Yesterday, the Second Circuit in Lotus v. Hon Hai Precision affirmed the district court’s dismissal of antitrust and breach of contract claims arising from foreign activity based on the patent owner not licensing, but asserting in litigation in China, patents subject to FRAND-Z (i.e., royalty free) standard setting obligations.  Consistent with the U.S. Federal Trade Commision’s amicus brief (see our Jan. 13, 2014 post), the Second Circuit ruled that dismissal was proper because any effect on U.S. domestic or import commerce from the foreign activity did not “give[] rise to” the asserted antitrust claims as required under the Foreign Trade Antitrust Improvements Act (“FTAIA”).

We refer you to our prior post (Jan. 13, 2014 post, May 17, 2013 post and Feb. 13, 2013 post) for the background discussion of this case that involves plaintiff Lotes suing Hon Hai and related entities (such as Foxconn) for reneging on licensing commitments made to the USB Implementers Forum (USB-IF) by not licensing USB 3.0-related patents on FRAND-Z terms and violating U.S. antitrust laws by instituting foreign patent-enforcement proceedings on those patents against Lotes in China.  Below is a summary of the Second Circuit’s ruling.

FTAIA Requirements Are Substantive, Not Juridictional.  First, in overruling a prior decision, the Second Circuit ruled that the FTAIA restrictions on antitrust claims based on foreign conduct are substantive, not jurisdictional, requirements–i.e., “they go to the merits of the claim rather than the adjudicative power of the court.”  Among other things, this means the restrictions are potentially waivable (though the Second Circuit reserved ruling on whether they actually are waiveable, noting that “[A] ‘right conferred on a private party, but affecting the public interest, may not be waived or released if such waiver or release contravenese the statutory policy.”).

Patentee’s SSO Obligation Did Not Waive FTAIA Defenses.  Second, the Second Circuit ruled that the patentee did not contractually waive the FTAIA restrictions through its standard setting commitments.  As an initial mattter, the Second Circuit stated that the plaintiff failed to first raise the issue in the district court and “an appellate court will not consider an issue raised for the first time on appeal.”  Further, even assuming arguendo that the FTAIA restrictions were waivable, “nothing in the cited [USB-IF standard setting] contractual provisions suggests that the defendants waived those [FTAIA] requirements here.”  Specifically, the plaintiff Lotes pointed to five provisions of the USB-IF’s Contributors Agreement:

  1. Paragraph 2 that recites the contributors’ understanding “that it is imperative that they and their representatives act in a manner which does not violate any state, federal or international antitrust laws and regulations.”  The Second Circuit did not find waiver here, because this “merely recites the parties’ understanding that they are subject to various antitrust laws and regulations and affirms the parties’ commitment to abide by their existing legal obligations.”  Thus, “[at] most”, this provision “can be read to recognize and incorporate into the Contribution Agreement the signatories’ preexisting obligations under U.S. antitrust law,” but “do not waive any statutory requirements or otherwise alter the scope of the signatories’ legal obligations.”  Thus the signatories “remain free to argue that, under the FTAIA, the Sherman Act does not apply to or regulate the conduct at issue in this case.”
  2. Paragraph 2 statement that “prohibits any communications regarding … exclusion of competitors or any other topic that may be construed as a violation of antitrust laws.”  The Second Circuit did not find waiver here, because this simply “prohibits the parties from engaging in anticompetitive ‘communications.'”
  3. Paragraph 6.6 statement that the Agreement is to be “construed and controlled” by New York law.  The Second Circuit found no waiver here, because this was simply a “standard choice-of-law” clause.
  4. Pargraph 6.7 statement that “all disputes arising in any way out of this Agreement shall be heard in, and all parties irrevocably consent to jurisdiction and venue in, the state and Federal courts of New York, New York.”  The Second Circuit found no waiver here, because this was simply a “standard … choice-of-forum” clause.
  5. Paragraph 6.12 statement that “the obligations of the parties hereto shall be subject to all laws, present and future, of any government having jurisdiction over the parties hereto.”  The Second Circuit found no waiver here, because this “merely reiterates the parties’ existing obligation to comply with all applicable laws” as in Paragraph 2 above.

Thus, the Second Circuit held that the patentee did not waive its FTAIA defenses by signing the USB-IF Contributor Agreement.

Foreign Conduct’s U.S. Domestic Effect.  Third, following Seventh Circuit precedent, the Second Circuit held that foreign anticompetitve conduct can have the FTAIA-required “direct, substantial, and reasonably forseeable effect”on U.S. domestic or import commerce ” even if the effect does not follow as an immediate consequence of the defendant’s conduct, so long as there is a reasonably proximate causal nexus between the conduct and the effect.”  The Second Circuit thus rejected the Ninth Circuit’s “direct … effect” standard applied by the district court below.  The Second Circuit, however, declined to decide “the rather difficult question” whether that requirement was met in this case because the case could be resolved based on the “give rise to” requirement discussed below.

