Judge Gilstrap recently issued an Order rejecting the equitable defense of patent misuse in a case involving standard essential patents (SEPs) subject to a commitment to license them on fair, reasonable and non-discriminatory (FRAND) terms. Motorola Mobility LLC (Motorola) alleged that Saint Lawrence Communications LLC (St. Lawrence or SLC) was guilty of patent misuse by, among other things, requiring Motorola to take a worldwide license to FRAND-committed SEPs, using the threat of injunctive relief in Germany to coerce licensing of those SEPs, entering different license terms with different licensees and not disclosing effective royalties from licensing the SEPs under a patent pool when negotiating individual licenses. This decision is another indication that competition law claims asserted against SEPs may not prevail when patent owners have followed traditional patent enforcement and licensing strategies or even if they breach of a FRAND commitment. Rather, there must be something more egregious or deceptive with the particular patent owner’s conduct at issue to give rise to competition law claims that are required to address harm to competition beyond harm that can be addressed by more traditional patent or contract law remedies — e.g., a contract remedy for breach of a FRAND commitment or limits on patent remedies based on a FRAND commitment. Continue Reading Judge Gilstrap rejects patent misuse defense to alleged FRAND-committed SEPs (St. Lawrence v. Motorola Mobility)
This Wednesday, March 21, from 4pm to 5pm Eastern Time, our own David W. Long will present a free one-hour webinar hosted by the Licensing Executives Society (LES) entitled “What Does U.S. Case Law Currently Tell Us About Standard Essential Patent Licensing.”
The webinar will provide an overview of U.S. case law related to licensing standard essential patents (SEPs) that the patent owner committed to license on fair, reasonable and non-discriminatory terms (FRAND). The discussion will include Judge Selna’s decision in TCL v. Ericsson, which is the most recent U.S. decision setting a FRAND rate for SEPs. (see our Jan. 3, 2017 post and Feb. 13, 2018 post on the decision).
- Understanding how U.S. courts have treated SEPs that the patent owner committed to license on FRAND terms.
- Understanding how to apply existing general patent law to FRAND committed SEPs as we await more FRAND-specific decisions.
- Understanding Judge Selna’s TCL v. Ericsson decision and how that decision may or may not apply to other FRAND situations.
- Understanding differences between litigating FRAND terms and negotiating FRAND terms.
The webinar is free to anyone interested in attending (e.g., you do not need to be a member of LES to attend). Register using this link.
Today, the U.S. International Trade Commission (ITC) issued a Notice of Commission Final Determination following its review of Administrative Law Judge (ALJ) Shaw’s September 2017 rulings concerning, among other things, three patents alleged to be essential to the Linear Tape Open (LTO) 7 standard (LTO-7). (see our Dec. 19, 2017 post summarizing ALJ Shaw’s decision). Specifically, the ITC affirmed ALJ Shaw’s ruling that the ‘612, ‘106 and ‘805 patents are not essential to the LTO-7 Standard (with one caveat):
The Commission has determined to affirm with modification the Final ID’s finding that the asserted claims of the ‘612, 106, and ‘805 patents are not essential to the LTO-7 Standard. In particular, with respect to the ‘106 patent, the Commission has determined not to reach the issue of whether the LTO-7 Standard requires a tape having a magnetic layer that contains an abrasive. The Commission has determined to otherwise adopt the Final ID’s findings that the LTO-7 Standard does not require practice of the asserted claims of the ‘612, 106, and ‘805 Patents. The Commission has determined not to reach any other issues concerning Sony’s essentiality defenses. [Notice at 5]
The last statement about not reaching any of Sony’s essentiality defenses presumably refers to Sony’s breach of contract, patent misuse, implied license, patent exhaustion, and waiver defenses, all of which were premised on the patent claims being essential to the LTO-7 standard.
The ITC further found that there was no violation of those patents, because they were not infringed or were invalid. The ITC did decide there was a violation regarding another patent at issue in the investigation: the ‘891 Patent, which was not alleged to be essential to a standard. The ITC issued a limited exclusion order and cease/desist order based on infringement of that ‘891 Patent.
