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The Source for Standard-Essential and Other Patent Litigation Issues

Fujitsu and Tellabs settle RAND-obligation lawsuit before Judge Holderman (Fujitsu v. Tellabs)

Posted in District Courts, Litigation

Last week, Judge Holderman issued an Announcement that Fujitsu and Tellabs reached a settlement in this case where a jury had found that Fujitsu breached its RAND obligations and Judge Holderman had ordered Fujitsu to show cause why its patent should not be deemed unenforceable as to Tellabs (see our July 24, 2014 post).  Judge Holderman noted that, “[a]s this litigation has waged forward, millions of dollars in attorney fees and costs have been spent by the parties, the very kind of financial toll that successful RAND royalty licensing negotiations culminating in a RAND royalty licensing agreement would have avoided.”

Judge Holderman had delayed ruling on the pending show cause order so that the parties could pursue settlement, as they have done here.  So this the second high-profile standard essential patent case before Judge Holderman that has led to settlement, the first being the Innovatio litigation where Judge Holderman had determined a RAND royalty at the outset of the case in a unique reverse bifurcation proceeding that led to settlement before any trial on whether the patents were valid and infringed.  So we will remain forever curious about what the ruling might have been on the interesting show cause order.  But our curiosity readily gives way to privately negotiated agreements that have more flexibility than the tools courts have to resolve disputes.

Supreme Court to review defendant’s invalidity belief as defense to induced infringement (Commil v. Cisco)

Posted in Appeals, Litigation, Patent Alerts

Today in Commil v. Cisco the Supreme Court granted the petition for writ of certiorari to review the following specific question presented:

Whether the Federal Circuit erred in holding that a defendant’s belief that a patent is invalid is a defense to induced infringement under 35 U.S.C. § 271(b).

We provided a summary of the underlying Federal Circuit decision in our June 25, 2013 post.

Federal Circuit gives guidance on litigating RAND royalty (Ericsson v. D-Link)

Posted in Appeals, Jury verdicts, Litigation

Yesterday the Federal Circuit issued its long-awaited Ericsson v. D-Link decision that reviewed the Judge Davis jury verdict award for RAND-obligated 802.11 standard essential patents (see our Aug. 7, 2013 post).   The Federal Circuit eschews any per se rules for RAND-obligated patents–e.g., no set modified Georgia-Pacific analysis–and instructs the court to fashion damages instructions to the specific circumstances and evidence presented in a particular case.  The Federal Circuit summarized its decision as follows, and remanded the case for further consideration consistent with its decision:

In sum, we hold that, in all cases, a district court must instruct the jury only on factors that are relevant to the specific case at issue.  There is no Georgia-Pacific-like list of factors that district courts can parrot for every case involving RAND-encumbered patents.  The court should instruct the jury on the actual RAND commitment at issue and must be cautious not to instruct the jury on any factors that are not relevant to the record developed at trial.  We further hold that district courts must make clear to the jury that any royalty award must be based on the incremental value of the invention, not the value of the standard as a whole or any increased value the patented feature gains from its inclusion in the standard.  We also conclude that, if an accused infringer wants an instruction on patent hold-up and royalty stacking, it must provide evidence on the record of patent hold-up and royalty stacking in relation to both the RAND commitment at issue and the specific technology referenced therein.

Note that the court’s reference to “the incremental value of the invention” refers to apportioning the value of the invention to the accused product from other non-patented features and was not referring to the different  concept of the incremental value of the invention over a non-infringing alternative, which was not raised in this case.

This is a significant decision worth reading given its impact on  patent damages generally–e.g., clarifying the entire market value rule and applicability of Georgia-Pacific factors–as well as the specific impact in litigating royalties for RAND-encumbered patents.  A summary of the decision is provided below with generous excerpts from the decision itself given the importance thereof.

This is generally a patent friendly ruling that may increase the value of standard essential patents given the court’s rejection of some bright line rules that had been propounded that may have generally lowered the value of such patents — e.g., arguments to apply a one-size fits all RAND analysis to the smallest salable patent practicing unit based on public policy concerns beyond the actual circumstances of the case and RAND commitment that the patent owner made to the standard setting body.

Background

Ericsson sued D-Link and others in E.D. Texas for infringing patents alleged to be essential to the IEEE 802.11(n) WiFi standard.  The case ultimately was tried to a jury that found three patents infringed and awarded $10 million in damages, which was roughly 15 cents per infringing device.  Judge Davis sustained the jury verdict, from which this appeal followed.

Technical Standards Background.  The Federal Circuit explained the general background for industry technical standards based on an example user in a coffee shop being able to plug her laptop into the wall using a standard plug shape with standard voltage and being able to connect to the Internet through the coffee shop’s wireless network using standard protocols for wireless signal frequency, message formats, etc.  The standards are needed to ensure compatibility given the many different devices and device manufacturers.  Thus standard development organizations (“SDOs”) publish technical standards to ensure compatibility if the standard is adopted by “a critical mass of device developers.”  The standard at issue here is the Institute of Electrical and Electronics Engineers, Inc. (“IEEE”) 802.11(n) “Wi-Fi” wireless standard.

Developing the standard is a collaborative process of many different entities that may include technology covered by different patents.  The Federal Circuit defines such “standard essential patents” as follows:

Because the standard requires that devices utilize specific technology, compliant devices necessarily infringe certain claims in patents that cover technology incorporated into the standard.  These patents are called “standard essential patents” (“SEPs”). [citing IEEE Amicus Br. 13-14]

The Federal Circuit also described two  ”potential concerns” of patent hold-up and royalty stacking that the RAND-obligation seeks to address, stating:

SEPs pose two potential problems that could inhibit widespread adoption of the standard: patent hold-up and royalty stacking.  Patent hold-up exists when the holder of a SEP demands excessive royalties after companies are locked into using a standard.  Royalty stacking can arise when a standard implicates numerous patents, perhaps hundreds, if not thousands.  If companies are forced to pay royalties to all SEP holders, the royalties will “stack” on top of each other and may become excessive in the aggregate.  To help alleviate these potential concerns, SDOs often seek assurances from patent owners before publishing the standard.  IEEE, for example, asks SEP owners to pledge that they will grant licenses to an unrestricted number of applicants on “reasonable, and non-discriminatory” (“RAND”) terms. [emphasis added; citing IEEE Amicus Br. at 16-18].

In this case, patent owner Ericsson submitted letters of assurance to the IEEE that promised to offer licenses for all of its 802.11(n) SEPs on reasonable and non-discriminatory terms (“RAND”).  Specifically, Ericsson pledged to “grant a license under reasonable rates to an unrestricted number of applicants on a worldwide basis with reasonable terms and conditions that are demonstrably free of unfair discrimination.”  The parties agreed that Ericsson was bound by this commitment for the three asserted SEPs.

The ’568 Patent.  The asserted ’568 Patent is directed to having a data packet header field that identifies what type of data is in the data packet–e.g., voice, video or data.  This allows packets to be prioritized for when to transmit them over limited bandwidth, such as giving a higher priority to real-time voice or video data that suffer from transmission delay more than other types of data, such as downloading a file.  This patent was alleged to cover the 802.11(n) traffic identifier (“TID”) field used in a data packet header to indicate the priority level of the data in the packet.

The ’215 Patent.  The asserted ’215 Patent concerns a particular way of sending an “Automatic Repeat Request” (“ARQ”) to indicate what packets were not received so that the sending device will resend them.  In the ’215 Patent, a new “type identifier field” (“TIF”) is provided to indicate what format the ARQ field is in–e.g., is the ARQ simply the identification number of a missing packet or is it special coded bit-sequence denoting several missed packets.  This patent was asserted to cover the 802.11(n) “Multi-TID subfield” of the packet header that indicates what type of feedback response is in the “BlockAck” field of the header.

