Disclaimers, excuses, evasive answers: EU SEP Regulation lacks evidentiary basis, Brussels event primarily about GROWing IPlytics' business

The proposed SEP Regulation that the EU's internal market commissioner Thierry Breton presented a little over a week ago continues to disappoint in many ways. The official presentation of two "empirical studies" on Thursday (May 4) was no exception. The meeting room in Brussels was sparsely filled, with panelists probably outnumbering the audience, and they claimed to have about 100 online participants, while the webinars held by the European Commission two years ago to discuss SEP policy were typically watched by approximately 300 people (each).

If there is any company whose business the DG GROW initiative is really designed to grow, it's neither an innovator nor an implementer of standards (neither side likes the proposal): it's just IPlytics, a service provider. A study paid for by the European Commission should be presented in a company-neutral setting, but that is apparently too much to ask for. What DG GROW did here is an example of socializing costs and privatizing profits. They used taxpayers' money to fund a (low-quality) study, but then allowed IPlytics and its parent company (LexisNexis) to convert the official presentation--which was closely related to the Commission's presentation of the legislative proposal--into a customer acquisition event.

Not only was IPlytics allowed to organize the presentation as a corporate event, but in order to register (even if only for online access), one had to provide far more data than a governmental entity would request: "organization type" and answers to the questions of whether one currently has "access to SEPs, technical standard and contribution data" as well as one's "biggest challenge when it comes to SEPs, technical standard and contribution data" had to be entered in mandatory input fields. Those answers have nothing to do with whether one has a legitimate reason for watching the presentation of two studies funded by European taxpayers. They're simply about maximizing the value of the sales leads IPlytics' salespersons can then follow up on.

Until I officially complained about it (which complaint has not been satisfactorily resolved and which I will soon refer to the European Ombudsman; even the Court of Auditors may ultimately be interested in this), the website even featured the European Commission logo next to that of the two corporate hosts (click on the image to enlarge):

The fact that the EC logo was removed on the business day following my complaint is insufficient. The input fields that served no other purpose than to optimize data for IPlytics' customer acquisition purposes remained mandatory. And there is no indication of the EC having taken action against an unauthorized use of its logo by LexisNexis and IPlytics.

The more fundamental problem is the advice that the EC apparently received. For IPlytics' business, it's a boon if the EU mandates top-down valuations of SEP portfolios based on purely statistical evaluations of data (coupled with individual low-reliability assessments of essentiality). They don't care if it means that quantity is prioritized over quality, numbers over value. "Quality" is not just a question of dubious essentiality checks or essentiality ratio estimates, but of the specific value of the technologies contributed by a given patent holder.

A top-down mandate is even more beneficial to IPlytics if every time a SEP holder is preparing or merely contemplating litigation, they firstly have to start a "FRAND conciliation" proceeding. And what data source would be used in those proceedings? IPlytics would tell them all that IPlytics itself advised the Commission on this legislative proposal, and that IPlytics is the data source referenced in the Commission's own impact assessment and was awarded the contract:

The contract for the study was awarded to iplytics GmbH after a call for proposals, based upon a proposal by a consortium consisting of lead researcher Dr. Justus Baron (Northwestern University), Dr. Tim Pohlmann (iplytics and TU Berlin), Dr. Pere Arque-Castells (University of Groningen), Dr. Amandine Leonard (University of Edinburgh), and Dr. Eric Sergheraert (University of Lille and darts-ip).

While the essentiality checks study names only Justus Baron as its author, it acknowledges that "[t]he five members of the consortium have participated in discussions regarding the definition of policy options." This means IPlytics founder Tim Pohlmann can't disclaim his involvement with one of the studies. His company was awarded the contract; all consortium members defined the options; and the paper on essentiality checks cannot be separated from the "impact assessment" study that builds on it. But Mr. Pohlmann also likes to speak out of both sides of his mouth when his company releases "rankings" of top patent holders in a field of technology: when responding to criticism, he says it's all just about showcasing what one can do with the IPlytics tool, but the headlines and the announcements are all about leveraging the rankings to generate attention and, as always, sales leads.

Mr. Pohlmann's welcome address on Thursday was just a disclaimer. He said that their "empirical" study had to rely on publicly available data, but acknowledged that SEP licensing and litigation are largely non-public, only to then tell stakeholders they could "contribute further evidence to the Commission now." Seriously? Contribute evidence after the legislative proposal has been made? At a time when the EC will still play a coordinating role, but the actual decision rests with the two institutions that are the EU's co-legislators (Council and Parliament)? That makes no sense.

