Failure to reach FRAND terms may make it a sad Christmas for HTC

"IPCom can execute injunction against HTC’s 3G devices in Germany after HTC withdraws appeal" is the descriptively informative title of a press release issued on behalf of IPCom; it reads as follows:

"IPCom, owner of a number of standard-essential telecommunications patents, can execute the injunction it seeks on the sale and distribution of HTC’s 3G devices in Germany, effective immediately. HTC today withdrew an appeal due to be decided on Monday [OLG Karlsruhe 6 U 38/09]. IPCom now intends to execute this injunction in the shortest possible time. 

“Apparently, HTC has accepted it had no realistic chance of winning this case – the courts have clearly established that HTC has been infringing our patents and now given us the means to put a stop to it,” said Bernhard Frohwitter, IPCom’s Managing Director. “Since HTC has never to come up with an offer that adequately reflects the value of these patents, IPCom has been left with no choice – we will use the right awarded by the courts, likely resulting in HTC devices disappearing from shops during the crucial Christmas season.” 

HTC today withdrew its appeal against an earlier judgment [LG Mannheim 7O 94/08] that ruled HTC was infringing patent #100, one of the strongest patents in IPCom’s portfolio. Patent #100 describes an algorithm that allows mobile telephony networks to assign priorities to users on the basis of a pre-defined hierarchy, providing for the smooth functioning of the system in emergencies, and potentially saving lives. This algorithm has been adopted as a standard by equipment makers worldwide. 

IPCom is also seeking similar injunctions against Nokia with regard to this and a number of other standard-essential patents. These cases are being handled by the same court, under the same judge, and concern the same standard-essential patents – divisionals of which have already been decided in IPCom’s favour in other jurisdictions, such as the UK [Case number: HC10 C01233]. 

IPCom hopes that Nokia will swiftly recognize that it, too, needs to come to terms with IPCom if it is not to suffer the same fate as HTC. 

The patents were originally developed by Bosch as part of its R&D for its pioneering car telephony systems, which evolved into the mobile telephony systems we know today. Bosch exited the business in 2000, and then tried for many years to negotiate license fees from Nokia for using these patents on the basis of FRAND (Fair, reasonable, and non-discriminatory). After failing to secure agreement, Bosch sold the patents to IPCom in early 2007. 

Since then, IPCom has successfully negotiated license agreements with a number of global telecoms companies. HTC and Nokia have, however, refused to agree terms with IPCom, and the parties have been engaged in a series of legal disputes in various jurisdictions".

This dispute raises interesting questions relating to the point of intersection between FRAND licensing and patent litigation. In particular, to what extent, when offering to license a patent on fair, reasonable and non-discriminatory terms, may a patent proprietor be permitted to take account of the fact that a would-be licensee has already faced patent infringement litigation or sought through the courts to challenge the validity of the patent, thus incurring expense and inconvenience to the patent owner to the possible benefit of the losing litigant who subsequently seeks a FRAND licence?  If different terms are offered to those made available to other licensees, at what point do they become discriminatory?

Unified Patent Court: latest news

Via Professor Steve Peers (University of Essex) comes this link to yesterday's Draft Agreement on the creation of a Unified Patent Court - Guidance for future work.  Steve tells us:

"This is another interesting paper: it focuses on some key issues like costs and the transitional periods, and includes details of the planned initialling date and the planned proposals to amend the civil jurisdiction regulation. The paper is going to Member States' ambassadors to the EU (Coreper) today".

PCC Page 43: Vanishing fish, small claims and fast tracks

Encouragingly elaborated by the Chartered Institute of Patent Attorneys (CIPA), the PCC Pages seek to explain how litigation works in the recently-revamped Patents County Court (PCC) for England and Wales, taking as its theme a dispute between Cautious Co and IPOff Ltd as to whether IPOff has infringed the IP rights of Cautious in its robotic octopus. In this episode, the 43rd, former CIPA President Alasdair Poore casts his net over some new fish in the sea: the proposed small claims service and some fast-tracking too:

