As the increasingly aggressive global patent wars between smartphone and tablet manufacturers continue to rage on, Legal Business asks leading IP practices what would happen if the final bell rang tomorrow
In November 2013, while acting for Apple in one of its seemingly never-ending patent battles with Samsung, Morrison & Foerster’s trial lawyer Harold McElhinny made his closing argument to the jury, which said: ‘When I was young I used to watch television on televisions that were manufactured in the United States: Magnavox, Motorola, RCA. These were real companies. They were well known and they were famous. They were creators. They were inventors. They were like the Apple and Google today.
‘But they didn’t protect their intellectual property. They couldn’t protect their ideas. And you all know the result. There are no American television manufacturers today.’
But with the main parties scoring points off each other at different stages of the fight (see box, ‘Toe to toe’), it is difficult to say what, if anything, has been definitively resolved so far. It also begs the question as to where IP-focused firms would be if it all settled tomorrow. In our round table discussion on IP held last year (see ‘Top of their game’, LB232), Justin Turner QC of Three New Square said aside from telecoms work – which is a relatively new sector from the perspective of IP litigation – the IP Bar wasn’t busy. ‘All the specialist chambers seem to be busy, but I think that is largely supported by big cases in the telecoms sector,’ he said.
Latham & Watkins IP partner Larry Cohen provides some food for thought: ‘I suspect if it all [the telecoms IP work] settled tomorrow, there would be people struggling for work. It is lucrative – how lucrative really depends on the set up of the law firm and particularly whether they’re partner-heavy and have their overheads under control.’
The IP agenda for 2014
While smartphone and tablet wars dominate the agenda of many IP practitioners, other trends have been identified by the profession as key developments to monitor in 2014.
With Austria, Malta and France so far the first member states to ratify the institution through national law, the road has been paved for a specialised European patent court – the Unified Patent Court – to enter into force, in theory making it easier for companies and inventors to protect their rights. With specialised jurisdiction in patent disputes, the aim is to avoid multiple litigation in up to 28 different national courts, cutting costs and leading to more rapid decisions on the validity or infringement of patents, and boosting innovation in Europe. A noble attempt at consolidation for IP disputes perhaps, but the proposal has generated criticism that a single market approach will face extreme conflicting interests.
Marks & Clerk Solicitors’ veteran patent litigator Gregor Grant comments: ‘Everyone is full of foreboding because it’s not very user friendly and it’s gotten very political – it’s basically a good idea to have one patent court for the whole of Europe but it’s bogged down by national interests, and politicians interfering without knowing anything about patents. Where the idea was generally welcomed by the profession it is now generally looked on with dread.’
Another significant area was the recent review of copyright law by the Court of Justice of the European Union (CJEU) in mid-February. Considered ‘critical business for content companies and media owners’, according to Wiggin’s head of IP/rights protection Simon Baggs, the CJEU ruled on the lawfulness of using hyperlinks to copyright works published by others online. The court determined that it is not an infringement of a copyright owner’s ‘communication right’ to supply a clickable hyperlink to that work, even if the copyrighted work is displayed as such that it gives the impression of the work appearing on the linker’s own website. Initially raised by a Swedish court over press articles written by journalists for newspaper Göteborgs-Posten, there is expected to be further legal work over a predicted influx of references from national courts to the CJEU seeking further clarification on when the link provider can be held liable, particularly in circumstances where the link leads to infringing content inadvertently or without knowledge that the content is itself an infringement.
Other precedent-setting case law includes the European Court of Justice’s recent ruling on whether courts could be handed new powers to force internet service providers (ISPs) to block access to illegal file-sharing websites, and the proportionality behind such powers. Additionally, in an opinion issued on 12 December last year, advocate general Pedro Cruz Villalón said an ISP can be required to block access by its customers to a website which infringes copyright. He added that the courts must refer to specific blocking measures and achieve an appropriate balance between the opposing interests which are protected by fundamental rights. London’s High Court has issued similar views by ordering big UK broadband ISPs, such as Sky Broadband, BT, TalkTalk, and Virgin Media, to block access to websites linking to multiple video streaming piracy websites.
Ringing the bell
Simmering for over a decade, mobile phone wars erupted as soon as competitors started working collaboratively through standard-setting organisations, such as the International Telecommunication Union. As products incorporated inventions from various sources, such as mobile phones with software applications, it inevitably gave more scope for dispute.
With advancement in technology, patent portfolios continue to grow and the approach of the patent lawyer needs to change with it.
