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
(Percentage of Mobile Phone’s Net Price)

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)

Yesterday, a jury returned a verdict finding that Fujitsu had breached its standard-setting obligations to offer its declared ‘737 Patent (now expired) to Tellabs on reasoanble and non-discriminatory terms (RAND).  Judge Holderman then issued an order to show to cause why the patent should not be held unenforceable as to Tellabs.  This case presents many interesting standard essential patent (SEP) issues, including a RAND-obligation breach for a patent found essential to a standard but not infringed.

Background

The filings in this long-running case span over six years and 1,400 docket entries, so please excuse our quick summary of salient points leading to the jury verdict and errors we may make in the process.  In short, this litigation started with Fujitsu suing Tellabs for infringing four patents and was whittled-down to this jury trial limited to whether Fujitsu breached an International Telecommunications Union (ITU) G.692 optical network standard setting obligation in asserting a patent against Tellabs without offering a RAND license.

In January 2008, Fujitsu sued Tellabs in the Eastern District of Texas for infringing four of Fujitsu’s patents, including U.S. Patent 5,521,737 (“the ‘737 Patent”) at issue here related to optical amplifiers used in optic fibre transmission networks.  Tellabs successfully moved the case to the Northern District of Illinois and the case was assigned to Judge Holderman (who issued the RAND-rate bench trial ruling last year in Innovatio — see our Oct. 1, 013 post).  During the course of litigation one patent was dropped based on a covenant not to sue granted to Tellabs and two other patents were held invalid, leaving just the ‘737 Patent.

Judge Holderman denied Fujitsu’s summary judgment motion that Tellabs infringed claims 4, 5, 11 and 12 of the ‘737 Patent.  But Judge Holderman granted summary judgment that Tellabs did not infringe Claims 4 and 5 of  the ‘737 Patent (Fujitsu consented to noniinfringement due to claim construction ruling) and entered a Rule 54(b) final judgment of no infringement of those claims (we are not sure what happened with Claims 11 and 12, but speculate that Fujitsu dropped them to simplify case and immediately appeal the Rule 54(b) final judgment).  This thus left a jury trial on Tellabs allegation that Fujitsu breached its standard-setting commitment to offer Tellabs a license under the ‘737 Patent on reasonable and non-discriminatory terms.

Preliminary Jury Instructions.   Judge Holderman’s pre-trial evidentiary rulings and preliminary jury instructions framed the evidence and arguments to be presented at trial (see our July 18 post).  The ten-page preliminary jury instructions are worth reading to see how the issue was presented to the jury.

In summary, Tellabs argued that a May 27, 1996 letter and attached “Patent Statement” from Fujitsu to the ITU was an agreement to license the patent on RAND terms, the letter stating:

Fujitsu is willing to grant license under reasonable terms and conditions for the purpose of implementation of Q.25 – Q.27 recommendations, in compliance with ITU-T TSB patent policy 2.2 to any party which will comply with TSB patent policy 2.1 or 2.2.

The Patent Statement expressly identified the ‘737 Patent at issue here.  The referenced sections of the ITU-T TSB patent policy concern giving either a royalty-free license (Section 2.1) or a RAND license where “negotiations are left to the parties concerned” (Section 2.2), stating:

2.1: “The patent holder waives his rights; hence, the Recommendation is freely accessible to everybody, subject to no particular conditions, no royalties are due, etc.”

2.2: “The patent holder is willing to negotiate licenses with other parties on a non-discriminatory basis on reasonable terms and conditions.  Such negotiations are left to the parties concerned.”

The jury was instructed about Fujitsu’s “two aims” in submitting the Patent Statement:

In Fujitsu’s Patent Statement, Fujitsu expressed two aims: (1) “drawing the attention of SIG15/WP4 Q.25, Q26 and Q.27 to the existence of Fujitsu Patents that relate to work covered by these study areas” and (2) “clarifying the position of Fujitsu relative to the ITU patent policy.”  Fujitsu’s ‘737 Patent was among the patents to which Fujitsu expressly drew the ITU’s attention in Fujitsu’s May 27, 1996 Patent Statement.

Ultimately, Fujitsu communicated to the ITU in Fujitsu’s Patent Statement, that as to all the patents it drew the ITU’s attention to, including the ‘737 Patent, Fujitsu was “willing to grant license under reasonable terms and conditions for the purpose of implementation of Q.25 – Q.27 recommendations, in compliance with ITU-T TSB patent policy 2.2 to any party which will comply with TSB patent policy 2.1 or 2.2.”