The ’625 Patent.  The asserted ’625 Patent concerns a way for the transmitting device to tell the receiving device that it does not need to wait for specific packets it may have missed during a data reception window (which would cause the receiving device to reject all other incoming packets), but to keep moving forward its data reception window to accept all transmitted packets.  This is helpful for certain types of data, such as real-time voice or video data, where it may be better to keep the conversation going rather than get stalled waiting for missed packets.  In contrast, for other types of data it may be important to receive all sent packets, such as in downloading a file so that you ultimately receive an exact copy of that file.  This patent was asserted against the 802.11(n) requirement that all packets should be received without using a reception window.

Accused Products.  The accused products include laptop computers and routers (“the end products”) that used 802.11(n)-compliant wireless chips made by Intel.

District Court Proceedings.  In 2010, Ericsson brought suit in E.D. Texas asserting nine patents alleged to be essential to 802.11(n).  Intel, who supplied the WiFi chip for the products, intervened.  At trial, Ericsson asserted five patents.  The jury found that the three patents above were infringed and awarded $10 million in past damages–about 15 cents per infringing device.  Judge Davis then had a bench trial on some RAND issues and ruled on JMOL motions that ultimately sustained the jury verdict (see our Aug. 7, 2013 post).

Federal Circuit Decision

Judge O’Malley authored the opinion, joined by Judge Taranto (except for a non-RAND issue) and Judge Hughes.

Infringement/Validity.  The Federal Circuit first went through challenges that the patents were not infringed or were invalid.  The Federal Circuit ruled substantial evidence supported the jury finding that the ’568 and ’215 Patents were infringed, but reversed the finding of infringement of the ’625 patent.  This included an interesting issue for the ’568 Patent concerning the Fantasy Sports line of cases dealing with whether there is infringement by a device simply because it is capable of performing a function even if there is little evidence that the claimed function is actually used, stating:

In sum, when the asserted claims recite capability, our case law supports finding infringement by a “reasonably capable” accused device on a case-by-case basis particularly where, as here, there is evidence that the accused device is actually used in an infringing manner and can be so used without significant alterations.

This may be a common issue for standard essential patents, because standards often have optional features that end products ultimately may not use, but must have the capability if they are to be deemed standard compliant–e.g., must be compliant to put the WiFi logo on the box.

The Federal Circuit also ruled that substantial evidence supported the jury’s verdict that the ’625 Patent was not invalid, which appears to be the only invalidity challenge on appeal.

Entire Market Value Rule (“EMVR”).  With respect to damages, the Federal Circuit first considered D-Link’s challenge to Ericsson’s damages expert relying on licenses tied to the entire value of the licensed product, rather than the smallest salable patent practicing unit within the licensed product, where Ericsson did not dispute that the patent claims are practiced entirely within the Wi-Fi chips that are components within the end products.  The Federal Circuit described the EMVR as having two separate parts: (1) a “substantive legal rule” that the “ultimate reasonable royalty”–i.e., combination royalty rate and royalty base–”must be based on the incremental value that the patented invention adds to the end products”; and (2) an “evidentiary principle”  applied to the choice of the royalty base that is intended “to help our jury system reliably implement” the substantive legal rule of apportionment.  The Federal Circuit explained this latter evidentiary principle as follows:

The principle, as applicable specifically to the choice of a royalty base, is that, where a multi-component product is at issue and the patented feature is not the item which imbues the combination of the other features with value, care must be taken to avoid misleading the jury by placing undue emphasis on the value of the entire product.  It is not that an appropriately apportioned royalty award could never be fashioned by starting with the entire market value of a multi-component product–by, for instance, dramatically reducing the royalty rate to be applied in those cases–it is that reliance on the entire market value might mislead the jury, who may be less equipped to understand the extent to which the royalty rate would need to do the work in such instances.  Thus, where the entire value of a machine as a marketable article is “properly and legally attributable to the patented feature,” the damages owed to the patentee may be calculated by reference to that value.  Where it is not, however, courts must insist on a more realistic starting point for the royalty calculations by juries–often, the smallest salable unit and, at times, even less.

The Federal Circuit ruled there was no error in allowing expert testimony on the challenged licenses at issue here.  Following its rationale in VirnetX (see our Sep. 17, 2014 post) that concerned comparable licenses in general, the Federal Circuit ruled that any concerns about the licenses proffered here go to the weight, and not admissibility, of those licenses:

This court has recognized that licenses may be presented to the jury to help the jury decide an appropriate royalty award.  Prior licenses, however, are almost never perfectly analogous to the infringement action.  For example, allegedly comparable licenses may cover more patents than are at issue in the action, including cross-licensing terms, cover foreign intellectual property rights, or, as here, be calculated as some percentage of the value of a multi-component product.  Testimony relying on licenses must account for such distinguishing facts when invoking them to value the patented invention.  Recognizing that constraint, however, the fact that a license is not perfectly analogous generally goes to the weight of the evidence, not its admissibility.  In each case, district courts must assess the extent to which the proffered testimony, evidence, and arguments would skew unfairly the jury’s ability to apportion the damages to account only for the value attributable to the infringing features.

The Federal Circuit also noted the practical issue that licenses generally are negotiated without considering the EMVR (e.g., smallest salable patent practicing unit), so too strict a rule on admissibility could preclude reliance on any actual real-world licenses, often deemed the best indication of what are reasonable licensing terms:

As the testimony at trial established, licenses are generally negotiated without consideration of the EMVR, and this was specifically true with respect to the Ericsson licenses relating to the technology at issue.  Makring real world, relevant licenses inadmissible on the grounds D-Link urges would often make it impossible for a patentee to resort to license-based evidence.  Such evidence is relevant and reliable, however, where the damages testimony regarding those license takes into account the very types of apportionment principles contemplated by Garretson [v. Clark, 111 U.S. 120, 121 (1884)).  In short, where expert testimony explains to the jury the need to discount reliance on a given license to account only for the value attributed to the licensed technology, as it did here, the mere fact that licenses predicated on the value of a multi-component product are referenced in that analysis--and the district court exercises its discretion not to exclude the evidence--is not reversible error.

The Federal Circuit, however, did counsel district courts to give cautionary instructions if requested and explain the importance of apportionment:

We do conclude, however, that, when licenses based on the value of a multi-component product are admitted, or even referenced in expert testimony, the court should give a cautionary instruction regarding the limited purposes for which such testimony is proffered if the accused infringer requests the instruction.  The court should also ensure that the instructions fully explain the need to apportion the ultimate royalty award to the incremental value of the patented feature from the overall product.

The Federal Circuit noted that simply relying on Georgia-Pacific factors--e.g., factors 9 and 13 that allude to apportionment--is not enough, but a separate instruction should be used in future cases.

The Federal Circuit also ruled that D-Link had waived its challenge to Ericsson's counsel having referred to the total cost of the laptop when discussing the royalty rate.  D-Link had only objected to the licenses (not the counsel statement), referred to its end product value itself during cross-examination and did not raise the issue in post-trial motions.

