Huawei v. Motorola

By Linh V.

   On January 24, 2011, Huawei Technologies Co., Ltd., a Chinese telecommunications giant, filed a lawsuit against its partner, Motorola Solutions, Inc., an American telecommunications giant, in a United States district court to stop Motorola from disclosing Huawei’s intellectual property information and trade secrets to Nokia Siemens Networks in the process of a $1.2 billion deal between Motorola and Nokia.  This suit stirred up much discussion due to Huawei’s checkered past and its ties to China’s government.

   Huawei is a networking communications equipment supplier headquartered in China with world-wide locations.  It began in 1988 as a distributor of small telephone exchange products.  After slowly expanding distribution throughout China, in 1997, it released its first GSM (mobile phone) product.  In 1999 – 2003, it worked with IBM to undergo product development and was able to expand into the overseas market by 2001.  Now, it is the second largest supplier of mobile telecommunications infrastructure equipment in the world, behind Ericsson.  It also currently specializes in research and new technology development and holds over 50,000 patents.  In 2009, its annual sales were $21.8 billion with a net profit of $2.67 billion.

   Motorola is headquartered in Illinois.  It started in 1928 as the manufacturer of battery eliminators for car radios.  In the 1940s, it mainly sold televisions and radios and produced a hand-held radio used during World War II for communications between U.S. and its allies.  It also developed radio equipment for NASA, the world’s first large screen portable television, and the first color television picture tube.  After Motorola sold its television business to Panasonic, it started making cellular products in 1988.  Between 2007 and 2009, it suffered a $4.3 billion loss, causing the corporation to split up in January 2011 into Motorola Mobility, Inc. and Motorola Solutions, Inc. with the belief that investors will perceive two simple businesses as being more advantageous to one extremely diverse and complicated business.

   Huawei and Motorola met in 2000 and came up with a deal in which Huawei would develop and design new technologies for cell phones, sell these products to Motorola, who would then resell them to consumers under the Motorola brand.  Since Huawei was relatively new in the telecommunications market at this time and needed to expand and grow its customer base while Motorola wanted to maintain its hold on the cell phone market through new technology development, this deal was seen to be a win-win for both parties.  To date, Motorola has sold and re-branded over $878 million worth of Huawei’s equipment.

   Shortly after this deal in 2000 closed, suspicion arose that Huawei was committing espionage as a puppet of the Chinese government.  As a result, government regulatory agencies in various countries, such as the Indian Telecom Ministry, made Huawei’s ability to bid on large-scale projects in the respective countries difficult by blocking Huawei’s license bid applications.

   Problems surrounding Huawei did not end there.  In 2003, it was sued by Cisco for copying model numbers and codes that were used in Cisco routers to help consumers switch to Huawei’s cheaper versions of the routers.  The suit was settled after Huawei agreed to pull the products off the market and change the design codes.  Details of the settlement are unknown.

   In 2008, Motorola sued Lemko Corporation, sixteen individuals, and Huawei.  The sixteen individuals were previous Motorola employees who Motorola claims were simultaneously employed by Lemko for the purposes of stealing trade secrets.  One of the main employees, Hanjuan Jin, was specifically accused of transferring proprietary information from Motorola to her personal e-mail account and then to Lemko.  Her husband, Shaowei Pan, was a prior employee of Motorola as well and is also Chief Technology Officer of Lemko.  Pan was also alleged to have had met with Huawei officials while employed with Motorola.  Basically, Motorola was claiming that there was a secret relationship between Lemko and Huawei for the purposes of stealing Motorola’s trade secrets.  Currently, after having been amended numerous times, the suit is still pending.

   In 2009, as a result of Motorola’s huge loss, Motorola contacted Huawei to explore the possibility of Huawei purchasing Motorola’s wireless networks infrastructure business in which equipment and services are provided to wireless network carriers and its associated assets.  Although Huawei submitted a non-binding bid, Motorola decided to sell its business not to its long-time partner but instead to one of its long-time partner’s direct competitors, Nokia.  In July 2010, it announced the $1.2 billion transaction, which has since been approved by the regulatory antitrust bodies in the U.S. and European Union but is still pending with the Chinese Antitrust authorities (“MOFCOM”:  Ministry of Commerce of the People’s Republic of China).

