European Patent Office pays for health insurance of members of its oversight body, staff union says

As a follow-up to yesterday's post on a continuing strike by European Patent Office examiners, I went to watch today's Munich demonstration. I figured I'd see a few hundred (of the EPO's 3,800 Munich-based) employees demonstrate, but the organizers announced a crowd of 1,100 at the beginning of their protest march from an EPO building to the Palace of Justice, and of 1,300 toward the end after other protesters, including members of technical boards of appeal (i.e., in-house judges), had joined. According to the organizers from SUEPO, the EPO staff union, this made today's Munich demonstration "the largest event in the history of the EPO."

While I know that organizers like to overstate such figures, both numbers appeared very credible to me. The protest march was impressively long (even more so when considering temperatures just slightly above freezing and the light rain)--so long that it was impossible to have the whole crowd on a single picture, even at the destination where a few short speeches were given.

This picture shows a limited part of the initial gathering:

From there, the crowd marched to today's destination, the Palace of Justice. First the protesters had to cross Hackerbruecke, a bridge that is similarly crowded only during Oktoberfest (it's the closest local train station to Theresienwiese, the Oktoberfest venue):

I took the next picture a little later:

You can find a couple of other photos, and measured commentary expressing a certain degree of concern, on the IPKat blog. A Bavarian broadcasting company (probably radio, maybe TV) was also present, and even before today's protest, Frankfurter Allgemeine Zeitung reported (the article, along with English and French translations, is available here) about "strange things going on" in Munich.

The FAZ article notes that the European Patent Organization (EPOrg) is run as a state within the state, an issue I mentioned yesterday. It's an autocracy that is above the law. The SUEPO activist leading the march said today that whenever EPO employees try to raise human rights issues in judicial proceedings, the EPO's lawyers routinely argue the EPOrg is an international organization that is not a signatory of the European Convention on Human Rights, thus its employees (though they are all nationals and residents of member states of the Council of Europe, another non-EU body) don't enjoy the protection that goes with the European human rights charta. SUEPO proposes accession of the EPOrg to the Council of Europe as a solution to several (though not all) fundamental problems affecting EPO staff.

Wherever there is a lack or near-absence of checks and balances, two things inevitably happen:

1. Whatever little may exist in the form of checks and balances will be further marginalized or eliminated. Case in point, the EPOrg abolished an independent audit committee in 2011. EPO president Battistelli said in a 2012 interview (in French) that in his entire political career he'd never enjoyed so much freedom, not having to worry about parliaments or governments. "It's us who sets the rules, discusses them, and negotiates them." (It's unclear whether "us" refers to him and the Administrative Council, or just to himself in the form of a pluralis maiestatis).

2. Such a deficient structure furthermore makes it all too tempting to create conflicts of interest for those who are meant to oversee the agency's dealings: the national public servants representing the governments of the EPO contracting states on the EPOrg's Administrative Council. One of the speakers at today's demonstration in front of the Palace of Justice said that the EPO recently started to pay for the health insurance of the national delegates to the Administrative Council.

   That should actually be a big-time political scandal in Europe. I heard that Administrative Council meetings are a boon for some Munich-based doctors, particularly dentists, as national delegates (presumably from, relatively speaking, poorer European countries) go to see them while they are here. I also heard from a multiplicity of reliable sources that the president of the EPO can easily silence critics on the Administrative Council by either offering lucrative cooperation projects to their national patent offices if they support him or by threatening to withdraw funding for such projects if they don't.

This labor dispute is, as I already explained yesterday, not about money but about fundamental rights. One protester held a sign that said "No intellectual property rights without civil rights" and that makes sense. Others warned against a lawless space on European (or, specifically, Bavarian) soil.

The only issue that was mentioned by the speakers in connection with compensation was that SUEPO opposes the idea of a performance bonus for examiners that could create a conflict of interest as examiners should be honest brokers between an inventor and the general public--an attitude that I like very much. As an alternative, SUEPO appears to prefer accelerated career paths based on the quality of someone's work.

Toward the end, the deeply-rooted lack of faith of many EPO employees in the current president was expressed loud and clear as significant parts of the crowd chanted, in French, "Battistelli démission." There are some indications that EPO governance has never been more problematic than under the current president, but as long as the underlying structural issues are not addressed, there's no guarantee that a different president wouldn't be worse. Overly close ties between members of the Administrative Council and the EPO president (whoever that president may be at any given point in time) are a particularly important part of the problem.

