[UPDATE on Nov 6] I have done a follow-up post entitled "German lawyers say Apple urgently needs (and will probably get) a temporary suspension of Motorola's injunction". [/UPDATE]
Apple knows what it's like to win injunctions against rivals. It won four of them against Samsung (two in Germany, one in the Netherlands and most recently one in Australia; all of them preliminary). Now it seems that Apple has just come out on the losing end of a patent infringement lawsuit -- at least on a preliminary basis even though the actual decision on the merits has yet to be made. I have received a copy of what appears to be a default judgment by the Mannheim Regional Court barring Apple from selling in Germany -- the single largest market in Europe -- any mobile devices infringing on two Motorola Mobility patents and determining that Apple owes Motorola Mobility damages for past infringement since April 19, 2003.
I will explain further below the scope of the ruling and the tactical consideration on Apple's part that presumably led to this. We're not talking about a preliminary injunction, but this one is in effect now and it could be appealed and lifted, which is what Apple will try to achieve. As I'll explain further below, Apple appears to be playing a risky game here, but a reader contacted me with some interesting thoughts on why Apple may have elected not to defend itself in time.
Anyone who says it's "totally symbolic" is just plain wrong. Yes, just plain wrong. The underlying tactics are procedural, as I explained from the beginning, but "totally symbolic" is something else. In fact, even the narrowest interpretation of the ruling raises serious issues for Apple's German website, as I'll explain toward the end of this post.
Look at it this way: If a decision against Apple Inc. (the US-based worldwide parent company) didn't matter, Motorola wouldn't have sued that entity in the first place. Nor would anyone else sue parent companies in those lawsuits, and Apple itself names the parent company among defendants all the time.
Here's the document:
11-11-04 Default Judgment for MMI Against AppleStatements by the companies
Motorola Mobility replied to my email. Its spokeswoman Jennifer Weyrauch-Erickson said she "can confirm that the Mannheim District Court granted an injunction against infringement from Apple" and provided me with this statement (which others have also received and already quoted):
"As media and mobility continue to converge, Motorola Mobility's patented technologies are increasingly important for innovation within the wireless and communications industries, for which Motorola Mobility has developed an industry leading intellectual property portfolio. We will continue to assert ourselves in the protection of these assets, while also ensuring that our technologies are widely available to end-users. We hope that we are able to resolve this matter, so we can focus on creating great innovations that benefit the industry."
That statement basically says that MMI would like this whole patent spat with Apple to come to an end and to compete on the basis of products rather than patents. Obviously that's what Samsung and HTC -- and Google, which is indirectly involved -- would also say. It is, however, what anyone else infringing on someone else's rights would also say. It's like, "please, let me continue to do what I'm doing without enforcing your rights". The usual counterargument by right holders is that they can't tolerate infringement and have to protect their IP.
Apple didn't respond to me but provided this statement to CNET and other media:
"This is a procedural issue and has nothing to do with the merits of the case. It does not affect our ability to do business or sell products in Germany at this time."
Apple confirms what I said from the outset: this is procedural tactics. The second part of the first sentence -- "nothing to do with the merits" -- needs to be explained. I, too, said from the beginning that "the merits of the case haven't really been adjudicated" (a default judgment was based on Apple not defending itself in time, so none of the arguments Apple would have liked to make played any role in the court's decision). But "nothing to do" does overstate it. Whatever is going on in that case (apart from the default judgment, nothing is publicly known), Apple apparently had a problem with defending itself on a timely basis in this particular litigation. Since Apple has a legal budget that it allows it to defend itself, and since German courts do provide a fair amount of time for someone's defense in a patent case, there's no question that Apple is under at least some pressure here, and that must have something to do with the substance of the case, too -- given that it's unlikely that Apple couldn't hire enough lawyers to put together an answer to a complaint in time.
The second sentence of Apple's statement isn't specific about the timing. What does "not ... at this time" mean? Not for the next two days? Not for the next two weeks? Not for the next three months? Not for another year? Apple doesn't say what it takes (nor how long it typically takes) for this ruling to have business impact.
The key question here is whether Apple will get a judgment on the merits of the case before this ruling starts to have business impact. If this decision is barely worth the paper it's printed on for the next three months, but Apple can get a decision on the merits within two months, then there's no business impact. It's still not "totally symbolic" because a default judgment does indicate that someone is somehow struggling with his defense in such a case -- otherwise one answers a complaint in time, which is what the vast majority of defendants do. But in the scenario I described, it wouldn't reduce Apple's revenues in the German market, provided that a decision on the merits is handed down in time and works out in Apple's favor.
With "not ... at this time", it's simply not clear whether there's a solution in sight for Apple that will be timely. And with Apple not having managed to answer the complaint in time, there must be something about this lawsuit that poses a substantive challenge to Apple.
