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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Implementers must 'promptly' seek standard-essential patent license to avoid being deemed unwilling licensees and enjoined: Munich I Regional Court

Subsequently to this post, I'll report on the latest injunction that standard-essential patent (SEP) licensing firm VoiceAge EVS has obtained against smartphone maker HMD (Nokia trademark licensee). I originally didn't intend to write about today's VoiceAge EVS v. Xiaomi trials, which I attended purely for research purposes, but something was said there that is relevant far beyond that particular dispute as it relates to the willing licensee standard in the world's #1 SEP litigation hotspot, the Landgericht München I (Munich I Regional Court).

A couple of VoiceAge EVS v. Xiaomi cases are pending before the Munich I Regional Court's Seventh Civil Chamber (Presiding Judge: Dr. Matthias Zigann; side judges: Judge Dr. Hubertus Schacht and Judge Benjamin Kuttenkeuler, the judge rapporteur in the cases heard today). In accordance with the court's new "lead case" program for multi-patent SEP disputes, the Seventh Civil Chamber held a VoiceAge EVS v. Xiaomi FRAND hearing about a month ago. Today, Xiaomi's counsel in that dispute, Noerr's Dr. Ralph Nack, moved for a preliminary reference to the European Court of Justice in order to clarify

• which party (SEP holder or implementer) has to act first and

• whether a SEP holder must negotiate with an implementer for a certain period prior to seeking an injunction.

Judge Dr. Zigann gave that motion short shrift because the question is not whether an infringement notice is needed: the Munich court recognizes that the ECJ established that requirement in Huawei v. ZTE. There is only a factual dispute in VoiceAge EVS v. Xiaomi as to whether such notice was properly given. As to the second part, Judge Zigann believes that Huawei v. ZTE and Germany's Sisvel v. Haier I and II decisions provide sufficient clarity.

What's interesting here, however, is how Dr. Nack sought to justify his motion. He quoted Judge Dr. Zigann form the late-April FRAND hearing as having stated that implementers must "promptly" seek a license to the SEPs they implement lest they be deemed unwilling licensees and, as a result, enjoined. The German word Judge Dr. Zigann used (according to Dr. Nack's uncontradicted quote) was "zackig"--it's a colloquial term that means to act swiftly, without hesitation, like lightning.

While Xiaomi's concern over implementers potentially having to move first by seeking a license (which was actually the legal standard in Germany under Orange-Book-Standard, a decision by the Federal Court of Justice that predated Huawei v. ZTE) has been alleviated, it nevertheless sounds like implementers will pay a high price in Munich for not going out of their way to obtain a license on FRAND terms once they've received an infringement notice. And with every new SEP injunction the court enters, such as in IP Bridge v. Ford last week, implementers around the globe (provided they do business in Germany, which most of them do) are reminded of their obligations.

I felt I had a duty to inform you all of this standard.

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Avanci licensee Volkswagen continues to advocate automotive patent licensing negotiation groups without alleviating cartel concerns in any way

At the Auto IP conference in Frankfurt that I mentioned in a recent post, Volkswagen's IP chief Uwe Wiesner delivered his first public speech since the appointment of his successor--Silke Reinhold--was made official (see yesterday's Juve Patent article)--and possibly also since VW upgraded its Avanci standard-essential patent (SEP) license to 4G on a group-wide basis.

Mr. Wiesner, who was accurately introduced as a very well-respected figure in the IP community, portrayed VW's attitude as follows: "Don't complain, don't go to courts, find acceptable solutions." While VW may not have formally lodged complaints, it is a fact that the car maker has been lobbying competition authorities and policy makers in multiple jurisdictions in an effort to secure green light for an exemption from cartel law. This blog has discussed the concept of licensing (or "licensee") negotiation groups (LNGs) on a few occasions, such as when one of Qualcomm's most senior executives said everyone involved in such buyers' cartels "should go to jail." In its patent infringement complaint against VW (one of several cases that were settled by VW upgrading its Avanci license to the cellular standard it had already been implementing for years), Acer pointed to this blog for a more detailed discussion of the legal and policy concerns that LNGs would raise.

In today's presentation, Mr. Wiesner did give Avanci some credit for its efforts to bring cellular SEP licensors and car makers together, but he then called for different measures and developments he would consider prerequisite to a more balanced framework for automotive SEP licensing. In an effort to make the case for change, he pointed to the fact that there are approximately 10,000 components in a car, any single one of which could be patented in one way or another, and the multiplicity of patent owners, with Huawei and Qualcomm towering above all other contributors to cellular standards according to the numbers Mr. Wiesner relied on. He then went on to raise the issue of informational asymmetry, though I, quite frankly, don't think that Continental--the most vocal one of all tier 1 (= direct) automotive suppliers to demand exhaustive SEP licenses for its components--is really a match for the likes of Ericsson, Nokia, and Qualcomm (to name but three major Avanci licensors) when it comes to cellular standards and SEP licensing.

