A couple weeks ago, we noted that Ericsson had submitted a Notice of New Authority in its ITC case against Samsung (Inv. No. 337-TA-862) concerning the USTR’s recent disapproval of the exclusion order in ITC Inv. No. 337-TA-794.  In this Notice of New Authority, Ericsson requested that presiding Administrative Law Judge David P. Shaw make an express determination of the appropriate FRAND royalty rate for Ericsson’s SEPs ,and condition entry of any exclusion order on whether Samsung accepted or rejected this ITC-determined FRAND royalty rate.  Today, Samsung responded to Ericsson’s notice, telling the ITC that the USTR’s disapproval actually shows that Ericsson should drop its SEP-related claims from the ITC case and instead proceed in district court.

[337-TA-862 Samsung Response to Ericsson Notice of New Authority]

Samsung argues that the USTR’s disapproval in the -794 case demonstrates that exclusion orders on FRAND standard-essential patents should only be entered against clearly unwilling licensees — and that because “Samsung has negotiated in good faith, made reasonable FRAND offers, proposed arbitration [to determine FRAND terms], and never stayed the co-pending district court case containing the same patents-in-suit as an alternative forum for resolution,” this shows that Samsung is a willing licensee.  Samsung claims that essentially, the “only real dispute” between Ericsson and Samsung is the issue (and amount) of FRAND royalties — and that because Samsung is a willing licensee, this issue should be resolved in district court (or arbitration), not before the Commission

While the USTR’s disapproval letter did note that the ITC is well-positioned to make factual findings on FRAND issues, Samsung claims that Ericsson’s request for a FRAND determination here is unworkable, untimely, and improper as beyond the ITC’s authority.  First, Samsung asserts that contrary to what was stated in Ericsson’s Notice of New Authority, the parties have not developed an extensive record that would the ALJ or the ITC to make a FRAND determination for at least four different SEP portfolios (2G, 3G, 4G cellular standards, and the IEEE 802.11 Wi-Fi standard).  Samsung notes that Ericsson claims to have have hundreds more SEPs in addition to those at trial, and that any FRAND determination would likewise have to include a separate evaluation of a cross-license to Samsung’s SEPs.  According to Samsung, not only have the parties not yet presented evidence on all of these issues, but discovery in the case is now closed, making Ericsson’s request untimely.

Lastly, Samsung argues that in any event, the ITC is a creature of statute, and determination of a portfolio-wide FRAND royalty is not among them — arguing that “no defense and no public policy concerns identified by the USTR require or authorize resolution of the price term in a private cross-licensing dispute between Ericsson and Samsung as part of the Commission’s Section 337 Investigation.”  Again, Samsung argues that the parties’ real dispute over licensing terms should be litigated in district court or resolved through biding, neutral arbitration.  Samsung closes by telling the Commission and ALJ Shaw that in light of the USTR’s veto, Ericsson should drop its FRAND-pledged SEPs from the case.

  • InsideCounsel magazine recently published an article of ours, titled “Establishing Federal Rules of Patent Procedure“.  This article is the first in a three-part series in which we examine certain “patent reforms” that have been proposed in response to the perceived rise in assertions by non-innovative patent assertion entities.  In this article, we look at the potential for establishing special uniform rules of civil procedure that would govern all patent cases, regardless of which district court the complaint was filed in. (via InsideCounsel)
  • Speaking of perceived problems with PAE lawsuits, Prof. Adam Mossoff of the George Mason School of Law writes in the Truth on the Market blog that this concern is largely overblown, calling it “The Myth of the ‘Patent Troll’ Litigation Explosion“. (via Truth on the Market)
  • We’ve previously noted Vermont’s efforts to stop the infamous so-called “scanner troll” — MPHJ Technologies — from asserting its patents against Vermont companies and organizations.  Those efforts have now expanded to other states, apparently.  First, Nebraska’s attorney general opened an investigation into Farney Daniels, the law firm representing MPHJ.  And now comes the news that that the Minnesota attorney general has entered into a settlement in which it has agreed not to send any licensing or assertion letters to Minnesota businesses without providing the AG’s office with at least 60 days’ notice, and obtaining the AG’s consent — however, MPHJ is apparently not prohibited from filing infringement lawsuits against Minnesota businesses.  (via Bloomberg)
  • Finally, Samsung has appealed to the Federal Circuit several of the U.S. International Trade Commission’s decisions in Inv. No. 337-TA-794, the case in which the U.S. Trade Representative vetoed the ITC’s issuance of an exclusion order due to concerns over standard-essential patent issues.  While the USTR’s veto is not appealable, Samsung has appealed the ITC’s findings of non-infringement of several other patents, including one patent — U.S. Patent No. 7,486,644 — that Samsung has alleged to be essential to certain wireless standards. (via Law360)

