The Global Lawyer: Europe's Patent Troll
They call me a troll. . .
Wealth sucker of the giant,
Destroyer of the storm-sun,
Beloved guardian of the corpse-fjord,
Swallower of the wheel of heaven.
What is a troll if not that?
— The Skáldskaparmál (circa 1220 C.E.)
Trolls were bewailed by the bards of Old Norse myth long before they roamed the Eastern District of Texas. As U.S. policy turns hostile to patent trolling, the epic battle between Nokia Oyj and IPCom GmbH may determine whether trolls return to their original stomping grounds, and repopulate Europe.
"Classic U.S. trolls are looking at Europe and thinking of coming here," says Nokia litigation head Richard Vary, "but they are waiting to see how the IPCom case works out."
Bernard Frohwitter learned the art of patent lawyering in Houston during the 1990s, where he managed the U.S. office of Munich's Bardehle Pagenberg and later set up Frohwitter Intellectual Property Counselors. Back home in Germany, Bosch GmbH hired Frohwitter to license a promising portfolio of mobile phone patents. In 2007, he formed IPCom with Fortress Investment Corp., bought the mobile patents himself and brought claims against Nokia worth up to 12 billion euros.
Vary calls Frohwitter Europe's "first pure, classic patent troll" who "targets the big guys with injunctions" (or as the Skaldic poets put it more lyrically, sucks the wealth of giants). Nokia's lead outside counsel, Jane Mutimear of Bird & Bird, calls him "the first and possibly only U.S.-style IP lawyer" in Europe, in the sense that "he bought a portfolio himself and is trying to monetize it." In short, Frohwitter's foes see him as Europe's answer to Raymond Niro of Niro, Haller & Niro or David Berten of Global IP Law Group.
If Frohwitter is a troll, then Vary plays the role of the Norse god Odin. His avowed aim for the last seven years has been to keep Europe safe from the swallowers of heaven's wheel.
After spending a decade at Linklaters, Vary moved to Nokia in 2006. Not coincidentally, soon afterwards Nokia fired its opening salvo in the European smartphone wars, seeking a declaration that any troll to buy Bosch's patents should offer Nokia a fair royalty. In the ensuing months Bosch and Nokia tried to negotiate over the sale of a patent license. As Vary tells the story, a Bosch lawyer warned that if Nokia didn't agree to a license, Bosch would sell the portfolio to "a shark." Vary didn't know it yet, but as he sees it in retrospect: "The shark was already Bosch's outside counsel. Frohwitter was behind the threat, and then he created the shark."
Frohwitter sees himself as more of an engineer and entrepreneur than a lawyer, and certainly not as a troll or shark. He calls Nokia's attacks self-interested and hypocritical, because Nokia has a sizable business selling patents to licensing companies. "Nokia is worse than any troll because it is a 'troll-master,'" he gamely concludes. More fundamentally, Frohwitter argues that most licensors play a valuable role by demanding a fair price to reward the creativity of inventors. In the U.S., he concedes, licensors with weak patents can "blackmail" companies with the threat of high legal fees and hassle. But in Europe the cost of litigating is much lower, he argues, and licensors must win on the strength of their patents.
In late 2007, after buying Bosch's portfolio, IPCom launched its first wave of patent actions in Germany, eventually expanding its campaign to assert over 60 patents in three countries. Nokia's response was to file a wave of invalidity claims in English court the next year. Its approach was to use English findings of invalidity to persuade German courts to stay infringement actions on some patents, and to persuade the licensor to abandon other patents for fear of losing in English court and getting stuck paying opponents' legal fees. Vary credits Bird & Bird's Mutimear with inventing the strategy. The new rule of thumb, he says, is that European patent claimants like German courts because they're the quickest to decide infringement, patent defendants like English courts because they're the quickest to decide invalidity, and nobody likes French courts because they're slow on everything.
With the exception of only one patent, Nokia's approach has succeeded on a grand scale. More than 60 Bosch patents have been declared invalid as granted or conceded by IPCom, and IPCom has paid more than $12.5 million in costs for its failed actions. For its efforts, Bird & Bird was given an award this summer for technology team of the year from the London magazine Legal Business.
But the exception—IPCom patent #100a—is a significant one. Observers polled by The Global Lawyer say that any award implying that Nokia has won the war, or that IPCom has lost it, would be highly premature.
Patent #100a covers a standardized way of regulating access to a 3G mobile phone network while allowing emergency access for priority users. In 2011, courts in both London and Mannheim found that Nokia was infringing the patent. Fortunately for Nokia, by that stage it had changed the design of its newer phones. The more dangerous ruling came in April 2012, when a Dusseldorf court found the newer phones to infringe as well. But the next day—before the Dusseldorf court could issue a massive injunction—the European Patent Office revoked the same patent. The EPO technical board of appeal later affirmed, but remanded to determine whether a narrowed form of the patent may be upheld.
Nokia minimizes its setback in London by arguing that only a few tens of millions of dollars are still at stake. IPCom argues that the win was historic, as the first successful assertion of a standard essential patent in the English courts. Partly on its strength, IPCom struck a settlement this June with Deutsche Telekom reported to be in the "low-to-medium triple-digit millions." Frohwitter said that the amount sufficed to cover his litigation outlays and give a nice return.
The English infringement finding seemed to set the stage for Europe's first trial to determine what royalty rate should be considered "fair, reasonable and non-discriminatory." As with Microsoft v. Motorola in the U.S. courts this April, a FRAND determination would reshape the whole patent landscape. But Nokia was provisionally saved from a FRAND trial by the U.K. Supreme Court. With uncanny timing, it held this July in Virgin Atlantic v. Zodiac Seats that if an English court finds infringement, but the EPO revokes the patent, then the infringing party does not owe damages. An IPCom FRAND trial remains possible if the European Patent Office upholds the narrowed form of patent #100a, and the English courts find that the narrowed patent has been infringed.
So how has the claim been narrowed? Amusingly, the vaunted test case for patent trolling in Europe now turns on a picayune point of German diction. The EPO appeal board held that IPCom could not claim a patent on a 3G access standard using multiple bit patterns—but a standard using "ein Bitmuster" might be patentable. Nokia translates this to mean "one bit pattern," which would make its two-pattern technology kosher. IPCom translates "ein bitmuster" more loosely to mean "a bit pattern." It is not known whether the trolls of old Norse myth were sticklers for use of the indefinite article.
Both Nokia and IPCom have fought cleverly in Europe's smartphone wars, and both have reason to like the outcome so far. U.S. trolls will surely follow the final battle with clenched claws. But while trolls may crave a return to their metaphorical homeland, they know in their cruel empty hearts that Europe will never be the most hospitable climate for their ilk. The biggest deterrents to trolling in Europe are the fractured landscape, low damages and loser-pays rules. Unifying the EU patent system will only remove the first concern.