China's top court affirms jurisdiction over global FRAND rates in OPPO v. Sharp, finding overwhelmingly strong Chinese connection

Last month, the Supreme People's Court (SPC) of the People's Republic of China affirmed on a definitive basis a decision by the Shenzhen Intermediate People's Court that OPPO is in its right to seek a global FRAND determination against Sharp from a Chinese court. Sharp had brought a jurisdictional appeal of the decision below. Last week, Chinese media reported on the ruling.

According to Counterpoint Research, OPPO shipped well 33.6 million smartphones during the last quarter, making it number four in the global market in its own right--though if you throw in the 32.5 million units sold by vivo and the volumes of other subsidiaries of the BBK Electronics group (such as OnePlus), we're actually talking about the world's largest smartphone maker (well ahead of Samsung and Apple). OPPO already has significant traction in various markets outside China, and increasingly has to fend off patent royalty demands and infringement assertions. Landmark rulings are an effective way to earn the respect of actual or potential adversaries.

At a time when the European Commission is challenging the Chinese stance on global standard-essential patent (SEP) dispute resolution by means of a set of questions raised at the WTO level, this ruling by China's top court is particularly important. It took me a few days to obtain an unofficial English translation. While I don't claim to know Chinese law, the ruling is, thankfully, self-explanatory.

The highest Chinese court determined that the lower court had jurisdiction over this case, that it was appropriate for the lower court to exercise such jursidiction and, on that basis, to adjudicate the global licensing terms for the SEPs in question, and also dismissed the argument that a Sharp subsidiary named ScienBizip Japan (which participated in licensing negotiations) was a proper defendant to OPPO's FRAND action.

Neither is the SPC's decision an invitation for all sorts of SEP implementers to flock to China nor is it an outlier. In my interpretation, OPPO made an extremely compelling argument against Sharp's appeal, but even someone whose case is not quite that strong might still prevail. The court considers FRAND disputes to involve questions of contract as well as patent law, and with respect to jurisdiction balances multiple factors such as whether many of the patents at issue are Chinese patents, where the parties negotiated or under which jurisdiction they concluded a license agreement, where the patents are implemented in terms of product development and manufacturing, and where most of the sales are generated. As for the latter criterion, in late 2019 OPPO generated approximately 70% of its global unit sales in China, and developed and manufactured 100% of its products there. Negotiations took place in China, too. And any future enforcement (of contractual obligations to pay royalties) would have a Chinese connection, as most of OPPO's assets are in China.

OPPO argued that the alternative would be for a foreign court to set a global rate, such as a UK Court further to the Unwired Planet judgment by the UK Supreme Court. The Chinese SPC merely took note of that argument without commenting on it, but presumably the global SEP litigation landscape played a key role nonetheless.

There are three schools of thought in the world when it comes to global FRAND rates:

• U.S. courts are reluctant to set licensing terms for foreign patents. If one party opposes, it's game over (so far). If both parties agree, it's up to the court.

• European courts (UK & EU) don't want to directly impose license terms on parties, but they practically achieve that effect by allowing injunctions to be enforced unless implementers take licenses on terms that are either set by those courts (UK) or are merely not considered facially absurd (Germany).

• Chinese courts make FRAND determinations at one party's request, but subject to a multifactorial analysis of the economic parameters (forum conveniens).

This is speculative, but I guess an implementer won't have to prevail on all factors (though OPPO did)--and there's no indication whatsoever that an implementer must generate 70% of its worldwide unit sales in China (as OPPO does). It is likely sufficient to have higher unit sales in China than any other country (simple majority) in order to prevail on that factor. The SPC says that all factors must be "comprehensively" considered.

Sooner or later, we'll see a Chinese court ruling that arrives at a forum non conveniens conclusion. But if OPPO had lost to Sharp, there wouldn't have been a way for anyone to obtain a global FRAND determination from a Chinese court.

From a geopolitical perspective it will be interesting to see the EU and China discuss these jurisdictional questions, but even more interesting is the question of what U.S. courts and the Biden Administration will do. Will they stay on the sidelines?

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Shortsighted, unfit-for-digital-age Daimler management caves to Sharp, takes car-level standard-essential patent license instead of appealing injunction

Some antitrust cases have the potential to go all the way up to the highest court. Epic Games v. Apple is an example: while the district court in California has already scheduled a bench trial to start on May 3, 2021, the judge already told the parties she knows this would go up to the Ninth Circuit (at least).

But even when the strategic stakes are high, it takes two, and if one of them has incompetent decision-makers, a settlement may fall into place even while it would still have the chance to get a better outcome. Daimler is an example of a company of the past that is going down the tubes. Only a company that is run by third-rate bean counters (though first-rate cowards they may be), as opposed to bold and world-class visionaries, would cut its R&D spending by more than 20% over the next five years instead of doubling down on the triple transition the industry is facing (new propulsion techniques, autonomous driving, and digitization).

For whatever reason (lack of digital industry knowledge, conflict of interests, or desire to differentiate by swimming against the tide), Sanford Bernstein analysts have for a while been painting a rosier picture for Germany's leading car makers (and last year even speculated about Tesla going out of business!) than their colleagues at other firms. One of their analysts just gave an interview (in German) in which he seriously said German car makers would bridge the digital gap between them and Tesla by partnering with U.S. tech giants--as if that didn't mean that the most lucrative parts of the future automotive value chain, and the most important elements for differentiation, would belong to other companies than Daimler, BMW, or Volkswagen.

Now, today's news shows once again that Daimler's leadership is uncapable of figuring out how to succeed in the digital era:

Foxconn-owned Sharp announced a license deal with Daimler to settle the pending litigation campaign in Germany. Last year, Sharp filed five patent infringement cases in two German courts, partly over likely invalid patents, but on September 10, the Munich I Regional Court's Seventh Civil Chamber under Presiding Judge Dr. Matthias Zigann granted Sharp a Germany-wide patent injunction against Daimler, requiring only negligible collateral (a few million bucks). While Daimler said it would appeal--and presumably had meanwhile asked the appeals court to stay the enforcement of the injunction--, the lower court's ruling, which totally vitiated the FRAND defense to SEP cases under the CJEU's Huawei v. ZTE framework and ignored Daimler's suppliers' right to a component-level license under EU antitrust law, is not going to be reviewed anymore.

For 86% of Daimler's German sales, an exhaustive component-level license agreement between Sharp and Daimler's indirect supplier Huawei had actually mooted the whole matter. But the question was what Daimler was going to do in the face of the Munich injunction with respect to the remaining 14%. It's unclear whether they could technically have solved the problem by incorporating components supplied by Huawei into those vehicles--I guess they could have done so if they had really wanted to, but maybe some decision-makers at Daimler who failed to understand the wider strategic implications of this didn't want to make that logistical effort. However, with the Dusseldorf Regional Court being virtually certain to refer, as suggested by the Federal Cartel Office of Germany (Bundeskartellamt), a set of component-level standard-essential patent licensing questions to the Court of Justice of the EU, an enforcement stay would have been extremely helpful. After that referral it's going to be a whole new game, and especially the German appeals courts will have to tread carefully so as not to make a decision that the CJEU may shortly thereafter hold to be inconsistent with EU antitrust law.

Daimler had actually achieved what I call a microstay (a stay not for the duration of the entire appellate proceedings but for the time it takes the appeals court to weigh the motion for a stay) in a Mannheim case against Nokia. There, the appeals court strongly recommended to Nokia to commit to refrain from enforcing the injunction at this procedural juncture.