‘Today’s national litigation systems are not really suited to handling portfolio patent disputes,’ Vary adds. ‘Even utilising the full capacity of the courts, patentees can only deploy a small fraction of their patents. So parties are agreeing to arbitrate some of the aspects of their disputes on a portfolio basis. This requires a different type of IP practice. The one-trick pony, the single jurisdiction patent litigator, will no longer be in such demand. Instead parties will need lawyers with a range of skills: arbitration experience, industry and technical knowledge, and patent litigation experience across a range of countries.’
Pay day
If anything has been concluded so far from these disputes, and demonstrates the benefits they have afforded to law firms, it’s the immense legal fees generated. Six years ago, Allen & Overy (A&O) drew attention for amassing over £5m in fees from BlackBerry manufacturer Research in Motion (RIM) for its litigation with wireless technology company Visto. In April 2008, Justice Floyd criticised the Magic Circle firm in the High Court for racking up such costs for a five-day trial, with Visto’s representative, Taylor Wessing, only billing a fifth of those costs at around £1.6m. Despite this, A&O’s legal team, which was led by global head of IP litigation Nicola Dagg, pointed out it was instructed to leave no stone unturned while RIM licensing chief Tom Sanchez went on the record to declare himself happy with the costs in the end. In restrospect such costs look modest. The most high-profile battle in this war – Apple v Samsung – has seen Apple pay out more than $60m in fees from firms including Morrison & Foerster and Wilmer Cutler Pickering Hale and Dorr.
But the cost of litigating pales when considering the potential upside. Cohen puts the disputes into perspective: ‘Even if the main players spend £50m a year litigating, it’s still cheap if you’ve got an extra 5% market share as a result of it.’
However, the pay-outs given to firms for taking on such high-profile battles come with a cost of their own – an exceptional amount of manpower. ‘They generate a lot of fees and require a lot of resources, so there’s a possibility that with a big dispute proceeding in several countries, there might be five trials scheduled in “X” number of months,’ says Taylor Wessing partner James Marshall. ‘And,’ he warns, ‘of course those cases can always settle at the last minute – that can pose a resource challenge to a law firm with all that work just coming to a halt.’
It is this fundamental difference between big pharmaceutical patent disputes and the smartphone wars that prevents the cases from being resolved: you can still buy an Apple smartphone and a Samsung smartphone and the courts are not putting themselves in a position where serious injunctions are being awarded.
‘You’ve got hundreds of ordinary patents which give you terribly small improvements but are part of a whole,’ says Cohen. ‘In pharmaceuticals, you’ve got two to three pieces to your jigsaw. In electronics, you’ve got 200/300.’
The second distinction (and cost) lies in discovery, where the patents the party are accused of infringing are actually components of phones acquired from third parties, so legal teams often need to go to foreign jurisdictions to extract discovery from that legal system. A prime example is the HTC v Nokia litigation, in which both Nokia and HTC made discovery applications in the US courts against third parties, such as chipmakers Qualcomm and Broadcom, in support of their UK and German cases.
‘That is very peculiar to smartphone disputes – dragging in all these chipmakers and component suppliers,’ notes Hogan Lovells IP partner Stephen Bennett.
Preparing for combat
The strategy for securing a role in such high-profile IP litigation is not immediately clear.
‘It’s a mixture of tendering and reputation – and depends on the company,’ says Bird & Bird’s joint head of IP Morag Macdonald. ‘You must demonstrate to clients that you really understand applying different legal strategies to the technology. They want a long-term relationship where they know they have the strategic back-up.’
And with litigation taking place in key jurisdictions, with the US hosting the most litigation, and Germany, France, the Netherlands, the UK and China following closely behind, clients may strategise to have the firms instructed to co-ordinate the dispute on a global scale.
Three New Square’s Guy Burkill QC says: ‘Firms will liaise with foreign counterparts to make sure arguments are run consistently and to share good ideas, partly to make sure one side doesn’t do something stupid or contrary to what someone else is saying. The enemy will usually pick up on that. Round table meetings with lawyers from other jurisdictions are always helpful – it helps the client.’
‘Our preferred external firms have learned to work well together and can operate like one large team. That takes time because at first there will always be concerns about land-grabbing, jostling for position and culture clashes between the firms, but that settles down. Once you can achieve that, life becomes much easier.’
The feeling among many firms for the future of IP litigation between smartphone and tablet manufacturers is optimistic. Competition between the various players alongside rapid technological development means parties will continue to come up against each other over the vast amount of patents disputed in any one case.