   As part of the agreements between Motorola and Huawei, Motorola approached Huawei to try to obtain its consent, informing Huawei that the deal would require disclosure of some of Huawei’s confidential information to Nokia because Motorola would be transferring some of its employees to Nokia.  Huawei refused to give consent.  Motorola then tried to come up with measures to protect the confidential information, such as the “firewall” proposal in which certain employees who had access to commercially available Huawei products would remain the only employees, once transferred to Nokia, with access to that information.  Huawei found this proposal insufficient to avoid trade secret misappropriation.  Discussions between the two parties continued throughout 2010 until January 24, 2011 when Huawei filed a claim with a U.S. court.

   In accordance with its agreements, Huawei and Motorola planned to settle the dispute before the arbitration tribunal in Switzerland.  To avoid making the arbitration ineffective before it even began, Huawei requested a temporary restraining order and a preliminary injunction against Motorola and Nokia to stop the transfer of any confidential information to Nokia.  Motorola responded to the claim arguing that this action was a pretext for Huawei’s actual intent of preventing the transaction from closing, an effort in retaliation to the Lemko lawsuit that Motorola previously filed.  Huawei was granted the temporary restraining order.

   The Court heard testimony from several witnesses stating that the transfer of confidential information was not necessary to effectuate the deal and that the “firewall” proposal that Motorola previously suggested would not be effective in preventing the misappropriation of the confidential information.  In finding that (1) Huawei had a strong likelihood of success on the merits of trade secret misappropriation claims, (2) Huawei would be irreparably harmed if Nokia obtained its confidential information because it would allow Nokia to gain an unfair advantage at its expense, (3) the balance of hardships weighed in Huawei’s favor because it had a lot to lose in the disclosure of the confidential information and there was no evidence that the deal between Motorola and Nokia would fail to close without the information, and (4) the public interest would be best served by enforcing valid agreements and trade secrets to protect “standards of commercial morality,” the Court awarded Huawei the preliminary injunction and ordered that Motorola cease transfer of confidential information to Nokia.

   Since the Court did not ban the deal between Motorola and Nokia, they are still going through with it upon approval by MOFCOM who has been sitting on the application.  Some believe the Chinese government was specifically waiting for the outcome of the lawsuit before deciding on the application.  Some are concerned that this is all part of a strategy that Huawei and the Chinese government have been working on to improve its weaponry.  The more possible theory is that Huawei is in bad faith attempting to monopolize the telecommunications industry by stopping its competitors from consolidating.  Huawei has once been quoted that it will use its “rich IP and patent portfolio” to stop the consolidation of equipment vendors around the world.  By making it difficult or impossible for these competitors to combine, Huawei can assure its spot at the top of the telecommunications market.   The confidential information that Motorola was attempting to transfer to Nokia was not the type of jackpot information that would allow Nokia to dethrone Huawei.  Rather, it was mainly information given to consumers in regards to its products.  Granted, the information also included future products but the two parties could have easily reached an agreement that would include monetary compensation to Huawei. 

   Sure enough, in April 2011, Motorola and Huawei issued a joint statement announcing that both parties have agreed to dismiss their claims in courts, including the complaint that Motorola filed against Huawei in conjunction with Lemko.  In allowing Motorola to transfer its commercial agreements with Huawei to Nokia, Huawei will be compensated a fee and Nokia will be allowed to receive and use the confidential information that Huawei previously attempted to prevent disclosure of.  Financial terms of the deal were not revealed.

Ghost Shifts and IP Rights in China

By Lael S.

   There have been  many news articles discussing intellectual property issues in China and how the chines IP laws do not comport with American standards. The truth is the intellectual property laws in China are generally sufficient to protect IP rights. The problem is not the law but the implementation of the law.

   There is so much outsourcing to China for production; but, it is hard for companies to regulate conduct there. In the process of contracting out production to Chinese manufacturers, a company often entrusts their trade secrets, production methods, material sources and such to the factory in China. (Of course, if a company has reason to think their IP may not be protected, the company may instead choose to do business elsewhere.)

   The problem of the implementation of the laws in China has affected many industries. The automotive, phone, pharmaceutical and software industries have all been affected by a lack of IP enforcement in China.

