Samsung won the race to the courthouse against Ericsson--but notoriously patentee-friendly Judge Gilstrap acts as if the U.S. were a banana republic

It's not always true that "the second is the first of the losers," but when there are only two in a race, then there's simply one winner and one loser. On December 11, Ericsson brought a new FRAND lawsuit against Samsung in the troll-friendly Eastern District of Texas. The parties had been negotiating a renewal of their patent cross-license, but their positions were apparently too far apart for them to come to an agreement this year. Therefore, they need guidance from courts to resolve their dispute.

It now turns out that Ericsson wasn't first to go to court. Instead, Samsung pre-empted Ericsson by almost a week, filing a case with the Wuhan Intermediate People's Court in China as an Ericsson filing in Texas revealed yesterday.

Not only did Samsung seek a global FRAND determination in China but, shortly after Ericsson's filing in the Eastern District of Texas, the Korean electronics giant sought an antisuit injunction in China, which was granted on the morning of December 25, says Ericsson.

According to Ericsson, "the Wuhan injunction (1) bars Ericsson from seeking injunctive relief on 4G and 5G SEPs around the world (including in [the Eastern District of Texas]); (2) bars Ericsson from seeking a FRAND adjudication anywhere other than Wuhan (including in [the Eastern District of Texas]); and (3) bars Ericsson from seeking an anti-anti-suit injunction requiring Samsung to stop using the Wuhan Court to neutralize Ericsson’s legal remedies in other forums, including [the Eastern District of Texas].

The third item is an anti-anti-suit injunction: at Samsung's request, the Chinese court barred Ericsson from seeking an anti-antisuit injunction. That is, by the way, consistent with something I had written in October: antisuit injunctions are of no more value unless they are accompnied by anti-anti-antisuit injunctions. In that same post I lashed out at the insansity of the global patent litigation system and proposed "a more mathematical notation" like "A3SI" so one wouldn't have count all those consecutive occurrences of "anti" all the time. Samsung had obtained everything it needed to ensure that the Chinese court could set a global FRAND rate without Ericsson undermining the Chinese proceedings by means of a U.S. antisuit injunction, but Ericsson simply disregarded the Chinese decision and filed an anti-antisuit motion in the Eastern District of Texas yesterday (December 28, 2020; this post continues below the document):

20-12-28 Ericsson Motion fo... by Florian Mueller

It's brash and brazen to respond to an antisuit injunction from a court in one country (here, China) by rushing to a court in another venue (here, the Eastern District of Texas) and doing precisely what's prohibited. But Ericsson made this choice that many other litigants would not have dared to make. Ericsson simply didn't want to give up the battle over the FRAND forum. If Ericsson respected the Chinese order, it would have to withdraw its Texas complaint. Instead, Ericsson decided to disrespect China as a jurisdiction. If anyone ever asked me to provide an example of "contempt of court" in a cross-jurisdictional litigation context, I couldn't possibly come up with a more illustrative one than what Ericsson has just done.

Ericsson's message to Judge Gilstrap was that it needed not only a preliminary injunction but, until one would issue, a temporary restraining order (TRO) in order to keep its Texas case alive. Given that the Chinese injunction had already come down, Ericsson's motion fails to specify why it needed a decision within a matter of hours and without giving Samsung a chance to respond. Ericsson presumably relied on Judge Gilstrap's wilingness to do pretty much anything that attracts patent cases to, and keeps them in, his court.

Here's Judge Gilstrap's order granting Ericsson's motion all the way (this post continues below the document):

20-12-28 Order Granting TRO... by Florian Mueller

Three aspects of this order are particularly troubling:

1. Judge Gilstrap knew that Ericsson was violating an order by another court in bringing this motion. I'm sure he'd be disappointed if a colleague of his in another jurisdiction saw that a party brings a motion in direct contravention of an order by Judge Gilstrap. But a patent extremist whose number one ambition it is to preside over as many patent cases as possible, and to have a reputation for helping patent holders in any way he can, obviously wouldn't care.

2. While a TRO should merely preserve the status quo for a (typically two-week) period until a decision is made on whether to grant a preliminary injunction, Judge Gilstrap granted Ericsson a TRO that goes way beyond: not only is Samsung required to indemnify Ericsson for any fines imposed by the Chinese court (which is a far more problematic order than just asking Samsung not to take further steps in China) but Judge Gilstrap also orders Samsung to "send to Ericsson, within 24 hours of [yesterday's order], by email a copy of all filings made or received in the Wuhan Action" and to do so "promptly" with respect to all future filings.

   Give me a break. This is not just outrageous. It's totally insane. What does a requirement to provide court documents from another jurisdiction have to do with the objective of a TRO to preserve the status quo during a judicial process?

   No, Judge Gilstrap, the U.S. is not a banana republic. Decisions like this can bring an entire country--the world's oldest democracy--into disrepute on the world stage.

3. The briefing schedule he set for the preliminary injunction (which would have to replace the TRO shortly) is also reflective of his fundamental unfairness. He entered that order yesterday and gave Samsung until 5 PM local time on New Year's Day (!), while giving Ericsson another four days for a reply brief. Any remotely reasonable decision would at least have given Samsung signicantly more time for its opposition filing than Ericsson for the reply brief. But what's an even clearer indication of Judge Gilstrap's unbalanced approach is that the page limit for Samsung's opposition brief and for Ericsson's reply brief is the same: 15 pages. This means Ericsson got to file a 23-page motion, but Samsung gets only 15 pages to respond, and to those 15 pages Ericsson gets just as much space to reply.

   It's a safe assumption that the PI process (briefing and January 7 hearing) is going to be completely farcical. It's a foregone conclusion that Judge Gilstrap is going to be 100% unreceptive to even the best factual or legal argument Samsung's lawyers could possibly make. He's determined to convert the TRO into a PI. The East Texas proceeding can't be taken seriously, and the real fight will only begin when Samsung appeals Judge Gilstrap's PI decision to the Fifth Circuit. (A TRO can't be appealed.)

The Fifth Circuit is among the more antisuit-friendly circuits in the U.S.--as Ericsson's motion accurately suggests. But the fact that Samsung's Chinese complaint was filed almost a week prior to Ericsson's Texas case is going to matter. It won't matter in Judge Gilstrap's court, I guess. But it will help Samsung at the next procedural stage.

