Well that didn’t take long — yesterday the Ninth Circuit dismissed LSI’s appeal from Judge Whyte’s preliminary injunction that enjoined LSI from seeking to enforce any exclusion order entered by the ITC on the standard essential patents at issue in the district court litigation before LSI first offered a RAND license to Realtek.  Our March 13, 2014 post summarized this appeal issue and the pending post-trial motion by Realtek that seeks to essentially convert the preliminary injunction into a permanent injunction (hearing scheduled May 9, 2014). 

Recall that both parties agreed that, although the ITC did not find a Section 337 infringement violation so no exclusion order issued, the issues presented in the Ninth Circuit appeal of the preliminary injunction were not moot because, for example, LSI could appeal the ITC’s decision and revive the prospect of an exclusion order.

The Ninth Circuit disagreed.  The Ninth Circuit ruled that, by its own terms, the preliminary injunction would be “moot” if the ITC did not find an infringement violation.  Thus “the preliminary injunction itself is no longer operative by virtue of the initial decision of the ITC that there was no Section 337 violation.” So the appeal was dismissed.

The Ninth Circuit’s dismissal of the preliminary injunction appeal puts the ball squarely in Judge Whyte’s court — without guidance from this Ninth Circuit appeal — to decide whether and to what extent LSI should be permanently enjoined from enforcing any exclusion order or injunctive relief prior to offering RAND licensing terms on the WiFi SEPs at issue.

Qualcomm and Nokia weighed-in on the Ericsson v. D-Link appeal yesterday, each filing amici curiae briefs with the Federal Circuit.  The parties’ positions favored the patent owner, though each adopted different approaches to the issues on appeal.  Qualcomm focused on the fact-specific contractual nature of RAND commitments that patent owners rely on based on an each standard setting organization’s (SSO’s) specific intellectual property rights (IPR) policies and the patent owner’s submitted letters of assurance (LOAs).  Nokia supported the district court’s decision not to give jury instruction on patent stacking and holdup. See our August post for more information on the case, pre-appeal, and Judge Davis’ RAND dismissals.

This round of amici curiae briefing comes a little less than three months after the IEEE submitted its own amicus brief regarding RAND commitments, which we discussed back in December.

Qualcomm’s Positions

Qualcomm’s brief emphasizes that RAND commitments are voluntary, contractual obligations held by an SEP holder to an SSO under which the SEP holder agrees to make its SEPs available to SSO participants on RAND terms.   At the outset, Qualcomm acknowledges that its amicus position on RAND issues is adverse to that taken by some appellants in this case to whom Qualcomm, as the supplier of chips used in some of the accused products, owes certain indemnity obligations.  Qualcomm concedes that it “has an indirect interest in a finding of no liability and a financial interest in minimizing any damages awarded”, but nevertheless has weighed in “even if that means that its views on RAND may align in part with those of [Ericsson].”

Distinguishing policy arguments and competition concerns raised by other amici, Qualcomm’s brief argues RAND obligations are created by contract and as such should be determined by reference to the actual commitment and intent of the parties:

Each RAND commitment is made in the context of the particular intellectual property rights (“IPR”) policies of the particular SSO, and must be interpreted in that context. How a court should interpret a contract is well established: it should look to the express terms of the agreement and, where necessary, to other indicia of the intent of the parties.

Addressing Judge Davis’ decision, Qualcomm states that the district court correctly considered the particular terms of IEEE policies when determining the scope of Ericsson’s obligations, as a court’s RAND determination should be drawn from the terms and intent of the relevant SSO agreement giving rise to RAND, the background against which the RAND agreement was made, and specific facts relevant to the underlying agreement.  Discussing the goal of both IEEE and ETSI IPR policies that SEP licenses me made available to implementers on reasonable terms, Qualcomm argues that the term “reasonable” in “reasonable and nondiscriminatory” does not mean anything different than the well-known “reasonable royalty” rubric found Georgia-Pacific and similar law outside the U.S. and that no evidence indicates there is “some other type of ‘reasonable'”.

Qualcomm asserts that proposed rulings designed to suppress SEP valuation should be rejected as inconsistent with the RAND contract. Asserting that “the District Court properly looked to both the language and the intent of Ericsson’s RAND commitment to determine the meaning of the RAND commitment, and appropriately instructed the jury to hold Ericsson to that commitment”, Qualcomm argues against rules proposed by other amici that improperly assert that:

  1. courts determining SEP value should consider only license executed before the patent was adopted into the standard;
  2. a “reasonableness” analysis must account for the total number of SEPs for that standard;
  3. “non discriminatory” analysis must look at average prices, costs, and operating profit across all industry participants; and
  4. the determination of royalties must use the industry-wide average operating profit for the smallest saleable patent practicing unit over the damages period.