In the final week before the robot octopus returns to action on his (her?) own account, there are a couple of events which particularly caught his attention.  Both relate to the use of the “small claims track”.  This is intended for simple, low value cases where, bluntly, the amount in issue does not really justify legal representation.  For that reason, usually the Court will not award any costs of lawyers (although court fees will be recoverable).  The relevance for attorneys is pretty evident: where it applies, their winning clients will not be able to recover the costs of attorney representation. First is something which could be of major significance for many individual designers, copyright owners and trade mark holders.  The Government has now confirmed (New intellectual property court processes will boost business) that it will introduce a small claims track for litigation in the Patents County Court where the amount in issue is less than £5,000 (It's interesting that the Department for Business, Innovation and Skills refers to the “intellectual property court”.  The writer had heard suggestions that the Government did not think it was justified at present to change the PCC’s name to that!).  The details are still to be worked out but it is expected to be on the blocks in the course of next year – ideally by “this time next year”!  A consultation is apparently planned in the New Year on implementation. Just as a reminder, the proposal made in the Jackson Review of civil litigation costs was for a small claims and fast track procedure for copyright and designs claims (Recommendation 6, page 257 – actually not restricted to any specific form of IP).  The Government confirmed that it would look at it in its response to the Hargreaves Review (Response 9, page 11, and Recommendation 8, page 17 (which talks of introduction in Autumn 2011!), for introduction of a small claims track for copyright, designs and possibly trade marks).  It has now given the go-ahead to the small claims track, although there will be work to be done to see how this fits in with the current rules.  There is no mention of a fast claims track, and this seems to have fallen off the radar, although maybe there is a feeling that the PCC procedure already looks fast enough. 

 The current general small claims procedure or small claims track is referred to in the Civil Procedure Rules, CPR 27.  The most important provision here is on costs, CPR 27.14, which provides that essentially no costs are recoverable other than court fees, or where a party has behaved unreasonably.  Otherwise the procedure looks like an informal version of the PCC, with the exception that there is no preliminary hearing unless there is a need to make special directions (CPR 27.6 and 27.4) The guts of the small claims procedure are set out in CPR 27.8.  This provides for an informal hearing, often referred to as arbitration:

(1) The court may adopt any method of proceeding at a hearing that it considers to be fair.(2) Hearings will be informal.(3) The strict rules of evidence do not apply.(4) The court need not take evidence on oath.(5) The court may limit cross-examination.(6) The court must give reasons for its decision.

In addition, there are some other limitations: CPR 27.5 (No expert evidence without leave – not much different from the PCC), and CPR 27.2 (b) and (c) (No disclosure and inspection and the general CPR provisions on evidence are disapplied).
 Welcome though this is, it is not happening immediately – although it is quite possible that claimants could wait until the procedure is implemented.  When implemented it will mean two things for attorneys considering litigating in the PCC.  First, it opens up a real opportunity for clients in relation to really small disputes (concerning copyright, designs or trade marks); and secondly, in such cases the attorney needs to be aware that costs may be even more limited than in under the current PCC procedure.  As the octopus keeps reminding attorneys, the fact that there is a maximum level of recoverable costs in the PCC does NOT mean that the judge is going to award costs up to that maximum level, so the difference may not be as great as the difference between £50,000 and zero. The second is a warning to attorneys that, just because the small claims track is not available in the PCC yet, it does not mean that there may not be an impact. Deakin v Card Rax and Bees Knees Trading [2011] EWPCC 3 was heard in June 2010 and judgment was given this February 2011.  It is one of those apparently sorry pieces of litigation where it seems that the rational perspective of at least one person has been blurred by their feelings.  What looks to be a minor copyright claim between two “ladies” who run “SMEs”, and involving a “third lady” (who had money), has caught seven different parties in its web and involved five cases to adjudicate.  The issues were distilled from some 65 or so, to a mere 36 issues, which are set out conveniently for readers in the Annex.  As the judge observed (possibly like all too many IP disputes), “the action had in truth become a fight about its mountainous expenses and costs” (para 12, 13). The essence was a dispute about greetings cards – it seems this is a very litigious business judging by reported cases on greetings cards and the like. The case, heard by Judge Michael Fysh QC (under the old rules) is worth reading just for his analysis of the evidence given by the witnesses, and learning how the balance of such evidence may play out: not altogether in favour of the claimant, although the defendant’s evidence was also found to be wanting in places.  In all, the judgment runs to 330 paragraphs.  That gives an idea of the scale of the arguments. However, for the purposes of this note, paragraph 19 is the one of interest.  Counsel observed that “the case [at least one significant aspect of it] should have been cast as a County Court money claim arising from alleged breaches of contract - and fit for the small claims track at that”.  The argument was that this was essentially just about licence agreements and payments under them, not copyright infringement.  Although the judge found that this was indeed the case (since the licences had not been terminated) we are left not knowing in this judgment what the impact of that was on costs.  In other cases which should have been brought on the small claims track, but were not, the Court has penalized the relevant party seriously in costs (see for example Peakman v Linbrook Services [2008] EWCA Civ 1239 – although in that case one might have expected costs to be awarded against the judge, based on the Court of Appeals comments).  Readers' further information would be welcomed.

FRAND-Land Ends on Dutch-German Border

The Dutch-German friendship, which was already cumbered by some historical but now resolved (see pictures on the right) and new disputes (in particular litigations on Italian camping sites this summer), has suffered from two further fateful blows in the last week.

