Today, Judge Selna issued on Order ruling on Ericsson’s motion to alter or amend his FRAND ruling. (See our Jan. 3, 2018 post summarizing FRAND royalty ruling). Under the procedural posture of the Rule 52(b) motion for seeking modification of a judge’s bench trial findings of fact and law, Ericsson had to show that its proposed changes to that ruling were needed “to correct manifest errors of law or fact or to address newly discovered evidence or controlling law” or were not changes that “would not affect the outcome of the case or are immaterial to the court’s conclusions.” (Order at 2). Given this difficult standard, Judge Selna only agreed to make minor word changes to his decision, which he will soon reissue with other clerical corrections and some corrections to be made based on TCL’s Rule 52(b) motions (which were also apparently minor changes). To be clear: by “minor changes” we mean as far as significance in applying the decision to other cases between other parties; we could be mistaken and, moreover, have no comment on how significant the changes may be to the instant parties in this particular case. The next substantive step in this case will be the Federal Circuit appeal that Ericsson already filed, but that has been stayed pending the outcome of the parties’ Rule 52(b) motions. Continue Reading Judge Selna will make minor changes to FRAND ruling (TCL v. Ericsson)
The Federal Circuit’s recent Exmark v. Briggs-Stratton decision further confirms that there is no categorical rule about selecting a royalty base when litigating a reasonable royalty in order to apportion value to the patented invention, but that “apportionment can be addressed in a variety of ways … [s]o long as [the patent owner] adequately and reliably apportions between the improved and conventional features” of the accused product. Thus, in this case, the Federal Circuit ruled that the patent owner properly could use the entire lawn mower as the royalty base and was not limited to the innovative baffle component of the lawn mower as a royalty base. This case continues the clarification made in the Federal Circuit’s CSIRO decision involving standard essential patents that recognized that “adaptability [in determining patent damages] is necessary because different cases present different facts” and rejected as “untenable” the argument that every damages model must start with the smallest salable patent practicing unit (SSPPU) (see our Dec. 3, 2015 post).
A persistent dispute in the standard essential patent (SEP) community is whether a patent owner may license its SEPs based on the sales price of the end product or if the patent owner must license its SEPs based on the sales price of a component within that end product (e.g., the smallest salable patent practicing unit or SSPPU). The Federal Circuit’s Ericsson v. D-Link decision explained that the SSPPU theory was based on an evidentiary principle to avoid confusing jury’s in U.S. patent damages litigation (see our December 5, 2014 post). Yet some continued to claim that the SSPPU principle was a substantive rule of law required in all circumstances, including outside of litigation in private negotiations for SEP licenses. The Federal Circuit’s CSIRO decision later held it was “untenable” to argue that all damages methodologies must start with the SSPPU (see our December 3, 2015 post). Yet the debate somehow continued. The Federal Circuit’s Exmark decision here may finally settle and dispel arguments that the royalty base cannot be the end product, but must be the SSPPU. But we will see … Continue Reading Federal Circuit confirms flexibility in determining royalty base (Exmark v. Briggs & Stratton)
Judge James V. Selna of the Central District of California (“C.D. Cal.”) recently released the redacted, 115-page public version of his Memo of Facts and Law with his FRAND determination in the TCL v. Ericsson SEP dispute concerning 2G, 3G and 4G cellular technology in the European Telecommunications Standards Institute (“ETSI”) standards along with his Final Judgment And Injunction, which injunction has detailed terms like one would find in a licensing agreement.
Judge Selna ultimately ruled that Ericsson’s licensing conduct did not breach its FRAND commitment, but that Ericsson’s proposed licensing terms were not FRAND. Judge Selna rejected the FRAND methodologies and resulting FRAND royalty rates proposed by both TCL and Ericsson. Judge Selna did his own FRAND methodology based on the methods and evidence presented by the parties, following mainly a modified version of a “top down” approach proposed by TCL. The FRAND rates determined by Judge Selna fell about half-way between TCL and Ericsson’s proposals, though direct comparison is difficult. For example, for Ericsson’s 4G SEPs, the royalty rates from the parties and court varied as to scope (e.g., blended global rate versus regional rate) and required some conversion to compare (e.g., Judge Selna computed an effective “unpacked” royalty that accounted for lump-sum payments and royalty floors in Ericsson’s offers):
4G SEP Royalty Rate
|TCL’s Proposed 4G Global Rate||0.16% (Blended global rate)|
|Court’s 4G Rates (by region)||0.450% (U.S.)
