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.  Next month, the U.S. International Trade Commission will issue a Final Determination in In the Matter of Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers (No. 337-TA-794), a Section 337 patent infringement action brought by Samsung against Apple.  This presents us with a timely opportunity to discuss the background of some of the SEP and FRAND-related issues of first impression that may be decided by the Commission in the case.

The Samsung-Apple ITC investigation (337-TA-794) originated with a complaint brought by Samsung against Apple back in June 2011, in which Samsung accused various Apple products of infringing five patents.  Two of these patents — U.S. Pat Nos. 7,706,348 and 7,486,644 — were alleged by Samsung to be essential to the UMTS 3G cellular standard.  Not surprisingly, Apple claimed that Samsung’s FRAND obligations with respect to these SEPs prevent Samsung from receiving an exclusion order, in the event Apple is found to violate Section 337.

A hearing was held in June 2012 before Administrative Law Judge E. James Gildea.  In September 2012, ALJ Gildea issued an Initial Determination (ID) that found no violation of Section 337 by Apple — i.e., Apple did not infringe any valid Samsung patents (for which Samsung also satisfied the ITC’s domestic industry requirement).  The ALJ also rejected Apple’s FRAND-based defenses.  But on November 19, 2012, the ITC determined that it would review the ID in full, and included in its Notice of Review specific questions for Apple, Samsung, and other interested parties to answer about certain FRAND-related questions of first impression.  Paraphrased below, these questions include:

  1. Does the existence of FRAND obligation by itself preclude the issuance of an exclusion order?
  2. What framework should be used to determine whether a license offer to an accused infringer complies with a FRAND obligation, and does a rejection of the offer by the accused infringer affect that analysis?
  3. Would there be a substantial cost or delay to design around the UMTS SEPs, and could such a design-around still comply with the UMTS standard?
  4. Do the UMTS SEPs cover relatively minor portions of the accused devices?

In the weeks after the ITC issued its Notice of Review, the parties and several companies and other interested entities filed briefs that sought to answer the ITC’s questions.

Apple’s Positions

Apple filed both an initial submission and a responsive submission.  With respect to the FRAND-specific policy questions, Apple asserted that the existence of a FRAND obligation precludes all injunctive relief, including exclusion orders.  Apple explained that the use of FRAND-encumbered patents to obtain exclusion orders represents “patent hold-up” that can drive up costs, and drew the ITC’s attention to investigations of Samsung being undertaken by the Department of Justice and the European Commission.  Apple claimed that the only remedy for FRAND patent holders is a reasonable royalty, and stated that this  royalty should be determined with reference to a standardized royalty base and the level of an “aggregate royalty burden” for the standard.  Apple also claimed that rejection of a purported FRAND offer does not factor into the analysis.

As to the SEP-related technical questions, Apple denied that Samsung’s patents are in fact essential to the UMTS standard.  Apple also claimed that Samsung’s patents cover trivial portions of the accused devices and could easily be designed around.  But in the case that the ITC were to find that Samsung’s patents are essential, Apple asserted that such design-arounds would then not comply with the UMTS standard.

Samsung’s Positions

Samsung also filed two submissions with the ITC – an initial submission and a responsive submission.  Unsurprisingly, Samsung disagreed with Apple, claiming that there is no legal basis for the position that a FRAND obligation precludes issuance of an exclusion order.  Samsung asserted that determining whether a FRAND obligation has been violated requires a fact-intensive and case-specific analysis and noted that the ITC’s public interest analysis (and the district courts’ eBay analysis) are equipped to handle these tasks — but that Apple did not demonstrate such a violation here.  Samsung also pointed out that the ETSI patent policy does not expressly prohibit injunctions or exclusion orders.  Samsung explained that a ban on injunctive relief would encourage “reverse hold-up,” where a potential licensee refuses to take a license to SEPs because it would know that it could not be enjoined.  As far as determining whether an offer is compliant with a FRAND obligation, Samsung claimed that there is no “one size fits all” solution, but that reference can be made to offers made for the same or similar technology.

As to the technical questions, Samsung asserted that both of its UMTS-essential patents are important and that Apple could not design-around them.  However, Samsung explained that Apple could sell alternative standards-compliant devices (2G cellular, Wi-Fi, or WiMax) that would not infringe Samsung’s patents.

The ITC Staff’s Positions

The Office of Unfair Import Investigations (OUII, sometimes also known as the “ITC Staff”) often participates in ITC investigations as an independent third party representing the public interest.  In this case, OUII submitted both an opening brief and a reply brief that addressed the ITC’s RAND-related questions.  Generally, OUII sided with Samsung — it advocated against a per se bar on exclusion orders for FRAND-encumbered SEPs, instead urging to analyze the merits of FRAND defenses on a case-by-case basis.  Interestingly, OUII asserted that in this case, there is no risk of hold-up and no FRAND obligation because Samsung’s patents are not actually UMTS-essential — noting that the ALJ found that certain UMTS-compliant products did not infringe the patents, while certain UMTS-compliant domestic industry products did practice the patents.

In analyzing whether an offer is FRAND, OUII stated that certain “general principles” should apply: the ITC should consider (1) the burden of proof; (2) the rules of the SSO at issue; (3) the elements of the specific affirmative defense; and (4) the process used by district courts to determine “reasonableness” in a FRAND setting.  As to determining “reasonableness,” OUII cited the Microsoft v. Motorola case, noted that it may not be necessary to determine a precise royalty amount, and referenced the Georgia-Pacific factors.  OUII also explained that a refusal of an offer by an accused infringer may be a factor, but will not necessarily be determinative.

As to the technical questions, OUII asserted that there would not be a substantial cost or delay to design around the patents, because (as mentioned above) non-infringement UMTS-compliant products already exist in the marketplace.  OUII did take the position that Samsung’s SEPs covered important features of the accused products, however.

Other Public Interest Statements

A large number of companies and other entities also weighed in on the questions posed by the Commission, offering diverse opinions.  While many were consistent with Apple’s positions, several (Motorola, RIM, Qualcomm, Ericsson) tended toward the positions advocated by Samsung.  These may be accessed from the links below:

The Final Determination of the ITC is due to be issued within the next month, and no later than February 6, 2013.  If the ITC finds a violation of Section 337 on one of the FRAND-encumbered patents, it will present the ITC with its first opportunity to expressly weigh in on the intersection of FRAND and exclusion orders.