In the meantime it remains to be seen what the Chinese judiciary will do. Samsung would have to reimburse any fines to Ericsson under Judge Gilstrap's order, which may however be overturned soon (I'm sure that at least some parts are so outrageous that the appeals court is not going to affirm them). Sooner or later, the Chinese court may be able to penalize Ericsson for its extremely disrespectful conduct.

My own position is that no court anywhere in the world should set a global FRAND rate unless so requested by both parties or unless the parties contractually agreed upon a judicial determination. It doesn't matter whether it's a UK court, U.S. court, German court, Chinese court, or a court on Mars. Each court should normally make determinations only with respect to patents that are valid and enforceable in that particular court's jurisdiction. And no defendant should have to enter into a global license only to avoid an injunction in one jurisdiction.

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Viral Days: inspired by the COVID-19 pandemic, this real-time strategy game for Android and iOS demonstrates the propagation of a virus and, especially, the most effective ways to stop it

Nine months ago, to the day, I woke up after about four hours of sleep. With large parts of the world in lockdown, I started thinking about how a mobile game could make a useful contribution in the current situation and any future situation, as the SARS-CoV-2 pandemic is not the first and won't be the last of its kind.

I'll tell you in a moment what happened then, but fast foward from March 2020 to this weekend, and Viral Days (product website) is available for iOS on Apple's App Store, and for Android on the Google Play Store, [Update] the Huawei App Gallery, and the Samsung Galaxy Store [/Update]. Here's a gameplay video (this post continues below the video):

Back in March, some low-quality games from traditional genres, basically cheap knockoffs of titles like Angry Birds and Super Mario Bros., had been rethemed and rebranded as COVID-19 games. But they made no sense. You don't cure a disease by throwing toilet rolls at virus-like faces, or avoid getting infected by jumping over obstacles. What I wanted to come up with instead was a game that would really make a difference. A game that would

• demonstrate the problem of exponential propagation in a simplified, time-compressed form and

• promote several of the most effective ways to stop (or at least slow down) the spread of the virus.

After about an hour, I felt very good about my rough idea, and I luckily got another three or four hours of sleep. After waking up, I was (still) absolutely determined to turn this idea into reality. That same morning, before stores opened, I already had a call with Mario Heubach, whose company was doing contract development for my app development firm. We actually had been working together on another title--a highly interactive trivia game--since the summer of 2018 and were probably just a few months away from launching it. I was worried he'd declare me completely crazy to put a near-finished project on hold in order to start a new one. Let's face it: this is completely against conventional wisdom. But under the circumstances, what one would normally not even consider for a second was the right decision this year--we agreed on this much, and in early April, after some further conceptual work and research, development began. The Unity 3D engine was our obvious choice, and we also found valuable material on the Unity Asset Store.

We took our time to get it right--we really wanted to make a high-quality game--and finally submitted the app to Apple, Google, and Huawei yesterday. Apple and Google approved very quickly--they had previously taken a look at our beta versions. It's part of the history of this project that we initially had to deal with rejections, but I don't want to go into detail, at least now here and now. What matters is that the game is now available. And today we also submitted it to Samsung's Galaxy Store for review.

The initial release comes with 14 different languages.

Later this month we'll publish an HTML 5 (WebGL) game based on the same engine. I'm pretty sure that one will go absolutely viral, and when you see it, you'll see immediately why I think so. Stay tuned.

I'm aware of only one other game that "strategygamifies" the problem of a viral pandemic: Ndemic Creations' Plague Inc., which was launched in 2012 with what is now called its "main mode." That "main mode" has the objective of extinguishing humanity by means of a lethal virus. By stark contrast, my game's subtitle is "Heal - Protect - Prevent." Also, the virus in Viral Days isn't lethal. There's a difference like day and night between those two virus games not only in terms of the game objective but also the genre. Plague Inc. is a numbers-centric, abstract game where you see dots on a world map. Viral Days is about people you see--and try to take good care of. It's hands-on because players get to distribute masks, hospitalize or home-quarantine infected people, disperse crowds, and when you impose a lockdown in my game (available once you've reached level 18), you see people running home, just like you can see how infections are happening when an ill person and a healthy person spend too much time close to each other.

Viral Days highlights proximity with a frame that adjusts dynamically. I prototyped that one back in 2014, originally for a completely different purpose, and for a long time I had been looking for a way to put it to use in a game. In the early morning hours of March 19, 2020, I finally found it.

This game has the potential to reach a huge audience--and should have a positive effect on many (especially, but not only, young) people's attitude towards masks and social distancing. Apple disallows COVID-19-themed games, and Google has strict rules concerning metadata containing such keywords as COVID-19, corona(virus), and pandemic. But Viral Days is a generic virus game. In fact, what you see in the game would apply to the Spanish Flu of 1918 as well.

When I started blogging about those App Store antitrust cases in the summer, I said I was about to publish a game app myself. It took a few months longer than I thought then, but by now you know which one I meant. I'm so happy to have created a game that I'd definitely play even if I hadn't made it. And proud to have invented a new strategy game genre: real-time strategy without anything resembling military combat. It's viral real-time strategy.

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Apple likens market definition in antitrust case against Apple Arcade game subscription service to gerrymandering of electoral districts

NOTE: In the other article I published this weekend, you can read about my Viral Days real-time strategy game for Android and iOS. There are no plans at this point, and I don't anticipate that there will be, to make that game available on subscription services like Apple Arcade. Thus I don't have a conflict of interest when commenting on Pistacchio v. Apple.

About two months ago, class action lawyers brought a case against Apple over its Apple Arcade game subscription service for iOS, alleging that consumers overpaid because Apple didn't allow other game services such as Microsoft xCloud, Google Stadia, Facebook Gaming, and GeForce Now to be offered on the iPhone and the iPad. The consumer plaintiff's name is John Pistacchio.

When the deadline for responding to a complaint is up, a defendant must either file an answer to the complaint or a motion to dismiss the case at this earliest procedural juncture. For example, Google brought a motion to dismiss Epic Games' antitrust complaint over its Google Play terms and policies, while Apple decided to defend itself against Epic's App Store case, though some of Apple's defenses would also be typical arguments in favor of outright dismissal.