Qualcomm's Fabian Gonell later asked what companies like his could do next time in order to ensure that their input would be considered while still of use. Obviously, it was a diplomatic means of questioning the process that led to the April 27 proposal, but the panelists were merely being evasive even when he underscored his question was just about future situations.

The quality of the IPlytics-led consortium's work leaves a lot to be desired.

Mr. Pohlmann said they had been working on their studies for 1.5 years. Apparently that was not enough time to fix countless typos, one of the funniest ones is this (click on the image to enlarge):

It's also sloppy to switch between a Times Roman and a Sans Serif font within a paragraph or between subsections (click on the image to enlarge):

On those documents, by the way, the European Commission logo is still found. But then the official legislative proposal and the EC's impact assessment also come with typos--and they didn't even fix obvious factual errors such as the ones I discussed in a post on what the proposal and the impact assessment say about patent pools. Whoever put out that proposal either set a low quality standard for their own work and that of the "researchers" and/or was under incredible pressure to rush out something half-baked and ill-conceived. This is not the right approach to policy making in the absence of a crisis--and in fact, the documents that the Commission put out during the pandemic were of far higher quality though there must have been huge pressure and objective time constraints.

There are serious substantive issues that call into question the "consortium's" collective competence.

I'll discuss the various errors and shortcomings in different posts. There are so many issues that I'll content myself with only one salient example here, the first paragraph of subsection 5.2.2 of the "impact assessment study":

"Although this has not yet been discussed by courts, the approach of distinguishing between FRAND licensing and pure questions of patent law could also apply to the question of the determination of essentiality. Whether a patent is actually essential to a standard is a technical question. It is not a legal determination coming from patent law."

That's simply wrong. As I explained in my previous post on the proposed EU SEP Regulation, an essentiality determination is an infringement analysis based on a specification of a standard as opposed to an accused product, and it does depend on legal questions.

In the United States as well as in Germany, claim construction is resolved by courts as a question of law (not fact). In rare circumstances, courts may need expert testimony on how a person of ordinary skill in the art would have understood a certain term at the time the patent application was filed. Even then, the ultimate determination is a legal one.

The answer of whether a patent claim reads on a standard is not just one of whether the claim language at first sight covers a part of a standard. The claim language has to be interpreted in accordance with applicable laws, and in light of the specification. I've attended numerous SEP infringement trials and analyzed lots of documents from U.S. infringement lawsuits and ITC investigations. Rarely does the language of a patent claim mirror that of the specification of the standard. The patent applications must be filed before a specification or a proposal for one is published. There are almost always some deviations that result from the work done in the standard-setting groups.

How could that IPlytics-led "consortium" of five "researchers" get things so wrong?

It's instructive to look at the background of the members--which DG GROW should have viewed far more critically.

I'm sorry for Justus Baron, who used to enjoy a very good reputation for papers he had previously authored. He should never have joined that group, but now it's too late.

Mr. Baron is one of three economists. The others are Mr. Pohlmann--who is simply pursuing his company's business development interests and did not state an affiliation with a university (but just the IPlytics brand) at the Thursday event--and Pere Arque-Castells (University of Groningen). But why didn't the two jurists then explain to everyone that essentiality determinations do involve questions of law?

• Eric Sergheraert points to his affiliation with the University of Lille, but primarily he's the "Global Patent Manager" of Darts-ip, a litigation data service. The benefits to Darts-ip from the EC's proposal are less clear than the ones to IPlytics. But Darts-ip is an IPlytics partner, so at least there is an indirect benefit if IPlytics' business grows thanks to DG GROW.

  It's hard to find any academic write-ups by Mr. Sergheraert. He's not present on SSRN, and on theses.fr I just found papers on life sciences patents, none of them related to claim construction or infringement analysis.

• Then there's Amandine Leonard, an "Early Career Fellow in Intellectual Property Law" and lecturer at Edinburgh University. She was not present at the Thursday event. The research output I found on her university's website suggests she has more of a policy focus ("trolls", compulsory licensing, FRAND, abuse of rights).

There are gaping holes in DG GROW's justification of the proposal.