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European Patent Office: examiners continue strike and take to the streets over human rights issues

While the average labor conflict is just about money, and occasionally about narrowly-defined working conditions, something remarkable is going on at the European Patent Office (EPO). An ongoing strike and related demonstrations are meant to "underline staff's claims to respect of the Rule of Law, Freedom of Association and to good faith negotiation of ongoing reforms."

There are reasonably credible complaints about the current EPO president ruling with an iron fist and denying affected staff representatives, after being fired for defending the rights of others, access to justice for the next ten years. I heard a horrible story of a French EPO examiner who (based on what I heard) committed no wrongdoing other than being active in the Staff Union of the European Patent Office (SUEPO) and was "suspended" for that reason. Payments to him (a father of three if my sources are right) were frozen with immediate effect--at least significant parts of his salary. This would be unthinkable in Europe, where workers' rights are reasonably strong, including in Germany, where this incident occurred, if the EPO didn't enjoy "immunity" by virtue of being an international organization. It's an autocracy that operates its own internal jurisprudence, and it appears that EPO employees currently don't have (at least not in practical terms) access to a reasonably swift adjudication of labor disputes. The only recourse they have against the EPO's president is the International Labor Organization's Administrative Tribunal, which is so clogged it takes about ten years to reach a decision (counting from the filing of a complaint).

Facing the risk of being left without some of their pay overnight and not having a realistic chance of reclaiming any of it in a decade, and having seen how someone else was escorted out of the building by security personnel before an announcement that he left "by mutual agreement," EPO staff is intimidated and allegedly subject to repression. Under these circumstances, the momentum behind the ongoing strike and the related protests is even more significant than it would normally be. Even the EPO itself acknowledges that, about two weeks ago, "2,538 staff representing 36.7% of the workforce" participated in the strike.

Recently 700 EPO employees took to the streets of Munich. That number was given by SUEPO, and a local newspaper, Süddeutsche Zeitung, also estimated a crowd of in the hundreds (German online article, German print article with English translation further below). Tomorrow (Tuesday), demonstrations will take place in front of the French and Danish embassies in The Hague in support of two EPO employees "facing disciplinary procedures for their work as staff representatives." One of those employees is French (at a recent protest, there were signs that said "Hands off Aurélien"), and the other Danish. The demonstrations additionally take place in front of those countries' embassies because the European Patent Organisation (which runs the EPO) is led by a Frenchman, its apparently-controversial president Benoît Battistelli , and a Dane, Administrative Council chairman Jesper Kongstad. More protest will be expressed today in the form of a march from one of the EPO buildings in Munich, the city in which more than half of its nearly 7,000 employees work, to the local Palace of Justice.

At the heart of the issue is the leadership style of the EPO's recently-reelected president. To quote Wikipedia, Mr. Battistelli "is perceived by staff as being unduly autocratic and unsuited to a European intergovernmental body such as the EPO," and his management style has also been criticized in the Dutch newspaper De Telegraaf, and by Philip Cordery, member of the French National Assembly). I've also found this statement by a French senator (in French) on another (English-language) blog I hadn't been aware of before today.

Here in the Munich area, one can hear all sorts of stories about Mr. Battistelli, involving tax-saving strategies and favors the EPO is allegedly doing the members of the Administrative Council (public servants of the EPO's contracting states; they reelected Mr. Battistelli unanimously). Those are hard to verify. But what's apparent is that the EPO's governance structures have traditionally suffered from a severe lack or the near-total absence of checks and balances. The worst story of this kind doesn't even involve Mr. Battistelli but one of his predecessors from a long time ago. According to an email (published on the Internet back then) from an EPO employee to non-governmental organization FFII, a SUEPO leader was kicked in the stomach by the then-president of the EPO. The female victim was hospitalized. The Munich police was not authorized to enter the EPO building because it's on diplomatic territory, so the culprit, protected by diplomatic immunity, couldn't be prosecuted for causing this bodily harm. Again, this was long before Mr. Battistelli's presidency, but it shows a structural problem.

To be clear, the EPO is not an agency of the European Union. Its contracting states include non-EU members such as Switzerland, and it's an international organization that was set up separately from what was then called the European Economic Community (about 40 years ago). However, the European Commission has observer status on the EPO's Administrative Council and has entrusted the EPO with examining and granting the future EU-wide Unitary Patent. As far as examiners' qualifications are concerned, the EU made the right choice. However, if the ongoing labor conflict over human rights issues such as freedom of association and the rule of law escalates further, it can become an institutional issue for Brussels, too, given its ever closer ties with the EPO. For example, critical questions might be raised by members of the European Parliament at some point.

