The Supreme Court Says “Game Over” to Crafty Gamers’ Attempt to Circumvent Class Certification Appeals

The Xbox 360 is designed for gaming. Appellate litigation, gamers learned, is not. On behalf of a putative class of purchasers of the Xbox 360, a group of gamers brought suit alleging a defect with the consoles. After the district court struck the class allegations, plaintiffs sought permission to appeal under Rule 23(f), which the Ninth Circuit denied. Rather than proceeding in litigation to final judgment, plaintiffs instead voluntarily dismissed their claims, with prejudice, while reserving a right to appeal the order striking class allegations. Plaintiffs then appealed the order under Section 1291. On appeal, the Ninth Circuit held that it had appellate jurisdiction and thus the case was still “sufficiently adverse” to be heard under §1291. The Supreme Court granted certiorari on the question of whether courts of appeals “have jurisdiction under §1291 and Article III . . . to review an order denying class certification (or, as here, an order striking class allegations) after the named plaintiffs have voluntarily dismissed their claims with prejudice.” Writing for the majority in Baker, Justice Ginsburg reasoned that permitting plaintiffs’ back door to the appellate courts to remain open would defeat the even-handedness codified as part of the final judgment rule under §1291 and in the Federal Rules of Civil Procedure. For similar reasons, Justice Ginsburg wrote, the Court previously rejected the judicially-created “death-knell doctrine”—under which an appellate court could review an order refusing to certify a class when the rejection of class certification “sounded the ‘death knell’ of the action”—because it served only to favor the plaintiffs. Describing plaintiffs’ circumvention tactic as a “voluntary dismissal device,” the Court held that permitting only plaintiffs to immediately appeal adverse class certification orders would be manifestly unfair and upset the balance between the parties. Indeed, as the Court noted, “the ‘class issue’ may be just as important to defendants . . . for an order granting certification . . . may force a defendant to settle rather than . . . run the risk of potentially ruinous liability.” Yet plaintiffs’ tactic would confer no right to immediate appeal on defendants. Moreover, the Court held, plaintiffs’ voluntary dismissal tactic would “undercut[] Rule 23(f)’s discretionary regime,” which states that interlocutory appeals of grants or denials of class certification may be permitted by a federal court of appeals, but do not create an obligation on the part of Article III courts. The primary drafters of this rule believed that creating a right to interlocutory appeal could be abused, and instead granted such a decision “to the sole discretion of the court of appeals.” Plaintiffs’ maneuver to manufacture appellate jurisdiction would subvert this discretion by impermissibly “transform[ing] a tentative interlocutory order . . . into a final judgment claims with prejudice—subject, no less, to the right to ‘revive’ those claims if the denial of class certifi­cation is reversed on appeal.” To embrace plaintiffs’ reasoning would render “Congress’ final decision rule . . . a pretty puny one.” The majority concluded that “Congress chose the rulemaking process to settle the matter, and the rulemakers did so by adopting Rule 23(f )’s evenhanded prescription. It is not the prerogative of litigants or federal courts to disturb that settlement.” Taking a more narrow view, in his concurrence, Justice Thomas wrote that though he disagreed with the majority’s interpretation of §1291—because “[w]hether a dismissal with prejudice is ‘final’ depends on the meaning of §1291, not Rule 23(f )”—plaintiffs nevertheless could not appeal because the court lacked Article III jurisdiction. By voluntarily dismissing their claims, “the plaintiffs asked the District Court to dismiss their claims, they consented to the judgment against them and disavowed any right to relief from Microsoft,” including their right to appeal the order on class certification. Baker serves as an important reminder to litigants to consider both the purpose and intent of the Federal Rules of Civil Procedure, which take an even-handed approach. The downstream effects of an alternative ruling would have been significant, as defendants could face undue and increased pressure to settle potentially meritless cases rather than risk incurring the large expense of litigating a judicially-created, one-sided appellate process.  There is no appellate “cheat code” available only to plaintiffs, and the Supreme Court has helped ensure that one of the most seminal moments in class litigation remains a fair game.

