Since Judge Holderman’s September 27, 2013 order setting a RAND rate in the sprawling Innovatio WiFi litigation (see our October 3 post), two of the five major device manufacturers involved in the case have settled-out.  Motorola settled with Innovatio after a November 22nd settlement conference and was dismissed on December 17th.  Less than a week later, SonicWall was dismissed based on a settlement agreement.  The remaining manufacturers, Cisco, Netgear, and HP, continue to defend against Innovatio’s infringement claims along with the plethora of wireless-network-user defendants, including various coffee shops, hotels, restaurants, supermarkets, large retailers, and transportation companies.  A status hearing before Magistrate Judge Schenkier has been scheduled for January 9, 2014.

Recall that Rockstar started asserting patents it acquired from Nortel by filing a lawsuit in E.D. Tex. on Halloween against Google and certain Android handset manufacturers (see our Nov. post that also summarizes Rockstar’s acquisition of Nortel’s patents).  On Christmas Eve, Google responded by filing a Complaint in N.D. Cal. seeking a declaratory judgment that the patents asserted against Android handsets are not infringed.  On New Year’s Eve, Rockstar responded by filing an Amended Complaint against Samsung that adds Google as a co-defendant based on Google’s Nexus line of handsets manufactured by Samsung.

Rockstar’s lawsuits against Google and Android manufacturers were principally brought by Rockstar and its subsidiaries to whom Rockstar transferred small groupings of its patents — i.e., Netstar Technologies LLC (for patents raised against Google’s search technology in one E.D. Tex. action) and Mobilestar Technologies LLC (for the other E.D. Tex. actions raised against Android manufacturers and now Google).  Rockstar’s fractionalization of the large Nortel portfolio into small groupings also is evident from other recent Rockstar lawsuits.  For example, Rockstar transferred some patents to an entity named Bockstar Technologies LLC that filed a Complaint against Cisco in D. Del on Dec. 11.  And Rockstar transferred other patents to an entity named Constellation Technologies LLC that filed on Dec. 11 a Complaint against cable operator Time Warner Cable and another Complaint against cable operator Windstream in E.D. Tex.

Rockstar also reportedly transferred patents to some of its stakeholders, such as Apple.  And Rockstar has sold some patents to other entities — e.g., sale to Spherix in July — and is seeking to sell others.  Earlier this year it was rumored that BlackBerry was seeking to sell its stake in Rockstar and current rumors in the past week or so are that Rockstar is seeking to sell most of its portfolio (but not patents in the current litigation).  At least some of the patents identified for sale appear to be subject to specific licensing commitments that prior owner Nortel made to standard setting organizations such as IEEE or IETF.

The Rockstar saga is a fascinating one we’ve been following for many reasons, including the standard essential patent issues and other issues currently receiving significant attention in the patent bar:

  • Non-practicing, non-innovating patent monetization entities
  • RAND and other licensing rights surviving purchase from bankruptcy or transfer
  • Standard essential patents that may be subject to standard setting licensing obligations and those that may not
  • Fractionalized dispersing of a large patent portfolio

We will continue to watch things unfold and keep you posted.

Earlier this month, we posted about the Innovation Act passed by the House of Representatives, a bill intended to regulate perceived abusive patent litigation tactics by certain patent assertion entities (what some refer to as “patent trolls”).  Last week, the Senate debated the merits of the bill as well as a competing bill proposed by Senator Leahy of Vermont.

Some of the measures that have been proposed to remedy alleged patent litigation abuse are heightened pleading requirements, limitations on discovery, and a stay of infringement litigation against end users to permit the manufacturer of the accused product or method to defend against the patent holder’s allegations.  Another proposed measure would grant the Federal Trade Commission authority to regulate unfair licensing demands.

During the hearing, some Senators expressed concern that Congress was moving too quickly before investigating all of the facts.  One Senator commented that Congress spent six years deliberating the America Invents Act prior to passing it.  Congress can afford to spend a few more months hearing from witnesses who will be impacted by a bill designed to reduce patent litigation abuses prior to passing any legislation.