The Federal Circuit's ruling here on the entire market value rule should provide significant guidance on the "smallest salable patent practicing unit" debate for patents in general, as well as for standard essential patents.  Recall that in other SEP litigations involving the 802.11 WiFi standard, a dispute has been whether the royalty base should be the end product or the WiFi chip component within that end product.  For example, in Innovatio, Judge Holderman used the WiFi chip as the royalty base given a failure of proof by the patent holder to apportion value of the invention to the end product.  In CSIRO, Judge Davis used the end product as the royalty base because limiting the base to the cost of the WiFi chip would not capture the value of the patented technology.

The Federal Circuit's emphasis on the Rule 403 jury prejudice "evidentiary principle" also may provide guidance on application of the entire market value rule.  For example, both the Innovatio and CSIRO cases were bench trials in which Rule 403 prejudice concerns are less prevalent and, thus, might tend to allow more flexibility in referring to the end product as the royalty base, rather than the smallest salable patent practicing unit.  Further, the Rule 403 evidentiary principle is not an issue in actual, arms-length licensing negotiations between sophisticated market participants.  So actual negotiated licenses for RAND-encumbered patents may properly refer to the end product as the royalty base even though that might be precluded under a Rule 403 evidentiary basis in litigating the RAND rate before a jury on those same patents.  Such a disconnect between reasonable real-world practices and packaging a case for the jury may be problematic where the jury is asked to consider whether a RAND commitment was breached based on the license terms offered in actual negotiations (where the Rule 403 evidentiary principle is not applied) and the litigated RAND rate (where the Rule 403 evidentiary principle may be applied).

No Per Se RAND-Specific Modified Georgia-Pacific Analysis.  The Federal Circuit considered the issue of an appropriate RAND royalty rate "an issue of first impression", stating knowledge of only three other district court decisions on the issue: Judge Robart's Microsoft v. Motorola decision (on appeal to the Ninth Circuit), Judge Holderman's Innovatio decision (settled) and Judge Whyte's Realtek v. LSI jury decision (on appeal to the Ninth Circuit).  If you follow our blog, you know there is also a Judge Davis bench trial decision in CSIRO v. Cisco (see our July 28, 2014 post).

At the outset, the Federal Circuit cautioned about over-reliance on all factors enumerated in Georgia-Pacific, even when not all factors are relevant:

Although we have never described the Georgia-Pacific factors as a talisman for royalty rate calculations, district courts regularly turn to this 15-factor list when fashioning their jury instructions.  Indeed, courts often parrot all 15 factors to the jury, even if some of those factors clearly are not relevant to the case at hand.  And, often, damages experts resort to the factors to justify urging an increase or a decrease in a royalty calculation, with little explanation as to why they do so, and little reference to the facts of record.

The Federal Circuit explained that many Georgia-Pacific factors are not applicable to RAND-encumbered patents, stating:

For example, factor 4 is "[t]he licensor’s established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.”  Because of Ericsson’s RAND commitment, however, it cannot have that kind of policy for maintaining a patent monopoly.  Likewise, factor 5–”[t]he commercial relationship between the licensor and licensee”–is irrelevant because Ericsson must offer licenses at a non-discriminatory rate.

Several other Georgia-Pacific factors would at least need to be adjusted for RAND-encumbered patents–indeed, for SEP patents generally.  For example, factor 8 accounts for an invention’s “current popularity,” which is likely inflated because a standard requires the use of the technology.  Factor 9–”utility and advantages of the patented invention over the old modes or devices”–is also skewed for SEPs because the technology is used because it is essential, not necessarily because it is an improvement over the prior art.  Factor 10, moreover, considers the commercial embodiment of the licensor, which is also irrelevant as the standard requires the use of the technology. [emphasis added]

Thus the district court erred by giving the jury instructions on Georgia-Pacific factors that were not relevant, “including, at least, factors 4, 5, 8, 9 and 10.”  The Federal Circuit noted that referencing irrelevant factors alone may not be reversible error, but remand in this case will be necessary anyway given other errors.  Further, the Federal Circuit explained that the specific jury instructions should be tailored to the specific facts and circumstances of the case, finding it “unwise” to have a single modified Georgia-Pacific rule specific to all RAND-encumbered patents:

To be clear, we do not hold that there is a modified version of the Georgia-Pacific factors that should be used for all RAND-encumbered patents.  Indeed, to the extent D-Link argues that the trial court was required to give instructions that mirrored the analysis in Innovatio or Microsoft, we specifically reject that argument.  We believe it is unwise to create a new set of Georgia-Pacific-like factors for all cases involving RAND-encumbered patents.  Although we recognize the desire for bright line rules and the need for district courts to start somewhere, courts must consider the facts of record when instructing the jury and should avoid rote reference to any particular damages formula.

The Federal Circuit’s ruling here, thus, gives significance guidance in all cases on use of the Georgia-Pacific factors in general and the need to tailor jury instructions to the specific circumstances and evidence presented.  And it plainly rejects rote application of a modified Georgia-Pacific analysis to SEPs.  Rather, as with other patents, determining a RAND royalty rate will depend on the specific evidence presented in that particular case.

Consider Actual RAND Commitment.  Consistent with the focus on the actual facts and circumstances presented by the particular case, the Federal Circuit explained that the district court erred by generally instructing the jury to consider Ericsson’s RAND obligations, rather than instructing the jury about what those specific RAND obligations were, stating:

Trial court’s should also consider the patentee’s actual RAND commitment in crafting the jury instructions. … The district court should have turned to the actual RAND commitment at issue to determine how to instruct the jury.  In this case, Ericsson promised that it would “grant a license under reasonable rates to an unrestricted number of applicants on a worldwide basis with reasonable terms and conditions that are demonstrably free of unfair discrimination.”  Rather than instruct the jury to consider “Ericsson’s obligation to license its technology on RAND terms,” the trial court should have instructed the jury about Ericsson’s actual RAND promises.  ”RAND terms” vary from case to case.  A RAND commitment limits the market value to (what the patent owner can reasonably charge for use of) the patented technology.  The court therefore must inform the jury what commitments have been made and of its obligation (not just option) to take those commitments into account when determining a royalty award. [emphasis in original]

The Federal Circuit’s decision here thus brings the focus more on what the patent owner actually committed to do, rather than on some general public policy of what a RAND commitment should be.

Apportionment.  The Federal Circuit considered two special apportionment issues for SEPs:

First, the patented feature must be apportioned from all of the unpatented features reflected in the standard.  Second, the patentee’s royalty must be premised on the value of the patented feature, not any value added by the standard’s adoption of the patented technology.  These steps are necessary to ensure that the royalty award is based on the incremental value that the patented invention adds to the product, not any value added by the standardization of that technology. [emphasis in original]

The Federal Circuit noted that this may not be a precise science and “the jury should be told of its obligation to approximate the value added by the patented invention and that a degree of uncertainty in setting that value is permissible.”  Also worth noting is that the Federal Circuit’s reference to “the incremental value that the patented invention adds to the product” should not be confused with the “incremental value” the patented invention has over non-infringing alternatives, which is a totally different issue not discussed in this opinion.

The Federal Circuit noted that, in this case, the patented functionality of the two infringed patents were directed to only a small portion of the 802.11(n) standard and that some 802.11(n)-compliant end products do not use that functionality.  This is similar to computing damages for patents that cover only a small part of a device, and the jury should be instructed accordingly:

Just as we apportion damages for a patent that covers a small part of a device, we must also apportion damages for SEPs that cover only a small part of a standard.  In other words, a royalty award for a SEP must be apportioned to the value of the patented invention (or at least to the approximate value thereof), not the value of the standard as a whole.  A jury must be instructed accordingly.  … [I]f a patentee can show that his invention makes up “the entire value of the” standard, an apportionment instruction probably would not be appropriate.