Does Effect “give rise to” Antitrust Claims.  Finally, the Second Circuit ruled that the alleged anticompetive conduct did not “give[] rise to” the plaintiff’s antitrust claim because, “in the causal chain the plaintiff alleges, the plaintiff’s exclusion from the relevant market actually precedes the alleged domestic effect” [emphasis in original].  The Second Circuit described the domestic effect allegations as follows:

Lotes alleges that the defendants’ foreign conduct had the effect of driving up the prices of consumer electronics devices incorporating USB 3.0 connectors in the United States.  But those higher prices did not cause Lotes’ injury of being excluded from the market for USB 3.0 connectors–that injury flowed directly from the defendant’s exclusionary foreign conduct.  Lotes’s complaint thus seeks redress for precisely the type of “independently caused foreign injury” that … falls outside of Congress’s intent [in enacting FTAIA].

Indeed, to the extent there is any causal connection between Lotes’s injury and an effect on U.S. commerce, the direction of causation runs the wrong way.  Lotes alleges that the defendants’ patent hold-up has excluded Lotes from the market, which reduces competition and raises prices, which are then passed on to U.S. consumers.  Lotes’s injury thus precedes any domestic effect in the causual chain.  And “[a]n effect never precedes its cause.” [emphasis in original]

The Second Circuit also rejected Lotes’s “creative arguments” that “the defendants have also failed to license the necessary claims of certain U.S. patents, which has had the effect of foreclosing competition in the United States.”  Problems with the argument include no allegation that Lotes conducts business in the United States, allegation that Lotes already has rights under the U.S. patents based on the USB-IF Contributors Agreement, and fact that Lotus would still be excluded from the USB 3.0 market because of the foreign enforcement activity against Lotes’s sole-foreign-based manufacturing:

As an initial matter, we are skeptical that the defendants’ refusal to license their U.S. patents has resulted in any domestic foreclosure of competition.  Lotes has not alleged that it manufactures products in the United States, imports products into this country, or otherwise does business here.  It is thus unclear why Lotes believes it even needs a U.S. license from the defendants in order to operate.  And even to the extent a license is in fact necessary, Lotes alleges that, by virtue of the Contributors Agreement, it “either already has .. .or has in irrevocable right to a RAND-Zero license” for all patent claims and other intellectual property necessary to practice the USB 3.0 standard.  The alternative domestic effect Lotes relies upon is thus illusory.

In any event, any domestic effect resulting from the defendants’ failure to license their U.S. patents did not proximately cause Lotes’ injury.  Indeed, any such effect is not even a factual, “but for” cause of Lotes’s injury.  Even if the defendants had granted Lotes a U.S. license, Lotes would still be excluded from the USB 3.0 market by virtue of the defendants’ independent infringement suits in China.  But for the failure to license, Lotes would have suffered the same harm. [emphasis in original]

The Second Circuit thus affirmed dismissal on this alternative ground.  Further, the Second Circuit affirmed the district court’s denying Lotes a second opportunity to amend the complaint because, “[i]n light of our conclusion that any domestic effect did not ‘give[] rise to’ Lotes’s claim, amendment would be futile.”

Today the Supreme Court issued its decision in Limelight v. Akamai, ruling that there is no liability for induced infringement under §271(b) induced infringement “when no one has directly infringed the patent under §271(a) or any other statutory provision,” thus reversing the Federal Circuit’s prior and more permissive standard that simply required that all claimed method steps are performed regardless whether there is a §271(a) direct infringer.  The Supreme Court, however, saved for another day and did not rule on what would constitute joint direct infringement or other multiple-actor direct infringement under §271(a).

Background.  The patent concerns a claimed method for delivering content where certain components of a website are “tagged” to be stored on certain servers within a content delivery network (CDN).  The alleged infringer, Limelight, would store tagged content on its servers, but required its customers to do their own tagging of the content.  Thus, Limelight did not itself perform the step of tagging components to be stored on its servers.

While the case was pending, the Federal Circuit issued its Muniauction decision that found direct infringement may occur even though claimed method steps are actually performed by multiple parties if a single defendant “exercises ‘control or direction’ over the entire process such that every step is attributable to the controlling party.”  In the Muniauction case, however, there was no direct infringement because, even though the defendant may have performed some claimed steps, the defendant did not exercise control or direction of its customers’ performance of the remaining claimed method steps.  A Federal Circuit panel thus affirmed the finding of no direct infringement by Limelight in this case, because direct infringement liability for one who performs some, but not all, claimed method steps arises only “when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps.”

But the Federal Circuit then gave en banc review of the panel decision and then decided there was no need to address §271(a) direct liability issue, because liability in the case exists for §271(b) induced infringement without finding a §271(a) direct infringer.  The en banc Federal Circuit found that requiring proof of direct infringement to support induced infringement was not the same as proving “that a single party would be liable as a direct infringer”; it was sufficient that all steps were performed.

