FOSS Patents

This is now the third post in a row on standard-essential patent (SEP) litigation in the Eastern District of Texas. The two previous ones were about Ericsson v. Apple. As I was checking on the E.D. Tex. docket, I also discovered a new automotive SEP lawsuit: a group of patent licensing firms named Optis Wireless Technology, Optis Cellular technology, Unwired Planet, and PanOptis Patent Management has brought an infringement complaint over five 4G SEPs against Ford Motor Company.

That group of patent holders has a strong track record in litigation. most famously involving the UK Supreme Court's Unwired Planet v. Huawei decision. An Optis v. Apple FRAND trial (setting the terms of a conditional injunction) will soon be held in London. And now the Optis-Unwired group has become the sixth Avanci licensor to go after Ford--and the second one in the Eastern District of Texas, where Korea's Sol IP is already asserting a whopping 21 patents against the car maker. Other Avanci licensors to be enforcing their intellectual property against Ford include MiiCS (Munich), Sisvel (Delaware and Munich), IP Bridge (Munich), and Longhorn IP subsidiary L2 (Delaware). The Delaware cases will go to trial only sometime in 2024, but holdout won't work for Ford because the patent injunction hammer will likely come down in Germany long before, and I also expect Sol IP's and Optis-Unwired's cases in the Eastern District of Texas (which are about damages, for now) to go to trial much sooner.

According to the latest complaint, both Optis-Unwired and Avanci have been trying for about five years to strike a license deal with Ford:

"For several years dating back to 2017, Plaintiffs themselves and also as part of a licensing pool through Avanci LCC ('Avanci') have attempted to negotiate with Ford to reach an agreement for a FRAND license to Plaintiffs’ cellular patent portfolios. However, Ford has declined to date to take a license. In contrast to Ford, several other automobile manufacturers have taken a license.

"Plaintiffs have also sought to have Ford take a license to its patents on FRAND terms as part of a broader pool of essential cellular patents through Avanci. On information and belief, starting in August 2017, Avanci has made extensive efforts to have Ford take a license on FRAND terms."

The complaint notes that "[i]n contrast to Ford, several other automobile manufacturers have taken a license." That fact ups the ante for Ford, which really comes across as an unwilling licensee by now. Just two days ago, Avanci announced a license agreement with General Motors, the largest U.S. car maker. When IAM reported on that deal, it also stated what I've been saying for some time (Tesla must be an Avanci licensee given that multiple cases brought by Avanci licensors were withdrawn near-simultaneosuly last year) and said that electric SUV and pickup truck maker Rivian Automotive is an Avanci licensee.

These are the patents asserted by Optis and Unwired against Ford:

• U.S. Patent No. 8,149,727 on a "radio transmission apparatus, and radio transmission method" (originally filed by Panasonic, currently assigned to Optis Wireless Technology)

• U.S. Patent No. 8,199,792 on a "radio communication apparatus and response signal spreading method" (originally filed by Panasonic, currently assigned to Optis Wireless Technology)

• U.S. Patent No. 8,223,863 on a "method and arrangement in a cellular communications system" (originally filed by Ericsson, currently assigned to Optis Wireless Technology)

• U.S. Patent No. 8,254,335 on a "radio communication apparatus and radio communication method" (originally obtained by Panasonic, currently assigned to Optis Wireless Technology)

• U.S. Patent No. 8,320,319 on a "semi-persistent scheduled resource release procedure in a mobile communication network" (originally filed by Panasonic, currently assigned to Optis Wireless Technology)

Optis-Unwired's complaint was filed by McKool Smith, which also (together with Irell & Manella) won a 300ドル million damages verdict against Apple for the same plaintiff and in the same district.

For as much as I would like to show you the complaint (though there's no major information in it beyond what you can find in this post anyway), I haven't been able to upload it to Scribd. While Scribd did successfully process the court document in my previous post (Ericsson's opposition to Apple's motion to stay a case over three 5G patents), it entered into an endless loop after claiming that the upload of the Optis-Unwired complaint (and previously, an Ericsson-Apple court order) had been completed "100%." I don't know whether this is due to my new computer, but the fact that one of those three court documents from the Eastern District was successfully published on Scribd makes it unlikely that I have a firewall problem (I can also upload files to other websites without problems). I'll try to solve the problem. If all else fails, I'll have to find an alternative to Scribd. Apologies.