Qualcomm asserts that there is no reason to suppose that rational industry participants should conduct a royalty stacking analysis as part of determining a reasonable royalty rate.  Qualcomm reasons that such an analysis improperly pre-supposes that only a fixed share of the product price can be attributable to the intellectual property in the product, leading to the erroneous conclusion that the more patents a product practices, the less each SEP holder should receive, irrespective of the impact of each patent’s individual contribution. Arguing against this analysis, Qualcomm states:

IP is an input into a product like any other. Adding a second input does not reduce the value contribution of the first. Adding hand-crafted leather upholstery to a car does not reduce the value contribution (or the cost) of the engine. Considered in the context of tangible components, the idea of using (much less requiring) a “cost stacking” analysis to determine how much a manufacturer should have to pay for a particular component is nonsensical. Likewise, the fact that a standard incorporates more value-adding patented technologies does not reduce the value added by (or the cost to  develop) any one of those technologies. The value of an SEP will always be lost in this analysis; an approach that necessarily ignores the value of the specific contribution cannot be correct.

Emphasizing that each proposed rule would be inconsistent with the underlying contract giving rise to the RAND obligation, Qualcomm stresses “[t]he hypothesis that all SSO IPR policies and RAND commitments under those policies should be judicially redefined in a manner that would declare widespread industry practice and innumerable existing licenses to be ‘unreasonable’ cannot be maintained.”

Qualcomm asserts that RAND commitments do not require the licensing of components, that industry practice has applied royalties to an entire device, and that the particular license obligation owed by a SEP holder is drawn from the language of the agreement at issue.  Whereas other amici argued that Ericsson was required to grant RAND licenses to component suppliers or chip manufacturers, Qualcomm’s brief directs attention to the IEEE agreement that requires Ericsson to grant RAND licenses to “fully compliant” products incorporating the components into a larger system or device. Qualcomm also notes the ETSI IPR Policy is among other SSO policies that have adopted “fully compliant” limitations on RAND commitments, the ETSI policy seeking FRAND licenses to “any system or device fully conforming to a standard”.

Nokia’s Positions

Advocating that the Federal Circuit affirm the district court’s decision, Nokia’s brief argues that determining a RAND royalty is an inherently contextual task that requires a trier of fact to consider a number of factors, including the nature of the standard and patents at issue.  Nokia states that Judge Davis’ decision not to provide the jury with Defendants’ requested jury instructions on patent stacking and holdup is entirely consistent with such a mandate, noting that in this case the jury was provided extensive instruction on how to calculate a reasonable royalty, including Georgia-Pacific factors relevant to stacking and holdup issues.  Nokia further notes that the district court specifically instructed the jury to “ensure that any damages award is consistent with and does not exceed the amounts permitted under Ericsson’s RAND obligations.”

Disputing the notion that patent holders “systematically enjoy excessive royalties by stacking patents and by threatening to hold up licensees”, Nokia asserts that the RAND framework helps to avoid systematic stacking and holdup by requiring patent holders to license SEPs on RAND terms, preventing patent holders “from extracting exorbitant royalties.”  Nokia argues that whether stacking and holdup, or reverse holdup, are concerns depends on the facts and circumstances of a particular case and that a patent should not be devalued simply because it has been included in an industry standard.

Directly addressing Defendants’ discarded jury instructions, Nokia argues that Defendants presented no evidence that stacking and holdup presented a concern in this case and that the requested instructions were argumentative and unnecessary in the context of the entire jury charge.  From Nokia’s brief:

Instructing the jury to prevent hold-up also would have been superfluous. Filing suit for infringement and asking a jury to award a reasonable royalty plainly is not a form of holdup. It was the jury’s task to determine a reasonable royalty consistent with RAND. By definition, such a royalty is not an improper holdup.

Likewise, the requested instructions on royalty stacking were designed to give content to the RAND standard beyond what the standard itself requires. Defendants wanted to instruct the jury to adjust the rate in this case according to some hypothetical “aggregate value” of all royalties required to license patents that cover a given standard (although they presented the jury with no evidence concerning what that value might be).

Yesterday Judge Whyte entered a post-trial scheduling order setting briefing and hearing dates for post-trial motions as well as Realtek’s request to permanently enjoin LSI “from enforcing, or seeking to enforce, any exclusion order or injunction that Defendants [LSI] might obtain with regard with regard to the ‘958 and ‘856 patents [LSI’s WiFi SEPs at issue] until Defendants have made a RAND offer to Realtek consistent with the RAND royalty determined at trial” (see pages 27-28 of Realtek’s Trial Brief).  Opening briefs are due March 28, 2014 and the hearing is scheduled for May 9, 2014.

Recall that Judge Whyte already entered a preliminary injunction ruling in this case to bar Realtek from enforcing any exclusion order or injunction entered on these WiFi SEPs until LSI made a RAND offer to Realtek consistent with the court determined RAND rate, noting that the injunction only goes into effect if an exclusion order or injunction were granted (see our May 21, 2013 post).  A recent jury verdict also determined a RAND royalty rate (see our Feb. 27, 2014 post).  And the ITC recently terminated the LSI v. Realtek infringement investigation on various grounds for these same WiFi SEPs without entering an exclusion order (see our Mar. 5, 2014 post).