The "researchers" (in no small part: business developers) gave input to the EC on potential measures, but then wrote their two "studies" within the parameters given to them by the Commission. However, ultimately the Commission has to take responsibility, and it can't hide behind "studies" that don't look at the issues holistically.

Mr. Baron can certainly take the position that "random errors" in essentiality checks are of no concern to him--but every single error that stigmatizes a patent is an injustice that cannot be accepted from a legal point of view. The right of appeal cannot be negated purely based on cost considerations. If Mr. Baron wants to conduct a study that arrives at an overall essentiality ratio for SEPs across all standards, and if they don't publish the results of individual essentiality checks, then they may decide to just accept a high error rate. No particular company--or group of companies (such as all contributors to a specific standard such as 5G)--would be prejudiced.

But every single patent is a property right, and the EU can't just diminish the commercial value of such a property right without due process. Keeping the names of the "assessors" confidential even after they've done their work, and not allowing full-blown appeals including the right of recourse to a court of law, is unacceptable.

Mr. Baron's paper on essentiality checks--contrary to what DG GROW makes of it--even mentions "the analysis by [Keith] Mallinson (2022), who calculates that sample sizes of several thousand patents may be needed to produce reliable and precise estimates of essentiality rates in different portfolios." But the proposal (including the impact assessment and the "studies") does not envision such sample sizes. So there is built-in injustice that cannot be reconciled with fundamental rights in the EU, under the European Human Rights Convention, and the national constitutions of EU member states that protect intellectual property rights like other property.

Let's look at it this way: it would be a severe violation of individual rights if the EU created and maintained a "land contamination" register and declared various pieces of property contaminated just based on an error-prone rapid test. The value of the false positives would be diminished massively.

In his study, Mr. Baron mentions standard confidence levels (the most common one, which is 95%, as well as 90% and 99%). But that is not a determination for him and the business developers on his consortium to decide. If the value of a patent portfolio held by a major SEP holders like Qualcomm, Ericsson, or Nokia was diminished by only 1%, the commercial damage would be significant.

DG GROW allowed a company with clear business interests to put together a "consortium" and make proposals that will benefit that company while potentially harming many others. Economists can make any efficiency argument they want, but ultimately we're talking about justice in each invididual case, with respect to every single intellectual property right.

The Commission limited its policy options beforehand. And the "business developers" had no incentive to explain to DG GROW that the range of choices was too limited.

The Commission could have decided to enshrine Huawei v. ZTE in an EU directive, with greater clarity. In the end, what they are concerned about is the leverage patentees get from (particularly German) injunctions. If that's the concern, then the answer would be a clearer set of rules, as opposed to bureaucracy that offers no tangible benefit but has the potential to do serious harm to individual patent holders.

I suspect that DG GROW just didn't dare to codify Huawei v. ZTE for lack of competence. It would obviously be much more difficult to understand the related options and to craft legislation than what they're now proposing instead (and they didn't even get that one right for lack of understanding how patent litigation and licensing work).

The proposal that is on the table now is ill-conceived, and part of the reason is that the Commission relied on a "consortium" led by a company with business development interests instead of proper consultation with stakeholders on specific ideas.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• judicial realization of a disbalance

• new circumstances warranting a seemingly new approach

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

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

Vintage year 2021 and 2022 SEP cases in Munich and Mannheim will raise important new questions and have the potential to lead to more nuanced outcomes. That is so because cases that have been decided so far in the Sisvel v. Haier era--starting with the two Sisvel v. Haier cases themselves--presented fact patterns characterized either by implementers' reliance on a strictly sequential application of the ECJ's Huawei v. ZTE guidance or by defiance, ignorance, sometimes maybe terrible advice. Now we're going to see what happens when reasonably sophisticated defendants who benefit from realistic advice go out of their way to comply with German SEP case law during the entire course of negotiations. That wasn't the case before as far as I can tell.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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2022's most interesting patent enforcement question: how to raise a successful FRAND defense in Munich and Mannheim under Sisvel v. Haier (short of § 315)

Standard-essential patent (SEP) litigation will be an even bigger topic in 2022 than in recent years, and a major reason is a wide discrepancy between the "ask" and the "bid" prices for 5G licenses. Of course, agreements do silently fall into place here and there (be they license or arbitration agreements), but some 5G litigation is already underway and storms are brewing elsewhere. Let's not forget about WiFi 6 either--or the problem that one video codec pool (Access Advance) makes exorbitant demands. Bluetooth may be the only Sea of Tranquility in the digital standards space.