Another unusual aspect of the ongoing strike is that a German patent law firm, Zimmermann  & Partner, expresses its support for EPO examiners "in their legitimate request for fundamental rights" on the firm's landing page and, in greater detail, on a dedicated page. The firm states clearly, among other things, that it finds "management decisions against European human rights inacceptable." On this blog, Zimmermann has been mentioned a few times because of its representation of Samsung in its German Apple lawsuits (Apple was unable to defend a single patent claim here). I've also been able to research work of that firm on behalf of various suppliers to the automotive industry, Medtronic (the world leader in medical devices), and Kimberly-Clark. It's probably unprecedented for a firm to take sides in an internal dispute of a patent office. (It's also the first time for me to write about this kind of subject.)

The EPO appears to attribute all of the staff's activism to resistance against necessary reforms. There may indeed be a need for reform, but the number one item on the reform agenda should probably be governance and the rule of law.

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Near-automatic injunctions raise concerns at hearing on rules for European patent court

A hearing was held today at the Academy of European Law in Trier, Germany, on the rules of procedure for Europe's future Unified Patent Court (UPC), as I mentioned last week when I commented (not too positively, to be honest) on the latest draft rules. I followed it over the Web. To put it this way, the hearing went very well for those advocating a more eBay v. MercExchange-like standard, and there is a reasonable chance of improvement when more EU member states take and state their official positions in the months ahead.

The last part of the hearing before the lunch break was all about access to injunctive relief and the related judicial discretion. Dr. Johannes Karcher, a former judge at the Federal Patent Court of Germany and now an official at the Federal Ministry of Justice as well as the chairman of the legal group of the UPC Preparatory Committee, explained that judges would, in principle, enjoy discretion with respect to injunctions, but the question was the extent of such discretion. And he was clear that discretion should "only be exercised under exceptional circumstances."

As at least one other speaker did after him, Mr. Karcher argued that last week's opinion by Advocate General Wathelet in a Huawei v. ZTE standard-essential patent case affirmed that access to injunctions is a cornerstone of the patent system. It's true that AG Wathelet stated that seeking an injunction cannot, in and of itself, constitute abusive conduct. That was apparently also the European Commission's conclusion when it settled the Samsung FRAND investigation. By AG Wathelet's standard, there is no way the Commission could have fined Samsung for what it had done because Apple had taken none of the steps the AG considers necessary for a defendant to take in order to be considered a seriously willing licensee. Neither had Apple made a formal counterproposal on FRAND terms nor had Apple requested a FRAND determination (rate-setting decision) by a court of law or an arbitration panel. While the AG didn't state an opinion on ZTE's 50-euro-per-patent licensing offer, it was clear between the lines that Huawei's pursuit of injunctive relief was also above board, though ZTE could, if the court adopted the AG's recommendation (as it does most of the time), simply trigger a rate-setting proceeding in order to avoid a sales ban. The AG's opinion is a win for SEP holders in the sense that not only their own conduct but also the way the defendant behaves is part of the equation. I had advocated for a long time the proposal that only the SEP owner's FRAND compliance should matter, but I recognize that the Federal Trade Commission, the Department of Justice, the European Commission and now AG Wathelet all determined that an implementer of an industry standard must also demonstrate good faith conduct and I accept that this is now a requirement around the globe.

But the question in connection with the rules of procedure for the UPC is not whether an injunction request per se constitutes anticompetitive conduct no matter what the alleged infringer does or does not do. The outcome of Huawei v. ZTE, barring a surprise, is not going to be an injunction (because ZTE is too smart to let that happen). By contrast, the latest draft rules of procedure for the UPC were accompanied by an explanatory document, which drew criticism from multiple intervenors at today's hearing, that said injunctive relief would be denied only under "very exceptional circumstances." The way I see it, those draft rules of procedure are reconcilable with the AG's Huawei opinion only if one takes a particular passage out of context and twists and turns it, but not if one asks the question of whether the AG endorsed the notion of injunctive relief being available almost 100% of the time.

The first intervenor was a spokeswoman for the UPC Industry Coalition on whose open letters I've previously reported. She noted in the introductory part of her intervention that some of the key members of this broadbased coalition are actually embroiled in (particularly smartphone-related) litigation against each other, which means the group is interested in a balanced regime as opposed to being exclusively on the side of right holders or alleged infringers.

Unfortunately there was a technical problem with the official webstream during that intervention (and not only then). Therefore I missed parts of the intervention, but I still heard when she said that the group is in favor of a more flexible and balanced standard. It appeared to me that the UPC Industry Coalition's concerns relating to the 17th draft rules of procedure are pretty much the same as mine.