The price Daimler is paying now is not primarily whatever royalty Sharp may collect on (at the most) 14% of Daimler's cars. The real issue is that Daimler this way departed from its previously principled stance that SEP holders should extend exhaustive component-level licenses to Daimler's suppliers.

In other words, the fact that Daimler folded is going to be viewed by certain players as validating the model of car-level licensing. So what's the fallout then and what does this mean, going forward, with respect to other players and issues? In alphabetical order:

• Avanci: Sharp, just like Nokia, Ericsson, Qualcomm and many others, is a member of the abusive Avanci gang. While Avanci will probably welcome the aforementioned "validation" of the car-level nature of the license deal, the glass is half-empty because the deal bypasses Avanci--for the time being at least.

• Bundeskartellamt (Federal Cartel Office of Germany): The FCO had intervened in this dispute, and participated by videoconference in the trial after which the injunction came down. While the FCO may continue to content itself with filing amicus curiae briefs, it might also investigate Sharp's extortionate conduct here as it secured a car-level license at the threat of the enforcement of an ill-gotten SEP injunction. The question here is whether Sharp failed to honor its licensing obligations vis-à-vis other Daimler suppliers (which I guess it did) than Huawei in the build up to the injunction ruling. At any rate, the FCO will have learned the lesson now that some German patent infringement courts are so extremely plaintiff-friendly that amicus briefs may not be sufficient.

• Daimler's other suppliers: Some of them, such as Germany's Continental and Samsung subsidiary Harman, are Huawei customers. That shields them against all or large parts of the potential indemnification claims Daimler might have (or might have had--it depends on whether those agreements hold suppliers liable for Daimler's settlements). Others, however, are in trouble, and may lose Daimler's business. See the bullet point on Huawei further below. Also, they may have to fear that Daimler will also settle with Nokia, at which point the suppliers will lose a co-complainant in the antitrust arena.

• European Commission / DG COMP: The increasingly-protectionist executive branch of the EU has been sitting on Daimler's antitrust complaint against Nokia for two years, seeking to protect Nokia and, by extension, Ericsson rather than Europe's automotive industry. That's just politics and has nothing to do with principled competition enforcement. Daimler's management, which is failing all the way as I explained above, made a major mistake by either being too incompetent to understand from the beginning that an EU antitrust matter of this kind is more political than legal or by being stuck in the past. Whatever the reason may be, while Nokia and Ericsson (and their various allies) played the political game very aggressively, Daimler did nothing--and, as a result, achieved nothing in Brussels.

  One member of the EU Commission wil be overjoyous today: French commissioner Thierry Breton, who spreads Nokia-funded propaganda of the most postfactual kind, has been Nokia and Ericsson's best friend all along. He'll leverage Daimler's deal with Sharp in the Nokia context for sure in order to prevent EU competition chief Margrethe Vestager from launching formal investigations.

  What the Commission's Directorate-General for Competition (DG COMP) could at least do would be to encourage the German Federal Cartel Office to do what the Commission is for purely political reasons unwilling to do.

• Huawei: They may do even more business with Daimler now, and they become more important with a view to the CJEU referral by the Dusseldorf Regional Court as they're far less likely to settle with Nokia than Daimler is. The terms of all those deals aren't known, but I would assume that Huawei (listed further below) has a better deal with Sharp than Daimler, given that Huawei knows this business a lot better and is deemed by many experts to be the leading cellular SEP holder in the world. In that case, the most cost-efficient way for Daimler to resolve its problem with Sharp's patents is to incorporate cellular components from Huawei into its cars, assuming that the Sharp-Daimler deal doesn't allow double-dipping (if it did contrary to what I assume, then that in and of itself might warrant an antitrust investigation).

• Munich I Regional Court: The fact that a Munich injunction made Daimler cave, after several years of declining to take car-level cellular SEP licenses, is going to be another boost for this venue's popularity among plaintiffs. Just last week, the same court granted Nokia a video codec SEP injunction against computer maker Lenovo, involving some of the very same legal issues. We'll see whether Lenovo, which just like Daimler at the time announced an appeal, will keep on fighting so that the Munich appeals court will review the lower court's application of Huawei v. ZTE and address the question of component-level licensing obligations.

• Nokia: For Nokia it's certainly better that Daimler caved than if the Munich appeals court had possibly expressed doubts about the lower court's application of Huawei v. ZTE and positions on component-level licensing. Later this month, on the day before Halloween, Nokia may win a Munich injunction against Daimler as well. Then, Daimler has put a lot more effort into its fight with Nokia than into the dispute with Sharp, so it's unclear what Daimler's management will do. They might make their next mistake then, though they'll then be much closer to the Dusseldorf referral. And as long as Huawei keeps fighting Nokia, the question of component-level SEP licensing will have to be resolved by the top EU court.

• Patent reform: Even Judge Kuehnen ("Kühnen" in German) wouldn't interpret the current proposal by the Federal Ministry of Justice and Consumer Protection of Germany as changing anything about access to injunctive relief over SEPs. But the legislative process isn't over, and changes could still be made so as to ensure that a proportionality-based defense will be available in SEP cases as well, in addition to the antitrust-based FRAND defense. I'm not actively involved with that process, and time is not on the side of those advocating reform, so I can't offer a prediction. I'm worried that the final outcome will be even less helpful than the current draft, which is very suboptional but still a huge improvement over an earlier proposal.

• Tesla: The most innnovative one of all large automotive companies is also in the cross-hairs of various SEP holders, all of whom are Avanci members. Most recently, the PanOptis/Unwired Planet patent troll group sued Tesla in Texas. Sharp is seeking an import ban against Tesla in Japan. Whether Sharp has meanwhile also brought German patent infringement cases against Tesla isn't known, but if not, then I guess it's just a matter of time. And most likely the venue of choice will be... Munich.

  Tesla has the potential to become the #1 patent defendant in Germany as it's building a car factory near Berlin. I guess they'll be sued in Germany left and right, over SEPs and non-SEPs, by operating companies and trolls.

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BREAKING: Sharp grants automotive component-level SEP license to Huawei, partially withdraws patent infringement suits against Daimler

[BREAKING NEWS]

With multiple simultaneous filings dated July 6, 2020, Sharp partially withdrew its German standard-essential patent (SEP) infringement actions against Daimler as the Foxconn-owned Japanese electronics maker has concluded an automotive component-level license agreements with Huawei. The infringement actions are continuing with respect to Daimler cars that do not come with a Huawei baseband chipset, telematics module, or telematics control unit (TCU).

In terms of the economic significance of the remaining claims, it's a safe assumption that well over half of the dispute between Sharp and Daimler has been amicably resolved by virtue of patent exhaustion. But this breakthrough agreement far transcends that particular set of cases. It divides the Avanci gang led by patent abusers and formed for the purpose of dissuading blue-chip SEP holders such as Sharp from granting component-level licenses, while exposing Nokia's dogged denial of the feasibility and fairness of component-level SEP licenses as purely pretextual. Sharp's partial withdrawals conclusively prove that it is possible to differentiate at the end-product level based on upstream suppliers.

I applaud Sharp--which owns a large SEP portfolio and has proven its will to enforce its rights in court--for showing the way forward for licensing cellular SEPs to the automotive industry, which has traditionally required its suppliers to secure the prerequisite patent licenses; I congratulate Huawei on having convinced Sharp of the benefits of such an agreement at the negotiating table; and I'm happy to see Daimler--as a beneficiary of its indirect customer relationship with Huawei, which is known to provide connectivity modules to Daimler's tier 1 suppliers such as Continental and Harman--being relieved from a significant part of the litigation pressures it has been facing for a while. In practical terms, the Sharp-Daimler cases are now merely about past damages with respect to cars that came without Huawei components. Injunctive relief is a practical non-issue as Daimler could presumably equip 100% of its products with components supplied by Huawei or coming with Huawei chips and modules.

