Back in January, we summarized a number of amicus briefs filed by a diverse group of companies and organizations concerning the issues in the Apple v. Motorola Inc. Federal Circuit appeal of Judge Posner’s decision to dismiss the parties’ respective patent infringement cases. We noted that because the Federal Circuit extended the deadline to file amicus briefs until seven days after Motorola’s opening brief was due, more parties were certain to make their views on standard-essential patent and FRAND issues known to the court. Sure enough, several others filed amicus briefs last week. Yesterday, the amicus brief filed by Intel became publicly available.
As you can see from our summary below, Intel’s brief clearly supports Apple, at least with respect to Apple’s cross-appeal of the standard-essential patent issues in the case. Intel believes that Judge Posner properly excluded Motorola’s expert testimony on damages for its FRAND-pledged essential patent at issue, and that he was also correct in determining that Motorola was not entitled to injunctive relief for the same FRAND-pledged essential patent.
Intel identifies “three important principles that flow from the specific [FRAND] contractual commitments”:
- “[A] FRAND license must be available to all comers.”
- “[A] patentee that makes a FRAND commitment may not obtain an injunction against an alleged infringer, except in limited circumstances.”
- “[A] ‘reasonable’ royalty rate under such FRAND commitments must be based on the value of the particular component of the product that practices the SEP and the relative contribution of the SEP to that component, taking into account alternatives that were available before the adoption of the standard and the contributions of other patented and non-patented technologies embodied in the component.”
In arguing that FRAND and SEP issues “are of pressing importance to the U.S. economy and the public interest,” Intel contends that enforcing the above three principles is necessary to prevent problems of patent hold-up and royalty stacking (which are commonly viewed as issues FRAND obligations are intended to target). Briefly, here is what Intel argues in support of its three principles listed above.
FRAND means licenses are available to “all comers”
According to Intel, this “foremost command” of a FRAND obligation is that Motorola, as an SEP holder, must grant a reasonable license to any prospective licensee upon request – i.e., to any willing party. Intel argues that this includes both sellers of completed products to consumers (like Apple) and manufacturers of components that go into those products (like Intel).
FRAND means no injunctions, mostly
Intel, like Apple (and Judge Posner), contends that a patent owner who has committed to licenses its SEPs on FRAND terms is precluded from obtaining an injunction based on infringement of those SEPs. Intel does concede, however, that in certain cases an injunction may be appropriate — such as where a court or arbitrator has determined the appropriate FRAND terms, the SEP holder has made an offer including those FRAND terms, and the offer has been rejected.
But Intel argues that this is not the case here, stating that awarding Motorola an injunction would amount to exploitation of market power conferred by the inclusion of the patent in the ETSI UMTS wireless standard. In doing so, Intel echoes the arguments made by many others (such as Microsoft, Apple, the FTC, etc.) that injunctions may be used as tools to extract higher royalties than would otherwise be warranted, raising the cost of standard-compliant products or even retarding the adoption of the standard. Intel claims that reversing Judge Posner’s decision “would set a dangerous precedent with far-reaching consequences for standard-setting activities.”
Lastly, Intel specifically turns to the eBay factors, stating that Motorola cannot prove entitlement to an injunction. Intel points to the FRAND commitment as evidence that Motorola cannot show irreparable harm or inadequacy of monetary damages — because Motorola has already committed to license all comers. As for the balance of hardships and public interest factors, Intel again makes its policy arguments about patent hold-up and the increase in costs for standard-compliant products that could result. Intel also takes on Motorola’s claim that Judge Posner failed to apply eBay to the facts of this case, noting that Judge Posner cited the case and at least addressed the adequacy of money damages.
FRAND imposes limits on reasonable royalties
The section of Intel’s brief addressing the proper methodology for calculating FRAND royalties is quite interesting. Not surprisingly, Intel incorporates some principles that have been urged by Apple in the past. The main thrust of Intel’s argument is that (1) a FRAND royalty base must be the smallest saleable component that embodies the standard-essential patent, and (2) a FRAND royalty rate must take into account the value of the patent with respect to other patented and non-patented functionality in the component. According to Intel, this is the appropriate way to calculate a FRAND rate because it accounts for the patent’s “incremental economic contribution” and does not include any “unearned market power.”
For its “smallest saleable component” royalty base proposal, Intel cites to the Federal Circuit’s recent decision in LaserDynamics v.Quanta, as well as Chief Judge Rader’s decision in the district court case Cornell Univ. v. Hewlett-Packard Co. Presumably, Intel proposes this royalty base because standard-essential technology is often provided on a chip supplied from a vendor to an end-product manufacturer. But note there is some debate about whether a standard-essential patent is truly embodied only within a single chip, as opposed to being practiced or embodied within a larger device that includes the chip — and this is something that may even vary from patent to patent depending on the language and scope of the claims.
Intel’s FRAND royalty rate proposal attempts to address the royalty stacking issue, but appears to be a bit internally inconsistent and seemingly unworkable in practice. Intel argues that the FRAND royalty should be limited to the incremental economic contribution of the SEP at the time that it was implemented in the standard — which seems to imply that one single FRAND royalty should apply for all situations. But Intel also argues that any FRAND royalty must take into account all patented (SEP and non-SEP) and non-patented technology that is included within the product that makes up the relevant royalty base — which seems to imply that a FRAND royalty could vary widely depending on the royalty base.
For instance, according to the latter scenario, a single 3G SEP implemented in a 3G-only chip would command a higher royalty than when it is implemented in a dual 3G/802.11 chip. But the “incremental economic contribution” of the patent to the 3G standard would be the exact same in both situations. This does not even take into account the difficulty in ascertaining the full scope and value of all patented and non-patented technology in any given technological device. While Intel cites “industry practice” — the low per-unit rates charged by the MPEG LA AVC/H.264 patent pool, as well as a 2006 proposal submitted by Ericsson/Nokia/Motorola to ETSI — as confirming the propriety of this approach, it doesn’t appear to provide any evidence of anyone clearly linking negotiated standard-essential patent royalties to the “incremental economic contribution” of the patents (let alone how to do so).
Intel argues that in this case, Motorola’s expert failed to calculate damages based on these requirements, because he both (1) failed to account for the value of other patented and non-patented technology in Apple’s products, and (2) did not provide any evidence of the ex ante value of the patent.
The other parties who have filed amicus briefs include Microsoft (supporting Apple), the Business Software Alliance (supporting Apple), a group of university professors (supporting Apple), Qualcomm (supporting Motorola), and Research In Motion / BlackBerry (supporting neither party). (Nokia also filed a motion to extend the deadline for filing an amicus brief.) When these become public, we will certainly post on anything noteworthy.