LSI appealed Judge Whyte’s preliminary injunction ruling to the Ninth Circuit.  The Ninth Circuit recently entered an Order taking the oral argument off calendar (it had been scheduled for today) and asking the parties to file supplemental letter briefs “limited to the question whether the preliminary injunction has by its own terms become moot as a result of the March 4, 2014, decision of the United States International Trade Commision.”  The parties appear to agree that the ITC decision does not moot the appeal because, among other things, appeal of that ITC decision potentially could lead to reversal and an exclusion order entered on remand (see LSI’s Letter Brief and Realtek’s Letter Brief).

There may be substantial overlap between the issues for the preliminary injunction appeal and the permanent injunction motion that Judge Whyte will consider.  Judge Whyte’s ruling on the permanent injunction motion probably will moot the preliminary injunction being considered by he Ninth Circuit because he may either deny injunctive relief or replace the preliminary injunction with a permanent injunction.  So it will be interesting to see whether the Ninth Circuit or Judge Whyte will issue a decision first, which first decision from one will guide or moot a later decision by the other.

Judge Koh recently granted Apple and Samsung’s stipulated request to dismiss without prejudice Samsung’s claims that Apple infringes certain declared-standard essential patents (SEPs) and Apple’s related FRAND defenses and counterclaims.  There is no indication in the filing that the parties are negotiating a settlement as to those SEPs, though that’s always a possibility.  The stipulation does indicate that the parties’ have not resolved the dispute and Samsung may reassert the SEPs against Apple at a later time:

3.  This stipulation of dismissal without prejudice is made subject to Samsung’s and Apple’s reservation of rights to reassert these claims, counterclaims, and related defenses should any such dismissed claim be revived or reasserted by either party for any reason.

4.  This Stipulation and Order is not an adjudication on the merits of nor admission regarding any of the claims or counterclaims that are hereby dismissed without prejudice.

Background.  On February 8, 2012, Apple filed suit against Samsung in the Northern District of California alleging that Samsung’s smartphones, media players and tabelts, including several of Samsung’s Galaxy-branded products, infringe eight of Apple’s patents.  Samsung counterclaimed arguing that Apple’s iPhone 4 and 4S and iPad 2 and New iPad infringe certain of Samsung’s patents alleged to be essential to the European Telecommunications Standards Institute (ETSI) standards relating to Wideband Code-Division Multiple-Access (W-CDMA).

Apple filed an answer and reply to Samsung’s counterclaims asserting FRAND-related affirmative defenses and counterclaims, which Apple later amended.  Apple’s fourth affirmative defense claimed that, with respect to Samsung’s declared-essential patents, Samsung “engaged in standard-setting misconduct, including without limitation Samsung’s breach of its commitments to offer FRAND license terms for the Declared-Essential Patents and Samsung’s breach of its patent disclosure requirements or based on other circumstances.”

As its fifth affirmative defense, Apple asserted that to the extent Samsung’s patents “are essential to any ETSI standard and to the extent any of the alleged inventions described in and allegedly covered by the Declared-Essential Patents are used, manufactured, or sold by or for Apple, its suppliers, and/or its customers, Apple has the irrevocable right to be licensed on FRAND terms under those patents.”

Apple’s sixth affirmative defense asserted that Samsung’s alleged commitment to ETSI to license its declared standard essential patents on FRAND terms barred it from seeking injunctive relief against Apple for those patents.  According to Apple, it has an “irrevocable right to obtain a license by virtue of Samsung’s FRAND commitments.”

Apple’s seventeenth counterclaim asserted that Samsung breached its alleged contractual obligations to ETSI by “claiming infringement and seeking to enjoin Apple from practicing the [relevant] standard, notwithstanding that, to the extent any of the alleged inventions described in and allegedly covered by [Samsung’s] Declared-Essential Patents are used, manufactured, or sold by or for Apple, its suppliers, and/or its customers, Apple has the right to a FRAND license to the Declared-Essential Patents by virtue of Samsung’s FRAND commitments….”  Apple also asserted that Samsung breached its alleged contractual obligations with ETSI by failing “to timely disclose its allegedly essential patents in accordance with the requirements of the ETSI IPR Policy” and by refusing “to offer FRAND royalty terms to Apple, instead offering excessive terms that violate FRAND, e.g., with respect to both royalty rate and royalty base.”

Apple’s eighteenth counterclaim requested a declaratory judgment “that, to the extent any of the alleged inventions described in and allegedly covered by the Declared-Essential Patents are used, manufactured, or sold by or for Apple, its suppliers, and/or its customers and covered by valid Declared-Essential Patents, Apple has the irrevocable right to be licensed on FRAND terms under those patents.”

Apple’s eigth affirmative defense and twenty-first counterclaim alleged that one of Samsung’s alleged standard-essential patents was unenforceable due to inequitable conduct.

Samsung filed an answer to Apple’s counterclaims substantively denying Apple’s claim for relief.

Stipulated Dismissal of SEP and FRAND claims.  Last week, Samsung and Apple filed a stipulated dismissal without prejudice of the SEP and FRAND claims and defenses discussed above, which was entered by the court as an order of dismissal on March 9.  According to the stipulation, the parties dismissed these claims in an effort “to further narrow and streamline the trial in [the] matter to avoid overburdening the jury and the court.”  But the dismissal without prejudice does not preclude Samsung from reasserting those patents against Apple in the future.