The Pistacchio case, however, is not on the same schedule as various other App Store cases pending before Oakland-based Judge Yvonne Gonzalez Rogers in the Northern District of California. And that case is now falling even further behind as Apple elected to ask the court to toss that complaint (this post continues below the document):

20-12-17 Apple Motion to Di... by Florian Mueller

In the Pistacchio case, Apple is represented by Paul Weiss attorneys Karen Dunn and Bill Isaacson, who already counted Apple among their clients while they were with Boies Schiller.

Apple's lawyers say "[Pistacchio] attempts to stake a flag all his own in a little corner of the broader App Store actions by implausibly alleging that Apple’s innovative subscription service, Apple Arcade, is a monopoly." There's no question that the Pistacchio case is an outlier. While other cases such as Pepper v. Apple and Epic Games v. Apple tackle the alleged App Store monopoly (some from a consumer and others from a developer perspective), Pistacchio is narrowly focused on the Apple Arcade gaming service.

Antitrust plaintiffs always seek to define the relevant antitrust market(s) as narrowly--and defendants as broadly--as possible. A narrow definition may be perfectly appropriate. However, implausibly narrow definitions result in dismissal, as the Ninth Circuit held a couple of years ago in Hicks v. PGA Tour. A market definition must be "natural" as opposed to "contorted to meet [a given plaintiff's] litigation needs."

Apple's motion criticizes that the relevant product market according to the Pistacchio complaint (the "iOS Subscription-Based Mobile Gaming Services Market") is not only about a single company (Apple) and a single product (Apple Arcade) but defined "by the way that users pay for it: a subscription fee."

According to Apple, courts don't accept that criterion. Instead, even if one focused only on iOS games, one would have to take into consideration that "the App Store offers offer more than 900,000 third-party mobile games, many of them free" (I just added one such game to the list). Apple argues that anybody could do what Apple Arcade does and offer such games on the App Store, and offer a subscription covering multiple titles. That may not be the business model of the alternative gaming services Pistacchio says Apple prevents from competing, but Apple notes that others can't force Apple to do business with them on their preferred terms. Much less, according to Apple, could a consumer like Pistacchio bring a complaint over a denial of access to what is allegedly an essential facility. That is the second part of Apple's argument for dismissal.

Getting back to the first part, Apple's motion says Pistacchio's proposed market definition is "a gerrymandered market." Gerrymandering is a term that describes an opportunistic definition of an electoral district. On maps, gerrymandered districts are often characterized by a shape that is contiguous, but simply not natural.

What may be seen as another aspect of Apple's allegation of gerrymandering is that the Pistacchio complaint doesn't claim Apple disallowed all other subscription-based gaming services than Apple Arcade. Even Pistacchio acknowledges that some are indeed allowed--and others would be allowed if "the requirement that games must be downloaded directly from the App Store" was met.

Apple's motion also disputes the plausibility of Pistacchio's allegation of overcharging, given that the $4.99 monthly subscription price Pistacchio claims to have paid for Apple Arcade "is exactly in line with, or lower than, that of the other subscription gaming services that entered the market after Apple."

I wouldn't bet money on the Pistacchio complaint surviving this motion to dismiss. It may simply have been an overly ambitious and somewhat premature case. Whatever happens in that particular case, subscription-based gaming services are a topic worth watching. For instance, Microsoft will offer its xCloud streaming service on iOS--not in the form of a native iOS app (for the time being), but a web app (HTML5). There's certainly a potential for conflict between Apple and the providers of such services. It appears that Google allows certain business models and technical approaches on Android that wouldn't pass Apple's app review. But it may take a gaming service provider to complain. A consumer class action might be the wrong vehicle.

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Patent injunction reform in Germany: next lobbying defeat for pro-reform forces as Federal Council speaks out against proportionality

Yesterday there was good news for those advocating a balanced approach to patent injunctions, as the Munich Higher Regional Court increased the amount of the collateral to be provided by Nokia in a standard-essential patent (SEP) case against Daimler by a factor of almost 100 to over $2 billion. That was to be expected after a similar decision in a Conversant v. Daimler case.

But today there's been a political setback that I had predicted as well: one of Germany's two legislative institutions, the Bundesrat (Federal Council), today adopted its Legal Affairs Committee's recommendation for a statement on patent reform (PDF, in German).

The Federal Council is not realistically going to exercise its veto right (which a supermajority of the Federal Parliamnet could overrule anyway). But its position is going to bear significant political weight in the further process, particularly among the governing coalition parties' parliamentary delegations from various influential federal states.

In a nutshell, the Federal Council tells the Federal Parliament to preserve the status quo of near-automatic patent injunctions no matter how disproportionate, except under the most egregious of circumstances where even the Federal Court of Justice said in its Heat Exchanger decision that an injunction might have to be tailored, even if only slightly so and only in cases that are few and far between.

The Federal Council even issues a stern warning that any reform going further than existing case law--such as by taking third-party interests into account--would jeopardize Germany as a patent jurisdiction.

This reform process is on the wrong track. There was a glimmer of hope a few months ago, but at each of the key procedural milestones this year--the first draft by the Federal Ministry of Justice, the official proposal by the Federal Cabinet, and now the Federal Council's advisory opinion--went wrong, so unless there's a huge surprise, this legislative process simply isn't going to bring about any such thing as serious change. The courts will continue to hand down injunction after injunction, and while lawyers will be able to bill their clients for pages and pages of argument over proportionality, the courts won't really reach that point except once a year or so. Most of the time the courts will quickly determine that a case isn't quite so exceptional as to justify a deviation from the longstanding principle of automatic injunctions.

For parts of the German economy, the current situation is unsustainable, but change just isn't coming. Only political amateurs would believe that you can achieve reform the defensive way, by asking for almost nothing and contenting yourself with even less than that. It's like starting a revolution by kowtowing to the king. Just won't work.

If professionals had been at work, it actually wouldn't have been too hard to get the Federal Council to speak out in favor of injunction reform. It would have been feasible to get support from multiple influential states (especially some with many automotive jobs), and while the two most populous ones (North Rhine-Westphalia, which operates the Dusseldorf court system, and Bavaria, which is home to large parts of the European patent law industry) would have been hard to win over, one could at least have created a situation in which one or both of them would have declared themselves neutral.

