Essential Patent Blog

Essential Patent Blog

The Source for Standard-Essential and Other Patent Litigation Issues

Federal Circuit rules digital data transmitted into the U.S. is not an “article” within ITC’s juridiction (ClearCorrect, 337-TA-833)

Posted in Appeals, International Trade Commission, Litigation, Patent Alerts

Today, a divided three-judge panel of the Federal Circuit (Prost, O’Malley concurring and Newman dissenting) ruled that the U.S. International Trade Commission’s (ITC) authority to provide remedies for unfair acts involving importation of “articles” does not extend to electronic transmission of digital data into the United States.  In addition to its impact on the ITC’s jurisdiction over certain patent infringement matters, this case provides insight into administrative law that may be worth reading for those interested in that issue.  We will not go into that lengthy analysis here, but do provide below a summary of the infringement at issue.  Given the division among the three-judge panel and impact of this decision on the scope of the ITC’s jurisdiction and emerging technologies (e.g., transmission of digital files used to print 3D models), this decision may be subject to requests for en banc review by the entire Federal Circuit or Supreme Court review.

The patents and infringement at issue concern using different stages of teeth aligners that are progressively swapped out over time to slowly transition a patient’s teeth from an initial (e.g., crooked) position into a final (e.g., straightened) position.  ClearCorrect US (located in the U.S.) would take measurements of the patient’s initial teeth positions and transmit that data to ClearCorrect Pakistan (located in Pakistan).  That Pakistani entity would generate digital models of intermediate positions of the teeth, each intermediate position corresponding to an aligner to be made in the progressive process of moving the teeth from an initial position to a final position.  The Pakistani entity electronically transmits those digital models back to the U.S. entity, which uses those digital models to 3D print each of the physical aligners to be used by the patient.

The patent owner argued that the Pakistani entity contributed to infringement of the patents by electronically transmitting the digital models of the different teeth aligners into the U.S.:

Here, the accused “articles” are the transmission of the “digital models, digital data and treatment plans, expressed as digital data sets, which are virtual three-dimensional models of the desired positions of the patients’ teeth at various stages of orthodontic treatment” (“digital models”) from Pakistan to the United States.

The full Commission reviewed the ALJ’s decision and held that (1) the U.S. entity’s direct infringement was solely in the United States and, thus, was not a 337 importation violation within the ITC’s jurisdiction, but (2) the Pakistani entity contributorily infringed the patents by transmitting the digital models into the United States and such infringement was a 337 violation within the ITC’s jurisdiction to grant exclsionary relief.

As discussed, on appeal, the panel majority held that the electronic transmission of digital data into the United States is not an “article” of importation into the United States within the remedial authority of the ITC.  The panel majority stated that Congress is in the best position to determine whether the term “article” should be extended to cover these circumstances.

Supreme Court to review willful infringement (Halo and Stryker cases)

Posted in Appeals, Litigation, Patent Alerts

Today, the Supreme Court granted certiorari in two patent cases to review the standard for willful infringement.  The two cases, consolidated for review, are Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., No. 14-1513, and Stryker Corp. et al. v. Zimmer, Inc., et al., No. 14-1520.

The grant states that it will address Question 1 presented in the Halo case, which states:

     1.  Whether the Federal Circuit erred by applying a rigid, two-part test for enhancing patent infringement damages under 35 U.S.C. § 284, that is the same as the rigid, two-part test this Court rejected last term in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014) for imposing attorney fees under the similarly-worded 35 U.S.C. § 285.

The Stryker case had two questions presented, which were as follows:

     1. Has the Federal Circuit improperly abrogated the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless there is a finding of willfulness under a rigid, two-part test, when this Court recently rejected an analogous framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases?

2. Does a district court have discretion under 35 U.S.C. § 284 to award enhanced damages where an infringer intentionally copied a direct competitor’s patented invention, knew the invention was covered by multiple patents, and made no attempt to avoid infringing the patents on that invention?

The Federal Circuit’s opinions subject to review are Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371 (Fed. Cir. 2014), in which a divided court denied en banc review., and Stryker Corp. v. Zimmer, Inc., et al., 782 F.3d 649 (Fed. Cir. 2015), in which the original Federal Circuit three-judge panel granted limited panel rehearing that issued a revised opinion on the objective recklessness prong of willful infringement.

Upcoming programs dealing with standard essential patents

Posted in Miscellaneous, Webinar

The Fall season brings not only football, changing leaves and pumpkins, but also many program opportunities on your favorite legal issues — ours being standard essential patents.  Here are some program opportunities in the coming weeks to consider:

Today, Tuesday Oct. 13 at 2pm – 3pm Eastern, Intellectual Property Owners Association IP Chat Channel online webinar program on Standards and FRAND: Recent Developments in the U.S. and Europe.  This program will look at recent developments in the U.S. and Europe concerning standard essential patents, including the Ninth Circuit’s decision in the Microsoft v. Motorola case (see our July 31, 2015 post), the European High Court’s ruling in Huawei v. ZTE (see our July 16,2015 post), and developments in the U.S. International Trade Commission after the U.S. Trade Representative’s disavowal in 2013 of exclusionary relief in the Samsung v. Apple investigation (see, e.g., our Aug. 31, 2015 post where full Commission again dodges FRAND issues).   Speakers for this program include our own David W. Long, who is a Vice-Chair of IPO’s Litigation Committee.  More information and registration can be found at this IPO website link.

Oct. 19 – 20 in Reston, VA, The 15th Annual Sedona Conference on Patent Litigation: Improving the Efficiency of Handling Patent Litigation.  This in-person program will focus on three main areas of patent litigation: (1) patent litigation case management in light of patent legislation efforts and recent case developments; (2) litigating standard essential patent cases; and (3) coordinating parallel proceedings in district court and inter partes review in the U.S. Patent and Trademark Office.  There will be three panels discussing standard essential patent issues in the areas of patent owner and prospective licensee obligations based on standard setting commitments, determining what is a fair, reasonable and non-discriminatory royalty rate, and efficiently managing cases before district courts and the International Trade Commission.  Our own David W. Long is a Co-Chair for the overall conference and a speaker.  More information and registration can be found at this Sedona Conference website link.

Oct. 22 – 24 in Washington, DC, American Intellectual Property Law Association’s 2015 Annual Meeting.  This year’s AIPLA Annual Meeting offers two programs on standard essential patents.  On Thursday, Oct. 22, at 3:30 pm, AIPLA’s Antitrust Committee and Standards & Open Source Committee are sponsoring a joint program on Antitrust Law/Standards.  This program will focus on the intersection of antitrust law and patent law, such as the U.S. and Chinese competition agency investigations and standardization reform.  Speakers include Renata Hesse, a Deputy Assistant Attorney General in the U.S. Justice Department’s Antitrust Division, and Dina Kallay, the Director of Intellectual Property & Competition at Ericsson.  This program will be moderated by our own David W. Long, Chair of AIPLA’s Standards & Open Source Committee.  On Friday, Oct. 23, at 10:30 am, there will be a program on Antitrust Challenges: The Interface Between the Competition Law and IP Law that will address those issues being faced in Europe and China.  Speakers include Mathew Heim of Qualcomm and Mark D. Whitener of General Electric.  More information and registration for AIPLA’s Annual Meeting can be found at this AIPLA website link.

Microsoft and Google resolve FRAND and other patent disputes

Posted in Litigation

Microsoft and Google announced that they have settled there global patent disputes, including the litigation underlying the FRAND dispute that gave rise to Judge Robart’s first-of-its-kind decision on determining a FRAND royalty that was recently affirmed on appeal at the Ninth Circuit (see our July 31, 2015 post).  Accordingly, the parties filed yesterday a stipulated motion to dismiss the remainder of the case still pending before Judge Robart.

The agreement between the parties is said to resolve about 20 lawsuits in the U.S. and abroad, so its not clear how much the Ninth Circuit’s ruling in the Judge Robart case impacted the settlement.  The settlement, however, was announced after the Ninth Circuit denied the petition for rehearing of its decision and its mandate issued without a party seeking further review from the Supreme Court.  So this decision may provide another example of a court’s determination of the royalty amount leading to resolution of the litigation without the parties or the court litigating the issue whether the patent is valid and infringed, as occurred in the Innovatio litigation before Judge Holderman under his “reverse bifurcation” procedure (see our Feb. 7, 2014 post on Innovatio).

Recall that Google inherited the Judge Robart case when it acquired Motorola Mobility, including its patent portfolio and mobile phone business, the latter of which Google later sold to Lenovo while holding onto the patents.  Google’s business model is much different from the Motorola Mobility entity it acquired, which had been actively enforcing its patent portfolio against Microsoft and others before the acquisition.  Google may value and use the patents differently than Motorola had been, such as using for defensive purposes if someone targets Google’s Android platform.  Recall that the U.S. Federal Trade Commission (FTC) investigation of Google a few years ago shifted to Motorola’s assertion of standard essential patents (SEPs) after Google acquired Motorola, which led to Google/Motorola entering a consent decree with the FTC (see our January 2013 post).  Google also ended patent litigation disputes that Motorola had with Apple, which also included SEPs (see our May 19, 2014 post).  So Google’s settlement with Microsoft here is not too surprising.