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Today's my International Trade Day. The previous post discussed the Munich I Regional Court's anti-antisuit injunction in IP Bridge v. Huawei and mentioned a European Commission request for information from China at the WTO level, though in my opinion China would have far more valid reasons to question the European (meaning both the EU's and the UK's) case law relating to standard-essential patent (SEP) enforcement.

As I've said many times, including in a presentation at a European Commission webinar, the current proliferation of antisuit (and anti-antisuit) injunctions is merely a consequence of other forms of extraterritorial SEP rulings: judgments that force implementers to either take a global portfolio license (regardless of whether a single infringement of a valid SEP from that portfolio was identified elsewhere) or be subjected to a sales ban in that jurisdiction. The culprits in that respect are the courts in the UK and Germany. They started it, and the courts in jurisdictions like the U.S. and China, which have the authority to order antisuit injunctions, should absolutely defend their jurisdiction over national patents by barring SEP holders from forcing implementers into global licenses only because they won a single SEP case in some European country. Ideally, no one would engage in any kind of overreach. I suggested this much in my presentation.

British patent judges are in for a total embarrassment. They should change course before they will suffer an irreversible reputational loss at Apple's hands.

The fact that I'm actively pursuing my own (antitrust, not patent) complaints against Apple doesn't prevent me from supporting Cupertino's positions where I believe they have a point. I never found it hard to compartmentalize my mind. So when I read a couple of days ago on a UK financial website (This is MONEY) that Apple might leave the UK market if the court were to set a "commercially unacceptable" rate in a SEP dispute with non-practicing entity Optis Cellular Technology, I immediately thought to myself that this is exactly what Apple should do if necessary.

The UK patent judiciary needs an economic reality check. According to the report, Justice Meade thought it was not "remotely possible Apple will leave the UK market." Well, he's a former lawyer (I heard he also represented patent trolls, but haven't been able to verify this) and now a judge, and there are judges who understand economics very well, but there are also many who don't. You find the two kinds of judges in any jurisdiction. In the UK, however, the Unwired Planet case worked its way up from the lowest court to the highest, and there never was a single judge involved who appeared to understand. That is worrying. And maybe some just didn't want to understand: the judges on the trial court and the appeals court are just patent maximalists, and the UK Supreme Court didn't want to overrule an appellate judge who had meanwhile joined their own club.

So let's have a look at the economics that Justice Meade (and some other commentators) don't seem to understand.

Yes, Apple could PROFITABLY decline to take a license on supra-FRAND terms.

There are two reasons, any single one of which would probably be sufficient in its own right, and the combination certainly makes it an option. And should that happen, there'll presumably be a legislative override: just like the EU is now working on SEP legislation, Westminster lawmakers could do the same and that would be the end of that Unwired Planet insanity. They're not going to let any patent judges, whether their names are Meade or Birss or Kitchin, do serious damage to their economy just to attract patent litigation to the UK.

But Apple wouldn't have to bet on that legislative override--and it probably wouldn't, as there's never a guarantee and there could be delays. Even under the current legal framework, these are the two reasons that counsel in favor of not bowing to unreasonable judicial overreach:

1. Apple sells about 7 million iPhones in the UK per year, out of more than 200 million worldwide. That's less than 4% of its worldwide sales. Now, any supra-FRAND patent royalties (for example, if they had to pay 3ドル per phone for a portfolio that's worth no more than a few cents per unit) would therefore have to be multiplied by a factor of (approximately) 25, as the unreasonable UK case law requires them to take a global license. So if there's a case in which Apple would have to overcompensate a patent holder by about 3ドル per phone around the globe, the bottom-line impact is the same as if Apple has to pay 75ドル (!) per phone sold in the UK only.

   Apple's gross margin is on the order of 40%. Just to have a ballpark figure, that's like 500ドル per iPhone. When you apply that factor of 25, it doesn't take a whole lot of patent cases until they could even reduce your UK sales to zero and still be better off that way.

2. But some people don't seem to understand that if you "leave the UK market" in terms of simply complying with a totally unreasonable injunction, you can still sell millions of phones to UK customers.

   There are a few things Apple couldn't do if enjoined:

   • It couldn't sell iPhones in its Apple Stores. It operates almost 40 of them in the UK, and without its flagship product (or 4G/5G iPads) it would probably close most or even all of them.