Some of the intervenors also pointed out the problem with bifurcation (cases in which a validity determination could come down after an injunction is granted and enforced). A Dutch association said that there was a diversity of positions among its members and there may be a need to make adjustments after a few years with respect to such issues as bifurcation.

Those concerns and some closely-related ones were also voiced by various other intervenors, including, among others, a representative of the GSMA wireless industry association and a representative of a French software industry association with 350 member companies, most of them small and medium-sized companies.

A French judge (who was sitting in the audience and not on the panel along with those judges serving on or advising the Preparatory Committee) complained that there was a risk of a famework that would exceedingly restrict judicial discretion. Not long after her intervention, Paul van Beukering, a Dutch ministry official who is the chairman of the Preparatory Committee, stressed that this process was stil at the drafting stage and that a very important part of the process would begin only after more EU member states have been able to comment, which would happen only after the hearing. It appeared to me that Mr. van Beukering wanted to pacify the numerous and vocal critics of the latest draft by suggesting that there was still room for improvement.

Several members of the Prepatory Committee's legal and expert groups defended the current draft and called on critics to "have confidence in the court." The judges on the panel were clearly interested in preserving a maximum of discretion, but I think a balance must be struck (and is not struck by the 17th draft rules) between judicial discretion on the one hand and reasonable assurances to industry (including companies of all sizes) on the other hand. I frankly can't see how a statement in the explanatory document that says injunctions would be denied only "under very exceptional circumstances" serves either purpose. It's bad news for discretion as much as it is for businesses.

Also, I can't see why an eBay-like standard would place a painful restriction on judicial discretion. Judges at U.S. district courts and the Federal Circuit actually enjoy tremendous discretion thanks to eBay.

I would like to highlight a very good idea that Judge Dr. Klaus Grabinski from the Federal Court of Justice of Germany (who also serves on the UPC Preparatory Committee) mentioned in his response to criticism of the latest draft. While I don't think this idea is sufficient to address the concern over disproportionate injunctions, it is a useful one and would be worth being mentioned in a future draft of the rules of procedure. Judge Dr. Grabinski noted that if there is concern over the commercial impact of injunctive relief affecting a highly multifunctional mobile device only because of an infringement of a minor feature, it would be possible to order an injunction but to simultaneously stay it for a significant period of time in order to allow the defendant to implement a workaround. Such transitional periods have been discussed in the U.S. on many occasions and even the U.S. International Trade Commission, whose remedy is purely injunctive (import bans), has in some cases (such as an Apple v. HTC dispute) granted grace periods to make modifications. The mere fact that Judge Dr. Grabinski discussed this possibility in public and believes it is reconcilable even with the current draft rules of procedure (in conjunction with the related international agreements and treaties) is good news, especially since it comes from a high-ranking judge from a country in which injunctive relief is a near-automatic remedy for patent infringement. But unless the rules of procedure are improved, there's a risk that this will just remain a nice idea but that the court's practice, at least in cases brought before a local German division, will give patentees (even those who can only claim rights to minor features) excessive leverage.

Those who promote balance and reasonableness will have to work hard and smart on the lobbying front to achieve their stated goals, but they should take encouragement from today's hearing (though the challenges were also noticeable).

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U.S. judge awards Apple undisclosed royalties if Samsung infringes certain patents in the future

[Update] Just after this post went live, Samsung filed a notice of appeal. Apple will do so pretty soon, too. [/Update]

Since Apple and Samsung agreed in August to drop all patent infringement actions against each other outside the U.S., there has been a much lower frequency of Apple v. Samsung news. It's now just about limited amounts of money (relative to the size of the companies involved) and whether or not Apple will get a face-saving exit from what was once intended to be a "thermonculear war" on Android.

Next week there will be an interesting appellate hearing. On December 4, the Federal Circuit will hear the parties' argument in Samsung's appeal (Apple dropped its cross-appeal in July) of the final judgment in the first Samsung case. With support from 27 U.S. law professors, Samsung is trying to get the $929 million damages amount in that first case reduced. The single biggest issue is the disgorgement of infringer's profits that U.S. patent law allows with respect to design patents.

In mid-December Samsung will respond to Apple's appeal of the denial of a sales ban in the second California litigation between these parties. Apple appealed that denial even before the final judgment in that case. It also tried, unsuccessfully, to speed up proceedings by asking the Federal Circuit to reconsider an order that granted Samsung a (customary) extension to respond. And it could now happen that the Federal Circuit will hear Apple's appeal of the injunction denial together with the parties' upcoming (we can set our watches by them) cross-appeal of the final judgment on the merits in the same case. That final judgment came down late on Tuesday by California time. It would make sense for the appeals court to discuss and adjudge the underlying liability issues and Apple's request for an extraordinary remedy at the same time.