0.314% (Rest of World; No 4G Sales in Europe)
|Ericsson Effective U.S. 4G Rates
(Court calculated from Option A and B offers)
|1.074% (Option A Effective U.S. Rate) or
1.988% (Option B Effective U.S. Rate)
We provide below a bullet-list summary of some key points from the decision as well as a (rather lengthy) detailed discussion of Judge Selna’s decision. We consider this an important decision to read, and encourage you to do so, because it is one of the few decisions that describe a court’s analysis in determining a disputed FRAND royalty. But we also believe this case provides only incremental development of the case law itself given the highly factual nature of the decision in this still developing area of law. Judge Selna acknowledged that trying to obtain “precision and absolute certainty” here was a “doomed undertaking.” In other words: Learn from this decision, but do not assume it represents a definitive proper FRAND analysis and is representative of a FRAND royalty for all FRAND cases. Its one step in a continuing journey … Continue Reading Judge Selna determines FRAND Rate and enters contract-type injunction on ETSI SEPs (TCL v. Ericsson)
The U.S. International Trade Commission (“ITC”) recently gave Notice that it will review some parts of the September 2017 Initial Determination and Recommended Determination on remedy by administrative law judge (“ALJ”) Shaw concerning patents alleged to be essential to the LTO Consortium’s Linear Tape Open (“LTO”) standard for high-capacity, single-reel magnetic tape storage.
In September, ALJ Shaw found that the claims of one patent alleged to be essential to the LTO-7 Standard were valid and infringed, but that claims of two other alleged essential patents were not infringed. He found that none of the asserted patent claims were essential to the LTO-7 Standard. He also rejected Sony’s defenses that Fujifilm had breached an agreement with the LTO Consortium to license its essential patents to third-parties like Sony. Based on those rulings, ALJ Shaw further recommended that a limited exclusion order should be entered and that Sony’s public interest arguments about the claims being essential to the LTO-7 standard did not require tailoring or curbing such an exclusion order.
The ITC full Commission has now decided to review part of ALJ Shaw’s liability determination, including issues about whether the alleged essential patents are infringed, valid or essential to the LTO-7 Standard. Further, the Commission will consider the form of any exclusionary relief, including whether and to what extent public interests — such as Sony’s essentiality claim — counsel against or limit an exclusion order. The parties and public may file initial written submissions on exclusionary relief and the public interest by December 27, 2017; reply written submissions must be filed by January 5, 2018.
We summarize the decision below on the standard essential patent (“SEP”) issues. We also discuss an Order Denying Preliminary Injunction entered a few weeks after ALJ Shaw’s decision here where Judge Gardephe in the Southern District of New York denied Sony’s motion to enjoin Fujifilm from continuing this ITC litigation. Judge Gardephe’s decision provides more unredacted insight into the alleged LTO-7 licensing commitment at issue. For example, Judge Gardephe’s decision indicates that the licensing commitment at issue was not a FRAND commitment, but apparently a commitment to enter nondiscriminatory licenses under Fujifilm’s standard licensing terms. Further, the licensing commitment concerned essential patent claims, defined as claims “which must of necessity be practiced for compliance with the LTO7 Format.” Continue Reading ITC to consider ALJ’s decision and recommended exclusion order on alleged SEPs that ALJ found were not essential to the LTO-7 standard (337-TA-1012 Fujifilm v. Sony)
Chief Administrative Law Judge (“ALJ”) Bullock of the U.S. International Trade Commission (“ITC”) recently issue an Initial Determination that accused infringer Hynix (respondent) had not established that patent owner Netlist (complainant) had breached a RAND commitment to JEDEC concerning computer memory technology standards. He found that exclusionary relief would be proper and not against the public interest if the memory products infringe valid claims of the alleged standard essential patents (“SEPs”); but he found that the alleged SEPs were not infringed.
A key part of the RAND defense was the accused infringer’s argument that the licensing offer it received from the patent owner showed discriminatory licensing that violated the RAND commitment because it differed from licensing terms that the patent owner entered with someone else. Specifically, the patent owner Netlist had entered a joint development agreement with Samsung that not only granted a license to the alleged SEPs, but also had other non-monetary consideration including a strategic partnership with Samsung that Netlist believed to have substantial benefits. The accused infringer Hynix, however, argued that the non-monetary strategic partnership terms were a sham meant to cover-up what was essentially a royalty-based licensing agreement, thus allowing Netlist to improperly seek different–and discriminatory–effective royalty terms with Hynix or others. ALJ Bullock rejected Hynix’s arguments, finding that the strategic partnership benefits did not have “no value” as Hynix had argued and that patent owner Netlist was not required to provide those same terms to Hynix.