   • It couldn't sell directly to UK customers via its own online store for the UK.

   • At least some repairs wouldn't be possible.

   • Apple couldn't deliver products to UK destinations, including its resellers such as the major carriers (Vodafone, O2 etc.).

   • It couldn't promote iPhones in the UK as patent injunctions typically prohibit that kind of commercial activity (and not just the act of selling goods).

   But Apple could still let the likes of Vodafone buy iPhones in, for example, Ireland. Those companies would buy them "FOB Dublin" (to use international trade lingo) and then import them into the UK market.

   The injunction would restrict only Apple itself--and, of course, the British employees it would have to lay off because of a judiciary that exercises no restraint and was totally unreceptive to some valid points throughout the Unwired Planet process.

   Now, a SEP holder like Optis (which is basically Unwired Planet) could then seek an import ban from customs authorities. It could also sue the carriers. But it would have to go through a whole new process, and in the meantime Westminster lawmakers could show that they are the final judges--just like Prime Minister Boris Johnson told British soccer clubs in the Super League context that politicians would simply legislate to achieve the desired result (and post-Brexit, they don't have to worry anymore about complying with EU law).

   British judges wouldn't win this. They would have many millions of British Apple fans against them. They would have labor unions against them because of the layoffs. And everyone would see that this is just about judges being obsessed with attracting patent cases to their jurisdiction, without any other positive effect for Britain.

Apple would still sell millions of iPhones to UK customers even if it can't advertise in the UK and has to close some or all of its stores. The gross margin forgone because of some sales being lost would clearly be less than any supra-FRAND royalties times 25.

This economic and political impact assessment would be incomplete without taking import duties into account. It's quite possible that UK resellers could avoid them 100% even under the current law. But even if not, the British government could simply waive them. The iPhone market share among British politicians is probably far in excess of 50%, but even if it was not, no one would side with patent judges on this one.

I know many companies in the wireless industry. In fact, I asked Apple for background information on this, but they didn't respond, and that's OK. Without naming the others, I can tell you I know from some of them that they previously said they would simply stop operating in the UK (which, again, does not mean UK customers don't get your stuff) if it came to worst.

Apple would get a lot of support, even from its competitors. And the political clout of major Apple resellers like Vodafone and O2 in the UK, or of major retailers, is enormous. Consumer organizations would presumably side with Apple, too.

I guess Justice Meade is now going to backtrack. If he does not, the Unwired Planet case law is going to die a shameful death. The UK Supreme Court should recognize its error and overrule it at the earliest opportunity.

By the way, the UK Supreme Court denied Apple's petition to deliver oral argument in the Unwired Planet case. If Apple carries out its absolutely legitimate threat, that action will speak louder than words.

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More than three years after naming and shaming Ericsson's privateering deal with Optis Wireless (among a long list of similar partnerships), I became aware of the recent verdict against Huawei in the Eastern District of Texas, which serves to show how Huawei is torn between its strategic interests as a leading Android device maker on the one hand and an aggressive patent licensor on the other hand.

A corporation of that size is party to many disputes at any given point in time, and obviously the shoe will regularly be on the other foot. Parties don't make or change laws, so litigants can merely try to undermine (to a limited and often negligible extent) their adversaries' credibility by pointing to contradictions. However, in two respects such contradictions can be very significant:

• FRAND licensing negotiations and disputes involve bona fide questions, making inconsistencies more problematic than in such a context as patent infringement.

• We're all among the potentially billions of judges sitting on the court of public opinion, and some companies spend huge amounts of money on PR agencies and departments--or even on advertising campaigns like Qualcomm's big-time self-promotion in San Diego--to make us believe that they're the good guys. In that respect, it's a serious issue if they blatantly and brazenly apply double standards.

For an example, while Apple's positions on standard-essential patent (SEP) licensing have been perfectly consistent over the years, I really took issue and even got emotional when Apple's lawyers in the second California case against Samsung argued that a few narrow software patents entitled the iPhone maker to a "reasonable royalty"-type of damage award of 40ドル per device. Those weren't standard-essential, and if that claim had simply been based on lost profits, it would have been a different story. But they said "reasonable", and that's the R--the single most important letter--in "FRAND."

