Qualcomm and Ericsson have filed amicus briefs in the appeal of Judge Crabb’s dismissal of Apple’s declaratory judgment action that sought a court-determined FRAND royalty rate under Motorola patents, where Judge Crabb dismissed the case after Apple would not agree to be bound by that FRAND determination (see our July post). Qualcomm and Ericsson generally agree that the dismissal was appropriate because the prospective licensee would not agree to be bound by the court-determined FRAND.

Qualcomm’s Amicus Brief

Qualcomm’s amicus brief asserts that the dismissal in this case was reasonable legally and as sound policy: “Where a potential licensee seeks an adjudication of a SEP owner’s compliance with its FRAND commitment through specific performance, a district court may properly require the potential licensee to agree to be bound by the terms affirmatively adjudicated as complying with that commitment.” A contrary ruling “could frustrate the objectives of SSO IPR policies to ensure balance of interests and could waste judicial resources, as it would create disincentives to negotiate and lead to continued litigation.”

Qualcomm urges the Court not to upset the balance of incentives and obligations embodied in FRAND commitments by allowing non-binding adjudication of FRAND terms. If parties have a good-faith dispute over FRAND terms, a potential licensee seeking to compel an offer on adjudicated FRAND terms should be bound by that determination and enter into a license agreement on those terms. Otherwise, judicial resources are wasted and the balance between the SEP holder and prospective licensee is unduly disrupted in favor of the licensee. Litigation will then become a means for prospective licensees to inject cost and delay to the clear disadvantage of an SEP owner.

Qualcomm asserts that standardization affords consumers with benefits of rapidly evolving technology, increased competition among implementers of standardized products and services, and enhanced performance/features at lower cost. However, these benefits are not realized if licensees do not negotiate FRAND in good faith, such as by seeking specific performance of FRAND commitments in court without being bound by the outcome if the licensee deems it undesirable. SEP owners would be denied compensation and unlicensed implementers would gain a monetary competitive advantage over licensees who have previously entered into FRAND licenses with the patent holder.

Qualcomm further asserts that dismissal was consistent with maintaining the balance of competing interests and applicable law governing FRAND commitments. First, the district court correctly concluded that a non-binding opinion would only improve one party’s negotiating position. Second, the general contract principles of contract law support the district court’s decision. Although the SSO’s IPR policies did not expressly require potential licensees to negotiate in good faith, Apple is claiming to be a third party beneficiary of the SSO-patentee contractual agreement and must abide by the contractual obligation to negotiate in good faith. And “[a]sking a court to compel specific performance of the FRAND commitment while simultaneously refusing to be bound by the outcome of that adjudication cannot be reconciled with the potential licensee’s good faith obligation.”

Ericsson’s Amicus Brief

Ericsson’s amicus brief asserts that allowing a prospective licensee to proceed with a declaratory judgment action without being bound to the ultimate determination renders the requested judgment no more than an advisory opinion. “It is one thing, however, for a district court to resolve a FRAND-related licensing dispute between two parties that have consented to be bound by the court’s determination of what is fair, reasonable, and nondiscriminatory. It is another thing entirely for a prospective licensee to ask a district court to exercise its discretionary and equitable powers to determine FRAND licensing terms—all the while refusing to be bound by the court’s determination.”

Because Apple refused to be bound by the court’s determination, principles of equity and contract justified dismissing Apple’s claims for equitable relief. Specifically, Apple took the position that it would not “pre-commit” to terms found by the court to be FRAND, instead preserving the option to bargain down from the royalty terms set by the court. “Apple thus asked the district court to exercise its discretionary and equitable powers to determine fair, reasonable, and nondiscriminatory terms—while reserving the right to use those FRAND terms as ‘a ceiling’ in subsequent efforts to secure terms that, in light of the court’s determination, could be unfair, unreasonable, or discriminatory.”

Ericsson further asserts that policy considerations favor Motorola, noting that the prevalence of open standards benefit consumers and have a positive effect on the economy. The FRAND regime is critical to the continued success of open standards by ensuring innovators receive a fair return on investment in standardization. Allowing potential licensees to secure sub-FRAND terms does not provide fair return on investment to the SEP holders, and encourages shifting away from interoperability-enhancing standardization. Ericsson warns that requiring courts to set FRAND terms where prospective licensees refuse to be bound by those terms improperly would encourage using litigation to leverage sub-FRAND licensing terms.