Last week, Judge Orrick of the U.S. District Court for the Northern District of California issued an Order that enjoins Huawei from enforcing an injunction on Chinese standard essential patents (SEPs) entered by the Chinese People’s Court of Shenzhen (the Shenzhen Court). The Chinese Shenzhen Court entered that injunction after considering Samsung’s arguments that the SEPs were subject to Huawei’s commitment to license them on fair, reasonable and non-discriminatory (FRAND) terms. This case provides incremental insight into asking a U.S. court to bar enforcement of a foreign injunction based on foreign SEPs so that the U.S. court may consider FRAND contractual rights as to those foreign SEPs.
As with most cases, this decision is fairly fact specific. Some of the key points from this decision include the following:
- Filing Date of U.S. and Foreign Actions. The patent owner (Huawei) filed this U.S. action and the Chinese action at the same time. Technically, perhaps because of the time zone difference, the U.S. action was filed one day before the Chinese action. The simultaneous filing indicated that the patent owner was not filing the Chinese action as a run-around a much earlier filed U.S. action (as was the case in the Microsoft v. Motorola case where an antisuit injunction was entered).
- First-To-File Race? This case has a first-to-file flavor similar to what we see in selecting a forum for U.S. court actions–e.g., courts defer to litigating a case in the first U.S. district court where the matter is raised, rather than in another U.S. district court with a later-filed case on the same matter. That first-to-file deference leads to a race to the court where the patent owner tries to file a U.S. case in its preferred U.S. court before an accused infringer files a related declaratory action in another U.S. court, and vice versa. The fact that Huawei technically filed this U.S. case one day before Huawei filed the Chinese case was a factor that Judge Orrick found to favor entering an antisuit injunction that gives preference to the first filed U.S. action over the later filed Chinese action. Huawei essentially outraced itself in the first-to-file competition (i.e., filed its U.S. action before filing its Chinese action)
- Scope of U.S. and Foreign Actions. Although not totally clear from the record, the Chinese court apparently considered only whether the accused infringer (Samsung) was a willing licensee in its negotiations with the patent owner (Huawei) for a license under the Chinese SEPs. In this U.S. case, however, the court would consider a much broader issue of whether Huawei breached its FRAND commitment and determine FRAND contract terms. In other words, the U.S. court was not going to simply retry and decide the same issues already decided by the Chinese court and his decision would control whether the patent owner would be entitled to the injunctive relief granted by the Chinese court.
- The Antisuit Injunction is Limited In Scope and Duration. The U.S. court was entering an injunction of limited duration and scope. The Chinese injunction that the patent owner (Huawei) was enjoined from enforcing concerned only 2 Chinese patents and was subject to an appeal in China that would not be decided for a few more months. This U.S. case is scheduled for trial in December, after which the U.S. court would decide the contract issues and dissolve the antisuit injunction. Accordingly, the antisuit injunction would preclude enforcement of the Chinese injunction for only a few months and impact only 2 Chinese patents.
- Judicial Estoppel From Entering the Antisuit Injunction. The accused infringer (Samsung) successfully argued against bifurcating the U.S. case that would have decided the FRAND contract issues first; rather, it argued that the U.S. court must first determine whether the patent owner’s (Huawei’s) patents were valid, enforceable, infringed and essential to the standard before the court could then decide the contractual FRAND issues. The U.S. court agreed to proceed with the entire case–both the FRAND contract and U.S. SEP infringement claims–at the same time with a single two-week jury trial. The accused infringer’s later request for an antisuit injunction “tempted” the court to hold that the accused infringer was judicially estopped from now arguing that an antisuit injunction was warranted so that the the contractual issues would be decided first (contrary to the accused infringer’s successful bifurcation argument). But, rather than that, the court ruled that the infringer would be granted the antisuit injunction but could not argue that the FRAND contract issues could not be decided without evidence of whether the foreign patents were valid, enforceable, infringed or essential (if such determinations were outside the scope of the U.S. court’s jurisdiction).
Below is a more detailed discussion of the decision.
Huawei and Samsung both make and sell wireless mobile products that practice various cellular technical industry standards, such 3G UMTS and 4G LTE standards developed by the Third Generation Partnership Project (3GPP) and promulgated by the European Telecommunications Standards Institute (ETSI). Both Huawei and Samsung committed to license their patents that are essential to those standards (SEPs) on fair, reasonable and nondiscriminatory (FRAND) terms.