Another Senator commented that the Innovation Act passed by the House may be “overkill” while another expressed hesitation over any bill designed to limit or restrict any party’s access to the judicial system.

On the other side, several witnesses and Senators requested that Congress move quickly to pass legislation that will reduce alleged abusive litigaiton behavior by certain non-practicing entities.

The Senate will continue debating the Innovation Act to determine whether they will approve it or propose a compromise bill which will then go to Committee with the House.

We will continue to track the debate as it unfolds.

 

 

 

 

 

 

On Dec. 19, the U.S. International Trade Commission (ITC) ruled that Huawei, Nokia and ZTE did not infringe any valid Interdigital alleged 3G patents and, therefore, did not rule on RAND or public interest issues in that investigation (discussed in our prior post).  The ITC is reserving those issues for consideration in due course given the continued investigation of LG on those patents (recall that the ITC had dismissed LG from the investigation due to an arbitration agreement, but that decision was reversed and remanded by the Federal Circuit).

Last week, on Dec. 20, the Institute of Electrical and Electronics Engineers, Inc. (IEEE) filed an amicus brief (not supporting any side) in the appeals to the Federal Circuit from the jury award and RAND rulings by Judge Leonard Davis in E.D. Tex. concerning three of Ericsson’s 802.11 Wi-Fi patents.  Our August post discussed the pre-appeal status of the case and Judge Davis’ approach to RAND that diverged somewhat from Judge Robart’s RAND decision in the Microsoft v. Motorola case (also currently on appeal — but not yet sure where).

The IEEE’s 25-page amicus brief provides a good overview of its standard-setting process (pages 4-11) and intellectual property rights (IPR) policies (pages 12-16) with links to additional sources from its website.  IEEE has one of the more advanced IPR policies for a standard setting organization (SSO) and is worth reading for those not familiar with IEEE’s process and IPR policies.  Of course, do so with the understanding that this represents IEEE’s approach and, as IEEE explains, “[e]ach SDO [a.k.a. SSO] is governed by its own distinct set of rules and policies.”

The IEEE also makes several policy statements regarding standard essential patent (SEP) hot-topics.

Patent Hold-Up.  IEEE considers patent commitments, like its Letters of Assurance (LOAs), as the vehicle for “protect[ing] implementers of a standard against patent hold-up.”  IEEE adopts a sunk-costs/switching costs definition of patent hold-up from the 2007 U.S. Dept. of Justice and U.S. Federal Trade Commision report, stating:

Hold-up can be defined as the ability of the owner of patented technology to extract higher royalties “after its technology has been chosen by the SSO as a standard and others have incurred sunk costs which effectively increase the relative cost of switching to an alternative standard.”

IEEE notes that the RAND commitment (reasonable and non-discriminatory licensing terms) addresses patent holdup, but the term “reasonable … is inhereintly vague, and the ability of patent commitments to protect against hold-up is thus imperfect.”  That vagueness may lead to litigation.  IEEE raises the potential that the vagueness “can lead to higher royalty payments”, but does not provide any quantifying data (note that in this case Judge Davis ruled there was no evidence of “actual hold-up or royalty stacking”).  Further, IEEE explained that it seeks to remain neutral and “does not involve itself in license negotiations between implementers and patent-holders and does not make determinations of whether a particular royalty rate (or other license terms and conditions) is or is not reasonable.”

Irrevocable Committment/Binding on Successors.  IEEE stresses that “[a] patent commitment must be durable for the standards development process to function” and, thus, IEEE rules require a patent commitment to be “irrevocable once submitted and accepted.”  Otherwise, “the reneging patent-holder would be able to extract monopoly profits from all implementers.”  For similar reasons, the commitment should survive transfer of patent ownership because “[f]rom the perspective of [SSOs] and would-be implementers of the standard, what matters is not the identity of the patent-holder, but the continuing validity of the commitment after transfer.”  Otherwise, “‘[p]atent laundering’ would confer on the successor the ability to extract supra-competitive royalties.”

