Vringo is a US-based non-practising entity (NPE) which commenced patent infringement proceedings against the Australian subsidiary of the Chinese company ZTE Corporation back in June 2013. Although Vringo has been called a ‘patent troll’ by some media outlets (e.g. smartcompany.com.au and itwire.com), I have previously disputed that description in the case of this litigation by Vringo.
In the most recent development, the Federal Court has granted an application by Vringo allowing it to have the Chinese parent company joined to the proceedings in Australia. I believe that Vringo’s motivation for this latest move is because it wishes to obtain further technical details regarding the ZTE products it is alleging to infringe its patents. By adding the Chinese company – which manufactures the products – as a respondent, Vringo will be able to ask the court to order discovery by ZTE Corporation of the information Vringo needs in order to prove infringement.
Other interesting details to emerge from the recent decision are:
- that the accused products include a USB device used to access a 4G cellular mobile data network supplied by ZTE to Telstra;
- the accused products further include an item of network equipment identified as the ZXWN MSCS Mobile Switching Center Server; and
- the Vringo patents are said to be essential to implementation of standardised mobile data networking features including HSPA+ in 3G networks, and the Radio Link Protocol (RPL) which is a feature of 2G networks that was carried over into 3G.
Vringo – A Licensing Entity, Not a ‘Patent Troll’The patents that Vringo is asserting against ZTE were among a portfolio of over 500 acquired from Nokia in August 2012, for US$22 million dollars up-front. Nokia additionally received a worldwide licence to use the patented technologies in its own products, plus 35% of any royalties received by Vringo above the US$22 million purchase price. Many of the patents relate to technology developed by Nokia which has been incorporated into mobile communications standards, including 3G and 4G. By selling its patents to Vringo for a relatively low up-front fee, but with a trailing royalty component, Nokia effectively outsourced the licensing of those patents. It did something similar in January 2013, when it sold 450 patents to Europe-based NPE, Sisvel.
Even though Vringo now owns the ex-Nokia patents, under its agreement with Nokia it is not acting solely on its own behalf. As noted above, once Vring has earned more than US$22 million in global royalty income from the portfolio, Nokia will share in 35 cents of every additional dollar earned. I dare say, in fact, that the agreement would impose obligations and performance targets on Vringo, possibly with an option for Nokia to re-acquire the patents if those targets are not met.
Parallel Proceedings and Mobile StandardsAustralia is not the only jurisdiction in which Vringo has sued ZTE. For example, in October 2012 Vringo filed a lawsuit against ZTE in the UK, alleging infringement of three European patents from the ex-Nokia portfolio.
One of these patents was recently found to be valid and infringed by ZTE in the UK litigation. One particularly noteworthy passage in Mr Justice Birss’ decision addressed the relevance (or, more accurately, the lack thereof) of Vringo’s business model:
Although they never say so bluntly, ZTE contend that Vringo are "patent trolls". They contend that Vringo have conducted themselves in various inappropriate ways around the world against ZTE. However ZTE have not alleged or pleaded that any of this conduct amounts to a defence relevant to the issues I have to decide at this trial. For example no defence in competition law is relied on. Vringo do not accept that ZTE's allegations are correct. Whether ZTE are right or wrong about this is irrelevant and I will ignore these allegations.
In both the UK and Australia, the patents being asserted are said to be essential to implementation of mobile telecommunications standards promulgated by a body known as the Third-Generation Partnership Project (3GPP), of which the European Telecommunications Standards Institute (ETSI) and other standards-setting bodies are members.
Vringo’s Application to Add the Chinese Parent to its SuitVringo wants to ‘join’ the Chinese parent company, ZTE Corporation, to the infringement proceedings in Australia, having initially sued only the Australian subsidiary ZTE (Australia) Pty Ltd. The reason it wants to do this is because ZTE (Australia) is little more than a marketing and distribution business. It does not manufacture the products that are said to infringe the patents, and it is therefore not in possession of the detailed technical documentation about the products that may be required in order to prove infringement. Vringo presumably wishes to obtain discovery of such documentation (i.e. a court order requiring ZTE to hand it over), but cannot do so unless ZTE Corporation is joined as a respondent in the proceedings.
The ZTE products sold in Australia, and alleged to infringe the patents, include a 4G USB ‘dongle’ (i.e. a device allowing a computer to communicate via a cellular mobile network) identified by the ZTE code MF821, and sold as the ‘Telstra USB 4G’. Also identified is a network equipment product (i.e. something purchased and operated by carriers, rather than end users) identified as the ZXWN MSCS Mobile Switching Center Server (MSCS).