When Judge Robart issued his summary judgment order last week in the Microsoft-Motorola case, we noted that he ordered the parties to submit further briefing on Microsoft’s allegation that Motorola breached its RAND obligations to Microsoft (at least in part) by failing to offer a RAND license to Microsoft’s WiFi chip supplier, Marvell Semiconductor:

As the court understands it, Microsoft will argue to the jury that Motorola failed to grant a license to Marvell, and if Motorola had granted such a license, Motorola would then be precluded from seeking a license from Microsoft for the SEPs at issue. This argument requires a legal basis. The argument is premised on the notion that, legally, Motorola’s ability to seek a license from Microsoft would be exhausted by granting a license to Marvell. This issue is not explored in the parties’ summary judgment briefing. Thus, the parties may provide three-page letter briefs no later than August 16, 2013, on the legal grounds for Microsoft’s assertion that a Motorola-Marvell license would preclude Motorola from seeking a license from Microsoft. Additionally, no later than August 16, 2013, the parties may propose jury instructions on this issue.

On Friday, the parties submitted letter briefs in response to this order (links below).  As we alluded to in last week’s post, this issue raises some interesting questions on what types of behavior and licensing restrictions are proper during FRAND licensing negotiations — questions that we’ll get into after the jump.

Continue Reading FRAND licensing, chip suppliers, and the interplay of patent exhaustion / defensive suspension clauses

Ericsson is a company that holds a significant number of standard-essential patents, and often seeks to monetize and enforce them.  (They were just awarded infringement damages in Texas, and they’re engaged in an SEP duel with Samsung in the ITC and in Texas).  It wasn’t surprising, then, when Ericsson last week suggested a framework for the ITC to consider FRAND issues in Section 337 investigations.  But yesterday, Ericsson went even further, submitting a “Notice of New Authority” to the ITC in its offensive case against Samsung and expressly requesting that ALJ David P. Shaw (who seems to get all of the SEP cases at the ITC!) make a determination of FRAND licensing terms for several Ericsson SEP portfolios.

[337-TA-862 Ericsson Notice of New Authority]

In Ericsson’s complaint that led to this investigation, Ericsson asserted six patents that it claims are essential to various 2G, 3G, and 4G (LTE) cellular standards, and well as the IEEE 802.11 wireless networking standard.  In its response to the complaint, Samsung alleged that Ericsson breached its FRAND obligations to various standard-setting bodies, such as the IEEE and ETSI.  Ericsson does not dispute that the patents are subject to FRAND obligations, but does not believe that its licensing and enforcement activities violate any of these obligations.  Ericsson points out that in the -862 investigation, FRAND issues have been the subject of “at least 16 depositions, 9 expert reports, more than 250 written discovery requests, and thousands of pages of produced documents” — and that experts have already opined on the the appropriate FRAND royalty rates for Ericssons patents essential to 2G, 3G, LTE, and 802.11 standards (it’s worth pointing out that it’s unclear which particular cellular standards Ericsson is referring to as “2G” and “3G” here, as these can encompass multiple standards from multiple SSOs).

Based on this evidentiary record — which Ericsson calls “extensive” — Ericsson expressly requests that ALJ Shaw include in his Final Initial Determination explicit factual findings on FRAND issues, including but not limited to an express finding as to whether the royalty rates offered to Samsung by Ericsson for a license to Ericsson’s worldwide portfolio of patents essential to the 2G, 3G, LTE, and 802.11 standards are FRAND (and if they are not FRAND, what royalty rates would be FRAND).  Ericsson asserts that this would allow it to make a judicially-determined FRAND offer to Samsung before any exclusionary relief might be issued by the ITC, an approach consistent with the “conditional exclusion order” framework Ericsson proposed to the ITC last week.