Implementers Enforce Commitments.  IEEE stresses that allowing implementers to enforce patent commitments made to SSOs “is critical” to ensure compliance with the commitment and provide remedy for its breach — such implementer rights “ought to be unquestionable.”  IEEE deems this is important because SSOs may avoid a direct role in enforcing patent commitments where (1) SSOs want to avoid enforcement action costs, (2) technical knowledge about the standard and essentiality resides in SSO’s members and not the SSO itself, and (3) SSO enforcement would diminish the SSO’s ability “to remain a neutral forum.”

A few weeks ago, we posted about ViewSonic’s FRAND-related counterclaims against Zenith, Panasonic and Philips (collectively, “Manufacturing Plaintiffs”), as well as its FRAND-related Third-Party claim against MPEG LA.  On Monday, December 16, the Manufacturing Plaintiffs and third-party MPEG LA filed a motion to dismiss with prejudice ViewSonic’s FRAND-related counterclaims for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

Sherman Act Section 2 Claim. The Manufacturing Plaintiffs assert that, to state a viable monopolization claim under Section 2 of the Sherman Act, ViewSonic must allege facts showing that each Manufacturing Plaintiff has monopoly power in the relevant market for ATSC compatible televisions. However, “[t]he only allegation of monopoly power . . . is [that] ‘ViewSonic is informed and believes … that Manufacturing Plaintiffs and the other manufacturing members of the ATSC Pool have market power in the relevant market, as together they account for a large percentage of the televisions sold in the United States.”  The Manufacturing Plaintiffs argue that, not only is this allegation conclusory and bereft of any factual heft, it is not even directed at each Manufacturing Plaintiffs’ individual alleged monopoly power.

The Manufacturing Plaintiffs also argue that ViewSonic’s monopoly counterclaim fails because it does not plead facts showing that the allegedly deceptive FRAND commitments made by the Manufacturing Plaintiffs to the ATSC constitutes the exclusory conduct required to state a Section 2 claim. “[A] deceptive FRAND commitment constitutes ‘exclusionary conduct’ only when the standard setting organization (‘SSO’) relied on that deceptive FRAND commitment to choose that technology over competing alternative technologies that were under consideration – which ViewSonic does not allege was the case here.”  Indeed, ViewSonic’s                “[c]ounterclaim contains no facts regarding Zenith’s and Philips’ alleged statements to the SSOs,” let alone whether those alleged statements were deceptive.

Finally, the Manufacturing Plaintiffs argue that ViewSonic fails to plead the requisite element of antitrust injury to participants in the relevant market.  “[T]he Counterclaim does not identify any TV competitors that have been excluded” from the market.  “As the Counterclaim concedes, a license for more than 100 essential patents in the ATSC Standard is available to anyone and everyone for $5 per ATSC compatible TV.” ViewSonic has simply refused to “enter into a pool license.”  In fact, ViewSonic admits that it has not been excluded from selling ATSC compatible TVs.  “ViewSonic concedes that it has been manufacturing and selling ATSC compatible TVs presumably at a cost advantage over its competitors who, unlike ViewSonic, have paid for a license for the IP utilized in their products.”

Sherman Act Section 1 Claim.  The Manufacturing Plaintiffs argue that ViewSonic’s conspiracy claim fails because it contains no “factual allegations supporting its claims that Zenith, Panasonic, Philips and MPEG LA agreed to limit ViewSonic’s access to ATSC licenses at FRAND rates.”  “[T]he Counterclaim avers no allegations of conversations between and among the allegedly colluding parties or where or when they took place.”  “These same defects taint ViewSonic’s claims that Zenith, Panasonic and Philips agreed not to license on FRAND terms, to demand unreasonable royalties, refuse to offer individual licenses on the patents at issue, and demand a license for patents despite failing to demonstrate essentiality.”