Mr. Wiesner is clearly dismayed at the patentee-friendly leanings of the German judiciary and, in today's context (SEP licensing), primarily with the Sisvel v. Haier case law. He called for a return to the pre-Sisvel v. Haier application of Huawei v. ZTE, and mentioned a challenge to Sisvel v. Haier that is pending before the Federal Constitutional Court of Germany. What sets the Federal Constitutional Court apart from the U.S. Supreme Court, however, is that it is not a court of final appeal with broad in rem jurisdiction. It only deals with a narrow range of questions, and in context like patent law, this mostly comes down to alleged violations of the right to be heard. One may or may not agree with Sisvel v. Haier, but I'd be very surprised if the Federal Constitutional Court overruled the Federal Court of Justice. It would be unprecedented in German patent law. Most likely, the constitutional complaint will go nowhere.

Part of VW's strategy is to describe automotive SEP licensing as a "pilot" for the wider IoT industry. I wouldn't deny that there are parallels, but there are also some important differences. In particular, many IoT companies are tiny compared to even niche automakers. Also, things are very much in flux and I expect some interesting developments in IoT SEP licensing this year and beyond.

The most aggressive demand continues to be that "licensor pools should negotiate with LNGs." In today's 30-minute presentation, there was nothing new that would address or assuage patentees' and competition authorities' legitimate concerns over LNGs being tantamount to buyers' cartels and leading to a group boycott. It also appears that negotiations between pools and LNGs would still give potential licensees the option to decline to take a pool license and pursue bilateral licensing instead, entailing further holdout.

Arguably, another one of his proposals is comparably radical: no non-disclosure agreements (NDAs) in SEP licensing negotiations. Mr. Wiesner rightly noted that the specifications of the standards in question and the declared-essential patents are public documents. That is just a limited part of the picture (and, at any rate, I believe every NDA I've ever signed or seen defined what constitutes Confidential Information, clearly excluding public documents from the scope of the term). What I would agree is that NDAs should not get in the way of working out solutions to the problem of duplicative royalties. But neither patentees nor car makers or their suppliers would really want to negotiate without at least some degree of confidentiality.

In sum, there's quite some discrepancy between the far-reaching proposals and demands that Volkswagen makes on the one hand and the specifics it states in public--on such occasions as this week's Frankfurt conference--about how it wants to make all of that work without wreaking havoc to the licensing process. I would encourage VW to publish a position paper that lays out what the company has in mind, how it would work, and addresses the concerns that have been raised (not only, but also by this blog). The alternative would be to just abandon the idea altogether, given its conspicuous lack of support from antitrust watchdogs.

VW's patent department has grown from a small team (when he started, they were just about a dozen people) to--if I recall correctly--approximately 100 professionals. The fields of technology relevant to the automotive sector changed a lot during his 30+ years with the company.

Are VW's C-level execs are fully aware of how important IP will be to the future of the entire company? Is the world around VW possibly changing faster than its approach to IP? Those are important questions. The jury is still out on them.

Mr. Wiesner's successor--Mrs. Reinhold--will take over in July and has most recently been in charge of "electronics, mobility, designs and SEPs." She graduated in "material science," which is quite far from the digital space, but I don't know her and by now she may understand wireless technologies and artificial intelligence extremely well. The alternative (which I believe management consultants would have seriously recommended at this transformative stage) would have been to bring in new IP leadership from the industry with which the auto sector is converging, such as someone from Apple, Google, Samsung, Qualcomm, Ericsson, or Nokia, and to grant the new IP chief significant autonomy to adapt to the needs of our times, which has structural implications and should also involve substantial investments in the creation and acquisition of IP in certain fields. That opportunity for deliberate discontinuity--in order to accelerate developments that Mr. Wiesner had already put in motion--was probably missed.

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Nokia v. OPPO/OPPO v. Nokia standard-essential patent dispute: 'new approach to FRAND' and/or novel fact pattern? Munich, Mannheim set to remain attractive venues

Two days ago I read with interest one of my two favorite Juve Patent articles to date, which is excellent courtroom reporting though I'd like to nuance its headline: "Munich Regional Court takes new approach to FRAND"

The article discusses a March 23 FRAND hearing conducted by the Munich I Regional Court's 21st Civil Chamber in the two-way standard-essential patent (SEP) dispute between Nokia and OPPO. The public part lasted only 30 minutes; then the courtroom was sealed. But what Presiding Judge Dr. Georg Werner explained at the outset of the hearing was remarkable. To the extent that Juve Patent interprets this as "redefin[ing] the court's [early 2020] FRAND guidelines" in light of the subsequent Sisvel v. Haier II decision by the Federal Court of Justice, I would agree. But far be it from me to characterize such adaptation as an about-face or sea change.

There are different reasons for which a judicial pendulum may appear to be swinging in a new direction:

• new legislation (not so here: last year's German patent bill has had zero impact so far, and will likely never play a role in a SEP case)

• new appellate case law (Sisvel v. Haier II was decided in late 2020)

• judicial realization of a disbalance

• new circumstances warranting a seemingly new approach

It is not uncommon for the last two factors to coincide: a new situation in a case may prove a catalyst and represent an opportunity for adjustment that was previously contemplated, but for which the time wasn't right.

In January, I wrote that "2022's most interesting patent enforcement" question would be the one of "how to raise a successful FRAND defense in Munich and Mannheim under Sisvel v. Haier" short of a § 315 (judicial royalty determination in case of continued disagreement) defense. I essentially looked at the last two of the factors stated above:

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.