   The lack of implementation that results in “ghost shifts” is responsible for much of the infringing products. A “ghost shift” is the shift that comes into the factory once it’s closed down for the night and which manufactures out even more of the product off the books. The factory may sell this “ghost shift” slot to someone else to produce a related but completely different product the factory is producing. Or it may be the same product the factory has been licensed to produce with cheaper materials substituted. However, sometimes “ghost shifts” even produce the exact same product but sell it out the back door for much less than the retail price. Many times, “ghost shifts” start when the contracting company orders the Chinese factory to stop production...and the factory doesn’t. The licensee factory will still have the molds, instruments, and know where to get the materials so they can still make the product without the licensing company ever knowing. Often times, the real product is indistinguishable from the “ghost shift” product.

   Many American companies have seen counterfeit goods trickle into the American marketplace. While there are procedures to get an injunction preventing the sale of these goods here, it is not so easy to get the Chinese courts to enforce injunctions abroad.

To deal with the problem, companies have begun to implement procedures to aid in the regulation of their production overseas. These new procedures include: inserting invisible ink dyes into the materials they use, auditing materials and costs more rigorously, or utilizing new software that monitors tagged parts on contracted orders.

   In January, President Obama and the president of China, President Hu, issued a joint statement agreeing that China will begin to enforce intellectual property rights. Future goals include taking steps to address piracy, cracking down on landlords who rent space to counterfeit rings, and working to eliminate indigenous innovation. Hopefully these new measures begin to solve the problem and ultimately provide for a stronger and more unified marketplace.

Original Newspaper Source

Should Human Genes be the Subject of Patent Protection?

By Eunji C.

    The mapping of the human genome was a huge innovation that had great possibilities for early detection of diseases. For some patients and doctors, however, this has been disappointing to put it mildly. While the United States Patent and Trademark Office (USPTO) does not grant patents over the actual genes in the human body, it grants patents for the purified and isolated gene sequences and genetic tests which correlate the genetic sequences and medical conditions. This has led to a monopoly on genetic testing for certain diseases such as breast cancer.

    The Constitution grants the Congress with the power to grant patents to "promote the Progress of Science and useful Arts." U.S. Const. art. I, § 8, cl. 8. The idea of the patent system is quid pro quo. The patent owner is granted the right to exclude others from making, using, or selling the patented invention for 20 years. This right provides an incentive for inventors to invest their time and effort on new innovations and recoup the cost as well as award them for their contribution to the progress of science. In exchange, the public receives benefits from new inventions and developments. Additionally, inventors are required to provide a full disclosure of the invention, making the invention public knowledge once the period of exclusivity is over. This must be a careful balancing because too much patent protection can impede rather than promote the objective of patent protection. Lab. Corp. of Am. Holdings v. Metabolite Labs,. Inc., 548 U.S. 124, 126-127 (2006).

   In order to be granted a patent, the invention must meet the requirements set out in the Patent Act: patentable subject matter, utility, novelty, and nonobviousness. The subject matter requirement has been interpreted very broadly as “anything under the sun that is made by man.” Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980). This, however, is not without limits. The Supreme Court stated that “laws of nature, physical phenomena, and abstract ideas” are not patentable. Id.  at 309. These are not inventions which were meant to be protected because they are naturally occurring phenomenon.

    The USPTO has been granting patents on purified and isolated human genes based on the idea that purified DNA should be treated as any other chemical compound. The word "isolated" has become very powerful in distinguishing a claimed gene from its naturally occurring counter parts. Currently, about 20% of human genes are patented.

    In the case Association for Molecular Pathology v. United States Patent and Trademark Office, Seven patents relating to BRCA1 and BRCA2 genes have been challenged as invalid. 702 F.Supp. 2d 181 (S.D.N.Y. 2010).  These genes correlate to increased risk of breast and ovarian cancer. Myriad Genetics Inc. owns the patents at issue and sells BRCA screening tests at about $3000 per test. Myriad stopped other companies and researchers from BRCA screening through cease and desist letters and lawsuits.