In 2011, Huawei and Samsung began negotiating cross-licenses to their respective patent portfolios, including their SEPs. They failed to reach agreement after several years of negotiating.
In May 2016, Huawei filed its Complaint in this case alleging that Samsung infringed 11 Huawei SEPs and that Samsung breached its commitment to enter an SEP cross-license agreement with Huawei on FRAND terms. Huawei also asked the court to determine terms for a global FRAND cross license under both parties’ SEPs and to enjoin Samsung from seeking injunctive relief against Huawei any where in the world for any alleged SEPs on 3GPP standards. The next day, Huawei filed eight actions in the Shenzhen Court asserting infringement of Chinese SEPs on ETSI and 3GPP standards and seeking injunctive relief.
Samsung responded in this case with an Answer and Counterclaim alleging that Huawei infringed Samsung’s SEPs and asserting claims for breach of contract and violation of antitrust law from Huawei’s enforcement of its SEPs. Samsung also filed several actions in China alleging that Huawei infringed Samsung SEPs and seeking injunctive relief.
The Chinese actions were quicker than this U.S. action. The Chinese courts considered at least some part of Samsung’s FRAND defenses in addition to the technical issues of infringement of Huawei’s SEPs. The Chinese SEPs also went through invalidation proceedings before the Chinese Patent Reexamination Board (PRB), leaving Huawei with 12 Chinese SEPs and Samsung with 7 Chinese SEPs in the pending Chinese litigations.
In January 2018, the Shenzhen Court found that Samsung infringed two of Huawei’s Chinese SEPs and enjoined Samsung from making or selling 4G LTE smartphones in China, where Samsung had significant manufacturing facilities. Those two Huawei patents are direct counterparts of two U.S. patents asserted in this case. The Shenzhen Court found that Huawei’s license negotiation behavior complied with its FRAND commitment, but that Samsung’s behavior did not. The Shenzhen Court also found that the terms of Huawei’s six licensing offers “were made within the reasonable range according to the strength of SEPs owned by Huawei.” In contrast, the Shenzhen Court found that Samsung was responsible for unproductive six years of license negotiation, because Samsung insisted on SEP and non-SEP licensing and Samsung made significant mistakes during technical negotiations. Further, Samsung’s only SEP licensing offer did not comply with FRAND principles.
Samsung appealed the Shenzhen Court’s decision. A few days later, Samsung filed the motion at issue here that asks this U.S. court to enjoin Huawei from enforcing the Shenzhen Court’s injunction while the U.S. court resolves the FRAND contract issues.
Early in this U.S. case, Huawei argued that the case should be bifurcated so that the court would first decide the FRAND issues, which decision could moot having to do the remainder of the case on patent infringement. Samsung opposed bifurcation, arguing that the court should first determine whether each asserted patent was valid, enforceable, infringed and essential to the standards before the court could then decide an appropriate FRAND rate. Judge Orrick Denied Huawei’s request to bifurcate the case. To make the case more manageable, however, Judge Orrick issued a Pretrial Order that required the parties to reduce the case to 5 asserted patent claims against 10 accused infringing products for a two-week trial.
Judge Orrick applied the Ninth Circuit’s Gallo decision that provides a three-part test to determine whether a U.S. court should enjoin a party from “proceeding in a foreign court in circumstances that are unjust,” which Gallo test is as follows:
- Determine whether or not the parties and the issues are the same in both the domestic and foreign actions, and whether or not the first action is dispositive of the action to be enjoined.
- Determine whether at least one of the four factors identified in the Unterweser decision applies:
(i) The foreign litigation may frustrate a policy of the U.S. court that would issue the antisuit injunction.
(ii) The foreign litigation would be vexatious or oppressive.
(iii) The foreign litigation would threaten the U.S. court’s in rem or quasi in rem jurisdiction.
(iv) The foreign litigation would prejudice other equitable considerations.
- Determine whether the requested antisuit injunction’s impact on comity is tolerable, where comity is basically deference that one country gives to the laws and rulings of another country regarding activity within that other country.