Samsung used to seek remedies over SEPs that I consistently disagreed with. I viewed their litigation tactics far more favorably when they dropped the related claims against Apple and even joined pro-FRAND organizations. Same with Google, by the way, but since it divested Motorola Mobility and contributed to an LTE patent pool, it's probably not going to be active again as a SEP enforcer in the foreseeable future.

If Huawei were a person, the diagnosis would be schizophrenia. Sorry to say so about one of my two favorite Android brands. According to Wall Street rumors, Huawei is (thankfully) part of the rebellion against Qualcomm. Just a couple of days ago, the FTC pointed to a 20-year-old Qualcomm filing that took the very opposite position on the FRAND licensing of rival chipset makers as Qualcomm is taking now. In Huawei's case, we're not talking about two decades in between. What we're seeing unfold here are parallel cases (Huawei's litigation with Samsung in the U.S. and China, and in parallel, PanOptis' litigation against Huawei in the U.S. and Germany, which provoked a Huawei countersuit in China for the purpose of a FRAND determination). It's like Huawei has to wear a different hat every 20 days, and at times every 20 hours, than change positions over the course of 20 years.

In the (Pan)Optis v. Huawei case in the Eastern District of Texas, the parties filed their proposed findings of fact and conclusions of law (after the recent jury trial and with a view to an upcoming bench trial) late last month--(Pan)Optis on the left side, Huawei on the right side. And some of what Huawei says is really interesting (this post continues below the document):

18-09-28 PanOptis v. Huawei Proposed Findings of Fact by Florian Mueller on Scribd

(Pan)Optis claims to have "acquired" (though it may actually be more of a service provider to Ericsson in economic terms) 63 SEP families. I haven't seen a comparable public claim by Huawei, but this Chinese study (in English, though) concluded that Huawei had declared slightly more than 600 patent families to be essential to 4G/LTE.

According to Huawei's own proposed finding of fact #58, "Huawei sent a letter to PanOptis indicating that it was willing to enter into a license to PanOptis’ U.S. declared essential patents for a rate of 0.09%, its EU declared essential patents for 0.056%, and its China and Rest of the World declared essential patents for 0.04%."

When I see a Huawei FRAND position that has a zero to the right of the decimal point, it immediately brings back to memory the FRAND rate that a Chinese court set, at Huawei's request, for InterDigital's SEPs: 0.019%.

Samsung claims that Huawei never substantially lowered its 1.5% royalty demand. Huawei denies that allegation, but without specificity (at least in the public redacted version of the relevant filing).

The recent Texas verdict related to five patents, four of which were standard-essential (and the jury awarded a far lower per-patent rate on each of those SEPs than on the non-SEP). While Huawei can--and according to a couple of more recent filings will--seek a judgment as a matter of law on the merits and on the damages award, for the time being (Pan)Optis has established the actual infringement of four presumed-valid SEPs, while Huawei has yet to prove anything in the United States. It has prevailed on a couple of patents in China, though.

The proposed findings of fact and conclusions of law in the Texas case also deviate from Huawei's positions in the Samsung despite with respect to whether one court should set a worldwide royalty rate:

"[DCL24] As discussed above, PanOptis has never given Huawei a U.S.-only offer. But, in view of PanOptis' decision to sue Huawei on its U.S. patents in a U.S. court, and in view of the very minor share of Huawei's sales in the U.S., and that Huawei has clearly stated its willingness to agree to and desire for a FRAND license covering its US sales, FRAND requires that PanOptis offer Huawei a U.S.-only license, rather than requiring that, in order to get a U.S. license to cover its minimal U.S. sales, Huawei also take a license in other countries where its sales are much greater (e.g., more than 60% in China) under foreign patents not at issue in this litigation. Despite Huawei repeatedly seeking a U.S.-only license and offering to settle the U.S. case, PanOptis has refused to discuss such options with Huawei."

"[DCL26] Like Motorola, PanOptis violates its FRAND obligations by suing Huawei on U.S. patents and insisting on a global license, despite Huawei's comparatively low sales in the U.S. and Huawei’s offer to enter into a U.S.-only license. Admittedly, Motorola sought an injunction against Apple in Germany, and PanOptis is seeking only damages against Huawei in U.S."