    The opponents of human gene patents argue that gene sequences are products of nature and thus are not patentable subject matter. Additionally, they argue that these patents are unconstitutional because they impede rather than promote the progress of science. Many researchers have ceased their work on the BRCA genes due to fear of a lawsuit, which impedes the development of improved genetic testing. Patent owners can block alternative tests and research that could lead to better and cheaper testing. In the worst case scenario, patent owners could prohibit others from conducting research while not even practicing the research themselves. Researchers and doctors have become infringers, subject to harsh monetary penalties. Myriad also does not permit researchers to tell the results of the tests to the patients involved, which makes them unable to meet their ethical obligations to the people in the research.

    More importantly, the gene patents are having negative impact on the patients. Many of the plaintiffs in the case are patients who could not afford the tests. The testing is not covered by a number of insurers. Also, patients are unable to get a secondary test from another lab to confirm their results before having to make difficult decisions. This violates the patient's right to bodily integrity and health and the idea that a person should be able to look at their own genome and see if there is a mutation without paying a license fee to someone else. In Ontario, Canada, where the patents are ignored, the testing costs about one third of the cost in the United States.

    There is also an increasing tendency to patent upstream inventions such as research tools instead of the products of research, as a way to make money on license agreements.

    Proponents of the gene patents argue that patent protection has been given to other innovations that are also derived from nature. Myriad argued that the patents are on the purified form of naturally occurring compounds. They argued that since the genes do not exist in nature in pure form, this satisfies the difference needed for the patent protection. Proponents of gene patents also argue that patents allow for the much needed investment. Researchers might be deterred from developing innovative tests and drugs if they can't protect the fruits of their labor. Myriad argued that substantial private investing went into their search on the BRCA genes since it takes about 5-15 years and $100 million to bring a new biologic drug to market. Myriad also pointed out that they are constantly improving the testing process and that they will do a second interpretation of the results.

    The District Court denied Myriad's argument and said patentable subject matter must be markedly different from a product of nature; there must be a transformation which leads to a distinctive name, character, or use. The court’s decision is based on the idea that there has been too much focus on the term "isolated" when the entire utility of the isolated gene lies in the fact that it is functionally indistinguishable from the natural version of the gene. This is because the purified form has the exact same information as the gene in the human body that the purified form can be used as a diagnostic tool. The court’s opinion concluded that that purification of a natural product, without more, is insufficient to transform the product into a patentable subject matter. The District Court recognized that this was a valuable scientific achievement for which Myriad deserves recognition, but said that that is not the same as being entitled to a patent. The case is now in the Court of Appeals.

    The outcome of this decision could have significant impact on the health care and biotechnology industry. One major factor is the patient's right to information and health care concerning their own body. With breast cancer being the second cause of death for women in the United States, this issue has impact over a major population. Another consideration is the biotechnology industry. Unlike the technology industry with lower development costs, biotechnology industry has huge regulatory and expense hurdles. This could make it impractical without the patent protection to recoup the cost needed. Additionally, while the decision of a District Court may not have strong value as precedent, if the Court of Appeals decides to uphold the District Court's decision, this will have an impact for all of the human gene patents. Companies that have filed their human gene patent applications, have already disclosed their innovation. If these patents become invalid, the innovation could become public knowledge without the patent applicants being rewarded for their innovation, and investments in the company would probably lose value.

    There are other possible solutions to address concerns of both sides of this question. For example, the current research exception is very narrow.  If there was an expanded exception for research, the gene patents would not impair the progress of science. Combined with a limited patent which excludes research and diagnostic tests, or a mandated compulsive licensing, patent owners could continue to benefit from the patent protection while research and personal health rights would not be affected.

    Considering the far reaching consequences of the BRCA genes decision, it is especially critical to ensure that these patents truly serve the goal of the patent system. With a creative approach, it is possible to promote innovation in the science industry while preserving the personal right to access and make informed decisions over one's own body.

Google’s Patent on Censorship

By Hui W.

In the last few months, Google and the Chinese government have argued over the cyber-attack allegedly coming from the Chinese government. As a result, Google has announced that it no longer censors web search result through Google.cn, the subsidiary of Google in China. If the Chinese government prohibits free access of Google.cn search results, Google would withdraw completely from the Chinese market. The bold and public show of defiance has won Google applause all over the world; especially because China is the fastest growing economy and Western companies have bent over backwards to follow the suppressive laws and regulations of the Communist government. The move has boosted Google's image as a new kind of company, and that its motto of "do no evil" is not just empty words, but the guiding principle it follows in its operations.

