A Counter-Intuitive Solution to the NPE problem?
By Richard Vary
Posted: 3rd December 2014 09:11
Seven years ago Nokia and Bosch were negotiating a patent license. Bosch had been a significant contributor to the mobile phone standardisation process. They had chaired some of the committees. They had invested, they said, €8bn in research. But despite years of negotiations, we were unable to agree. Eventually Bosch delivered the inevitable demand: take the offer, or they would sell the patents to IPCom, an NPE.
Nokia’s solution was to involve the court. Over Christmas 2006 (these things always happen at Christmas) we filed a claim in Mannheim to determine the value of the Bosch portfolio.
We were, unfortunately, ahead of our time. Today, courts and tribunals are starting to entertain the idea of such claims, but in 2006 this was unheard of. We had presented the Mannheim Court with a seemingly impossible problem: how can three judges, with no licensing experience, determine the value of a portfolio when the experts were unable to do so? The trial judge expressed his frustration with both parties, and told IPCom that they should just sue on the patents in the usual way.
And so that is what happened. IPCom sought injunctions. Many patents were knocked out, but it had some hits. Nokia designed around. IPCom brought criminal actions. Nokia complained to the Commission. Seven years, and 63 judgments later, we have still litigated only a part of the portfolio. It has been expensive: the parties have spent more on lawyers than a license to patents is probably worth. Even using the fastest courts, it has been slow. And it has not resolved the underlying dispute: how much should a licensee pay? We have demonstrated that part of the IPCom portfolio is invalid. But IPCom, in an unguarded moment, would probably have admitted that. We have not established that all, or even most, of the patents are invalid: most of the portfolio remains untested. Nor have we proven that Bosch’s rate of invalidity is any worse than Ericsson, or Qualcomm or any of the other contributors to the standard. Litigating patent by patent does not answer the question of what proportion of royalties one patentee should receive, as against other patent holders.
You could substitute the names Nokia and Bosch for any two companies in the mobile phone business today and the story would sound familiar. So would the allegations on each side: hold up, hold out, trolls and privateers. Those epithets get applied again and again, and lobbyists on all sides argue that “something must be done”.
The usual approach is to clamp down on the patent owner: in particular placing restrictions on injunctive relief. The argument is: if we make patents less enforceable, NPEs will be reluctant to purchase them, and manufacturers of complex products and operators of telecommunications systems need not live in fear of imminent shut down.
This may treat the symptom. But it exacerbates the underlying cause, because these measures also make it difficult for the original patent owner to collect fair royalties. Without injunctions he cannot stop an unlicensed infringer from using his inventions. He cannot realistically sue for a royalty on every patent in his portfolio. So it becomes more attractive to do what Bosch did: sell the patents. The people who are willing to buy them, unsurprisingly, are entities like IPCom who are willing to use alternative tactics.
If our 2006 case in Mannheim had worked, the court would have set a rate for the portfolio. Bosch would not have needed to sell it to an NPE. But sadly, courts remain reluctant to set a rate for a portfolio of patents. There have been plenty of cases where courts set rates for a single patent. The UK Copyright Tribunal or New York’s Rate Courts will set rates for portfolios of copyrights. It doesn’t seem too great a step to do something similar in the world of SEPs. But those courts who have tried so far have reached some odd conclusions(1). Perhaps this is because in an adversarial system judges are required to choose between one side’s view and another. In both cases the parties advanced extreme positions. When judges may only choose between two wrong answers, we can hardly expect them to get it right.
The alternative is to use arbitrators. Nokia, a huge patent owner, is engaged in such an arbitration with Samsung, the number one in the market. Surely if these parties can make it work, anyone can?
The problem with arbitration is that both sides have to agree to participate: a patentee cannot compel an infringer to arbitrate. Regulators and the CJEU now agree that injunctions should, in theory, be available where a licensee is unwilling to engage. But that’s not enough if an injunction is not actually available because the patent covers only one part of a complex product(2): all technology patents cover only one part of a complex product. Being theoretically available also does not help if the injunction will be stayed pending appeal(3), or otherwise stayed to allow the infringer time to design around(4).
If we want implementers to engage in portfolio arbitration, there must be real risk in refusing. In 2006, Nokia faced that risk, and that is why it sought portfolio determination. Today that risk has considerably diminished, and with it a typical patentee’s prospects of successfully licensing his patents. Compared to licensing, selling patents to NPEs is becoming more and more attractive. And this is why, if we want to address the NPE “problem”, we need to do something counter-intuitive. We need to make it easier for the original patentees to license their portfolios. We need to make it practicable to enforce patents again.
Richard Vary is head of litigation at Nokia. Since 2006 he has managed some of the highest profile patent litigation in the mobile phone sector, including with Apple, Qualcomm, HTC, Blackberry, Interdigital and IPCom. He also managed Nokia's ground-breaking damages claims against the participants in the LCD screens cartel.
In 2012 Richard was identified by Managing IP magazine as one of the 50 most influential people in Intellectual Property, and in 2013 he was awarded In-house Lawyer of the Year by The Lawyer. Nokia's litigation team has also won several awards during Richard's time, including in-house team of the year by Managing IP, and IP team of the year 2014 by Leaders League.
(1) In Re Innovatio IP Ventures LLC Case No 11 C 9308, ND Illinois, Microsoft v Motorola
(2) The “causal nexus” test, Apple v Samsung 695 f.3d 1370, 1374 (Fed Cir, 2012)(“Apple II”)
(3) HTC v Nokia  EWCA Civ 1759
(4) Adaptive Spectrum and Signal Alignment Inc v British Telecommunication PLC