Munich and Mannheim will remain the world's primary SEP injuntion hotspots. London is also key, but let's talk about that one on a different occasion.

Vintage year 2021 and 2022 SEP cases in Munich and Mannheim will raise important new questions and have the potential to lead to more nuanced outcomes. That is so because cases that have been decided so far in the Sisvel v. Haier era--starting with the two Sisvel v. Haier cases themselves--presented fact patterns characterized either by implementers' reliance on a strictly sequential application of the ECJ's Huawei v. ZTE guidance or by defiance, ignorance, sometimes maybe terrible advice. Now we're going to see what happens when reasonably sophisticated defendants who benefit from realistic advice go out of their way to comply with German SEP case law during the entire course of negotiations. That wasn't the case before as far as I can tell.

Global players typically have significant exposure to patent assertions in Germany. That was already the case when the Munich I Regional Court issued its SEP guidelines about two years ago. Those guidelines did not even come as a surprise. For example, Presiding Judge Dr. Matthias Zigann of the court's Seventh Civil Chamber even went to an ETSI meeting to explain his plans beforehand. He listened to a lot of input, but then he and his colleagues decided. At that point, the prudent thing for implementers of FRAND-pledged SEPs to do would have been to heed that guidance in everyday licensing negotiations. It appears, however, that many parties were hoping that they wouldn't be slapped with a Munich SEP injunction before the appeals court would overturn those SEP Local Rules. Wishful thinking.

Shortly thereafter, the Mannheim Regional Court's Second Civil Chamber under Presiding Judge Dr. Holger Kircher adopted pretty much the same stance. But even after Sisvel v. Haier, a May 2020 decision by the Bundesgerichtshof (Federal Court of Justice), many implementers still didn't care to read the writing on the wall. Like it or not, German courts now take an amalgamated position on whether someone was initially a willing licensee: it's not just about making a declaration but a holistic assessment of a defendant's conduct throughout the process.

Many (though by far not all) implementers' licensing behavior did finally start to change in 2021. Not only was there Sisvel v. Haier II, which clarified and reinforced Sisvel v. Haier I, but some decisions reached in the last third of 2020 (applying Sisvel v. Haier to negotiating conduct that predated that ruling) gave licensees pause. Also, despite some organizations' spin-doctoring, the failure of the German patent injunction "reform" effort became perfectly clear. The Nokia-Daimler settlement had various implications, one of which is that a preliminary reference to the ECJ (from a Nokia v. Daimler case in Dusseldorf) that partly meant to challenge Sisvel v. Haier ceased to be.

Defendants Haier and Daimler exhibited extreme behavior:

• If even half of how the Federal Court of Justice portrayed Haier's conduct before and during litigation is true (and it's far more likely that it is 100% correct), that would have been a textbook example of hold-out. It was all about stalling until the patent-in-suit expires. It was as reckless as it was egregious. Whether one believes the Federal Court of Justice should have phrased its Sisvel v. Haier decision differently so as to avoid that it would open the floodgates is another question. But one cannot blame the court for the outcome it delivered.

• Daimler's approach to SEP assertions had two distinct aspects:

  • One was Daimler's insistence that patentees should talk--and grant an exhaustive license--to its suppliers. Indeed, component-level deals happen, but Daimler itself ended up taking one car-level license after the other (Sharp => Conversant => Nokia => Avanci). That battle is over.

  • Knowing that the courts weren't necessarily going to buy its supply-chain licensing arguments, Daimler also made car-level offers to SEP holders. Just based on what was discussed in open court and what I read in certain court rulings, I can't help but conclude that Daimler was being only gradually more constructive than Haier. That, again, doesn't mean that I like the rationale underlying certain decisions. For instance, while Daimler's licensing offer to Conversant was indeed insanely low (the worst I had seen since the courtroom comedy in Huawei v. ZTE with a 50-euro royalty check being delivered to Huawei's counsel by hand), I don't think the patentee's royalty demand per se constitutes a point of reference. The outcome can still be justified with Sisvel v. Haier, and with common sense: Daimler was possibly spending as much on lawyers just on the day of the trial as they were offering to pay Conversant for a multi-year license.