This post was contributed by Stephen R. Chuk of Proskauer Rose LLP.

Microsoft Acquiring LinkedIn as Move into Enterprise Social Media

Linkedin MicrosoftMicrosoft has announced that it is buying LinkedIn for $26.2 billion, one of the largest tech acquisitions in history, and that it intends to use the business social media giant to put Microsoft at the center of our work lives.

Currently, LinkedIn has 433 million members in 200 countries. Microsoft has 1.28 billion Office users worldwide. Microsoft CEO Satya Nadella said in an interview with Bloomberg:

“This is about the coming together of the leading professional cloud and the leading professional network. This is the logical next step to take. We believe we can accelerate that by making LinkedIn the social fabric for all of Office.”

Nadella said that Microsoft’s vision is to place your LinkedIn profile at the center of your online work life, connecting it with Windows, Outlook, Skype, PowerPoint and other Microsoft products.

For example, Cortana (Microsoft’s digital assistant) could provide users with information on other participants in an upcoming meeting by pulling data from LinkedIn profiles. Members working on a project could pull up LinkedIn articles concerning their project or use LinkedIn profiles to search for an “expert” to help with the project.

Microsoft also sees LinkedIn playing a major role in developing a new customer relationship management (CRM) tool for sales organizations. LinkedIn analytics could be integrated with Microsoft’s Dynamics tool, which competes with Salesforce.com, to assist companies with managing their customers.

Here’s a CNBC interview with Nadella and LinkedIn CEO Jeff Weiner explaining the opportunities.

© The Rainmaker Institute, All Rights Reserved

Federal Circuit Issues First Reversal & Remand of an Inter Partes Review in Microsoft Corporation v. Proxyconn, Inc. Addressing Claim Construction and Amendment Standards

The Federal Circuit issued its first reversal and remand of a final decision in an inter partes review issued by the Patent Trial and Appeal Board (“PTAB”). In Microsoft Corporation v. Proxyconn, Inc., No. 14-1543, a panel composed of Chief Judge Prost, Judge Lourie, and Judge Gilstrap (sitting by designation) held that the PTAB’s constructions of the phrases “two other computers,” “sender/computer,” and “receiver/computer” were unreasonably broad, and remanded for further proceedings consistent with its opinion. The Court’s decision marks the first ever reversal of an inter partes review decision by the PTAB, after 18 straight affirmances. Of the 18, fifteen have been affirmances without opinion issued under Federal Circuit Rule 36.

In brief, the Court upheld the PTAB’s use of the broadest reasonable interpretation (“BRI”) standard, but explained that the standard does not justify giving claims an unreasonably broad or legally incorrect interpretation. The Court then examined the statute and regulations governing amendment practice and concluded that the PTAB’s interpretation was not plainly erroneous or inconsistent with them. Last, in reference to the PTAB’s case-by-case interpretation of the same statute and regulations, the Court explained that while “[a] fluid, case-based interpretation by the PTO of its own regulations risks leaving interested members of the public in a state of uncertainty, without ascertainable standards and adequate notice to comply . . . we cannot say that the PTO has abused its discretion in choosing adjudication over rulemaking.”

In the underlying proceedings before the PTAB, Microsoft challenged Proxyconn’s patent directed to a system for increasing access speed in a packet-switched network. The PTAB concluded that all of the challenged claims, with the exception of one, were unpatentable. Both parties appealed. In addition to contesting the merits, Proxyconn challenged the PTAB’s used of the BRI standard, as well as the PTAB’s denial of Proxyconn’s motion to amend. We discuss each aspect in more detail below.