Magistrate Judge Fallon recently Recommended Dismissing competition law counterclaims brought by TCT Mobile (TCT) against Godo Kaisha IP Bridge 1 (IP Bridge) and Panasonic and Judge Bataillon has now Adopted that ruling. Those counterclaims were based on alleged improper conduct relating to standard essential patents (SEPs) on European Telecommunications Standards Institute (ETSI) 2G, 3G and 4G wireless standards that IP Bridge acquired from Panasonic after those standards were adopted. While the standards were under development, Panasonic had committed to license the SEPs on fair, reasonable and non-discriminatory (FRAND) terms. TCT’s competition law counterclaims generally concerned allegations that:
- Panasonic made FRAND commitments it did not intend to keep in order to induce the standards body to keep Panasonic’s technology in the standards;
- After the standards were adopted, Panasonic transferred the patents to IP Bridge which offered to license the patents on terms that were not FRAND and
- There was some type of improper concerted action between Panasonic and IP Bridge (this aspect is fairly redacted and unclear).
This case presents an interesting nuance of competition claims against a party (IP Bridge) that acquired SEPs from an original owner (Panasonic) who made a FRAND commitment. In this case, TCT alleged that something about the transfer of the patents to IP Bridge was meant to circumvent Panasonic’s FRAND commitment (but the details of those allegations are redacted in the public court documents).
This case also indicates that an antitrust injury-in-fact cannot arise solely from a patent owner filing an infringement lawsuit on FRAND-committed SEPs. That’s because a successful FRAND defense by the accused infringer will lead to remedies consistent with the FRAND commitment and, in any event, any relief ultimately granted by the court would be lawful.
The decision also has a unique procedural posture. This is a decision by a magistrate judge that recommends to the presiding district court judge how to rule on the issue. Such magistrate judge recommendations are common in patent cases. The presiding district court judge usually adopts a magistrate judge’s recommendation, but is not required to do so. So we will await the district court judge’s decision whether to adopt Judge Fallon’s recommendation here.
Further, this decision concerns a Rule 12(b)(6) motion to dismiss causes of action based on the initial pleadings. Such motions are difficult to win because of the tremendous deference the court must give to the challenged pleading — e.g., the court considers whether TCT states a “plausible” claim if the court assumes (without deciding) that all factual allegations TCT raises are true and draws all reasonable inferences in TCT’s favor. And courts are even more reluctant to grant a Rule 12(b)(6) motion against competition law claims, which may be factually complex and require information in the hands of the alleged wrong-doer that can be obtained only in discovery. In this case, however, TCT apparently had almost a year of discovery and two attempts to plead its competition law claims, which may have provided the court more comfort in its dispositive ruling here. Continue Reading Magistrate Judge Fallon recommends dismissing competition claims against SEP holder (Godo Kaisha IP Bridge v. TCL et al)
Yesterday, the U.S. Department of Justice (DOJ) Assistant Attorney General (AAG) for the Antitrust Division Makan Delrahim spoke in Brussels about maintaining a close working relationship and coordination with European Union’s Directorate General for Competition (DG Competition) in competition law enforcement. AAG Delrahim’s remarks included suggestion that the European competition authorities shift toward the more balanced approach to standard essential patents (SEPs) that he recently articulated for the U.S. (See our Dec. 20, 2017 post on AAG Delrahim’s remarks on shift in U.S. DOJ’s SEP enforcement approach). Some key points in AAG Delrahim’s remarks include:
- “I believe that strong protection of these [IP] rights drives innovation incentives, which in turn drive a successful economy.”
- “I worry that we have strayed too far in the direction of accommodating the concerns of technology licensees who participate in standard setting bodies, very likely at the risk of undermining incentives for the creation of new and innovative technologies.”
- The tension between innovators and implementers “is best resolved through free market competition and bargaining. And that bargaining process works best when standard setting bodies respect intellectual property rights … including the very important right to exclude.”
- If a patent owner violates a standard-setting commitment, “remedies under contract law, rather than antitrust remedies, are more appropriate to address licensee’s concerns.”