Supreme Court.  The unanimous Supreme Court decision, written by Justice Alito, reversed the en banc Federal Circuit decision.  The Supreme Court noted well-established law that liability for induced infringement required direct infringement, but the Federal Circuit erroneously ruled that direct infringement can exist “independently of a violation of these statutory provisions.”  A method claim “is not infringed unless all the steps are carried out” because each claim element “is deemed material … and a patentee’s rights extend only to the claimed combination of elements, and no further.”  In this case,  based on the Muniaction direct infringement standard, there is no infringement of the claimed method because not all steps performed are attrributable to any one person.  Limelight thus “cannot be liable for inducing infringement that never came to pass.”

Importantly, the Supreme Court made clear that it was only assuming in this case–without deciding–that the Muniauction standard for direct infringement is correct.  The Supreme Court noted concerns that its ruling would leave loop holes based on the Federal Circuit’s narrow Muniauction rule for direct infringement, stating:

According to respondents, their understanding of the pre-1952 doctrine casts doubt on the Muniauction rule for direct infringement under §271(a), on the ground that that rule has the indirect effect of preventing inducement liability where Congress would have wanted it.  But the possibility that the Federal Circuit erred by too narrowly circumscribing the scope of §271(a) is no reason for this Court to err a second time by misconstruing §271(b) to impose liability for inducing infringement where no infringement has occurred.

Finally, respondents, like the Federal Circuit, criticize our interpretation of §271(b) as permitting a would-be infringer to evade liability by dividing performance of a method patent’s steps with another whome the defendant neither directs nor controls.  We acknowledge this concern.  Any such anomaly, however, would result from the Federal Circuit’s interpretation of §271(a) in Muniauction.  A desire to avoid Muniauction’s natural consequences does not justify fundamentally altering the rules of inducement liability …

Respondents ask us to review the merits of the Federal Circuit’s Muniauction rule for direct infringement under §271(a).  We decline to do so today. … [O]n remand, the Federal Circuit will have the opportunity to revisit the §271(a) question if it so chooses.

Accordingly, the Supreme Court’s decision requires infringement to exist under S271(a) (or some other provision) in order for there to be §271(b) induced infringement.  But the decision also leaves open the now important questions surrounding the narrow Muniauction rule for direct infringement under §271(a).

Today the U.S. Supreme Court issued its decision in Nautilus v. BioSig that adopts a “reasonable certainty” standard for determining whether a patent claim is invalid because it is indefinite, and  rejected the Federal Circuit’s “amenable to construction” and not “insolubly ambiguous” standard that had made indefiniteness challenges harder to establish.  The unanimous Supreme Court opinion, written by Justice Ginsburg, summarized its ruling as follows:

According to the Federal Circuit, a patent claim passes the §112, ¶2 threshold so long as the claim is “amenable to construction,” and the claim, as construed, is not “insolubly ambiguous.”  We concluded that the Federal Circuit’s formulation, which tolerates some ambiguous claims but not others, does not satisfy the statute’s definiteness requirement.  In place of the “insolubly ambiguous” standard, we hold that a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.

The Patent-In-Suit.  The patent-in-suit concerns a heart-rate monitor used during exercise that can distinguish electrocardiagraph (ECG) signals associated with a user’s heart beat from electromyogram (EMG) signals associated with the user’s skeletal muscle movements.  Specifically, the patent takes advantage of the different measurements of ECG and EMG signals when measured from the left hand and right hand:  ECG signals measured on the left hand have the opposite polarity from  ECG signals measured on the right hand; but EMG signals have the same polarity at each hand.  In the patent, a user grips a cylindrical bar such that each hand contacts two electrodes (one “live” and one “ground”) and the measurements are used to measure the ECG signals while cancelling-out the EMG signals.  The asserted patent claim 1, among other things, required on each half of a cylindrical bar a live electrode and a common electrode “mounted … in spaced relationship with each other.”

District Court Ruling.  During claim construction, Biosig, the patent owner, argued that the term “in spaced relationship” refers to the distance between the live electrode and the common electrode in each electrode pair.  Nautilus, the patent challenger, argued that the term “spaced relationship” must be a distance “greater than the width of each electrode.”  The district court ruled that the term means “there is a defined relationship betwen the live electrode and the common electrode on one side of the cylindrical bar and the same or a different defined relationship between the live electrode and the common electrode on the other side of the cylindrical bar.”

Nautilus then moved for summary judgment that the claim was invalid for being indefinite as construed.  The district court agreed, ruling that the words “did not tell [the court] or anyone what precisely the space should be,” or even supply “any parameters” for determing the appropriate spacing.

Federal Circuit.  The Federal Circuit reversed under a standard that finds indefinitness “only when [the claim] is ‘not amenable to construction’ or ‘insolubly ambiguous.'”  The Federal Circuit found inherent parameters made the claim sufficiently definite, such as the need for the electrodes to be in contact with the user’s hands and, thus, the width of spacing between electrodes cannot be greater than the width of the user’s hands.