According to the docket, trial in the matter is set to begin on March 31.

Last week, the Virginia General Assembly joined the state legislatures of Oregon and Vermont by approving legislation designed to protect entities doing business in Virginia from bad faith assertions of patent infringement.  While Virginia lawmakers tout the bill as targeting non-practicing entities (characterized by some as “patent trolls”), the text of the bill appears to be much broader, prohibiting any “person” from making “in bad faith, an assertion of patent infringement.”  The bill also includes a non-exclusive list of activities that “constitute indicia” of bad faith and later provides that the status of the patent owner as a practicing entity or higher education entity is an “indicia” that their demand letter was not in bad faith.

The legislation identifies eight acts that “constitute indicia” of a bad faith assertion of patent infringement:

  • The demand letter does not contain the number of the patent that is asserted, alleged, or claimed to have been infringed, or the name and address of the patent’s owner or owners and assignee or assignees, if any;
  • The person sends a demand letter without first making a reasonable effort under the circumstances to conduct an analysis comparing the claims in the patent to the target’s products, services, and technology, or to identify specific areas in which the products, services, or technology are covered by the claims in the patent;
  • The demand letter does not identify specific areas in which the products, services, and technology are covered by the claims in the patent;
  • The person offers to license the patent for an amount that is not based on a reasonable estimation of the value of a license to the patent;
  • The person making an assertion of patent infringement acts in subjective bad faith, or a reasonable actor in the person’s position would know or reasonably should know that such assertion is baseless;
  • The assertion of patent infringement is deceptive, or the person threatens legal action that cannot legally be taken or that is not intended to be taken;
  • The person or its subsidiaries or affiliates have previously filed or threatened to file one or more lawsuits based on the same or similar assertion of patent infringement, the person attempted to enforce the assertion of patent infringement in litigation, and a court found the assertion to be objectively baseless or imposed sanctions for the assertion; or
  • The patent alleged to be infringed was not in force at the time the allegedly infringing conduct occurred, or the patent claims alleged to be infringed have previously been held to be invalid.

Conversely, the bill provides four non-exlusive instances that “constitute indicia that a person’s assertion of patent infringement was not made in bad faith”:

  • The person engages in a reasonable effort under the circumstances to establish that the target has infringed the patent and to negotiate an appropriate remedy;
  • The person makes a substantial investment in the use of the patent or in the development, production, or sale of a product or item covered by the patent;
  • The person has demonstrated good faith in previous efforts to enforce the patent or a substantially similar patent or successfully enforced the patent, or a substantially similar patent, through litigation; or
  • The person is an institution of higher education or a technology transfer office organization owned by or affiliated with an institution of higher education.

If signed into law by the Governor, the legislation would empower the Virginia Attorney General to bring an action for injunctive relief and civil penalties against “persons” that engage in bad faith assertions of patent infringement against people or entities “residing in, conducting substantial business in, or having [their] principal place of business in” Virginia.

The Nebraska Attorney General has attempted to enforce its general consumer protection and unfair trade practices laws against alleged bad faith assertions of patent infringement.  However, a federal district court recently enjoined the AG from doing so.

At the Federal level, the U.S. House of Representatives passed legislation last year generally directed to perceived patent litigation abuse by certain patent assertion entities.  This bill is being debated by the Senate.  The Federal Trade Commission (FTC) is also considering whether to open an investigation of non-practicing entities, and was recently sued by MPHJ, a patent monetization entity, for threatening an enforcement action against MPHJ premised on MPHJ’s extensive letter campaign to accumulate license fees on its scanner patents.

We will continue to track developments in legistlation and government enforcement actions directed towards non-practicing entities as they unfold.

 

A few weeks ago, the White House Office of Management and Budget’s (OMB)  proposed revisions to Circular A-119 entitled “Federal Participation in the Development and Use of Voluntary Consensus Standards and in Conformity Assessment Activities.”  In this post we provide an overview of OMB’s proposed 60+-page revised Circular A-119.

Last revised in 1998, Circular A-119 provides instructions and information to various federal agencies that are involved or participate in developing and using standards and standardization systems.  OMB proposed revisions to Circular A-119 “in light of changes that have taken place in the world of regulation, standards, and conformity assessment since the Circular was last revised”, under the general goal of promoting economic growth, innovation, and competition in addition to facilitating international trade.

The proposed changes to Circular A-119 fall into four major categories:

  1. SDO (Standards Developing Organizations) Process Related Issues
  2. IPR (Intellectual Property Rights) Related Issues
  3. Conformity Assessment Related Issues
  4. Agency Related Issues

The OMB’s request for comments on the proposed revisions were published in the Federal Register on February 11, 2014, seeking responses by May 12, 2014.

SDO Process Related Issues

Keeping with the current version, the revised circular expresses preference for voluntary consensus standards (VCSs) over standards developed by federal agencies.  The revised circular acknowledges that several types of voluntary standards could be relevant to a federal agency’s mission, including non-consensus standards under certain circumstances, but expresses preference for consensus standards over non-consensus standards where practicable. The proposed revisions also encourage agencies to participate in the activities of intergovernmental organizations and voluntary non-consensus bodies, providing guidance on how Federal representatives should participate in standards development activities.