But what you can you expect when the broadest-based pro-reform lobbying group, ip2innovate, is totally misguided? Google, SAP, and Daimler simply botched the organization's statutory proposal, and the likes of Microsoft, BMW, and Deutsche Telekom incompetently and foolishly followed their lead.

When this process is over, they're all going to get just the same bad decisions from the courts as before. They'll merely have to spend more money on attorneys' fees.

The end of the legislative term is approaching fast. The parliamentary decision won't take more than a very few months. It will be extremely hard, if not next to impossible, to put patent injunction reform on the agenda again in 2022 or 2023. A historical opportunity will have been wasted, despite my efforts to educate some people while there still would have been the chance to play it smart.

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BREAKING: Munich appeals court raises security amount in Nokia v. Daimler patent case from $22 million to more than $2 billion

Just as I predicted on Tuesday, the Oberlandesgericht München (Munich Higher Regional Court) once again proved that the lower court's patent judges can't be trusted to hand down reasonable and responsible decisions. They're out of control and stop at pretty much nothing to please patentees, but at least there is an appellate process.

On October 30, the Landgericht München I (Munich I Regional Court) had granted Nokia a standard-essential patent (SEP) injunction against Daimler, and allowed it to be enforced during the appellate proceedings if Nokia had posted collateral to the amount of €18 million (a little over $20 million), which is a laughable amount when the nationwide sales (which effectively even includes exports going out of the country) of Mercedes vehicles are at stake. While Nokia, for purely tactical reasons, carved out Mercedes cars that come with a telematics control unit (TCU) made by Samsung subsidiary Harman Becker, the percentage of Daimler's sales that would be affected by the enforcement of this injunction is still very high. (And Nokia expressly reserved the right to bring a follow-on case to go after the remaining portion of Daimler's sales as well.)

The appeals court has raised the security amount by a factor of almost 100 to €1.673 billion for the enforcement of the injunction itself, and to €11 million for the costs incurred by Daimler to provide the accounting that would enable Nokia to quantify its damages claim.

It appears very unlikely that Nokia can afford making a $2B+ deposit. Nokia could also post a bond, but presumably a bank would require Nokia to put the amount at stake into an escrow-style account.

But even if Nokia provided the collateral, they wouldn't necessarily get to enforce the injunction. Not only did Daimler move for an adjustment for the security amount (which motion clearly succeeded) but there is also a motion to stay enforcement pending the appellate proceedings, with Daimler arguing it's going to win the appeal. If Nokia started to enforce, the appeals court might still stay enforcement on other grounds (technical merits or FRAND/antitrust considerations).

Nokia is desperately trying to gain leverage over Daimler and to prevent the Court of Justice of the EU from clarifying the entitlement of component makers to an exhaustive SEP license on FRAND terms.

What the Munich appeals court has delivered is quite the opposite of a Christmas present for the lower court. It should give the patent judges on the court below some pause. If they continue to interpret the law in absurd ways, they'll be overruled again and again and again. Their "forum selling" efforts deprive defendants of even their most basic rights, and that court's patent rulings have lately become a very serious threat to industry (not only--but also--the automotive sector). What Germany needs badly is patent injunction reform--a real reform that would also affect SEP cases like this one.

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Nokia's attempt to evade referral of antitrust questions to top EU court faces high hurdles: questionable appealability, deferential standard of review

Nokia dreads Dusseldorf. That wasn't always so. For many years, Nokia filed cases in that city even though its disputes typically got settled on the basis of decisions that came down faster in Mannheim and Munich. But last month's order to refer to the Court of Justice of the EU multiple legal questions related to standard-essential patent (SEP) enforcement has left Nokia, well, disgruntled.

Just a few days before trial, Nokia withdrew two cases against Daimler and one against Lenovo (only to refile in Munich).

But Nokia can't derail the CJEU referral by means of withdrawing the case in which the referral happened. Once a plaintiff has formally (re)stated the prayers for relief at trial time in Germany, any withdrawal would require the defendant's consent. Daimler, however, now has a strong interest in getting the question of component-level licensing clarified. Nokia could solve the problem by getting leverage over Daimler in some other venue (coercing Daimler into a settlement that would result in a stipulated dismissal of the case that would otherwise be decided by the CJEU), but on Thursday Nokia is going to be dealt a serious blow in Munich.

Last Thursday, Nokia filed a 29-page "Sofortige Beschwerde" (the closest thing in Germany to what would be called an interlocutory appeal in the U.S.). Initially, the court that made the decision complained of (here, the Dusseldorf Regional Court) decides whether to grant relief or whether to refer it to the appeals court.

Large parts of Nokia's filing, signed by Arnold & Ruess's Tim Smentkowski, deal with the very first hurdle in front of Nokia's interlocutory appeal of the referral order: appealability. The Higher Regional Court of Cologne--just 30 miles south of Dusseldorf and in the same state, North Rhine-Westphalia--held in a different case that a referral order is not appealable because it does not interrupt a case; much to the contrary, that court held a referral is simply part of the judicial process.

Given that the Dusseldorf court, however, noted in its decision that Nokia may appeal the order, it appears less likely that the appeal will be rejected on that basis.

The most likely outcome is for the appeal to be heard, but for the order to be upheld as the lower court enjoys broad discretion with respect to referrals. The assumption is that the judges below have the right to request clarification from the top EU court. Only if a referral appeared wholly unreasonable--the rather deferential standard of review here is comparable to an abuse of discretion--would the appeals court overturn it. But here, the judge presiding over one of the two patent-specialized divisions of the Dusseldorf appeals court, Judge Dr. Thomas Kuehnen ("Kühnen" in German), is known to be in favor of this referral. Even before any major court decision on the question of component-level access to exhaustive SEP licenses came down, he already expressed his views on this topic in an article last year.

That said, Nokia's appeal might succeed with respect to the second set of questions the Dusseldorf court decided to present to the CJEU. That set of questions is not about component-level SEP licensing. It's about how to apply the Huawei v. ZTE framework. Nokia's position that those questions aren't really outcome-determinative in Nokia v. Daimler actually makes sense to me. Now, it would indeed be good if those questions were referred to the CJEU as well, given how things are going awry in Germany, but Nokia v. Daimler may not constitute an appropriate vehicle.

