On Friday I went to the Mannheim Regional Court, a key patent litigation forum in Germany, for a Nokia v. HTC trial (at which Google appeared as an intervenor), and right before that one, I had the interesting opportunity to watch the first patent clash between two Chinese technology giants in a courtroom: a Huawei v. ZTE hearing. (It was actually supposed to be the final hearing, i.e., a trial, but due to an issue raised at a late stage of the proceedings, which involves Qualcomm, there could be a need for another one. A decision (which may or may not be a final ruling) will come down on March 15, 2013.
The lawsuit that was discussed on Friday is only one of various ZTE-Huawei litigations pending in Europe, but it happened to be the first one to give rise to a hearing. The wider dispute started in the spring of 2011 with Huawei lawsuits in Germany, France and Hungary and a ZTE countersuit in China. Here's a report by China's official news agency Xinhua on the initial filings. I actually think it's fascinating to see the evolution of China's technology sector. While Chinese companies continue to manufacture huge numbers of mobile gadgets for foreign corporations, the country has built an advanced and robust intellectual property system that is now, by one measure (the number of patent filings received), the largest in the world. Obviously, many of the patent applications received by the Chinese patent office (SIPO) are filed by foreign companies with an interest in the Chinese market, but this cuts both ways and China's own companies are very active in applying for patents abroad. In this regard, the dispute between Huawei and ZTE over non-Chinese patents serves as a showcase for China's innovative strength on a global scale.
Friday's patent-in-suit, EP2273818 on "key derivation", is allegedly essential to the fourth-generation cellular telecommunications standard, Long Term Evolution (LTE). The accused products, against which Huawei is seeking a Germany-wide sales ban, include base stations used by wireless carriers as well as USB modem sticks (marketed locally as "surfsticks") for end users who wish to connect their portable computers to cellular networks.
The patent plays a role in the handover that takes place when a mobile device with an active connection (which may, but need not, involve an ongoing telephone call) transfers its connection from one of the carriers' base stations to another. This handover is necessary if a connected device is moved from one "cell" to another. Even if it stays in the same geographic location, various circumstances (including weather conditions) can make a transfer to another base station advisable or necessary. Huawei's European Patent no. 2273818 does not claim to cover all handovers, but it does lay claim to a particular part of the handover process that is relevant in a particular situation (following what is called a connection reestablishment request) and which, according to Huawei, all LTE devices must be able to perform if needed.
ZTE's lead counsel in this litigation, Hogan Lovells' Dr. Andreas von Falck, argued that there are technical differences between the solution disclosed by the patent and the relevant part of the specifications of the 4G/LTE standard. But his counterpart on Huawei's side, Bird & Bird's Christian Harmsen, pointed to the patent's description. Huawei appeared to have the upper hand with respect to the technical part of the infringement analysis because Judge Andreas Voss ("Voß" in German), who has adjudicated far more wireless patents (including declared-essential wireless patents) than any of his colleagues on this planet, noted that "the one who gets more attention and questions from the court [which was undoubtedly ZTE] is the one who has more of a need to persuade the court". This obviously does not make the outcome of the case a foregone conclusion, but at this stage Huawei is in pretty good shape with respect to claim construction (interpretation of the scope of the patent).
There are, however, two more hurdles that Huawei has yet to overcome with respect to its infringement allegations against ZTE's USB modems:
ZTE's USB modems are powered by Qualcomm baseband chips. Qualcomm has some kind of patent cross-license agreement in place with Huawei that appears to include a covenant not to sue Qualcomm's customers over patents implemented by the American company's baseband chips. ZTE claims to have shown to the court the entire supply chain and filed certain passages of the Qualcomm-Huawei patent agreement on November 26. Huawei argues that this was an out-of-time presentation of new facts and that this is a lengthy contract that can only be evaluated in its entirety, not on the basis of selective excerpts. (A protective order required me to leave the courtroom for the more specific part of this discussion, as the Qualcomm-Huawei agreement constitutes confidential business information.)
The other legal issue specific to ZTE's USB modems is that Huawei's contributory-infringement claims must overcome the substantial non-infringing use defense. Simply put, the patent-in-suit covers a process that involves both base stations and gadgets, which potentially exposes both types of products to infringement claims, but the legal question is whether the part of the process that devices in the hands of end users perform covers supports a finding of a patent violation or merely constitutes steps that such devices have been performing for a long time and that are, in and of themselves, not necessarily part of an infringing process. ZTE argues that its USB modems merely perform operations that are used to a substantial degree outside the scope of this particular patent.
A decision, which may or may not be a final ruling, has been scheduled for March 15, 2013. In the meantime, these parties will have other encounters in German (and French) courts unless they reach a settlement.
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