The revised circular also offers a modified definition of a VCS Development Process as characterized by openness, balance of representation (previously “balance of interest”), due process, an appeals process, and consensus.  During a recent webinar, ANSI noted that, whereas the definitions provided by the original circular were in line with the ANSI Essential Requirements, this may no longer be the case because OMB’s revisions are slightly less inclusive than the Essential Requirements.  In other words, if one complies with the ANSI Essential Requirements, one complies with OMB, though one can comply with OMB and still not comply with ANSI Essential Requirements.

IPR Related Issues

As the 1998 version of Circular A-119 addresses IPR policies only briefly, OMB is seeking public comment on “whether it should consider providing more specific guidance for agencies with respect to intellectual property rights (IPR)-related considerations with regard to standards”. OMB’s current proposal includes the following language:

This evaluation [of using a voluntary standard] should include consideration of the economic effect of the IPR policies of the VCS bodies on standards implementers, such as the extent to which entities practicing the standards may obtain licenses to patented technology incorporated into the standard on a non-discriminatory and reasonable royalty or royalty-fee basis. This evaluation should also include consideration of whether such IPR policies bind subsequent transfers of patented technology incorporated into the standard.

The revised circular also indicates that an SDO’s IPR policies “should be easily accessible and the rules governing the disclosure and licensing of IPR should be clear and unambiguous.”

As noted at pages 5-6 of the proposed revisions, OMB is particularly interested in receiving public comment on whether the circular should provide more specific guidance on IPR-related considerations with respect to standards, including what factors an agency should consider regarding the interests of intellectual property holders whose intellectual property is incorporated in the standard and the interests of parties seeking to implement that standard.

The revised circular also addresses and reaffirms the rights of IP holders whose IP is incorporated into a voluntary standard published in an agency document, indicating federal agencies must observe and protect the underlying intellectual property right and meet all obligations required to comply with the standard.  Where an agency incorporates material that is protected or otherwise not freely available, the revised circular directs agencies to work with relevant standards developers to promote the availability of the materials while respecting the IP owner’s interest in protecting its IP.

Agency Related Issues

The revised circular also provides advice on how federal agencies should participate in standards development, including serving on the board or in a leadership position of a SDO, noting that participation does not equate to endorsement of a particular standard.  The revised circular also advises agencies to ensure timely updating of standards and provides additional guidance on complying with international obligations, indicating the agencies should consult with USTR and State Department on how to comply with international trade (including WTO Agreements) and other international obligations.

 

Yesterday the U.S. International Trade Commission (ITC) issued a Notice that it was terminating the investigation of whether certain LSI 802.11 and H.264 alleged standard essential patents were infringed by Realtek and others given various circumstances that mooted the investigation as to most patents and a finding of no liability for the remaining patent.  In terminating the investigation, the ITC “determined to take no position on the ALJ’s determination with respect to the Respondents’ RAND and equitable defenses.”

The ITC terminated the investigation as to the four patents at issue for different reasons, many not related to the merits:

  • Terminated investigation as to the ‘087 and ‘663 Patents due to settlement.
  • Terminated investigation as to ‘867 Patent because it recently expired and the ITC can only give prospective relief.
  • Terminated investigation as to remaining ‘958 Patent because asserted patent claims were not infringed, the claims were invalid and there was no domestic industry based on LSI’s licensing activities.

Our Oct. 21, 2013 post discussed the ITC’s decision to review ALJ Shaw’s determination in its entirety and had requested briefing on RAND-related issues in the event liability were found.  The ITC sought such RAND-related information given U.S. Trade Representative Froman’s prior disapproval of the Samsung-Apple exclusion order that counseled  the ITC to proactively develope a factual record on RAND issues (see our Aug. 6, 2013 post).  The ITC’s decision to terminate the investigation without addressing the RAND issues is a somewhat anti-climatic end of an investigation in which much ink was spilled (see our various posts on this Inv. No. 337-TA-837).  Whether and to what extent the RAND issue may and will be briefed in any appeal to the Federal Circuit is questionable.  But they will be front and center with any appeal from the parallel district court litigation (though there may be an issue similar to the Microsoft v. Motorola case whether the case premised on breach of RAND obligation should be appealed to the Federal Circuit or regional circuit).

Recall from our Feb. 27, 2014 post last week that the parallel district court case between Realtek and LSI before Judge Whyte led to a jury determined RAND rate for the ‘867 Patent (which the ITC dismissed because it expired) and the ‘958 Patent (which the ITC found not infringed).  The ITC’s decision is not inconsistent with the jury verdict for a few reasons.  First, procedurally, the ITC decision itself is not binding on the district court.  Second and more important substantively and practically, the jury was asked to determine a RAND rate for the two patents without deciding whether the patents were infringed and under the assumption that both patents are essential to the IEEE 802.11 WiFi standard.  The jury’s verdict thus is not inconsistent with the ITC’s determination, which did not decide whether the ‘867 Patent is infringed and found no infringement of the ‘958 Patent (an issue the jury was not asked to decide).

