Litigation | Winter 2017
During Apple’s earnings conference call in May, chief executive Tim Cook discussed the company’s long-running and bitter dispute with Qualcomm, a company that manufactures internal components for the iPhone.
‘Qualcomm is trying to charge Apple a percentage of the total iPhone value. They do some great work around standard-essential patents, but Qualcomm’s component is only one small part of the iPhone. We don’t think that’s right, so we’re taking a principled stand on it and we strongly believe we’re in the right. I am sure they think they’re in the right, and that’s what courts are for.’
Cook’s stance is symptomatic of a brisk intellectual property (IP) litigation market. Patents are critical assets to tech-heavy companies, and the Qualcomm affair has already had a tangible impact on Apple. For its new iPhone 8, the company has increasingly sourced internal components from Intel, after predominantly using Qualcomm products for years.
Litigation is similarly vital in other patent-heavy industries, such as life sciences. With so much at stake, the in-house IP litigation team has become a crucial standalone group within those organisations. And when IP assets are the crown jewels of a business, having an autonomous IP disputes head is often a prerequisite.
‘Bit of a bubble’
Tomos Shillingford is associate general counsel of IP at pharmaceutical group Chemo, but has been involved in the disputes game since 2009 as director of IP litigation at Actavis (later known as Allergan).
As a pharmaceutical company that deals with generics, Chemo relies on using unpatented products. This is a contentious area, as seen from the legal battle between Shillingford’s former employer (and fellow generics manufacturer) Actavis and pharma giant Pfizer. Pfizer took issue with Actavis’ use of pregabalin as a painkiller ingredient, arguing that Actavis’ patent to use the ingredient in this way was invalid. At press time, Pfizer was seeking to take its claim all the way to the UK Supreme Court, dragging on a case that began in 2015.
Shillingford says that his IP litigation team at Chemo sees significant overlap with the general legal function, specifically for contractual work where negotiations over IP clauses in product licences are important. Despite this, Shillingford still retains his own budget and says the IP function across all industries can be ‘a bit of a bubble’.
In his experience, different GCs take different levels of interest in IP litigation. In his current role at Chemo, GC Sandra Moran has ‘respect for the role and what’s involved’, but while at Allergan, one GC he worked under did not have a deep understanding of IP disputes: ‘They would ask me: “Hey, Tom, why are we doing all this litigation?”’
No such bubble exists at Telefónica. Melissa Hall has been head of the company’s IP department since 2009, and her litigation team is fully integrated into the wider legal function. Hall and one other lawyer are responsible for IP matters across the whole business, supporting colleagues on a range of non-contentious work.
She adds that there is a lot of overlap between herself and UK legal head Edward Smith, albeit in an informal capacity. While the IP team sits within the legal function at Telefónica, Hall’s reporting line ends with legal director Julia Boyle rather than the GC. In that sense, her role is reasonably autonomous, with Smith choosing to focus on general oversight of the legal function in the UK.
Sharaz Gill, now managing director of patent revocation company Skepsis Telecom, has occupied in-house IP litigation roles at Qualcomm and HTC throughout his career. He says that even before its current mammoth dispute with Apple, Qualcomm relied heavily on its patents. Gill worked as a patent litigator at Qualcomm between 2007 and 2008 and estimates the company brought in around $8bn a year through patent licensing. At the time, Qualcomm possessed an enormous patent portfolio of 3G technology.
‘As such, patent litigators were considered very important,’ Gill says. ‘Without enforcement IP is worth nothing. No-one will pay unless you make them.’ He adds that Qualcomm gave him ‘the respect and budget commensurate with that importance’, and that management was very involved with IP matters.
Gill indicates that while there was an active dialogue between himself and senior management at Qualcomm, the GC was clearly demarcated from IP work. Despite operating chiefly out of Europe, Gill was given access to the company’s US lawyers if necessary. The willingness to diversify resources at Qualcomm displays how core IP is to the company.
