28 February 2007

IP Enforcement Directive and Gathering Evidence in Germany

On 26 February 2007, Judge Kühnen, one of the chairmen of the regional court in Düsseldorf for patent litigation, made a speech about legal instruments to obtain evidence in patent infringement cases in Germany. In front of a large attendance of patent experts he stressed that although the IP Enforcement Directive is formally not implemented into German law yet, its application is already ensured by existing provisions in German law.

Obtaining evidence in patent disputes is often difficult, especially if the infringing conduct is not public. According to German law, the general principle is that the defendant is under no obligation to disclose evidence to its disadvantage and German civil procedure law does not know a specific procedure such as "saisie contrefacon" in France or "search order" in UK. Nonetheless, the Düsseldorf courts supported by a decision of the Federal Court of Justice achieve a similar result in line with the IP Enforcement Directive by a specific interpretation of some general provisions of the German Civil Code and the German Civil Procedure Act. According to this interpretation the defendant or any third party in the possession of relevant documents or possibly infringing products can be obliged (1) to disclose them or (2) to tolerate an expert's examination. Important to mention is that the court can order such measures by a preliminary injunction without an oral hearing. In this regard, Judge Kühnen underlined that the requirements to obtain such an order are not high, in particular if the documents or products are relevant to support the claimants position. He proposed that patentees should always take these options into account when litigating in Germany.

Surely, such a decision is subject to the principle of proportionality. Especially confidentiality interests have to be considered at this point. Parties may have a protectable interest, that information material about their business remain confidential and are not disclosed to others, in particular not to competitors. In its recent decision, the Federal Court of Justice recognized this problem and offered a pragmatic solution: confidential parts of documents should be blacken or garbled. If the court orders the expert to enter the potential infringer's premises for carrying out an experts examination, data of such examination reports can be kept confidential if the results do not indicate a likelihood of patent infringement. Is this the case, only the court, the defendant and eventually the claimant's lawyers would be informed about the outcome of the examination, but not the claimant himself.

The recent decision of the German Federal Court of Justice and the legal practice of the regional courts in Düsseldorf show that although the IP Enforcement Directive is not formally implemented into German law yet, there are already efficient options to obtain evidence in patent cases. Though not fully identical to the legal instruments under French and English law, the German legal practice now provides a well equipped and similar instrument for claimants in such litigation. Especially the practice of the regional courts in Düsseldorf leads to a further strengthening of the position of patentees litigating in Germany.

Dr. Kaya Köklü , Simmons & Simmons Düsseldorf

25 February 2007

You thought paying Sisvel ended your license concerns?

In earlier posts, I described the mp3[1] patent area as a minefield. One big landmine has been added to the terrain, the mp3 patents of the French company Alcatel. Last Friday Alcatel won a US Federal Court Jury verdict for US$ 1.52 billion damage award for patent infringement by Microsoft. The largest patent infringement damage award ever (the last record was the Kodak damage award of approx 900 million US$). According to reports, about half of the damage award is based on foreign sales under US patent law section 271(f).

At issue is the way the Windows Media Player software from Microsoft plays audio files using mp3 compression technology. If the ruling stands, hundreds of other companies that make products that play mp3 files, including portable players, computers and software, could also face demands to pay royalties to Alcatel. That will be most likely the next big thing for consumer electronics manufacturers: Alcatel knocking on the door of companies like LG, Samsung, SanDisk, NEC, Matsushita, Nokia, Huawei, ZTE to collect the next round of royalty fees for mp3 technology.

Those companies already had their share of unpleasant surprises when they were forced to pay Sisvel, Philips’ licensing arm, for Philip’s mp3 patents. Most of them paid the license fee, adding to the manufacturing costs of consumer electronics. That made Alcatel’s attorney tell the US jury: "We invented it and everybody else is making money off of it."

What's the point?
The point to make is this. MP3 technology has been already developed as early as 1987 (EUREKA project) by Fraunhofer Institute, Germany. Only much later, basically when Apple began to popularize the use of digital audio through its iPod around 2000, mp3 became ubiquitous, a tool to be used in any digital device. That popularity provoked companies like Philips, who were running short in licensing income from their previous IP cash cows, CD and DVD technology, to look in their portfolio for patent license potentials.