Some cases in 2022 will present rather different fact patterns from those Haier and Daimler cases. It's too early to tell which ones. That's because the U.S. is the only jurisdiction where one can find out about the facts prior to a court hearing. But licensees aren't stupid. Maybe some of them are, but most of them aren't. Some may have miscalculated. Some were too slow to adopt. Some were dreamers. And some probably thought they would shield themselves from internal criticism simply by overspending on lawyers (which in at least one case didn't work out). Now the parameters are clear. Reality has set in.

There will still be some cases that have been recently brought, or will be brought soon, after multi-year litigations that yielded no result. In such "lag-behind" cases involving plaintiffs with a saintly patience, some of the implementers' negotiating conduct, such as response times to infringement notices and licensing offers, may still have been a mistake in light of Sisvel v. Haier. However, if agreements expired just recently or are expiring now, it's a safe assumption that at least some defendants have done their best to be deemed willing licensees in the post-Sisvel v. Haier era.

In that case, the question is then going to be what was the key question for several years: whether the patentee's royalty demand is FRAND.

It would be bewildering if throughout the course of 2022, the Munich and Mannheim courts deemed every single implementer an unwilling licensee, or if § 315 (effectively relegating the determination of a FRAND rate to subsequent proceedings) was the only safe harbor. The § 315 defense has a long legal tradition in Germany. It's an instrument that is used to resolve a number of issues in many fields of law without having to immediately agree on all the terms. It was a safe harbor under Orange-Book-Standard, a German landmark ruling that preceded Huawei v. ZTE. Presiding Judge Andreas Voss ("Voß" in German) of the Karlsruhe Higher Regional Court is very much in favor of § 315 representing a safe harbor, and even Retired Presiding Judge Peter Meier-Beck of the Federal Court of Justice suggested this much at a conference. But is the answer to the Sisvel v. Haier question really that all royalty determinations should get relegated to a subsequent § 315 rate-setting case? It would result in ever more protracted litigation--during which patenteees will likely get decisive leverage in some other jurisdiction, such as a UK global FRAND deal under Unwired Planet or a U.S. import ban from the ITC, and German courts couldn't do anything about that (anti-antisuit injunctions won't solve that problem).

The fact that the Unified Patent Court is soon going to commence its operation renders this question even more important. It is a safe assumption that at least the UPC judges in Munich and Mannheim will interpret Huawei v. ZTE within the amalgamated Sisvel v. Haier framework. And it is fairly possible that the UPC will agree with them, and that the ECJ will never reverse it (it may not even get such a case). The UPC presents a new situation because it is an international court. SEP holders will, however, file major cases with the UPC (though they can and probably will litigate in national courts in parallel).

While I don't expect a proportionality defense to succeed in any German patent case involving digital technologies where a non-absurd licensing offer is on the table, I do believe that we will see reasonably nuanced decisions on SEP injunction requests, provided that defendants made an unmistakable good-faith effort during negotiations. Everything appears impossible until it happens for the first time. Sisvel v. Haier has scope for a lot more than "§ 315 or injunction." There will be some more Daimlers and Haiers on the receiving end, but there may also be laudable exceptions.

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Biden Administration publishes draft policy statement on standard-essential patents that strikes reasonable balance between patentees' and implementers' interests and bears resemblance to Huawei v. ZTE

Yesterday three U.S. government agencies--the Antitrust Division (ATR) of the United States Department of Justice (DOJ), the United States Patent & Trademark Office (USPTO), and the National Institute of Standards and Technology (NIST)--invited stakeholders to submit comments by early January on a new draft policy statement on standard-essential patents (SEPs).

I applaud the Biden Administration for taking--at least this stage--a very centrist position. Rather than go from one extreme (the Trump Administration's take on SEPs) to another, the three agencies have put forward a statement that reflects a good-faith effort to strike a very reasonable balance. The draft statement warns against the risks to innovation and standards from both the overleveraging of SEPs by their owners and what others simply call hold-out tactics by unwiling licensees. As a litigation watcher, I'm well aware of the existence of either problem.

My favorite part is in footnote 8, which says that "[p]roviding additional information with the licensing offer . . . may be particularly helpful to small entities that do not have the expertise or resources to fully address SEP issues and may lack access to information from which to draw assurance that proposed terms are F/RAND."