Broadest Reasonable Interpretation

With respect to BRI generally, the Court stated that it was bound by the panel decision in In re Cuozzo – the first appeal of an inter partes review decided earlier this year, which blessed the Office’s adoption of the hundred year old standard for use in inter partes review. In re Cuozzo is pending a decision on Cuozzo’s request for rehearing en banc, and several amici have submitted briefs expressing concern about the outcome. But practitioners troubled by the Office’s adoption and application of BRI can take some consolation. In this case, the panel rejected the PTAB’s construction as “unreasonably broad,” relying on precedent that constrains the Office’s application of the BRI to interpretations that are legally correct under the canons set forth in Phillips v. AWH Corp. Indeed, the panel dropped a footnote stating that its construction would have come out the same under the Phillips standard.

On the merits, the Court reviewed the Board’s claim constructions de novo. The Court carefully analyzed the technical merits and set forth a detailed interpretation of the claim terms appealed by both parties. This suggests that a meritorious claim construction dispute appealed to the Federal Circuit is likely to receive the same careful consideration and attention to detail that appellants have come to expect from the Court. It also shows that “unreasonably broad” claim interpretations that are inconsistent with settled principles of claim construction are reversible on appeal.

Proxyconn’s Motion to Amend

This appeal also presented the question of whether the PTAB impermissibly relied on the requirements it set forth in Idle Free Systems, Inc. v. Bergstrom, Inc., in denying Proxyconn’s motion to amend. In this case, the panel was not troubled by the PTAB’s reliance on its own decisions, like Idle Free, to promulgate standards for motions to amend. The Court agreed with the Office that the regulation itself “is not an exhaustive list of grounds upon which the Board can deny a motion to amend.” The Court also agreed that it is permissible for the Office to use adjudicative decisions like Idle Free, rather than traditional notice and comment rule-making, to set forth all the conditions that a patentee must meet in order to satisfy its burden of amendment. In that regard, the Court recognized that:

Some question the wisdom of the PTO’s approach. Since IPRs were created, they have rapidly become a popular vehicle for challenging the validity of issued patents. Patentees who wish to make use of the statutorily provided amendment process deserve certainty and clarity in the requirements that they are expected to meet. A fluid, case-based interpretation by the PTO of its own regulations risks leaving interested members of the public in a state of uncertainty, without ascertainable standards and adequate notice to comply. Despite such concerns, we recognize that ‘the choice between rulemaking and adjudication lies in the first instance within the [agency’s] discretion.’ . . . [W]e cannot say that the PTO has abused its discretion in choosing adjudication over rulemaking.

Slip. Op. at 24 (internal citations omitted).

The Court ultimately concluded that the PTAB reasonably interpreted the amendment rules as requiring the patentee to show that its substitute claims are patentable over the prior art of record. But the Court also stressed that “this case does not call on us to decide whether every requirement announced by the Board in Idle Free constitutes a permissible interpretation of the PTO’s regulations.” Slip. Op. at 25, n.4. It noted that the Idle Free decision itself was not before the Court, and expressly declined to address the other requirements that the Board relied upon—highlighting in particular Idle Free’s requirement that the patentee show patentable distinction over all “prior art known to the patent owner.” Idle Free, 2013 WL 5947697, at *4.

Practical Takeaways

Microsoft v. Proxyconn demonstrates the Court’s willingness to give appellants a meaningful review of PTAB decisions despite its track record of issuing summary affirmances. This applies particularly to claim construction appeals, which in most cases will be afforded de novo review – subject to Teva.4 This case also clarifies that remands to the PTAB are possible, though it remains unclear how the PTAB will deal with that remand. Those concerned about the PTAB’s use of the BRI should take heart that its application must still be both reasonable and legally correct. The Court acknowledged the uncertainty parties face when the Office uses adjudication rather than rulemaking to set standards and practices in these new proceedings. However, the Court’s willingness to analyze the PTAB’s application of Idle Free suggests that such decisions themselves are reviewable and should be appealed if their interpretation is improper.