Philips, through their licensing arm Sisvel (Italy) and MPEG LA (US) used their mp3 patent portfolio (basically mp2, but asserted against mp3 players) to generate their next generation licensing income. The intellectual property was developed around 1993, after the main development in mp3 was started by Fraunhofer in the late 80’, and even after BBC Research experimented with digital transmission systems in as early as 1985. Philips’ main patent in the area, EP 0 402 973 and its US counterpart, granted in 1994 for the use of “padding bits” in a digital transmission system, EP 0 599 824 (for intensity stereo encoding and decoding), and EP 0 660 540 (for a decoder) became at the heart of an impressive licensing program. Fraunhofer already launched a less aggressive licensing program –together with Thomson of France- under their mp3 patents earlier.

What normally happens when a successful product enters the market happened in the service industry (in this case IP licensing) as well: other mp3 patent holders follow suit, lured into money making licensing programs similar to the Philips/Sisvel deals.

Alcatel now uses its mp3 patent to launch its licensing program. To convince the market they need a license under Alcatel patents as well, Alcatel did what most successful licensing strategies do: you take up against a giant first, gets him on his knees, get a court order against the alleged infringer and use that outcome against others to convince them they should not fight the patent but take a license (“the giant defender already lost, so what’s the point duplicating that?”). If the patent is also part of a standard and you can assert it as an “essential” patent, as Philips and Sisvel do, than your licensing program is complete. The license fee must be against RAND (reasonable and non discriminatory) conditions, but still, when hundreds of consumer electronics companies take the license, you are in for a more then lucrative license outcome.

What are the lessons to be learned from this?
First and foremost that companies ought to get their patent portfolios in “hot” technical areas ready in a very early stage and not wait until the technology gets mainstream. That requires foresight by management and a clear intellectual property strategy to acquire the necessary IP support for that technology in an early stage. It requires participation in standard setting procedures as well as actively managing the IP surrounding that technology. Although many companies may lack the necessary R&D output necessary to back up own IP, an alternative, much underused and undervalued, is to engage IP merchant bankers to allocate and acquire that necessary IP for them.

[1] popular digital audio encoding, lossy compression format, and algorithm, designed to greatly reduce the amount of data required to represent audio, yet still sound like a faithful reproduction of the original uncompressed audio to most listeners

14 February 2007

The UK Blackberry case RIM vs Inpro

The UK Court of Appeal handed down a judgment on Wednesday 7 February in the UK "Blackberry"case, RIM v Inpro (Inpro is a technology licensing company or, some might say, a "troll"). As expected, the Court upheld the first instance decision revoking Inpro's European patent in the UK on the grounds of obviousness. Inpro's patent claimed a system for enabling web pages to be made available to hand-held computers via proxy servers based on (amongst other things) screen size and resolution, and utilisation of a single transfer file rather than multiple HTTP-type files. The obviousness of these claimed concepts was upheld over at least 3 pieces of prior art.There appears to be no grounds for appeal to the House of Lords. Unlike NTP in the US, Inpro will obtain no licensing income from RIM as a result of this litigation.

10 February 2007

Negative Opinion on powers of EU member states to agree individually on EPLA

When the European Parliament debated the EPLA agreement in October 2006, a resolution was adopted whereby the Legal Service of the EP was asked “to provide an interim opinion on EU-related aspects of the possible conclusion of the EPLA by the Member States in the light of overlaps between the EPLA and the “acquis communautaire”.

"Acquis Communautaires" is a French term meaning, essentially, "the EU as it is" - in other words, the rights and obligations that EU countries share. The "acquis" includes all the EU's treaties and laws, declarations and resolutions, international agreements on EU affairs and the judgments given by the Court of Justice. It also includes action that EU governments take together in the area of "justice and home affairs" and on the Common Foreign and Security Policy.