The step-by-step negotiation process proposed by the draft statement bears a strong resemblance to EU case law. It's pretty much how the European Court of Justice intended Huawei v. ZTE to be applied, though the post-Sisvel v. Haier I & II reality in Germany looks rather different (and even the relatively FRANDly Dusseldorf Regional Court is not going to challenge Sisvel v. Haier).

In practice, however, SEP injunctions are harder to obtain in the U.S. than in Europe due to eBay v. MercExchange, a decision the draft policy statement obviously mentions.

The draft policy statement is just that--a draft--and even the final vesion is not going to be anything more than persuasive authority in litigation. And how persuasive it will be remains to be seen, as it's obviously difficult for judges to attach much importance to policy positions that depend on which party is in power. At the beginning of this year I was pretty certain that Democrats would stay in power for several terms now, but with what has gone wrong in certain respects (with America now facing a second epidemic: crime), it's possible that Republicans will take back the White House next time. The judiciary will take note of what the executive branch has to say, but has to focus on its own case law. Even the U.S. International Trade Commission (ITC), which is a government agency, is unlikely to modify its stance on the availability of limited exclusion orders (U.S. import bans) over SEPs.

Even if Congress enacted legislation on SEPs (which is not on the horizon at this stage), it wouldn't practically change much for net implementers who do business in jurisdictions such as the UK and Germany. They'd be forced into global portfolio licenses under the threat of sales bans. The effect would then only be indirect, with net implementers possibly hoping that policy makers in Europe might be influenced by the Biden Administration--which I just don't expect to happen.

The draft statement does not touch on the question of whether an implementer who declines to take a global portfolio license should be enjoined the way it is done in the UK and Germany--nor does it say anything about the recent proliferation of antisuit (and anti-antisuit, anti-anti-antisuit, and anti-anti-anti-antisuit injunctions) in that context. Antisuit injunctions are available under U.S. law. But if foreign courts bar an implementer from seeking a U. S. antisuit injunctions by means of a (often even pre-emptive) anti-antisuit injunction, there is little that U.S. courts can do for implementers asking them for help.

While the Trump Administration's policy statement stressed that antitrust law is not above patent law, and effectively suggest that SEP issues should be dealt with under patent and contract rather than competition law, the Biden Administration's draft policy statement makes a few references to antitrust law in footnotes. For example, the statement says patents should be treated like any other property, and that "[c]onditions on licensing may also raise antitrust concerns."

There is nothing in the draft statement on the question of the proper royalty base or on suppliers' access to component-level exhaustive SEP licenses.

Different stakeholders and their lobbying fronts are going to make all sorts of demands now. From my perspective, there's no reason either side could claim that the sky is falling. Neither is anything in that draft statement ourageously unfavorable to one camp nor is the statement going to make huge impact (for the reasons I explained above). But whatever the three government agencies put forward after the current round of feedback could be more controversial.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• slow response times to infringement notices and licensing offers

• noncommittal expressions of an interest in taking a license

• sub-FRAND royalty rates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

§ 315 FRAND licensing offer no safe harbor despite appellate decision

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

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

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

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

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

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

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

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

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CJEU sets August deadline for observations from European Commission, EU member states and parties on standard-essential patent licensing questions in Nokia v. Daimler

In November 2020, the Dusseldorf Regional Court decided to refer to the Luxembourg-based Court of Justice of the European Union (CJEU) two sets of legal questions: one about the component-level licensing of standard-essential patents (SEPs) and another about the application of the Huawei v. ZTE SEP injunction framework. Nokia brought an interlocutory appeal, which was going nowhwere and ultimately withdrawn.

Another procedural milestone was reached on April 29. The CJEU provided translations of the preliminary reference to the European Commission, other EU institutions, the EU member states, the three non-EU member states of the European Economic Area (Iceland, Liechtenstein, Norway), and the parties and intervenors so they can file observations.

Under the court's procedural rules, the parties normally have two months plus an automatic 10-day extension "on account of distance" (which appears a bit anachronistic in the Digital Age, as it would almost be enough for service by stagecoach). Currently, due to the COVID-19 pandemic, there's an additional automatic extension by one month. All in all, this means the filings will be due on August 8 (a Sunday, so this may practically mean August 9).

Unlike in the United States, where a diversity of stakeholders may file amicus curiae briefs, the CJEU will accept submissions only from the types of entities listed further above. Therefore, companies who are not parties to or intervenors to this case must persuade governments to file observations supporting their positions.