The passage I just highlighted--during the entire course of negotiations--referred to Sisvel v. Haier II. The decision reaffirmed and reinforced Sisvel v. Haier I and had the same outcome (which Haier has no one to blame for but itself), but it also provided clarification in two important respects:

• Not only does the implementer have an obligation to play a constructive role in terms of offers and explanations, but so does the patentee (just that Haier was deemed so utterly unreasonable that the FRANDliness of Sisvel's actions didn't even have to be reached).

• Negotiations aren't static: it's a process, and either party has a duty to act constructively at all stages. Juve Patent summarizes one of Judge Dr. Werner's key points as follows: "[The parties] must [] demonstrate to the court that they are actively seeking a licence until the end of the oral hearing."

Sisvel v. Haier II was one of those decisions where a party--in that case, the defendant--lost but in which a standard was laid out under which others might fare better. Such decisions are nevertheless instructive. They can shape the law even for generations. They open doors, enabling others to enter the promised land while showing to the losing party "what might have been." As a matter of fact, two of the attorneys who according to Juve Patent are involved with Nokia v. OPPO wrote last year that Sisvel v. Haier II "is to be welcomed in its entirety" as much-needed clarification.

Some of the key facts in Nokia v. OPPO/OPPO v. Nokia are sealed. However, whatever little is publicly known at least makes it clear that OPPO is the opposite (pun intended) of Haier, and at least makes it a possibility that even a generally patentee-friendly court is having second thoughts about certain aspects of FRAND. I can see the following characteristics that may distinguish this dispute from high-profile German SEP cases of recent:

• It is publicly known that the parties' previous license agreement was in force and effect for three years, and Nokia sued immediately upon expiration. It is not illegitimate to sue right away: Ericsson did the same against Apple (after the expiration of a seven-year agreement though). But when the previous license agreement was so young, why should it be so difficult to renew? Why would at least one of the parties--whichever one it may be--be reluctant to renew on materially the same terms?

  To put those three years into perspective, it took Haier about four years just to make a counteroffer.

• It is a two-way dispute. Past losers like Haier and Daimler were SEP have-nots. OPPO is not. It is regarded as one of the world's major 5G SEP holders. A 2019 Ericsson press release anounced an initial cross-license agreement.

  The way courts in at least Germany and the UK apply Huawei v. ZTE is that a licensing offer is analyzed in light of common industry practice. Therefore, the courts say you must take a global portfolio license (possibly even a patent pool license in some cases) as opposed to licensing only a patent-in-suit. It is then a corollary to consider a cross-license the relevant commercial practice in a case like this. In that case, either party finds itself in a situation where the shoe is suddenly on the other foot.

  Sometimes parties are consistent. For example, in the second Apple v. Samsung trial in the Northern District of California, Apple accused Samsung of asking for ridiculously low damages amounts for its own patents (all trial patents were non-SEPs, but a "reasonable royalty" damages theory is the next best thing to FRAND) in order to sandbag the jury's perspective on what Apple should be entitled to (and indeed Apple got only about 5% of what it asked for).

  But there are also cases where parties apply dual standards, or where someone at least claims this to be the case: Ericsson and Apple accuse each other of asking too much for their own patents while offering too little for the other side's patents. The FRAND analysis becomes more complex when it's not only a two-way street in terms of both parties having to act constructively all the time but when you have a parallel two-way street where each party is coming from the other direction. Who's fair and what's fair in such a scenario?

• Unless there are some new patent assertions that haven't surfaced, it looks like Nokia has yet to assert a single true 5G SEP. Many 5G SEPs could still be opposed before the EPO, as I noted in my commentary on OPPO's patents-in-suit (which are 5G patents).

If a court adjusts to a new fact pattern, it isn't necessarily deviating: stare decisis (which isn't even a binding principle in Germany, unlike in Common Law jurisdictions) doesn't mean to fail to distinguish.

I expect Munich and Mannheim (where a Nokia v. OPPO trial was originally scheduled for yesterday but postponed on short notice as one of the judges called in sick) to remain just as popular among SEP holders. I wouldn't discourage any patentee from suing there. If you get into trouble in one of those courts, who's going to help you then? Dusseldorf with its propensity to make ECJ referrals of FRAND issues and a recent decision against the Access Advance pool? The Hague, where reasonableness is considered in very holistic terms? London, where the judges will set a rate before you get to enforce an injunction? Maybe you have to fix the problem yourself and just behave differently. Then you'll get the leverage you're seeking over unwilling licensees, and there'll be no better place in the world than Munich or Mannheim.

I hope to find out more about what exactly makes the Nokia-OPPO-Nokia "round trip" a potential landmark dispute. Presiding Judge Dr. Holger Kircher of the Mannheim Regional Court's Second Civil Chamber delivers the rhetorically most brilliant summaries at the outset of each of his trials. When the Nokia v. OPPO trial that got postponed this week finally takes place, his introductory remarks may shed some light on what is quite so special about this one.

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Ford's patent exhaustion defense to Sisvel's Delaware claims fails plausibility test: time hasn't stood still since 2008 Qualcomm-Nokia deal, others' similar defenses went nowhere

In early February, Ford filed its answer to patent licensing firm Sisvel's Delaware complaint, which is just one of several cases brought by Avanci licensors against the iconic U.S. automaker (case in point, IP Bridge is increasingly likely to obtain a Munich injunction against Ford next month). The part that stood out from Ford's Delaware submission was the claim that the former Nokia assets among the patents-in-suit were exhausted under a 2008 Qualcomm-Nokia license agreement that predated the 2012 transfer of those patents to Sisvel.