Supreme Court.  The Supreme Court noted the parties’ agreed that definiteness is to be evaluated from the perspective of someone skilled in the relevant art at the time the patent was filed reading the claims in light of the patent’s specification and prosecution history.  The disagreement was on how much imprecision the definiteness requirement allows.  The definite requirement is a “delicate balance”.  It must take into acount the inherent limitations of langauge and that “[s]ome modicum of uncertanty … is the price of ensuring the appropriate incentives for innovation.”  On the other hand, the patent must be precise enough “to afford clear notice of what is claimed, thereby apprising the public of what is till open to them” and a loose definiteness requirement may tempt patent applicants “to inject ambiguity into their claims” even though “the patent drafter is in the best position to resolve the ambiguity.”  Thus “[t]he definiteness requirement … mandates clarity, while recognizing that absolute precision is unattainable.”

The Federal Circuit’s articulated standard provides little guidance and caused confusion in district courts.  Tolerating imprecision just short of “insolubly ambigous” would diminsh the public notice function and “foster the innovation-discouraging ‘zone of uncertainty.'”  In practice, the Federal Circuit may have applied a more rigorous standard than the terms “insoluably ambiguous” and “amenable to construction” may convey, but the standard as expressed “can leave courts and the patent bar at sea without a reliable compass.”  The Supreme Court thus reversed and remanded the case back to the Federal Circuit to consider whether the patent claims at issue are indefinite under the definiteness standard articulated by the Supreme Court.

Magistrate Judge Grewal in N.D. Cal. recently issued an Order excluding the testimony of Golden Bridge Technology’s damages expert because it was based on a flawed methodology for determing a fair, reasonable and non-discriminatory (FRAND) royalty rate for the asserted patent alleged to be essential to the 3GPP WCDMA standard.  The primary problem appears to be the expert’s failure to allocate value to the specific patent apart from non-patented product features and failure to rely on real-world industry practices (as opposed to theoretical or asperational practices):

In calculating the royalty base, Schulze did not even try to link demand for the accused product to the patented feature, and failed to apportion value between the patented feature and the vast number of non-patented features in the accused products.  Schulze [the damages expert] had no basis to ignore the fundamental teaching of the entire market value rule, which permits a royalty based on the entire market value of an accused product only where “the patent-related feature is the basis for customer demand.”  In calculating the royalty rate, Schulze impermissibly relied on licenses without any showing of comparability, relied on a maximum, cumulative royalty rate without any showing that anyone had committed to such a notion and failed to allocate particular value to the invention claimed in the ‘793 patent[in-suit].

Judge Grewal stated that, in this case, the typical reasonable royalty analysis involved additional consideration of FRAND licensing terms resulting in a modified Georgia-Pacific hypothetical negotiation that seeks to prevent “patent holdup” or “royalty stacking” by ensuring that “a FRAND license should compensate a patentee for their technical contribution to the technology embodied in a standard, but should not compensate them for mere inclusion in the standard.”  Judge Grewal thus focused on ensuring that the royalty was based on the technical contribution of the patent (without further discussing or giving weight to concerns about “patent holdup” or “royalty stacking”).

Flawed Royalty Base.  Judge Grewal ruled that the expert failed to show an industry practice in using the entire unit price — e.g., price of Apple’s iPad or iPhone — as the royalty base, failed to apportion the royalty base among patented and non-patented features and failed to show that the patented feature drove demand for the entire unit as required under the entire market value rule.  This conflicted with the Federal Circuit’s Lucent decision that “stands for the proposition that, in the absence of evidence that the infringing feature drives demand, the royalty base must be somehow apportioned to reflect the value of the patent-related feature in the absence of the non-infringing features.”  The expert’s attempt to rely on industry practice in using a per unit price relied on aspirational papers of a per unit price without showing “actual practice in the field.”  Further, the entire unit is not the smallest saleable unit, because “throughout this litigation, GBT [the patentee] has taken the position that the entire infringing functionality lies in the baseband processor, not the accused product as a whole.”  Even if the entire unit were the smallest saleable unit, that would “not relieve a patentee of the burden of apportioning the base,” which the damages expert failed to do here.

Flawed Royalty Rate.  Judge Grewal also found that the damages expert’s royalty rate analysis was flawed.  First, the expert erroneously relied on portfolio licenses that the patentee secured in settling several infringement cases that did not involve the patent at issue here.  The expert did not assess the comparability of those licenses by comparing (1) the value of those portfolio patents to those accused products or (2) the value of the patent-in-suit to the accused products in this case.  Further, the expert did not account for the lump-sum settlement payment in those licenses as having included future sales.

Second, the expert erroneously relied on there being some maximum, cumulative royalty rate for all WCDMA patents even though “he identifies no evidence that any party ever agreed to such a [maximum, cumulative] rate.”

