Because so many SEP-related issues have arisen over the past year, we will periodically revisit some of the more important episodes with a brief post. Judge Richard Posner’s June 22, 2012 ruling in the Apple v. Motorola patent infringement litigation in the Northern District of Illinois, and the subsequent appeal to the Federal Circuit fall into this category.
Even people who don’t routinely follow the smartphone patent wars likely are aware of the patent dispute between Motorola and Apple. After prior license negotiations failed, the parties filed dueling patent infringement lawsuits in October 2010. Some of these infringement actions were consolidated in a case before Judge Posner, who sat by designation at the district court. A jury trial was scheduled for June 2012: Apple asserted Motorola infringed claims of four non-standard-essential patents, while Motorola asserted Apple infringed claims of one patent that was essential to the Universal Mobile Telecommunications Standard (UMTS, a 3G cellular standard). But as the trial date approached, Judge Posner excluded all of the parties’ respective expert testimony on damages. Finding that neither party could prove an entitlement to damages, Judge Posner tentatively canceled the jury trial, finding that it would make little sense to hold a jury trial on infringement liability if a party could not receive relief. However, he allowed the parties to submit further briefing, including relating to the potential for equitable remedies such as injunctive relief. Because Motorola asserted an SEP that was encumbered by a FRAND licensing commitment, Judge Posner specifically requested that Motorola address the bearing of FRAND on the injunction analysis.
In the June 22 order and opinion, Judge Posner found that neither Motorola nor Apple was entitled to damages or an injunction, and dismissed the case with prejudice. In addressing Motorola’s damages claims, he set forth a clear opinion of what he considers to be the proper way to determine a reasonable royalty for SEPs:
The proper method of computing a FRAND royalty starts with what the cost to the licensee would have been of obtaining, just before the patented invention was declared essential to compliance with the industry standard, a license for the function performed by the patent. That cost would be a measure of the value of the patent qua patent. But once a patent becomes essential to a standard, the patentee’s bargaining power surges because a prospective licensee has no alternative to licensing the patent; he is at the patentee’s mercy. The purpose of the FRAND requirements, the validity of which Motorola doesn’t question, is to confine the patentee’s royalty demand to the value conferred by the patent itself as distinct from the additional value—the hold-up value—conferred by the patent’s being designated as standard-essential.
Because Motorola provided no evidence for calculating a royalty consistent with this framework, Judge Posner ruled that Motorola could not obtain damages for any infringement of its asserted standard-essential patent.
As to injunctive relief, Judge Posner similarly found that Motorola’s FRAND commitment precluded relief:
I don’t see how, given FRAND, I would be justified in enjoining Apple from infringing the ′898 unless Apple refuses to pay a royalty that meets the FRAND requirement. By committing to license its patents on FRAND terms, Motorola committed to license the ′898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation for a license to use that patent. How could it do otherwise? How could it be permitted to enjoin Apple from using an invention that it contends Apple must use if it wants to make a cell phone with UMTS telecommunications capability—without which it would not be a cell phone.
He favorably cited a June 6, 2012 public interest statement issued by the Federal Trade Commission in an International Trade Commission Section 337 action No. 337-TA-745) brought by Motorola against Apple, where the FTC warned against the potential economic and competitive impact of injunctive relief on disputes involving SEPs. While Motorola argued that Apple refused to negotiate and should therefore lose the benefit of Motorola’s FRAND pledge, Judge Posner disagreed, saying that Motorola’s FRAND promises were not conditioned on prospective licensees making counteroffers in license negotiations.
Not surprisingly, both Apple and Motorola have appealed Judge Posner’s dismissal of their respective cases to the Federal Circuit (Docket Nos. 2012-1548, -1549). Apple filed its opening brief (relating to its own non-SEP infringement claims) on November 27, 2012, and many amicus curiae have already begun to take the opportunity to weigh in on the FRAND-related issues. Because this likely will be the Federal Circuit’s first opportunity to provide a meaningful definition of FRAND and to issue guidance as to what if any restrictions a FRAND commitment places on a patent holder, this is an appeal that certainly bears watching. In an upcoming post, we will address some of the approaches that have been advocated by the parties who have already submitted amicus briefs – which includes the Federal Trade Commission, the American Antitrust Institute, the Institute for Electronics & Electrical Engineers, and a wide variety of companies such as Cisco, Verizon, Ford, and Hewlett-Packard.