It bears recalling that Huawei is suing Nokia in Dusseldorf for an exhaustive component-level SEP license on FRAND terms. That antitrust trial will go forward in early September. Meanwhile, Nokia's infringement claims against Daimler are falling apart.

The Sharp-Huawei license deal further validates the positions taken by the Bundeskartellamt (Federal Cartel Office of Germany) in its interventions in multiple German Nokia v. Daimler cases, advocating the referral of a set of component-level licensing questions to the Court of Justice of the EU (CJEU).

The groundbreaking agreement won't go unnoticed in Brussels, where the European Commission is dealing with SEP licensing issues at the policy as well as competition enforcement levels.

The fact that Sharp agreed to license not only tier 2 (connectivity modules) and tier 1 (TCUs) products, but also baseband chipsets (tier 3 from a car maker's perspective), means that this license agreement is bound to be referenced by smartphone makers in some of their disputes. Apple, in particular, has been advocating chipset-level SEP licensing for a long time. Sharp's parent company, Foxconn, is the largest one of Apple's contract manufacturers.

There can't be the slightest doubt that we'll see more and more agreements of this nature and stature now. Some of them will come into being on a consensual basis, such as the one I learned about today, while others will simply result from regulatory action and judicial decisions. One way or the other, the likes of Nokia, Ericsson, and Qualcomm won't be able to deny component-level licenses for too much longer.

IoT startups stand to benefit from this trend. They are far too small to be in a strong position vis-à-vis certain abusive and anti-innovative SEP holders (and the trolls they feed with patents). IoT innovators depend on their suppliers being licensed. The European Commission has failed the IoT industry so far, siding with yesterday's losers rather than tomorrow's winners, but as a result of negotiations (such as Sharp-Huawei), private lawsuits (such as Huawei v. Nokia), and regulatory interventions (such as the Federal Cartel Office's submissions in Nokia v. Daimler), change is coming.

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Sharp's blunt swords: two patents-in-suit against Daimler likely invalid, infringement cases got stayed

Last summer, five Sharp v. Daimler patent infringement cases (two of which were filed in Mannheim, the other three in Munich) became known through a filing in a U.S. Continental v. Avanci case. When the Munich I Regional Corut scheduled a couple of first hearings, I provided an update in September. Now it's time for a catch-up, as a couple of cases have been stayed and the other three are going to trial soon:

• In its first-filed case against Daimler, Sharp is asserting EP2154903 on a "mobile communication system, base station device, and mobile station device" in Mannheim (case no. 2 O 46/19; complaint filed on 12 April 2019). As per a May 26, 2020 decision, that case has been stayed pending the resolution of a nullity action the infringement court deemed meritorious.

• In the second Mannheim case (over EP2129181 on a "mobile communication system, base station apparatus and mobile station apparatus"; case no. 2 O 87/19), Sharp had no reasonable alternative to a stipulation to stay. Otherwise the case would have gone to trial later this month.

  So the current score is "two down, three to go."

• The first Sharp v. Daimler Munich trial has been scheduled for July 23, 2020 (Seventh Civil Chamber; Presiding Judge: Dr. Matthias Zigann). The patent-in-suit is EP2667676 on a "base station device, mobile station device, and uplink synchronization requesting method," and the case no. is 7 O 8818/19. The complaint was brought on June 28, 2019.

  On the same day, the same court will also hold an additional trial in a Nokia v. Daimler case.

• A couple more Sharp v. Daimler cases will be tried in Munich on November 3, 2020 and the following day (case no. 21 O 8609/19 over EP2854324 on a "communication system and mobile station apparatus" and case no. 21 O 9918/19 over EP2312896 on a "base station device, mobile station device and corresponding communication methods using carrier aggregation").

Sharp is a contributor to the abusive Avanci patent pool that makes supra-FRAND royalty demands and declines to license component makers. It's more of a gang than a pool, and its level of coverage (of the cellular SEP landscape) is far lower than Avanci likes to pretend, as I'll discuss in another post very soon.

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Avanci conflict with Tesla escalates as Nokia-fed patent troll Conversant sues Tesla in Texas and Germany

Avanci, which usually refers to itself as a licensing "platform" though its lawyers also described it as a "pool" in at least one U.S. court filing, offers a license to cellular SEPs held by a group whose key members are notorious standard-essential patent (SEP) abusers such as Nokia and Ericsson as well as some trolls they fed with patents. Various additional patents have been contributed by numerous organizations, such as Deutsche Telekom, that elected to come in for convenience and lack the strategic sophistication and foresight to realize the Avanci approach (of refusing to extend licenses to component makers) runs counter to their interests.

One Avanci member, Foxconn-owned Sharp, sued Tesla in Japan last month, requesting the Tokyo District Court to impose an import ban. Sisvel, a patent troll and Avanci member, sued Tesla in the District of Delaware in December over former Nokia patents. Yet another Avanci member, Nokia, may have an interim agreement with Tesla in place as an unnamed American car maker "X" was referenced in the public part of a Nokia v. Daimler trial in Munich in February; should Tesla have been that mysterious U.S. company, then they actually provided a fair amount of information that Daimler presented to the Munich court while the courtroom was sealed. And now we're witnessing an all-out Avanci v. Tesla patent litigation campaign as Conversant Wireless Licensing is asserting various Nokia patents against Tesla in two complaints filed in the Western District of Texas last week (this post continues below the two documents):

20-04-24 TXWD20cv323 Conver... by Florian Mueller on Scribd

20-04-24 TXWD20cv324 Conver... by Florian Mueller on Scribd

Conversant previously filed some German SEP lawsuits against Tesla as well:

"After no further communication from Tesla, on or about February 26, 2020, Conversant filed patent infringement complaints against Tesla, Inc. and its German subsidiary Tesla Germany GmbH before the Manheim [sic] Regional Court in Germany."

The correct spelling of the German city name is, of course, Mannheim. There are a few towns named "Manheim" in the U.S., but anyone who's ever driven from O'Hare Airport to downtown Chicago has seen "Mannheim Road".

I'm trying to find out how many cases Conversant brought in Mannheim, and what the patents-in-suit are. I just emailed the Mannheim Regional Court's spokesman before writing this post. At this stage the Mannheim court can't provide case and patent numbers, but I hope this will change in the months ahead.

The combination of Sharp and Conversant suing Tesla in different jurisdictions is the usual bulling with which Avanci is trying to coerce Daimler into a SEP license agreement on supra-FRAND terms while the likes of Nokia and its trolls refuse to license automotive suppliers, an issue that I hope Tesla will raise as well. Tesla is far more of a digital company than Daimler and therefore may be vertically more integrated with respect to cellular data communications, so it wouldn't surprise me should Tesla not buy telematics control units (TCUs) from the likes of Continental, but even Tesla won't make its own baseband chips. In contravention of its FRAND licensing obligations, Nokia licenses only end-product makers.

With respect to component-level licensing, a new academic paper was published yesterday in reply to a write-up by Nokia's outside counsel (which also mentioned this blog because of a recent post).