On Monday, Germany defeated the Netherlands 3:0 in a "friendly" football match and, as reported by Florian Müller on FOSS-patents, a judge of the Mannheim Regional Court has clarified that FRAND-Land ends on the German-Dutch border on Friday.

Florian Müller reports:

"The presiding judge was not particularly receptive to Apple's FRAND defence. Unlike the Dutch judge who told Samsung that there was not case for an injunction since it failed to make an offer to Apple on FRAND terms, the Mannheim judge cited the Orange Book decision of the Federal Court of Justice of Germany and stressed that party requiring a license to a standard-essential patents is responsible for obtaining one, and has to make an offer to the patent holder." 

In its widely "Orange Book" decision, the BGH had argued that the non-acceptance of fair and reasonable licensing conditions by a patentee holding a standard-relevant patent could be considered an abuse of a position dominating the market. The market referred to is the licensing market and not the market of the standardized products.

In the "Orange Book" case, the patentee was the only holder of a standard-relevant patent and thus clearly dominates this licensing market. The Mannheim Regional Court has decided in an earlier decision 7 O 100/10 (available under www.justiz.baden-wuerttemberg.de) that the "Orange Book" defence is equally applicable to standards established by multiple parties and in cases were FRAND declarations have been made.

The abusive behaviour, which would eventually consist in declining an unconditional offer so as to be unfair towards the offering party, requires that such an unconditional offer has actually been made and that fair and reasonable licensing fees have been duly paid. According to the Mannheim Court, the FRAND-defence is further forfeited by failing to meet the "unconditional" requirement if the infringement and validity is contested in a main request and the FRAND-license is requested only in the alternative.

However, it is to be noted that none of these decisions has addressed the problem of preliminary enforceability in these cases. The Mannheim District Court has emphasized in the decision 7 O 100/10 that the necessary steps for obtaining a FRAND license have to be taken starting the use of the patented technology. Further interesting remarks on this issue stemming from the same court may be found in the decision 7 O 94(08), (available under www.justiz.baden-wuerttemberg.de), in which the court states that the FRAND declaration could possibly be interpreted as a pactum de non petendo (non-aggression agreement), but has finally left this question open.

The decision is scheduled for January 20 and 27, 2012 and Patlit will, of course, keep you informed.

Germany: bifurcation and best-buys

The Journal of Intellectual Property Law and Practice (JIPLP) published online earlier this week, for the benefit of subscribers to its electronic version, an article by Jochen Herr and Marc Grunwald (both of Field Fisher Waterhouse) entitled "Speedy patent infringement proceedings in Germany: pros and cons of the go-to courts". According to the abstract:

"Legal context. Due to the bifurcation of nullity and infringement proceedings in Germany, the infringement issue there is often resolved quickly.

Key points. This applies in particular as compared to other member states of the European Union. However, the various German first instance courts differ in the way cases are managed and in the average duration until judgment.

Practical significance. This article aims to provide insight into the three most important district courts dealing with patent litigation, thereby alerting the reader to what may be central issues in choosing a venue when litigating patents in Germany".

Non-subscribers can read this article by clicking here and scrolling down to "Purchase Short-Term Access". Articles in JIPLP are first published online, normally several weeks ahead of the printed version.

Should I Stay Or Should I Go?

One of the particularities of the German double-tracked patent litigation system with infringement judged at a court differing from the court judging validity (Bundespatentgericht) is the synchronization of these procedures.

In theory, both tracks are joined at the BGH acting as the 2nd instance in nullity and – if leave to revision is granted – as the 3rd instance in the infringement procedure. The decision not to grant leave to revision may be appealed in a so-called “Nichtzulassungsbeschwerde” (NZB), which may be based on the grounds of severe violations of the right to be heard or other grounds of fundamental importance. Isolated wrong decisions do usually not count among these grounds.

In a fairly surprising decision with the name “Crimpwerkzeug III” (see english summary here), the BGH found that differences in claim construction between the 2nd instance infringement proceedings and the 2nd instance nullity proceedings may in fact constitute such a ground of fundamental importance provided that the correct interpretation (i.e. that of the BGH) would have led to a differing result in the infringement proceedings. The main argument was that the persistence of and lack of legal remedies against such irreconcilable discrepancies between the two tracks would derogate the public reliance in the German double-tracked legal system as a whole.

As a matter of course, the assessment of the differing claim construction requires that both procedures are completed. As a consequence, it appeared to be mandatory for the BGH to stay the NZB procedure (and delay the legal force of the infringement sentence) until completion of the nullity/invalidity procedure after Crimpwerkzeug III. I presume that this has led to an increasing number of NZB procedures pending at the BGH.

The recent decision “Klimaschrank” has now put limits to the rule that the BGH has to stay the NZB procedure in these cases. The BGH emphasized that the decision to stay the procedure is not mandatory but still at the discretion of the senate and that a late filing of the nullity action (as compared to the filing of the infringement action) may be of some weight in favour of the patentee. In the case at issue, the nullity suit had been lodged eight months after the pronouncement of the infringement decision and only briefly after the publication of Crimpwerkzeug III.