Yet in the midst of the campaign against Internet censorship of the Chinese government, Google quietly obtained a US patent grant entitled "Variable user interface based on document access privileges" on February 16, 2010. The patent is for a way to change what a reader can see based on "geographical location information of the user" or "access rights possessed for the document." In other words, Google is patenting a censoring technology that blocks or allows access to content of its search results depending on where the user is coming from. The irony is inescapable: If censorship is so bad that Google is willing to cease operations in a country to protest, why does Google want the right to exclude the very definition of patent?

Google's patent also raises several interesting legal points about Internet patent. At first glance, we may say that technological progress has removed the validity of one argument from some of the earlier cases. In 2000, Yahoo! was sued in France for failure to filter out Nazi memorabilia items from its website if an Internet user accessed Yahoo.com from France. The reason is that in France the displaying of Nazi memorabilia is illegal, and by allowing French Internet user to see Nazi memorabilia in France, Yahoo.com violated French law, La Ligue Contre Le Racism v. Yahoo! Inc. (Paris 2000). One defense Yahoo! argued was that it had no technology to filter out content based on where the Internet user was coming from. The court ultimately did not accept this argument, and stated that if Yahoo! could show advertisements in French when the Internet user was from Yahoo.fr, it should be able to block Internet content too.

The Google patent shows that, unequivocally, the technology to "censor" content online based on user location is available, and that not blocking content is a choice and not a technical limitation.

Another interesting legal issue created by this patent, involves the interaction between copyright and patent laws on the Internet. Google's patent provides a way to alter website content, and it is plausible that the alteration may violate the copyright of web content owner. One of the rights that a copyright owner gets is the adaptation right: the right to authorize or refuse to authorize a derivative work, which in any manner recasts, adapts or transforms the original work, such that the resulting work is substantially similar to the original work. Formatting a website with reduced content is an alternation. The alternation arguably is adaption, transformation, or recasting. A copyright owner may make a colorable claim that "new" web content formed after Google's alteration is a derivative work generated by Google, and Google's action violates the copyright owner's adaptation right.

Google may counter such a challenge by arguing that the patent is specifically limited to comply with “applicable copyright laws” as specified in the Claim 1 of the patent. Arguably, the location based filtering is out of necessity due to difference in copyright law among various countries. An often mentioned example on the inconsistency of copyright term is that “Happy Birthday to You,” probably surprising to most, has a valid copyright, and the copyright lasts until 2030 in US while only until 2016 in Europe. On the Internet, suppose a user tries to access with the tune embedded on a website in 2017. If the user is from say France, an EU country, Google may grant access so the tune would be played when the user views the website; if the user is from US, the same website can still be accessed, but the tune could be blocked using Google patented technology, due to violation of public performance right of a work under existing valid copyright. In application like this, Google may argue, the patent helps compliance with copyright law, not violating it.

Morality aside, it’s hard to tell if Google’s patent would violate any intellectual property law in the United States. Obviously, Internet access has worldwide implications, and it remains to be seen if a patent like this would violate the law somewhere outside of the U.S.; and if it does violate the law in another jurisdiction, what the results of this conflict would be.

Judge Rules Against Vonage on Patents

Alexandria, Va. (AP) - A federal judge on Friday ordered a permanent injunction against Internet phone carrier Vonage for use of rival Verizon Communications Inc.'s patents. But the injunction, which could potentially cause major disruptions to the service provided by Vonage to its 2 million customers, will not take effect for at least two weeks. U.S. District Judge Claude Hilton said he will wait two weeks to officially enter the injunction while he considers Vonage's request for an extended stay.

Verizon sued Vonage last year for infringing on five patents it said makes the Internet telephone service network functional. On March 8, the eight-person jury found that Vonage had infringed on three of them. And it ruled that Vonage must pay $58 million, plus possible future royalties, to Verizon. That was far less than the $197 million that Verizon had requested, and was even slightly less than what Vonage had suggested would be fair if it were found liable.

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