The approach to IP litigation was vastly different at HTC, where Gill spent four years initially managing European patent litigation before taking up a similar post in Dubai. Gill notes: ‘It was a manufacturing company rather than a licensing company. It had very successful handsets, which meant it got sued. Our role was defensive.’
This fundamental difference between HTC and the patent-rich Qualcomm came from the top. Whereas Qualcomm’s senior management adopted a proactive relationship with the IP litigation team, HTC was hands-off.
‘We were only called by management when there was trouble. You only talked to management when you were getting sued, so they never really wanted to see you. Getting money and resources was quite difficult.’
But as the volume of litigation against HTC grew with the success of the handsets, Gill found himself called into regular meetings with then chief executive Peter Chou.
‘He was an engineer who came up through the ranks and he was very interested in the patents,’ Gill recalls. ‘Before we settled anything he wanted to know what the patents were about.’
Richard Vary, now a partner at Bird & Bird, spent ten years as Nokia’s head of litigation between 2006 and 2016. Nokia has both a prominent manufacturing and licensing business, and Vary estimates that around 90% of Nokia’s litigation spend during his decade there went on IP.
Until 2010, Nokia’s IP litigation function was separate from the wider legal team, with the reporting line ending with the chief technical officer rather than the chief legal officer. Vary notes that it seemed ‘illogical’ to have IP operate so independently given the disproportionate amount of resources being expended on it, and this is what instigated the change to a more integrated system.
The change saw IP fall within legal, with the reporting line ending with the chief legal officer. Vary states that the ability to combine resources following the switch improved Nokia’s efficiency.
‘By that stage, Nokia had a good in-house litigation team of ten lawyers, all of them in patent litigation. General commercial litigation was handled by contract lawyers who had little day-to-day experience. After the change, the litigation team could get involved in commercial litigation as well. To the contract guys it was just a distraction.’
Despite the IP team’s incorporation into the wider legal function, Vary felt his role was autonomous from the chief legal officer, Louise Pentland, who was responsible for the bulk of day-to-day legal work at Nokia and managing a legal department of around 400 people.
Vary comments: ‘Once a case was up and running, it was our job to run it. The chief legal officer probably didn’t know what was happening in most cases.’
Feast or famine
During his time at HTC Gill says that Chou was particularly interested in the case that saw HTC claim victory against Apple, with a High Court judge ruling in 2012 that HTC had not infringed patents on four of Apple’s technologies.
‘When we gave Apple a good slap, he was very happy about that because they had been asking for so much money.’
Despite this, Shillingford says the process of referring work to external counsel is generally smooth. He has one or two contacts in each of the main patent dispute jurisdictions who he turns to for big cases. He insists this does not come at the cost of cohesion: ‘We run a close-knit team here. We do not have any difficulty in instructing external counsel.’
For Simmons & Simmons’ experienced head of IP litigation Rowan Freeland, life sciences disputes constitute the core of his team’s work, while telecoms disputes in the mould of Apple v Qualcomm are less common but more ‘chunky’.
He describes the telecoms/tech market as ‘feast or famine’, and adds: ‘When you get a tech case coming you put in an order for a Porsche. If you haven’t, you sell the Porsche.’
Similarly, Bristows’ head of patent litigation Myles Jelf says patent-heavy tech disputes are ‘the cases you want to be on’, due to the higher fees involved.
Preceding the current dispute between Apple and Qualcomm, the other well-publicised cases in the telecoms/tech space have seen Nokia, Apple, HTC and Qualcomm battle against each other in various combinations.
Vary was at Nokia when it was hit by two patent infringement suits by Qualcomm in 2007. Qualcomm alleged Nokia’s phones had infringed patents relating to voice encoding technology and technology that enabled users to download digital content over wireless data networks.
Likewise, Shillingford cites working on the landmark dispute with Pfizer while at Actavis. He believes that the eventual outcome of the case will have big implications for the patent market: ‘People don’t turn a blind eye to off-label uses of their product, which is what generics are being accused of. But finding a proportionate way of dealing with that so patented areas of use are respected without inhibiting competition in the unpatented market is difficult.’
