We previously discussed the opening comments filed by respondent Funai in the International Trade Commission (ITC) investigation of whether Realtek and Funai infringe complainant LSI’s alleged 802.11 and H.264 standard essential patents (SEPs). Funai recently filed two sets of reply comments as part of the ITC’s review of the ALJ’s initial determination rejecting Realtek and Funai’s RAND-based defenses but otherwise concluding that they did not infringe LSI’s SEPs. The opening and reply comments were filed in response to the ITC’s request for comments on various issues, including RAND obligations, the history of license negotiations among the parties, other licenses for the patents-in-suit, and industry practice for licensing similar technologies.
Funai’s reply comments on the merits as well as on issues of public interest, remedy and bond are summarized below.
Funai’s Reply to LSI’s Comments on the Merits
Infringement: Funai argues that LSI failed to respond to its argument that the products at issue are capable of operating without performing certain optional steps in the H.264 standard that LSI contends read on its alleged SEPs. LSI “cannot rely on a feature of a product to show infringement of a method claim.” “Rather, [LSI] must demonstrate that a third party has actually practiced the claim, which they have utterly failed to do.”
Essentiality: Funai argues that LSI’s assertion that its patents are essential to the 802.11 and H.264 standards is not supported by the record because there are many ways to perform the standards without infringing LSI’s patents. LSI’s experts failed to show why these other methods of meeting the standard are not commercially feasible alternatives.
Technical Prong for Showing Domestic Industry: Funai argues that LSI’s comments fail to identify any product that practices a valid claim of any asserted patent. Instead, LSI again relies upon its argument that certain of its licensees sell product that comply with the 802.11 standard. Funai argues that this is insufficient to show a domestic industry for products that practice the asserted patents. “The ALJ correctly found that a product’s mere compliance with the 802.11 standard is an insufficient basis to find that the product practices any claim of the ‘867 and ‘958 patents, and thus [LSI] failed to show that [redacted] products satisfy the technical prong.”
Funai’s Reply to LSI’s Comments on Remedy and Bond
History of License Negotiations: Funai asserts that LSI’s recount of the parties’ license negotiations “distorts” the record evidence, although the majority of Funai’s comments on this score are redacted.
Industry Practice for Licensing: Funai indicates that it and LSI are largely in “agreement concerning standard industry practice for licensing patents.” Both Funai and LSI “believe that extended negotiations, in which there is discussion between the parties concerning whether a license is needed, and if so, the proper terms, is the norm.” Both parties also “agree that generally (but not always) patents are licensed as part of a portfolio if an agreement can be reached as to terms.” Funai and LSI “agree that the time period of a license can be variable, and that licenses can be either lump sum or running royalty.” “Thus, in those instances where the parties are able to agree, industry practice provides for a great deal of flexibility in structuring the final terms of a license.”
Funai disagrees that LSI has adhered to these norms and the substance of its comments are redacted.
Undue Leverage: Funai asserts that LSI “cannot candidly argue that Funai has constructively refused to negotiate a license, and expends a minimal amount of effort even trying in its papers.” Funai points out that “[i]n a single paragraph, [LSI argues] that Funai’s refusal to negotiate is shown by ‘dragging out the parties” discussions.” Funai then asserts that “[i]n essence, [LSI argues] that simply because Funai did not succumb to LSI’s pressure tactics and agree to onerous terms,” Funai has constructively refused to negotiate. This position “effectively negates any possibility that the parties could have a good faith dispute over the value of the three patents at issue” and is also factually incorrect.
Exclusion Order/Injunctive Relief: Funai contends that LSI is absurd in arguing that it is “not obligated to enter into negotiations with a potential licensee instead of (or even prior to) seeking injunctive relief” and that “the IEEE and ITU ‘do not impose any restrictions on a patent holder’s right to redress infringement.’” According to Funai, “[t]he entire purpose of a standard-setting organization (SSO) setting a standard, and requiring members of its standard-setting committee to commit to licensing their patents on RAND terms, is to avoid ‘patent hold-up’ by the owners of standard-essential patents (SEPs).” If, as LSI argues, their declarations to the SSOs do not place any restrictions on the “‘timing and manner of license offers or negotiations, the farcical result is that [LSI] would be comfortably within their rights to declare their patents to be SEPs, contractually undertake FRAND obligations, proceed to file suit alleging infringement of their SEPs seeking an injunction, and (if successful) offer a license only after an injunction has issued, notwithstanding a request by the accused infringer to begin negotiations.” According to Funai, “[a] more obvious hold up strategy could hardly be imagined.”
In addition, Funai again argues that, by agreeing to license its patents on RAND terms, LSI has agreed that monetary damages are sufficient to make LSI whole, rendering injunctive relief improper.