En banc Federal Circuit maintains laches defense with post-suit twist (SCA v. First Quality)

Posted in Appeals, Litigation, Patent Alerts

Today, in SCA v. First Quality, the Federal Circuit sitting en banc ruled that the equitable doctrine of laches remains a valid defense in patent infringement actions notwithstanding the Supreme Court’s recent decision in Petrella v. MGM, 134 S. Ct. 1962 (2014), that precludes laches as a defense for copyrights.  This decision was not too surprising given the wording and history of the patent statute and laches defense as compared to copyright law.  But the Federal Circuit did make some changes as to the applicability of laches for on-going infringement after the patent suit is filed:

Specifically, as to injunctions, considerations of laches fit naturally within the eBay framework.  In contrast, Menendez v. Holt, 128 U.S. 514 (1888), and Petrella counsel that laches will only foreclose an ongoing royalty in extraordinary circumstances.

That is the key take-away from this decision.  You may find it to be a lengthy, but interesting, read on the history of the laches defense in patent cases.  We will see how the twist on applying laches post-suit for on-going infringement will develop.

With respect to an on-going royalty post-suit in the absence of an injunction, the Federal Circuit’s decision was premised on maintaining the distinction between laches, which focuses on the patent owner’s delay in filing suit, and equitable estoppel, which focuses on misleading acts by the patent owner that led the accused infringer to believe it could proceed with what later is alleged to infringe:

With respect to ongoing royalties, while the principles of equity apply, equity normally dictates that courts award ongoing royalties, despite laches.  Menendez, an influential case contrasting laches and equitable estoppel in the trademark context, guides us here.  According to Menendez, delay in exercising a patent right, without more, does not mean that the patentee has abandoned its right to its invention.  Rather, the patentee has abandoned its right to collect damages during the delay.  Equitable estoppel, on the other hand, is different–the patentee has granted a license to use the invention that extends throughout the life of the patent …

Menendez and Petrella caution against erasing the distinction between laches and estoppel.  As Petrella stated, “the doctrine of estoppel may bar the copyright owner’s claims completely, eliminating all potential remedies.  The test for estoppel is more exacting than the test for laches, and the two defenses are differently oriented.  The gravamen of estoppel … is misleading and consequent loss.  Delay may be involved, but is not an element of the defense.  For laches, timeliness is the essential element.  For that reason, absent egregious circumstances, when injunctive relief is inappropriate, the patentee remains entitled to an ongoing royalty. [internal citations omitted]


Federal Circuit revives injunctive relief against multi-feature products (Apple v. Samsung)

Posted in Appeals, Litigation, Patent Alerts

Today, a divided Federal Circuit panel issued a decision that vacates district court’s decision not to permanently enjoin Samsung from selling mobile devices having features found to infringe Apple’s patents.  The majority decision breaths life back into injunctive relief against multi-component/multi-featured devices (like mobile phones) by not requiring the patent owner to show that its patented feature “drive[s] customer demand” for the infringing product in order to show a nexus between the infringement and alleged irreparable harm required for injunctive relief.  Rather, the patent owner need show “some connection” between the patented feature and consumer demand for the infringing product, which can be shown in “a variety of ways.”  For example, evidence that the patented features “is one of several features that cause consumers to make their purchasing decisions” or “makes a product significantly more desirable.”


This case involves three Apple patents directed to features in touchscreen mobile devices:

  1. Slide-to-unlock image on touchscreen to unlock mobile device (the ‘721 Patent)
  2. Generating links within text upon detecting data structures, such as detecting a phone number in a text message and creating a link to dial that number (the ‘647 Patent)
  3. Automatic spell check and correction on touchscreen (the ‘172 Patent)

In 2012, Apple sued Samsung for infringing those patents (as well as others).  Samsung was found to infringe the three patents and a jury awarded Apple over $119 million in damages.  Apple then sought to enjoin Samsung from selling mobile phones or tablets with those infringing features — i.e., did not seek to enjoin sales of the mobile phone or tablets per se, just use of the infringing features in those devices.  Further, Apple proposed a 30 day “sunset period” before products would be enjoined, which time period coincided with Samsung’s representations at trial that it could quickly and easily remove the infringing features from the accused infringing Samsung devices.

But Judge Koh denied Apple’s request for a permanent injunction, finding that Apple failed to show it would suffer irreparable harm without an injunction.  Among other things, Apple had not shown that it lost sales to Samsung infringing devices, because Apple had not shown that the patented features drove customer demand for those products.


Judge Moore wrote the majority decision, which was joined by Judge Reyna, who also wrote a concurring opinion.  Judge Prost dissented.

The Federal Circuit’s standard of review here is whether the district court abused its discretion in deciding whether to grant injunctive relief based on the four eBay factors, which are whether the party seeking a permanent injunction has shown:

(1) that it has suffered an irreparable injury;
(2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury;
(3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
(4) that the public interest would not be disserved by a permanent injunction.

The majority then walked through each of the four factors, the most decisive one in this instance being whether Apple had shown irreparable harm through a “causual nexus relat[ing] the alleged harm to the alleged infringement.”

Irreparable Harm.  The patent owner satisfies this first factor by showing it has been “irreparably harmed by the infringement” based on “proof that a ‘causal nexus relates the alleged harm to the alleged infringement.'”  The majority rejected Apple’s argument that there is no causal nexus requirement when the patent owner seeks only to enjoin infringing features, rather than an entire product.  The majority explained that “[t]he causal nexus requirement ensures that an injunction is only entered … on account of a harm resulting from the defendant’s wrongful conduct, not some other reason.”  This is “entirely independent of the scope of the proposed injunction.”

But the majority found that the district court erred by requiring Apple to show that the infringing features “drive consumer demand for Samsung’s infringing products” in order to establish irreparable harm based on a causal nexus between the infringement and Apple’s lost sales.  While making such a showing would establish the causal nexus, it is not required and may be “nearly impossible from an evidentiary standpoint [to show] when the accused devices have thousands of features, and thus thousands of other potential causes that must be ruled out.”  Rather, the patent owner need only “show ‘some connection’ between the patented features and the demand for the infringing products”:

Thus, in a case involving phones with hundreds of thousands of available features, it was legal error for the district court to effectively require Apple to prove that the infringement was the sole cause of the lost downstream sales.  The district court should have determined whether the record established that a smartphone feature impacts customers’  purchasing decisions.  Though the fact that the infringing features are not the only cause of the last sales may well lessen the weight of any alleged irreparable harm, it does not eliminate it entirely.

In a footnote, the majority provide more insight into the range of ways that “some connection” between the patented feature and customer demand may be shown, which provides further insight into this issue:

As we explained in Apple III [735 F.3d 1352 (Fed. Cir. 2013)], “some connection” between the patented feature and consumer demand for the products may be shown in “a variety of ways,” including, for example, “evidence that a patented feature is one of several features that cause consumers to make their purchasing decisions,” “evidence that the inclusion of a patented feature makes a product significantly more desirable,” and “evidence that the absence of a patented feature would make a product significantly less desirable.”  These examples do not delineate or set a floor on the strength of the connection that must be shown to establish a causal nexus.  Apple III included a fourth example to demonstrate a connection that does not establish a casual nexus–where consumers are only willing “to pay a nominal amount for an infringing feaure.” (using example of $10 cup holder in $2000 car).  There is a lot of ground between the examples that satisfy the causal nexus requirement and the example that does not satisfy this requirement.  The required minimum showing lies somewhere in the middle, as reflected by the “some connection” language.

Thus the district court erred in requiring Apple to show that “the infringing features were the exclusive or predominant reason why consumers bought Samsung’s [infringing] products.”  Rather, the court should have required Apple to show that “the patented features impact consumers’ decisions to purchase the accused devices.”

The majority then went through the record in the case and concluded that Apple had made the requisite showing here:

In short, the record establishes that the [patented] features … were important to product sales and that customers sought these features in the phones they purchased.  While this evidence of irreparable harm is not as strong as proof that customers buy the infringing products only because of these particular features, it is still evidence of causal nexus for lost sales and thus irreparable harm. … Apple does not need to establish that these features are the reason customers bought Samsung phones instead of Apple phones–it is enough that Apple has shown that these features were related to infringement and were important to customers when they were examining their phone choices. [emphasis in original]

The majority thus concluded that this irreparable harm factor weighs in favor of granting Apple’s requested injunction.

Inadequate Remedy at Law.  This second factor considers whether “remedies available at law, such as monetary damages, are inadequate to compensate” for the irreparable harm caused by continued infringement.  The district court had found that Apple’s lost sales “were difficult to quantify,” but still concluded that this factor weighed against an injunction because Apple had failed to establish irreparable harm.  The majority found this was error given its ruling on irreparable harm, finding that this factor “strongly weighs” in favor of an injunction given “the extent of Apple’s downstream and network effect losses are very difficult to quantify.”