***

Because SEP holders should only be compensated for the added benefit of their inventions, the jury must be told to differentiate the added benefit from any value the innovation gains because it has become standard essential.

The Federal Circuit used the Realtek court’s jury instruction as illustrative of this point, where the jury was instructed it “should not consider LSI’s advantage resulting from the standard’s adoption, if any.  However, you may consider any advantage resulting from the technology’s superiority.”

The Federal Circuit’s ruling here leaves some ambiguity in how to apply it.  The general purpose in apportioning the value of the patent to the standard appears to be a check that patented technology making only a nominal contribution to the standard does not improperly capture the value of the entire standard simply because the technology is in the standard.  But, of course, the ultimate issue to a licensee is the value of the patented technology to the licensed product, which product may not use or need all functionality provided by the standard.  For example, encryption of the WiFi signal may be important to some products that may be used in public places to protect the transmitted information, but may not be important to other products that use their own encryption scheme.  That was the case  in the Microsoft v. Motorola case that led Judge Robart to attribute little value to encryption patents for the Xbox products that did their own encryption for transmissions from the Xbox all the way through the WiFi connection and Internet to a remote server.  Judge Robart also had weighed the value of those patents to the standard itself, but it was not clear how that actually was applied in the case and the more controlling determination appeared to be the value to the licensed product, as is typically the case for all patents.  So it is not clear how a jury is to apply apportioning the value of the patent to the standard itself–in conjunction with apportioning the value of the patent to the accused product–beyond a rough check  that value is not being attributed to the mere fact that the patented technology is in the standard.

Need Evidence of Patent Hold-Up/Royalty Stacking.  The Federal Circuit agreed with the district court’s decision not to instruct the jury on patent hold-up or royalty stacking because there was no evidence of either.  Absent such evidence, an instruction would not be “necessary nor appropriate”:

In deciding whether to instruct the jury on patent hold-up and royalty stacking, again, we emphasize that the district court must consider the evidence on the record before it.  The district court need not instruct the jury on hold-up or stacking unless the accused infringer presents actual evidence of hold-up or stacking.  Certainly something more than a general argument that these phenomena are possibilities is necessary.  Indeed, “a court should not instruct on a proposition of law about which there is no competent evidence.”  Depending on the record, reference to such potential dangers may be neither necessary nor appropriate.

The Federal Circuit ruled there was no evidence of patent hold-up here, such as a showing that the patent holder started seeking higher royalty rates after the 802.11(n) standard was adopted.  Further, there was no evidence of royalty-stacking here, where D-Link did not present any evidence of other licenses it had taken under 802.11 patents: “The mere fact that thousands of patents are declared to be essential to a standard does not mean that a standard-compliant company will necessarily have to pay a royalty to each SEP holder.”

On this latter point, its worth noting that patent owners typically do not declare patents “to be essential to a standard”; rather, they typically submit letters of assurances or declarations that they will license the patent on RAND or other terms if the patent ends up being essential to the standard.  This is a practical issue, such as letters of assurance often are submitted before the standard is finalized so one may not know what the adopted standard will cover or there may be disagreements or uncertainty as to what a particular patent actually may cover (some patents alleged to be essential to a standard often are found not to be in litigation).

Hypothetical Negotiation Date.  The Federal Circuit noted that it was not addressing the date of the hypothetical negotiation–i.e., whether it should be at the time the standard was adopted or the time of infringement–because D-Link did not request such a jury instruction.  This goes to the issue whether non-infringing alternatives may include alternatives available at the time that the standard was adopted, as was considered by Judge Robart in Microsoft v. Motorola and Judge Holderman in Innovatio (modified to consider only alternatives that the SDO actually considered).

Reversed and Remanded.  Given the various errors identified above, the Federal Circuit vacated the RAND determination and remanded the case back to the district court for further proceedings consistent with the decision.

 

N.D. Cal. grants patent holder judgment on the pleadings on defendants’ antitrust and unfair competition counterclaims with leave to amend

Posted in Antitrust, Court Orders, District Courts, International Trade Commission, Litigation

The Northern District of California recently granted judgment on the pleadings in favor of patent-plaintiff ChriMar Systems, Inc. on antitrust and state law unfair competition counterclaims filed by accused infringers Cisco and Hewlett-Packard (HP).  According to the court, the crux of Cisco’s and HP’s counterclaims alleged that ChriMar failed to disclose and commit to license one of its patents on reasonable and non-discriminatory (RAND) terms during a standard-setting process and, subsequent to the standard being adopted, filed suit against them alleging infringement of the same patent.  Cisco and HP alleged that this was an abuse ChriMar’s “monopoly power” and also a violation of California’s Unfair Competition Law.  The court held that judgment on the pleadings was warranted because Cisco and HP failed to define the relevant market and also failed to plead facts showing market power and antitrust injury.  The court, however, granted Cisco and HP leave to amend their counterclaims.

Background.  On October 31, 2011, ChriMar filed a complaint against Cisco and HP alleging that Cisco’s and HP’s “Power over Ethernet telephones, switches, wireless access points, routers and other devices used in wireless local area networks, and/or cameras and components thereof that are compliant with the” Institute of Electrical and Electronic Engineers (IEEE) 802.3af and/or 802.3at standards infringed one or more claims of ChriMar’s U.S. Patent No. 7,457,250 (“the ’250 Patent”).  In response, Cisco and HP filed counterclaims asserting causes of action for, inter alia, monopolization under the federal antitrust laws as well as for violations of California’s Unfair Competition Law.

In their counterclaims, Cisco and HP allege that the IEEE has a “patent disclosure policy” that “requires participants in the standards setting process to disclose patents or patent applications they believe to be infringed by the practice of the proposed standard.”  Cisco and HP further allege that the IEEE policy requires those who disclose intellectual property rights to provide a written assurance stating whether they would enforce any of their present or future patents “whose use would be required to implement the proposed IEEE standard or provide” a license to such patents royalty-free or on RAND terms.  The counterclaims assert that ChriMar was required to but intentionally “failed to disclose to IEEE its belief that its ’250 Patent was essential to the proposed 802.3af and/or the 802.3at” during amendments of the 802.3 standard and that “ChriMar was not willing to license the ’250 Patent on RAND terms.”  Cisco and HP contend that due, in part, to this alleged failure to disclose, the industry adopted the present form of IEEE 802.3af and IEEE 802.3at amendments to the IEEE 802.3 standard and that they are now “locked-in to the current implementation . . . for Power over Ethernet-enabled products.”  Had ChriMar disclosed its belief that the ’250 Patent would be infringed by practicing the proposed amendments to the 802.3 standard as well as its unwillingness to license the patent on royalty-free or RAND terms, the IEEE would have, according to Cisco and HP, done one or more of the following:

1.  Incorporated one or more viable alternative technologies into the IEEE 802.3af and IEEE 802.3at amendments to the IEEE 802.3 standard;

2.  Requested ChriMar to provide a letter of assurance that it would license the ’250 Patent on RAND terms;

3.  Decided to either not adopt any amendment to the IEEE 802.3; and/or

4.  Adopted an amendment that did not incorporate technology that ChriMar claims is covered by the ’250 Patent.

Cisco and HP further contend that ChriMar has taken the position that all Power over Ethernet-enabled products infringe the ’250 Patent and that, to the extent that the ’250 Patent is essential to the 802.3af and the 802.3at standards, no viable technology substitutes exist and ChriMar has monopoly power over the Power over Ethernet Technology Market.  Both Cisco and HP allege that this conduct combined with ChriMar’s infringement action against them is an unlawful abuse of monopoly power under Section 2 of the Federal Sherman Antitrust Act and also unfair competition under California’s Unfair Competition Law, Cal. Bus. Code § 17200 (UCL).

