Back in June, we alerted you to a jury verdict handed down in a patent case in the Eastern District of Texas, where the jury awarded Ericsson several million dollars as compensation for infringement of several of its 802.11-essential patents by several manufacturers of WiFi-compliant products and components. At the time, we noted that the jury only addressed issue of validity, infringement, and damages, with SEP-specific issues being potentially left for presiding Judge Leonard Davis to decide. (In fact, the court held a bench trial on RAND issues on June 12). The parties filed post-trial motions for judgment as a matter of law on several issues, and yesterday, Judge Davis issued a lengthy Memorandum Opinion and Order broadly upholding the jury’s verdict.
[13.08.06 (Dkt 615) Ericsson v. D-Link Order on Post-Trial Motions]
As we suspected, some RAND obligation-related issues reared their heads — but Judge Davis rejected the defendants’ RAND-based arguments and defenses. In doing so, he made some statements that might be construed as a marked departure from the route taken by Judge Robart in the Microsoft-Motorola case. After the jump, we’ll take a look at what Judge Davis concluded with respect to Ericsson’s RAND obligations.
The defendants’ RAND-related issues with the damages award
The defendants (D-Link, Netgear, Belkin, Acer/Gateway, Dell, Toshiba, and Intel) claimed that the damages award was inconsistent with Ericsson’s RAND obligations for several reasons — alleging that it was based on non-comparable licenses, that the licenses introduced were negotiated without an eye toward a RAND obligation, and that the damages award failed to account for royalty stacking issues (the defendants claimed the proper RAND rate should be “pennies or a fraction thereof”). The defendants also claimed that Ericsson violated its RAND obligations by not offering licenses to or seeking damages against Intel (the WiFi chip supplier to many of the defendants), which they deemed tantamount to a refusal to offer a RAND license.
But on pp. 32-37 of his opinion, Judge Davis rejected each one of the defendants’ arguments. First, as to Intel, Judge Davis noted that there is no rule (RAND-related or otherwise) that a patent infringement plaintiff must seek damages from all defendants in a case. Additionally, Ericsson did eventually offer Intel a license on the same terms as the other defendants, so Judge Davis found this issue to be moot. But Judge Davis also found that nothing in Ericsson’s RAND assurances prevented it from licensing only “fully compliant” 802.11 products (i.e., end products), as opposed to 802.11-related chipsets — noting that “other large companies have adopted similar policies of only licensing fully compliant products.” (You may recall that in the Microsoft-Motorola case, Microsoft had made a similar argument that Motorola breached its RAND obligations by failing to offer a RAND license to Microsoft’s 802.11 chip supplier, Marvell). This issue — whether companies may properly seek RAND royalties at certain levels of the supply chain, whether they can offer different rates to companies on different levels, and whether they can carve out certain companies from license agreements — remains a thorny one that is sure to be disputed in future cases.
As to non-comparable licenses, Judge Davis found that Ericsson’s expert had properly apportioned the value of the asserted patents out of these broader agreements, giving the jury sufficient evidence on which to base its verdict. Although the defendants argued that these were not negotiated with a RAND obligation in mind, Judge Davis noted that Ericsson’s RAND obligations are public knowledge, and the sophisticated counterparties (such as RIM and HP) would have been well aware of these RAND obligations — seemingly placing the burden on the defendants to show affirmatively that prior licenses were not negotiated under the RAND framework. By contrast, in the Microsoft-Motorola case, Judge Robart seemed to place the burden on Motorola — the SEP holder — to show that its prior comparable licenses were negotiated under the RAND framework.
No evidence of hold-up or royalty stacking
In another apparent disagreement with Judge Robart’s methodology, Judge Davis found that pointing to theoretical royalty-stacking issues was not sufficient to reduce the damages award. Notably, Judge Davis found that the defendants “failed to present any evidence of actual hold-up or royalty stacking” — he noted that the defendants’ expert “never even attempted to determine the actual amount of royalties Defendants currently pay for 802.11 patents.” In fact, he went so far as to state that the “best word to describe Defendants’ royalty stacking argument is theoretical.” Without evidence of actual royalty stacking, Judge Davis did not find any reason to limit Ericsson’s 802.11-related royalties beyond what was determined by the jury.
Note that this at least arguably contrasts with the approach taken in Microsoft-Motorola, where Judge Robart concluded that because the RAND commitment exists to mitigate hold-up concerns, the appropriate RAND royalty for Motorola’s patents must take into account the royalty rates that could be demanded by other SEP holders. (And where Judge Robart also did not require Microsoft to show what royalties it was currently paying for its 802.11-compliant products).
The defendants’ requests for a RAND determination and injunctive relief ban
At the bench trial, the defendants asked Judge Davis to make a RAND determination for Ericsson’s entire 802.11-essential portfolio (as opposed to the subset of the patents-in-suit), and also asked him to declare that Ericsson be barred from seeking injunctive relief as a result of its RAND commitments. Ericsson had apparently demanded $0.50 per unit from each of the defendants as the RAND royalty for their entire 802.11-essential portfolio, and the jury found that the appropriate reasonable royalty would be $0.15 per unit for the three infringed patents.
Because Ericsson did not seek injunctive relief on any of the patents in suit, Judge Davis determined that there was no need to rule on that issue. As to a RAND determination, when Judge Davis had previously asked the defendants to agree to pay whatever RAND rate he determined for Ericsson’s 802.11-essential portfolio, they “wavered on whether they would agree to actually pay the RAND rate determined by the Court.” Thus, Judge Davis found that setting a RAND rate would have amounted to nothing more than an advisory opinion — stating that “Defendants cannot ask the Court to determine a RAND rate but refuse to be bound by it.” (Note that in Microsoft-Motorola, Microsoft agreed mid-lawsuit to be bound by Judge Robart’s determination, while in the Apple-Motorola dispute, Apple set an upper bound of $1 per unit on the RAND rate it would accept — saying RAND is like an options contract). He concluded that the jury verdict is the appropriate RAND rate for just the patents in suit — which is all that he need determine at this point — and awarded an ongoing royalty of $0.15 per unit.
In closing, Judge Davis stated that the “paradox of RAND licensing … creates a situation that is ripe for judicial resolution.” Much along the same lines as Judge Robart, he noted that initial offers are starting points in negotiations, that “[a] patent holder does not violate its RAND obligations by seeking a royalty greater than its potential licensee believes is reasonable,” and that RAND licensing is a two-way street that requires good faith by both parties. Here, he found that the defendants’ argument boiled down to the fact that they believed Ericsson’s initial offer of $0.50 for its entire 802.11-essential portfolio was too high (and that they “never meaningfully engaged Ericsson in RAND licensing negotiations after the inital offer”). As such, he concluded that Ericsson did not violate its RAND obligations in seeking $0.50 per unit for its 802.11-essential portfolio.
While Judge Robart’s Microsoft-Motorola decision was certainly a ground-breaking one, it’s worth pointing out that as a district court case, it is not binding on other district courts around the country — as some of the apparently disagreements in Judge Davis’s opinion here show. It will be interesting to see if SEP holders who take issue with Judge Robart’s conclusions begin to cite Judge Davis’s opinion in rebuttal.
(In a somewhat related note, Judge Davis undertook an interesting and detailed analysis of the defendants’ claims that the damages award was improperly apportioned and violated the Entire Market Value rule, before concluding that the damages award was proper — see pp. 28-32 for this discussion).