Context: In the patent law community, Bernhard Frohwitter, the founder of Fortress-funded IPCom, needs no introduction. In case you haven’t heard of him, the headline of this article says it all: How IPCom kept the mobile phone industry on tenterhooks for 13 years. Susman Godfrey needs no introduction in any field of commercial litigation. It’s a high-power U.S. law firm that recently settled a billion-dollar case with Fox News (over voting machines) and is currently representing the New York Times against Microsoft in the highest-profile AI copyright case (May 30, 2024 ai fray article). Susman is also co-counsel to former operating company Proxense in patent infringement actions against Microsoft (April 27, 2024 ip fray article), Apple (March 23, 2024 ip fray article) and Google.
What’s new: Mr. Frohwitter, who is both a lawyer and an engineer, is now the CEO of ParTec, a German firm involved in the creation of some of the world’s largest supercomputers (corporate website). ParTec, which holds approximately 150 patents related to supercomputer and quantum computing architectures, has just announced a patent infringement lawsuit against Microsoft in the Eastern District of Texas, seeking what presumably amounts to billions of dollars in damages over the alleged use of its technology in Microsoft’s Azure cloud and AI infrastructure. Susman Godfrey represents ParTec, which means that some of the most sought-after litigators in the U.S. consider this infringement action an exceptionally promising case, given that a company as small as ParTec almost certainly could not afford Susman’s services without a contingency arrangement.
Direct impact: Unless Microsoft successfully petitions the Patent Trial and Appeal Board (PTAB) of the United States Patent & Trademark Office (USPTO) to perform inter partes reviews over which the district court grants a stay, a trial before Chief Judge Rodney Gilstrap of the United States District Court for the Eastern District of Texas will probably take place in 2025. Multi-billion-dollar damages verdicts are typically not upheld on appeal, and if the case settles, the amount is going to be closer to a weighted average of different possible outcomes.
Wider ramifications: Thus far, there has not been a noteworthy patent assertion against AI systems (Large Language Models) at the software level. ParTec v. Microsoft targets cloud infrastructure that is used (among other things) for AI purposes. Earlier this year, Google settled a multi-billion-dollar case brought by Singular over two patents targeting high-performance processors (January 25, 2024 ai fray article).
Unlike IPCom, which acquired patents from Bosch (a company that had exited the mobile handset business) to license patents, ParTec is an actual operating company. On its website, it lists various customers whom it helped to build high-performance computer systems, such as the Barcelona Supercomputing Center, Italy’s Cineca, the Israel Innovation Authority, and the Berlin-based Zuse Institute.
ParTec is publicly traded (August 1, 2023 ParTec press release) and has substantial revenues. In August, ParTec reported (PDF) revenues in excess of €52 million ($55 million) and an EBITDA income of €19.4 million ($20.8 million) for the first half of 2023.
There is no way that IPCom’s history from the 2000s and 2010s could be instructive in any way with a view to ParTec’s IP enforcement, other than the fact that Mr. Frohwitter means business when he asserts patents. The patent holder’s business model, the field of technology and various other factors are fundamentally different. What is very meaningful, however, is the fact that Susman Godfrey has agreed to litigate this case against Microsoft. That is obviously not a substitute for a verdict or judgment: they don’t always win. But they have a high rate of success and choose their cases wisely. Given Susman’s involvement, but also the scope and scale of what the case is targeting, the damages claim will presumably be in the billions of dollars. The complaint contains various numbers that are meant to show the economic dimension of Microsoft’s cloud business.
Here’s the complaint:
BF exaQC AG is a subsidiary ParTec AG. Houston-based Justin Nelson is the lead counsel.
These are the patents-in-suit:
- U.S. Patent No. 10,142,156 on a “computer cluster arrangement for processing a computation task and method for operation thereof” (inventor: Professor Dr. Dr. Thomas Lippert)
- U.S. Patent No. 11,934,883, same patent family as ‘156, thus same title and inventor
- U.S. Patent No. 11,537,442 on an “application runtime determined dynamical allocation of heterogeneous compute resources” (inventors: Professor Lippert and Bernhard Frohwitter)
ParTec’s press release highlights the significance of the ‘156 patent, which covers a dynamic Modular System Architecture (dMSA). According to ParTec, dMSA is particularly key to meeting the exacting requirements that come with AI training and inference, and it enables the dynamic interaction of CPUs (central processing units) and GPUs (graphics processing units) as well as other processors found in supercomputers. ParTec says the most advanced European supercomputers (Leonardo in Bologna, Italy; JUWELS and JUPITER in Juelich, Germany; and Meluxina in Luxembourg) were built on the basis of dMSA.
ParTec accuses Microsoft of infringing its patents with the “AI supercomputers” that are now part of Microsoft’s Azure cloud computing platform.
There has not been any prior infringement action involving those patents. But the patent family from which the ‘156 and ‘883 patents are includes EP2628080, against which a French patent law firm (alatis) filed an opposition in March 2020. The opposition division’s non-binding preliminary opinion of February 1, 2021 was favorable to ParTec’s interests, but in the end the patent was declared invalid over what the opposition panel considered an impermissible addition of subject matter (the term “reassignment” does not appear in the specification of the patent). The opposing party did not get traction for its non-novelty or obviousness arguments. The added-subject-matter question from the European opposition proceedings (where the matter is awaiting an appellate hearing) has no bearing on the U.S. dispute with Microsoft.
In February 2024, ParTec announced (PDF) that it had obtained a valuation of its patent portfolio at €767 million ($824 million). On that basis, Mr. Frohwitter described “the commercial utilisation of [ParTec’s] strong patent base as a pillar of Partec AG’s success.”
The valuation report was authored by IPCGS’s Dr. Roman Sedlmaier (an attorney-at-law with a Ph.D. in economics) and Jan Gigerich (patent attorney). The Gigerich-Sedlmaier analysis was then reviewed by patent attorney David Molnia of df-mp. Dr. Sedlmaier is currently litigating a landmark case over the extraterritorial (“long-arm”) reach of patent infringement rulings. A hearing was held last month by the Grand Chamber of the European Court of Justice (May 15, 2024 ip fray article). That case may, in fact, give the Unified Patent Court (UPC) jurisdiction over certain patent infringements in countries such as the UK and Spain that are member states of the European Patent Organization (EPOrg), which runs the EPO, but not of the UPC (May 31, 2024 ip fray article).
It’s clear that ParTec’s lawsuit against Microsoft will not be the last of its kind unless others enter into license agreements or the patents are invalidated (or narrowed to an extent that would defang them).