Patents-in-suit
These are the two patents-in-suit:
EP (European Patent) 1010336 (B1) on a "method for performing a countdown function during a mobile-originated transfer for a packet radio system"; this is the European equivalent of U.S. Patent No. 6,359,898
EP (European Patent) 0847654 (B1) on a "multiple pager status synchronization system and method"; this is the European equivalent of U.S. Patent No. 5,754,119
The court ruling doesn't say which particular products Motorola Mobility accused of infringement, but since the U.S. equivalents of both patents-in-suit were also asserted by Motorola Mobility in federal lawsuits in the United States, it appears that the entire range of Apple mobile devices is affected by this decision. (In the United States, one of those patents is also being asserted against various Macintosh computers, but the German ruling refers to "mobile devices", even though it doesn't list them.)
With respect to the first patent, I have been able to find out that Apple raised a FRAND defense against it in the United States. A Wisconsin court decision of July 6, 2011 states that Motorola declared that patent essential to ETSI standards (GSM, UMTS, 3G). I have not been able to find out about the second patent. Based on its technical scope, it could also be standards-essential, but it need not be. At any rate, any FRAND defense raised by Apple in Germany has not been considered -- this is a default judgment, not a judgment on the merits.According to the document, this decision can be executed "preliminarily", which means under German law that Motorola Mobility can enforce this injunction against Apple from now on even if Apple appeals the ruling (which I'm pretty sure it will). That means Apple may temporarily -- until a second judgment is entered -- be barred from selling any mobile devices in Germany. Apple wouldn't be the first defendant in Germany to pursue a tactic called "Flucht in die Säumnis" ("resorting to a default judgment"). Many defendants play this game after they have failed (for their own fault) to meet a deadline for an answer to a complaint. In that case, the problem they face is that any arguments they'd have liked to present would no longer be admissible if presented only at the time of a hearing (on the grounds of being untimely). By simply letting the plaintiff win a default judgment, a defendant preserves his ability to present all of his arguments in the appeal. But this has cost implications (which are less than secondary in this case given what's at stake) and comes with the risk of a default judgment that is preliminarily enforceable.
In this case, the court declared the default judgment preliminarily enforceable. Motorola Mobility can now apparently bar Apple from selling any of its mobile devices in Germany (even without bail).
I don't know whether Apple thinks that resellers will source its products from other EU markets anyway. A default judgment doesn't mean that Motorola Mobility can easily shut down resellers since the merits of the case haven't really been adjudicated.
But whatever the "workaround" may ultimately look like, it's really strange that Apple plays this kind of game instead of presenting its arguments and evidence on a timely basis. I'd really like to know why they didn't do that instead of letting Motorola Mobility win an injunction. But I doubt they'll ever explain their rationale.
It will be interesting to see now how much of a disruptive business impact this will have on Apple's revenue production in Germany. This is a very strange episode in the ongoing mobile patent wars, and without a doubt, this does potentially strengthen Motorola Mobility vis-à-vis Apple. Google will be very happy about that.
UPDATE: Legal entities and geographies
On recently-launched website The Verge, Nilay Patel (whom many know from his days at Engadget) says that Motorola sued both Apple Inc. (the US-based parent company) and Apple's German subsidiary, and on that basis makes the argument that "since Apple Inc., doesn't actually sell anything in Germany, it's a totally symbolic victory for Motorola — there aren't any products to ban".
Before I comment on this, let me quote Nilay Patel himself on his understanding of German and European law. Less than three months ago, when reporting on a German court decision, he wrote: "I'm no expert on German or EU law, so these are really just the broad strokes -- Florian Mueller is in Germany and has more on this case [...]" Again, that's his own description of his background concerning this matter. Now on to the substance of the matter.
The ruling I published does not mention the German subsidiary (its name is Apple GmbH and you can easily check that it doesn't come up anywhere in the document). I told the anonymous source that I'd like to see the original complaint (which is not in the public record because German court cases aren't nearly as transparent as U.S. lawsuits or ITC investigations), but after sending me the ruling, the source didn't get back to me.
Anyway, the "totally symbolic" claim ignores the fact that Apple certainly has the resources in place to defend itself. The fact that Apple didn't manage to put together a complaint in time -- even if "only" in case concerning the worldwide parent company -- must have a reason, and the one thing that surely won't be the reason is that Apple can't afford a proper defense for financial reasons.
The scope of the ruling is that Apple Inc. is barred from "offering and/or delivering, on the territory of the Federal Republic of Germany, any mobile devices [practicing any of the patents-in-suit]".
True, that's the worldwide parent company, and the German subsidiary isn't named. But the ruling does raise issues:
The ruling relates to "offering" the accused products. Apple's German web domain is apple.de. If you navigate to apple.de, it automatically redirects you to www.apple.com/de/. Not only is the apple.com domain obviously registered in Apple Inc.'s name but even the German apple.de domain belongs to Apple Inc. in Cupertino, and the German subsidiary, Apple GmbH, is only stated as an "administrative contact". Motorola Mobility could try to complain that Apple Inc.'s operation of a German website is an act of offering products and, therefore, not allowed under the default judgment.