On February 1, the Legal Service produced its opinion. It creates a new hurdle for EPLA to become reality anytime soon, as it concludes:

"1) The purpose of the Agreement on the establishment of a European patent litigation system ("EPLA") is to set up the European Patent Judiciary to settle litigation concerning the infringement and validity of European patents

2) Where common rules have been adopted, the Member States of the European Community no longer have the right, acting individually or even collectively, to undertake obligations with non-member countries which affect those rules

3) Directive 2004/48/EC harmonizes national legislation on the enforcement of intellectual property rights Not only would EPLA govern matters already dealt with by this Directive, but there are also contradictions between the two instruments on a number of matters

4) EPLA aims to lay down rules in certain areas governed by Regulation 44/200 I concerning jurisdiction and the recognition and enforcement of judgments. Notwithstanding the specific provisions of EPLA governing its relations with that Regulation, the conclusion of EPLA would affect the uniform and consistent application of the Community rules on jurisdiction and the recognition and the enforcement of judgments in civil and commercial matters

5) Compliance with Article 98[1] of EPLA would prima facie constitute a breach of Article 292 EC Treaty

6) It follows that the Community's competence is exclusive for the matters governed by EPLA and Member States therefore are not entitled on their own to conclude that Agreement."

[1] Article 98 of the EPLA agreement reads:
“Disputes between Contracting States. (1) Any dispute between Contracting States concerning the interpretation or application of this Agreement which is not settled by negotiation shall be submitted, at the request of one of the States concerned, to the Administrative Committee, which shall endeavor to bring about agreement between the States concerned. (2) If such agreement is not reached, any one of the States concerned may submit the dispute to the International Court of Justice for a binding decision."

Article 292
of the EC Treaty reads:
"Member States undertake not to submit a dispute concerning the interpretation or application of this Treaty to any method of settlement other than those provided for therein."

09 February 2007

The Impediments of the Cannots

In 2007, no doubt, we will see an increasing interest in intellectual assets as the new asset class and what it means for innovation, for R&D, for IP professionals but also for those that treat any intellectual property issue as a not-so-high-on-my-priority-list. Why many treat IP like this is remarkable, given that licensing of patents and know how has become an important channel for diffusing knowledge. Well-functioning technology markets can improve the efficiency of innovation processes by facilitating exchanges of patented inventions. Yet there are many impediments to overcome before Intellectual property will be treated as an equal to other asset classes.

In the upcoming blogs, we would like to explore what impediments exist within corporations, organizations, universities and R&D to fully appreciate intellectual property and its importance for innovation (or, again impediment for innovation). What causes IP to be always so low on the corporate priority list. Often one hears what CAN NOT be done with patents and other intellectual property rights:

  • IP cannot be valuated properly

  • IP cannot assist in improving innovation

  • IP cannot be consistently used as a collateral in financial transactions

  • IP cannot be appreciated by banks and financial institutions as they do not trust IP enough

  • IP cannot be visualized like other asset classes

  • IP cannot be easily understood

  • IP cannot be monetized

  • IP cannot be seen as an effective mean to contribute to recoup R&D costs

As we cover these “cannots” in the coming months, this blogs hopes to provoke debate, invites ideas and suggestions, so as to make 2007 the year of acknowledgment that IP is the New Asset Class and should be treated that way.

First European IP merchant banking

On February 1, 2007 Europe got its first company that will primarily focus on acquisition (and divestiture, for that matter) of intellectual property (mostly patents). IP is a new and valuable asset class. IP merchant services (also “IP merchant banking”) are widely offered for all kind of asset classes, except, intellectual property. Similar to the more widely know asset classes as real estate, precious metals, currencies and stocks, there are other assets one can trade, like permits to emit carbon dioxide and other greenhouse gasses. There are markets for aircraft leases and to buy and sell energy. Yet the buying and selling of intellectual assets, like patents, R&D outputs and knowledge in general often happens mostly outside the public eye. There is no “market place”, at least not a visible or physical one for intellectaual assets. Recently, Ocean Tomo, a Chicago based, US company started patent auctions (see our earlier posts) soon to be followed by the first Europen patent auction by a german company, IPA, to be held in Munich (see upcoming IP events on the right side of this blog) .

The new IPEG company will primarily focus on assisting companies to acquire (or divest) intellectual assets like patents. Several trends, like shortening of time-to-marketand price erosion (mainly in the consumer electronics industry), have caused R&D managers to more closely look into their intellectual property portfolios to see how investment in patents can be organized in such a way that it contributes to the financing of R&D investments, to contribute to P&L, and to provide leverage in cross licensing deals.