HP also filed a claim for attempted monopolization under Section 2, which alleges that ChriMar’s complaint against it, Cisco and several others (Respondents) before the International Trade Commission seeking an exclusion order under Section 337 of the Tariff Act of 1930 constituted an unlawful intent to monopolize the Power over Ethernet Technology market.  According to HP, ChriMar alleged before the ITC  that Respondents infringe the ’250 Patent by importing products that practice the Power over Ethernet Standards IEEE 802.3af and 802.3at.  HP alleges that the Respondents’ imports collectively “comprise the substantial majority of products commercially offered in the Power over Ethernet Technology Market.”  HP alleges further that ChriMar’s “baseless” allegations of infringement and request for an order prohibiting these Respondents from importing Power over Ethernet products constitutes an unlawful attempt to monopolize the Power over Ethernet Technology Market.

ChriMar’s Answers and Motion to Dismiss.  ChriMar filed an answer to Cisco’s counterclaims as well as an answer to HP’s counterclaims generally denying defendants’ antitrust and UCL allegations and asserting lack of standing and failure to state a claim as affirmative defenses.  ChriMar thereafter moved for judgment on the pleadings on the antitrust and UCL counterclaims.  In its motion, ChriMar argued that Cisco and HP failed to plead facts showing that ChriMar had monopoly power in the alleged relevant market.  Specifically, according to ChriMar, Defendants could not “simply rely on the existence of patent rights or actions to enforce them, as they have done.”  ”As a matter of law, ‘patent rights are not legal monopolies in the antitrust sense of that word’ … and simply owning or enforcing the patent right does not make one a ‘prohibited monopolist.’”  ChriMar elaborated:

While the patent may give its owner a right to exclude, that is in no way synonymous with having monopoly power. … Such is presumably the case in a market related to a standards setting context where the standard does not practice the patented technology as Defendants allege in this action, where there are market alternatives to the standard itself such as Cisco’s own proprietary inline power technology, where other parties have rights to exclude in the same technology market (in the form of other patents that read on the standards) and can effectively limit the ability of other parties to exert monopoly power (i.e., control prices), or where competing technologies like wireless communication or conventional unpowered Ethernet can exert economic influences that can keep Power over Ethernet prices or the exercise of monopoly power in check — all issues Defendants’ pleadings never address.

ChriMar further argued that its enforcement of its patent rights was presumed to be valid under the Noerr-Pennington doctrine, which generally grants immunity from antitrust liability for petitioning the government in the form of litigation.  To overcome this presumption, Cisco and HP had to plead facts showing that its litigation against them and ITC proceeding seeking an exclusion order were a “sham,” that is, “objectively baseless.”  To be objectively baseless, Cisco and HP must plead facts showing that ChriMar’s claims were “‘so baseless that no reasonable litigant could realistically expect to secure favorable relief.’”  If Cisco and HP could show that ChriMar’s claims were objectively baseless, they next had to allege facts showing that the litigation was subjectively brought in bad faith in order to overcome Noerr-Pennington immunity.

ChriMar argued that the only factual allegation in HP’s counterclaim is that “‘discovery in the ITC investigation established that ChriMar’s allegations for domestic industry were baseless’” and that “ChriMar withdrew its [ITC] complaint nine months after it was filed, and after HP filed a motion for summary determination on the issue of domestic market.”  These allegations, according to ChriMar, failed to overcome ChriMar’s Noerr-Pennington immunity.

ChriMar also argued that Defendants failed to plead facts adequately defining a relevant market, a necessary element for a Section 2 claim.  Defendants alleged the following relevant market in their counterclaims:

ChriMar actually, potentially, and/or purportedly competes in the United States and worldwide markets for developing and licensing technology essential to implement the IEEE 802.3af and 802.3at amendments to the IEEE 802.3 standard and for technology essential to perform certain functions, allegedly covered by the ’250 Patent, necessary to implement the IEEE 802.3 standard (hereinafter ‘Power over Ethernet Technology Market’).

ChriMar asserted that this definition is flawed because it fails to identify what particular technologies are included within the market.  Further, ChriMar argued that Defendants “have pled a market whose outer boundaries are defined by ChriMar’s infringement claims (one patent asserted against two standards) rather than any exploration of the ‘reasonable interchangeability’ of use or the cross-elasticity of demand’ outside this intersection.”  Cisco and HP’s counterclaims did not consider that the “technologies and products at issue in this litigation may be interchangeable with other technologies and products such as Power over-Ethernet technologies and products that are not compliant with the two standards . . . or even technologies and products not compliant with any standard, but that themselves are alternatives to the Power over Ethernet technologies and products compliant with these two standards.”  Under the Sherman Act, according to ChriMar, the relevant market cannot be defined by ChriMar’s economic power within the two standards.  Rather, the relevant market must be defined and measured by cross-elasticity of demand or product interchangeability:  ”Here, Defendants plead economic power with respect to those entities voluntarily choosing to continue making products compliant with these two particular standards . . . and not the market demand for these particular Power over Ethernet technologies themselves.”

ChriMar further argued that Cisco and HP failed to plead facts showing that ChriMar had monopoly power or that Defendants have suffered antitrust injury.  Further, ChriMar asserted that HP’s attempted monopolization claim was deficient because it failed to plead facts showing that ChriMar’s ITC action “was motivated by an intent to monopolize, rather than primarily motivated by legitimate business purposes.”  Finally, ChriMar argued that Cisco and HP’s UCL claims should be dismissed because they relied on the same conduct that formed the basis of their Section 2 claims.

Cisco and HP’s Opposition.  Cisco filed an opposition to ChriMar’s motion, as did HP.  Responding to ChriMar’s arguments that Defendants failed to adequately plead a relevant market, both Cisco and HP argued that “[m]arket definition is rarely grounds for dismissal of a pleading because ‘the validity of the relevant market is typically a factual element rather than a legal element” that is not appropriate to resolve on a Rule 12 motion.  

On the merits, Defendants argued that numerous cases have consistently held “that the relevant market is defined by those technologies that — before the standard was adopted — were competing to perform the function that was covered by the purportedly essential patent.”  According to Cisco and HP, “ChriMar does not cite to a single case that considered the relevant market where antitrust violations occurred in connection with misconduct in the context of standards development.”  In contrast, Defendants argued that Apple v. Samsung, Broadcom v. Qualcomm and Apple v. Motorola confirm that their market definition was adequately pled.  In Samsung, Apple pled the relevant market as “the various markets for technologies that — before the standard was implemented — were competing to perform each of the various functions covered by each of Samsung’s purported essential patents for UMTS.”  ”Apple also identified the patents Samsung declared as standard essential and alleged that ‘pre-standardization there existed alternative substitutes for the technologies covered by Samsung’s patents,’ and that after standardization, ‘viable alternative technologies were excluded.’”  Defendants asserted that the Samsung court found such allegations to “define the bounds of the relevant market” and that “Apple ha[d] sufficiently pled a relevant antitrust market” because “the incorporation of a patent into a standard . . . makes the scope of the relevant market congruent with that of the patent.”

According to Defendants, the Broadcom court reached a similar conclusion, holding that Broadcom, the alleged infringer, had adequately pled a relevant market to support a monopolization claim that was defined as “the market for Qualcomm’s proprietary WCDMA technology, a technology essential to the implementation of the UMTS standard.”  Apple v. Motorola reached a similar conclusion, finding that a relevant market was sufficiently pled as “the various technologies competing to perform the functions covered by Motorola’s declared-essential patents for each of the relevant standards.”