Below is a a complete excerpt of AAG Delrahim’s remarks in Brussels with respect to intellectual property and SEPs: Continue Reading U.S. DOJ Antitrust Head Makan Delrahim brings his message of balanced SEP competition law enforcement to Europe
Today, Judge Selna issued on Order ruling on Ericsson’s motion to alter or amend his FRAND ruling. (See our Jan. 3, 2018 post summarizing FRAND royalty ruling). Under the procedural posture of the Rule 52(b) motion for seeking modification of a judge’s bench trial findings of fact and law, Ericsson had to show that its proposed changes to that ruling were needed “to correct manifest errors of law or fact or to address newly discovered evidence or controlling law” or were not changes that “would not affect the outcome of the case or are immaterial to the court’s conclusions.” (Order at 2). Given this difficult standard, Judge Selna only agreed to make minor word changes to his decision, which he will soon reissue with other clerical corrections and some corrections to be made based on TCL’s Rule 52(b) motions (which were also apparently minor changes). To be clear: by “minor changes” we mean as far as significance in applying the decision to other cases between other parties; we could be mistaken and, moreover, have no comment on how significant the changes may be to the instant parties in this particular case. The next substantive step in this case will be the Federal Circuit appeal that Ericsson already filed, but that has been stayed pending the outcome of the parties’ Rule 52(b) motions. Continue Reading Judge Selna will make minor changes to FRAND ruling (TCL v. Ericsson)
The Federal Circuit’s recent Exmark v. Briggs-Stratton decision further confirms that there is no categorical rule about selecting a royalty base when litigating a reasonable royalty in order to apportion value to the patented invention, but that “apportionment can be addressed in a variety of ways … [s]o long as [the patent owner] adequately and reliably apportions between the improved and conventional features” of the accused product. Thus, in this case, the Federal Circuit ruled that the patent owner properly could use the entire lawn mower as the royalty base and was not limited to the innovative baffle component of the lawn mower as a royalty base. This case continues the clarification made in the Federal Circuit’s CSIRO decision involving standard essential patents that recognized that “adaptability [in determining patent damages] is necessary because different cases present different facts” and rejected as “untenable” the argument that every damages model must start with the smallest salable patent practicing unit (SSPPU) (see our Dec. 3, 2015 post).
A persistent dispute in the standard essential patent (SEP) community is whether a patent owner may license its SEPs based on the sales price of the end product or if the patent owner must license its SEPs based on the sales price of a component within that end product (e.g., the smallest salable patent practicing unit or SSPPU). The Federal Circuit’s Ericsson v. D-Link decision explained that the SSPPU theory was based on an evidentiary principle to avoid confusing jury’s in U.S. patent damages litigation (see our December 5, 2014 post). Yet some continued to claim that the SSPPU principle was a substantive rule of law required in all circumstances, including outside of litigation in private negotiations for SEP licenses. The Federal Circuit’s CSIRO decision later held it was “untenable” to argue that all damages methodologies must start with the SSPPU (see our December 3, 2015 post). Yet the debate somehow continued. The Federal Circuit’s Exmark decision here may finally settle and dispel arguments that the royalty base cannot be the end product, but must be the SSPPU. But we will see … Continue Reading Federal Circuit confirms flexibility in determining royalty base (Exmark v. Briggs & Stratton)
Judge James V. Selna of the Central District of California (“C.D. Cal.”) recently released the redacted, 115-page public version of his Memo of Facts and Law with his FRAND determination in the TCL v. Ericsson SEP dispute concerning 2G, 3G and 4G cellular technology in the European Telecommunications Standards Institute (“ETSI”) standards along with his Final Judgment And Injunction, which injunction has detailed terms like one would find in a licensing agreement.
Judge Selna ultimately ruled that Ericsson’s licensing conduct did not breach its FRAND commitment, but that Ericsson’s proposed licensing terms were not FRAND. Judge Selna rejected the FRAND methodologies and resulting FRAND royalty rates proposed by both TCL and Ericsson. Judge Selna did his own FRAND methodology based on the methods and evidence presented by the parties, following mainly a modified version of a “top down” approach proposed by TCL. The FRAND rates determined by Judge Selna fell about half-way between TCL and Ericsson’s proposals, though direct comparison is difficult. For example, for Ericsson’s 4G SEPs, the royalty rates from the parties and court varied as to scope (e.g., blended global rate versus regional rate) and required some conversion to compare (e.g., Judge Selna computed an effective “unpacked” royalty that accounted for lump-sum payments and royalty floors in Ericsson’s offers):
4G SEP Royalty Rate
|TCL’s Proposed 4G Global Rate||0.16% (Blended global rate)|
|Court’s 4G Rates (by region)||0.450% (U.S.)