In order to bring their appeals on the merits, Apple and Samsung had to wait for a formal final judgment in that second California case. Post-trial clean-up following the $119 million verdict (a disappointment for Apple, which demanded about 20 times as much) was already complete in September when Judge Koh denied Apple's request for a retrial and declined to overrule the jury in any significant way in either party's favor. Relatively speaking, the finding that Samsung did not willfully infringe Apple's slide-to-unlock patent (even the jury had not found any willful infringement of any other patent claim-in-suit) was the most important post-trial decision. But the final judgment couldn't come down without firstly adjudicating Apple's request for ongoing (postjudgment) royalties, filed shortly after the denial of injunctive relief.

Postjudgment royalties only come into play if products sold in the future are actually found to infringe a patent on which a party prevailed. While Judge Koh has awarded Apple some undisclosed per-patent per-product figures on Samsung products that might infringe any or all of the three patents on which Apple prevailed at trial (but pending appeal), the court has not determined that Apple is actually entitled to royalties on Samsung's future U.S. sales--just potentially. And Samsung disputes that there is any continuing infringement, as the following passage from the order on Apple's ongoing-royalties motion recaps:

"Samsung claims that there is no need for continuing remedies because it no longer infringes any of the '172, '721, and '647 Patents. [...] According to Samsung, '[n]o Samsung product released since 2012 has even been accused of infringing the '172 or '721 patents,' and 'Samsung long ago designed around these patents.' [...] As to the '647 Patent, Samsung represents that 'post-verdict sales of the accused products in this case have already ended,' and that the only version of the Galaxy S III product on sale 'incorporate[s] different code' than the relevant infringing source code."

Judge Koh agreed with Apple that it had not waived its right to obtain postjudgment royalties. She found that all patent holders who fail to win an injunction (but generally seek royalties in a given case) are entitled to ongoing royalties. As for the amounts, while those are redacted out in the public version of the order, it appears that she agreed with Apple to a large extent, but that's speculative. And she granted Apple's request (though some courts have denied such requests) for ongoing royalties relating not only to the (rather old) products presented at the trial earlier this year but also to future products that are "no more than colorably different" from the adjudged ones. But it doesn't matter if Samsung is right that it no longer infringes anyway.

If Apple indeed believes that there is any ongoing infringement, then the question of whether there was any postjudgment infringement will have to be decided by the court. Apple would have to prove not only that there was a postjudgment infringement but also that such infringement was of the same kind as an infringement previously identified by the jury. Otherwise a new decision on the merits would be needed, which would require a whole new lawsuit and another trial.

Should Apple bring any such claims, then we may find out at that time what per-product amounts Judge Koh awarded and decided to hide from the public. Those numbers will likely come to light during the appellate proceedings anyway.

Here's the order, which issued even without a hearing because Judge Koh wanted to close this case (for now) and maybe also wanted to make it possible for the Federal Circuit to consolidate the different appeals (injunction denial and liability issues) from this case:

14-11-25 Order Granting in Part Apple's Motion for Ongoing Royalties by Florian Mueller

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Google and Android OEMs apparently close to settlement with Rockstar over ex-Nortel patents

About a year after the Rockstar Consortium's Halloween 2013 lawsuits against Google and a host of Android device makers, and only days after a $188 million settlement between Rockstar and Cisco became known, the most likely outcome is now that Rockstar's pending cases against Google and various Android OEMs will be settled at a relatively early procedural stage.

Four days ago, Rockstar filed an unopposed motion in its Google case (over search engine patents, which is separate from the Android cases) for a 45-day stay, which was subsequently granted. The motion said the following about the current state of affairs:

"[O]n November 12, 2014 a binding Term Sheet was executed that settles, in principle, all matters in controversy between the parties. [...] [T]he Term Sheet is [being] reduced to a definitive agreement. [The 45-day stay] is necessary due to the complexity of the transaction and the number of additional parties whose claims are concurrently being resolved."

There are no additional parties to the case over search engine patents besides Rockstar, its NetStar Technologies subsidiary, and Google as the sole defendant. However, there are many parties to the Android cases (devices makers like Samsung, LG, HTC, and ZTE), making a comprehensive settlement involving not only search engine but also wireless patents the only plausible interpretation of that passage.