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Munich court schedules first hearings in two Sharp v. Daimler patent cases for late November, another anti-antisuit hearing for early October

Two key contributors to the Avanci IoT patent pool are suing Daimler in Germany:

• Nokia has already brought (at least) ten cases. Trials have been scheduled in five of them for the period from December to May, and since the Munich I Regional Court will hold first hearings (about claim construction and infringement analysis, though sometimes they go beyond) in two other cases in late October, there's quite a possibility that even two more such trials will be scheduled for the first half of 2020. Three Dusseldorf trials have yet to be scheduled.

• Foxconn-owned Sharp, which announced a new license deal with Samsung last week, has filed (at least) five patent infringement complaints against Daimler: three in Munich and two in Mannheim.

Today the press office of the Munich I Regional Court ("Landgericht München I") thankfully responded to my inquiry regarding the hearing dates in the three Munich Sharp v. Daimler cases:

• On November 20, 2019, the court's 21st civil chamber under Presiding Judge Tobias Pichlmaier will hold hearings in case no. 21 O 8609/19 over EP2854324 on a "communication system and mobile station apparatus" and case no. 21 O 9918/19 over EP2312896 on a "base station device, mobile station device and corresponding communication methods using carrier aggregation."

• On March 5, 2020, the 7th civil chamber under Presiding Judge Dr. Matthias Zigann will hear case no. 7 O 8818/19 over EP2667676 on a "base station device, mobile station device, and uplink synchronization requesting method."

The question is whether Sharp is now going to seek a prophylactic anti-antisuit-injunction injunction ("AAII") from the Munich court, given that Daimler supplier Continental may in the not too distant future file an antisuit-injunction motion with Judge Lucy H. Koh in the Northern District of California targeting at least Sharp, Nokia, a couple of patent assertion entities Nokia had fed with patents, and the Avanci patent pool firm. On Tuesday, after Continental's miserable failure over the course of four days (two weekend days, but well-run litigants wouldn't care) to respond to a letter Sharp had addressed to Judge Koh, the world's #1 technology industry judge dismissed a pending antisuit-injunction motion without prejudice so as to avoid piecemeal resolution with two or more antisuit injunction motions in the same case. While Continental was too slow and/or unprofessional to clarify promptly that Sharp wasn't meant to be included by the original antisuit motion, it could have brought a subsequent antisuit motion targeting Sharp. Also, Continental had withdrawn parts of its motion even with respect to Nokia (most importantly the ten aformentioned pending German cases) to comply with the first Munich AAII, but by doing so without prejudice, the automotive supplier reserved the right to revive those parts in the event of a successful appeal to the Munich Higher Regional Court. And then the Avanci pool has various other members, so if Continental refiles, it should target all Avanci contributors (in case its lawyers are conflicted with regard to any of them, it should simply find new ones, which may be a good idea anyway given how things have gone wrong so far with respect to the antisuit effort).

There are two AAIIs in place, one (the first to come down) against Continental Automotive Systems, Inc. of Auburn Hills, MI, and one against Continental AG, the Germany-based parent company of the entire group (and, as part of that, an indirect parent of the U.S. entity). The first one had been granted ex parte without a hearing and without Continental even having a clue until the decision had come down. But there was a service-of-process dispute as the U.S. entity pointed to the Hague Convention (which according to the Avanci defendants' motion to dismiss Continental's U.S. lawyers may have failed to comply with when attempting to serve Sharp Japan). The second one didn't raise that kind of issue, but the court initially denied an AAII because Nokia had not made it sufficiently clear what complicit or intermediary role Continental AG, which is not a plaintiff in the case before Judge Koh, had played in the U.S. antisuit effort. Nokia didn't take no for an answer, so the court held a hearing, and then decided in Nokia's favor.

On October 2, 2019, the Munich I Regional Court will hear the U.S. Continental entity's motion for reconsideration of the first AAII. The court didn't say why that hearing wouldn't take place sooner, given the urgent nature of a preliminary injunction, but it's easy to figure: the issues will be a subset of the ones already heard in late August, so the outcome will be the same unless the appeals court (Munich Higher Regional Court, "Oberlandesgericht München") will lift the second AAII in the meantime. It may seem counterintuitive that the appeals court will decide on the second AAII before the first, but that's due to the combination of two factors:

• Continental didn't move for reconsideration of the first one until it had been served in what it deemed to be compliant with the Hague Convention. That's why, in a way, the second AAII is now practically ahead of the first one.

• The losing party to a preliminary-injunction motion (be it the movant or the non-movant) must firstly give the lower court the chance to reconsider, which actually just worked out for Nokia and resulted in a second AAII. That's why the October 2 hearing formally had to be scheduled, but since the second AAII is already past that stage, the appeals court can review it soon (provided that Continental already has appealed, or will appeal in the coming days; the deadline is early next week).

The German legal term is "sofortige Beschwerde" (immediate objection), but it comes down to a motion for reconsideration in the lower court, and if that one fails, then it goes up to the appeals court. By scheduling the reconsideration hearing for early October, knowing that the appeals court will likely hold a hearing before (or otherwise the reconsideration hearing could be pushed back), the lower court enables itself to quickly lift the first AAII should the second one be lifted on grounds that apply to the first one as well (most of the issues are overlapping, but the second one involves complicit or intermediary liability on top of everything else).

This takes us back to what Sharp may do. If Nokia's AAII is upheld, we can set our watches by Sharp bringing an immediate AAII motion with the lower court unless Sharp will already have done so by that time. Should Nokia's AAII be lifted on grounds that would apply to any AAII Sharp might bring, then Sharp will likely refrain from bringing one in the first place or will withdraw a hypothetically pending one. The scenario of Continental not appealing the second AAII is almost impossible to imagine (even more so since we now know they objected to the first one); in that highly hypothetical case, Sharp would certainly pursue its own AAII just as if Nokia had won affirmance.

Given that Nokia, which has demonstrated its litigation prowess again and again, filed ten cases against Daimler before Sharp filed its five complaints, the question is whether those Sharp cases are ultimately going to make any difference. It's certainly a chance for Sharp, which increasingly seeks to monetize its patents, to send out a clear message to other implementers of cellular standards that the Foxconn-owned Japanese electronics company is not just a dog that barks but doesn't bite. They do sue from time to time, as those five German cases prove.

But if Nokia got decisive leverage over Daimler in the meantime, Daimler might take an Avanci pool license, in which case it would also be licensed to Sharp's patents-in-suit. I hope Daimler will be able to avoid this, as Avanci's terms are supra-FRAND and SEP licenses should be available at the component level, with royalties calculated as a percentage of the smallest salable patent-practicing unit. However, Nokia is amazingly good at the patent litigation game, and I have yet to see an automotive company that can withstand such an onslaught. Let there be no doubt that Quinn Emanuel's Dr. Marcus Grosch, Daimler's lead counsel in the Nokia and, according to Juve Patent, also the Sharp cases, is going to give Nokia a run for the money. But the first hearing in one of those cases already showed the court leaning Nokia's way, and ten patents is just too much ammo. Without a successful FRAND/antitrust defense, or the infringement cases at least being stayed pending the resolution of Daimler's and some of its suppliers' EU antitrust complaints against Nokia, it will only be a question of when, not if, Daimler will lose. And QE does a whole lot more work for SEP asserters than for implementers, especially in Germany (where they also represented a patent assertion entity against Nokia over the course of many years, until Nokia exited the mobile handset business).