Specifically, Ericsson submits that the ALJ (and/or the Commission) consider the following factors in making its FRAND determination:

  1. The extent of the patent owner’s contribution to the standard and how thepatent owner’s contribution compares to the contributions of other patent owners;
  2. The licensing terms entered into by the patent owner with other licensees;
  3. The licensing terms in other comparable licenses for patents essential to the same standard;
  4. The nature of and revenues and profits associated with the infringing products sold by the putative licensee;
  5. Whether the licensing terms will ensure the patent owner’s continued participation in standard-setting activities and fairly reward the patent owner’s technological breakthroughs in relation to standardized technologies;
  6. The extent to which the patent owner’s standardized technology is incorporated into the putative licensee’s standard-compliant products and the value of the standardized technology to those products;
  7. The value conferred on the end user by the patent owner’s patented standard-essential technology;
  8. The strength of the patent owner’s standard essential patents; and
  9. Whether the licensing terms will deny the putative licensee access to the standard and/or contribute to an unsustainable aggregate royalty burden.

Some of these factors are similar to those considered by Judge Robart in his RAND-modified Georgia-Pacific analysis, while others are different.  Essentially, though, it appears that Ericsson is asking the ALJ to undertake a Microsoft-Motorola-like analysis for at least four different portfolios — a process that took over two years in Judge Robart’s court for just two portfolios.  But it’s worth noting that unlike in the -794, -800, and -837 cases, certain public interest issues (i.e., the FRAND issues) have been delegated to ALJ Shaw in this case, so it appears that Ericsson’s request may be within his power to opine on.  We’ll have to see what he intends to do (and how Samsung responds to Ericsson’s request as well).

Last month, the ITC issued a Notice of ALJ David P. Shaw’s Final Initial Determination on Violation in In the Matter of Certain Audiovisual Components and Products Containing the Same (Inv. No. 337-TA-837), the investigation into LSI/Agere’s allegations that Realtek and Funai infringed 802.11-essential and H.264-essential patents (as well as one non-SEP).  The ITC found that Funai infringed the non-essential patent at issue, but that none of the Respondents infringed the the SEPs at issue in the case. Yesterday, the ITC issued the public versions of both the ALJ’s Initial Determination and the ALJ’s Recommended Determination on Remedy and Bonding.

SEP Issues Addressed in the Initial Determination

The ALJ addressed three different types of SEP-related issues in his ID: (1) LSI/Agere’s infringement allegations based on the standards at issue; (2) the Respondents’ RAND-related defenses; and (3) the Respondents duty of disclosure-related defenses.

Infringement

As to the standard-based infringement allegations, the ALJ found these to be insufficient, at least for the alleged H.264-essential patent — he concluded that the H.264 Reference Software that is provided by the ITU is merely “an aid to assist in the implementation” of the accused functionality, but does not prove that the Respondents actually implemented the functionality in the same way as the standard.  For the two 802.11-essential patents, LSI/Agere’s infringement allegations appear to be based both on the standard and code implemented by the accused products, so this same issue wasn’t present there.

RAND Defenses

Beginning on page 333 of the Initial Determination, ALJ Shaw extensively addressed LSI/Agere’s RAND obligations and the litany of Respondents’ RAND-related defenses (breach of contract, waiver, patent misuse, equitable estoppel, unclean hands, etc.).  In total, he spends over eighteen pages reciting the RAND-relevant facts. (However, of course, much of the specific numbers and information regarding the parties’ license negotiations has been redacted).  He notes that both LSI/Agere and all Respondents agree that the alleged SEPs at issue are in fact SEPs and are subject to RAND obligations (an issue that has been disputed in other cases, like the Samsung-Apple and InterDigital ITC investigations).

Ultimately, ALJ Shaw determined that the Respondents did not carry their burden of proof on any of the RAND-related defenses.  He found that the Respondents’ RAND-related defenses are based on LSI/Agere’s opening offer, and explained that he could find “no authority for the argument that a patent holder must make an initial offer for a specific fair and reasonable royalty rate.”  While the Respondents had compared LSI/Agere’s offered rate to the RAND royalty rates set by Judge Robart in Microsoft-Motorola, ALJ Shaw explained that Judge Robart’s order “did not necessarily set RAND royalty rates for the IEEE and ITU” — rather, that order was based on the specific patents and factual situation in that case.  ALJ Shaw also repeatedly cited the complexity inherent in RAND license negotiations, and appeared to fault the Respondents for not offering evidence showing which terms actually would constitute a RAND license.  (Again, much of this portion is redacted, unfortunately).