‘It’s been a big business,’ says Powell Gilbert partner Ari Laakkonen. He should know: the one-time Linklaters associate is a former director at Nokia, where he managed its IP litigation in Europe and worked alongside Richard Vary. His portfolio of patent cases includes Apple v Nokia, LG v Sony and Rovi v Virgin Media and Tivo.
‘Some say that may not continue forever but we’re busy doing several cases in the area,’ he adds. ‘My own perspective is because these device volumes and the sums of money involved are so vast, litigation is the way going forward – it’s one of the few ways of resolving the licensing disputes that exist in the industry.’
The complexity of these cases means the work is unlikely to dry up, according to Bird & Bird’s Macdonald. ‘Because of the nature of the beast, it won’t just stop dead tomorrow,’ she says. ‘While some aspects of the mobile wars will come to an end, there is an ongoing underlying activity in this area which is not likely to disappear overnight. It won’t fall off a cliff – although for some firms, if they’re overly dependent, it might affect them.’
Lawyers involved in these high-profile disputes suggest that in the next five years, key issues that arise between manufacturers will be similar because so little has been resolved so far. And depending on your position in the market and the size of your patent portfolio, litigation can be a useful tool to squeeze competitors out of the market. The heavy focus now lies in cross-licensing, where both parties share each other’s intellectual property or even attempt to negotiate royalty payments. A good example of this is Nokia’s big-ticket transaction with Microsoft, a deal which saw the latter acquire Nokia’s Devices & Services business for €5.4bn along with a ten-year patent licensing agreement in September 2013.
Nokia will grant Microsoft a non-exclusive licence to its patents and Microsoft will grant Nokia reciprocal rights related to its mapping division. Microsoft also has the future option of making this licensing agreement permanent.
He adds that the issue underlying all of these cases is where to strike the balance between innovators and implementers. This is a classic short-term versus long-term dispute: if decisions favour the implementers, the market benefits from low-cost products today but this comes at the expense of progress tomorrow. If the balance tips in favour of the innovators, it boosts incentives for innovation, but everyone must accept that today’s products have to carry more R&D cost.
‘Today’s smartphone cases are, one by one, setting where that balance lies,’ says Vary. ‘Do courts enforce patents, or do they allow infringement to continue even after it is proven? Do arbitrators award high royalties or low? If we get the balance wrong, we risk slowing or stalling the pace of progress. That would be a sad legacy to leave.’
Until that balance is established, the battle continues. LB
sarah.downey@legalease.co.uk
Toe to toe: recent smartphone wars in brief
Apple v Samsung
Described by commentators as ‘the patent trial of the century’, the battle between these mobile giants has been a series of ongoing cases over the design of smartphones and tablets. This bruising litigation dates back to the spring of 2011. Since then, Apple has won its case in South Korea and in the US where it was awarded $1.05bn in damages, while Samsung has won in Japan and the UK.
Samsung also won a limited ban from the US International Trade Commission (ITC) on sales of certain Apple products after the ITC found Apple had violated a Samsung patent, a ruling that was then overturned by ITC trade representative Michael Froman, who was delegated to make the decision by the Obama administration.
The dispute, of course, has been a goldmine for lawyers, with Apple alone racking up over $60m in legal fees. Morrison & Foerster’s Harold McElhinny and Wilmer Cutler Pickering Hale and Dorr’s William Lee are heading up the legal team for Apple in the US, while Quinn Emanuel Urquhart & Sullivan’s Charles Verhoeven is leading the team for Samsung. Freshfields Bruckhaus Deringer partner Justin Watts is advising Apple against Samsung in the UK, while Simmons & Simmons’ partner David Stone was instructed by Samsung.
There has also been a parallel dispute over infringement of tablet computers. Samsung was accused of infringing upon Apple’s intellectual property with its Galaxy tablet, in particular a breach of patent over the iPad’s user interface and its design. Samsung countersued in British courts, seeking a declaration that its Galaxy tablet computers did not infringe. 11 South Square’s Henry Carr QC appeared for Samsung (instructed by Simmons) and Michael Silverleaf QC appeared for Apple (instructed by Freshfields). In a ruling handed down by Judge Birss in London’s High Court in July 2012, Apple was ordered to apologise to Samsung through newspaper adverts for six months and admit that its rival did not copy the iPad.
Unsurprisingly, Apple’s apology, in July 2012, was far from complete contrition, noting that decisions had gone against Samsung in Germany and the US, ‘while the UK court did not find Samsung guilty of infringement, other courts have recognised that in the course of creating its Galaxy tablet, Samsung wilfully copied Apple’s far more popular iPad’, said the statement.