In the aforementioned bench trial opening brief, Huawei discourages the Texas court from setting a global FRAND rate:

"Further, as the Court recognized in limiting PanOptis' Count IX to U.S. patents [...], the Court should refrain from exercising its discretion to adjudicate FRAND issues as to foreign patents since doing so would necessitate determinations concerning the scope, infringement, and validity of non-U.S. patents governed by non-U.S. laws."

I agree--but why did Huawei ask the United States District Court for the Northern District of California to make a global FRAND determination in its dispute with Samsung? And why shouldn't Samsung firstly get the chance that Huawei actually had--even if only with respect to a handful of patents--in the Eastern of District (though it now has to get the verdict overturned, either by the district court or on appeal) to litigate its non-infringement and invalidity defenses?

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This is a follow-up to my retweet (of three days ago) of a TechRights article:

@glynmoody @FOSSpatents @zoobab The Eastern District of Texas and Patent Courts Elsewhere Are Eating Huawei, But Huawei Also Uses These US Patent Courts to Prey on Its Competitors Outside China https://t.co/LCqF9l15ZP

— Dr. Roy Schestowitz (罗伊) (@schestowitz) September 6, 2018

Huawei is indeed torn between two roles: that of a licensor of standard-essential patents (SEPs), and that of a licensee.

Just at a time when Huawei is trying to prove Samsung's infringement of some of its SEPs in court (and seeking a whopping 1.5% royalty), a group of three affiliated non-practicing entities (Optis Wireless Technology, Optis Cellular Technology, and Panoptis Patent Management) has prevailed over Huawei in the United States District Court for the Eastern District of Texas on all five patents-in-suit: four FRAND-pledged wireless SEPS and one non-FRAND-pledged (but potentially still essential) H.264 codec patent. And the jury awarded a total of 10ドル.6 million, with each of the four FRAND-committed patents, however, accounting for only an average of approximately 0ドル.7 million. In other words, the non-FRAND patent was deemed roughly ten times more valuable. While it's theoretically possible that the non-FRAND H.264 patent was considered more valuable for technical reasons than the FRAND-pledged wireless SEPs, Judge Rodney Gilstrap, the nation's busiest patent judge in recent history, had instructed the jury that the FRAND promise needed to be kept in mind when determining damages.

This is the damages section of the verdict form (click to enlarge; this post continues below the image):

Most of the Optis/Panoptis patents-in-suit were transferred to that entity by Ericsson--a practice that is called "privateering" and that this blog has frequently criticized over the years. A former Ericsson executive runs Optis/Panoptis, and McKool Smith, the rising-star litigation firm representing Optis/Panoptis, frequently litigates patents on Ericsson's behalf.

Ericsson and Huawei had a dispute years ago. Apparently Ericsson came under serious pressure in China and more or less backed out (a face-saving exit at best). But Ericsson's privateers are still going after Huawei.

Huawei has yet to prevail on the merits in its dispute with Samsung. Same with Qualcomm in its dispute with Apple. Those two companies (who are at loggerheads with each other, yet have somewhat similar patent enforcement strategies) are demanding many billions of dollars before establishing the infringement of a single valid patent.

For all owners of wireless SEPs seeking to enforce them (also including Huawei when the shoe is on the other foot, and Qualcomm), every decision (here, a jury verdict) that awards only a modest amount of damages/royalties is bad news. Huawei has a significant U.S. market share, and if its infringement of four wireless FRAND-pledgedd SEPs just entitles a patent holder to about 700 grand per patent, it's hard to see how Huawei could demand many billions from Samsung.

After this jury trial, there'll be a bench trial at which Judge Gilstrap will have to determine whether Optis/Panoptis had previously made Huawei a licensing offer on FRAND terms, which Huawei denies. This, as well as the usual post-trial motion practice seeking a reduction of damages, will force Huawei to take positions contrary to the ones it's espousing in its dispute with Samsung.

Huawei makes very good devices. I've bought some for my app development company, and it's one of two Android brands that I've repeatedly recommended to others. It would be great if Huawei's priority was its product business, in which case it should be in the FRAND camp. Its dispute with ZTE earlier this decade was more of a statement. To me it looked like Huawei wanted to demonstrate that it takes pride in its contributions to wireless innovation. But the longer its dispute with Samsung takes, the more I fear that Huawei is actually aspiring to become the next Qualcomm...

It will be interesting to watch the further proceedings in the Eastern District of Texas.

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