Under the Federal Court Rules, the court can order a party to be joined to proceedings in certain circumstances, including:
- where joinder is necessary to ensure that each issue in dispute in the proceeding is able to be heard and finally determined; or
- where joining a party will enable determination of a related dispute and, as a result, avoid multiple proceedings.
A Prima Facie Case Based on Standards ComplianceThe court’s precedents establish that, for a party to be joined to proceedings, the applicant for joinder (in this case Vringo) must establish a prima facie case. This is not necessarily an onerous requirement. The court is required to consider whether, on the (typically limited) information available to it at a relatively early stage of the proceedings, it is open for it to make inferences that, if they were to be translated into final findings of fact, on the basis of full evidence, would support a finding in favour of the applicant.
In other words, does it look like Vringo would win its infringement case if what it is currently alleging based upon more limited information were to be proven more rigorously upon the discovery of more detailed technical information that might be obtained from ZTE Corporation?
In order to establish a prima facie case, Vringo essentially argued as follows:
- ZTE represents that its products comply with certain elements of the 3GPP standards;
- the Vringo patents cover technology that is said to be essential to the implementation of those elements of the 3GPP standards;
- therefore, the ZTE products must infringe the patents.
Prima Facie – A Low Bar?In order to make its argument, Vringo relied principally on evidence from its Australian patent attorney, Mr Christopher Bird, who had compared particular claims of the patents with the relevant portions of the 3GPP standards documents.
Two things are notable about this. First, the court was willing to accept the evidence of a patent attorney, rather than a technical expert representing the ‘person skilled in the art’, on this issue:
I am satisfied that Mr Bird is qualified to give this evidence in his affidavit. The respondent accepted that Mr Bird has expertise in patent law. I take this acceptance to include, as it obviously must, acceptance that, by reason of his training, study and experience as a patent attorney, Mr Bird has experience in the reading and analysis of patent documents, which would equip him with expertise in analysing patent claims. Mr Bird has also given unchallenged evidence that his areas of specialisation, as a patent attorney, include digital telecommunications, image and audio signal processing, and electromechanical power switching and control. In my view, this qualifies Mr Bird as a witness who is able to read and understand industry standards applicable to those fields, certainly to a level that is sufficient to comprehend whether such standards specify the features of claim 9 of the 893 patent and claim 7 of the 182 patent. I can proceed confidently on the basis that it is well within the expertise of a competent patent attorney to read technical documents that pertain to the fields of activity in which the attorney practises. Mr Bird’s competence as a patent attorney practising in the field of digital telecommunications, image and audio signal processing, and electromechanical power switching and control is not in dispute. (At , emphasis added.)
Secondly, the court was willing to accept that, for the purposes of establishing a prima facie case, it was sufficient to present evidence comparing the standard with the asserted patent claims. A technical expert called by ZTE gave evidence that it is not always necessary to implement every feature set out in the standards documents in the way described in order to be compliant with the standard. Some features, for example, may be specified as being optional.
Conclusion – One Round to Vringo, But a Long Bout AheadThe judge appears to have understood that there is a distinction between saying that a product complies with a standard, and proving that the product actually implements the standard in a way that infringes a patent. The decision is at pains to point out that just because an inference is available that the ZTE products conform to the relevant parts of the 3GPP standards, it does not necessarily follow that the products incorporate all features of the standards or, in particular, the features specifically said to be covered by the patents (see -).
Overall, however, the court found that it is appropriate to order that ZTE Corporation be joined to the proceedings, being ‘satisfied that a separate proceeding could be made against ZTE Corporation in relation to the alleged infringements of the 893 patent and the 182 patent, and that all rights to relief claimed in the proceeding arise out of the same series of transactions or events’ and that ‘ZTE Corporation is a person who should be joined as a party in order to enable the determination of a related dispute and, as a result, avoid a multiplicity of proceedings’ (at -).
Additionally, the court granted leave for Vringo to serve the application on ZTE Corporation in China.
In order to prevail at trial, Vringo will need to do much more than it has done so far in establishing a prima facie case of infringement. Referring to the standards will not be enough. It will need to obtain evidence establishing how the ZTE products work, that they implement the patented features of the 3GPP standards, and that they do so in a way that actually infringes the asserted patent claims. Vringo may have had a recent win in the UK, but it still has a long road ahead in Australia.