I believe Nokia's interlocutory appeal will be resolved swiftly, but whether it will happen before the Holiday Season is another question. Nokia may have brought that appeal primarily to cause some--even if presumably just limited--delay.

A further appeal to the Federal Court of Justice isn't possible. Otherwise there would be a risk as a presiding judge of the Federal Court of Justice--a judge with a terrible legacy in patent and antitrust law who will thankfully retire (by law, not choice) next year (which is why I don't see a point in even naming the judicial equivalent of a "lame duck" politician here at this stage)--spoke out against this referral.

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Munich appeals court overrules lower court's shameless approach to security amounts: Conversant v. Daimler

As I already noted earlier this month, the Oberlandesgericht München (Munich Higher Regional Court) fundamentally disagrees with the Munich I Regional Court's approach to setting the amounts of collateral to be posted in the form of a bond or a security deposit when patent injunctions are enforced while an appeal is pending.

Meanwhile I've obtained a copy of an order by the appeals court in Conversant v. Daimler, raising the security amount from 5.5 million euros to 146 million euros. That's an increase by more than a factor of 26--and a complete (with respect to this part of the dispute) victory for Daimler at this stage. It also means that Nokia-fed Conversant won't ever enforce a German injunction against Daimler over the patent-in-suit, as the troll probably can't afford this amount anytime soon and the patent is going to expire in about a month's time.

What the lower court had done in that case--and not only that one, as the appeals court will make a similar decision in a Nokia v. Daimler case on Thursday--was not just an error. It was an utter disgrace. It was what happens when judges prioritize "forum-selling" over their own professional honor. And the way in which they explained the "reasons" for their approach was so bad that even the term "nonsensical" would represent a euphemism.

Here's the fundamental problem, in a nutshell:

• A plaintiff who prevailed in trial court often seeks to enforce an injunction even during the appellate proceedings.

• But if the defendant prevailed on appeal, wrongful-enforcement damages would be owed.

• Some kind of security (a bond or a deposit) is to be provided by a plaintiff for enforcement at this stage is to make sure that the defendant can be made whole in case it is later entitled to wrongful-enforcement damages, but the plaintiff can't pay at that point. The actual damages can only be determined later, but the security amount is set based on a reasonable estimate.

• The purpose of such collateral is to enable a defendant to pursue an appeal--as opposed to being coerced into a settlement by the risk of early enforcement damages exceeding what the plaintiff would later be able to pay.

The lower Munich court hit a new low--which says something--when its "logic" simply defeated the purpose of such collateral:

• They said that a defendant had an obligation to mitigate damages by taking a license, but

• in that case it's over and there won't be an appellate decision.

It's not that the lower court wasn't aware of this contradiction. They even suggested that a defendant could make a licensing offer that would be tied to the outcome of the appellate proceedings (by which they probably meant a condition subsequent or similar structure). But as the appeals court noted in its December 3, 2020 partial final ruling (partial because it only corrected the security-related part of the decision, without looking at the underlying merits yet),

• a patentee could simply reject a licensing offer on that basis (and insist on a license deal that would not be contingent upon any future decision),

• Conversant was evasive at best when Daimler suggested such a contractual structure, and

• making such an offer puts a defendant out of compliance with German SEP case law (this point is the least important aspect in my view, as it merely shows that such a deal structure would be unusual).

Simply put, the lower Munich court wanted to deprive defendants of their right to appeal its (sometimes totally wrong) decisions.

Fortunately, the appeals court restored sanity.

The amount of approximately $175 million for shutting down Daimler's German sales for a month (Conversant even won a recall and could have forced Daimler to destroy any "infringing" products) is actually low, but that's because, as the appellate decision notes, Huawei obtained an exhaustive component-level license from Conversant, which indirectly covers approximately 86% of Daimler's German sales. It's mostly the Mercedes truck business that doesn't benefit from that indirect license.

No similar arrangement exists with respect to Nokia's SEPs--and the patent-in-suit in that case isn't about to expire. In the Nokia case, Daimler cars that come with a telematics control unit (TCU) from Samsung subsidiary Harman Becker are excluded from the scope of the injunction, but the effect of that carve-out doesn't come close to the 86% coverage Daimler enjoys in the Conversant context because of Huawei's license. All things considered, a security amount in the billions of euros will likely be set on Thursday. The lower court had set it at only 18 million euros. The numbers don't tell the whole story, but they'll make it clear that the appeals court doesn't merely reverse the lower court in this context. It effectively rebukes it. And rightly so.

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In-person patent trials are a no-go in the Western hemisphere for at least several more months--other than exceptional cases of competitive harm

The Western part of the world is in the situation in which it is these days--with renewed, hard lockdowns--because covidiots come in all shapes, forms, sizes, and colors. One of them will pay the price for his mendacity and irresponsibility in this context next month when he'll have to move out of a white building regardless of his achivements in several other areas, while some others wear black robes and regrettably can't be voted out no matter how much they'd deserve it.

The next few months--the coldest of the year--are the worst time ever to conduct in-person trials. Now, I fully understand that the judiciary can't just freeze everything for an extended period of time. There are matters, particularly criminals trials, habeas corpus etc., that can't wait. All that one can do in those cases is to impose a requirement to wear masks, to enforce a certain minimum distance, and to ensure sufficient ventilation.

I obviously wouldn't deny that there are civil lawsuits with an objective sense of urgency. There may be time-sensitive issues related to employment or tenancy relationships, for instance.

But patent cases that require swift adjudication are few and far between. Very few and very far, that is.

Practically, the standard for holding any in-person patent trial in the coming months should no less--and ideally even more--exacting than the one for a preliminary injunction: irreparable harm, inadequacy of monetary relief, balance of hardships, and public interest considerations.

If you had a two-horse race in a given market and one of the two key players willfully infringes on its rival's intellectual property in differentiating features that truly drive demand, then there may be a pressing need to reach--and enforce--a decision ASAP. But how often is that the case? Looking at the RPX Daily Litigation Alert, or at the lists of patent trials held in German courts, one can easily see that most patent cases are brought by non-competitors. That category of plaintiffs comprises patent assertoipn entities that never made a product; companies that haven't seriously built products in a very long time; and notorious patent abusers like Nokia and Ericsson who failed in certain markets but try to extract excessive royalties, partly by bringing their own cases and partly by feeding hordes of privateers.