Federal Circuit Issues First Reversal & Remand of an Inter Partes Review in Microsoft Corporation v. Proxyconn, Inc. Addressing Claim Construction and Amendment Standards

The Federal Circuit issued its first reversal and remand of a final decision in an inter partes review issued by the Patent Trial and Appeal Board (“PTAB”). In Microsoft Corporation v. Proxyconn, Inc., No. 14-1543, a panel composed of Chief Judge Prost, Judge Lourie, and Judge Gilstrap (sitting by designation) held that the PTAB’s constructions of the phrases “two other computers,” “sender/computer,” and “receiver/computer” were unreasonably broad, and remanded for further proceedings consistent with its opinion. The Court’s decision marks the first ever reversal of an inter partes review decision by the PTAB, after 18 straight affirmances. Of the 18, fifteen have been affirmances without opinion issued under Federal Circuit Rule 36.

In brief, the Court upheld the PTAB’s use of the broadest reasonable interpretation (“BRI”) standard, but explained that the standard does not justify giving claims an unreasonably broad or legally incorrect interpretation. The Court then examined the statute and regulations governing amendment practice and concluded that the PTAB’s interpretation was not plainly erroneous or inconsistent with them. Last, in reference to the PTAB’s case-by-case interpretation of the same statute and regulations, the Court explained that while “[a] fluid, case-based interpretation by the PTO of its own regulations risks leaving interested members of the public in a state of uncertainty, without ascertainable standards and adequate notice to comply . . . we cannot say that the PTO has abused its discretion in choosing adjudication over rulemaking.”

In the underlying proceedings before the PTAB, Microsoft challenged Proxyconn’s patent directed to a system for increasing access speed in a packet-switched network. The PTAB concluded that all of the challenged claims, with the exception of one, were unpatentable. Both parties appealed. In addition to contesting the merits, Proxyconn challenged the PTAB’s used of the BRI standard, as well as the PTAB’s denial of Proxyconn’s motion to amend. We discuss each aspect in more detail below.

Broadest Reasonable Interpretation

With respect to BRI generally, the Court stated that it was bound by the panel decision in In re Cuozzo – the first appeal of an inter partes review decided earlier this year, which blessed the Office’s adoption of the hundred year old standard for use in inter partes review. In re Cuozzo is pending a decision on Cuozzo’s request for rehearing en banc, and several amici have submitted briefs expressing concern about the outcome. But practitioners troubled by the Office’s adoption and application of BRI can take some consolation. In this case, the panel rejected the PTAB’s construction as “unreasonably broad,” relying on precedent that constrains the Office’s application of the BRI to interpretations that are legally correct under the canons set forth in Phillips v. AWH Corp. Indeed, the panel dropped a footnote stating that its construction would have come out the same under the Phillips standard.

On the merits, the Court reviewed the Board’s claim constructions de novo. The Court carefully analyzed the technical merits and set forth a detailed interpretation of the claim terms appealed by both parties. This suggests that a meritorious claim construction dispute appealed to the Federal Circuit is likely to receive the same careful consideration and attention to detail that appellants have come to expect from the Court. It also shows that “unreasonably broad” claim interpretations that are inconsistent with settled principles of claim construction are reversible on appeal.

Proxyconn’s Motion to Amend

This appeal also presented the question of whether the PTAB impermissibly relied on the requirements it set forth in Idle Free Systems, Inc. v. Bergstrom, Inc., in denying Proxyconn’s motion to amend. In this case, the panel was not troubled by the PTAB’s reliance on its own decisions, like Idle Free, to promulgate standards for motions to amend. The Court agreed with the Office that the regulation itself “is not an exhaustive list of grounds upon which the Board can deny a motion to amend.” The Court also agreed that it is permissible for the Office to use adjudicative decisions like Idle Free, rather than traditional notice and comment rule-making, to set forth all the conditions that a patentee must meet in order to satisfy its burden of amendment. In that regard, the Court recognized that:

Some question the wisdom of the PTO’s approach. Since IPRs were created, they have rapidly become a popular vehicle for challenging the validity of issued patents. Patentees who wish to make use of the statutorily provided amendment process deserve certainty and clarity in the requirements that they are expected to meet. A fluid, case-based interpretation by the PTO of its own regulations risks leaving interested members of the public in a state of uncertainty, without ascertainable standards and adequate notice to comply. Despite such concerns, we recognize that ‘the choice between rulemaking and adjudication lies in the first instance within the [agency’s] discretion.’ . . . [W]e cannot say that the PTO has abused its discretion in choosing adjudication over rulemaking.