Third, the expert erroneously treated the value of the ‘793 Patent-in-suit to be the same as the value of all other patents essential to the WCDMA standard.  The expert appears to have done this by doing a straight division of the number of SEPs into an assumed estimated cumulative royalty rate for all SEPs, thus giving each SEP the same value:

The heart of Schulze’s rate analysis dealt with [Georgia-Pacific] factor 12.  Based on his study of the 1999 UMTS Intellectual Property Association proposed maximum global royalty rate, and various academic studies regarding cumulative rates for standard-essential patents, Schulze opined that the participants in the market for 3G technology would have settled on a certain cumulative royalty rate for all 3G standard-essential patents.  He then calculated a royalty for the ‘793 patent[in-suit] alone as follows.  Looking to the declared WCDMA standard essential patent families provided by Sipro Lab Telecom, and Sipro’s classificaton of those families, he determined the percentage of the families related to terminals like the accused products.  Schulze then multiplied the nuimber of WCDMA standard essential patents identifed in one article by the percentage to determine the number of patent famlies, including the ‘793 patent, that read on terminals.  Dividing his estimated cumulative royalty rate by number of terminal-related eseential patents, he arrived at a rate for the ‘793 patent.  Regarding factor thirteen, Schulze assumed that each standard essential patent shares an equivalent value to each other standard essential patent within the overall standard.

Judge Grewal found such methodology flawed, stating that “the case law is clear that mere patent counting and dividing is not enough”, which does not account for the particular value (vel non) of the patent-in-suit:

Third, Schulze erred in assuming the value of the ‘793 patent was no different than the value of each of the other WCDMA standard-essential patents considered.  GBT identifies no case law supporting the notion that a claimed standard-essential patent gets a free pass on the fundamental notion that a patent damages methodology must be tied to the relevant facts and circumstances of the case at issue.  If anything, the case law is clear that mere patent counting and dividing is not enough.

Judge Grewal, therefore, excluded the patentee’s damages expert opinions “in their current form”, but allowed the expert “another shot” to tender a new report with opinions consistent with the court’s ruling.

Judge Richard Andrews of the District Court of Delaware dismissed Nokia and ZTE’s amended FRAND counterclaims against InterDigital on Wednesday, ruling that the amended declaratory judgment actions would not serve a useful purpose in the context of the parties’ ongoing litigation. Nokia and ZTE’s FRAND counterclaims involve around 500 patents identified to ETSI as possibly reading on the UMTS 3G and/or LTE 4G standards and an additional set of patents related to the ITU’s CDMA2000 3G standard. The counterclaims further allege that, pursuant to the ETSI, ITU, and TIA IPR Policies, InterDigital has declared a large portion its patent portfolio as essential or potentially essential to these cellular telecommunications standards and has voluntarily entered into binding and enforceable FRAND-licensing commitments for these patents. Wednesday’s decision marks the second time that the Court has dismissed a set of FRAND-related counterclaims in these actions, having previously dismissed Nokia and ZTE’s FRAND counterclaims against InterDigital last July.

Following the Court’s July 2013 dismissal, ZTE filed amended counterclaims seeking a declaration that InterDigital had failed to provide offers to ZTE on FRAND terms and requesting that the court determine an appropriate FRAND rate. Nokia similarly amended its counterclaims, requesting that the court declare that InterDigital did not offer a FRAND rate and determine what the terms of a FRAND license would be. InterDigital then moved to dismiss on the grounds that, even if the Court were able to determine a FRAND rate, the determination would be of no practical help or utility because of the remaining disputes regarding whether the various patents-at-issue are essential to the underlying standards.

Considering InterDigital’s Motion to Dismiss, Judge Andrews reviewed the extensive litigation and negotiation histories between InterDigital and ZTE and Nokia, providing a high-level overview of the offers, counteroffers, and resulting lawsuits between the companies and InterDigital.  Judge Andrews considered the Third Circuit’s analysis of whether declaratory judgment subject matter jurisdiction exists based on three basic principles: “(1) ‘adversity of the interest of the parties,’ (2) ‘conclusiveness of the judicial judgment,’ and (3) ‘the practical help, or utility, of that judgment.'”  Judge Andrews assumed that the first two princples were met — that there is adversity of interest and that “the Court could conclusively decide a FRAND rate.”  Thus Judge Andrews focused the subject matter jurisdiction analysis on the third principle of whether the declaratory judgment would provide “practical help, or utility” so as to provide the Court with subject matter jurisdiction over the counterclaims.

Assuming, arguendo, that the Court could conclusively determine a FRAND rate in an efficient manner — an assumption that the Court found “highly dubious considering that there are 500 or so possibly relevant patents” — Judge Andrews wrote that he was “far from convinced that the trial that would be necessitated by the declaratory judgment would serve any useful purpose.” The Court reasoned that, even if a FRAND rate were determined, it is not clear as to how such a ruling could be enforced, finding that neither Nokia nor ZTE had obliged themselves to be bound by the Court’s potential determination and expressing concern for how declaratory relief would be utilized by the parties:

While both Nokia, and to a greater extent ZTE, have indicated their “willingness” to accept a license, there has been no sworn affidavit by either company that they would sign a license. Companies can change or sell their product lines. They can enter and withdraw from markets. They can appeal district court decisions, and initiate other litigation, which would either delay or derail a final judgment. All the Court’s determination of a FRAND rate would accomplish would be to give a data point from which the parties could continue negotiations.

Judge Andrews further reasoned that determining a FRAND rate would not lead directly to a patent license because of the plethora of other licensing issues, including warranties, indemnification, cross-licensing, trademarks and attribution, insurance, and so on, that would need to be negotiated between the parties, noting that on multiple occasions he has seen agreed upon term sheets fail to turn into a final agreement.