Balance of Hardships.  This third factor concerns “assess[ing] the relative effect of granting or denying an injunction on both parties.”  The district court found that this factor favored injunctive relief based on (1) the proposed injunction targeting specific features, not entire products; (2) the proposed 30-day sunset provision and (3) Samsung’s repeated argument to the jury that “designing around the asserted claims … would be easy and fast.”  The latter point raises the typical Catch-22 accused infringers encounter when arguing that a patented feature has little value in order to avoid a large damages award, and then that argument being used against them when trying to avoid injunctive relief.  The majority held that this factor strongly weighed in favor of injunctive relief:

On this record, it is clear–Samsung will suffer relatively little harm from Apple’s injunction, while Apple is deprived of its exclusivity and forced to compete against its own innovation usurped by its largest and fiercest competitor.  Given the narrow feature-based nature of the injunction, this factor strongly weighs in favor of granting Apple this injunction.

Public Interest.  This fourth and final factor requires the patent owner to show that “the public interest would not be disserved by a permanent injunction.”  The district court found this factor favors injunctive relief, because (1) “enforc[ing] patent rights … promote[s] the encouragement of investment-based risk” and (2) “an injunction may prompt introduction of new alternatives to the patented features.”  The majority agreed, and then some, stating that “the public interest strongly favors an injunction” here [emphasis in original]:

Samsung is correct–the public often benefits from healthy competition.  However, the public generally does not benefit when that competition comes at the expense of a patentee’s investment-backed property right.  To conclude otherwise would suggest that this factor weighs against an injunction in every case, when the opposite is generally true.  We based this conclusion not only on the Patent Act’s statutory right to exclude, which derives from the Constitution, but also on the importance of the patent system in encouraging innovation.  Injunctions are vital to this system.  As a result, the public interest nearly always weighs in favor of protecting property rights in the absence of countervailing factors, especially when the patentee practices his inventions.  The encouragement of investment-based risk is the fundamental purpose of the patent grant, and is based directly on the right to exclude.

The majority thus vacated the district court’s denial of an injunction and remanded the case back to the district court for further proceedings consistent with this opinion.  The majority concluded that, “[i]f an injunction were not to issue in this case, such a decision would virtually foreclose the possibility of injunctive relief in any multifaceted, multifunction technology.”

Judge Reyna Concurrence.  Judge Reyna issued a concurring opinion, noting that the decision “leaves open the door for obtaining an injunction in a case involving infringement of a multi-patented device, a door that appears near shut under current law.”  He also would have ruled that irreparable harm would arise based on “injury that the infringement causes Apple’s reputation as an innovator.”  This type of harm, when it occurs, is irreparable. The majority decision written by Judge Moore, which Judge Reyna joined, stated that it need not reach that issue given the finding of irreparable harm based on lost sales.

Judge Prost Dissent.  Judge Prost dissented, finding that “[t]his is not a close case.”  Among other things, Apple did not use the patented spell correction feature and the other two patented features were “minor features (two out of many thousands) in Apple’s iPhone.”  The record does not show “clear error” in the district court’s factual findings underlying its decision to deny injunctive relief.

ITC finds Nokia does not infringe InterDigital patents, so does not address FRAND issues (337-TA-613)

Posted in International Trade Commission, Litigation

On Friday, the U.S. International Trade Commission issued a Notice on its review of Judge Essex’s decision in the InterDigital v. Nokia investigation and found that Nokia did not infringe InterDigital’s 3GPP patents (see our May 12, 2015 post on Judge Essex’s decision).  Recall that, in granting partial review of Judge Essex’s decision, the Commission focused on receiving comments on both a claim construction estoppel issue and FRAND issues (see our June 26, 2015 post).  The Commission’s decision was based on the claim construction issue preclusion issue without commenting on the FRAND issues presented, stating:

[T]he Commission finds that issue preclusion applies with respect to the proper construction of the claim limitation “successively [transmits/transmitted] signals” based on the Commission’s determination in [the ] Inv. No. 337-TA-868, which relies substantively on the Commissions’ determination in [the] Inv. No. 337-TA-800, as affirmed by the United States Court of Appeals for the Federal Circuit (InterDigital Commc’ns, Inc. v. Int’l Trade Comm’n, 2015 WL 669305 (Fed. Cir. FEb. 18, 2015)).  The Commission further finds its prior constructions of the claim limitation “successively [transmits/transmitted] signals” in the 868 and 800 investigations are persuasive authority which the Commission should apply uniformly to the asserted patents.

The Commission also finds that issue preclusion requires a finding of non-infringement with respect to the asserted claims of the ‘966 and ‘847 patents, and that the evidence in the record independently supports a finding of non-infringement with respect to the claim limitation “successively [transmits/transmitted] signals as previously construed by the Commission in the 868 investigation.

So the investigation is now terminated.

The Commission noted that it had received public comments from several interested entities.  These comments are summarized below.

Chairwoman Edith Ramirez, U.S. Federal Trade Commission.  Chairwoman Edith Ramirez of the FTC, submitted Comments reflecting her view — i.e., not the official views of the FTC itself.  She took issue with Judge Essex’s allocating to the putative licensee (or “implementer”)  the burden of proving breach of a FRAND obligation, asserting that the patent holder should establish that the implementer was an unwilling licensee as part of the public interest analysis:

This investigation raises an important and unresolved question for the ITC: what standard should the ITC use to evaluate evidence concerning patent hold-up when a complainant seeks an exclusion order for alleged infringement of a FRAND-encumbered standard essential patent?  I recommend that, as part of its public interest analysis before issuing an exclusion order, the ITC require a SEP holder to prove that the implementer is unwilling or unable to take a FRAND license.  This standard would ensure that an exclusion order issues only when it would not facilitate patent hold-up and thus only when such an order would be consistent with the public interest.  It would also establish a balanced approach to ITC remedies by ensuring that a SEP holder follows through with its FRAND licensing commitment, while at the same time recognizing that both the SEP holder and the standards implementer have a duty to negotiate in good faith towards a meaningful resolution of FRAND issues.

Chairwoman Ramirez also disagreed with Judge Essex’s view that patent hold-up is not real, citing the Microsoft v. Motorola decision by Judge Robart and the Realtek v. LSI decision by Judge Whyte as examples that “the danger that bargaining conducted in the shadow of an exclusion order will lead to patent hold-up is real.”  (see our May 1, 2013 post and Feb. 27, 2014 post for summary of the FRAND determinations in the Microsoft and Realtek decisions, respectively).  Thus, she would require the patent holder to show that the implementer is an unwilling licensee, and she provided some examples of how the patent holder would show that:

A SEP holder may demonstrate an implementer’s unwillingness in a number of ways.  First, an implementer may be unwilling if it affirmatively demonstrates that it will not negotiate with the complainant.  An implementer may also be unwilling if it engages in a “constructive refusal to negotiate a FRAND license with the SEP owner or refusal to pay what has been determined to be a FRAND royalty.”  For example, this may occur when an implementer refused to license the patent holder’s FRAND-encumbered SEPs unless it also obtains a license to the patent holder’s differentiating patents, or insists on terms that are clearly outside a reasonable interpretation of FRAND.  When there is a dispute between the parties about what terms are FRAND terms, the meaning of FRAND must first be determined by a neutral adjudicator in order for the implementer’s offer to be evaluated in the context of a FRAND range.  An implementer may be unable to take a license if its is bankrupt, or otherwise financially unable to satisfy the terms of a FRAND license.  Finally, an exclusion order may be in the public interest when the respondent is outside the jurisdiction of the United States District Courts or is otherwise judgment-proof.

Chairwoman Ramirez also recommended that, if a FRAND rate is determined during an ITC investigation, “the ITC delay the effective date of Section 337 remedies and provide parties an opportunity to execute a FRAND license.”

She indicated that an implementer may be a willing licensee if it “commits to be bound by terms that either the parties themselves will determine to be FRAND, or that will be determined by neutral adjudication,” such as by the implementer “instituting a declaratory judgment action or other proceeding in which a court will set FRAND terms.”  She also indicated that a respondent should be able to “present[] affirmative defenses, including arguments about non-infringement, invalidity, or unenforceability” without “waiv[ing] the alternative position that … the patent is a SEP and hence the SEP holder’s FRAND commitment applies.”

Commissioner’s Ohlhausen and Wright, U.S. Federal Trade Commission.  Commissioners Ohlhausen and Wright of the FTC submitted Comments with a very different view from Chairwoman Ramirez.   They do not recommend “presum[ing] patent holdup is prevalent” and, instead, recommend following Judge Essex’s “evidence-based approach to the public interest inquiry.”  They approach the issue from an imperical, evidentiary economics point of view that patent hold-up is not a widespread probability in all instances, even if a theoretical possibility in some.  Their introduction, reproduced below, summarizes their key points:

The ITC should not begin its analysis by initially imposing upon the SEP holder the burden of proving that the accused infringer is unwilling or unable to take a license on FRANd terms.  This approach presumes patent holdup is frequent and results in significant negative consequences for competition and innovation.  Such a sharp departure from the current state of the law requires substantiation in the form of robust and reliable empirical evidence.  However, the data simply do not support such a presumption.  Beyond lack of empirical support, the proposed approach is contrary to sound economic analysis, would be contrary to the United States Trade Representative’s (USTR’s) directive in the Samsung matter, and would create a conflict between the standard imposed by the ITC and that required by federal courts.  It would also threaten to deter participation in standard setting by, among other things, encouraging reverse holdup and holdout, thereby depriving consumers of the substantial procompetitive benefits of standardized technology.