At the very least, this ruling raises questions about the online store operated on apple.de and apple.com/de.
You may remember from the German Galaxy Tab 10.1 case that Apple sued both Samsung Electronics (the Korean parent company) and Samsung's German subsidiary. I've seen Apple do it in various other lawsuits. If there were no point in winning a ruling against a worldwide parent company, why would Apple or anyone else even do it?
In the German Galaxy Tab 10.1 case, the first ruling, which also barred the worldwide parent company, was later narrowed to only the German subsidiary except that the Korean company still wasn't allowed to sell in Germany.
In formalistic terms, Apple GmbH is a separate legal entity from Apple Inc. However, in practical business terms there's no doubt that Apple GmbH is under the total control of Apple Inc. Whatever Apple GmbH does, Motorola Mobility can try to argue that it acts at Apple Inc.'s direction. Whether they could prove it is another question -- but it's not like there's no risk involved.
Again, think about the German Galaxy Tab 10.1 injunction: as far as the territory of Germany is concerned, it's a ruling against both Samsung Korea and the German subsidiary. But Samsung has subsidiaries in various other EU countries. Does anyone seriously believe that Apple would accept it if Samsung said, "well, those 10,000 Galaxy Tabs that were shipped to Germany were just sold by our Dutch subsidiary and we (Samsung Korea and Samsung Germany) don't have hand in it"? Obviously, Apple would argue that Samsung Korea acts in contempt by using subsidiaries in other countries to do the very thing that the injunction prohibits. Apple would certainly try to hold the parent company responsible for its wholly-owned subsidiaries.
And now a very important point: even if one wanted to argue that Apple GmbH can sell whatever products it has, how can Apple GmbH receive any new shipments in the future under that injunction?
The injunction doesn't allow Apple Inc. to "deliver" any goods to Germany. That would include shipments to Apple GmbH.
Again, they could try to work around this somehow, too. But it would raise issues.
If "not ... at this time" means that Apple can continue to sell because Apple GmbH still has a lot of goods in its warehouse, then "at this time" could end as soon as Apple GmbH runs out of supply.
The bottom line is that Motorola Mobility has a preliminarily enforceable ruling in its hand with which it can raise questions and, at least potentially, create complications. And the continuation of this case must now be taken very seriously, considering that Apple was apparently struggling to defend itself in time.
Tim Nash, a reader of my blog who writes for other sites (such as lowendmac.com), contacted me with some theory for Apple's strategy that is very interesting. I'm not saying that this necessarily is indeed Apple's strategy, but what Tim suggests is plausible per se.
Tim thinks that this is about timing. Apple knew that the European Commission was considering an investigation into the use of FRAND patents by Samsung. And indeed, on Thursday I discovered a reference to an EU investigation in a court filing, and the European Commission has meanwhile confirmed what amounts to a preliminary antitrust investigation.
Tim's theory is that Apple didn't want a court ruling in Mannheim to adversely affect the probability of such an investigation being started. He says that if the court in Mannheim had adjudicated this matter on its merits and had dismissed Apple's FRAND defense, this would have meant that courts in different EU member states rule differently on these FRAND issues. Previously, a Dutch court agreed with Apple and dismissed a Samsung request for an injunction based on a FRAND licensing obligation. In Tim's opinion, Apple didn't want to take any risk of inconsistent rulings.
Tim thinks inconsistent rulings could have discouraged the Commission (and ETSI, the relevant standard-setting organization) from looking into the broader issue. Now that there's at least a preliminary investigation going on, Apple has made some headway.
Apple can't avoid that the Mannheim court decides on the merits of the case at some point. Maybe that will happen within a few months anyway. But the Mannheim hearing was on October 21, and maybe that was a critical juncture in the decision-making process at the Commission.
How likely is Tim to be right? It's impossible to know without more information on the EU process. I agree with Tim that an unFRANDly ruling by the Mannheim court, on or shortly after October 21, might have been disadvantageous for Apple in Brussels, and playing for time (by accepting a default judgment for the time being) could have made sense. I also think that a favorable resolution of the EU antitrust case involving Samsung would help Apple against Motorola.
Timing can be key when interdependent processes take place in parallel. In this case, Apple may actually have a better chance of prevailing on a FRAND defense in Mannheim now that it can show the German court that the European Commission is concerned about the enforcement of standards-essential patents. That's also part of what Tim thought. And this part is also plausible.
That said, Apple has enabled Motorola Mobility to win, in formal terms, a favorable ruling. Whatever its reason(s) might have been, it doesn't make things easier.
[UPDATE on Nov 6] I have done a follow-up post entitled "German lawyers say Apple urgently needs (and will probably get) a temporary suspension of Motorola's injunction". [/UPDATE]
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