Finally, ALJ Shaw addressed the preliminary injunction entered by Judge Whyte of the Northern District of California that — due to a finding of a RAND breach — purports to prevent LSI and Agere from enforcing any ITC-related exclusionary relief against Realtek based on infringement of the 802.11-essential patents.  He found that the facts presented in the ITC investigation appeared to differ from those presented to the district court, specifically with respect to a licensing offer having been made to Realtek (the RAND breach was found mainly due to a finding that LSI/Agere filed the ITC complaint before making any license offer to Realtek).  ALJ Shaw also explained that based on his evaluation of the facts, the failure of the parties to conclude a RAND license agreement cannot be attributed to LSI/Agere.

Lastly, ALJ Shaw noted that “there is no indication at this time that the Commission, as a matter of law, has determined to treat RAND obligations as contractual obligations” that must be satisfied before exclusion orders may issue.  (Keep in mind that the confidential version of this order actually issued on July 18, before the USTR’s veto of the Samsung-Apple exclusion order).  In any event, he determined that the Respondents did not present evidence to define basic contractual elements (such as the parties, offer, acceptance, consideration) — let alone the elements of a contractual defense that extended to third parties.

Duty of Disclosure

The Respondents argued that the prior owner of the 802.11-essential patents, Lucent, (as well as the inventors) failed to disclose these patents and their applications to the IEEE, breaching a duty of disclosure — and that these patents are therefore unenforceable (under the doctrines of implied waiver / equitable estoppel).  LSI/Agere claim that there was no duty of disclosure under the IEEE patent policy, and because both Lucent and LSI submitted RAND letters of assurance, the IEEE patent policy was fully complied with.

Although he notably did not address the issue of whether the IEEE’s patent policy actually required disclosure of patents and pending patent applications, the ALJ concluded that these defenses failed for other reasons.  First — in contrast to his acknowledgement of the parties’ agreement regarding essentiality for RAND issues — he noted that the Respondents’ non-infringement arguments undercut their arguments that the patent was “actually essential” and that a duty of disclosure should therefore apply.  Second, he found that the RAND obligations entered into by LSI/Agere and Lucent mitigated any “patent hold-up” concerns that might be associated with a failure to disclose.  Lastly, he found that there was no reliance on the “silence” (the non-disclosure of the patents), which is an essential element of these defenses.

Recommended Determination on Remedy and Bonding

As we saw in the RD issued in the recent InterDigital ITC case, the ALJ here recommended that, in the event the Commission were to reverse his infringement findings on the asserted SEPs, an exclusion order and cease and desist order should issue. In doing so, the ALJ made an interesting (and potentially controversial) comment about the value of the SEPs at issue:

If the Commission determines that the asserted ‘958, ‘867, and ‘663 patents [the alleged SEPs] are infringed and essential patents that are required for downstream products to perform the functions of the 802.11 IEEE Wi-Fi standard or the H.264 ITU-T standard, respectively, then they would be of great value.  (emphasis added)

Some may argue that this value cited by the ALJ is the “hold-up” value, or the value conferred on the patents simply by their inclusion in the standard — as opposed to their actual technological value.

As for RAND issues, they did not play a role in the remedial portion of the RD, as the ALJ noted that because public interest issues were not delegated to him, this would need to fall within the purview of the Commission on any potential review.  But RAND did come into play in the recommended amount of bond that the Respondents would need to post to be allowed to import infringing products during the 60-day Presidential Review period (if a violation is ultimately found).  Because the standards at issue here (802.11 and H.264) were the same as in the Microsoft-Motorola case, the Respondents argued that the appropriate bond should not exceed the “RAND ranges” determined by Judge Robart — 0.555 – 16.389 cents/unit for 802.11, and 0.8 – 19.5 cents/unit for H.264.  The Respondents also argued that existing LSI/Agere license agreements were evidence of an upper bound of the bond.  Although the ultimate bond amount is redacted, it appears to be a percentage amount of the value of the allegedly-infringing products that accounted for these factors.

This case will now proceed to briefing on the parties’ petitions for review, which has actually already begun.  The target date for the Commission to issue its Final Determination is November 18. 2013.