Two weeks later, Sisvel replied to multiple exhaustion-related paragraphs from Ford's counterclaims as follows:

"Paragraph [...] contains conclusions of law to which no answer is required, To the extent that an answer is required, Plaintiffs deny the allegations in Paragraph [...]. Plaintiffs are without knowledge or information sufficient to form a belief as to the truth of the remaining allegations in Paragraph [...] and deny same."

Sisvel obviously doesn't know what exactly the Qualcomm-Nokia agreement says. Neither do I. But it is possible, just based on publicly accessible information, to make the reasonable inference that Ford's supposedly dispositive get-out-jail-free-card (with respect to some--not all--of the patents-in-suit) is just a Hail Mary pass:

• Ford's theory is more of a fishing expedition than based on reliable facts. The wording is already odd: "[T]he assignment of the [...] patent to Sisvel in 2012 was subject to the July 2008 agreement between Nokia and Qualcomm" (emphasis added)

  If the assignment was "subject to" an agreement, that one would have been the transfer agreement between Sisvel and Nokia. What Ford means to imply here, but can't really claim, is that a certain encumbrance traveled with the transferred patents. But what encumbrance are they talking about? They don't seem to have any information beyond a 2008 press release that says "Nokia has agreed not to use any of its patents directly against Qualcomm." One can deduce from that passage that Nokia didn't grant Qualcomm a license. But everything else is unclear.

• According to the press release, it was a 15-year deal. But the assumption that Nokia and Qualcomm would never have amended their 2008 agreement despite earth-shaking subsequent case law such as TransCore (a 2009 Federal Circuit decision according to which an unconditional covenant not to sue triggers exhaustion), and despite Nokia later exiting the mobile device business, flies in the face of all I know about industry practice and from following the FTC v. Qualcomm and Apple v. Qualcomm antitrust cases in granular detail. It is a typical human fallacy to assume that something (here, the Nokia-Qualcomm agreement) forever remains static. It's even worse when people believe that one factor is static while others are dynamic, only because that particular combination of static and dynamic elements would benefit them.

  As one of the attendees of the 2019 FTC v. Qualcomm trial in San Jose, I know that Qualcomm reacted to case law developments by changing the structure of its agreements.

• If Ford was right, Nokia's licensing business couldn't possibly be as successful as it is given Qualcomm's market share. Sophisticated hardball-playing licensees like Apple wouldn't have paid nearly as much as they have. The best example may be the 2011 Nokia-Apple agreement, which fell into place only a few months after Apple's February 25, 2011 "Transition Agreement" with Qualcomm. It became known as a result of certain antitrust cases (such as this European Commission decision) that Apple agreed to buy all of its 4G/LTE chipsets from Qualcomm until the end of 2016. What triggered that spring 2011 settlement was the threat of two Mannheim injunctions (a hardware patent and one targeting the App Store), which had nothing to do with Qualcomm's chipsets. But the royalty was largely justified with the strength of Nokia's cellular SEP portfolio. Even when Apple renewed the Nokia deal in 2017, it was still using Qualcomm chips, though no longer exclusively. Analysts estimated that Nokia was making approximately $1 per iPhone. A huge upfront payment was made.

• Another way to look at it is that it wouldn't make sense for Qualcomm to support Avanci (as a licensor) if it could simply provide car makers with a license to the largest portfolios in the Avanci pool through the sale of its chipsets.

• The Qualcomm-Nokia agreement has come up in various other patent disputes over the years. Never once has an exhaustion defense centered around that particular agreement succeeded, no matter the jurisdiction.

  More than ten years ago I personally attended a preliminary-injunction hearing in Paris where Samsung was denied a PI because of a patent exhaustion defense by Apple involving Qualcomm chipsets. But that was about the Qualcomm-Samsung (not Qualcomm-Nokia) agreement, and part of the discussion there was whether Samsung had the right to terminate that agreement with respect to (only) Apple. Also, it was not a full trial: just a denial of a PI. That case is an outlier, and again, about a different Qualcomm contract.

  By contrast, every single defense according to which Nokia's patents were exhausted by Qualcomm's chips has failed:

  HTC tried this in the ITC and the England and Wales High Court (over non-SEPs, but exhaustion doesn't work differently for SEPs than for non-SEPs). This amicus brief by HTC in the Lexmark case (in which the Supreme Court expanded the concept of patent exhaustion in cross-border scenarios) summarizes its failure in the UK (before Justice Richard Arnold). The full October 2013 decision is available here. On May 2, 2013, the ITC's Administrative Law Judge Thomas B. Pender entered Order No. 13 in investigation no. 337-TA-847 of a Nokia request for an import ban on HTC products. That order was the equivalent of a summary judgment in district court and threw out HTC's exhaustion defense because it was meritless even when viewed in the light most favorable to HTC. In those U.S. and UK decisions, the extraterritorial nature of the sale was dispositive. HTC settled with Nokia right before a final ITC decision, which shows that HTC presumably expected to lose.

• The German SEP case at this stage is Sisvel v. Haier, and the regional appeals court in Dusseldorf (which did not make the famous final decision; that one was handed down by the Federal Court of Justice) dismissed Haier's patent exhaustion defense. The redacted version of the decision (in German) doesn't name Qualcomm, but it's anyone's guess.