Absent a settlement, all of the key issues in the Android context would be resolved in the Northern District of California, the venue preferred by Google and its partners. In the declaratory judgment action in California, a report was filed in early November, saying that the parties engaged in court-ordered mediation but reached no settlement. However, it is possible that the mediation meeting nevertheless had a positive effect. It probably also helped the parties to know in which court the infringement and validity determinations would be made.

It would be out of character for Google to make a huge payment at an early stage of a patent litigation (though there's always the possibility of something happening for the first time in history). It's also unlikely that pretrial discovery has given the parties definitive clarity about the likely outcome. So I can't imagine that the impending settlement would be a win across the board for Rockstar. The two most likely scenarios are either a win-win (Google and its partners can put this thing behind them for an amount that's worth it while Rockstar can produce some revenues that help the acquirers of Nortel's patents offset some of their costs) or a set of terms under which Rockstar lets Google and its partners off the hook at a rather low cost. Should the latter be the case, then it would most likely be attributable to dwindling support for Rockstar's lawsuits among its owners.

While no single shareholder (not even Apple, which contributed most of the funding) will be singlehandedly in the position to tell Rockstar's management what to do, it's possible that a couple of shareholders have demanded that those cases be settled. Protracted and potentially acrimonious litigation could have resulted in negative publicity for Rockstar's owners (a key difference between Rockstar and "patent trolls" who have no affiliation at all with any operating company).

Also, Rockstar's management and/or shareholders may have found Google's proposed terms more acceptable than initially. After all, smartphone patent lawsuits typically don't give plaintiffs tremendous leverage.

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European Advocate General recommends to raise the bar for injunctions over FRAND-pledged SEPs

Last year, the Landgericht Düsseldorf (Dusseldorf Regional Court) referred a set of questions relating to injunctive relief over FRAND-pledged standard-essential patents (SEPs) to the Court of Justice of the European Union and stayed a Huawei v. ZTE litigation pending the CJEU's opinion. The hearing was recently held (I didn't attend due to my changed focus), and today the recommendations of Advocate General Melchior Wathelet were published. There is an English-language press release but not yet an English translation of the full document (at least not when I last checked). The official language of the proceedings is German, and that of the AG's recommendations is French.

Not all but most of the time, the European Court of Justice (which is what the CJEU is still referred to, now unofficially) adopts the AG's recommendations, and I believe that would be good news int his case.

I've read the recommendations, and here's my first takeaway:

1. The AG's recommendations are consistent with the ways in which I have, for years, disagreed with the way German regional and higher regional courts applied the Orange-Book-Standard ruling by the Bundesgerichtshof (Federal Court of Justice) to cases involving FRAND-pledged SEPs. If the AG's recommendations are adopted, the bar for injunctions over FRAND-pledged SEPs will be raised far, far above the recent practice by German courts, and it will certainly not be lowered as compared to the practice by UK and Dutch courts. In the Netherlands, antitrust law was not previously applied to these cases, but this may now be the case going forward.

   The worst part of the German application of Orange-Book-Standard that the AG disagrees with is that some German courts restricted the rights of defendants to an unreasonable extent. Those judges said that if you want to benefit from a FRAND promise, you have to take a license and must not challenge the validity of the patent-in-suit (though most patents in this field are invalidated or narrowed when challenged) and cannot defend yourself against the infringement allegations--or else an injunction will issue. The AG's recommendations clearly leave all options to defendants. The approach by some German courts was "you pay up or else" and they denied injunctive relief only if a royalty offer was so high that there was no way the patent holder could have asked for even one cent above it.

2. If the AG's recommendations are adopted, holders of FRAND-pledged SEPs can forget about the possibility of obtaining quick (sometimes within 10 months of filing a complaint) injunction orders by German regional courts over FRAND-pledged SEPs because a defendant will have the option to request a FRAND rate determination by a court or an arbitration panel and no injunction will issue in the meantime.

   The AG's recommendations require the patent holder to make a licensing offer to the alleged infringer, and the defendant to make a reasonable counterproposal, but in many cases both parties will take extreme positions with a view to a future FRAND determination.

3. Relatively speaking, the best news here for SEP holders is that they will have the opportunity to argue in court against any claim or assumption that ownership of a SEP gives them monopoly power. This could be an opportunity for SEP holders to still obtain injunctive relief, but the hurdle is likely going to be reasonably high, especially if the standard in question is as key as UMTS or LTE.