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Sharp asks Judge Koh to confirm that Continental's motion for U.S. antisuit injunction won't impact its own German Daimler patent suits

Two contributors to the Avanci IoT patent pool are currently suing Daimler in Germany:

• Nokia has filed (at least) ten cases, five of which already have trial dates between December 2019 and May 2020 in Mannheim and Munich. Also, the Munich I Regional Court will hold first hearings in two other cases, and it's fairly likely that the subsequent second hearings, which are trials, will be scheduled during the first half of 2020 as well. In the past, the 21st civil chamber of that court used to be much slower than the other division that hears patent cases (the 7th civil chamber), but it looks like they are catching up.

• After Nokia's first ten Daimler lawsuits, Foxconn-owned Sharp also filed five complaints against Daimler (in Mannheim and Munich).

At the beginning of this week, Daimler supplier Continental Automotive Systems was forced to withdraw a motion for a U.S. antisuit injunction motion with respect to the ten above-mentioned Nokia cases. As I explained in that post, it remains to be seen whether that partial withdrawal of the U.S. antisuit motion, further to a German anti-antisuit-injunction injunction ("AAII") obtained by Nokia in Munich, will be deemed sufficient--but in the meantime, before any hypothetical contemption motion would be adjudged, the Munich appeals court may very well lift the injunction.

Continental's withdrawal-in-part specifically stated that the motion was not withdrawn with respect to "the other defendants in this proceeding," and not in the same sentence, but in the wider context, the withdrawal notice reminded the U.S. court of "Sharp's separate and ongoing proceedings against Continental's customer Daimler."

At the time of the U.S. antisuit motion, the defendants were all from the following corporate groups: Avanci (a patent pool firm that doesn't hold or assert patents); Nokia; and two patent assertion entities Nokia fed with patents (Optis and Conversant). Sharp was added to the case as an additional defendant only the following month by way of Continental's first amended complaint. However, Sharp's lawyers are concerned that Continental's reference to Sharp's German cases might mean that the remaining parts of the pending antisuit motion would take aim at those Sharp v. Daimler cases.

In order to eliminate any doubt about that, Sharp's lawyers (whose appearance is limited in scope as Sharp denies to have been served properly) have now asked Judge Lucy H. Koh of the United States District Court for the Northern District of California to provide guidance (this post continues below the document):

19-09-06 Sharp Letter Re. A... by Florian Mueller on Scribd

When I read Continental's references to Sharp in its reply brief in support of the motion as well as in the partial withdrawal notice, I assumed that Sharp itself wasn't meant to be targeted, but that there could be an issue for Avanci, given that Continental, even after the partial withdrawal, seeks to enjoin Avanci and the other defendants "from acting in concert with anyone to pursue or institute such an action."

While it's understandable that Sharp's lawyers decided to file that letter out of an abundance of caution, it's hard to see why they couldn't clarify this between counsel for the parties ("meet and confer"). The letter doesn't say anything about what Continental's lawyers told counsel for Sharp--other than the fact that "[c]ounsel for Sharp only just received from Continental's counsel the full, unredacted briefing regarding the Motion on September 4, 2019."

Enjoining Sharp as a result of the currently-pending antisuit motion wouldn't make sense given that the motion targeted only the defendants named in the unamended original complaint. Beyond that, Sharp disputes in the defendants' motion to dismiss Continental's first amended complaint that it has been properly served under the Hague Convention. According to Sharp's lawyers, Continental served the complaint on Sharp USA, which is a subsidiary of Sharp Japan, but not a California subsidiary that could be deemed the foreign company's "general manger" under California state law. Also, Sharp's lawyers argue that Sharp USA "does not engage in any patent licensing business at all," so it couldn't be Sharp Japan's "general manager" for purposes of U.S. service with respect to patent licensing activities.

Should footnote 10 of the motion to dismiss correctly liken this situation (in the California Continental v. Avanci et al. case) to a couple of cases in which Continental AG, the German parent company of Michigan-based Continental Automotive Systems, allegedly "prevailed on the argument that it cannot be served through [Continental Automotive Systems, Inc.]," and should the application of that same legal standard result in a finding that Sharp Japan wasn't properly served under the very Hague Convention that Continental Automotive Systems held against Nokia's attempts to serve the first German AAII on a Germany-based board member, then that would be a major embarrassment for Continental's legal department:

"Indeed, Continental knows its attempted service on Sharp USA, rather than Sharp Japan, is improper. Continental's ultimate parent company, Continental AG, a German corporation, has repeatedly prevailed on the argument that it cannot be served through the Plaintiff here, its U.S. subsidiary, but instead must be served under the Hague Convention. See Orion Tire Corp. v. Gen. Tire, Inc., No. 92-cv-2391 AAH, 1992 WL 295224, at *1 (C.D. Cal. Aug. 17, 1992) (granting Continental AG's motion to dismiss for insufficient service and requiring service under Hague Convention); see also Leon v. Continental AG, 176 F. Supp. 3d 1315, 1318 (S.D. Fla. 2016) (requiring service on Continental AG under Hague Convention). The same is true of Sharp Japan."

In case Continental would want to bring a separate antisuit motion against Sharp, Sharp's lawyers ask Judge Koh to firstly hear the motion to dismiss, and in any event they obviously want due process, but I wouldn't expect anything else than due process from an extremely meticulous judge.

Assuming that at some point (and it may take longer than Continental hopes) Sharp Japan is properly added to the U.S. case as an additional defendant, a new antisuit motion by Continental against Sharp would again have a problem with the principle that earlier-filed cases, at least in psychological terms and with respect to the "international comity" part, are more likely to serve as a basis for enjoining parties with respect to actions in later-filed cases than the other way round. Sharp's first German lawsuit against Daimler was filed on April 12, 2019; the other four were filed between June 5 and June 28; those lawsuits in Germany against a German company were probably served within a week or, at most, two, i.e., even prior to Continental's mid-May original complaint, but Continental's first amended complaint, which finally added Sharp, was filed on July 23.

While I believe Continental and Daimler can be reasonably optimistic that the German appeals court may lift the two AAIIs very soon (in my observation, the judges on the patent senate of that appeals court are not only very experienced but also principled and, especially by comparison to some judges on the lower court, unemotional), the fact that they were too hesitant and slow with their own U.S. antisuit initiative may ultimately prove fatal to the pending motion and any subsequent antisuit motion.

Continental should have brought its complaint against Avanci much sooner, simply because the filing date of the complaint is so important for antisuit-injunction purposes, and should have had the courage and the budget to just sue all Avanci contributors immediately--or at least the ones that were already suing Daimler, or where there was a reasonable likelihood of this happening (which would probably apply to all Avanci contributors without exception).

Sharp's letter is attributable to an abundance of caution on its U.S. lawyers' part, but the overall situation is chaotic, and while (figuratively speaking) the jury is still out on the antisuit injunction motion as well as on the service-of-process question raised by Sharp Japan, a point may be reached before the end of the year when--after adverse decisions due to slowness, hesitancy, possibly even sloppiness and lack of coordination between parties and across jurisdictions--some people might begin to wonder whether Daimler and Continental are sleepwalking through the automotive patent wars. They can do better, as Continental's first-rate opposition to Avanci's venue transfer motion shows. If they don't perform consistently at the high level of that late-August opposition brief, they'll be eaten alive, also in light of the exceedingly patentee-friendly environment in Germany. I just voiced genuine apprehension.

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Foxconn-owned Sharp is suing Daimler over five patents in two German courts: concerted action by contributors to Avanci pool?