There are differences between jurisdictions in how much leeway judges have under these circumstances. Federal judges in the U.S. can simply hold Zoom hearings. I get the impression that Judge Yvonne Gonzalez Rogers, who presides over a bunch of antitrust actions targeting Apple's App Store terms and policies in the Northern District of California, takes COVID-19 very seriously. A superspreader event in her courtroom is not going to happen. Obviously, some lawyers are more comfortable than others to deliver oral argument via a webcam. For instance, Gibson Dunn's Ted Boutrous, who represents Apple against Epic Games and some other plaintiffs, is a frequent TV interviewee, and you can see how comfortable he is in front of a camera. At a hearing this fall he said that "Epic can free Fortnite" (by complying with Apple's rules), and the way he made that point was like he was speaking to a nationwide audience on prime time TV.

While Germany generally has managed to respond more successfully to the coronavirus crisis than the U.S., the German patent litigation system is largely a disaster and a disgrace, and various patent judges and some patent litigators in that country are less classy in robes than their average U.S. counterparts would be in a swimsuit.

What I do appreciate, as I do talk to various German patent litigators from time to time, is that they much prefer to deliver oral argument in person. One of them told me that when a matter is really important to his client, he absolutely wants to be in the same room as the judges, he wants to see all of their mimics and gestures, and he wants them to look him in the eye when they state their views. Some of that isn't possible via Zoom, and some of it is compromised.

But does that preference mean it's responsible to risk superspreader events for totally non-urgent cases?

The trial judges in Germany claim that plaintiffs bring their cases in their jurisdiction because of their great understanding of patent cases and their efficient case management. In reality, cases get filed their because of the combination of a large market, near-automatic injunctions (which won't realistically change with the ongoing reform process that has already been derailed as far as I can see), and bifurcation (meaning you get leverage out of patents that shouldn't have been granted in the first place). And speed, but it's speed that comes at the expense of a proper administration of justice.

The decisions that German patent trial courts hand down are often fundamentally flawed. At times they border on the absurd. And in a few cases they're an absolute insult to human intelligence, sometimes forcing appeals courts to toss a lower court's decision in a way that would be humiliating to the judges below if only they cared (they do not). It's not that the responsible judges are dumb. They aren't nowhere near as competent as they think, and especially when it comes to technical matters I've heard things in those courtrooms that would make computer-savvy 12-year-olds ashamed. But the issue is mostly one of integrity, not intelligence.

For the sake of their careers--with posts on the future Unified Patent Court being far more lucrative and somewhat more prestigious--, some of those judges are willing to do any favor to plaintiffs for the sake of "forum selling." And a very few of them, which is not unique to Germany but particularly common there, would even let people die from COVID-19, or suffer the consequences of Long COVID, just so they can add a few more patent cases to their resumes.

The current period is an extremely critical one. There can be no more doubt by now that cold, dry air makes it easier for the virus to spread, and it leads people to spend more time inside buildings and on public transport vehicles. At the same time, there is hope, mostly because of the first approvals of vaccines, but there may also be more effective therapies soon.

There are caveats. Will the adverse effects of those vaccines prove too bad over time? Will the vaccines slow down the spread of the virus, or will they merely (which is any vaccine's primary purpose, though) protect the vaccinated, resulting in more asymptomatic (yet contagious) infections? Will the number of "anti-vaxxers" be so high that the problem can't be solved that way? Will the virus mutate (just today I read about a new SARS-CoV-2 variant that has been identified in the UK), possibly requiring modifications to any vaccines? There's no guarantee. But there are reasons to not only hope but also believe that the problem may be much less bad by next summer, and possibly marginalized in a year or so from today.

Every infection that gets avoided now is an infection that may effectively have been avoided forever.

Counsel, jurors and courtroom watchers should not be exposed to any unnecessary risks.

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Two new FRAND complaints filed with U.S. district courts: Lenovo v. Nokia (N.D. Cal.) and Ericsson v. Samsung (E.D. Tex.)

Within four days of each other, two FRAND complaints have been filed in district court. One of them takes one aspect of the ongoing Nokia v. Lenovo standard-essential patent (SEP) dispute to the Northern District of California, and the other ushers in a "sequel" to an earlier Ericsson v. Samsung patent spat. At this stage--with the ink barely being dry on those complaints--I primarily just wish to make the complaints available here and provide some high-level information. When the defendants have answered (or moved to dismiss), I'll go into more detail. Both appear to be driven by the notion that a good offense is sometimes the best defense.

Lenovo v. Nokia: ambush tactics alleged in connection with H.264 video codec standard

Most recently I reported on Nokia's withdrawal of a pending Dusseldorf complaint against Lenovo and its immediate refiling of the same matter in Munich as well as the Munich appeals court's decision to grant a Lenovo motion for an enforcement stay. But Lenovo isn't just taking what Nokia's been serving--it has hit back:

"Lenovo has filed a complaint against Nokia in federal court in California in order to address what Lenovo regards as Nokia’s ongoing unfair behaviors and abuse of the standards-setting process related to the H.264 video compression standard. Specifically, Nokia has advocated for its technology to be adopted into the standard, while at the same time concealing its patents it now asserts are essential to the practice of that standard. We believe the availability of standardized technologies on FRAND terms is critical for the future of the global tech industry and the proliferation of affordable innovation to customers around the world. Nokia’s licensing practices threaten this access."

Here's Lenovo's complaint (this post continues below the document):

20-12-07 Lenovo v. Nokia ND... by Florian Mueller

Lenovo is represented by Wilmer Hale, a firm that also represents Apple and Intel in their antitrust action against the Softbank-owned Fortress Investment patent troll group.

In a footnote, this FRAND complaint mentions a case brought by Nokia against Lenovo in the Eastern District of North Carolina in late June 2020.

Ericsson v. Samsung: déjà vu all over again

In November 2012, Ericsson sued Samsung, and the Korean electronics maker responded in kind. They settled in January 2014, and it now appears that at least a part of that license agreement has meanwhile expired or is about to expire. The original announcement of that deal said the agreement covered all patents they already owned back then and the ones they'd obtain over the next ten years, but if it had been a ten-year license agreement, Ericsson wouldn't be suing. So it was most likely a seven-year deal (plus backroyalties for the period during which they were litigating) that is set to reach the end of its term in a couple of weeks--and the reason they included patents obtained further down the road might simply have to do with liability issues over past damages for the period starting with the publication of a patent application.