As we noted last week, various non-parties have begun submitting statements on the public interest in connection with ITC Inv. No. 337-TA-800, In the Matter of Certain Wireless Devices With 3G Capabilities and Components Thereof.  Over the last several days, both the complainant InterDigital and each of the respondents (Nokia, Huawei, and ZTE) have submitted their own comments on the public interest considerations.

With this investigation being the first chance for the Commission to consider SEP/FRAND issues since the USTR’s veto of the 337-TA-794 exclusion order, InterDigital asserts that the -800 investigation “presents an ideal opportunity for the Commission to provide additional guidance on the issue of unwilling licensees and reverse hold-up in the context of FRAND licensing.

One might expect that InterDigital would ask the Commission to further develop the FRAND-related record and make specific factual findings, given the content of the USTR veto letter in the -794 investigation — but this is far from the case.  Instead, InterDigital argues that the record here is well-developed, and that the parties have specifically briefed the “unwilling licensee” issue.  InterDigital argues that the evidence demonstrates that Nokia, Huawei, and ZTE refused to pay what the ALJ determined to be FRAND royalties, and took alleged “unreasonable positions” in FRAND licensing negotiations.  According to InterDigital, all of this shows that — in the event the Commission overturns the ALJ’s findings on infringement and/or validity  — an exclusion order is appropriate in this case.  (InterDigital also argues that U.S. Patent No. 7,616,970 — the sole patent that the ALJ determined was infringed, but was also invalid — is “not even arguably essential” to any standard practiced by the accused products, and therefore no FRAND obligations should stand in the way of an exclusion order issuing, at least for that patent.)

Not surprisingly, Nokia and Huawei both disagree that the evidence satisfies the standard set forth by the USTR in the -794 case, as well as InterDigital’s claim that the ‘970 patent is not essential.  Nokia argues that the ‘970 patent was declared as essential to the ETSI GERAN Standard, and simply adds wireless networking functionality to other functionality that is required by the WCDMA wireless standard — making it a standard-essential patent “under present definitions of ‘essential’.”  (For support, Nokia cites the recent In re Innovatio decision) — although, as InterDigital points out, the Innovatio decision evaluated “essentiality” and the scope of RAND obligations under the IEEE patent policy, as opposed to the ETSI patent policy apparently at issue here.)

Nokia asserts that the ALJ’s FRAND analysis was no more detailed than the analysis in the -794 case, arguing that the ALJ here “simply ruling as a matter of law that the patent owner only had an obligation to negotiate in good faith.”  Nokia also claims that the ALJ made no factual finding that Nokia has refused to take a FRAND license, and that the record “compels the opposite conclusion” — that Nokia is a willing licensee, and no exclusion order should issue against it based on infringement of a FRAND-encumbered patent.

For its part, Huawei echoes many of the same arguments set out by Nokia — that the FRAND-related record is not detailed enough to satisfy the concerns set forth in the USTR’s -794 letter, and that Huawei is a willing licensee (as allegedly demonstrated, in part, by its efforts in Delaware district court to receive a FRAND determination for InterDigital’s portfolio).  Huawei also argues that if the Commission were to fully evaluate the propriety of an exclusion order, it would “be obligated to undertake further proceedings to develop a comprehensive record and to permit the parties to set forth their views on how the principles in the [DOJ/USPTO] Policy Statement should be applied to that record” — i.e., Huawei believes that before deciding whether to issue an exclusion order, the ITC should order more detailed briefing on FRAND issues.

[UPDATE] Since we originally posted this, the public version of ZTE’s submission has become available.  ZTE’s makes arguments similar to those made by Nokia and Huawei — that there has been no judicially-determined FRAND rate, that the ALJ simply concluded (ZTE alleges erroneously) that InterDigital negotiated in good faith, and that ZTE has not been deemed an “unwilling licensee.”  ZTE claims that on the contrary and under the USTR’s framework, ZTE “cannot be considered an unwilling licensee” because it has sought and continues to seek a FRAND determination in district court in Delaware.  As such, ZTE argues that if the Commission reverses the ALJ and finds a violation of Section 337, it should decline to issue exclusionary relief.  [/UPDATE]

The Commission will make a decision on whether to review the ALJ’s ID by the end of the month, so stay tuned.