  The same conclusion was reached by the Karlsruhe Higher Regional Court in a Sisvel v. Wiko case (English translation published by Kather Augenstein, a law firm whose clients include Ericsson).

The bottom line is that in order for Ford to prevail on its patent exhaustion defense in the Sisvel Delaware case, it would have to be way smarter than smartphone makers including but not limited to Apple, who paid for a license to Nokia's patents despite using Qualcomm chips, and it would have to benefit from the Supreme Court's expanded patent-exhaustion doctrine under the 2017 Lexmark decision, presupposing (unrealistically) that Nokia and Qualcomm never amended their 2008 agreement--of which it is not even clear whether it ever could have helped Ford.

There were rumors in Germany that Volkswagen was going to raise a similar defense in Acer v. Volkswagen (not involving former Nokia patents, but another Qualcomm agreement). However, VW upgraded its Avanci license to 4G and thus never answered to the complaint: the complaint has been voluntarily dismissed.

The Ford case and the rumor about VW's plans show that the topic will surface from time to time. I don't have hard evidence that they're all wrong, but there's a mountain of indicia pointing in the direction of meritlessness.

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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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Dusseldorf appeals court narrowly avoids divergent outcomes in Via v. TCL patent cases concerning Sisvel v. Haier FRAND defense, deems TCL unwilling either way

There are two key reasons for which cases with overlapping issues get consolidated in the U.S. (if necessary, this may even involve a venue transfer). The first one is that divergent decisions are highly undesirable. The second is efficiency (for the court and the parties). Not so in Germany, where each patent is litigated separately unless two or more patents are from the same patent family. Inconsistent rulings by German courts are possible for another reason: judges aren't bound by precedent (no stare decisis etc.).

With respect to standard-essential patents (SEPs), there was a period of a few months during which one patent litigation division of the Mannheim Regional Court--the Second Civil Chamber under Presiding Judge Dr. Holger Kircher--applied EU case law (Huawei v. ZTE) differently from the other--the Seventh Civil Chamber under Presiding Judge Dr. Peter Tochtermann. I declared myself in agreement with the latter, but then came the first of two Sisvel v. Haier decisions by the Federal Court of Justice, and Judge Kircher as well as his colleagues in Munich "won."

There still was--and maybe even is--a pocket of resistance to Sisvel v. Haier in Dusseldorf. Judge Dr. Thomas Kuehnen ("Kühnen" in German), who presides over one of two patent-specialized divisions of the Dusseldorf Higher Regional Court (regional appeals court), made no secret of his disagreement with Sisvel v. Haier, and Judge Sabine Klepsch, who presides over one of three patent-specialized divisions of the lower Dusseldorf court, made a preliminary reference to the European Court of Justice in Nokia v. Daimler one part of which effectively called into question the Sisvel v. Haier approach to the FRAND defense. But Nokia and Daimler settled (by now, another car maker has taken taken a vehicle-level license from Nokia, like Daimler but without litigation). The preliminary reference was inevitably withdrawn. And earlier this month, Judge Dr. Daniel Voss ("Voß" in German), who presides over another patent-specialized division of the lower Dusseldorf court, appeared to be speaking on his entire court's behalf when he said at a top-notch Mannheim conference that they wouldn't seek a review of Sisvel v. Haier by the ECJ anymore.

But is there a possibility of the Dusseldorf appeals court at some point challenging Sisvel v. Haier by way of a request for a preliminary ECJ ruling? I'd be extremely surprised if such a preliimnary reference came from the appellate division under Presiding Judge Ulrike Voß ("Voss" in German, and to my knowledge the various "Vosses" in the German patent judiciary are from different families). About Presiding Judge Dr. Kuehnen I'm not so sure. He's always considered himself smarter and more qualified than the patent-specialized division of the Federal Court of Justice. His book on German patent infringement proceedings is cited over and over--it's almost as influential in German patent law as Areeda/Hovenkamp is in U.S. antitrust law.

I may be wrong, but my guess is that Judge Kuehnen will make a preliminary reference if and when the right case along before his retirement in a few years. A set of cases brought by Via Licensing pool contributors against Chinese electronics company TCL (or, more specifically, a TCL subsidiary named TCT), however, would be the wrong vehicle for that purpose because of TCL's dilatory tactics in negotiations with the patent holders.

I already reported on that set of cases two months ago, without knowing the names of the parties. In fact, I had obtained all of my information from a Bardehle Pagenberg article.

Meanwhile, the appeals court has spoken: not in the form an appellate judgment, but TCL's motions to stay the enforcement of Dolby's and Philips's injunctions were denied. That outcome is another victory for Eisenfuhr Speiser's Dr. Tilman Mueller ("Müller" in German), who is an outlier in a purely geographic sense among German patent litigators--he's based in Hamburg--but whose cases sometimes shape the development of German patent case law. The first time I took note of his work was when the Munich I Regional Court referred a question relating to the availability of preliminary injunctions over battle-untested patents to the ECJ.

It's now rather likely that TCL will settle and take a pool license from Via. Therefore, it's doubtful that we'll get to see an appellate opinion in those Via v. TCL cases (just to avoid any misunderstanding, Via Licensing doesn't own those patents, thus can't sue; but Philips and Dolby are Via contributors, so I chose that simplified--albeit slightly imprecise--caption).