Through a filing with Judge Lucy H. Koh's court in the Northern District of California, I've become aware of the following patent infringement complaints (presumably but not necessarily involving one or more requests for injunctive relief) filed by Foxconn subsidiary Sharp Corporation against Daimler in Germany:

• Mannheim Regional Court (Second Civil Chamber under Presiding Judge Dr. Holger Kircher):

  • EP2154903 on a "mobile communication system, base station device, and mobile station device" (case no. 2 O 46/19; complaint filed on 12 April 2019)

  • EP2129181 on a "mobile communication system, base station apparatus and mobile station apparatus" (case no. 2 O 87/19; complainted filed on 5 June 2019)

• Munich I Regional Court (Twenty-First Civil Chamber under Presiding Judge Tobias Pichlmaier):

  • EP2854324 on a "communication system and mobile station apparatus" (case no. 21 O 8609/19; complaint filed on 25 June 2019)

  • EP2312896 on a "base station device, mobile station device and corresponding communication methods using carrier aggregation" (case no. 21 O 9918/19; complaint filed on 27 June 2019)

• Munich I Regional Court (Seventh Civil Chamber under Presiding Judge Dr. Matthias Zigann)

  • EP2667676 on a "base station device, mobile station device, and uplink synchronization requesting method" (case no. 7 O 8818/19; complaint filed on 28 June 2019)

The sequence of those filings may be attributable to the following dynamics:

• Sharp filed the first lawsuit in Mannheim in mid April just to demonstrate to Daimler that they were serious about forcing Daimler to license their patents through the Avanci pool.

• When Daimler didn't bow, they brought another one in early June (same venue: Mannheim). It may have been assigned to the same chamber by coincidence, but more likely Sharp just amended the complaint, in which case German courts automatically sever any new patents-in-suit, but keep the case in the same chamber.

• The three Munich filing in late June were presumably made to have a high likelihood of getting at least one case assigned to either of the two Munich panels hearing patent infringement cases. Historically, the 7th Civil Chamber used to be considered faster and more patentee-friendly than the 21st, but that may change now.

I haven't been able to find any other report on those Sharp v. Daimler cases prior to this blog post. Others have, however, reported on complaints brought by Broadcom and Nokia.

Like Nokia's German patent infringement suits against Daimler, those Sharp cases involve, at least in part, cars that come with a telematics control unit (TCU) supplied by Continental, which alleges that "Sharp's lawsuits are evidence of the immediate, substantial threat that Avanci will encourage or direct its members to engage in a concerted litigation campaign in an effort to force Continental’s OEM customers to take a non-FRAND license through Avanci." The allegation I just quoted is made in Continental's reply in support of its motion for a U.S. antisuit injunction against Nokia (this post continues below the document):

19-08-09 Continental Reply ... by Florian Mueller on Scribd

Some high-level observations on the reply brief:

• Just like the original motion, it's strong on policy and economic reasoning, but suffers from some deficiencies. The document looks like a lot of effort has gone into it, as they are under significant pressure. However, at this stage Continental's lawyers can try to explain away some facts but can't change them anymore.

• They keep pursuing the U.S. antisuit injunction, arguing that Nokia hasn't properly served its Munich anti-antisuit-injunction injunction under the Hague Convention. Consistently with that position, they haven't even objected to the Munich injunction yet, but they have announced their intent to do so once they believe the Hague Convention has been complied with.

• Continental's lawyers want Judge Koh to gloss over their suboptimal structure. While it's true that the question of functional identity between the parties in the enjoining U.S. case and the enjoined foreign action shouldn't be looked at it in exceedingly formalistic terms, Continental simply could have made it a whole lot easier for Judge Koh. It's true, but besides the point, that Daimler wasn't in a position to serve a third-party notice under German law on Continental U.S. for lack of direct liability. But then Continental simply should have made sure that an entity with a closer connection with those German infringement cases would have been another plaintiff in the U.S. case (and, consequently, one of two or more movants seeking the antisuit injunction against Nokia).

• With respect to the functionality identity of parties, Continental concedes that the proposed application of the customer suit exception (which usually governs motions to transfer cases within the U.S.) should be applied in the context of a cross-border antisuit injunction "is a case of first impression." I'm sympathetic to Continental's position on the customer suit exception, and as Continental notes, Nokia can't "point to any case wherein application of the customer suit exception doctrine was rejected in the context of a motion for anti-suit injunction." But, again, you make your bed and you lie in it. I still believe it was a major and potentially (though I hope it won't be) fatal for the motion that they didn't make a better choice as to the legal entities behind the U.S. antisuit motion. It would be great if Judge Koh granted the motion anyway, but Continental's lawyers have no one to blame but themselves in case she concludes otherwise.

• As a matter of policy and industry practice, Continental is right that SEP licenses, also including the ones granted by Avanci, typically cover an entire corporate group. Therefore, Continental U.S. and the legal entities implicated in the German infringement proceedings are in the same boat: the whole purpose of the U.S. case (before they even brought an antisuit injunction motion) was to secure a license on FRAND terms that would benefit the entire Continental group.

• Continental's reply brief says "Nokia's contention that 'under no circumstances will Daimler be 'forced' (in the German proceedings) to accept a license proposal on anything other than truly FRAND terms' is highly disingenuous." That is hyperbole. The two SEP antisuit injunctions in the Ninth Circuit that Continental points to are Microsoft v. Motorola and Huawei v. Samsung (where Samsung, the defendant, was the successful movant). The latter case was more recent, but about Chinese patent injunctions. The former case is older, and the case law in Germany regarding SEP injunctions subsequently changed fundamentally when the Court of Justice of the EU's Huawei v. ZTE ruling did away with Germany's misguided application of the Federal Court of Justice of Germany's Orange Book doctrine. In that Microsoft case, which I watched closely (both the U.S. FRAND case and the German infringement proceedings, where I attended the trial as well as the announcement of the decision), there was a far greater discrepancy between U.S. and German SEP injunction case law. It's true that Judge William H. Orrick defined the potentially-frustrated U.S. policy rather broadly in Huawei v. Samsung, but that was a FRAND determination case that Huawei itself had chosen to bring in the U.S.--and it's unclear how the Federal Circuit would have ruled as the parties settled before an appellate opinion came down.

• They downplay--actually, deny--the relevance of timing, but comment on it anyway. In that context it strikes me as odd that Continental would point to the timing of an EU antitrust (DG COMP) complaint: that is simply not a substitute for bringing an action in the U.S. at an earlier point in time.

• In another timing context, they still argue that Nokia sought an extension of time in the U.S. only to seek a German anti-antisuit-injunction injunction (though there are different lawyers working on the cases in those jurisdictions), and that Nokia overstated the urgency of that matter to the Munich court, with Continental saying a decision by Judge Koh ahead of the August 9 reply brief "would be virtually unheard-of in connection with a fully-noticed motion in the U.S.," though "virtually unheard-of" does not mean "procedurally impossible," but more importantly, I already explained in a previous post that Continental could have waived the optional reply brief, just like they now sort of waive the right to a hearing (Judge Koh might have taken this here under advisement anyway, which is one of her strategies for high efficiency), or they could have filed it very shortly after Nokia's opposition brief (the pace at which Continental's lawyers have moved so far suggests they always need a lot of time for anything, but again, procedurally it would have been possible).