 

Germany’s Mannheim Regional Court announced this morning that Apple did not infringe the IPCom patents alleged to be essential to the 3G/UMTS standard.  As discussed in our February 6, 2013 post, IPCom was seeking over $2 billion from Apple for infringement of European Patent EP1841268 and related German patent DE19910239 alleged to be essential to certain UMTS and LTE wireless standards related to providing priority access channels for emergency calls.  The Court also dismissed the co-pending action against HTC involving the same German patent that had been asserted against Apple.

The ruling relies primarily on the Court’s interpretation of the term “bit” appearing in the claim limitation at issue.  During the February 11, 2014 hearing, the parties submitted claim construction argument focusing on the proper scope and meaning of the term.  Considering the European Patent Office’s decision upholding the patent’s validity, the Court held that the disputed amended claim language must be interpreted literally.  An alternate construction otherwise would eliminate any difference between the scope of the original claim, which used the term “information”, and the amended claim with the more narrow term “bit”.  Under this construction, the Court ruled that Apple (and HTC) did not infringe the asserted patent family and dismissed IPCom’s infringement actions.

IPCom’s Bernhard Frohwitter has previously indicated that IPCom will appeal Apple’s victory on the amended patent.  IPCom also has alleged that Apple may be liable for infringing the original version of the patent.

 

Yesterday, in two separate precedential decisions on mandamus, the Federal Circuit refused to overturn the district courts’ decisions not to transfer patent assertion entity cases to the defendants’ home forum: In re Apple, Misc. 13-156 (mandamus from E.D. Tex.) and In re Barnes Noble, Misc. 13-162 (mandamus from W.D. Tenn.).  Both mandamus orders were decided by the monthly-rotated motions panel at the Federal Circuit comprised in this instance by Judge Reyna who wrote the majority opinions in both cases, Judge Prost who joined those opinions and Judge Newman who dissented.  The decisions provide guidance on the substantial deference the Federal Circuit gives on mandamus review of such decisions as well as evidentiary considerations.

The case also is interesting because a different outcome might have been expected had this issue been decided about six years ago.  At that time, the patent bar had started raising questions about the high number of patent assertion entity patent cases being filed in E.D. Texas.  The Federal Circuit appeared to address that concern by using the exceptional procedure of granting petitions for mandamus to transfer cases out of E.D. Texas (see, e.g., the 2009 In re Genentech decision).  Further, some have indicated that Judge Newman, a well-respected judge on the Federal Circuit, is more inclined to patent owner rights; but in this instance she dissented and would transfer the cases given the practicing entities Apple and Barnes & Noble having more witnesses and documents in their local forum than the non-practicing entity patent owner would have in its chosen forum.

In re Apple.  In February 2012, Apple was sued in E.D. Texas by Core Wireless, a subsidiary of MOSAID based in Plano, Texas.  The patent dispute concerns iPhones and iPads sold by Apple (based in Cupertino, CA) having baseband processing chips supplied by Qualcomm (based in San Diego, CA) and Intel (based in Santa Clara, CA).  The district court denied Apples motion to transfer based on “lack of specificity in Apple’s assertions as to why the transfer factors favored [N.D. Cal.]”, and denied Apple’s request to supplement the record because Apple should have presented that information with its original motion.  Apple then filed with the Federal Circuit petitions for writ of mandamus to instruct the district court to transfer the case to N.D. Cal.

The majority opinion emphasied the tough standard of review that Apple faced on mandamus: “whether there was such a ‘clear abuse of discretion’ that refusing transfer would produce a ‘patently erroneous result'” and “it is clear ‘that the facts and circumstances are without any basis for a judgment of discretion.”  The majority staed that the district court “was stymied in its analysis by Apple’s lack of evidence,” stating:

Specifically, the court noted that it was unable to evaluate the convenience of witnesses in its transfer analysis because of Apple’s failure to identify willing witnesses who would need to travel to the Eastern District of Texas or any third party witnesses not subjecd to the compulsory process of that court.  Similarly, in light of “Apple’s vague assertions and unknown relevance and location of potential sources,” the district court was unable to weigh the relative ease of access to sources of proof factor in its transfer analysis, because th “weighing of this factor would be merely speculative.”

The majority found that “the district court simply determined that the evidence … was so general in nature that the court was unable to evaluate its relevance in the transfer analysis.”  The majority also held that the district court did not abuse its discretion by not permitting Apple to supplement the record where “there was no indication that Apple could not have submitted this information with its motion to transfer.”

The majority distinguished the Federal Circuit’s 2009 decision in In re Genentech that ordered the E.D. Texas court to transfer the case, because that case included evidence of specific witnesses, but this case was too general:

In [In re Genentech], however, the petition identified at least ten specific witnesses in the transferee forum, two of which were attorneys responsible for the prosecution of the patents-in-suit, and at least four additional witnesses with relevant knowledge that were located outside of the original venue but within the transferee venue.  We decline to find that the district court was “patently erroneous” based only on inferences drawn from the number of employees at Apple’s headquarters, which only reflecdts the parties’ relative size and not necessarily the location of potential witnesses–particularly as Apple has not shown that it did not have more granular facts at its disposal to support its original motion.

