The U.S. Trade Representative’s recent disapproval of the ITC’s exclusion order in Inv. No. 337-TA-794 has generated a lot of discussion and uncertainty about the future enforcement of standard-essential patents at the U.S. International Trade Commission. But it seems generally accepted that going forward, both the Commission and litigants are going to have do a much deeper dive into FRAND issues in order to satisfy the USTR’s public interest concerns.
One of the first cases in which the Commission will have to address FRAND issues in this new paradigm is In the Matter of Certain Wireless Devices with 3G Capabilities and Components Thereof, Inv. No. 337-TA-800 — the ITC’s investigation based on InterDigital’s allegations that Nokia, Huawei, and ZTE (as well as LG) infringe several 3G-essential patents. The ALJ recently issued an initial determination finding no violation of Section 337 (but also that the Respondents failed to prove any FRAND defenses). The parties have filed petitions for review, and the Commission’s decision whether to review the ID is due at the end of the month. In the meantime, the Commission has issued a notice soliciting comments on the public interest relating to this investigation — which, of course, include FRAND issues.
Yesterday, Ericsson — a party that just won an SEP case in Texas, and is also embroiled in SEP-related disputes with Samsung and Adaptix at the ITC — submitted comments to the Commission [LINK]. In these comments, Ericsson proposes “a more comprehensive approach for the consideration of standard-essential patents in section 337 investigations” in response to the USTR’s guidance. Let’s take a look at the high points of Ericsson’s proposal, shall we?
The ITC should issue “conditional” exclusion orders for FRAND patents
Ericsson states at the outset that it agrees that a patent owner who has not complied with its FRAND obligation should not be entitled to an exclusion order. However, Ericsson asserts that exclusion orders should remain available for FRAND patents — otherwise, elimination of this remedy would “encourage the rejection of FRAND offers by potential licensees in an effort to avoid paying due royalties to the patent owner and thus increase litigation (i.e., “reverse hold-up”).”
Therefore, Ericsson proposes that in each investigation involving SEPs, the Commission “thoroughly and critically consider” FRAND issues before issuing a remedy. Under Ericsson’s framework, this would include making a determination of the appropriate FRAND terms and conditioning the entry of an exclusion order on the refusal of a respondent to conclude a license on such terms. Ericsson argues that this approach strikes a balance between more extreme positions advocated by others (no exclusion orders / minimal FRAND evaluation), and ensures that the ITC remain open as an option for patent holders to enforce their patents against unwilling licensees (and also that this conditional approach was blessed by the FTC).
(Note that under this approach, it’s unclear whether the FRAND terms advocated for by Ericsson would be limited to the patents in suit that were found to be infringed, whether the FRAND terms would be for a full portfolio-wide license, or whether Ericsson would want the Commission to give the potential licensee an “either/or” option).
Licensing of FRAND-encumbered portfolios on a worldwide basis is common and not a FRAND violation
The ALJ in the -800 case concluded that InterDigital’s policy of licensing its SEPs on a worldwide basis was envisioned by the SSOs and in line with its FRAND commitment. Ericsson agrees, stating that this is a “common industry practice” and “the most efficient accommodation for licensing large and dynamic portfolios of standard-essential patents.” Ericsson also notes that portfolio licensing is preferred because both licensors and licensees typical desire patent peace — to be free from infringement claims from a particular party during the license terms. According to Ericsson, portfolio licensing — as opposed to licensing on a patent by patent basis — is a much more efficient means for achieving this outcome.
“Non-discriminatory” does not mean “identical terms”
Ericsson states that it agrees with the ALJ here that the “non-discriminatory” prong of FRAND does not mean that all licensee agreements will feature the same terms (royalty or otherwise). Ericsson lists several factors that it argues affect the overall terms, including the value of a cross-license, the types of products sold, the standards incorporated into the products, the licensee’s expected revenues and profits, the geographic scope of the license, etc. (We note that there may be several entities out there who disagree with some of these factors, so it will be interesting to see if anyone takes issue with this list in a future submission). Ericsson claims that the FRAND commitment must be flexible enough to allow licensors to tailor licenses to the circumstances of individual licensees without boxing themselves in to particular terms in the future.
We would not be surprised to see more companies follow suit with their own proposals for what the Commission should do to evaluate FRAND obligations and the public interest in both the -800 investigation and future cases, and we will keep you posted on any additional submissions. Both the Innovation Alliance and Microsoft also submitted public interest comments yesterday, but neither dove as deep as Ericsson into the FRAND aspects of the investigation. The Innovation Alliance argues that the record on FRAND in this case is comprehensive enough for the ITC to deal with the concerns the USTR brought up in the -794 case; Microsoft deals mainly with its partnership with Respondent Nokia, and actually requests additional briefing on the FRAND issues.