• The part of Continental's reply brief that I completely disagree with is where they claim it doesn't matter that Nokia's German lawsuits also involve Daimler cars that don't come with Continental components. Here's a key passage:

  "Although it is true that Continental is not Daimler’s only supplier, the purpose of Continental’s lawsuit is to confirm that suppliers like it are entitled to a license, and set the FRAND terms and conditions for such a license. It would be perverse, to say the least, if Nokia could avoid an anti-suit injunction in a lawsuit brought by a component supplier willing to take a license on FRAND terms, and thereby perpetuate its illegal strategy of only licensing OEMs rather than component suppliers, by relying on the existence of other component suppliers which Nokia also refuses to license!"

  Sorry, guys, but your explanation mark and rhetoric fail to convince me. It's your damn job to either seek an injunction that isn't overbroad (by limiting it to Daimler cars that come with Continental TCUs) or to persuade other suppliers to join you in this case. But just because your case may also have a bearing on--or may even be the next best thing to direct applicability to--the legal interests of some other entities doesn't mean you can behave like a class-action plaintiff... which is why there are special rules for class actions.

  The court can obviously tailor the requested injunction more narrowly, and should Continental prevail, I think that's more likely than not to happen. And if it were up to Avanci and Nokia, the court to decide wouldn't even be Judge Koh's court.

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Apple and Qualcomm settle their antitrust/FRAND/patent dispute: clash of California tech giants is amicably resolved

Opening statements in the Apple, Foxconn et al. v. Qualcomm antitrust trial in San Diego (Southern District of California) were ongoing when CNBC broke the news of a settlement. A little later it was confirmed by Apple's newsroom: All pending lawsuits between Apple and Qualcomm, and Apple's contract manufacturers and Qualcomm, have been dismissed.

There is a new patent license agreement as well as a new chipset supply deal in place. In other words, California's two mobile hardware giants--Apple from the North, Qualcomm from the South--are working together again. An amicable resolution of a dispute that last more than two years and was a bit acrimonious at times.

Cravath Swaine & Moore's Evan Chesler finished his opening statement (with only about 20 minutes left at the time the settlement became known). Counsel talked to Judge Curiel privately, and he then explained the situation to the jury. He also invited jurors to his chambers to thank them personally for everything.

A trial that could have lasted, if one includes jury deliberations, 1.5 months or more has therefore ended after only 1.5 days.

This would have been a huge and extremely difficult case for the jury to decide. As always, I congratulate both parties on their deal, and in this case I think either side would have had to take quite some risk by letting a jury render a verdict on complex commercial and partly technical issues.

Even though it ultimately didn't matter anymore what counsel said today, I really was impressed by Fish & Richardson's Ruffin Cordell's opening statement. One of the best explainers I ever got to listen to in a courtroom. I must admit I hadn't heard of him before, but probably will again, sooner or later.

The terms of Apple's new deal with Qualcomm haven't been disclosed other than money flowing from Apple to Qualcomm, not the other way round (which could have happened after the trial in theory). Analysts will probably soon claim to know the exact numbers. We won't know whether they're right until something surfaces in future litigation.

In the immediate aftermath of this settlement, the question is what this means for the FTC v. Qualcomm case that went to trial in January. Judge Lucy H. Koh of the United States District Court for the Northern District of California might rule anytime now. Or that case might get settled, too.

The Federal Trade Commission of the United States deserves respect. What's obvious (and therefore not a question of respect or a lack thereof) is that there's now less of a national interest in that antitrust case than before. However, I have consistently said that the case is about important issues, not just particular companies. It could be that the FTC, whose primary job is to prevent consumer harm, decides to carry on regardless. Or they might settle in the short term. We'll see what happens.

Standard-essential patents (SEPs) and FRAND licensing terms have been and will remain a key focus of this blog, of course. And, more generally, patent infringement remedies.

By the way, live tweets from the courtroom were allowed again today.

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Common sense against Qualcomm: Apple stresses smartphone functionality also works without modem chip--over WiFi--but Qualcomm wants royalties on entire device

I'm typing this while Fish & Richardson's Ruffin Cordell is still delivering Apple's opening statement in the Apple v. Qualcomm antitrust trial here in San Diego (Southern District of California). There are two key points made in the first half of the statement that are going to make things hard for Qualcomm to persuade the jury of its own story:

• Mr. Cordell made a point that is very obvious: why would Qualcomm impose gag clauses with multi-billion dollar penalties attached on its customers if it had nothing to hide? The fact that Qualcomm insisted on contract terms that would make it economically irresponsible under most circumstances for companies to ask competition enforcement agencies for help indeed speaks volumes. It's about covering up misdeeds.

  It will be hard for Qualcomm to explain this away. It's not just that companies entering into business agreements with other companies want some peace of mind. They don't want to sign a contract one day and be sued the next day. But government agencies in charge of antitrust enforcement don't just cause one company a lot of grief because another company asks them for it. They perform their own analysis, generally starting with a first plausibility check, followed by what some call "preliminary investigations" if there's enough smoke to suspect fire, and things get real only if those agencies reach independent conclusions. As for independence there certainly is no such agency in the world that would be in Apple's pocket because the United States is just too large an economy and too well-respected a democracy for one company to control the government and in other countries Apple is just a foreign entity.

  So if Qualcomm had had a clear conscience, it would never have had to worry about a customer like Apple potentially complaining to independent government agencies because the agencies would just decline to investigate, or they would take a short look and stop wasting their time. Only someone who really has something to hide and, as a result, something to fear would do that. That Qualcomm had something to hide and therefore something (antitrust charges) to fear is evidenced by the battlemap chart I showed you in yesterday's post on the start of this trial (jury selection). In the aggregate, Qualcomm has been fined to the tune of many billions of dollars by regulators on multiple continents, which I once called the "Antitrust Grand Slam."

• The next context in which common sense complicates things for Qualcomm is the question of the royalty base. Qualcomm's royalty is based on the entire device. There is a cap now ($400), but it's dozens of times higher than the market value of a modem chips. So Qualcomm collects royalties--as Qualcomm told the IRS--on the whole enchilada because it's "humongously more lucrative." But this means they charge for parts of the product they don't actually make any technical contribution to.

  The key term is "royalty base": What is the 100% basis against which whatever reasonable royalty percentage should be applied? Is the 100% a $1,000 phone? A hypothetical $400 phone? Or should it be a baseband processor (also called modem chip, or modem processor, or baseband chip)--which Qualcomm itself sells at $20 per unit and others sell at $10 or less?

  If Apple wins the royalty-base part, it's within striking distance of convincing the jury of Qualcomm's terms being unreasonable. They have other ways, such as (what came up later in the opening argument) a comparison between what Qualcomm collects per unit vs. other companies like Ericsson that may hold even more standard-essential patents. But what I think may have the greatest persuasive impact here is the following point Mr. Cordell made:

  A smartphone is a mobile computer, with conventional telephone functionality representing just a limited part of it. But most of that smartphone functionality--such as playing computer games, listening to music, watching or recording videos--works over WiFi, too! And if something works over WiFi (in fact, many of those apps work better over WiFi than over cellular networks, which are slower and less stable in general), then there's no plausible basis on which a cellular SEP holder can collect a royalty on the commercial value of the related computing functionality.

  Mr. Cordell announced that Apple would get back to this point throughout the trial. I can see why. They won't have to talk about this every trial day, but when testimony--people confirming that everything works over WiFi (in fact, I quite often make WiFi calls where people call me on a cellular number or I call them)--shows to the jury that the very largest part of the value of an iPhone is not dependent on Qualcomm's modem chip technology, Qualcomm is going to have a problem persuading the jury of the opposite.