A month ago, we discussed how Microsoft and Motorola filed dueling summary judgment motions in an attempt to eliminate some of the issues from the upcoming RAND breach of contract jury trial in Seattle (currently set to begin August 26).  Judge James L. Robart held an oral argument on July 31, and this morning, his order hit the docket (the order is actually dated yesterday — Judge Robart is apparently not taking Sundays off).

[2013.08.11 Order on Microsoft-Motorola SJ Motions]

As you can tell from the title of this post, Judge Robart granted summary judgment on some — but not nearly all — of the issues briefed by the parties.  Both Microsoft and Motorola prevailed on some issues and lost on others.  The bottom line is that the jury will still have a lot to decide in this case.  After the jump, we’ll take a look at how Judge Robart ruled — starting with the motions that he denied.

Continue Reading Two weeks ahead of Microsoft-Motorola jury trial, summary judgment ruling reduces the issues (but only a little bit)

Microsoft and Motorola are currently hurtling toward an August 26 jury trial in their RAND breach of contract dispute in Seattle.  But it looks like the SEP disputes between the parties are not limited to the United States, however.  In a letter filed with Judge James L. Robart’s court yesterday, Microsoft claims that it was recently served with a complaint in a lawsuit filed in Mannheim, Germany by Motorola, a lawsuit in which Motorola is seeking to recover royalties for past infringement of two H.264-essential patents.  Microsoft also claims that this lawsuit is improper, and in light of it, now asks Judge Robart for permission to file a motion “to renew and expand” the anti-suit injunction previously entered against Motorola, which prevented Motorola from enforcing an injunction in Germany on these very same H.264 patents.

[2013.08.08 Microsoft Request for Permission to File Anti-Suit Injunction Motion]

As noted above, the prior anti-suit injunction entered by Judge Robart (which was subsequently replaced by his summary judgment ruling on injunctive relief) was focused on prohibiting Motorola from enforcing an injunction on its H.264 SEPs — which Judge Robart found was generally improper when Microsoft had committed to pay a RAND rate determined in Judge Robart’s court.  But here, Microsoft apparently wants to bring a motion to prevent Motorola from seek monetary damages in Germany that might be in excess of the H.264-related RAND rate set in Judge Robart’s April 25 RAND-setting order.

Specifically, Microsoft claims that:

In the new action, Motorola is seeking to circumvent and undercut the Court’s RAND royalty determination, to distract and burden Microsoft on the eve of the breach trial set to begin at the end of August and to further run up Microsoft’s legal costs in defending those unnecessary actions. In these proceedings Motorola is seeking to collect
royalties for Microsoft’s German H.264 SEPs at amounts much higher than the world-wide royalty this Court has now set. [i.e., Motorola is seeking damages for past infringement]

 

Microsoft says that this is improper in light of the court’s RAND determination, because:

The Court has ruled that Motorola is obligated to provide Microsoft worldwide RAND licenses to Motorola’s 802.11 and H.264 SEPs, and has determined the RAND royalties for those SEPs. As the Court is aware, Microsoft has offered to tender payment in full to Motorola for sums currently due based on the 802.11 and H.264 royalties that the Court established. Motorola has not responded to Microsoft’s tender. Microsoft remains willing to pay the royalty adjudicated by the Court.

If Judge Robart grants permission for Microsoft to file its motion, we’ll be sure to let you know.  The ensuing dispute could be an interesting one — it’s unclear whether adjudicated RAND royalties necessarily need to be the same in both (1) cases of adjudicated infringement, such as in the German case; and (2) cases where no finding of infringement has been made, such as in the Washington action.  And this doesn’t even get into issues of adding extra damages for willful infringement, which some claim is a sufficient incentive (as opposed to the availability of injunctive relief) to bring FRAND licensees “to the the table” in negotiations (although as we understand it, willfulness is not a legal concept used in Germany).

The U.S. Trade Representative’s recent disapproval of the ITC’s exclusion order in Inv. No. 337-TA-794 has generated a lot of discussion and uncertainty about the future enforcement of standard-essential patents at the U.S. International Trade Commission. But it seems generally accepted that going forward, both the Commission and litigants are going to have do a much deeper dive into FRAND issues in order to satisfy the USTR’s public interest concerns.