Apple v Nokia
Nokia’s two-year patent dispute with Apple, in which both mobile phone makers were locked in litigation from October 2009, saw Nokia emerge the victor after Apple agreed an undisclosed settlement awarding a one-time payment and royalties to the Finnish company. Nokia had previously filed a lawsuit accusing Apple of patent infringement, demanding royalties on the millions of iPhones sold since 2007. In chronological order during 2009, Nokia sued Apple over ten patents, Apple then sued Nokia over 13 patents, and before the year was out, Nokia filed a second lawsuit alongside a US ITC complaint against Apple over seven more patents. Both continuously filed patent lawsuits across various jurisdictions across the US, the UK, Germany, and the Netherlands until the June 2011 settlement. In the US, Morris James’ Richard Herrmann led the team representing Apple. Alston & Bird acted for Nokia in the US, Reimann Osterrieth Köhler Haft and Samson & Partner in Germany, De Brauw Blackstone Westbroek in the Netherlands and Powell Gilbert in the UK.
Nokia v HTC
Another example of a Goliath versus Goliath smartphone battle is Nokia’s two-year dispute with Taiwan’s HTC. In March 2013, a Mannheim-based court battle pitted Hogan Lovells duo Clemens Plassmann and Martin Chakraborty against Bird & Bird’s Christian Harmsen, who led for Nokia. Hogan Lovells’ City-based partner Paul Brown also represented HTC against Nokia in UK litigation relating to 16 patents asserted by Nokia against HTC in parallel German proceedings and co-ordinating the approach across the UK, Germany, the Netherlands, France, Italy and Japan.
Nokia further won an injunction published in December 2013 to restrain HTC from infringing its patent for a mobile phone chip belonging to Nokia.
With Nokia having won rulings in the UK, US and Germany, both parties finally agreed to settle all litigation in February and have also entered into a new patent and technology licence agreement. With a number of separate trials scheduled in court diaries, this will still mean a reduction in workload for a significant number of lawyers involved.
Rockstar v Google and Samsung
Having acquired a patent portfolio from the now-bankrupt telecoms company Nortel for $4.5bn in 2011, the Rockstar consortium, which includes Apple, Research in Motion (RIM), Ericsson, Microsoft and Sony as members, filed a complaint in the US District Court in Texas in October 2013 alleging that Google and others had infringed seven patents Rockstar had acquired. The patents in question are all titled ‘associative search engine’, and relate to an invention used to provide advertisements based on users’ search terms. Google, meanwhile, countersued in December, claiming that Rockstar’s litigation campaign unfairly targets Google’s Android partners and customers, and ‘placed a cloud on Google’s Android platform’ while also ‘threatening’ its business and relationships with its customers and partners, and sales of Nexus-branded Android devices. Quinn Emanuel Urquhart & Sullivan’s Matthew Warren and Sean Pak are representing Google while Rockstar has enlisted Dallas-based patent litigation boutique McKool Smith.
IPCom v HTC; IPCom v Nokia
The disputes followed German company IPCom’s acquisition of a telecoms patent portfolio from German electronics giant Bosch in 2007. Following this, IPCom became embroiled in disputes with Nokia and HTC. Both mobile giants faced claims for infringement from the German company. The Nokia case saw the High Court determine that the patent was valid in an amended form and infringed by Nokia in relation to certain devices, a decision subsequently upheld by the Court of Appeal in May 2013.
The HTC action, which was to an extent entwined with the Nokia dispute, saw Bristows successfully fight the case for claimant IPCom led by partner Myles Jelf, while King & Wood Mallesons SJ Berwin partner Cameron Firth acted for HTC.
In a judgment handed down by the Court of Appeal on 21 November 2013, Lord Justice Floyd concluded that judges should exercise a discretion to progress or stay a case in the UK depending upon its facts, even if the patent is still under review by the European Patent Office, where cases can take much longer.
At the time of the judgment, Jelf noted the ‘judgment provides sensible guidance as to the factors the court should use to deal with this tricky area of law, and reinforces the UK courts’ commitment to providing commercial certainty to patent holders and industry’.
Separately, on 11 February, IPCom filed a $2bn damages claim against Apple in Germany’s federal patent court in Munich, involving two alleged patent breaches relating to managing access to overloaded wireless communication channels by handsets. However, by the end of the month the German court dismissed the claim, which would have potentially led to the highest-ever damages pay-out for a patent dispute.