Slip. Op. at 24 (internal citations omitted).

The Court ultimately concluded that the PTAB reasonably interpreted the amendment rules as requiring the patentee to show that its substitute claims are patentable over the prior art of record. But the Court also stressed that “this case does not call on us to decide whether every requirement announced by the Board in Idle Free constitutes a permissible interpretation of the PTO’s regulations.” Slip. Op. at 25, n.4. It noted that the Idle Free decision itself was not before the Court, and expressly declined to address the other requirements that the Board relied upon—highlighting in particular Idle Free’s requirement that the patentee show patentable distinction over all “prior art known to the patent owner.” Idle Free, 2013 WL 5947697, at *4.

Practical Takeaways

Microsoft v. Proxyconn demonstrates the Court’s willingness to give appellants a meaningful review of PTAB decisions despite its track record of issuing summary affirmances. This applies particularly to claim construction appeals, which in most cases will be afforded de novo review – subject to Teva.4 This case also clarifies that remands to the PTAB are possible, though it remains unclear how the PTAB will deal with that remand. Those concerned about the PTAB’s use of the BRI should take heart that its application must still be both reasonable and legally correct. The Court acknowledged the uncertainty parties face when the Office uses adjudication rather than rulemaking to set standards and practices in these new proceedings. However, the Court’s willingness to analyze the PTAB’s application of Idle Free suggests that such decisions themselves are reviewable and should be appealed if their interpretation is improper.

Microsoft Ordered to Hand Over Data to the U.S. Government

Proskauer Law firm

In April, Microsoft tried to quash a search warrant from law enforcement agents in the United States (U.S.) that asked the technology company to produce the contents of one of its customer’s emails stored on a server located in Dublin, Ireland. The magistrate court denied Microsoft’s challenge, and Microsoft appealed. On July 31st, the software giant presented its case in the Southern District of New York where it was dealt another loss.

U.S. District Judge Loretta Preska, after two hours of oral argument, affirmed the magistrate court’s decision andordered Microsoft to hand over the user data stored in Ireland in accordance with the original warrant. Microsoft argued that the warrant exceeded U.S. jurisdictional reach. However, the court explained that the decision turned on section 442(1)(a) of Restatement (Third) of Foreign Relations. The provision says that a court can permit a U.S. agency “to order a person subject to its jurisdiction to produce documents, objects or other information relevant to an action or investigation, even if the information or the person in possession of the information is outside the United States.” Because Microsoft is located in the U.S. , the information it controlled abroad could be subject to domestic jurisdiction.

Microsoft had the support of large U.S. technology companies, including Apple, AT&T and Verizon. The larger issue for these companies lies in the U.S. government’s power to seize data and content held in the cloud and stored in locations around the world. When a conflict arises between the data sharing laws of the country where the servers are located and U.S. law, it can put these companies in the difficult position to choose to follow one country’s laws over the other.

Microsoft further argued that the ramifications for international policy are substantial. The company argued that compelling production of foreign stored information was an intrusion upon Irish sovereignty. It said that the decision could be interpreted by foreign countries as a green light to make similar invasions into data stored in the U.S. However, Judge Preska dismissed these concerns as diplomatic issues that were incidental and not of the court’s immediate concern.

The order has been stayed pending appeal.