There is no empirical evidence to support the theory that patent holdup is a common problem in real world markets.  The theory that patent holdup is prevalent predicts that the threat of injunction leads to higher prices, reduced output, and lower rates of innovation.  These are all testable implications.  Contrary to these predictions, the empirical evidence is not consistent with the theory that patent holdup has resulted in a reduction of competition.  To the contrary, wireless prices have dropped relative to the overall consumer price index (CPI) since 2005, output has grown exponentially, features and innovation continue at a rapid pace, and competition between mobile device manufacturers has been highly robust with meaningful entry over time.

Recognizing the theoretical nature of holdup concerns, federal courts, including the United States Court of Appeals for the Federal Circuit, have held that concerns about holdup must be proven, and that accused infringers must bear the burden of demonstrating that the patent holder used injunctive relief to gain undue leverage and demand supra-competitive royalties.  Likewise, in an August 3, 2013 disapproval letter in the Samsung matter, the USTR instructed the ITC to “make explicit findings” to the extent possible on the presence or absence of patent holdup or reverse holdup in each particular case when conducting the public interest inquiry.  Any proposal to presume the existence of holdup contradicts the decisions of federal courts and the USTR’s directive.

(see our Aug. 3, 2013 post for a summary of the USTR’s directive in the Samsung v. Apple ITC investigation referenced above).

The Commissioners also provide some insight into the difference between “holdup”, “reverse holdup” and “hold out”, stating:

Holdup requires lock-in, and standard-implementing companies with asset-specific investments can be locked in to the technologies defining the standard.  On the other hand, innovators that are contributing to a standard-setting organization (SSO) can also be locked-in if their technologies have a market only within the standard.  Thus, incentives to engage in holdup run in both directions.  There is also the possibility of holdout.  While reverse holdup refers to the situation when licensees use their leverage to obtain rates and terms below FRAND, holdout refers to licensees either refusing to take a FRAND license or delaying doing so.

Ericsson.  Ericsson had submitted Comments that favored Judge Essex’s evidentiary-based approach and recognition that “FRAND licensing places obligations on both” innovators and implementers.  Thus, “threats posed by either hold-up or reverse hold-up, should be evaluated based on evidence; mere conjecture regarding FRAND issues should not preclude the entry of an otherwise appropriate exclusion order.”  Ericsson also asserts that “[s]peculation regarding the impact of an exclusion order on the parties’ future negotiations shoudl play no role in the public interest analysis,” agreeing with Judge Essex that a district court action for breach of contract would provide a remedy if the patent holder breaches its obligation to license on FRAND terms after an exclusion order is entered.

Ericsson asserts that the patent holder’s “willingness to accept an arbitral determination of FRAND terms reflects an absence of hold-up.”  In contrast, “delaying tactics in negotiating indicate the presence [of] reverse hold-up.”  Ericsson also asserts that whether a patent covers a significant or minor portion of an accused device should not impact the grant of an exclusion order, because the FRAND obligation applies even after an exclusion order is entered and, “to the extent that the portion of the device that is covered by the claims is standard-essential, the FRAND commitment ensures fair and reasonable licensing terms commensurate with the value of the covered portion.”

Intel, Dell and Hewlett-Packard.  A joint submission of Comments was made by Intel, Dell and Hewlett-Packard that take a more implementer-oriented approach with concerns that standardization may confer unearned market power to SEP holders and that the public interest requires limiting exclusionary relief absent “extraordinary circumstances.”  They summarized their view as follows:

[T]he public interest generally precludes an exclusion order on FRAND-encumbered SEPs, except in limited circumstances, including when: (1) the respondent refuses to accept (or unjustifiably delays in accepting) a license on terms that have been independently determined to be FRAND-compliant by a court or binding arbitrator in a final, non-appealable judgment; (ii) the respondent is unable due to financial distress to pay a FRAND royalty; or (iii) the patentee has no ability to assert an infringement claim against the importer or its customer, such that in rem jurisdiction over imported goods in an ITC action is the only practical option that the patentee has to prevent continued infringement.

J. Gregory Sidak of Criterion Economics.  J. Gregory Sidak, Chairman of Criterion Economics, submitted Comments in response to those submitted by Chairwoman Ramirez of the FTC.  He states that Chairwoman Ramirez’s “proposal that the ITC make the SEP holder bear the burden of proving an implementer’s unwillingness is problematic and misguided.”  His discussion uses a hypothetical licensing transaction where there is a reasonable range of FRAND royalty rates, where focusing on whether the SEP holder accepted the implementer’s offer (or counter-offer) “would grant the implementer the right to obtain a FRAND rate at the lower bound of the FRAND range” that results in “a massive wealth transfer from SEP holders to implementers.”

He further states that “the Chairwoman’s presumption that patent holdup routinely occurs in the real world has no support in economic theory or empirical fact.”  Further, “if one assumes that patent holdup might occur, one should consider that the symmetric risk of reverse holdup might also occur.”  Placing the burden on the patent holder to establish reverse holdup, as Chairwoman Ramirez suggests, is an “asymmetric treatment of the patent-holdup conjecture and the reverse-holdup conjecture [that] has no basis in economic theory.”  Further, presuming that patent holdup exists in every case is contrary to the Federal Circuit’s instructions in Ericsson v. D-Link that “a jury may be instructed that a theoretical conjecture of patent holdup can affect the computation of a FRAND royalty only when empirical evidence supports that conjecture.” (see our Dec. 5, 2014 post summarizing Ericsson v. D-Link)

En banc Federal Circuit broadens multiple-actor direct infringement (Akamai v. Limelight)

Posted in Appeals, Litigation, Patent Alerts

Today, the Federal Circuit sitting en banc changed direction again on § 271(a) direct infringement and ruled that Limelight was liable for direct infringement based on substantial evidence supporting the jury verdict of infringement where the “alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.” (this overrules the panel decision in this case that was the subject of our May 13, 2015 post).  This is a relatively short–and very important–decision, so we highly recommend reading it in its entirely.  But we also provide a short summary below.


We provided background on this case in our prior posts as this case made its way from the Federal Circuit, to the Supreme Court, and back to the Federal Circuit (see our May 13, 2015 post, June 2, 2014 postJan. 10, 2014 post and Aug. 31, 2013 post).

Patent owner Akamai sued Limelight in 2006 for infringing a patent with method claims directed to delivering content over the Internet.  Limelight performed all steps of a method claim except that Limelight’s customers performed the claimed method steps of “tagging” and “serving”.  The trial court instructed the jury that Limelight would be responsible for the customer’s performing those steps if Limelight directs or controls its customers’ activities.  The jury found that Limelight infringed, which the court initially confirmed, but later set aside after the Federal Circuit’s decision in Muniauction v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008).

On appeal, the Federal Circuit took the matter en banc and decided not to review the direct infringement issue, because there was indirect infringement if all steps are performed even if by different actors — i.e., even if no § 271(a) direct infringement attributed to a single actor. (see our Aug. 31, 2012 post).  The Supreme Court reviewed and reversed that decision, holding that § 271(a) direct infringement attributable to a single person is required for indirect infringement. (see our Jan. 10, 2014 post and June 2, 2014 post).  The Supreme Court raised questions whether the Federal Circuit’s standard for multiple-actor direct infringement (also called “divided” or “joint” infringement) was proper, but left that issue for the Federal  Circuit to sort through on remand.  On remand, the three-judge panel endorsed the prior divided infringement standard of direct infringement and found that Limelight was not liable for infringement. (see our May 13, 2015 post).


The Federal Circuit stated there were two instances where an entity will be held responsible as a § 271(a) direct infringer for steps of a method claim performed by others:

(1) where that entity directs or controls others’ performance, and

(2) where the actors form a joint enterprise.

But the court further counseled that “Section 271(a) is not limited solely to principal-agent relationships, contractual arrangements, and joint enterprises,” leaving the issue up for further case-by-case development.  Thus, the ultimate consideration is “whether all method steps can be attributed to a single entity.”

“Directs or Controls”.  The Federal Circuit looks to “general principles of vicarious liability” to determine “if a single entity directs or controls the acts of another.”  The court ruled that this is a question of fact that, when tried to a jury, is reviewed under the deferential “substantial evidence” standard.  The court identified three circumstances where a single actor is liable for § 271(a) direct infringement for directing and controlling the actions of another:

First, where that single actor “acts through an agent (applying traditional agency principles.”

Second, where that single actor “contracts with another to perform one or more steps of a claimed method.”

Third, as in this case, “when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.”

“Joint Enterprise”.  The court also held that, “where two or more actors form a joint enterprise, all can be charged with the acts of the other, rendering each liable for the steps performed by the other as if each is a single actor.”  The court ruled that this, too, is a “question of fact” reviewed under the deferential “substantial evidence” standard when tried to a jury.