Judge Newman dissented because, even though Apple may not have identified specific witnesses, “the evidence proffered makes it clear that all relevant Apple witnesses and documents are located in [N.D. Cal.]” and “the suppliers of the accused components are located in California.”  Judge Newman also contrasted local interests of the parties based on their businesses (operating entity compared to non-practicing entity), stating:

Finally, I am struck by how heavily the local interest factor favors the Northern District of California.  Apple is a robust company that supports the local economy of Curpertino, California, employing over 13,000 people.  Core Wireless, on the other hand, is a non-United States corporation with one employee that exists solely to license its patent portfolio.  To carry out this task, Core Wireless employs 6 people through a subsidiary in Plano, Texas.  Apple’s impactd on the local economy in the Northern District of California is clearly much greater than that of Core Wireless in the Eastern District of Texas.

In re Barnes & Noble.  In September 2012, Barnes & Noble was sued in W.D. Tenn. by B.E. Technology (“B.E.”) alleging that Barnes & Noble’s Nook device infringed a B.E. patent.  Martin Hoyle is B.E.’s founder, Chief Executive Officer and named inventor on the asserted patent.  Mr. Hoyle lived in W.D. Tenn. since 2006 and has run B.E. from there since 2008.  Barnes & Noble is a Delaware company headquartered in New York having a Palo Alto, California office where most of its Nook activity takes place.  The district court denied Barnes & Nobles transfer motion because, among other things, Barnes & Noble did not “address[] how many of its employees would be unavailable to testify in Tennessee or why deposition testimony would not suffice in lieu of live testimony if the witnesses were unwilling to travel for trial.”

The majority opinion again started with the high burden of getting reversal on mandamus, stating that the “standard is an exacting one, requiring the petitioner to establish that the district court’s decision amounted to a failure to meaningfully consider the merits of the transfer motion.”  The majority also noted the importance of the regional circuit law at issue in this case as compared to other decisions, indicating that the Fifth Circuit is less deferential to the plaintiff’s chosen forum:

Barnes & Noble cites no Sixth Circuit case that would suggest that the district court erred in requiring it to demonstrate its employees would be unwilling or unable to testify if the case was tried in the Western District of Tennesse. …We note that the dissent relies on a series of cases in which the Federal Circuit reviewed venue transfer under Fifth Circuit law.  Unlike the Sixth Circuit, however, the Fifth Circuit has expressly held that while the transferee venue  must be “clearly more convenient,” district courts err when they require that S 1404(a) factors “must substantially outweigh the plaintiff’s choice of venue.”  The dissent would give the plaintiff’s choice of forum here minimal weight so as not to reward “attempts of plaintiffs that do not practice their patents to rely on mere artificats of litigation.”  But there is no indication on the record that B.E.’s connection to Tennessee was manufactured in anticipation of litigation to make the forum appear convenient. [emphasis in original]

The majority cited to other factors supporting the decision not to transfer, such as the district court’s prior experience and copending cases with the same patent at issue and B.E. and its CEO having evidence in W.D. Tenn. such that its not a case where the district court “has no meaningful connection to the case.”

Similar to her dissent in In re Apple discussed above, Judge Newman contrasted the local interests of the parties given their different business models:

Until just prior to filing this and 19 other pending infringement suits in the same forum, [B.E.] was not registered to do business in the state of Tennessee.  The company is run and operated by the patent owner out of his home.  The plaintiff has no other employees, and does not make, use or sell the patented subject matter in Tennessee or elsewhere.

The defendant Barnes & Noble has a large office in Palo Alto, California, where it employs over 400 people.  The record states that the Barnes & Noble employees that are most knowledgeable about the design, development, and operation of the accused product work in Palo Alto.  The record also states taht substantially all of the documents relating to the development, design, and components of the accused product are located in Barnes & Noble’s Palo Alto office. …  Although Barnes & Noble’s accused product is sold nationwide, the Barnes & Noble evidence relevant to this ltigiation is located in Northern California.

 

Yesterday, the jury in the Realtek v. LSI case before Judge Whyte returned a verdict finding that a RAND royalty for LSI’s two patents alleged essential to IEEE 802.11 WiFi standard would total about 0.19% of the total sales prices of Realtek’s WiFi chips (0.12% for one patent plus 0.07% for the other).  This RAND royalty is reported to be closer to the rate sought by patent owner LSI of 0.29% than the much lower rate sought by putative licensee Realtek of 0.017%.  The Realtek WiFi chip price is not clear from the available filings, but was reported to be $1 to $1.74, which would yield an effective royalty of about 0.19 to 0.33 cents per WiFi chip (the jury had the option to award a royalty per unit or percentage of sales price, and they chose the latter).  The jury also awarded Realtek about $3.8 million for costs in defending against LSI’s attempt to seek an exclusion order in the U.S. International Trade Commission, which Judge Whyte previously held breached LSI’s RAND obligations.