Preliminary references by national courts must first be translated into the EU's official languages before the court can formally request observations. In November, I provided a heavily streamlined translation of the questions the Dusseldorf court submitted. I feel for the CJEU's translators, who couldn't just take those liberties. To give you an idea, there's one grammatical sense in the official English translation that spans 13 lines in printed form, "thanks" to an abundance of qualifiers and relative clauses.

Notwithstanding the practical advantages of my streamlined version, let me provide you with the CJEU's canonical translation . You can still read my translation first so you know upfront what they're trying to get to.

I'll follow up soon with further commentary and analysis (in future posts).

[OFFICIAL TRANSLATION]

A. Is there an obligation to license suppliers on a priority basis?

1. Can an undertaking at a downstream stage in the economic process rely on the plea of abuse of a dominant position within the meaning of Article 102 TFEU to dismiss a patent infringement action for a prohibitive injunction brought by the proprietor of a patent essential to a standard established by a standardisation body (‘SEP’) who has irrevocably undertaken to that body to grant a licence to any third party on FRAND terms, where the standard for which the patent at issue is essential, or parts thereof, are already implemented in an upstream product procured by the defendant in the patent infringement action, whose suppliers which are willing to obtain a licence are refused, by the patent proprietor, their own unrestricted licence for all [Or. 4] types of use relevant under patent law on FRAND terms in respect of products implementing the standard?

   (a) Is this the case in particular if it is customary practice in the relevant industry of the final product distributor for the intellectual property right situation in respect of the patents used by the supplier part to be clarified by way of licensing through the suppliers?

   (b) Is there licensing priority for suppliers at every stage of the supply chain or only for the supplier immediately upstream of the distributor of the final product at the end of the value chain? Do customary trading practices also play a decisive role in that regard?

2. Does the prohibition of abuse under antitrust law require that the supplier be granted its own, unrestricted licence for all types of use relevant under patent law on FRAND terms for products implementing the standard in the sense that the end distributors (and, where relevant, the upstream customers) in turn no longer require their own, separate licence from the SEP holder in order to avoid patent infringement in the case of use of the supplier part concerned in accordance with its intended purpose?

3. If Question 1 is answered in the affirmative [This is an ERROR in the official translation! It should be "in the negative" like in my translation]: Does Article 102 TFEU lay down specific qualitative, quantitative and/or other requirements for the criteria according to which the proprietor of a standard-essential patent decides the potential patent infringers at different levels of the same production and value chain against which it is to bring an action for a prohibitory injunction?

More precise clarification of the requirements established by the decision of the Court of Justice in the Huawei v ZTE case (judgment of 16 July 2015, C-170/13):

1. Irrespective of the fact that the [Or. 5] obligations to act (notice of infringement, licensing request, FRAND licence offer; licence offer to the supplier to be licensed on a priority basis) to be reciprocally complied with by the SEP holder and the SEP user must be discharged prior to any litigation, is it possible for obligations to act not fulfilled prior to any litigation to be discharged subsequently in the course of court proceedings in a manner that preserves the rights of the party concerned?

2. Can a meaningful licensing request by the patent user be assumed only if, on the basis of a comprehensive assessment of all the circumstances surrounding the matter, it is clearly and unequivocally apparent that the SEP user is willing and prepared to enter into a licensing agreement with the SEP holder on FRAND terms, irrespective of what form such FRAND terms (which, in the absence of a licence offer drawn up at that time, are not at all foreseeable yet) may take?

   (a) Is it generally the case that an infringer that remains silent on a notice of infringement for several months thereby indicates that it is not interested in obtaining a licence, such that – despite the existence of a licence request expressed orally – there is no such request, with the consequence that the SEP holder’s action for a prohibitory injunction must be allowed?

   (b) Can a lack of a licence request be inferred from licence terms presented by the SEP user by way of a counter-offer, with the result that the action for a prohibitory injunction brought by the SEP holder is subsequently allowed without first assessing whether the SEP holder’s own licence offer (which preceded the SEP user’s counter-offer) complies with FRAND terms in the first place?

   Is such an inference precluded in any event if the licence terms of the counter-offer from which a lack of a licence request is to be inferred are terms in respect of which it is neither manifestly apparent nor established at the highest judicial level that they are incompatible with FRAND terms? [Or. 6]

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