Magistrate Judge Payne recently ruled against prospective licensee T-Mobile’s motion to dismiss patent owner Huawei’s Declaratory Judgment Complaint that seeks a declaration that Huawei  complied with its FRAND commitments to ETSI regarding LTE standard-essential patents during Huawei’s license negotiations with T-Mobile.  Judge Payne did not rule whether or not Huawei had complied with its licensing negotiations; rather, he simply indicated that there was sufficient controversy between the parties and concern that T-Mobile might bring a breach of contract action against Huawei that the court could exercise declaratory judgment subject-matter jurisdiction to resolve the FRAND-compliance dispute.  This is a procedural ruling that is subject to review by the presiding district court judge, Judge Gilstrap.

This decision is interesting because it supports a way for patent owners with large SEP portfolios to resolve FRAND or other licensing disputes in a single action and, thereby, avoid complex and expensive patent infringement litigations on a patent-by-patent basis.  But the devil is in the details and we will await further developments as the case proceeds.

Background

Huawei alleges that it started licensing negotiations with T-Mobile in June 2014 and has offered to license all of its 4G LTE patent portfolio to T-Mobile on FRAND terms.  Huawei alleges that T-Mobile is an unwilling licensee who continues and is increasing its unauthorized infringement of the patents.  In 2016, Huawei filed four infringement actions against T-Mobile (pending in this same court) asserting 14 exemplar patents alleged to be essential to the 4G LTE cellullar wireless standards.

Huawei brought the instant declaratory judgment action seeking a declaration from the court as follows:

  • A declaration that Huawei complied with its FRAND commitment
  • A declaration that Huawei’s license offer was FRAND-compliant or, alternatively, a declaration of what licensing terms would be FRAND-compliant
  • A declaration that T-Mobile is an unwilling licensee

Decision

The ruling concerns the procedural issue of declaratory judgment subject matter jurisdiction–i.e., whether the court has authority to provide a judgment making the binding declarations Huawei seeks in its complaint.  Specifically, the court must decide whether the complaint alleges sufficient facts showing that there is “a substantial controversy” between the parties “having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”  This is rooted in the U.S. Constitution’s requirement that U.S. courts must resolve actual cases and controversies, rather than simply give non-binding advisory opinions that resolve nothing.

Declaratory judgments are common in patent litigation, but usually brought by an accused infringer seeking a declaration that patents asserted against it are not valid or infringed.  The accused infringer alleges an imminent fear of being sued by the patent owner and the need for timely judicial guidance on the parties’ legal rights so that the accused infringer can make an informed decision of how to proceed (e.g., take a license, redesign its current product, or make no change if the patents are not valid or infringed).  A declaratory judgment also allows the party to file an action in a favorable court before the other party can file an infringement action in its court of choice.

This case presents the issue of the patent owner seeking a declaration of rights regarding its FRAND commitment before the prospective licensee files a FRAND breach of contract action.    Magistrate Judge Payne indicated that T-Mobile’s conduct reasonably could be inferred as demonstrating an intent to file such a breach of contract action against Huawei:

While T-Mobile has not taken the step to file a breach of contract action against Huawei, there is not dispute that T-Mobile could do so as a third-party beneficiary of Huawei’s promise to offer licenses on FRAND terms.  When pressed on this issue at the hearing, T-Mobile did not unambiguously state that it would not file a breach of contract action elsewhere if the Court were to dismiss Huawei’s declaratory judgment action.  Thus, the controversy is live and immediate.

T-Mobile’s express statements regarding Huawei’s alleged breach of FRAND obligations–statements that form the basis for Huawei’s declaratory judgment action–are analogous to the type of conduct required for subject-matter jurisdiction over a patent action seeking a declaration of noninfringement.  In those cases, the Federal Circuit requires “conduct that can be reasonably inferred as demonstrating intent to enforce a patent.”  T-Mobile’s statements regarding Huawei’s breach of FRAND commitments, coupled with the absence of an unequivocal statement indicating that T-Mobile would not pursue a breach of contract action, reasonably demonstrate T-Mobile’s intent to pursue such an action.

Even if there is declaratory subject matter jurisdiction–i.e., the court can exercise authority to resolve the dispute–the court still has discretion not to take the case.  Magistrate Judge Payne found that the court should exercise its discretion to rule in this case “because of the usefulness of the declaratory judgment remedy sought by Huawei and its fitness for resolution by the Court.”

Procedurally, Magistrate Judge Payne’s ruling is a Report and Recommendation of how the court should rule.  Either party may challenge that recommendation by seeking review by the district court judge presiding over the case, Judge Gilstrap here.  If asked to review the decision, Judge Gilstrap technically will owe no deference to the recommended ruling (called a “de novo” review where T-Mobile’s motion to dismiss is considered by the district court judge anew).