The Court also found that the declaratory judgment actions seeking a determination of whether InterDigital had in fact offered a FRAND rate would serve little to no useful purpose as such an undertaking would only serve “to alter the current negotiating power between the parties” and “any impact that this determination would have on the patents-in-suit is encompassed within the multitude of affirmative defenses that both Nokia and ZTE assert”, noting that FRAND issues are captured by ZTE’s affirmative defenses for patent misuse, breach of contract, unclean hands, and existence of an express or implied license.

Judge Andrews also indicated that any agreement between the parties would involve business considerations not suitable to litigation, and suggested arbitration might be a better route to resolution:

It seems to me likely that the parties do in fact want to reach an agreement.  Negotiating such an agreement involves mostly business considerations.  It does not seem to me that litigation by itself is a very effective means to make an agreement between willing parties.  I understand that the parties cannot agree on the scope of arbitration.  If they could, or they could decide to have the arbitrator decide the scope, that would appear to be a possible way to proceed.

As we previously reported, the Senate Judiciary Committee has postponed a vote on proposed patent litigation reform legislation several times.  Now, the Senate is tabling the issue altogether due to an apparent lack of bi-partisan support for the provisions in the bill.  On Wednesday, Senator Leahy, the bill’s sponsor, announced that “there has been no agreement on how to combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day to protect their inventions.”

Late last year, the House of Representatives passed the Innovation Act, a patent litigation reform bill that is aimed at reducing perceived abusive tactics by non-practicing entities (what some refer to as patent trolls) in patent litigation.  According to Senator Leahy, the Senate has “heard repeated concerns that the House-passed bill went beyond the scope of addressing patent trolls, and would have severe unintended consequences on legitimate patent holders who employ thousands of Americans.”

“I have said all along that we needed broad bipartisan support to get a bill through the Senate,” said Senator Leahy. “Regrettably, competing companies on both sides of this issue refused to come to agreement on how to achieve that goal.”  Therefore, “[b]ecause there is not sufficient support behind any comprehensive deal, I am taking the patent bill off the Senate Judiciary Committee agenda.”  “If the stakeholders are able to reach a more targeted agreement that focuses on the problem of patent trolls, there will be a path for passage this year and I will bring it immediately to the Committee.”

 

 

 

Last week, Magistrate Judge Grewal in N.D. Cal. denied Apple’s motion for summary judgment that patent owner Golden Bridge Technology was precluded from seeking pre-suit damages due to its alleged failure to comply with the marking statute.  Apple’s summary judgment argument was premised on Golden Bridge’s failure to mark the alleged SEP’s patent number on products complying with the High-Speed Uplink Packet Access (“HSUPA”) upgrade to the UMTS 3G standard, but Apple alternatively argued on summary judgment that the patent was not infringed because it did not read on that standard.  These conflicting positions precluded summary judgment on the issue.

The court noted a split in authority (with no clear guidance from the Federal Circuit) as to who has the burden to trigger the Section 287 marking requirements, and adopted a prior ruling in N.D. Cal. that the accused infringer must trigger the marking statute by “identify[ing] unmarked products believed to practice the accused claims.”  Although Apple had met that burden by identifying unmarked products, Apple’s non-infringement arguments warranted denying summary judgment at this time, the court stating:

Although Apple met its initial burden — it identified particular phones allegedly triggering Section 287 — the disputed record makes summary judgment unwarranted.  The parties dispute whether those phones practiced the asserted claims prior to the filing of this case.  Much of the parties’ disagreement flows from whether or not the ‘793 patent is essential to the HSUPA standard.  Curiously, while this motion argues summary judgment on marking is warranted because the ‘793 patent is standards essential, Apple’s motion for summary judgment of non-infringement urges the opposite.  Apple’s conflicting arguments confirm that summary judgment precluding pre-suit damages is not warranted.

This illustrates a common litigation issue in pursuing alternative legal theories, as we must do from time to time when disputed factual issues are yet to be decided.  Recall, for example, that one reason the ITC did not find a standard-setting obligation defense in the infamous Samsung v. Apple investigation was Apple’s argument that Samsung’s patent was not essential and not infringed by Apple’s UMTS-standard compliant products (see page 50 of the decision found in our July 9, 2013 post).

The Grand Panel of the Intellectual Property High Court in Tokyo issued three related decisions in the Samsung Apple dispute on Friday. While the official English versions of the decisions are not yet available, sources are reporting that the Grand Panel ruled Samsung could not obtain injunctive relief for Apple’s alleged infringement of a 3GPP standard-essential-patent, but that Samsung could nevertheless collect damages equal to a FRAND royalty.  We await the official English versions in order to see the particular rationale and any caveats regarding the injunctive and damages rulings.

The High Court’s decision arises from a review of three patent actions decided by the Japanese lower court, two of which were filed by Samsung seeking injunctive against Apple and the third filed by Apple seeking a ruling that Samsung was not entitled to monetary damages. Each of the three actions involve a single Japanese patent that is alleged to be essential to the 3GPP 3G mobile network standard and subject to FRAND obligations. The lower court ruled that Samsung was not entitled to injunctive relief in either of its suits and concluded in the third suit that Samsung was not entitled to monetary damages due to abuse of its patent rights.