That said, the appeals court's decisions denying TCL's motion to stay are interesting, if for no other reason because they show that the Dusseldorf appeals court may be internally divided over Sisvel v. Haier:

• Judge Kuehnen's panel entered its order on July 14, mentioning Sisvel v. Haier (by its official caption, "FRAND-Einwand" ("FRAND affirmative defense")) only once on a total of seven pages (and not in a particularly important context), while Judge Voss's decision, handed down six days later, cites to both Sisvel v. Haier decisions a total of 19 times (spread out over 16 pages).

• Judge Kuehnen chose to duck Sisvel v. Haier: he found TCL to be (not his words, but from what I read between the lines) a typical case of an unwilling licensee even under the pre-Sisvel v. Haier standard, where the hurdle was actually low for a defendant to reach the point where the courts would have analyzed a SEP holder's licensing offer from a FRAND angle. The lower court had made the injunction particularly appeal-proof by determining that TCL was an unwilling licensee under Sisvel v. Haier as well as the standard under the previous application of Huawei v. ZTE by the German courts. For the plaintiffs, that's the strongest basis imaginable: it's like having not only a castle, but also a moat around it.

• Judge Ulrike Voss sort of ducked and embraced Sisvel v. Haier at the same time, which may sound like an impossible combination (like "have your cake and eat it"), but let me tell you how she did it: her panel decided that it cannot possibly have been clearly erroneous for the lower court (Judge Dr. Daniel Voss) to apply Sisvel v. Haier (i.e., Federal Court of Justice case law). In other words, even if one agreed with Judge Kuehnen that Sisvel v. Haier is not a proper application of EU case law, the standard of review for staying an injunction in Germany is that there must be clear reversible error, and following the nation's highest court (with respect to almost every patent case, as it's very rare that any issues reach the Federal Constitutional Court) can't constitute a clear error.

  Without stating on a totally definitive basis that she recognizes Sisvel v. Haier, Judge Voss found that in connection with a motion to stay enforcement, she did not have to reach the question of whether her colleague Judge Kuehnen or the Federal Court of Justice was right. (It would be different situation if TCL kept on holding out and an actual appellate ruling became necessary.)

  On that basis, Judge Voss then rejects a variety of TCL's appellate arguments by citing to the Sisvel v. Haier pair of decisions. One example (of many) is that the Federal Court of Justice had found in Sisvel v. Haier that it's not a get-out-of-jail-free card if a defendant makes a deposit.

The TCL cases didn't force the Dusseldorf appeals court to come clean on Sisvel v. Haier at the motion-to-stay stage, and most likely won't have that effect should there even be full-blown appellate proceedings. But at some point there may be another SEP injunction case that serves as a litmus test: it would have to be a case that clearly has to be decided in defendant's favor under the pre-Sisvel v. Haier standard but similarly clearly must be decided in plaintiff's favor under Sisvel v. Haier I & II. If such a case is assigned to Judge Voss's panel, I guess the decision will be made in accordance with Sisvel v. Haier, though she--while serving on the lower court--made the preliminary reference in Huawei v. ZTE (the only Dusseldorf trial I ever attended). Should a "litmus test" type of case land on Judge Kuehnen's desk, and should he be reasonably confident that the parties won't settle, then a preliminary reference--as maybe his last act of rebellion against the Federal Court of Justice prior to his retirement--is a possibility. How likely it is that such a case is heard by Judge Kuehnen is hard to say. Most SEP holders prefer the Munich and Mannheim courts anyway.

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SEP Licensing Negotiation Groups -- Part II: justice delayed is justice denied when unwilling licensees can hide behind a consensus-building effort

This is the second part of a trilogy on licensing negotiation groups (LNGs): automotive industry cartels that would collectively negotiate standard-essential patent (SEP) licenses with major patent holders and pools. In the first part, I outlined some of the issues and cautioned against a false symmetry between patent pools and buyers' cartels named LNGs.

There isn't any such thing as a conventional supply-and-demand mechanism in SEP licensing. For example, patent holders can't reduce output: if they abandoned some of their patents, they'd just reduce the value of a portfolio. By contrast, if the likes of Continental, Dunlop, Bridgestone and Firestone ganged up on car makers, they could drive up the price--which is why competition authorities wouldn't allow such a cartel.

As double patenting isn't possible (if it happens, only one of the patents survives), SEP portfolios are by definition complementary to each other. One SEP--or one portfolio--can't substitute for another. As an implementer, you can't "threaten" Huawei with the alternative of taking a SEP license from Ericsson instead (unless Huawei gives you a better deal). You need a license from both.

SEP holders have an obligation to grant licenses on a fair, reasonable, and non-discriminatory (FRAND) basis. Comparable licenses go into the FRAND analysis, but comparability and substitutability are separate things.

Where you do have a supply-and-demand mechanism is when one standard competes with another. After the industry has chosen a standard, the terms of individual license deals are effectively set by the courts, directly (in the event of infringement litigation) or indirectly (SEP licensing negotiations amount to a simplified simulation of what would happen if the patent holder went to court).

Let's talk about tires again. A Conti or a Bridgestone can't force anyone to buy their tires. But customers--even if they're as advanced as Tesla--will need some tires. The fact that cars can't move without them ensures demand. Cars do move without a SEP license, though. The sad reality is that most cars are rolling and infringing at the same time.