4. The AG's recommendations demonstrate a pragmatic approach and a good understanding of commercial realities by saying that implementers of standards do not have to seek a license prior to using the patents that read on it (because there's too many of them to reasonably expect anyone to clear and secure all rights beforehand): it's perfectly reasonable for companies to go ahead and implement a standard and to sort out licensing issues only if and when an infringement assertion is made. That is also a key aspect that some German judges viewed differently from the European AG.

5. While the AG's recommendations do not endorse the most extreme interpretation of the European Commission's December 2012 press release on the Statement of Objections (SO) in the Samsung case, according to which a totally unspecified willingness to negotiate would have been sufficient for an infringer to avoid injunctive relief, they are materially consistent with the structure of the European Commission's settlement with Samsung. Due to the settlement, that matter never arrived at the CJEU, but the aforementioned press release was the key reason for which the Dusseldorf Regional Court prudently presented its questions to the CJEU. (By the way, the presiding judge who made this decision, Ulrike Voss ("Voß" in German), has meanwhile been promoted to the appeals court, the Oberlandesgericht Düsseldorf.) So in practical terms, this CJEU proceeding is also about the issues at the heart of the Apple-Samsung matter.

6. In terms of whose parties' past behavior is endorsed, the AG's recommendations lend legitimacy to the pursuit of injunctive relief by Huawei (against ZTE) and Samsung (against Apple), even though the AG's recommendations would make it easy for defendants to avoid injunctive relief in the end. The AG does not comment on whether ZTE's 50-euro royalty proposal was reasonable, but between the line it's clear that it wasn't, and my guess is that ZTE will now seek a FRAND determination by a court of law or an arbitration panel. As for Apple, it's clear now that the positions Apple took in court in the Samsung cases were too extreme in several respects. Apple had basically argued that Samsung wasn't entitled to injunctive relief under any circumstances as long as Apple was willing to have talks (Apple's counsel said so explicitly in the Mannheim court), and that's not what the AG considers to be fair. AG Wathelet does believe that someone must be seriously interested in taking a license.

7. Earlier today I wrote about the latest draft rules for Europe's future Unified Patent Court, which make injunctions a given in virtually all cases in which an infringement is identified. It's not clear to me how the Unified Patent Court would apply European law if (a) the current draft rules were adopted (which I hope and believe they won't) and (b) the AG's recommendations were adopted by the CJEU (which I hope and believe they will). Critics of the UPC have been saying for a long time that the CJEU should have the final say just the way the Supreme Court of the United States can overrule the Federal Circuit. What will the UPC do about FRAND? That question may very well come up at next week's hearing.

8. The AG argues that holders of FRAND-pledged SEPs have less leverage than owners of patents that read on de-facto standard without FRAND rules. That's the basis on which he distinguishes cases like Huawei v. ZTE from the German Orange-Book-Standard case, in which there was no FRAND pledge. If there's anything in the AG's opinion that I don't consider good policy, it's this. It's effectively an incentive for standard-setters not to make FRAND promises in the first place. Maybe the AG was being very political here and was just looking for a way to avoid an outright disagreement with the Federal Court of Justice of Germany. By saying that Orange-Book-Standard shouldn't apply to FRAND-pledged SEPs, the disagreement between the European AG and German case law is limited to decisions by lower courts, but the result could be problematic. Some of this will affect future debates over European horizontal agreement guidelines.

I'll certainly comment on the CJEU's opinion when it is handed down. If I find additional interesting things in the AG's recommendations after re-reading them, I may blog about this landmark case again even before the actual ruling.

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Draft rules for European patent court: injunctive relief an automatic remedy for infringement

When then-U.S. Secretary of Defense Donald Rumsfeld made a distinction between the "Old Europe" and the "New Europe" (including countries like Poland), there was a lot of (understandable) outrage. Unfortunately, some of the people shaping Europe's patent policy are now pushing for a Stone Age approach that makes patent injunctions a given in any case in which an infringement is identified, more than eight years after the eBay v. MercExchange ruling by the U.S. Supreme Court and also running completely counter to the tradition of several European jurisdictions (such as the UK and the Netherlands) in which judges have enjoyed significant discretion concerning patent remedies.

At a time when U.S. case law has upped the ante for patent trolls in limited but useful respects and U.S. lawmakers (now that the Republican Party holds a majority in both houses of Congress) are preparing more anti-troll reform legislation for 2015 (which President Obama will almost certainly sign), Europe is going in the completely opposite direction. And while this was not enough, there had at least been some temporary improvement in the spring: the 16th draft rules (the draft before the latest one) at least contained some language reminiscent of the balance-of-harms eBay factor.