For further background on this jury trial, see our prior posts that outlined key evidentiary rulings by Judge Whyte that framed the issue for the jury (see our Jan. 9, 2014 post and our Nov. 14, 2013 post).

Another Litigated RAND Data Point.  The jury’s verdict in this case provides a fourth data point on a U.S. litigated RAND royalty rate.  To date, we have two judge-determined RAND royalty rates and two jury determined RAND royalty rates, as follows:

  • Judge Robart’s bench trial RAND determination of 3.471 cents per WiFi unit and 0.555 cents per H.264 unit  in Microsoft v. Motorola (W.D. Wash.) (see our Apr. 25, 2013 post and other posts).
  • Jury verdict before Judge Davis determining 15 cents per WiFi chip in Ericsson v. D-Link (E.D. Tex) (see our Aug. 7, 2013 post and other posts)
  • Judge Holderman’s bench trial RAND determination of 9.56 cents per WiFI chip in In re Innovatio Litigation (N.D. Ill.) (see our Oct. 3, 2013 post and other posts).
  • Jury verdict before Judge Whyte determining 0.19% per WiFi chip (about 0.19 to 0.33 cents per chip) in Realtek v. LSI (N.D. Cal.).

Probably too few data points at this point to predict future cases.  The two bench trials (Judge Robart and Judge Holderman) generally have resulted in RAND determinations substantially favoring the putative licensee.  The two jury verdicts (before Judge Davis and Judge Whyte) did not have as adverse results for the patentees, because the determined RAND rates were lower than–but closer to–what the patentees sought at trial.

Jury Instructions.  The jury was instructed to assess the RAND royalty rate by assuming the patents are essential to the standard and without determining whether the patents actually are infringed by Realtek’s WiFi chips: “Whether or not Realtek infringes the two LSI patents is not an issue in this case” and “The determination of a RAND royalty rate also assumes that the two LSI patents are essential to the 802.11 standard.”

The crux of the instructions for the jury to determine a RAND royalty rate is found in Instruction Nos. 12 to 15, reproduced below in their entirety given the importance to putting the jury’s decision in context:

INSTRUCTION NO. 12: RAND DETERMINATION – HYPOTHETICAL NEGOTIATION
     As I previously advised you, one of your tasks is to determine, based upon the evidence presented, the appropriate royalty rate for the ‘958 and ‘867 Patents that LSI needs to offer to Realtek to comply with LSI’s RAND obligations.  Whether or not Realtek infringes the two LSI patents is not an issue in this case.
A royalty is a payment made to a patent holder in exchange for the right to make, use, or sell the claimed invention.  This right is called a “license.”  A “RAND” royalty rate is a reasonable and nondiscriminatory royalty rate.
In determining the RAND royalty rate, you should consider a hypothetical negotiation between Realtek and LSI over a royalty rate for LSI’s two patents.  In considering the nature of this negotiation, you must assume that the patent holder and the licensee would have acted reasonably and would have entered into a license agreement.  The determination of a RAND royalty rate also assumes that the two LSI patents are essential to the 802.11 standard.
For the purposes of this hypothetical negotiation, you should consider all the facts known and available to the parties at the time Realtek first made, used, or sold products using the standard, which was November 2002.  You should not consider LSI’s advantage resulting from the standard’s adoption, if any.  However, you may consider any advantage resulting from the technology’s superiority.  Your role is to determine what the result of the hypothetical negotiation between Realtek and LSI would have been.  You must determine what royalty would have resulted from the hypothetical negotiation and not simply what either party would have preferred.

INSTRUCTION NO. 13: RAND DETERMINATION – TYPES OF ROYALTIES
     A royalty can be calculated in several different ways and it is for you to determine which way is the most appropriate based on the evidence you have heard.  One type of royalty is a percentage royalty, in which the licensee pays the patent holder a certain percentage of its revenue.  Another type of royalty is a per unit royalty, in which the licensee pays the patent holder a predetermined amount of money for each unit the licensee sells.
It is up to you, based on the evidence, to decide what type of royalty is appropriate in this case.

INSTRUCTION NO. 14: RAND DETERMINATION – DETERMINING A RAND ROYALTY RATE
     You should follow the two steps below in determining the RAND royalty rate resulting from the hypothetical negotiation:

(1) Consider the importance of the two LSI patents to the standard as a whole, comparing the technical contribution of the two LSI patents to the technical contributions of other patents essential to the standard.
(2) Consider the contribution of the standard as a whole to the market value of Realtek’s products utilizing the standard.

INSTRUCTION NO. 15: RAND DETERMINATION – CONSIDERATION OF LICENSES
     You may consider other licenses for patents comparable to the two LSI patents.  In determining the comparability of other licenses, you may consider, among others, the following factors:

(1) the patents included in the license agreement,
(2) the date of the license,
(3) any limitations on the use of the licensed technology,
(4) the inclusion of other consideration in the agreement,
(5) whether the license was part of a settlement of litigation or arbitration,
(6) whether the royalty was a lump sum or a running royalty rate, and
(7) opinion testimony of qualified experts.