Cisco and HP argued that, “[c]onsistent with these cases, [Defendants] defined the market to comprise the technologies that competed to perform the functions in the [Power over Ethernet] Standards allegedly covered by the ’250 patent.”  This definition, according to Defendants, “appropriately focuses on alternative technologies that were excluded from the market by ChriMar’s deceptive conduct and which [Defendants] and other implementers of the standard cannot now choose because the industry is ‘locked-in’ to the standard.”  ”To the extent ChriMar argues the correct market definition should include the entire standard, rather than some portion of the standard, that argument is inconsistent with both the complaint and with”  Samsung, Broadcom, and Apple.

With respect to monopoly power, both Cisco and HP argued that in the standards context, “it is well settled that patentees holding standard-essential patents can possess monopoly power.”  Cisco and HP again relied upon Samsung, wherein the court concluded that “because standard-essential patents may confer antitrust market power on the patent owner, Apple’s claims” that “Samsung had market power over the relevant market because it obtained the power to raise prices and exclude competition over the technologies covered by Samsung’s standard-essential patents” and that “there was a ‘lock-in’ to the standard” were sufficient to plead monopoly power.  Cisco and HP argued that their counterclaims satisfied this standard because they alleged that, as a result of ChriMar’s accusations that “the leading vendors of Power over Ethernet-enabled products” infringe the ’250 Patent, “it is ChriMar’s position that no meaningful level of Power over Ethernet-enabled products do not infringe the ’250 Patent.”  Further, like the allegations in Samsung, Cisco and HP both allege that “because of ‘lock-in’ to the standard,” there are no “viable technology substitutes at present.”  ”Accordingly, if the ’250 Patent claims covered products that comply with the IEEE standard as claimed by ChriMar, ChriMar has monopoly power over the Power over Ethernet Technology Market.”

The element of antitrust injury was also adequately pled, according to Cisco and HP.  Defendants argued that in order to plead that they have suffered antitrust injury, they must allege facts showing an injury to competition.  ”It is well settled that misconduct before an SSO harms competition by ‘obscuring the costs of including proprietary technology in a standard and increasing the likelihood that patent rights will confer monopoly power on the patent holder.’”  Cisco and HP pointed to allegations in their counterclaims “concerning the harm to competition caused by ChriMar’s deception in the context of standards setting,” including that ChriMar “‘could charge supra-competitive prices”‘” and that “‘[c]ustomers and consumers will be harmed, either by not getting products that are compliant with the IEEE 802.af and IEEE 802.at amendment to the IEEE 802.3 standard or having to pay an exorbitant price for one.”

Cisco also took issue with ChriMar’s argument that “the anticompetitive harm alleged by Cisco ‘is a potential consequence in any successful patent litigation.’”  According to Cisco, “[t]his is not just ‘ any patent litigation,’ and the competitive harm alleged by Cisco is not the natural result of any litigation.”  ”[H]ere, ChriMar deliberately subverted the goals of the IEEE standards-setting process by not disclosing its patent rights, waiting until the industry became ‘locked-in’ to the [Power over Ethernet] Standards, and demanding royalties from implementers of the standards that Cisco has alleged will lead to ‘supra-competitive prices.’”

With respect to ChriMar’s Noerr-Pennington argument, Cisco argued that “[c]ourts have repeatedly recognized that the Noerr-Pennington doctrine does not apply to monopoly power gained through deception in the context of SSOs, even when an allegedly standard-essential patent is subsequently asserted in court.”  As the doctrine does not apply, Cisco and HP need not plead facts supporting the two exceptions.

HP argued similarly, but also asserted that its counterclaim alleged facts supporting the “sham” exception to Noerr-Pennington, that is is, that ChriMar filed a sham ITC proceeding against HP and others only to later voluntarily withdraw it.

HP also asserted that its counterclaims adequately pled that ChriMar had a specific intent to monopolize and a dangerous probability of obtaining a monopoly.  ”HP alleges facts that ChriMar deceitfully concealed its patent in connection with the IEEE standards-setting process and then sought to enforce its patent in the ITC.  This conduct shows a specific intent by ChriMar to monopolize the [Power over Ethernet] Technology Market through its anticompetitive conduct.”  ”ChriMar became dangerously close to succeeding in its attempt, having dismissed its complaint less than two months before the start of the ITC hearing.”

Finally, Cisco and HP argued that, because they adequately pled causes of action under the federal antitrust laws, they also adequately pled a cause of action under California’s UCL.

The Court’s Decision on Cisco and HP’s Monopolization Counterclaims.  After ChriMar filed its reply, the court entered an order granting ChriMar’s motion.  With respect to Cisco and HP’s monopolization claims, the court agreed with ChriMar that their pleadings failed to allege facts sufficient to define the relevant market, a necessary element to a Section 2 claim.  ”Courts typically require that the proposed relevant market be defined with reference to the rule of reasonable interchangeability and cross-elasticity of demand.”  ”However, in the context of a standard setting organization (‘SSO’) locking in a standard which eliminates substitute or alternative technologies courts have allowed a relevant market to be defined by the technologies that were competing before the standard was adopted to perform the function that is covered by the standard and the essential patent.”  ”For example, in [Apple v. Samsung], the court found sufficient Apple’s allegations that defined the relevant market as the ‘various markets for technologies that — before the standard was implemented — were competing to perform each of the various functions covered by each of Samsung’s purported essential patents for’ the standard.”  The court in Samsung further “noted that Apple alleged that pre-standardization there were alternative substitutes for the technologies covered by Samsung’s patents, and that after the SSO adopted the proposed standard, viable alternative technologies were excluded.”  Cisco and HP’s claims failed to plead such facts or facts defining the market “as comprising the technologies that competed to perform the functions in the Power over Ethernet standards allegedly covered by the ’250 Patent.”  Therefore, Cisco and HP failed to sufficiently allege the relevant market.

The court also held that Cisco and HP failed to allege sufficient facts showing that ChriMar had the requisite market power to support a Section 2 claim.  On this element, Cisco and HP argued that “their allegations regarding ChriMar’s failure to disclose its belief that the ’250 Patent was essential to the 802.3af and 802.3at amendments to the IEEE 802.3 to the standard setting organization (‘SSO’) is sufficient to allege their monopoly claims.”  Citing to an earlier decision in Apple v. Samsung, Defendants contended that “it is sufficient to allege that if the ’250 Patent is essential, then ChriMar has monopoly power.”  The court, however, concluded that the decision did not support defendants’ contention.  Specifically, “in that case, the court determined that Apple had sufficiently alleged monopoly power.”  ”The court in Samsung further noted that, in contrast to the theory that a patent holder misrepresented to an SSO that it would license its intellectual property on RAND terms, ‘[c]ourts have been more reluctant to find an antitrust violation based on the theory that a failure to disclose intellectual property rights in a declared essential patent created monopoly power for a member of the SSO.’”  Indeed, the Samsung court expressly required the plaintiff to allege that “there was an alternative technology that the SSO was considering during the standard setting process and that the SSO would have adopted an alternative standard had it known of the patent holder’s intellectual property rights.”  The Samsung court further made it “clear that the heightened pleading requirements under Rule 9(b) for fraud applies to” the types of antitrust claims brought by Cisco and HP.  Applying these standards to those claims, the court concluded that “they fail to allege non-conclusory facts which, if true, would be enough to show that ChriMar acquired sufficient monopoly power.”  ”Notably, Defendants fail to clearly allege that the IEEE would have adopted an alternative standard had it known about the ’250 Patent and ChriMar’s position with respect to its ’250 Patent.”  Therefore, Cisco and HP failed to plead the necessary element of market power.