In a press release, Ericsson said it accuses Samsung of "violating contractual commitments to negotiate in good faith and to license patents on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions" and, beyond that, "seeks to obtain a ruling by the court that Ericsson has complied with its own commitments."

A long time ago, Samsung enforced some SEPs rather aggressively against Apple, and I criticized them for some of their tactics. I followed that dispute across multiple jurisdictions and even attended a preliminary injunction hearing in Paris. But in 2014 Samsung dropped all of its pending SEP claims against Apple, some of them ahead of the second Apple v. Samsung trial in the Northern District of California. While Ericsson routinely asserts SEPs in different jurisdictions (even India at times), Samsung hasn't done so ever since. And while Ericsson--typically alongside Nokia and Qualcomm--supports SEP abuse as a member of the Avanci gang and various lobby groups, Samsung has filed amicus briefs and made other pro-FRAND statements in recent years. That's why I, to be honest, find it hard to believe that Ericsson has complied with its FRAND licensing obligations while Samsung has allegedly breached them.

Ericsson's prayers for relief in the East Texas case include a request that the court "adjudge and declare that Samsung has repudiated and forfeited its right to enforce Ericsson’s FRAND commitment under the ETSI IPR Policy as a third-party beneficiary." Apparently Ericsson hopes to get a ruling form notoriously patentee-friendly Judge Gilstrap that it could leverage against Samsung in other jurisdictions. This also applies to Ericsson's prayer for "specific performance requiring Samsung make available to Ericsson a license to all of its Essential Patents on FRAND terms." Those two players are going to enter into a cross-license, but if Samsung counterclaimed by asking the court to require Ericsson to do the same, the Eastern District would become the venue to resolve the global dispute. Actually, the Federal Circuit, which frequently has to fix serious issues with rulings coming out of that troll-friendly district.

As almost always in this context, Ericsson is represented by McKool Smith.

Both Ericsson and Samsung have some operations in the Lone Star State.

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Nokia's pre-trial forum-shopping extends to its dispute with Lenovo as well (not just Daimler)

Just a quick follow-up to yesterday's post, Desperate-defiant Nokia withdraws two Dusseldorf patent cases against Daimler, trollishly refiles in Munich--where it's losing ground as well. The extent of the problem is even greater. Over the weekend I've learned that there's another recent case in which Nokia engaged in the same appalling practice--I said "appalling" because it's utterly disrespectful of a court and of the other parties to withdraw cases shortly before trial only to bring them in a venue presumed to be more sympathetic to plaintiffs.

Nokia's dispute with Lenovo involves some of the same issues as its spat with Daimler. In Munich, that includes the determination of collateral (bond or deposit to be provided if an injunction is enforced during an appeal) and the application of the Court of Justice of the EU's Huawei v. ZTE framework for deciding whether a SEP holder is entitled to injunctive relief against a particular defendant. Nokia had won an injunction against Lenovo in Munich, but the computer maker--represented by Freshfields Bruckhaus Deringer's Prince Wolrad of Waldeck and Dr. Nina Bayerl--successfully moved the appeals court for an enforcement stay.

Irrespectively of that defeat, Nokia still rests its hopes on the court below, the Munich I Regional Court. And the failed Finnish handset maker dreads Dusseldorf after last month's referral to the CJEU of various component-level licensing and other SEP enforcement questions.

The same division of the Dusseldorf Regional Court that sent those legal questions to Luxembourg--under Presiding Judge Sabine Klepsch--had originally scheduled a Nokia v. Lenovo trial over EP1440515 on an "implementation of a transform and of a subsequent quantization" for last Thursday, December 3. Nokia first requested a postponement, and then, on Friday (December 4), withdrew its Dusseldorf complaint and refiled it in Munich.

Nokia asserts that EP'515 is essential to H.264 decoders, and non-essential to encoders. As for the decoder side, Nvidia intervened, so if Nokia prevailed on essentiality and validity, the question of component-level licensing would have resurfaced.

Forum-shopping is a reality, and some courts (particularly in the Western and Eastern District of Texas as well as some German cities) engage in forum-selling. That's bad enough. But by withdrawing cases almost on the eve of a trial, Nokia is taking forum-shopping to an extreme. The question is now whether it's already doing more outrageous things than Fortress Investment's Uniloc, or just closing the gap.

Such conduct gives patent enforcement a bad name.

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Desperate-defiant Nokia withdraws two Dusseldorf patent cases against Daimler, trollishly refiles in Munich--where it's losing ground as well

The Nokia v. Daimler standard-essential patent dispute that began in early 2019 with ten standard-essential patent (SEP) infringement cases filed in three German venues. In eight of these cases, some kind of decision was made this year: some got stayed (in one Munich case, the stay was of an informal nature as the court simply pushed back the trial date), some complaints were rejected (non-essential patents-in-suit), and Nokia won two injunctions (one each in Mannheim and Munich). But even those two injunctions have so far turned out to be of zero value:

• The Mannheim injunction can't be enforced for a combination of two reasons: Nokia presumably couldn't afford providing security to the tune of $8.5 billion (which is its own fault--the collateral would be so much less if Nokia sued component makers, which it should actually license), and the Karlsruhe Higher Regional Court got Nokia to commit to refrain from enforcement while the appeals court is weighing Daimler's motion for an enforcement stay.

• In Munich, the determination of the amount of the security by the lower court is a total insanity--approximately $20 million--but the appeals court--in that case, the Munich Higher Regional Court--has recently made it clear that it's not inclined in the slightest to uphold the lower court's methodology.

  In a parallel Conversant v. Daimler case, the appeals court's patent-specialized division under Presiding Judge Konrad Retzer had already stayed enforcement until it has made a new determination of the prerequisite collateral. And more recently it has done the same with respect to Nokia v. Daimler. The new amount is slated to be set before the Holiday Season.