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Microsoft-Nokia: China’s MOFCOM Quietly Slips Into the Debate about Injunctive Relief for FRAND (Fair, Reasonable and Nondiscriminatory)-Encumbered SEPs (Standard Essential Patents)

Sheppard Mullin 2012

This past November and December, the US Federal Trade Commission (“FTC”) andEuropean Commission (“EC”) cleared Microsoft Corporation’s (“Microsoft”) acquisition of the bulk of the devices and services business of Nokia Corporation of Finland (“Nokia”) without any conditions. In contrast, on April 8, 2014, the Chinese Ministry of Commerce (“MOFCOM”) approved the acquisition subject to conditions that include an intellectual property issue that is still to be resolved in the US, EU and other countries: whether holders of standard essential patents (“SEPs”) who make licensing commitments under fair, reasonable and nondiscriminatory (“FRAND”) terms should be barred from seeking injunctive relief against alleged infringers of their patents.  MOFCOM’s conditional approval is not controversial for this specific transaction, but raises the question of how MOFCOM’s treatment of this issue will be interpreted in future merger reviews and whether this will affect investigations related to anticompetitive conduct.

Microsoft develops, produces, licenses, and sells computer software, such as its computer operating system and PC-based productivity software, and consumer electronics. Microsoft owns both standard essential patents (“SEPs”) and non-SEPs for Android (smartphone operating system).  In general, the SEPs are important in terms of implementing certain telecommunication standards, such as 2G, 3G and 4G, in smartphones. The target, the devices and services business of Nokia, includes a design team and business units for devices such as mobile phones and smart devices, production facilities, related sales and marketing activities and support functions, as well as design rights related to the devices produced by the devices and services business.  Excluded from this acquisition are Nokia’s reserves of SEPs related to telecom and smartphones (the MOFCOM decision does not specify what these SEPs are for).

MOFCOM determined that Microsoft’s acquisition of Nokia’s design and services business had the effect of eliminating or restricting competition in China’s smartphone market both in terms of what Microsoft could do as a result of the acquisition and in terms of what Nokia could do with the assets that were not part of the acquisition.  MOFCOM conditioned its approval of the acquisition on Microsoft’s and Nokia’s compliance with the following conditions  (an unofficial translation of the MOFCOM decision can be found here).

MICROSOFT must:

1. (a) With regard to SEPs, continue to adhere to the existing FRAND terms of the standard setting organizations (SSOs).

(b) Refrain from seeking injunctions for infringement of such SEPs against smartphones produced by Chinese producers.

(c)  Refrain from demanding cross-licenses when licensing such SEPs except for any patents that the licensees have in the same industry.

(d) Only transfer such SEPs to a third party who agrees to comply with the above limitations. Any potential licensee with Microsoft-related SEPs should also be bound by the same principles.

2. (a) With regard to non-SEPs, continue to offer, at consistent or discounted rates, non-exclusive licenses of its non-SEPs to domestic Chinese smartphone producers

(b) For the next five years, not transfer its SEPs listed in attachment 1 or 2 (Attachment 1 lists Microsoft patents that were reviewed by MOFCOM, Attachment 2 lists Microsoft patents related to Android) to other parties. After this five-year period, Microsoft will transfer these SEPs only to those who agree to be bound by conditions imposed on Microsoft.

MOFCOM is entitled to inspect Microsoft’s compliance with the above conditions and Microsoft is obligated to report its compliance 45 days after the end of each calendar year.

NOKIA must:

  1. Make sure its commitments to license its SEPs continue to comply with the existing FRAND terms of the SSOs.
  2. Refrain from seeking injunctive relief against licensees of SEPs that are subject to FRAND except in the case where a licensee has breached the FRAND terms.
  3. Agree to define licensor or licensee “good faith” as a matter of each party’s willingness to resolve FRAND terms-related disputes through arbitration and to be bound by the arbitration decision.
  4. Agree that licensees are not obligated to accept any license not complying with FRAND terms by Nokia.
  5. Transfer SEPs only to those who agree to be bound by the FRAND terms applicable to those SEPs.
  6. Not change its valuation standards for FRAND licenses.