With respect to the “essentiality” of the patent, the jury was instructed that Tellabs must prove the patent “might be reasonably necessary” to implement the standard, stating:

Tellabs must also prove that Fujitsu’s ‘737 Patent’s technology was included in, meaning its use might be reasonably necessary if someone were to try to implement certain of the standards recommended by ITU-T standard G.692 title, “Optical interfaces for multichannel systems with optical amplifiers.”

The jury was also instructed that Tellabs must prove that it was willing to negotiate a license on RAND terms.

The jury was instructed that Tellabs could prove that Fujitsu breached its RAND obligation (if there was one)  in one of six ways based on (1) not offering Tellabs a patent license on RAND terms or (2) filing an infringement lawsuit against Tellabs that (i) sought an injunction, (ii) sought a non-RAND royalty rate, (iii) sought lost profits, (iv) damaged Tellabs business or (v) “requir[ed] Tellabs to devote management attention and various resources to defending the lawsuit, such as attorney’s fees, expert fees, and related costs.”

For what its worth (meaning we readily may be wrong since not familiar with the record) some of those circumstances seem easily provable as having occurred or not occurred — e.g., did Tellabs file a lawsuit seeking an injunction, lost profits or requiring Tellabs to incur attorneys fees.  Although the parties stipulated facts were filed under seal, we believe from some filings that the jury may have been instructed that:

  • Fujitsu admits it never offered Tellabs any royalty rate, RAND or otherwise (see MIL Order Dkt. # 1289)
  • Fujitsu sought lost profits in its complaint against Telebs (see Amended Complaint Dkt. #91)
  • Fujitsu gave some kind of stipulation that it breached its RAND Agreement by Seeking a Non-RAND Royalty Rate” (see Tellabs’ JMOL Motion Dkt. #1409 at 21 referring to “Stipulation read into Record, Trial Tr. at 602:13-603:5 (7/21/14))”

Thus, the key dispute may be the threshold issue of what Fujitsu offered under what conditions in its statements to ITU and were those conditions met.  We do not know what exactly was argued and presented in the trial, but a high-level summary of Fujitsu’s contentions given in the jury instructions were as follows:

Fujitsu contends that to implement the ITU’s standards it is not necessary to use the technology of Fujitsu’s ‘737 Patent and Fujitsu therefore did not have to offer to license the technology of the ‘737 Patent on RAND terms.  Fujitsu asserts that the ITU did not accept Fujitsu’s offer to grant a license to Fujitsu’s ‘737 Patent’s technology on RAND terms, and Fujitsu also asserts that Fujitsu had no obligation to grant a license to Fujitsu’s ‘737 Patent’s technology on RAND terms to Tellabs.  Fujitsu also contends, even if it did breach a RAND obligation, the breach was not willful.

Further, from other briefing, we believe Fujitsu argued that Fujitsu was not required to grant Tellabs a license because Tellabs would not reciprocate a license to Fujitsu under Tellabs standard essential patents (a condition of Fujitsu’s Patent Statement quoted above).

The jury was not instructed or presented evidence as to damages if a breach occurred, the parties having stated in the Pre-Trial order that the jury need not quantify financial damages.

Pretrial Verdict Form Revisions.  Case dynamics and perhaps uncertainties in this developing area of law led to revisions in the pretrial verdict form, which is provided to the jury at the start of the trial so they know what questions they will be asked to answer at the end of trial.  For example, Question 2 of the Pretrial Verdict Form concerning the patent’s essentiality to the standard–an important issue as to whether a RAND obligation existed–was revised from whether the patented technology is “included” or “necessary” to implement the standard to a potentially broader view of whether the patent  “may be required” to implement the standard, as shown below:

  • Initial Preliminary Jury Verdict FormHas Tellabs proven that Fujitsu’s ‘737 Patent’s technology was included in the standardized technology recommended by ITU-T standard G.692 titled, “Optical interfaces for multichannel systems with optical amplifiers?”
  • First Revised Jury Verdict Form:  Has Tellabs proven that Fujitsu’s ‘737 Patent’s technology was included in, meaning necessary to implement, the standardized technology recommended by ITU-T standard G.692 titled, “Optical interfaces for multichannel systems with optical amplifiers?”
  • Second Revised Preliminary Jury Verdict FormHas Tellabs proven that Fujitsu’s ‘737 Patent’s technology was included in, meaning the ‘737 Patents’ technology reasonably might be necessary in order to implement, one of the specifications of standardized technology recommended by ITU-T standard G.692 titled, “Optical interfaces for multichannel systems with optical amplifiers”?
  • Adopted Revised Preliminary Jury Verdict FormHas Tellabs proven that Fujitsu’s ‘737 Patent’s technology was included in (meaning the ‘737 Patent’s technology may be required to implement) one or more of the necessary specifications of the standardized technology recommended by the ITU-T Recommendation G.692 titled, “Optical interfaces for multichannel systems with optical amplifiers?”