The Manufacturing Plaintiffs also argue that “the alleged conspiracy to fix prices for ATSC compatible TVs is simply implausible.” This is because the Manufacturing Plaintiffs constitute only three of the “multitude of manufacturers” that make ATSC compatible TVs.  “Absent the participation of virtually all of the TV manufacturers, Zenith, Panasonic and Philips could not feasibly fix prices as they would be undersold by the companies who were not party to the conspiracy.”

MPEG LA argues that the Section 1 claim against it should be dismissed because, as ViewSonic concedes, “MPEG LA is not a ‘horizontal competitor’ in the relevant ATSC compatible TV market, but rather a licensing administrator ‘acting on behalf of each of the Counter-Defendants’ solely in that capacity.”

Finally, the Manufacturing Plaintiffs argue that ViewSonic cannot, as a matter of law, plead that it has suffered antitrust injury as a result of the alleged conspiracy because ViewSonic is a horizontal competitor of the Manufacturing Plaintiffs. “[A] competitor who is not part of the price-fixing conspiracy can undersell the ‘fixed’ price, and thus is ‘benefited,’ not ‘injured,’ by the alleged illegal price-fixing.” That is what ViewSonic is doing here: “[b]y refusing to enter into a license, but continuing to sell ATSC compatible TVs, ViewSonic is able to undercut its competitors who pay royalties for the ATSC Standard IP in their products.”

FRAND Breach Claim.  ViewSonic’s counterclaim for alleged breach of the Manufacturing Plaintiffs’ FRAND obligations should be dismissed because ViewSonic has not alleged that they have failed to offer it a license: “ViewSonic simply does not like the offer terms.”  In fact, Viewsonic is trying to “obtain a rate that discriminates in its favor” when compared to the license fee paid by other licensees to the MPEG LA pool. “This is an argument properly left for the jury which will assess Plaintiffs’ reasonable royalty damages when ViewSonic’s patent infringement defenses fail.”  In other words, ViewSonic’s FRAND-related arguments are “a defense to the amount of damages it owes the Plaintiffs,” not a “standalone cause of action sounding in contract.”

The Manufacturing Plaintiffs also assert that ViewSonic’s breach claim fails because it does not allege facts demonstrating that ViewSonic is a third-party beneficiary of the Manufacturing Plaintiffs’ alleged commitments to the ATSC.  “ViewSonic makes no supporting allegations that it is” a member of ATSC “with standing to enforce” the alleged contract between the Manufacturing Plaintiffs and the ATSC.  ViewSonic has only conclusorily alleged that it is a beneficiary.

ViewSonic’s claim that the Manufacturing Plaintiffs breached their FRAND obligations by refusing to offer an individual patent license (as opposed to a license to the entire MPEG LA pool) fails to state a claim because ViewSonic “does not specify which Manufacturing Plaintiffs supposedly failed to offer individual licenses, instead only averring that ‘some’ have not.”  The Manufacturing Plaintiffs’ alleged failure to offer individual licenses or take into consideration that patents in the ATSC Pool will soon expire, and alleged inclusion of nonessential and foreign patents in their license offers has “nothing to do with any obligation alleged to have been part of the purported contractual commitment to [ATSC to] license essential ATSC patents on FRAND terms.” “In the absence of such supporting facts, these allegations cannot plausibly be enforced as the basis for a breach of contract claim independently of the reasonable royalty determination at issue in [the Manufacturing] Plaintiffs’ infringement action.”