One of the first cases in which the Commission will have to address FRAND issues in this new paradigm is In the Matter of Certain Wireless Devices with 3G Capabilities and Components Thereof, Inv. No. 337-TA-800 — the ITC’s investigation based on InterDigital’s allegations that Nokia, Huawei, and ZTE (as well as LG) infringe several 3G-essential patents.  The ALJ recently issued an initial determination finding no violation of Section 337 (but also that the Respondents failed to prove any FRAND defenses).  The parties have filed petitions for review, and the Commission’s decision whether to review the ID is due at the end of the month.  In the meantime, the Commission has issued a notice soliciting comments on the public interest relating to this investigation — which, of course, include FRAND issues.

Yesterday, Ericsson — a party that just won an SEP case in Texas, and is also embroiled in SEP-related disputes with Samsung and Adaptix at the ITC — submitted comments to the Commission [LINK].  In these comments, Ericsson proposes “a more comprehensive approach for the consideration of standard-essential patents in section 337 investigations” in response to the USTR’s guidance.  Let’s take a look at the high points of Ericsson’s proposal, shall we?

The ITC should issue “conditional” exclusion orders for FRAND patents

Ericsson states at the outset that it agrees that a patent owner who has not complied with its FRAND obligation should not be entitled to an exclusion order.  However, Ericsson asserts that exclusion orders should remain available for FRAND patents — otherwise, elimination of this remedy would “encourage the rejection of FRAND offers by potential licensees in an effort to avoid paying due royalties to the patent owner and thus increase litigation (i.e., “reverse hold-up”).”

Therefore, Ericsson proposes that in each investigation involving SEPs, the Commission “thoroughly and critically consider” FRAND issues before issuing a remedy.  Under Ericsson’s framework, this would include making a determination of the appropriate FRAND terms and conditioning the entry of an exclusion order on the refusal of a respondent to conclude a license on such terms.  Ericsson argues that this approach strikes a balance between more extreme positions advocated by others (no exclusion orders / minimal FRAND evaluation), and ensures that the ITC remain open as an option for patent holders to enforce their patents against unwilling licensees (and also that this conditional approach was blessed by the FTC).

(Note that under this approach, it’s unclear whether the FRAND terms advocated for by Ericsson would be limited to the patents in suit that were found to be infringed, whether the FRAND terms would be for a full portfolio-wide license, or whether Ericsson would want the Commission to give the potential licensee an “either/or” option).

Licensing of FRAND-encumbered portfolios on a worldwide basis is common and not a FRAND violation

The ALJ in the -800 case concluded that InterDigital’s policy of licensing its SEPs on a worldwide basis was envisioned by the SSOs and in line with its FRAND commitment.  Ericsson agrees, stating that this is a “common industry practice” and “the most efficient accommodation for licensing large and dynamic portfolios of standard-essential patents.”  Ericsson also notes that portfolio licensing is preferred because both licensors and licensees typical desire patent peace — to be free from infringement claims from a particular party during the license terms.  According to Ericsson, portfolio licensing — as opposed to licensing on a patent by patent basis — is a much more efficient means for achieving this outcome.

“Non-discriminatory” does not mean “identical terms”

Ericsson states that it agrees with the ALJ here that the “non-discriminatory” prong of FRAND does not mean that all licensee agreements will feature the same terms (royalty or otherwise).  Ericsson lists several factors that it argues affect the overall terms, including the value of a cross-license, the types of products sold, the standards incorporated into the products, the licensee’s expected revenues and profits, the geographic scope of the license, etc.  (We note that there may be several entities out there who disagree with some of these factors, so it will be interesting to see if anyone takes issue with this list in a future submission).  Ericsson claims that the FRAND commitment must be flexible enough to allow licensors to tailor licenses to the circumstances of individual licensees without boxing themselves in to particular terms in the future.

We would not be surprised to see more companies follow suit with their own proposals for what the Commission should do to evaluate FRAND obligations and the public interest in both the -800 investigation and future cases, and we will keep you posted on any additional submissions.  Both the Innovation Alliance and Microsoft also submitted public interest comments yesterday, but neither dove as deep as Ericsson into the FRAND aspects of the investigation.  The Innovation Alliance argues that the record on FRAND in this case is comprehensive enough for the ITC to deal with the concerns the USTR brought up in the -794 case; Microsoft deals mainly with its partnership with Respondent Nokia, and actually requests additional briefing on the FRAND issues.