Judge Holderman explained that this latter version directed to technology that “may be required to implement” the standard was adopted to avoid “patent hold-up” and given the ITU’s Intellectual Property Rights (IPR) statement about patents that “may be required to implement this [ITU] Recommendation,” stating:

As is clear from the ITU-T’s Recommendation G.692, the purpose of its specifications, which address “multichannel optical line system interfaces,” was to provide “future transverse compatibility among such systems.”  Any patented technology that comes within G.692’s specifications that can be used to implement the Recommendations’ goal of standardization to provide compatibility should be subject to a RAND royalty commitment.  Otherwise, the owner of that patented technology could engage in “patent hold-up” by requiring implementers of the G.692 standard to conduct a work-around so as not to infringe that standard-compliant patented technology.

In the “Intellectual Property Rights” section of the ITU’s Recommendation G.692, the ITU states:
“The ITU draws attention to the possibility that the practice or implementation of this Recommendation may involve the use of a claimed Intellectual Property Right.  The ITU Takes no position concerning the evidence, validity or applicability of claimed Intellectual Property Rights, whether asserted by ITU members or others outside the Recommendation development process.  As of the date of approval of this Recommendation, the ITU had received notice of intellectual property, protected by patents, which may be required to implement this Recommendation.  However, implementors are cautioned that this may not represent the latest information and are therefore strongly urged to consult the TSB patent database. (emphasis added)”

By choosing the words “patents, which may be required to implement the Recommendation,” the ITU articulated its understanding of the patented technology that required a RAND commitment.  That phrase, “may be required to implement the Recommendation,” is now appropriately used in Question 2 for the jury to answer at this trial.

As shown below, the Final Verdict Form provided to the jury after trial was further amended so that the Question 2 essentiality issue was whether the patent “is one of the required ways to implement” the standard.

Final Verdict Form.   Prior to jury deliberations, the Court adopted final jury instructions as well as a final verdict form which, on the issue of essentiality, instructed as follows:

Has Tellabs proven that Fujitsu’s ‘737 Patent’s technology is essential to (meaning the ‘737 Patent’s technology is one of the alternative ways required to implement) one or more of the necessary specifications of the standardized technology recommended by the ITU-T Recommendation G.692 titled, “Optical interfaces for multichannel systems with optical amplifiers?”

The general flow of the verdict form was:

  1. Did Fujitsu agree to license the patent on RAND terms?  If not, no need to go any further
  2. Is the patent essential to the standard?  If not, no need to go any further.
  3. Did Fujitsu breach its RAND agreement in one or more of six enumerated ways?  If not, no need to go any further.
  4. Would Tellabs have been willing to negotiate a RAND license if offered by Fujitsu?  If not, no need to go any further.
  5. Did Fujitsu willfully breach the agreement? (presumabley under a preponderance of the evidence burden of proof, which appears to distinguish this from the next question)
  6. Did Fujitsu willfully breach the agreement under a clear and convincing evidence burden of proof?

Yesterday’s Jury Verdict/Show Cause Order

Jury Verdict.  Yesterday, the jury returned a verdict (attached to the show to cause order)  in favor of Tellabs on every single question and subparts thereof, finding that Tellabs had shown that:

  1. Fujitsu agreed to license the ‘737 Patent on RAND terms;
  2. Fujitsu’s ‘737 Patent’s technology is essential to (meaning the ‘737 Patent’s technology is one of the alternative ways required to implement) one or more of the necessary specifications of the standardized technology recommended by the ITU-T Recommendation G.692 titled, “Optical interfaces for multichannel systems with optical amplifiers”;
  3. Fujitsu breached its agreement by:
    (a)  Not offering to grant Tellabs a license on RAND terms for its ‘737 Patent’s technology;
    (b) Filing a lawsuit against Tellabs seeking injunctive relief based upon the alleged infringement of Fujitsu’s ‘737 Patent;
    (c) Filing a lawsuit against Tellabs seeking a non-RAND royalty rate based on alleged infringement of Fujitsu’s ‘737 Patent;
    (d) Filing a lawsuit against Tellabs seeking damages in the form of lost profits based on alleged infringement of Fujitsu’s ‘737 Patent;
    (e) Filing a lawsuit against Tellabs alleging infringement of the ‘737 Patent that damaged Tellabs’ business; and
    (f) Filing a lawsuit against Tellabs alleging infringement of the ‘737 Patent that required Tellabs to devote management attention and time, as well as other resources to defending the lawsuit, such as attorney’s fees, expert fees, and related costs.
  4. Tellabs was willing to negotiate a RAND license “if Fujitsu had offered Tellabs RAND terms for such a license”
  5. Fujitsu’s breach was willful “in that Fujitsu’s breach was intentional, knowing and with conscious disregard for Tellabs’ rights, or alternatively, was done with reckless disregard for Tellabs’ obvious or known rights.”
  6. There was clear and convincing evidence that Fujitsu willfully breached the agreement.