The big trend among in-house IP litigators at the moment is the transition of patent disputes from the US to Europe. The US has seen a lot of lobbying from various Silicon Valley players, particularly Google, against patents amid claims they stifle innovation. A recent US Supreme Court decision has compounded this shift away from the US by ruling that foreign patent owners are obliged to sue in the home state of the defendant, a change that Vary believes ‘undoubtedly’ gives the defendant the upper hand.
As a result, he sees the patent landscape shifting closer to home, especially with the eventual arrival of the Unified Patent Court (see box, below), which would encourage more patentees to resolve disputes in Europe. Jelf maintains that the patent litigation trend moving to Europe is well underway, and claims that Bristows is getting ‘quite a lot of interest from US-based patentees’.
Gill identifies the Internet of Things as the next big front in IP litigation. He argues that any company using WiFi for technology, ranging from car manufacturers to fridge-makers, should be aware of the high-value patent portfolios they are amassing and the potential for defending claims.
‘They have their heads in the sand about what it’s going to mean for them in terms of licensing, overheads and all the patent litigation around it. They are not doing enough. They should be hiring good in-house teams.’
And while the in-house players surveyed for this feature bear the scars of headline-grabbing litigation as badges of honour, given how crucial that role is to the success of many industries, the lifestyle it engenders for IP litigation heads can be unsustainable.
‘My first day at Nokia, I was stuck on a plane to Munich and given a patent to read while on the journey. That scared the crap out of me,’ says Vary. ‘I started to realise there was always someone trying to shut the company down somewhere. You just had to get on with it. You became used to the pressure and constant demand. I miss the pressure and the excitement but if I had carried on for another ten years it wouldn’t have been good for my health.’
The in-house perspective on the Unified Patent Court
Something of an obsession for IP litigation specialists is the Unified Patent Court (UPC), which has been met with serious delays in its UK implementation. This is chiefly because the court is open to all member states of the EU and since article 50 was triggered the UK’s continued involvement with the institution has been up for debate.
A press statement in November 2016 supposedly gave the UK the green light to ratify the UPC Agreement (UPCA), but Theresa May’s decision to call a snap election for June 2017 and the subsequent formation of a minority government put the UPC in further doubt, with the aim being to ratify the UPCA by the end of the year.
Former Nokia head of IP litigation and now Bird & Bird partner Richard Vary has been active in campaigning for joining the UPC.
‘It’s tremendously exciting. The UPC makes Europe an attractive venue to resolve patent litigation. The reason the US is a popular place to resolve patent disputes is because you’re dealing with 250 million consumers. The UPC would allow us to cover 500 million consumers, and the case would be an awful lot quicker and an awful lot cheaper than any US district court action.’
However, the benefits are lost on others. Tomos Shillingford, associate general counsel of IP at Chemo, has ‘deep concerns’ over the UPC, and believes there has been a lack of clarity over the law of infringement. The Court of Justice of the European Union (CJEU), which will be the ultimate line of appeal for the UPC, has omitted clear legal guidelines on what constitutes patent infringement. Shillingford believes infringement will be left to develop through case law.
‘If you find yourself in a Paris court it’ll be French law on infringement. If you’re in Poland you’ll be looking at a different law. I don’t understand how that would work.’
Shillingford is similarly concerned about the prospects of supplementary protection certificates (SPC). While not explicitly a patent term extension, SPCs extend the duration of certain rights within a patent for up to five-and-a-half years. In January 2017, the UK Patents Court referred two questions to the CJEU regarding the interpretation of SPC regulation. Shillingford feels SPC law is as unrefined as the UPC agreement: ‘The case law has been variable in this area. It’s difficult to rationalise some of the decisions made by the CJEU regarding SPC law. There are areas of SPC law that are not clear. It’s an area of legal conflict and the lack of clarity we get from the CJEU means the situation rolls on.’