MOFCOM is entitled to inspect Nokia’s compliance with the above conditions and Nokia is obligated to report its compliance 45 days after the end of each calendar year.

Neither the FTC nor the EC speculated on the likely post-merger licensing conduct of the merged entity or the portion of Nokia that was excluded from the acquisition with respect to SEPs and non-SEPs. The EC noted that concerns related to the licensing of Nokia’s patent portfolio that was not part of the acquisition were beyond the scope of its review, but that it will monitor Nokia’s post-merger licensing practices.

MOFCOM, in contrast, without providing any basis for its conclusion other than speculation on the companies’ motives, stated that:

(a) Microsoft “could” exclude and impede competition in China’s smartphone market based on its patents for Android:  “Microsoft has the motive to raise royalty fees”—MOFCOM provides no basis for this conclusion other than the observation that, before the acquisition, Microsoft was not a player in the smartphone market. Now, with the SEPs and non-SEPs related to the Android system, it has the potential for excluding and restricting competition in the smartphone market because the Android smartphone has an 80% share of the China market.

(b) Nokia “could abuse its reserve of patent licenses” (“the acquisition enhances Nokia’s motive to rely on profits from patent licensing”)—MOFCOM provides no basis for this conclusion. MOFCOM states: “As Nokia will basically exit from downstream market of devices and services, Nokia will not have to obtain cross-licenses for its smartphone business after the acquisition, so its motivation to maintain a low level royalty fee in the smartphone industry will go down. Such lack of need will enhance Nokia’s motive to rely on profits from patent licensing.”

As in the Google-Motorola deal in 2012, this time both the FTC and the EC took a “wait and see” approach:  they will continue to monitor Microsoft’s and Nokia’s post-merger conduct.  MOFCOM took its analysis a step further.  MOFCOM wanted in black and white Microsoft’s and Nokia’s confirmations of what they are obligated to do under the FRAND terms of the standard setting organizations.  MOFCOM also wanted Microsoft to confirm that it would not seek an injunction against Chinese companies; such policy is actually already in Microsoft’s website statement of February 8, 2012, where, in reference to essential patents that are offered under FRAND terms, Microsoft announced that it would not seek an injunction against any firm on the basis of a SEP.

MOFCOM, without any discussion but merely by imposing a condition that the SEP holders, Microsoft and Nokia are barred from seeking injunctive relief against alleged patent infringers, has opened the door for debate in China. The issue of whether a FRAND commitment precludes a patent owner from seeking injunctive relief is still being debated in the US, EU and other jurisdictions. In July, 2013, the FTC lifted the ban against injunctions for FRAND patents in the Google-Motorola Mobility case.  In August, 2013, the US Trade Representative wrote a letter to the US International Trade Commission (“ITC”) stating that it opposed the injunction order of the ITC but included in a footnote when injunctions would be appropriate, including but not limited to when the “putative licensee is unable or refuses to take a FRAND license and is acting outside the scope of the patent holder’s commitment to license on FRAND terms…if a putative licensee is not subject to the jurisdiction of a court that could award damage.”  The bottom line was that public interest considerations must be part of the determination whether or not to grant injunctive relief. The EC’s stance is reflected in the Google/Motorola merger review decision of February, 2012—that competition may be threatened if SEP holders threaten injunctive relief.

MOFCOM’s approach may well have been influenced by Chinese domestic competitors raising concerns about the merger; in the media it has been reported that ZTE and Huawei, among others, raised concerns.  Of course, this is part of the merger review process, so it is not unusual for competitors to influence proceedings, but one must not forget that MOFCOM appears to wear two hats:  supporting China’s industrial policy and antitrust enforcer.  Furthermore, perhaps MOFCOM required these confirmations because it would be more difficult for the enforcement agencies, the National Development and Reform Commission (“NDRC”) and the State Administration of Industry and Commerce (“SAIC”), to monitor the companies’ actions in the future.