In cases where the nullity action is filed more or less directly in response to the infringement action, it remains the standing advice to lodge a NZB if the district court decides on the infringement without waiting for the nullity procedure as a precautionary measure.

Patent Wars: a new infographic

MBAONLINE.COM has published the following infographic (amazing numbers to make one think):



Created by: MBA Online

Costs in discontinued proceedings: Earth Closet orders are flushed away

Moule's Patent
Earth Closet

Fresenius Kabi Deutschland GmbH and others v Carefusion 303 Inc [2011] EWCA Civ 1288 CA (Civ Div), is a ruling yesterday by the Court of Appeal, England and Wales.  Unusually, two of the three judges are former members of the Patents Court (Lord Neuberger and Lord Justice Lewison LJ -- the odd man out being Lord Justice Aikens. The ruling addressed the peculiarly-named "Earth Closet order" -- a nineteenth-century device which owes its origins to Baird v Moule's Patent Earth Closet Co Ltd (1881) LR 17 Ch D 139.

Giving the judgment of the Court, Lord Justice Lewison explains the background most eloquently at paragraphs 2 to 3:

"If you tell a commercial litigator who is not steeped in the law of patents that a patentee can sue for infringement and then discontinue his claim against the alleged infringer and consent to the revocation of his patent, yet require the alleged infringer to pay a substantial proportion of his costs, his reaction would be one of bafflement. If you went on to explain that this situation came about because the alleged infringer had amended his defence and counterclaim to plead a new piece of prior art he would be none the wiser. This is the practice of the Patents Court in making a See v Scott-Paine order (See v Scott-Paine (1933) 50 RPC 56) previously more robustly known as an Earth Closet order (Baird v Moule's Patent Earth Closet Co Ltd 3 February 1876). Such an order enables the patentee to discontinue his claim and consent to the revocation of his patent on terms that he pays the costs of the action up to the date of service of the original defence; but that the alleged infringer pays the costs of the action from that date down to the date of discontinuance. 

Why, the commercial litigator would ask, do you assume that but for the amendment the patentee would have won his case; because that is the unspoken assumption on which such an order rests? And why do you assume that it was the fact of the amendment that caused the patentee to abandon his claim? You might then explain that patent litigation is governed by special rules, more particularly those contained in CPR [the Civil Procedure Rules] Part 63. On looking at that Part the commercial litigator would discover that certain other rules of the CPR had been modified or disapplied. But he would also see that CPR Part 63 does not modify or disapply CPR Part 38.6 which says that unless the court orders otherwise a claimant who discontinues is liable to pay the defendant's costs. So why are patent cases different?"

Overruling Baird v Moule's Patent Earth Closet Co Ltd, the Court of Appeal said that Earth Closet orders should not be made -- and that the sooner the practice stopped, the better. In all forms of litigation, a party who wanted to discontinue his action without bearing the usual costs consequences of discontinuance had to shift the burden of justifying a departure from the default rule and thus had to apply under CPR r.38.6, there being no reason why patent cases should be treated differently from any others.

The Court added that there was no case law to suggest that Earth Closet orders were mandatory, however well-established might have been the practice of making them.  Even so, there was no reason why a patentee who decided that the incurring of additional expense to deal with amendments to a defence was not financially viable could not say that his claim was being abandoned as a result of those amendments.

Parallel German proceedings not a sufficient condition for a UK stay

Is it the mere fact that there are parallel patent proceedings in Germany a sufficient basis upon which to persuade a British court to stay an action -- or is there more to it than that? This is what the court had to decide in ZTE (UK) Ltd v Telefonaktiebolaget LM Ericsson [2011] EWHC 2709 (Pat), 19 October 2011, a Patents Court for England and Wales decision of Mr Justice Arnold.

In a series of four actions, of which this was one, ZTE sought revocation of a total of seven Ericsson patents. ZTE had previously applied unsuccessfully to Mr Justice Mann for expeditious rulings in two of these actions, and now tried its luck with Arnold J.  Refusing this application Arnold J referred to his own earlier decision in HTC Europe Co Ltd v Apple Inc [2011] EWHC 2396 (Pat),  a smartphone patent scrap in which he had ordered expedited hearings in two actions where there was parallel German litigation. It seems that the fact of parallel German proceedings was more a matter of correlation than causation because, the judge stated, he was not aware of any case that had been expedited solely on the grounds of parallel German litigation. There were no grounds for expedition in ZTE's case, particularly as there was no possibility of a court in England and Wales managing to squeeze out its decision before the German court ruled on it.  In any event, ZTE was the author of its own misfortune since it had delayed making its application.