While much of the focus on standard-essential patent litigation issues has been focused on Microsoft-Motorola, Apple-Samsung, and the InterDigital cases, these are far from the only cases dealing with SEP issues.  District courts and the ITC continue to develop case law on SEP and RAND-related issues.

In an order issued yesterday in Realtek Semiconductor v. LSI (No. 12-cv-03451, N.D. Cal.), Judge Ronald Whyte of the Northern District of California issued a preliminary injunction that purports to prevent LSI from enforcing an ITC exclusion order until LSI has complied with its IEEE-related RAND obligations.  According to the order [LINK], this means that LSI must wait to enforce any exclusion order until: (1) the court has determined an appropriate RAND rate for LSI’s 802.11-essential patents, (2) LSI offers a license to Realtek at that rate; and (3) Realtek refuses to enter into a license at the judicially-determined RAND rate (which, as the court states, “Realtek indicates it will not do.).

With the ITC’s decision in the 337-TA-794 investigation (on the propriety of exclusion orders for FRAND-pledged essential patents) involving Samsung and Apple due by the end of the month, this is certainly an interesting development.  But given the way the ITC operates, we’re not so sure that the court’s order is going to have the desired effect.  Let’s take a look at Judge Whyte’s order, shall we?

A brief history of Realtek-LSI

The order outlines a useful procedural and factual history.  LSI owns Agere, a co-defendant in the case who owns two patents it asserts are essential to the IEEE 802.11 standard.  Agere submitted several Letters of Assurance to the IEEE in which it committed to license these patents to implementers of various 802.11 standards (802.11b, e, g, and n) on RAND terms.  In the 2002-03 time frame, Agere contacted Realtek and offered a license to its 802.11-essential patents at a royalty rate of 5.0% of the price of Realtek’s products.  After several months of on-and-off negotiations, no license resulted.

Then, in March 2012, LSI contacted Realtek and asserted infringement of the two 802.11 patents, requesting that Realtek cease and desist from the allegedly infringing activities.  Less than a week later, LSI filed an ITC complaint, which was eventually instituted by the ITC as Inv. No. 337-TA-837.  After the complaint was filed, Realtek asked LSI for a RAND license.  In June 2012, LSI sent what it deemed to be a RAND license proposal to Realtek (which, unfortunately, is under seal). Realtek, for its part, claims that the June 2012 proposal was not “RAND” because it reflects the “total value of the end product” rather than the value of the components sold by Realtek.

In response to what it called an inherently unreasonable offer, Realtek filed a complaint alleging that LSI breached its RAND obligation by filing the ITC complaint and by making an unreasonable offer (among other claims).  The complaint mostly survived a motion to dismiss.  As the ITC investigation proceeded toward an April 2013 hearing (and a July 18, 2013 Initial Determination), Realtek filed a motion for partial summary judgment on the breach of contract issue, seeking a preliminary injunction that would prevent LSI from enforcing any exclusion order it might receive at the ITC.  LSI opposed the motion, asserting that the court needed more facts to determine whether LSI had in fact breached its RAND obligations.

Breach of RAND Obligations

The court granted Realtek’s motion, finding that LSI breached its IEEE RAND obligations.  The court explained that at this point, it was not offering an opinion on the reasonableness of the June 2012 license proposal — “the only question is whether defendants, by instigating an ITC Section 337 action naming Realtek as a respondent prior to offering a RAND license to Realtek, violated their contractual obligations to the IEEE and to Realtek to license their standard-essential patents on RAND terms.”

Citing heavily to several of Judge Robart’s (as well the 9th Circuit’s) decisions in the Microsoft-Motorola case, the court stated that the act of seeking injunctive relief is “inherently consistent and a breach of defendants’ promise to license the patents on RAND terms.”  The court even characterized LSI’s conduct as “more glaringly inconsistent with its RAND obligations” than Motorola’s, because LSI filed its ITC complaint before offering a license to Realtek.

The court did note that an injunction might be warranted if Realtek were to refuse to accept a RAND license, but states that this simply was not the case here.  The court rejected LSI’s arguments that the 2002/2003 communications were sufficient RAND offers, finding that the standard at issue back then (802.11b) was different than what was at issue in the ITC case, and that too much time had passed.  Lastly, the court rejected LSI’s assertion (in the form of a request for a Rule 56(d) continuance) that the motion was premature, noting that any additional information would only be relevant to a determination of a RAND royalty rate — not the actual breach issue.

So unlike in Microsoft-Motorola, where the court first determined a RAND rate and a jury will not determine the RAND breach of contract issue, the court here found that seeking injunctive relief prior to making any offer at all was such an obvious breach of RAND obligations that it could grant summary judgment on the issue.

Preliminary Injunction

In addition to granting summary judgment on the breach issue, the court issued a preliminary injunction that purports to enjoin LSI from enforcing any exclusionary relief from the ITC until it fully complies with its RAND obligations.  The court rejected LSI’s arguments that Realtek was able to present RAND-related affirmative defenses at the ITC, explaining that these defenses are different than the claims asserted in district court (and the relief would likewise be different).  Applying the four-factor test for preliminary injunctive relief, the court found that each factor weighed in favor of issuing an injunction.

Now, for the fun part.  Notably, the court’s injunction does not prevent LSI from continuing to participate in the ITC investigation, nor does it prevent the ITC itself from proceeding — it only purports to bar “defendants from enforcing any exclusion order or injunctive relief [e.g., a cease and desist order] by the ITC” — should the ITC find a violation of Section 337 and issue exclusionary relief.  But unlike with some injunctions (like in Germany, where Motorola was barred from enforcing one against Microsoft), an ITC complainant generally need not do anything to “enforce” an exclusion order.  Exclusion orders are automatically enforced by U.S. Customs and Border Protection — so if an exclusion order issues in the -837 ITC case, it may be implemented and enforced by CBP regardless of the intent of Judge Whyte’s order.  (Although, as noted by this paper, complainants often interact with the Intellectual Property Rights branch of CBP, and the preliminary injunction could prohibit LSI from doing so).