This decision also provides some procedural insights into litigating SEPs at the ITC. For example, ALJ Bullock ruled that the party raising a RAND defense has the burden to prove that defense. Further, parties should present their standard-setting license defense and rebuttal in the context of the law that governs the IPR policy at issue — i.e., in this case, the JEDEC Manual states that its RAND commitment is subject to interpretation under New York law.
We provide a summary of the decision below. Continue Reading ALJ Bullock rules that Hynix did not establish RAND defense based on alleged discriminatory licensing (Netlist v. Hynix 337-TA-1023)
Today, the Supreme Court issued its decision in Impression Products v. Lexmark Int’l that draws a bright line for triggering the patent exhaustion doctrine when products are sold and leaves post-sale activity restrictions subject to any contractual rights between the parties, not patent law. This decision is sure to have patent owners and licensees reviewing their existing licensing agreements and tweaking future ones. The decision also provides another reason why patent owners may license their patents at an end product level, rather than a component level, to ensure that they have direct patent law remedies against the end product manufacturer that otherwise may be exhausted and unavailable if the patent is licensed at a component level.
The Supreme Court summarized its decision as follows:
This case presents two questions about the scope of the patent exhaustion doctrine:
First, whether a patentee that sells an item under an express restriction on the purchaser’s rights to reuse or resell the product may enforce that restriction through an infringement lawsuit.
And second, whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply.
We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.
Importantly, the decision focuses on whether patent rights exist after an authorized sale. The decision does not mean that the sale extinguishes other non-patent law remedies that a patent owner may have after the sale, such as remedies under contract law.
Today, the U.S. Supreme Court issued its decision in TC Heartland v. Kraft Foods that limits the venue — i.e., geographical location–of where patent cases may be brought. For decades prior to this decision, venue was construed broadly to be essentially anywhere a defendant has minimum contacts. By today’s decision, venue is construed narrowly as limited to where the defendant either (i) is incorporated or (ii) has a regular and established place of business in which the defendant committed acts of infringement.
This ruling may substantially limit the number of patent cases that may be brought in the perceived patent-friendly Eastern District of Texas. This also may increase the number of patent cases brought in patent-savvy Delaware, because that is where most companies are incorporated. The decision also may make it harder to sue multiple defendants in a single action, because it may be difficulty to establish proper venue over all defendants.
This decision also takes more wind out of the sales of those seeking legislative changes to U.S. patent law. Whether rightly or wrongly (we express no view here), the E.D. Texas has been used as an example of patent litigation abuse, venue shopping and the need for patent reform. This decision may end that concern and follows other court decisions addressing patent litigation issues as well as the FTC’s patent assertion entity study that did not find the widespread patent litigation abuse that had fueled legislative efforts. (see, e.g., our Apr. 29, 2014 post on Supreme Court making it easier to get attorneys fees in patent cases and our Oct. 7, 2016 post on the FTC’s PAE study). Continue Reading Supreme Court limits patent venue statute (TC Heartland v. Kraft)
Today the Supreme Court ruled that the laches defense could not be used to limit 35 U.S.C. § 284 patent damages given the 35 U.S.C. § 286 statute of limitations that permits recovery of patent damages up to six years prior to filing an infringement suit. Specifically, the Court ruled that “Laches cannot be interposed as a defense against damages where the infringement occurred within the period prescribed by §286.” The result of the ruling is that the laches defense may limit equitable relief, such as an injunction, but will no longer preclude past damages in patent cases.
From a practical standpoint, the ruling may not be as significant as it otherwise might appear. Laches is a frequently raised, but seldom successful, equitable defense in patent litigation. Laches basically arises from a patent owner unreasonably delaying its assertion of a patent right during a period of time when the accused infringer made investments and the infringer would be prejudiced by the delayed assertion of the patent. If successful, the defense traditionally would bar all past damages, limit injunctive relief and preclude future royalties on products purchased during the laches period. The Federal Circuit’s en banc decision below in the instant case limited the defense so that it would no longer preclude any future royalties (see our Sep. 18, 2015 post explaining the en banc decision). In sum, prior to today’s decision, the laches defense could limit damages prior to the filing of the lawsuit and limit injunctive relief. This might have little impact in most patent cases where the period of past infringement may be relatively short and the patent has many years of life remaining for which future royalties would be paid even if an injunction were not granted.