As an initial matter, Judge Orrick ruled that, based on the Ninth Circuit’s decision that affirmed an antisuit injunction in the Microsoft v. Motorola SEP-FRAND case, he only needed to consider the three-part Gallo test and he did not need to also consider the traditional four factors for preliminary injunction relief (i.e., likelihood of success on the merits; irreparable harm to the party seeking the injunction if the injunction is not granted, the balance of the equities between the parties if an injunction is or is not entered, and the public interest).
Judge Orrick then went the three-part Gallo test, as discussed below.
Gallo Test: The Parties and the Issues are the Same
Although the U.S. and Chinese cases involved different related affiliates of Huawei and Samsung, there was no dispute that they involve essentially the same parties. The dispute was whether the issues in the two cases were the same and, thus, would favor an antisuit injunction.
Samsung argued that the issues were the same: whether an injunction may be entered on Huawei’s SEPs that are subject to a FRAND licensing commitment. Samsung argued that this case was similar to the Microsoft v. Motorola case where an antisuit injunction was entered against Motorola enforcing a German injunction on a Motorola RAND-committed SEP while the U.S. court determined a FRAND royalty in a contract action that would include those German patents and, thus, moot the German injunction case. In this case, the Chinese action involves two Huawei Chinese SEPs that (1) are part of the FRAND contract dispute before the U.S. court and (2) are directly related foreign counterparts of two U.S. SEPs at issue in this U.S. case.
In response, Huawei argued that there were critical distinctions between the Microsoft v. Motorola case and this case:
- Microsoft (the prospective licensee) initiated a contract case asking the court to determine a FRAND rate and without contesting essentiality or infringement of Motorola’s SEPs. In contrast, Samsung (the prospective licensee) did not initiate this contract case and Samsung seeks to challenge the infringement and essentiality of Huawei’s SEPs notwithstanding the contract claims.
- Motorola filed the German action several months after Microsoft filed its U.S. contract-based action as an end run-around the U.S. action. In contrast, Huawei filed the U.S. and Chinese cases at the same time.
- The German action automatically allowed injunctive relief upon a finding that the SEPs were infringed without considering Microsoft’s FRAND defense. In contrast, the Chinese Shenzhen court considered Huawei’s FRAND commitment and awarded injunctive relief after finding that Samsung had not complied with its obligations if it were to benefit from the FRAND commitment.
Judge Orrick, however, found that “those undeniable and important differences are irrelevant to whether this action is dispositive of the foreign action.” [Order at 13]. Both parties agree that they each are third-party beneficiaries of the other party’s FRAND commitment and that the availability of injunctive relief depends on their breach of contract claims. Therefore, the “contractual umbrella over the patent claims controls.”
Judge Orrick also considered Huawei’s prior request to bifurcate the case and Samsung’s opposition to bifurcation. Specifically, Samsung had argued that the court must first decide “prerequisite” issues of whether the patents are valid, enforceable, infringed and essential before the court could then determine a FRAND royalty for which ever SEPs remained. Judge Orrick surmised that, under Samsung’s logic, the U.S. court could not decide a global FRAND rate because the U.S. court could not determine those “prerequisites” (i.e., validity, infringement, etc.) for the non-U.S. SEPs. [Order at 13] Judge Orrick indicated there would be significant problems if he were to take Samsung’s argument to its logical conclusion of needing to litigate infringement, validity and other prerequisites before determining FRAND:
Even beyond the question of whether I have the ability to determine a FRAND royalty rate (whether based on global or domestic SEPs), I am at a loss as to how I (or a jury) could decide the breach of contract claims. Unlike in Microsoft, the parties’ contract claims are based on whether their respective licensing offers were FRAND, not merely whether seeking “injunctive relief against infringement is arguably a remedy inconsistent with the licensing commitment.” How am I to adjudicate whether those offers were FRAND, if that determination depends on valuation of global portfolios, and can only be made subsequent to finding each patent valid and essential to the standard? If I take Samsung’s reasoning to its logical conclusion, I see no end to this case, and certainly no way for this action to dispose of the parties’ foreign patent actions. [Order at 14-15]
Huawei apparently argued that Samsung should be judicially estopped from seeking this antisuit injunction because Samsung cannot (1) successfully avoid bifurcation by arguing that infringement and other “prerequsites” should be determined before determining FRAND contract terms and (2) argue now that the injunction remedy from the Chinese infringement suit should be enjoined so that the FRAND contract issue can first be determined. Judge Orrick found this argument “tempting” because “Samsung insists on its right to have its American patents litigated here but seeks to postpone the impact of having Chinese patents litigated in China.” [Order at 15]. But he decided not to estop Samsung here. He did rule, however, that judicial estoppel would arise from the court granting Samsung’s antisuit injunction motion such that “Samsung will not be able to argue that the breach of contract claims depend on evidence not before me, such as the validity, infringement, and essentiality of foreign patents.” Further, when all is said and done, the Chinese Shenzhen court’s injunctive relief may be the appropriate remedy:
The appropriate remedy for Huawei’s breach of contract claim may very well be the injunctive relief issued by the Shenzhen court. But I must have the opportunity to adjudicate the claim without Samsung facing the threat of the Shenzhen court injunctions. [Oder at 15]
Gallo Test: The Unterweser Factors
Samsung argued that allowing Huawei to enforce the Chinese Shenzhen Court’s injunction would frustrate U.S. policies against injunctive relief on SEPs and general policies against anticompetitive conduct and breach of contract. In contrast, Huawei argued that there was no per se rule against injunctive relief for SEPs and that public policy supports injunctive relief against an unwilling licensee.