The court held that such joint enterprise liability for § 271(a) direct infringement requires proof of four elements:

(1) an agreement, express or implied, among the members of the group;

(2) a common purpose to be carried out by the group;

(3) a community of pecuniary interest in that purpose, among the members; and

(4) an equal right to a voice in the direction of the enterprise, which gives an equal right of control.

In this case, the Federal Circuit found Limelight liable as a § 271(a) direct infringer under the “directs and controls” test, rather than this “joint enterprise” test.

 Standard Applied to This Case.  The Federal Circuit ruled that substantial evidence supported the jury verdict of infringement based on evidence that Limelight “condition[s] use of the content delivery network” upon its customers performing the “tagging” and “serving” steps and that Limelight “establish[es] the manner or timing of performance” of those steps by the customer.

First, Limelight’s standard contract requires its customers to perform the tagging and serving steps if they want to use Limelight’s service: “if Limelight’s customers wish to use Limelight’s product, they must tag and serve content.”

Second, evidence supports finding that Limelight established the manner or timing of its customers performance.  Limelight sends a welcoming letter telling customers that a Limelight Technical Account Manager will lead implementation of Limelight’s services, and includes a “hostname” that Limelight assigns to the customer to integrate into the customer’s webpages, which integration includes the “tagging” step.  Limelight provides “step-by-step instructions” that customers must follow to use the service and Limelight provides guidelines to customers with further information on tagging content.  Further, Limelight’s engineers “continuously engage with customers’ activities”, including installation, testing and availability when problems arise.

In sum, Limelight’s customers do not merely take Limelight’s guidance and act independently on their own.  Rather, Limelight establishes the manner and timing of its customers’ performance so that customers can only avail themselves of the service upon their performance of the method steps.

The court thus concluded that substantial evidence supported the jury’s verdict “that all steps of the claimed methods were performed by or attributable to Limelight.”  The court then remanded the case to the Federal Circuit three-judge panel “for resolution of all residual issues consistent with this opinion.”

Ninth Circuit affirms Judge Robart’s RAND decision (Microsoft v. Motorola)

Posted in Appeals, Court Orders, Litigation

Yesterday, the Ninth Circuit court of appeals issued a decision affirming Judge Robart’s RAND decision in the much watched Microsoft v. Motorola case, basically ruling that the determination of a reasonable and non-discriminatory (RAND) royalty rate and Motorola’s breach of its RAND commitments were reasonable based on the specific procedural and evidentiary issues presented.  This case provides good insight into procedural and evidentiary issues that those litigating standard essential patents (SEPs) should consider, which can have a significant impact on the outcome of a case, as they did here.


This case is but one of many between Microsoft and Motorola.  In early October 2010, Microsoft sued Motorola for patent infringement of smartphone-related patents in both the U.S. International Trade Commission (ITC) and W.D. Washington district court.  Later that month, Motorola sent two letters to Microsoft offering a license under Motorola patents asserted to be essential to the IEEE 802.11 WiFi standard and the ITU-T H.264 video encoding standard, respectively, and seeking a royalty of 2.25% of the price of Microsoft end products that use that technology — e.g., XBox with WiFi or Windows with video encoding capability. (see our April 25, 2013 post for more detail about the pre-suit timeline).  A week or so later, Microsoft filed the instant case against Motorola seeking a declaratory judgment that Motorola had breached its RAND licensing obligations. (see our May 6, 2013 post for a review of the initial pleadings).  Motorola then sued Microsoft in W.D. Wisconsin district court seeking to enjoin Microsoft from using the H.264 patents and also sued Microsoft in the ITC seeking to exclude importation of Microsoft’s Xbox products.  The district court cases were consolidated before Judge Robart in W.D. Washington district court.

German Injunction.  In the meantime, the global patent dispute between the parties continued.  In July 2011, Motorola sued Microsoft in Germany for infringing a German patent directed to the H.264 video encoding standard.  A trial was held in December 2011 and several months later, in April 2012, the German court awarded Motorola an injunction against Microsoft.  While that German action was pending, Microsoft relocated one of its distribution centers out of Germany given the injunction threat.  The German injunction is not self enforcing; rather, Motorola must post a bond to secure Microsoft against damages caused by the injunction if it ultimately is overturned on appeal and Microsoft also would have an opportunity to seek a stay of that injunction.

Microsoft also asked Judge Robart in the instant case to enjoin Motorola from seeking any injunctions — including enforcement of any injunction awarded in the German action — pending resolution of the SEP issues presented in this case.  Judge Robart granted that injunction.  In a decision to haunt Motorola later, Motorola appealed Judge Robart’s injunction ruling to the Ninth Circuit–rather than the Federal Circuit–where Motorola argued that “[b]ecause Microsoft’s complaint is pleaded in terms of contractual rather than patent rights”, appellate jurisdiction properly lies withing the regional circuit’s general jurisdiction (the Ninth Circuit), rather than the Federal Circuit’s subject matter jurisdiction over patent law.  The injunction was affirmed by the Ninth Circuit, which ruled that it properly had jurisdiction over the case (see our May 6, 2013 post discussing the injunction and appeal).  In November 2012, Judge Robart later granted Microsoft’s motion to dismiss Motorola’s claims for injunctive relief and barring Motorola from seeking such relief against Microsoft in any country based on patents essential to the 802.11 WiFi or H.264 video encoding standards. (see our Jan. 3, 2013 post).

Soon thereafter, in January 2013, the U.S. Federal Trade Commission (FTC) announced a consent decree agreement with Google/Motorola (Google having acquired Motorola Mobility in 2012) where Motorola agreed to a specific procedure for licensing SEPs before Motorola would seek injunctive relief, which procedure includes an opportunity for a tribunal to determe licensing terms. (see our Jan. 3, 2013 post).

RAND Determination (Bench Trial).  In November 2012, Judge Robart held a bench trial to determine what would be a range of reasonable RAND royalty rates as well as what would be the specific RAND royalty rate to apply here.  He later requested and received additional submissions about a licensing agreement that Google– which now owned Motorola–had entered with MPEG LA on a patent pool directed to the H.264 standard. (see our Jan. 24, 2013 post,  Feb. 22, 2013 post and Mar. 4, 2013 post).

On April 25, 2013, Judge Robart issued a first-of-its-kind ruling to set a RAND royalty for the Motorola 802.11 and H.264 patents with respect to Microsoft’s alleged infringing products. (see our April 25, 2013 post; see also our May 1, 2013 post for annotated version of this decision).  He found a RAND royalty rate of 0.555 cents per unit (from a reasonable RAND range from 0.555 to 16.389 cents per unit) for Motorola’s H.264 video encoding patents.  He found a RAND royalty rate of 3.471 cents per unit (in a range from 0.8 to 19.5 cents per unit) for Motorola’s 802.11 WiFi patents.  Both of these rates fell very far below the 2.25% of the end unit selling price (about $4.50 per $199 Xbox) that Motorola requested in its initial offer letters that led Microsoft to file the instant case.

Judge Robart’s over-200-page decision was premised on a modified Georgia-Pacific royalty rate with “economic guideposts” in which he removed factors deemed at odds with an obligation to license patents on a non-discriminatory basis — e.g., remove a factor that would consider whether parties are competitors, which typically would indicate a higher royalty rate would be sought if a patent owner were licensing a competitor to use the technology. (see our Apr. 26, 2013 post on the modified Georgia-Pacific analysis).

Breach Determination (Jury Trial).  The next step was determining whether Motorola breached its RAND commitment.  Judge Robart ruled that this was a fact sensitive issue for the jury that was not controlled by any single fact detached from the underlying circumstances — e.g., Motorola’s seeking an exclusion order or the high amount sought in Motorola’s initial license offer to Microsoft. (see our Aug. 12, 2013 post).  The jury trial started in August 2013 and the jury ultimately found that Motorola breached its RAND obligations. (see our Sep. 4, 2013 post; see also our Aug. 27, 2013 post previewing the jury trial).

A few weeks later, Judge Robart ruled that sufficient evidence supported the jury’s verdict.  He found that the essence of Microsoft’s various RAND-breach theories to be “whether Motorola’s conduct violated the duty of good faith and fair dealings.”  No particular factors were deemed dispositive by themselves, but evidence of Motorola’s course of conduct supported the verdict, including factors relating to Motorola’s initial offer letters, Motorola’s seeking injunctive relief, and Motorola’s going after Microsoft based on WiFi chips within the accused products, rather than going after the WiFi chip manufacturer Marvell. (see our Sep. 26, 2013 post).

Judge Robart then issued a Rule 54(b) judgment–i.e., a final judgment on some, but not all, claims–that would allow the parties to appeal the RAND issues while the remaining claims in the case were stayed pending the appeal.  Specifically, he entered Rule 54(b) judgment in Microsoft’s favor on (1) Microsoft’s breach of contract claim; (2) Judge Robart’s prior RAND ruling; and (3) Motorola’s claim for a declaration that Microsoft repudiated RAND licensing rights by not negotiating a license. (see our Nov. 12, 2013 post).