In SEP licensing, there is no demand without the prospect of losing infringement cases and, if it comes to worst, being enjoined. Apple's 2019 policy statement on FRAND-pledged SEPs is instructive. It postulates that "[b]oth SEP licensors and licensees should negotiate transparently and willingly based on an exchange of relevant information." Apple is a net licensee, but has acquired a sizable SEP portfolio (from Intel in no small part). There's probably no smartphone maker who negotiates SEP licenses as hard as Apple. Still, Apple stresses symmetry with respect to the willingness to reach an agreement.

That symmetry is merely consistent with the guidance the European Court of Justice provided in Huawei v. ZTE, and the way it is now applied by the German courts after Sisvel v. Haier I & II. Unwilling licensees incur the risk of SEP injunctions. Otherwise there isn't sufficient deterrence in certain jurisdictions, and infringement would be profitable.

Licensing negotiation groups don't mix with Huawei v. ZTE and Sisvel v. Haier. How can a court of law identify an individual company's unwillingness to take a license on FRAND terms if it can hide behind its LNG?

Currently, there are various ways in which courts can arrive at an unwillingness finding as the result of a multifactorial analysis. Just a few examples:

• slow response times to infringement notices and licensing offers

• noncommittal expressions of an interest in taking a license

• sub-FRAND royalty rates

• contract clauses that may give rise to subsequent litigation based on a flimsy patent exhaustion argument

All of the above examples would no longer be workable criteria if lawmakers and/or regulators were to endorse LNGs. Those licensee cartels would presumably move slowly, and they could blame it on the time it takes to build internal consensus within a group. Their offers might fall far short of a FRAND rate, but how could the patentee prove that a particular defendant was responsible?

LNGs could take extreme positions in negotiations. Individual members could not be held responsible.

Volkswagen's chief patent counsel explained (in the presentation I mentioned in Part I) that the LNG would appoint someone who would organize the internal process and would be neutral with respect to the LGN's members, but would clearly have a mandate to vigorously defend the group's interests vis-à-vis patent holders. For example, Mr. Wiesner tossed out the idea that an official from German automotive industry association VDA could do the job. It's another question whether such an official would truly be neutral within the group, given that large members typically have disproportionate influence over such organizations. But even according to Mr. Wiesner's presentation, the LNG's appointed negotiator would have to defend implementers' interests against those of licensors.

In order to discharge his or her duties, the LNG's representative would have to optimize the licensing terms for the LNG's members. That means to minimize royalties, but SEP holders would have no leverage over the representative: they couldn't sue her or him. And if they sued individual members of the group, those would argue they can't be held responsible for group decisions or a "neutral" representative.

It's a safe assumption that LNGs would often assert that a particular tier of the supply chain is where the license should be granted. If an implementer takes the position in infringement litigation that someone else should take the license, the courts will not be impressed and may just order an injunction. Not so when each implementer is shielded by an LNG. According to Volkswagen's presentation, the members should be free to negotiate with SEP holders independently, but it seems they would only do that if they could get an even better deal that way.

Should the plan to be make LNGs optional, SEP holders would be free to sue individual implementers, who would in turn make their own counteroffers. In that case, LNGs would cease to serve their purpose.

In the absence of a convincing plan for how to make patent enforcement work even after LNGs have been blessed by regulators, there won't be good-faith licensing negotiations.

In the next and final part of this trilogy (though there will likely be posts further down the road to discuss the topic in light of future developments), I'll take an antitrust angle and explain why a buyers' cartel would likely lead to collective hold-out. LNGs would complicate, not facilitate, SEP licensing in the automotive industry--and they'd have the same negative effect on SEP enforcement and the judicial decision-making process.

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Flimsy patent exhaustion argument weighs against willingness to take standard-essential patent license, and § 315 still no safe harbor: Mannheim court

German patent prosecution and litigation firm Bardehle Pagenberg published an article last week on a landmark Mannheim FRAND judgment that came down in early March, but the redacted version of which apparently wasn't published until a couple of months later. In that case, LG Electronics won an injunction against TCL over a standard-essential patent (SEP). The redacted judgment doesn't name the parties, but LG issued a press release a week after its first-instance victory.

I strongly recommend the summary and the analysis provided by Bardehle's Professor Tilman Mueller-Stoy and Jan Boesing. After reading the Mannheim ruling, I don't have much to add, but I do wish to address two of the key holdings (one of them is actually just a dictum) because they are so very relevant to aspects of SEP litigation that this blog has addressed and will continue to discuss. Maybe my way of putting it will even encourage some more people to dig deeper by reading the aforementioned article.

Patent exhaustion clause in implementer's counteroffer needs to be timely and stand on solid ground, or will contribute to finding of unwillingness

In some patent--not only but also SEP--cases, patent exhaustion has saved the day for defendants. It's been almost ten years that I attended a French Samsung v. Apple preliminary injunction hearing that resulted in a victory for the iPhone maker because of the exhaustive impact of a license agreement between Qualcomm and Samsung. In that Mannheim case that was decided in March, TCL sought to benefit from a license agreement between LG and the same San Diego chipmaker: Qualcomm. Not all of the accused products in LG v. TCL came with a Qualcomm chip (unlike the particular iPhone model at issue in that French case), but some, and TCL wanted to benefit from patent exhaustion in two ways:

1. TCL's counteroffer excluded Qualcomm-powered devices from the computation of the "release payment" (i.e., back-royalties) that would compensate LG for past infringement.