Laches was a more promising defense when a litigation patent assertion entity purchased and asserted a near-end-of-life dormant patent (i.e., a never asserted patent) against defendants who have long-used the alleged infringing technology (see our Oct. 7, 2016 post on the FTC’s PAE Study and distinction between non-problematic “portfolio PAEs” and some problematic “litigation PAEs”). In such circumstances, a laches defense could have a substantial impact because it would bar the bulk of the damages period (six years prior to the lawsuit) and would bar injunctive relief. This would leave a remedy of only a future royalty for the short period of time remaining in the patent’s life. For example, consider a patent with only a year remaining before it terminates. The litigation PAE could seek seven years of damages: six years of damages prior to the lawsuit and one year of royalties before the patent terminates. A successful laches defense would limit the damages exposure by over 85% — i.e., remove all six years of pre-suit damages, leaving only one year of future royalties before the patent expires.
The Supreme Court’s decision today will now permit six years of pre-suit damages notwithstanding a successful laches defense. The related doctrine of equitable estoppel still remains as a defense. Equitable estoppel is a somewhat harder defense to establish, because it requires proof that the infringer relied on some action by the patent owner indicating it would not assert the patent. But equitable estoppel is a more effective defense, because it is a complete defense — i.e., it precludes all past and future damages and injunctive relief.
Below is a short summary of the case and the Supreme Court’s decision. Continue Reading Supreme Court rules laches cannot preclude statutory damages within the 6 year period before a patent suit is filed (SCA v. First Quality)
Judge Gilstrap recently ruled that certain challenges to a damages expert’s testimony went toward the weight a jury could give that testimony, rather than whether the testimony should be admitted. Specific FRAND-related portions of the testimony that he would admit at trial include the following:
- Expert could testify that the hypothetical FRAND royalty rate to be awarded for infringement damages (which presumes the patents are valid and infringed) would be higher than the royalty rate of a comparable FRAND license, which comparable license’s royalty rate may have been skewed low based on discounts made for litigation risks and costs.
- Expert could testify about FRAND royalties that the accused infringer charges for its own SEPs.
- Expert could testify about licenses negotiated in the context of German litigation and threat of injunction.
Judge Gilstrap indicated that the expert had sufficiently identified what he relied on and explained adjustments that he made to those proposed comparable licenses to account for differences from the hypothetical negotiated license. The defendant’s challenges to that testimony goes to the weight the jury should give the testimony, not its admissibility.
Judge Gilstrap’s ruling is an interesting example of how FRAND litigation has matured since taking the main stage in Judge Robart’s first-of-its-kind FRAND royalty decision in Microsoft v. Motorola (see our May 1, 2013 post) and Judge Holderman’s following decision in In re Innovatio (see our Oct. 3, 2013 post). Both of those 2013 decisions were based on, inter alia, a general failure of litigants to present sufficiently comparable licenses. Since then, Federal Circuit decisions have leaned toward admitting comparable licenses where expert testimony sufficiently accounts for differences from the hypothetical negotiated license.
For example, the Federal Circuit’s 2014 Virnetx decision (a non-SEP case) counseled that, although “alleging loose or vague comparability … does not suffice,” a jury may consider comparable licenses where differences from the hypothetically negotiated license are explained to them (see our Sep. 17, 2014 post). And the Federal Circuit’s 2015 Ericsson decision (an SEP FRAND case) stressed that, although real world licenses “are almost never perfectly analogous to the infringement action,” the jury may consider them if expert testimony accounts for “distinguishing facts when invoking them to value the patented invention.” (see our Dec. 5, 2015 post). Litigants following the Federal Circuit’s guidance may find courts more willing to allow expert testimony on proposed comparable licenses despite their differences from the hypothetical negotiated license.
Continue Reading Judge Gilstrap permits damages expert testimony that litigated FRAND royalty should be higher than comparable license’s FRAND royalty that was skewed low by litigation risk discount (St Lawrence v. ZTE)
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. Continue Reading Judge Payne rules patent owner may bring case seeking a declaration that it has not breached FRAND commitments (Huawei v. T-Mobile)