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Apple v. Qualcomm trial kicks off in San Diego: jury of nine selected, live tweets disallowed

Today was Day One of the Apple, Foxconn et al. v. Qualcomm trial in San Diego (Southern District of California). Formally, there are two cases, which the court combined under the official caption In re Qualcomm litigation. The reason for two cases existing technically is that a few months after Apple sued Qualcomm in January 2017, Qualcomm sued Apple's four contract manufacturers (Foxconn, Wistron, Pegatron, and Compal), who counterclaimed. The contract manufacturers' counterclaims became the economically biggest issue in the case, amounting to approximately $9 billion, which could be tripled (as a damages enhancement) to $27 billion. Qualcomm is seeking damages of up to $15 billion according to Reuters.

United States District Judge Gonzalo P. Curiel is presiding over the trial. In one of his most important pretrial decisions, Judge Curiel agreed with Apple and its contract manufacturers that this is indeed primarily an antitrust/FRAND case, which Qualcomm sought to portray as a contract dispute in the first place so it could argue that contracts must be complied with, period (a principle that is very important but just doesn't outweigh antitrust considerations as serious as here). Somewhat ironically one might say Qualcomm already faces too many antitrust cases in the U.S. and on a couple of other continents that it would rather reduce than inflate the number of pending antitrust matters. The following smartphone patents battlemap, which I created about six months ago, shows the pressure Qualcomm is facing from antitrust agencies in multiple jurisidctions as well as some other cases (click on the image to enlarge; this post continues below the image):

The cases most closely related to the one being tried in San Diego as we speak are the U.S. Federal Trade Commission's antitrust lawsuit against Qualcomm in the Northern District of California (where Judge Koh might rule anytime now, given that the trial took place in January) and a consumer lawsuit alleging that 250 million Americans who bought smartphone over the last roughly eight years overpaid to the tune of $5 billion (an average of $20 per consumer) because of Qualcomm's accused business practices. Qualcomm appealed Judge Koh's certification of the consumer class action, but let's stay focused on the San Diego case (the real San Diego case, i.e. the antitrust case, as opposed to a patent infringement case that is a sideshow).

In one of the strongest signs of there truly being one or more antitrust issues with Qualcomm's business practices, the company has for some time insisted that those entering into certain agreements with Qualcomm were not allowed to complain to antitrust regulators (theoretically, they had that option, but at a high cost due to an immediate termination of rebates and even a clawback of past kickback payments). Judge Curiel found no contract violation of that kind by Apple, a decision that is worth a few billion dollars to Apple.

Today a jury of nine was selected, which means that up to three jurors could drop out (the trial might take about a month, though there are only four trial days scheduled for this week and three for each of the following weeks until jury deliberations begin) and they could still reach a verdict under the district court's Local Rules.

There were some funny situations and remarks, but nothing specific happened today besides jury selection (and, which is unusual for a district court on the West Coast, a decision that no electronic devices with an active online connection could be used inside the courtroom, which is why live tweets didn't continue after the lunch break). Opening arguments will be delivered tomorrow, and that's when the trial really begins.

On the eve of opening arguments, it makes sense to reflect on what this dispute is--and what it is not--about in high-level, philosophical, moral terms. The questions the jury will have to answer are unrelated to Qualcomm's history of innovation in cellular communications. Not only would no one doubt that Qualcomm succeeded a few decades ago with a courageous and ambitious bet on a technique called code division multiple access (CDMA), but it's also clear that Qualcomm has continued to invest heavily in research and development. No one claims they stopped innovating altogether. The dispute is all about whether they went, and are going, too far in their rent-seeking (and governmental agencies--antitrust enforcers--around the globe have so far found that it's the case, imposing fines that in the aggregate amount to several billion dollars).

If all that Qualcomm had done since its initial success had been to keep innovating, and if there hadn't been any issues, then those competition watchdogs would have focused on other companies and this San Diego trial wouldn't have started because Apple would never have brought the underlying complaint.

Both Apple and Qualcomm are innovative in fundamentally different ways, respects, and fields of technology (though Apple is now also creating many jobs in San Diego for chipset engineers). Some will consider one of them more innovative than the other, but it's an apples-to-bananas comparison. There are two key differences, however:

• Qualcomm's patent royalty demands relate to entire mobile devices, including various components (such as more memory or larger screens) that are functionally unrelated to the layer of technology at which Qualcomm is innovative.

• As a consumer I can always use an Android device instead of an iOS gadget. But either way I'll pay the Qualcomm patent tax (ironically, the IRS described itself as Qualcomm's "silent partner," literally).

That patent tax is artifically inflated by means of such practices as royalties on repairs, royalties on royalties (meaning that the royalty base for a royalty includes among other components the royalty), and interest on interest). They charge royalties separately from the prices of the chipsets they sell, though the longstanding judicial doctrine of patent exhaustion says that after you've sold a product you can't assert your own patents against it later.

What's under attack (not only in this particular trial but in a host of cases as shown in the battlemap further above) is not Qualcomm's business model in its entirety, but certain problematic practices. Qualcomm will have a bright future either way. It will continue to create jobs. It will continue to rake in huge profits. It may, however, have to make some adjustments so as to ensure an allocation of resources that will work best for the economy and for society. This is a story à suivre.

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Final pretrial conference order in Apple, Foxconn et al. v. Qualcomm (Southern District of California)

There were two developments yesterday in connection with Qualcomm's antitrust issues.

First, the EU General Court (which used to be call the European Court of First Instance) handed down a judgment that upholds the entirety of the European Commission's March 31, 2017 decision that Qualcomm would incur a daily fine of 580,000 euros for non-compliance with two information requests after specified dates (May 12, 2017 for one of them, and May 26, 2017 for the other). The EU General Court already denied in July 2017 a Qualcomm motion to stay the order, as I mentioned in this post. Apparently Qualcomm then had to comply (though it still appealed the decision), and the investigation of Qualcomm's exclusivity arrangements and predatory pricing further to a complaint by Icera, a once-European semiconductor company acquired by Nvidia (and shut down later).

At first sight one may wonder why Qualcomm would be accused of overcharging in one context and of predatory pricing in another, but the two theories can be reconciled: Qualcomm's supra-FRAND royalties enable the company to impose a tax on everyone and to sell chipsets, especially in the low-end segment, at a lower cost than Qualcomm could if it contented itself with FRAND royalties. It's one of the ways Qualcomm benefits from a business model that flies in the face of all we know about the concept of patent exhaustion.

Second, we're five days away from the start of the Apple & Contract Manufacturers v. Qualcomm antitrust and (secondarily) contract dispute in the Southern District of California. Judge Gonzalo P. Curiel (whom Judge James L. Robart, known for two groundbreaking SEP-related rulings, holds in the highest regard), has entered a final pretrial conference order (this post continues below the 262-page document):

19-04-09 Final Apple Foxcon... by on Scribd

This is a long document and I've mostly published it here as reference material for the upcoming trial. I haven't fully digested it yet, but it reflects the judge's prior categorization of the case as primarily an antitrust/FRAND and only secondarily a contract dispute.

The way the defenses to the parties' different claims are presented is consistent with what Apple had proposed: to list the defenses after each claim. Qualcomm had argued it would have been more efficient to discuss the defenses just once (and then apply them to multiple claims).

What both parties appear to be fine with is that the judge will interpret some disputed contract terms after the presentation of evidence, but before jury deliberations.

Don't be puzzled by the official date of the order. It came down on April 9, but with retroactive (ex tunc) effect.

There's probably something more in that long document that's worth talking about, and I'll take a closer look between now and the start of the trial on Monday.

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