Appeal To Ninth Circuit Via Federal Circuit.  Motorola promptly appealed to the Federal Circuit, which may have been deemed a more favorable forum for a patent owner than the a generalist regional court such as the Ninth Circuit.  But Microsoft move to transfer the case to the Ninth Circuit because, among other things, Motorola previously appealed the injunction issue to the Ninth Circuit, which ruled it had jurisdiction over the matter as a contract action.  Without deciding the merits of whether the Federal Circuit or Ninth Circuit had jurisdiction, the Federal Circuit agreed that law of the case required the Federal Circuit to respect the Ninth Circuit’s ruling that it has appellate jurisdiction over this matter.  So the appeal was transferred to the Ninth Circuit. (see our May 5, 2014 post; for summary of the parties briefs on the motion, see our Nov. 25, 2013 post, Dec. 10, 2013 post and Dec. 16, 2013 post).

The appeal then proceeded in the Ninth Circuit. (see our Apr. 7, 2015 post discussing party and amicus briefs).  The Ninth Circuit held oral argument in April 2015.  One of the appeal issues that became clearer during argument was Motorola’s challenge to Judge Robart’s bifurcated procedure where (1) the judge held a bench trial and determined a RAND royalty rate and range and then (2) held a jury trial to determine whether Motorola breached its RAND obligation.  Motorola argued this was prejudicial error, because the jury was required to accept the judge determined RAND rate without Motorola challenging any of the basis that supported it.  Microsoft argued that Motorola had agreed to this procedure and cannot be heard to complain about it now. (see our Apr. 8, 2015 post summarizing the argument and providing link to video of argument; see also our Apr. 7, 2015 post that summarized the case up to the date of oral argument).


 Contract Case or Patent Case.  The first issue was whether the Ninth Circuit or the Federal Circuit has appellate jurisdiction over this case.  The court ruled that its exercising jurisdiction over the injunction interlocutory appeal as well as the Federal Circuit’s decision to transfer the case to the Ninth Circuit were both law of the case.  That doctrine requires substantial deference to those prior decisions on appellate jurisdiction except in certain circumstances, such as the prior decision was clearly erroneous, there have been changed circumstances or to avoid manifest injustice.  None of those circumstances existed here.

In applying the law of the case standard, the court ruled that a contract dispute does not arise under law merely because the contract is a patent license:

A complaint that alleges breach of contract and seeks damages sounds in contract; its nature does not change because the contract is a patent license.   Even if a court, in interpreting a contract and assessing damages, deems it appropriate to apply the law of patent infringement, that of itself does not change the complaint into one arising under the patent law.

Motorola points out that the Federal Circuit has exercised jurisdiction in some breach-of-contract cases.  But those cases involved questions of patent infringement, patent validity, or claim construction, or included an embedded, outcome-determinative interpretation of a patent law statute.  This case, in contrast, is a straight breach of contract action.

Calculation of appropriate royalty amounts in contractual patent license cases involves similar determinations to those that arise when calculating damages in patent infringement cases.  So there is some overlap in that regard between breach of patent license cases and Federal Circuit patent infringement cases.  But Motorola has cited no case in which the Federal Circuit has exercised jurisdiction over a breach of contract claim for damages where the mode of calculating contract damages, not any pure patent issue, was at stake.  [internal quotations ommitted].

In another part of the decision, the court similarly stated that reference to Federal Circuit patent damages law may be proper in the contract action, but does not convert this into a patent case:

We reiterate that this is not a patent law action.  Still, the Federal Circuit’s patent law methodology can serve as guidance in contract cases on questions of patent valuation.  The district court’s analysis properly adapted that guidance to the current context.

Motorola Consented To Bench Trial on RAND Royalty Rate.  The court ruled that Motorola affirmatively consented to Judge Robart having a bench trial, rather than a jury trial, to determine a RAND royalty rate for each SEP portfolio.  The court found that Judge Robart “quite reasonabley” determined that a “true RAND royalty rate for Motorola’s SEPs was an important fact for the jury to consider in determining whether Motorola breached its good faith obligations under the RAND agreements.”  Judge Robart asked the parties how they would like to proceed in determining that and both parties agreed that “the court [will] decide all the material terms of the RAND license.”  But they left open the question of who would determine “the question of Motorola’s breach of its contractual obligation of good faith and fair dealing”, which Motorola later requested be determined by a jury.

In deciding that Motorola had waived a jury trial on this issue, the court did make special note that Motorola had not raised to Judge Robart or the Ninth Circuit a “Seventh Amendment claim [of right to trial by jury] with respect to the RAND rate bench trial itself.”  Given Motorola’s waiver, “[w]e therefore do not consider whether, absent consent, a jury should have made the RAND determination.”

Hypothetical Negotiation Date.  The court’s review of the hypothetical negotiation — or what they called a “Hypothetical Agreement” — focused mainly on Motorola’s argument about the date of such hypothetical.  The court found that the method for calculating a RAND rate was “generally [consistent] with Motorola’s approach” and that “[g]enerally, the court credited Motorola’s experts; where it did not, it provided reasoned explanations for not doing so,” stating:

The framework settled on was “generally [consistent] with Motorola’s approach.”  Applying that approach, the district court sought to approximate the royalty rates upon which the parties would have agreed by setting up a hypothetical negotiation between the parties.  In doing so, the court carefully thought through the “factors an SEP owner and implementer woudl consider” in an actual negotiation directed at licensing a patent subject to RAND commitments.  The court then discussed each of Motorola’s fifteen H.264 patents and eleven 802.11 patents, considering the objective value each contributed to each standard, given the quality of the technology and the available alternatives as well as the importance of those technologies to Microsoft’s business.  Finally, the court performed a meticulous analysis of the testimony of eighteen witnesses, including executives, economists, and technology experts, to sort out which evidence to rely upon in determining the RAND royalty rate.  Generally, the court credited Motorola’s experts; where it did not, it provided reasoned explanations for not doing so.

The court found that Motorola’s primary challenge was the requirement in Georgia-Pacific Factor 15 that the hypothetical negotiation occurs “at ‘the time the infringement began.'”  The court agreed that Judge Robart had, to some extent, considered “the present-day value to Microsoft of Motorola’s patents,” but ruled that “[t]his partial present-day focus did not … render the district court’s RAND-rate determination invalid.”  The court gave four reasons here.

First, the Federal Circuit has “never described the Georgia-Pacific factors as a talisman for royalty rate calculations” and agreed with Judge Robart’s approach to eliminate or modify factors to fit the circumstances of the case presented.  Here, Microsoft claimed that Motorola’s breach of contract was on-going, so Judge Robart reasonably could have “include[d] the present-day value of Motorola’s SEPs as a factor in calculating the RAND rate-and-range for use in the breach-of-contract proceeding.”

Second, “Motorola never specifies the past date the district court should have used.”  Motorola referred to both the date Microsoft’s alleged patent infringement began and the date Motorola sent Microsoft offer letters; but “Motorola did not mention either date in putting forth its version of the hypothetical negotiation analysis in its post-trial brief.”  Further, “the ‘infringement’ at issue in this case is Motorola’s breach of contract, not Microsoft’s use of Motorola’s patents,” and such breach “was not tied to any specific date.”

Third, both parties offered “volumes of data” and “Motorola itself” urged Judge Robart to consider studies and reports from different time frames.  Thus, “[a]s the data presented was not pinpointed to a past date, the district court’s approximation from that data also could not be tied to a specific historical moment.”

Fourth, “Motorola has not shown–nor has it even argued–that it was prejudiced by the court’s analysis.”  Rather, Motorola pointed to only one material change since the dispute began: Google bought Motorola in 2012.  Judge Robart considered Google’s broad commercial interests in the patent pools.  But Motorola explained no prejudice from that:

But Motorola has not explained how it was prejudiced by consideration of Google’s interests.  In fact, Microsoft maintains, persuasively, that Motorola benefited from the court’s conflation of Google and Motorola, as Google, a “sophisticated, substantial technology firm[] with [a] vast array[] of technologically complex products,” would obtain more value from the pool than would Motorola as an independent entity.

The court concluded that Judge Robart properly applied the hypothetical approach under the circumstances:

In sum, given the need for flexibility in determining a royalty rate for a RAND-encumbered patent, and given that Motorola has not shown that the court’s consideration of the companies’ circumstances at the time of the bench trial prejudiced it, the district court’s RAND order properly applied the hypothetical agreement approach.

Comparable Licenses.  The court next considered Motorola’s argument that Judge Robart put too much emphasis on patent pools and not enough on Motorola’s historical licenses.  Judge Robart did credit Motorola’s experts concern that patent pools  license at lower rates than licenses entered in bilateral negotiations given, for example, non-monetary value in the patent pools such as grant-back of licenses to other pool member patents.  But he accounted for that by multiplying the pool rates by three.  Although Motorola argued this still was not enough, this was just one factor Judge Robart used and, for the 802.11 patents, it ended up “being the most favorable to Motorola.”