Nokia's litigation counsel can't be blamed--their "hit rate" is higher than the industry average in SEP enforcement, though an independent analysis showed this year that the quality of Nokia's aging SEP portfolio is average at best. But the purpose of litigation typically isn't to stick copies of symbolical courtroom victories to a wall. It's about leverage, and that's precisely what Nokia is still lacking.

Nokia's lobbying prowess (with Daimler and some of its suppliers failing miserably in that regard) has so far dissuaded the European Commission from letting its Directorate-General for Competition (DG COMP) do its job and investigate Nokia's SEP abuse. I'm sorry I temporarily blamed DG COMP for not taking action. Over time it became clearer and clearer that the problem has nothing to do with DG COMP. The main culprit is Thierry Breton (the EU's internal market commissioner). It's just not conducive to DG COMP's credibility (even with a non-competition commissioner being the one to blame). Whenever the Commission does or does not decide to investigate a high-profile complaint, a displeased party may insinuate protectionism. Just last month I expressed my fundamental skepticism concerning claims that certain antitrust complaints over SAP's software licensing terms (and as an app developer I am sympathetic to software makers who want to maintain a reasonable degree of flexibility, especially in the business-to-business segment, as to the scope of what users may do with the licensed products) don't get traction just because of SAP's importance to Europe's digital economy. It actually appears those complaints are contrived and unpersuasive. Still, some try to leverage an allegation of protectionism in a context like that, and by not taking action against Nokia, the Commission harms its own reputation as a competition enforcer at a time when that function is more important than ever (not only--but also--in the SEP context).

The issue of component-level SEP licensing is, however, basically in the process of bypassing Brussels and heading straight to Luxembourg. Late last month, the Dusseldorf Regional Court decided to refer to the top EU court two sets of legal questions--the first one being all about component-level access to SEP licenses and the second one, which may not even be reached, relating to the interpretation of the CJEU's Huawei v. ZTE framework. Whatever that court decides is binding on the Commission, not the other way round (though the Commission's input bears considerable weight with the Advocate General, whose recommendations the court adopts in about two thirds of its cases).

Nokia's lobbying machinery will try to influence the court process. They'll try to influence each and every EU member state government, and with the automotive industry being so bad and weak at this, it's possible that even some countries that have a strong automotive industry and virtually no SEP holders are going to make submissions that favor Nokia. But Nokia would rather gain decisive leverage over Daimler before a Luxembourg ruling.

Next week, the Dusseldorf Regional Court was scheduled to hold trials in two more Nokia v. Daimler cases. While the referral to the CJEU was decided by the division headed by Presiding Judge Sabine Klepsch, next week's trials would have been conducted by a panel under Presiding Judge Dr. Tim Crummenerl.

Within less than a week of the trial date, however, Nokia withdrew both cases--and simultaneously notified counsel for Daimler and its suppliers that it simultaneously refiled the same complaints in Munich.

The Dusseldorf withdrawal will result in an award of court fees, which Nokia is apparently happy to pay just to escape from a court it used to love and has apparently learned to hate. Refiling in troll-friendly Munich is a logical choice, but with what I wrote further above as well as in connection with Nokia v. Lenovo, it remains to be seen just for how much longer that venue is going to be a SEP abuser's preferred battleground.

The practice of bringing patent infringement complaints only to withdraw them at a procedural stage where that's a highly unusual thing to do is reminisicent of the most disreputable patent trolls. In fact, Apple and Intel are suing Softbank-owned Fortress Investment in the Northern District of California, and one Fortress front named Uniloc has made such procedural moves in the United States. Such behavior is obviously abusive and vexatious. Nokia has no class, at least not anymore. This Dusseldorf-Munich maneuvering is almost childish. It's an act of defiance after the CJEU referral, and a transparent effort to show to other courts that Munich gets Nokia's business because of its patentee-friendliness.

The Munich court will likely set a somewhat accelerated schedule for those two refiled Nokia v. Daimler cases as the parties are already very familiar with the issues. But a Dusseldorf decision would probably have come down in January, at which point there won't even have been an early first hearing in the refiled cases.

By the way, Nokia can't run from that Dusseldorf judge forever. Dr. Tim Crummenerl will serve on the Federal Court of Justice starting next year.

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Federal Council of Germany has patent reform bill on agenda for December 18 session

Just a quick procedural update on German patent reform: the Bundesrat (Federal Council) has patent reform on the agenda for its December 18 session--item no. 15 for the day. While I was pleased to see some improvement in early September, the legislative proposal that the German government (Chancellor Merkel's cabinet) ultimately decided to put on the table is worded in such a way that the courts would rarely even reach the question of proportionality, much less resolve it in a defendant's favor. I criticized various large companies for shooting themselves in the foot in this context.

So what's the significance of that December 18 decision by the Federal Council going to be?

The Federal Council is the co-legislative body in which the governments of the German federal states cast their votes. Just like in the U.S., patent law is federal law, not state law. Therefore, the Federal Council's influence is limited. Theoretically it could veto even a patent reform bill, but could then be overruled by a supermajority of the Bundestag (Federal Parliament). A veto won't happen here, realistically. Instead, the Federal Council will just express its views, which the Federal Parliament will then take into consideration.

While some members of the Federal Parliament have been informally looking at this dossier for a while, the formal process will only begin after the Federal Council has taken its non-binding position.

Obviously, a camp that believes it can get mileage out of the Federal Council's opinion will try to leverage it. Presumably, the state of Lower Saxony, a major Volkswagen shareholder, will be in favor of serious patent injunction reform. The most populous state, North Rhine-Westphalia, is home to Deutsche Telekom, but also to chemical giant Bayer, which opposes reform, and the Dusseldorf courts, which generate a lot of "business" for the state (which runs those courts) and the local economy. In the second-most populous and economically strongest state, Bavaria, they have BMW and Audi, but I doubt that those organizations know how to prevent their state government from siding with Siemens and the patent law community at large (Bavaria is home to the European Patent Office, the German Patent and Trademark Office, the Federal Patent Court of Germany, and as a result, to numerous patent law firms).

I'd like to be proven to have been wrong on this one, but I really fear that the Federal Council will be just about OK with the current bill (which won't solve the problem, not even in the long run) at best and speak out against even that kind of toothless reform at worst (in which case the Federal Council would likely propose particular wordings that would further dilute the injunction reform statute). When the Federal Council's position has been made public, I'll report and comment on it.

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