Judge Orrick, however, ruled that “the policy that is undermined is this court’s ability to determine the propriety of injunctive relief in the first instance.” [Order at 17] There could be inconsistent judgments if the Chinese courts’ injunctive relief were enforced and this U.S. court finds that Huawei is not entitled to an injunction. Further, the Chinese injunction could have “impacts percolating around the world” and force Samsung to enter a license agreement “before any court has an opportunity to adjudicate the parties’ breach of contract claims.” [Order at 17] On that point, Judge Orrick stated that, “[e]ven though the Shenzhen court evaluated the parties’ licensing negotiations, it was not presented with breach of contract claims.” [Order at 17 n.18] Judge Orrick concluded that “[t]he integrity of this action, therefore, will be lessened without an anti-suit injunction,” which satisfies at least one of the Unterweser factors.
Judge Orrick rejected Samsung’s argument that the “vexatious or oppressive” Unterweser factor that was a concern in the Microsoft v. Motorola case also was a concern here. In the Microsoft case, the SEP owner Motorola filed the German action several months after Microsoft’s U.S. FRAND contract case such that Motorola’s action appeared to be a procedural maneuver and forum shopping. In this case, however, Huawei filed this U.S. action and the Chinese action at the same time. Huawei filing the case in its home country might raise some forum shopping concerns. Huawei argued, however, that it filed the Chinese action because it was not sure of “the scope of ultimate rulings from this Court on FRAND.” Judge Orrick decided that he was “unwilling” to label the Chinese suits vexatious or oppressive given “the near simultaneity of the actions and the uncertainty over scope.” [Order at 19]
Gallo Test: The Impact on Comity
Judge Gallo described “comity” as “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws.” [Order at 19]. He further noted that “the obligation of comity expires when the strong public policies of the forum are vitiated by the foreign act.” For an antisuit injunction, the issue is whether enjoining a party from pursuing relief in another country causes interference with comity that “is so great as to be intolerable.” Comity is less threatened where, as here, the case involves “a private contractual dispute,” rather than “a dispute implicating public international law or government litigants.”
The Shenzhen Court’s order provides that the injunction will not be enforced if Huawei agrees not to enforce it or if the parties agree to an SEP cross-license. Further, Huawei could seek damages for infringement of those Chinese patents while this U.S. case is still pending. Further, these actions were filed at the same time, with the U.S. case technically being filed a day before the Chinese action (apparently due to the time zone difference). The Chinese injunction ruling remains on appeal in China such that it will not become final for a few months. This U.S. case is scheduled for trial in December. So there seems to be little impact on comity given the limited scope, form and duration of the antisuit injunction to be entered (e.g., the antisuit injunction may be in place only until after the December trial and, thus, impact only a few months of enforcement of the Chinese injunction):
The scope of this anti-suit injunction, limited to a particular order dealing with two patents, a specific form of relief, and estimated to last less than six months, presents a negligible impact on comity. [Oder at 20]
Based on the foregoing, Judge Orrick ruled that he would enjoin Huawei from enforcing the injunction orders granted by the Chinese Shenzhen court “until I have the ability to determine the breach of contract claim [that Huawei] chose to present in this action prior to filing the Chinese actions.” [Order at 21].