For the H.264 patents, the patent pool considered “were essential to the same technical standards, and Motorola provided no evidence that its patents were more valuable than the other patents in the pool”; “[i]fi anything, the record indicates that Motorola’s patents were on average less valuable than other H.264 patent.”

Many of the Motorola patents apply only to interlaced rather than (the more advanced) progressive video.  Motorola offered some evidence suggesting that interlaced video coding was still valuable to Microsoft, but it did not show that support for interlaced video was more important to Microsoft than other video-coding capabilities.  Motorola therefore was not prejudiced by the court’s assumption that its patents were of roughly equal value to those in the pool, as they probably were worth less.

With respect to Motorola’s historical licenses showing royalty rates close to the 2.25% Motorola offered Microsoft, “[i]n the current context … it was not clear error to reject the past licenses as too contextually dissimilar to be useful to the RAND rate calculation.”

Judge Robart “reasonably concluded that … VTech licenses were not reliable indicators of the RAND royalty rate” where VTech entered a license under Motorola’s cell phone patents to avoid litigation and “paid only trivial royalties” for the 802.11 and H.264 part of the much broader licensing agreement.

The RIM Agreement provided a blended rate for all Motorola patents (whether or not essential to a standard) that made it “impracticable to isolate, or apportion the value of the 802.11 and H.264 SEPs, particularly given the evidence that Motorola’s cell phone patent portfolio was highly valuable and likely dictated the terms of the agreement.”  Further, the RIM agreement was entered “to resolve an ongoing infringement dispute … further diminishing its trustworthiness as an indicator of a free-standing RAND rate.”

Similarly, the Symbol Technology agreements were “formed under threat of litigation, included monetary caps, and provided licenses for Motorola patents that expired before Motorola and Microsoft’s hypothetical agreement would have occurred.”

Thus, Judge Robart “provided reasonable explanations for giving the Motorola bilateral licenses little to no weight” and “Motorola does not address any of those explanations.”

Based on the foregoing, the court affirmed Judge Robart’s royalty rate determination, stating:

In sum, in determining the RAND rate and range for each SEP portfolio, the district court engaged in a thoughtful and detailed analysis, giving careful consideration to the parties’ briefing and evidentiary submissions, and to the testimony.  Although Motorola criticizes the district court’s approach, it provides no alternative other than strict adherence to the Georgia-Pacific factors, without accounting for the particulars of RAND agreements–a rigid approach disapproved of by the Federal Circuit in Ericsson.  We conclude that the court’s RAND determination was not based on a legal error or on a clearly erroneous view of the facts in light of the evidence.

Jury’s Breach Verdict.  The court found that evidence supported the jury’s verdict that Motorola breached its RAND commitment based on Motorola’s injunction related activity and overall course of conduct, where “the only damages argued for and awarded were tied to the fees for defending the injunctive actions and the costs of moving Microsoft’s European distribution facility out of Germany.”  The court noted that, for the allged breach based on Motorola’s injunction action, the jury was instructed that it should consider the following factors “alone or in combination”:

(1) Whether Motorola’s actions were contrary to the reasonable and justified expectations of other parties to the contract; (2), whether Motorola’s conduct would frustrate the purpose of the contract; (3), whether Motorola’s conduct was commercially reasonable; (4), whether and to what extent Motorola’s conduct conformed with ordinary custom or practice int he industry; (5) to the extent the contract vested Motorola with discretion in deciding how to act, whether Motorola exercised that discretion reasonably; (6), subjective factors, such as Motorola’s intent and whether Motorola had a bad motive.

Microsoft presented “significant evidence” under those instructions for a jury to “infer that the injunctive actions violated Motorola’s good faith and fair dealing obligations.”  The “jury could conclude that Motorola’s actions were intended to induce hold-up, i.e., to pressure Microsoft into accepting a higher RAND rate than was objectively merited, and thereby to frustrate the purpose of the contract.”  For example, consumers would not buy Microsoft products that were enjoined from having WiFi or playing back standard video.  Motorola’s requested royalty also was “significantly higher” than the court determined RAND rate, “suggest[ing] that Motorola sought to capture more than the value of its patents by inducing holdup.”  Further, Motorola filing the lawsuit immediately after expiration of the time Motorola requested for Microsoft to respond to the initial license offers indicated that the offers were just for show so that Motorola could at least say it had made an offer.

Motorola also filed the injunction suits after Microsoft filed the instant suit.  The instant suit could establish RAND rates to ultimately compensate Motorola so that Motorola would not suffer the irreparable harm needed to support injunctive relief:

Motorola’s injunction suits were also brought after Microsoft filed its breach of contract lawsuit with the district court.  At that point, Motorola was aware that the present lawsuit could establish RAND rates.  A patentee subject to FRAND commitments may have difficulty establishing irreparable harm.

Here, had Motorola accepted the RAND rates, it would then be fully compensated for Microsoft’s infringing use. The jury could have inferred, from that circumstance, that the injunctive actions were not motivated by a fear of irreparable harm, as payment of the RAND rate would eliminate any such harm.  In the absence of a fear of irreparable harm as a motive for seeking an injunction, the jury could have inferred that the real motivation was to induce Microsoft to agree to a license at a higher-than-RAND rate.  [internal citations omitted].

Further, Motorola had “knowledge that pursuing an injunctive action could breach its duty of good faith and fair dealing” based on the FTC investigation that culminated in a consent decree limiting circumstances when Motorola would seek injunctive relief.

The court made clear that the foregoing evidence may support the jury verdict, but “is susceptible to contrary interpretations as well.”  Here, “it was for the jurors to assess witness credibility, weight the evidence, and make reasonable inferences.”

Damages.  The court considered Motorola’s argument that damages based on Microsoft’s attorneys fees and litigation costs in connection with the injunction activity is barred by the Noerr-Pennington doctrine, which is a First Amendment right to access the courts that shields individuals from liability for engaging in litigation.  But courts have found that doctrine “does not protect patent holders from liability for asserting rights in violation of a commitment not to enforce those rights.”  The court ruled that “[e]nforcing a contractual commitment to refrain from litigation does not violate the First Amendment; if it did, every settlement of a lawsuit would be unenforceable as a Noerr-Pennington violation,” stating:

As we explained in Microsoft I, a patent-holder who signs “such a sweeping promise” as a RAND agreement “at least arguably … guarantee[s] that the patent-holder will not take steps to keep would-be users from using the patented material, such as seeking an injunction, but will instead proffer licenses consistent with the commitment made.”

The jury concluded that in these specific circumstances, seeking injunctive relief violated Motorola’s contractual RAND obligations. The Noerr-Pennington doctrine does not immunize Motorola from liability for that breach of its promise.

The court limited its ruling to the instant jury determination in these circumstances, and held that a RAND commitment does not always preclude filing an injunction action:

We agree with the Federal Circuit that a RAND commitment does not always preclude an injunctive action to enforce the SEP.  For example, if an infringer refused to accept an offer on RAND terms, seeking an injunctive relief could be consistent with the RAND agreement, even where the commitment limits recourse to litigation.  The pertinent question is whether Motorola’s obligation of good faith and fair dealing under its RAND agreements precluded it from seeking an injunction in these circumstances.  That question was for the jury to decide. [emphasis in original]

The court also went through a rather long analysis of whether Washington state law precluded an award of attorneys fees as damages.  The court ultimately concluded such damages would be allowed by a Washington court “where a party’s injunctive actions to enforce a RAND-encumbered patent violate the duty of good faith and fair dealing.”

Evidentiary Rulings.  The court reviewed two evidentiary rulings and ruled that Judge Robart did not abuse his discretion in allowing the challenged evidence.

First, Motorola challenged Judge Robart allowing the jury to receive not only the court’s bench trial RAND royalty rate determination ruling, but the full findings of fact and law of the opinion supporting that determination.  The court found this was a “close[] question.”  It ultimately ruled there was no abuse of discretion given that Motorola had waived its right to trial by jury on the RAND rate determination issue and Motorola had agreed to the bifurcated procedure.  Allowing the jury to make its own underlying factual findings that underly the judge-determined RAND rate would render that judge-determination “a nullity–a bare set of numbers, divorced from their context and meaning.”

Second, Motorola challenged the admission of evidence concerning the FTC investigation of Motorola that culminated in the FTC-Google/Motorola consent decree concerning injunctive relief for SEPs.  Although consent decrees may not be admitted to prove the truth of the government’s allegations underlying the consent decree, they may be used for other purposes such as showing notice or knowledge.  Here, the evidence was entered “to show that Motorola was aware the FTC (and Microsoft) found its conduct questionable enough to merit investigation.”  Further, this evidence “was undoubtedly probative” given similar issues in the instant case and the FTC investigation, which could have led the jury to believe the FTC instituted the investigation because it may have merit and to infer that Motorola settled because it believe its actions were wrongful.  Any prejudice from this would be cumulative of the submission of that stemming from admission into evidence of the FTC’s statement in the ITC proceedings.  And Motorola did not object to admission of that evidence.