On review, the High Court reportedly affirmed the lower court’s injunction decisions, finding Samsung’s bid for injunctive relief constituted an abuse of rights under Article 1(3) of the Civil Code. However, the High Court appears to have reversed the lower court’s third decision,  denying Apple’s absolution from damages and ruling that Samsung would be entitled to damages in an amount equal to a royalty on FRAND terms, which the Court calculated to be ¥ 9,950,000 (<$100,000). Only summaries of the High Court’s decisions were published by the Japanese Grand Panel, though the full rulings and accompanying English translations are expected to be released soon.

The U.S. Federal Trade Commission (“FTC”) recently published a Federal Register notice seeking additional public comments on the FTC’s proposed collection of information about Patent Assertion Entities (“PAEs”) (see our Sep. 27, 2013 post about the FTC’s first notice about the PAE study).  Public comments are due by June 18, 2014.

Generally.  In this notice, the FTC defines “PAEs” as “firms with a business model based primarily on purchasing patents and then attempting to generate revenue by litigating against, or licensing to, persons who are already practicing the patented technology.”  The FTC has been studying PAEs for years and is looking for an emperical record of PAE activity to better frame the debate about them.  The proposed study seeks to go beyond the limited publicly available information (e.g., litigation data that the GAO patent litigation study primarily relied upon) to delve into non-public behavior such as those related to acquiring patents, licensing patents, organizational structure and economic relationships.  The information sought is intended to answer the following questions:

  • How do PAEs organize their corporate legal structure, including parents, subsidiaries, and affiliates?
  • What types of patents do PAEs hold and how do they organize their holdings?
  • How do PAEs acquire patents; who are the prior patent owners; and how do they compensate prior patent owners?
  • How do PAEs engage in assertion activity (i.e., how do they behave with respect to demands, litigation, and licensing)?
  • What does assertion activity cost PAEs?
  • What do PAEs earn through assertion activity?
  • How does PAE patent assertion behavior compare to that of other entities that assert patents?

The study will have two parts: (1) a general study of about twenty-five different PAEs and (2) a comparative study of patent assertion activity in the wireless communication sector from about fifteen PAEs, manufacturers and non-practicing entities.

Standard Essential Patents.  With respect to standard essential patents, the FTC explains that it has modified its proposed requests for information to account for standard-setting declarations that may not identify particular patents (e.g., blanket letters of assurance) and, thus, may prove burdensome in identifying specific patents subject to the declaration, stating:

The original requests [in the Sep. 2013 FTC proposal] also required subjects to identify patents subject to commitments such as licensing and standard-setting declarations.  Commenters suggested that these requests may be unduly burdensome when the firm has made commitments on a field of use or subject matter basis–without identifying specific patent numbers.  Commenters also suggested that the original requests may require respondents to conduct legal research to determine whether specific patents are subject to broad commitments.  To address these comments, the FTC will ask respondents to describe the commitments as they have been declared to standard-setting organizations and third parties.

Accordingly, the FTC proposes that PAEs and other entities subject to the study respond to the following questions from Section D (found within the PAE questions) and Section M (found within the other Wireless Industry questions where the Patents are limited to Wireless Patents), where the differences between the Section D and Section M questions are noted below within [bold brackets]:

D.  [M.] Standard Setting Commitments

1.  If any Person has committed to a Standard Setting Organization that it will License any [Wireless] Patent(s) Held by the Firm since January 1, 2009, for each commitment

a.  State the date the commitment was made.

b.  Identify the Person who made the commitment.

c.  Identify the Standard Setting Organization.

d.  Identify the standard(s) to which the commitment applies.

e.  Provide a narrative response identifying any Wireless Patents held by the Firm that are subject to the commitment. [NOTE: This question is not within the Wireless Industry questions]

f.  [e.] State whether the commitment is to License the [Wireless] Patent(s) or any Patent claim(s) on reasonable and non-discriminatory (RAND); fair, reasonable, and non-discriminatory (FRAND); royalty-free (RF); or other terms.

(1) if the commitment is to License on terms other than RAND, FRAND, or RF, provide a narrative response describing the terms.

g.  [f.] Is the commitment subject to a field of use restriction? (Y/N)
If yes:

(1) State the specific field of use restriction(s); and

(2) identify, from the following list, inwhich sector(s) is the field of use restriction: Chemical, Computers & Communications, Druges & Medical, Semiconductors, Other Eletrical & Electronic, Mechanical, or Other.

h.  [g.] Proivde a narrative response listing all Patent(s) that any Person has declared, or otherwise identifed to any Person, as subject to the commitment.

i.  [h. ] Produce, and provide a narrative response identifying by Reference Number, all agreements embodying the commitment.