Finally, with respect to the necessary element of antitrust injury, the court concluded that Cisco and HP’s claims merely alleged, “in conclusory fashion, that ChriMar’s alleged conduct has ’caused and will directly and proximately cause antitrust liability to [Defendants] within the Power over Ethernet Technology Market . . .”  Neither defendant pled any facts which, if true, “would demonstrate antitrust injury.”

Because Cisco and HP failed to allege the necessary elements of a relevant market, monopoly power, and antitrust injury, the court found “that Defendants have not alleged sufficient facts to state a counterclaim for monopolization.”  However, the court provided Defendants with leave to amend their monopolization claims in an attempt to remedy the deficiencies identified by the court.

Notably, the court did not address — at least not at this time — ChriMar’s Noerr-Pennington arguments but may very well do so on any subsequent motion to dismiss the amended counterclaims permitted by the court’s decision.

The Court’s Decision on HP’s Attempted Monopolization Counterclaim.  Because HP failed to plead a relevant market as well as antitrust injury, HP’s attempted monopolization claim failed as well.  ”In addition, although a lower percentage [of market share] is required for an attempted monopoly claim, as opposed to an actual monopoly claim, HP must still allege sufficient market power.”  The court concluded that HP failed to allege sufficient market power which was also “fatal to its attempted monopolization claim.”

The court disagreed with ChriMar’s argument that “HP’s attempted monopolization counterclaim fails for the additional reason that HP fails to allege specific intent to monopolize or a dangerous probability of obtaining monopoly power because HP’s attempted monopolization allegations are based solely around the terminated [ITC] investigation.”  The court concluded that “HP does not rely solely upon the ITC investigation” but “is also premised upon ChriMar’s alleged misconduct before the SSO.”  However, because the court was granting HP leave to amend its counterclaim to adequately allege a relevant market, market power and antitrust injury, the court did not reach the issue of whether HP’s additional allegations regarding the ITC investigation would be sufficient, standing alone, to state a claim for attempted monopolization “if HP sufficiently alleges the relevant market power, and an antitrust injury.”  HP’s attempted monopolization claim was therefore dismissed with leave to amend.

The Court’s Decision on Cisco and HP’s UCL Counterclaims.  The court also dismissed Cisco and HP’s UCL counterclaims.  ”Courts have held that where the alleged conduct does not violate the antitrust laws, a claim based on unfair conduct under the UCL cannot survive.”  ”Because the Court finds that Defendants have not alleged facts sufficient to state a a counterclaim for monopolization and attempted monopolization, Defendants’ UCL counterclaims” fail as well.  However, as with the other counterclaims, the court granted HP and Cisco leave to amend this claim as well.

We will continue to track the pleading and other developments in this case.

FTC, MPHJ enter settlement and consent order in demand-letter investigation

Posted in Federal Trade Commission

Following an investigation of alleged deceptive patent-assertion practices, the FTC has reached settlement with non-practicing entity MPHJ (the so-called “scanner troll”) and its counsel, Farney Daniels PC. The resolution has resulted in an agreement and consent order that would bar MPHJ and the Farney Daniels firm from making misrepresentations — including deceptive claims concerning the results of licensing, sales, settlement, or litigation regarding particular patents, claims that a particular patent has been licensed to a substantial number of licensees, or claims that a particular patent has been licensed at particular prices or within particular price ranges – when asserting patent rights in the future. Under the proposed settlement, MPHJ and Farney Daniels are commissioned with certain recordkeeping practices and requirements that the parties fully document and substantiate any future patent assertion efforts and keep records demonstrating their compliance with the order for a period of twenty years. The FTC has invited interested parties to submit comments on the issues set forth in the proposed consent agreement via the FTC’s website through December 8, 2014.

As discussed in prior posts, MPHJ and its counsel drew nationwide attention after undertaking an extensive letter campaign in attempt to accumulate license fees on its scanner patents by threatening small end-users with litigation that MPHJ allegedly did not actually intend to pursue. MPHJ’s demand letters prompted legal action from the Attorneys General of several states, including Nebraska and Vermont. MPHJ also filed a complaint against the FTC in W.D. Tex. in January 2014, preemptively seeking to prevent an FTC-enforcement-action premised on the non-practicing entity’s demand practices. Judge Walter Smith dismissed MPHJ’s suit in September, writing, “There has been no FTC action beyond the investigative stage, other than FTC’s attempted settlement. There is, therefore, no imminent threat of prosecution.” The settlement also comes in the midst of the FTC initiating its “Patent Assertion Entity Study”, which was approved by OMB this August.

Parties begin FRAND, damages discovery following infringement verdict (InterDigital v. ZTE)

Posted in Court Orders, Legislation

Judge Andrews has entered an order allowing InterDigital and ZTE to proceed with FRAND and damages discovery, following last week’s jury verdict finding that ZTE’s accused handset devices infringe the patents asserted by InterDigital. As we previously mentioned, ZTE asserted a number of FRAND-related affirmative defenses and counterclaims in the litigation, all of which were bifurcated from the infringement liability issues on trial last week. With respect to the SSO-related portion of the case, the order instructs the parties to proceed with FRAND and damages discovery under the assumption that the infringement verdict will stand and without the need to coordinate with discovery in InterDigital’s co-pending case against Nokia, scheduled for trial March 2015:

FRAND/damages discovery may begin immediately. It is going to have to be done, and the parties should do it (as they normally would) on the assumption that ZTE will be found to have infringed the ’151 patent. It does not need to be coordinated with any similar discovery in the Nokia case. The parties should include the scheduling for this discovery in the written proposed scheduling order submitted before the above-mentioned scheduling conference. The schedule should culminate in a trial disposing of the FRAND/damages issues.

The order also denies the pending JMOL motions — after trial, ZTE filed for JMOL of noninfringement and InterDigital sought JMOL declaring each of the asserted patents were not invalid — sets a briefing schedule for ZTE’s renewed JMOL or motion for new trial, invites the parties to submit an agreed-upon revised judgment form, and indicates the Court will “issue an order in the Nokia case to learn Nokia’s position on further claim construction in relation to the ’151 patent” which was presented at trial but ultimately not decided by the jury. During the trial, the Court suggested and the parties stipulated to a mistrial with respect to the ’151 patent after certain claim construction evidence was presented by InterDitigal. The parties afterwards agreed to hold separate claim construction proceedings on the ’151 patent and, in accord with yesterday’s order, will proceed with a two-day trial on infringement issues related to this patent alone at a later date.

Jury verdict: ZTE infringes InterDigital patents (InterDigital v. ZTE)

Posted in Jury verdicts, Litigation

Yesterday, InterDigital prevailed in its Delaware jury trial against ZTE where the jury found that ZTE’s accused phones infringe each asserted claims of InterDigital’s U.S. Patent Nos. 7,190,966, 7,286,847, and 8,380,244. The verdict form also shows that the jury found none of the asserted claims to be invalid as obvious. The jury was not asked to make any finding on issues related to damages, ZTE’s FRAND-related affirmative defenses, and ZTE’s FRAND-related counterclaims, all of which were bifurcated from patent liability issues by the parties’ joint stipulation and will be tried at a later date. As you may recall from our May 30, 2014 post, Judge Andrews previously dismissed ZTE’s amended FRAND counterclaims against InterDigital, ruling that the declaratory judgment actions would not serve a useful purpose in the context of the parties’ ongoing litigation and that ZTE’s affirmative defenses adequately encompassed the FRAND-related issues. In accord with the jury’s verdict, the Court entered judgment in favor of InterDitigal on plaintiff’s infringement counts and ZTE’s invalidity counterclaim as to the patents-at-issue. We note that the judgment does not extend to ZTE’s FRAND-related counterclaims or defenses that have yet to be litigated.