European Union High Court gives guidance on seeking injunctive relief on FRAND-encumbered SEPs (Huawei v. ZTE)

Posted in Antitrust, Court Orders, Litigation

Today, a European Union high court issued a ruling that provides guidance on what steps the owner of a FRAND-encumbered patent that may be essential to a standard should take before seeking injunctive relief.  The court also ruled that a willing licensee should act without delay, provide a counter-offer, and actively pay royalties (in trust or otherwise) for past and on-going use of the patent while the parties negotiate toward a FRAND license.  The court further ruled that there was no specific pre-filing steps needed for the owner of a FRAND-encumbered patent to file suit seeking solely an accounting and monetary relief for past infringement (i.e., not injunctive).


The case involves patent owner (“proprietor”) Huawei asserting a European patent alleged essential to the Long Term Evolution (LTE) standard against alleged infringer ZTE.  That patent was subject to a commitment to license the patent on fair, reasonable and non-discriminatory terms (FRAND) made to the European Telecommunications Standards Insitute (ETSI).

ETSI has intellectual property right (IPR) policies that concern patents that are essential to ETSI standards.  A patent is essential to the standard where it is not possible on technical grounds to make equipment that complies with the standard without infringing the patent.  ETSI’s IPR policy provides that patent owners should be adequeately and fairly rewarded for the use of their patented technology, but also seeks to guard against such patents making standardized technology unavailable.  Thus ETSI seeks a balance between the needs of standardization for public use and the rights of patent owners.

To this end, ETSI participants are required to timely disclose their patents that are essential to an ETSI standard.  In response to such disclosure, ETSI will ask the patent owner to give an irrevocable FRAND commitment.  ETSI is supposed to determine whether to suspend work on adopting the standard until such a commitment is received.  ETSI does not check whether the patent actually is essential or valid.  Further, ETSI does not define what would be a “license on FRAND terms.”

In April 2011, patent owner Huawei brought an action in German court against ZTE for infringing the LTE patent following failed negotiations.  The parties had been in negotiations from November 2010 until end of March 2011.  Huawei offered what it considered a FRAND royalty and ZTE responded with a cross-license offer.  No agreement was reached, though ZTE continued to sell LTE devices.  In its lawsuit, Huawei sought both injunctive and monetary relief.

The German court stayed its proceedings and referred specific issues to this European Union high court dealing with competition issues, based on the following questions:

(1) Does the proprietor of [an SEP] which informs a standardisation body that it is willing to grant any third party a license on [FRAND] terms abuse its dominant market position if it brings an action for an injunction against a patent infringer even though the infringer has declared that it is willing to negotiate concerning such a license? or

Is an abuse of the dominant market position to be presumed only where the infringer has submitted to the proprietor of the [SEP] an acceptable, unconditional offer to conclude a licensing agreement which the patentee cannot refuse without unfairly impeding the infringer or breaching the prohibition of discrimination, and the infringer fulfils its contractual obligations for acts of use already performed in anticipation of the license to be granted?

(2) If abuse of a dominant market position is already to be presumed as a consequence of the infringer’s willingness to negotiate:

Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to the willingness to negotiate?  In particular, can willingness to negotiate be presumed where the patent infringer has merely stated (orally) in a general way that it is prepared to enter into negotiations, or must the infringer already have entered into negotiations by, for example, submitting specific conditions upon which it is prepared to conclude a licensing agreement?

(3) If the submission  of an acceptable, unconditional offer to conclude a licensing agreement is a prerequisite for abuse of a dominant market position:

Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to that offer?  Must the offer contain all the provisions which are normally included in licensing agreements in the field of technology in question?  In particular, may the offer be made subject to the condition that the [SEP] is actually used and/or is shown to be valid?

(4) If the fulfilment of the infringer’s obligations arising from the licence that is to be granted is a prerequisite for the abuse of a dominant market position:

Does Article 102 TFEU lay down particular requirements with regard to those acts of fulfilment?  Is the infringer particularly required to render an account for past acts of use and/or to pay royalties?  May an obligation to pay royalties be dischared, if necessary, by depositing a security?

(5) Do the conditions under which the abuse of a dominant positoin by the proprietor of a[n SEP] is to be presumed apply also to an action on the ground of other claims (for rendering of accounts, recall of products, damages) arising from a patent infringement?

Article 102 of the Treaty on the Functioning of the European Union (TFEU), referenced above, states as follows:

Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.


The European high court answered the questions above as follows:

1.  Article 102 TFEU must be interpreted as meaning that the proprietor of a patent essential to a standard established by a standardisation body, which has given an irrevocable undertaking to that body to grant a licence to third parties on fair, reasonable and non-discriminatory (‘FRAND’) terms, does not abuse its dominant position, within the meaning of that article, by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture of which that patent has been used, as long as:

prior to bringing an action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and

where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

2.  Article 102 TFEU must be interpreted as not prohibiting, in circumstances such as those in the main proceedings [i.e., the stayed German action], an undertaking in a dominant position and holding a patent essential to a standard established by a standardisation body, which has given an undertaking to the standardisation body to grant licenses for that patent on FRAND terms, from bringing an action for infringement against the alleged infringer of its patent and seeking the rendering of accounts in relation to past acts of use of that patent or an award of damages in respect of those acts of use.

The court started by noting the balance it must strike between “maintaining free competition” based on “Article 102 TFEU prohibit[ing] abuses of a dominate position” and “the requirement to safeguard th[e] proprietor’s intellectual-property rights and its right to judicial protection.”  The court further noted the limits of its ruling, stating that, in this case, “the existence of a dominant position has not been contested” and the questions to be addressed “relate only to the existence of an abuse”, thus “the analysis must be confined to the latter criterion.”

FRAND-Encumber SEPs Differ From Other Patents.  The court stated that filing a lawsuit for patent infringement “forms part of the rights of the proprietor of an intellectual-property right” and normally is not an abuse of a dominant position.  But there are “exceptional circumstances” when it may be an abuse.  This case presents two distinguishing features from most patents.  First, it involves a standard essential patent (SEP) that, unlike other patents, can preclude competitors from making standard compliant products.  Second, the patent “obtained SEP status only in return for the proprietor’s irrevocable undertaking … that it is prepared to grant licences on FRAND terms.”  Thus, a refusal to grant such a license “may, in principle, constitute an abuse within the meaning of Article 102 TFEU.”

Balance High Level of Protection Given Patent Rights.  The court noted that applicable law “provides for a range of legal remedies aimed at ensuring a high level of protection for intellectual-property rights in the internal market, and the right to effective judicial protection.”  This counsels not hindering a patent owner’s right to seek judicial relief and requiring a user to obtain a license before using the patented technology:

This need for a high level of protection for intellectual-property rights means that, in principle, the proprietor may not be deprived of the right to have recourse to legal proceedings to ensure effective enforcement of his exclusive rights, and that, in principle, the user of those rights, if he is not the proprietor, is required to obtain a licence prior to any use.

This is balanced with considerations for FRAND-encumbered SEPs, which “justif[ies] the imposition … of an obligation to comply with specific requirements when bringing actions against alleged infringers for a prohibitory injunction.”

First Step – Prior Notice to Infringer.  The court thus ruled that, before bringing suit for injunctive relief, an SEP owner must “first … alert the alleged infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed.”  One reason for this is that, because there are a large number of patents that may be essential to a standard, the accused infringer may not “necessarily be aware that it is using the teaching of an SEP that is both valid and essential to a standard.”

Second Step – Written FRAND Terms.  If, after notice, the alleged infringer “expressed its willingness to conclude” a FRAND license, the SEP owner must then provide “a specific, written offer for a licence on FRAND terms … specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated.”  The court explained it was proper to have the SEP owner make such an offer, who may have nonpublic agreements with other licensees, since the patent owner “is better placed to check whether its offer complies with the condition of non-discrimination than is the alleged infringer.”

Accused Infringer’s Obligation.  An accused infringer has its own obligations before it can take advantage of a FRAND defense.

First, if an accused infringer objects to the proferred license offer, it must submit, “promptly and in writing, a specific counter-offer that corresponds to FRAND terms.”  This response must be in “good faith” with “no delaying tactics”:

[I]t is for the alleged infringer diligently to respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

Second, if its counter-offer is rejected, an accused infringer who already has been selling or otherwise using the technology before a license is entered must provide “appropriate security” for the past use of the technology and render an account of same:

The calculation of that security must include, inter alia, the number of the past acts of use of the SEP, and the alleged infringer must be able to render an account in respect of those acts of use.

Third-Party Royalty Determination.  If the parties do not reach agreement, they can seek a “royalty determined by an independent third party, by decision without delay.”

Can Challenge Patent.  The court ruled that, because the standard setting body did not determine essentiality or validity, the accused infringer should be allowed to challenge whether the patent is infringed, essential or valid during the negotiations or to reserve the right to do so in the future.

No Abuse If Seeking Past Money Damages.  The court ruled that “seeking the rendering of accounts in relation to past acts of use of [an] SEP or an award of damages in respect of those acts” are not an abuse of dominance, because such actions “do not have a direct impact on products complying with the standard … appearing or remaining on the market.”