Finally, ViewSonic fails to plead facts showing that it has suffered breach of contract damages. “A disagreement over the ultimate [FRAND royalty] rate does not state a claim for contract damages” and “ViewSonic cannot make out a breach of contract based on a purported obligation to offer a specific FRAND rate that ultimately turns out to be the correct rate after trial.” Specifically,

“ViewSonic fails to point to anything in any contractual commitment or otherwise that plausibly supports imposing what would effectively be a fundamentally unfair penalty on an essential patent holder if an infringer disagrees that the FRAND rate is fair and reasonable and the jury awards a different rate than what the essential patent holder offered after infringement is proven.”

“This is particularly true here, where ViewSonic is attempting to dispute infringement and validity, and has not indicated it will agree to take a license at a rate set by the Court or jury, leaving [the Manufacturing] Plaintiffs no choice but to assert infringement claims.”  The appropriate FRAND rate will be determined by the jury if it concludes that ViewSonic infringes, but that amount does not constitute breach of contract damages for ViewSonic.

Promissory Estoppel Claim.  As with ViewSonic’s breach of FRAND claim, the Manufacturing Plaintiffs argue that ViewSonic’s promissory estoppel claim fails because it does not specifically identify what FRAND promises were made by which Manufacturing Plaintiff, when they were made, and to whom they were made.  Finally, the Manufacturing Plaintiffs argue that ViewSonic’s promissory estoppel claim should be dismissed because it fails to plead facts showing that they justifiably relied upon the alleged promises in manufacturing ATSC compatible TVs.  Indeed, ViewSonic asserts that it had no knowledge of the alleged SEPs, but then also claims that it received offers to license those patents.

What’s Next?

ViewSonic will have to either oppose the motion to dismiss or attempt to amend its counterclaim in an effort to remedy the alleged deficiencies identified in the motion.

 

Last week Microsoft filed a reply supporting its motion to transfer to the Ninth Circuit Motorola’s appeal of Judge Robart’s RAND ruling (see our prior posts on Microsoft’s motion and Motorola’s opposition).  Microsoft argues that the Ninth Circuit has appellate jurisdiction under law of the case, because issues of the contract action being consolidated with a patent action and the district court assessing a RAND royalty rate were considered by the Ninth Circuit when it accepted jurisdiction of Motorola’s prior appeal of Judge Robart’s order that precluded Motorola from seeking any injunction on its standard essential patents at issue in the case.

RAND Not Patent Damages.  Microsoft also argues that the RAND determination was deciding contract damages, not patent damages under Section 284, stating:

Nor does a supposed need for “[u]niformity among courts in different circuits as to how to calculate the royalty rate for standard-essential patents’ give rise to jurisdiction.  A contractual RAND royalty does not reflect “damages adequate to compensate” a standard-essential patent holder for any “use made” of an invention by implementers of the standard, 35 U.S.C. S 284–it is determined rather by the patentee’s particular contractual commitment (which may be, as here, worldwide and involve non-U.S. patents), to a particular standard-setting organization, as part of a particular technical standard.

Claim Scope.  Microsoft also challenges whether Judge Robart used patent law to determine the claim scope in determining the RAND rate, because “the RAND order itself … treats Motorola’s patents as essential to the standards even though ‘none of the terms comprising the claims … have been construed by the court.'”

Last week Administrative Law Judge (ALJ) Gildea granted Adaptix’s motion to withdraw its Complaint and investigation of Ericsson’s alleged infringement of patents alleged to cover LTE standards used by Ericsson’s base stations (see our prior posts discussing Adaptix’s motion and Ericsson’s response).

ALJ Gildea’s ruling was short and succinct, noting–but not opining on–Ericsson’s assertion that Adaptix was ending this case to avoid a sanction motion.  Thus ends the U.S. ITC dispute between the parties on this patent, with ALJ Gildea apparently sharing our prior speculation about what may occur since this dismissal does not resolve the parties’ dispute (e.g., current case pending in E.D. Tex.):

The Administrative Law Judge does note, however, that termination here will not involve resolution of the overall dispute between the parties, and should Complainant [Adaptix] file again on the same facts (see Mot. Mem. at 2), there is the danger of duplicated expenditure of public and private resources, not to mention other concerns, some of which are outlined in Respondents’ response to the motion.  The Administrative Law Judge finds, however, that these concerns should not be a bar to termination now, but should instead be addressed by the Commission or the presiding administrative law judge, as may be appropriate, should Complainant later file an additional complaint against Respondents [Ericsson] on the same operative facts.