The jury verdict stands in contrast to ALJ Essex’s June 2014 Initial Determination in Inv. No. 337-TA-868 – InterDigital’s ITC case against ZTE — finding that ZTE and Nokia had not infringed the same  ’966 and ’847 patents that were at issue in the Delaware case. As discussed in our July 2, 2014 post, ALJ Essex’s Initial Determination, which was affirmed by the Commission on review, provided a sharp critique of respondents that assert FRAND defenses without having first availed themselves of SSO procedures for resolving situations where licenses are not available. The ITC decision is currently up on appeal to the Federal Circuit, with oral arguments to take place next month.

European Commission seeks public comments on patents and standards

Posted in Miscellaneous

The European Commission’s Directorate-General (“DG”) for Enterprise and Industry has initiated a “Public Consultation on Patents and Standards“, seeking to gather public input on the relationship between the standardization of technical specifications and related intellectual property rights. The comment period is open now through January 31, 2015 . The public consultation seeks comment from any interested party, particularly those having direct experience with standardization involving IPR, patent transfers, patent pools, and patent dispute resolution, and expresses particular interest in comments on the performance of the current framework governing standardization involving patents and how this framework “should evolve to ensure that standardization remains efficient and adapted to the fast-changing economic and technological environment.”

There are eight “key issues” on which feedback is sought followed by more specific questions (see questionnaire), with the eight key issues as follows:

  1. Standardisation involving patents is common in the telecommunication industry and in the consumer electronics industry. Which other fields of standardisation comprise patent-protected technologies or are likely to do so in the future?
  2. A variety of rules and practices govern standardisation involving patents. Which elements of these rules and practices are working well and should be kept and/or expanded? Which elements on the other hand can be improved?
  3. Patent transparency seems particularly important to prevent [sic] achieve efficient licensing and to prevent abusive behaviour. How can patent transparency in standardization be maintained/increased? What specific changes to the patent declaration systems of standard setting organizations would improve transparency regarding standard essential patents at a reasonable cost?
  4. Patents on technologies that are comprised in a standard are sometimes transferred to new owners. What problems arise due to these transfers? What can be done to prevent that such transfers undermine the effectiveness of the rules and practices that govern standardisation involving patents?
  5. Patent pools combine the complementary patents of several patent holders for licensing out under a combined licence. Where and how can patent pools play a positive role in ensuring transparency and an efficient licensing of patents on technologies comprised in standards? What can public authorities and standard setting organizations do to facilitate this role?
  6. Many standard setting organizations require that patents on technologies included in their standards are licensed on “fair”, “reasonable” and “non-discriminatory” (FRAND) terms, without however defining these concepts in detail. What principles and methods do you find useful in order to apply these terms in practice?
  7. In some fields standard essential patents have spurred disputes and litigation. What are the causes and consequences of such disputes? What dispute resolution mechanisms could be used to resolve these patent disputes efficiently?
  8. How can holders of standard essential patents effectively protect themselves against implementers who refuse to pay royalties or unreasonably delay such payment? How can it be ensured that injunctions based on standard essential patents are not used to (a) either exclude companies from implementing a standard or (b) to extract unreasonable, unfair or discriminatory royalties?

The public consultation follows the recent release of a fact-finding study and executive summary thereof that was commissioned by the DG for Enterprise and Industry in 2013 to analyze the rules and practices developed to ensure efficient licensing of standard-related patents. Drawing upon existing literature, practitioner interviews, and qualitative data surrounding SEP disclosures, the study focuses on standardization and licensing practices across the telecommunications, consumer electronics, automotive, and electricity industries in which adopted standards often incorporate patented technologies. In addition to providing an overview of IPR policies and licensing practice among SSOs in these industries, the study addresses various barriers to efficient licensing frameworks — “patent ambushes and submarining, hold-up and reverse hold-up, categorical discrimination against new entrants and unsolicited bundling of SEPs with other patents” — and provides fifteen specific suggestions for improving the current systems, including the following:

  • Improving the patent declaration system to target lack-of-transparency issues (e.g., update at key events, limit blanket disclosures, notice transfer of ownership, SSO database of licenses);
  • Promoting patent pools for licensing bundles of SEPs;
  • Providing efficient dispute resolution mechanisms (e.g., arbitration, mediation, mini-trials and incentives for using them);
  • Clarifying FRAND royalty rates (e.g., economic value, ex ante value) and royalty bases (e.g., final product or component);
  • Strengthening SSO rules that bind subsequent SEP owners to adopt their predecessors’ FRAND obligations or binding commitment to patent itself; and
  • Improving guidance to standards-adopters regarding the inclusion of patented technologies to avoid over-inclusion and complexity of standard

Interested stakeholders are invited to submit comments via a questionnaire available at the DG for Enterprise and Industry’s website. The public consultation is open now through January 31, 2015.

Upcoming FRAND Obligations Seminar/Webcast Oct. 30

Posted in Webinar

This coming Thursday, October 30, 2014, Law Seminars International will be hosting in Seattle (and over webcast) a one-day seminar on FRAND Obligations from 8:30 am to 5pm Pacific.  Here is a link to the program: FRAND Obligations.  Topics to be discussed include the following, including a topic presented by our own David Long:

  • When FRAND Obligations Arise: Are You Bound by FRAND?  What is Covered and When is It Covered?
  • Complying with FRAND Obligations: Guidance from Recent Cases for Setting FRAND Terms
  • Economic Analysis for FRAND
  • International Approaches to FRAND Issues and How They Affect Strategies for Companies in the U.S.
  • Enforcement: Litigation Strategies Including Choice of Forum and Remedies
  • Adapting Your Playbook to Fit the Circumstances

 

Jury verdict: Apple does not infringe GPNE’s alleged standard essential patents

Posted in District Courts, Jury verdicts

A California federal jury handed Apple a substantial victory over patent-plaintiff GPNE yesterday afternoon, finding Apple’s iPhone and iPad products do not infringe three GPNE patents alleged to be essential to GPRS and LTE standards. After less than one day of deliberations following a two-week trial, the jury issued a verdict form finding that none of Apple’s products infringed the asserted patents and awarding no amount of the $94 million in damages sought by GPNE. The jury did not deliver a complete landslide victory to Apple, finding the tech-giant failed to prove the asserted patent claims to be invalid.

This case first appeared on our radar after GPNE submitted an expert report on damages opining that the asserted patents should be afforded a royalty rate greater than what was warranted by the technical value of the patent based on the “hold-up” value the patent. Based on the opinion of GPNE’s technical expert that the asserted patents were essential to the GPRS and LTE communication standards, GPNE’s damages expert argued that because the patents are not subject to any RAND-obligation, the alleged standard-essential patents demand a higher royalty rate higher than the particular patented technology itself warranted. As discussed in our April 23, 2014 post, Judge Koh excluded the expert’s testimony without prejudice, allowing GPNE to submit an amended expert report on damages. GPNE’s damages expert submitted a subsequent report providing additional support for the royalty calculation and was permitted to present testimony on both reports at trial.

 

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