2. TCL also reserved the right to dispute its obligation to pay license fees on future product sales if and when its SEPs might be exhausted under a Qualcomm-LG agreement.

The way I understand the Mannheim Regional Court's Second Civil Chamber (Presiding Judge: Dr. Holger Kircher), the judges would have considered at least the first part--and possibly even the second part--acceptable if TCL had raised the question of patent exhaustion early in the negotiations and if it had a strong case for exhaustion. However, the court notes that it was a very late stage of the infringement proceedings at which TCL brought this up for the first time, and dilatory tactics are often fatal to a FRAND defense in Germany under the Federal Court of Justice's two Sisvel v. Haier decisions clarifying the application of the European Court of Justice's Huawei v. ZTE guidance. But the court also looked at the clause of the Qualcomm-LG agreement TCL's exhaustion theory was based upon, and found TCL's argument unavailing as a matter of contract law. The ruling also mentions the territorial nature of patent exhaustion.

SEP holders can insist on back-royalties as an indispensable contractual condition. The court was also concerned that TCL might relitigate the exhaustion-related merits in the future by withholding payments.

The ruling doesn't explicitly say that TCL lost the case just because of the shortcomings of the exhaustion-related parts of its counteroffer. It's one of of those multifactorial findings, and TCL did other things that the court deemed to call into question TCL's willingness to take a license on FRAND terms. Also, to be on the safe side, the court also found that LG's offer and negotiating conduct were exemplary (without using that particular term), making TCL look even worse by comparison. Still, my subjective understanding of the decision is that the exhaustion part in and of itself would have been sufficient for TCL to lose the case. Of course, it remains to be seen what the appeals court will say (unless the case gets settled).

Given that the court found TCL's patent exhaustion theory not only belated but also legally deficient, I wouldn't want to jump to conclusions as to what would happen in a case where the patent exhaustion argument is substantially stronger, and made early on, though there still is an argument over whether exhaustion occurred. When products are sold in a different jurisdiction than the one in which they or the relevant components are made, patent exhaustion is rarely a slum dunk for defendants. And a conservative defendant really has to tread carefully in Mannheim now when it comes to exhaustion-related clauses in a proposed license agreement.

§ 315 FRAND licensing offer no safe harbor despite appellate decision

The LG v. TCL decision came down shortly after a ruling by the Karlsruhe Higher Regional Court--to which all Mannheim patent decisions are appealed--that breathed new life into the § 315 safe harbor. § 315 German Civil Code enables contract clauses that leave the determination of an exact amount to a court of law if the parties cannot agree. It's like a placeholer for an actual number, enabling a binding agreement to be concluded even though what is often the single most important question may be left open.

Even the arguably patentee-friendliest judge ever to have served on the Federal Court of Justice of Germany, Professor Peter Meier-Beck, declared himself sympathetic to the § 315 approach to SEP licensing at a Mannheim conference earlier this month.

In LG v. TCL, § 315 came up only in an obiter dictum. That is so because TCL merely brought it up as an analogy when seeking to defend its approach to patent exhaustion against criticism that a licensing offer is unacceptable to the patentee if it leaves open such a fundamental question of exhaustion, which has the potential to give rise to subsequent litigation. TCL apparently told the court that a § 315 offer doesn't totally resolve everything either, but a license agreement comes into being and an injunction may not issue.

Interestingly, the Mannheim court once again rejected the suggestion that a § 315 offer was sufficient. It didn't say that no § 315 offer would ever be acceptable from an implementer in a SEP case, but took a rather negative position.

That would have been inconceivable in a comparable U.S. case. If the Federal Circuit had addressed a question like this in another patent case and had said pretty clearly that a particular type of approach to the royalty amount is FRAND, a court below wouldn't dare to deviate from it. But the U.S. is a common law jurisdiction, while Germany is a civil law jurisdiction ("civil law" meaning in this case that it is in the tradition of the sixth-century Corpus Juris Civilis and the Napeolonic Code Civil).

What the Mannheim court does here is intransigent: it acts as if it had not been overruled (in the form of an order to stay the enforcement of an injunction due to the defendant likely prevailing, as opposed to an actual appellate opinion) over a § 315 clause in Nokia v. Daimler. But it's not a miscarriage of justice or whatever. They can do it, though they will likely be overruled again and again. In LG v. TCL it's just a dictum, so there can't be a formal reversal. Maybe the appeals court will assert its authority again and also issue a dictum. It might also just ignore this part as it's not outcome-determinative.

As a SEP holder I'd definitely be encouraged by that Mannheim LG v. TCL ruling. Nokia probably knew about it already when it decided to bring 11 (eleven!) patent cases against OPPO in Mannheim this month. Nokia is also suing OPPO in Munich and Dusseldorf, but Mannheim is the center of gravity of the German part of that dispute. At least initially.

LG will even more aggressively enforce its patents now, so I guess we'll see LG in action in Mannheim again in no time. And TCL is a frequent defendant to patent infringement complaints. What we won't see too soon, however, is an Ericsson v. TCL case: they've settled their long-running dispute according to Reuters.

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