Apple's behalf. Attorneys-at-law Dr. Frank-Erich Hufnagel and Wolrad Prinz zu Waldeck und Pyrmont already fended off seven Samsung lawsuits in Germany (not definitively because some were stayed and others are on appeal, but for the time being), five of them over SEPs. In the IPCom cases as well as at least one Samsung case over a patent involving a complicated mathematical formula, Dr. Arno Risse ("Riße" in German) also made very significant contributions to the effort. On Apple's behalf, this team is undefeated. At this month's IPCom trial, Apple's legal team furthermore included patent attorneys from the Munich-based firm of Samson & Partner, with the firm's founder, F.R. von Samson-Himmelstjerna, and Dr. Tobias Stammberger also representing Nokia against IPCom.

As counsel for HTC, Hogan Lovells's Dr. Martin Chakraborty has literally fended off dozens of German patent infringement lawsuits.

IPCom is working with lawyers from multiple firms on these cases. In its Mannheim litigations, Quinn Emanuel's Dr. Marcus Grosch is on board. He's the undisputed number one among Mannheim-based patent litigators. Just yesterday, he achieved the invalidation of a Microsoft patent (a decision Microsoft's counsel said they would appeal today). In the original version of that post, written at the end of a long day, I mistakenly said he represented HTC in today's cases. HTC is a Quinn Emanuel client in the United States, but not in Germany.

Another Quinn Emanuel client, Samsung, works with this firm in the U.S. as well as on some of its German cases and took a license to the Bosch wireless patent portfolio many years ago for a limited amount of money (long before IPCom acquired those IPRs).

Samsung, Apple, Microsoft, Google and others wrote an(other) open letter to European Union decision-makers this week warning against a growing problem in Europe with so-called patent assertion entities (PAEs). I, too, believe that more work needs to be done on the rules of procedure of Europe's future Unified Patent Court.

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