0.314% (Rest of World; No 4G Sales in Europe)
|Ericsson Effective U.S. 4G Rates
(Court calculated from Option A and B offers)
|1.074% (Option A Effective U.S. Rate) or
1.988% (Option B Effective U.S. Rate)
We provide below a bullet-list summary of some key points from the decision as well as a (rather lengthy) detailed discussion of Judge Selna’s decision. We consider this an important decision to read, and encourage you to do so, because it is one of the few decisions that describe a court’s analysis in determining a disputed FRAND royalty. But we also believe this case provides only incremental development of the case law itself given the highly factual nature of the decision in this still developing area of law. Judge Selna acknowledged that trying to obtain “precision and absolute certainty” here was a “doomed undertaking.” In other words: Learn from this decision, but do not assume it represents a definitive proper FRAND analysis and is representative of a FRAND royalty for all FRAND cases. Its one step in a continuing journey … Continue Reading Judge Selna determines FRAND Rate and enters contract-type injunction on ETSI SEPs (TCL v. Ericsson)
European and U.S. competition authorities may be making a course correction toward a more balanced approach to standard essential patents (“SEPs”) following contemporary enforcement activity that had favored implementers over patent holders.
Specifically, recent remarks by the new administration’s U.S. Department of Justice (“DOJ”) antitrust head explained that patent hold-up by patent owners may not be as big an issue as some had suggested and that patent hold-out by implementers may be a bigger concern. Indeed, he expressed concern about improper collusion among implementers within standard setting organizations (“SSOs”) to enact intellectual property rights (“IPR”) policies that unduly devalue patents and undermine innovation. These remarks from the new administration has caused many to question the viability of the IEEE ‘s 2015 IPR Policy change that was perceived as very implementer oriented, but not challenged by the prior DOJ administration. (See our Feb. 5, 2015 Post about the prior DOJ administration’s business review letter on the IEEE policy change).
Further, the European Commission (“EC”) recently issued non-binding guidance for SEPs that did not suggest bright line rules urged by implementers for negotiating SEP FRAND licenses–e.g., did not suggest component-level licensing and royalty base, rather than end product level—and reflects a balanced approach more consistent with long-standing industry custom and practice in implementing FRAND licensing commitments.
We provide a summary of these statements, but encourage you to read the DOJ remarks and EC guidance directly for yourself (they are not long), which may allow you to detect and avoid interpretive spin from those entrenched on either side of the issues. For example, some have suggested that the EC guidelines support licensing at the component level; but that’s not what the EC guidelines actually say and its been reported that the EC intentionally declined to suggest component-level licensing in these guidelines. Continue Reading U.S. and EU competition authorities may take a more balanced approach to SEPs
The U.S. International Trade Commission (“ITC”) recently gave Notice that it will review some parts of the September 2017 Initial Determination and Recommended Determination on remedy by administrative law judge (“ALJ”) Shaw concerning patents alleged to be essential to the LTO Consortium’s Linear Tape Open (“LTO”) standard for high-capacity, single-reel magnetic tape storage.
In September, ALJ Shaw found that the claims of one patent alleged to be essential to the LTO-7 Standard were valid and infringed, but that claims of two other alleged essential patents were not infringed. He found that none of the asserted patent claims were essential to the LTO-7 Standard. He also rejected Sony’s defenses that Fujifilm had breached an agreement with the LTO Consortium to license its essential patents to third-parties like Sony. Based on those rulings, ALJ Shaw further recommended that a limited exclusion order should be entered and that Sony’s public interest arguments about the claims being essential to the LTO-7 standard did not require tailoring or curbing such an exclusion order.
The ITC full Commission has now decided to review part of ALJ Shaw’s liability determination, including issues about whether the alleged essential patents are infringed, valid or essential to the LTO-7 Standard. Further, the Commission will consider the form of any exclusionary relief, including whether and to what extent public interests — such as Sony’s essentiality claim — counsel against or limit an exclusion order. The parties and public may file initial written submissions on exclusionary relief and the public interest by December 27, 2017; reply written submissions must be filed by January 5, 2018.
We summarize the decision below on the standard essential patent (“SEP”) issues. We also discuss an Order Denying Preliminary Injunction entered a few weeks after ALJ Shaw’s decision here where Judge Gardephe in the Southern District of New York denied Sony’s motion to enjoin Fujifilm from continuing this ITC litigation. Judge Gardephe’s decision provides more unredacted insight into the alleged LTO-7 licensing commitment at issue. For example, Judge Gardephe’s decision indicates that the licensing commitment at issue was not a FRAND commitment, but apparently a commitment to enter nondiscriminatory licenses under Fujifilm’s standard licensing terms. Further, the licensing commitment concerned essential patent claims, defined as claims “which must of necessity be practiced for compliance with the LTO7 Format.” Continue Reading ITC to consider ALJ’s decision and recommended exclusion order on alleged SEPs that ALJ found were not essential to the LTO-7 standard (337-TA-1012 Fujifilm v. Sony)