While I'm not involved with the related lobbying efforts (I haven't done any lobbying in more than seven years), I strongly suspect that companies with a failed or declining operating business in the ITC space like Nokia and Ericsson are responsible for this. I've also heard through the grapevine that a German official (from the Ministry of Justice, not a judge to be clear) has been a key proponent of troll-friendly rules.

I'm very surprised that the industry coalition that first raised concerns 14 months ago and reinforced its message earlier this year hasn't spoken out yet on the latest (17th) draft rules of procedure for the UPC, but it also appeare a bit slow in the past, though maybe it will still get something done in time for next Wednesday's official hearing in the German city of Trier.

Considering that the previous draft represented at least a step in the right direction, I was like shell-shocked when I read the following passage from the official explanatory notes for the latest draft:

"Where the Court finds an infringement of a patent it will under Article 63 of the Agreement give order of injunctive relief. Only under very exceptional circumstances it will use its discretion and not give such an order."

That's part of the explanation of the deletion of Rule 118.2, which referred to eBay-like considerations. So the intention is that all infringements will result in inunctions except "under very exceptional circumstances." Even "exceptional" would mean "very rarely," but "very exceptional" means "hardly ever."

There are cases in which injunctive relief is the most appropriate remedy for patent infringement. But many of today's technology products are so multifunctional that unlimited access to injunctive relief will give patent holders undue leverage. For example, if Mercedes, BWM or Audi had to stop manufacturing and distributing an entire car only because of a need to work around a patent covering a very minor feature of the navigation system, the cost of complying with a court order would far exceed the true value of the asserted patent. That discrepancy invites arbitrage by trolls.

Those who favor such rules don't work to protect innovation or to strengthen law enforcement. They may mean well (at least for their profession, though I'm not sure they even have the best in mind for the economy at large), but at the end of the day they pave the way for rampant abuse with disastrous economic consequences.

Europe has an innovation problem--Nokia is a good example. If Europe now tries to just strengthen patent enforcement for the losers in the marketplace (Nokia being the most extreme example), the net effect is not going to be more innovation. Instead, even more European innovators will emigrate to Silicon Valley.

While the deletion of Rule 118.2 (which should not only have been kept but even strengthened) is disconcerting, there is now some (but still very insufficient) progress in a related context--bifurcation. Rule 40 now says that if an infringement hearing is scheduled and an infringement case is not stayed despite an ongoing revocation action, "the judge-rapporteur of the panel of the central division shall endeavour to set a date for the oral hearing on the revocation action prior to the date of the oral hearing of the infringement action."

Obviously, "shall endeavour" is pretty weak, and the explanatory notes make this even clearer:

"New Rule 40(b) will not to acceleration in all cases where counterclaims for revocation are referred to the central division -- only cases where the parallel infringement action is not stayed will be accelerated; in practice, the synchronisation of the calendars remains within the discretion of the judge-rapporteur ('shall endeavour')."

(emphasis of "all" and "not" in original)

This is a step in the right direction but still unacceptable because it means parties to a dispute will have to negotiate a settlement without the defendant knowing for sure that the invalidity defense will be adjudicated before an injunction issues. The "injunction gap" is a real issue as I showed in my study of the final and preliminary outcomes of 222 smartphone patent assertions: there was not even one situation in all the German cases among the lawsuits I analyzed in which an infringement proceeding was stayed and a patent later upheld, but there were multiple cases in which a patent later invalidated by the Federal Patent Court of Germany was enforced for an extended period of time in each case (for example, Motorola got to enforce a synchronization patent against Apple for 19 months).

My analysis was smartphone-focused, but other studies with a broader focus have also shown that most European patents are actually invalidated or narrowed when they come to judgment in the Federal Patent Court of Germany. Last month I blogged about a study by a leading German IP law firm that raised the question of whether patents are merely "paper tigers." A few days ago an English translation of that study was published on the Bardehle firm's website.

In closing I'd just like to clarify that I'm not fundamentally opposed to the UPC or the Unitary Patent. In fact, my app development company filed three PCT applications this year and would love to choose "Unitary Patent" as a target jurisdiction for each of them at the end of the EPO process following the 31-month international phase. And apart from whether the Unitary Patent legislation will be ratified in time or not, I will want those patents to be enforceable Europe-wide. But true innovators need a fair chance to defend themselves against meritless assertions. I'd rather have to convince a court that an infringement causes irreparable harm to my business and that the covered feature is not just a minor feature of a multifunctional product, and wait for the outcome of a revocation proceeding before I obtain injunctive relief, than have to negotiate with countless patent trolls against the background of an unbalanced, backwards-oriented framework.

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