For purposes of the questions, the FTC defines “Standard Setting Organization” or “SSO” to mean “any organization, group, joint venture, or consortium that develop standards for the design, performance, or other characteristics of products or technologies.”  The definition of “Wireless Patent” depends on a few other defined firms, including the term “Assert” that appears to be limited to patents raised against another entity (not all patents) as well as the term “Patent” that is limited to U.S. patents and applications, the relevant defintions being as follows:

“Wireless Patent” means any Patent Asserted against a Wireless Communication Device.

“Assert” and “Assertion” mean: (i) Any Demand; (ii) any civil action threatened or commenced (by the Firm or other Person) relating to any Patent; or (iii) any investigation pursuant to 190 U.S.C.  1337 [ITC] threatened or initiated (by the Firm or other Person) relating to any Patent.  For Manufacturing Firms, “Assert” and “Asserted” do not include sales of products manufactured by the Firm, or on behalf of the Firm, that practice the claimed invention.

“Demand” means any effort since January 1, 2009 to License any Patent, in whole or in part, and any other attempt to generate revenue by authorizing a Person outside the Firm to practice an invention claimed in a Patent.  Demand does not include complaints or pleadings filed with a United States District Court or the United States International Trade Commission.

“Patent” means a United States patent or United States patent application as defined by 35 U.S.C. 101, et seq.

“Wireless Communication Device” means any device, including wireless chipsets, which implements wireless communication, including, but not limited to, softrware, user equipment, base stations, and network infrastructure.

“Wireless Chipset” means any baseband processor, radio frequency transceiver, integrated circuit, chip, or chipset, or any combination thereof, and any related software, used to implement wireless communication.

PAEs and SEPs generally are separate issues that should not be conflated.  Perhaps the FTC has specific questions on SEPs here given the context of this particular study.  The proposed study concerns entities whose business model primarily is to purchase patents to assert against those already practicing the invention (e.g., they are not innovators contributing to a new standard).  Purchasing a patent directed to an existing, widely adopted standard may readily target a large number of companies already practicing an invention.  Its not clear, however, whether the proposed questions capture all these instances–e.g., what if (1) the patent is not subject to a specific standard-setting declaration or (2) the patent owner claims that the patent is not subject to a standard-setting obligation, such as, disputing whether a blanket commitment attached to the specific patent or whether an obligation survived transfer of the patent (see, e.g., our April 23, 2014 post where the court rejected a patent owner’s express attempt to affirmatively receive “hold-up” value for an alleged standard essential patent not subject to an SSO commitment).  But perhaps the study already does or will consider whether a PAE has asserted to anyone (e.g., a prospective licensee or a litigant) that a patent covers an industry standard regardless whether the patent is subject to an SSO declaration or commitment.

Last Friday, Apple and Google reportedly agreed to dismiss all current lawsuits between them, including standard essential patent cases involving Motorola Mobility that Google recently sold to Lenovo.  The three-sentence joint statement by Apple and Google indicates that their agreement does not include any cross license (to SEPs or otherwise), stating:

Apple and Google have agreed to dismiss all the current lawsuits that exist directly between the two companies.  Apple and Google have also agreed to work together in some areas of patent reform.  The agreement does not include a cross license.

Dismiss Judge Posner Appeal.  Thus the parties filed a Joint Motion to Dismiss The Appeal from Judge Posner’s decision in which a Federal Circuit panel recently ruled there is no per se rule against injunctive relief for standard essential patents (see our April 25, 2014 post).  Procedurally, the joint motion asks the Federal Circuit to issue the mandate on its recent decision so that jurisdiction of the case will return to the district court where the parties will then seek dismissal without prejudice, stating:

Whereas all parties agree that it would be appropriate to dismiss this litigation without prejudice, and whereas none of the parties intend, therefore, to file a petition for rehearing or rehearing en banc or for writ of certiorari, Plaintffs-Appellants Apple Inc. and NeXT Software, Inc. (formerly known as NeXT Computer, Inc.), together with Defendants-Cross Appellants Motorola, Inc. (now known as Motorola Solutions, Inc.) and Motorola Mobility , Inc. (now know as Motorola Mobility LLC), respectfully move the Court to issue the mandate in these consolidated appeals, so that the parties can proceed to the district court to dismiss the litigation without prejudice.  The parties further agree that each party will bear its own costs and attorneys’ fees.

Dismiss Judge Crabb Appeal.  The parties also filed a Joint Motion to Dismiss The Appeals from Judge Crabb’s decision that had dismissed Apple’s declaratory judgment action against Motorola because Apple would not commit to be bound by the court’s determination of a reasonable and non-discriminatory (RAND) royalty rate (see, e.g., our Jan. 13, 2014 post).  Procedurally, Judge Crabb had dismissed the case without prejudice and there had been no decision yet on appeal (briefed, but not yet argued), so the  joint motion simply seeks dismissal, stating:

Pursuant to Federal Rule of Appellate Procedure 42(b), Plaintiff Appellant Apple Inc. and Defendant-Cross Appellant Motorola Mobility LLC jointly move to dismiss these appeals (Nos. 2013-1150 and -1182).  The parties will each bear their own costs and fees.

 And so yet another standard essential patent skirmish goes gently into that good night … (see our May 15, 2014 post).