We recently posted about defendant ViewSonic’s Answer in Zenith Elec. v. Viewsonic, which Answer included FRAND-related affirmative defenses and counterclaims against plaintiffs Zenith, Panasonic and Philips, as well as a FRAND-related Third-Party claim against MPEG LA.  On Monday, December 2, Curtis filed a motion to bifurcate the trial in the related case brought by Zenith against it, requesting that the court try the issues of infringement and validity prior to trying Curtis’ FRAND-related defenses and counterclaims.

Prevent Juror Confusion:  Curtis argues that, absent bifurcation, there is a significant risk that the jury will be confused by the many issues faced:

track various infringement and validity issues at a patent-by-patent (and claim-by-claim) level, while considering complex damages issues that cover multiple patents and accused products, and while considering defenses and counterclaims—including exhaustion and the plaintiffs’ FRAND violations—that span the entire case and invoke entirely different legal principals.

Bifurcation will avoid confusion, streamline the evidence and  “permit the jury to focus on discrete issues, and avoid prejudice.”

Prevent Prejudice to Curtis:  Curtis argues it would be prejudiced without bifurcation, because “the jury will be asked to consider Curtis’ non-infringement and invalidity claims while weighing the fairness/reasonableness of the parties’ licensing efforts—the ‘F’ and ‘R’ in FRAND,” the latter of which, according to Curtis, are protected by Federal Rule of Evidence 408 “and should not be used to support plaintiffs’ infringement claims.”

No Prejudice to Zenith/Efficiency:  Finally, Curtis argues that bifurcation will not prejudice Zenith and will result in efficiencies. “Curtis proposes to conduct phase two of the trial before the same jury that will hear phase one” and “submits that the two weeks currently allotted for trial provides adequate time to accommodate both phases, and that the efficiencies attendant to bifurcation will help all parties address issues in a more efficient manner.”

Bifurcation of FRAND-related issues from infringement and validity issues has been considered by other courts as well. As we discussed in a prior post, the parties in In re Innovatio IP Ventures before Judge Holderman agreed to waive their rights to a jury trial on damages in order to have a bench trial to determine a RAND-rate which would, in turn, allow the parties to assess early settlement without first going through what they considered to be the expense of a liability trial on infringement and validity.  Similarly, in Interdigital v. Huawei, the defendants sought to expedite trial on their declaratory judgment for a RAND-rate, but the Court denied the request, holding that trying that issue on an expedited basis would only resolve “a sliver” of the case.

 

Today Ericsson filed its response to Adaptix’s sudden motion to withdraw its Complaint and terminate the ITC’s investigation of whether Ericsson’s base stations infringe an Adaptix patent alleged to cover cellular LTE standards.  Recall from our post last week that it was not clear why Adaptix made this extraordinary step on the eve of trial.

Ericsson’s response indicates that Adaptix took this action in response to receiving service on November 27 of Ericsson’s motion for sanctions.  That motion was based on Adaptix bringing an action for infringing patent claims directed to optional portions of the LTE standard not practiced by Ericsson, claims that were invalid, and claims for which any relief would be against the public interest “particularly in light of Adaptix’s status as a patent assertion entity.”  Ericsson asserts that Adaptix brought “unsubstantiated claims that lack merit … in a transparent attempt to leverage the threat of an ITC exclusion order into exorbitant royalties.”

At the end of the day, Ericsson does not oppose Adaptix’s motion to terminate the Investigation, but regrets that it cannot recover the cost for defending the action.  Will be interesting to see what occurs in related district court litigations where the same patent is asserted.