The relevance of this decision is the following:

  1. MOFCOM applies the antitrust laws as a regulator:  rather than waiting to see how the parties behave, it micro-manages their conduct (Microsoft and Nokia are already bound by FRAND terms that can include voluntary limitations on seeking injunctive relief).
  2.  How will SAIC use the condition regarding the ban on injunctive relief in abuse of dominance investigations?  Will the condition imposed by MOFCOM be interpreted as the definitive government position even though MOFCOM did not address this issue in its analysis?  If so, then there is the potential that a holder of an SEP may be accused of violating Chinese antitrust law if it seeks injunctive relief against an alleged infringer because it is allegedly abusing its dominant position (assuming that this holder is found to have a dominant position in the relevant market).
  3. Will SAIC include a ban on injunctive relief related to FRAND-encumbered SEPs in its final rules concerning intellectual property rights and the enforcement of Chinese antitrust law?
  4. It may be prudent for holders of SEPs to review their FRAND commitments.
  5. Potential patent infringers might want to check if there are FRAND commitments that would protect them.

This acquisition shows once more that for offshore acquisitions, which have been cleared by other jurisdictions, Chinese antitrust clearance is not to be taken for granted. This time China has quietly stepped into the debate over injunctive relief for FRAND-encumbered SEPs.

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Google, Microsoft Assume Roles of Judge, Jury and Executioner on the Web

Published December 6, 2011 in The National Law Review an article by Nicole Kardell of Ifrah Law regarding Google, Yahoo! and Bing have suspended their accounts with hundreds of advertisers and agents associated with mortgage programs under federal investigation:

 

 

Google, Yahoo! and Bing have suspended their accounts with hundreds of advertisers and agents associated with mortgage programs under federal investigation. The move by Google and Microsoft (Microsoft powers Bing and Yahoo!) has basically shut down these businesses: Without the vehicle of the search engines, these sites cannot effectively generate traffic.

Why did Google and Microsoft cut the cord of these companies, and is there anything the companies can do? Google and Microsoft (we’ll call them the Government’s “Judge, Jury, and Executioner” or the “Enforcers”) acted upon the request of SIGTARP, a federal agency charged with preventing fraud, waste, and abuse under TARP’s Home Affordable Modification Program(The pressure started a while back, as we wrote last March.)

SIGTARP is investigating mortgage programs that it believes have been wrongly charging “struggling homeowners a fee in exchange for false promises of lowering the homeowner’s mortgage.”

According to a source at SIGTARP, the agency handed Google and Microsoft a list of some 125 mortgage “schemes.” Apparently, the Enforcers then took that list, identified advertisers and agents associated with those mortgage programs, and opted to suspend relations with those companies (about 500 advertisers and agents for Google and about 400 for Microsoft). (SIGTARP’s announcements on these actions can be found here andhere.)

So it looks as if these companies have been penalized through government action without any adjudicative process, merely through government pressure on private companies, i.e. Google and Microsoft. (More analysis from us on this to come.)

It’s easy to understand why the Enforcers would feel pressure. Google just settled with the Department of Justice and agreed to pay more than $500 million for its role in publishing prescription drug ads from Canada. Those familiar with that settlement may see Google’s recent actions for SIGTARP as follow-on. Likely Google is more apt to buckle to the Feds quickly because of the costly settlement, but the matters are not directly related. In fact, the prescription drug settlement agreement relates to prescription drug ads only.

While the SIGTARP investigation is “ongoing,” and Google and Microsoft are continuing to cooperate with the agency, what can companies who have been caught up in this firestorm do? The Enforcers do, fortunately, have grievance processes (see, for instance, Google’s grievance process here).

Either on their own, or with some added strength through legal representation, the companies can try to make their cases regarding the content and nature of the ads at issue.

What is the next step going to be? If the Federal Trade Commission identifies, say, a group of websites that it believes are promoting bogus weight-loss schemes, will the Enforcers simply move to shut off their access to the Web, without further ado?

© 2011 Ifrah PLLC