Show Cause Order.  After the jury verdict, Judge Holderman issued an order requiring Fujitsu to “show cause why the ‘737 Patent should not be held by the court in the exercise of the court’s equitable powers to be unenforceable as to Tellabs.”  With the patent now expired, this issue may be limited to the patent’s enforceability against any infringement by Tellabs prior to Fujitsu offering a RAND license and may not touch on a patent’s enforceability after the patent owner cures a breach by offering a license on RAND terms.

Recall that, in the Realtek v. LSI litigation, Judge Whyte recently faced a similar (yet different) request to declare LSI’s patents (including an expired patent) unenforceable if LSI does not offer Realtek a license on RAND terms.  But Judge Whyte denied that request with respect to “unenforceability” because it sounded like injunctive relief that he had denied.  Judge Whyte did, however, declare that “upon Realtek’s request for a license, to be in compliance with its RAND commitment, LSI must offer Realtek a license … on RAND terms” consistent with the jury’s determined RAND rate (see our June 16, 2014 post).

What’s Next?  The briefing on the show cause order should shed more light on the unenforceability issue, which may be heard during a Septemer 23 status conference.  The parties post-verdict motions and Judge Holderman’s rulings thereon should provide more insight into what was argued and presented to the jury on the various RAND-breach issues.

Last week, Judge Holderman issued several orders on various motions in limine filed by Fujitsu and Tellabs in advance of the jury trial of the case, which began this past Monday.  The jury will decide whether Fujitsu breached its alleged obligation to offer Tellabs a license to Fujitsu’s ‘737 patent on reasonable and non-discriminatory terms (RAND) when it, among other alleged acts, filed a patent infringement suit against Tellabs, sought preliminary injunctive relief, and sought damages that are purportedly higher than a RAND royalty rate.

While the briefing on several of the in limine motions was filed under seal, several of the orders look to shape the evidence admitted at the trial to resolve Tellabs claim that Fujitsu breached its RAND obligations.  It is important to keep in mind the procedural posture of these motions — that these are motions to exclude evidence from the jury’s consideration  — to avoid misreading the import of the ruling.  For example, the court’s ruling not to exclude an expert from testifying that seeking an injunction is inconsistent with an alleged RAND obligation does not necessarily mean that the court agrees with the expert, but simply means that this is evidence the jury will likely be permitted to hear as it deliberates the alleged RAND obligation issues.

Judge Holderman also issued preliminary jury instructions as well as a preliminary verdict form.  These documents lay out in detail the issues that the jury will have to resolve at the conclusion of the trial.  They, as well as the in limine rulings, are summarized below.

SEP Patent Owner Fujitsu’s Motions To Exclude Evidence

Exclude Injunction Request Violates RAND Testimony (Denied).  Tellabs’ expert stated in his report and deposition that Fujitsu’s request for an injunction against Tellabs was inconsistent with Fujitsu’s RAND obligations.  Fujitsu moved to exclude this evidence, arguing that it was “inconsistent” with the Federal Circuit’s decision in Apple v. Motorola, Inc., which “held that an injunction may be appropriate depending on the facts of the case, such as when the purported RAND licensee refuses or unreasonably delays RAND negotiations.”  Tellabs’ opposition and Fujitsu’s reply were filed under seal.  Judge Holderman issued a one sentence order denying Fujitsu’s request to exclude that expert testimony.

Exclude Willful Breach Evidence (Denied).  Fujitsu also moved to preclude Tellabs from “introducing evidence or argument that Fujitsu willfully breached any alleged obligation to offer” the ‘737 patent on RAND terms because Illinois law “does not recognize a cause of action for a willful breach of contract.”  Fujitsu contended that Illinois law applied to Tellabs’ claim that Fujitsu breached its commitment to offer a license for the ‘737 patent on RAND terms because “Tellabs is based in Illinois and Fujitsu’s alleged failure to offer a RAND license rate occurred in Illinois, where communication between the parties has taken place and the litigation has proceeded.”  “The only instance in Illinois in which a breach of contract may warrant damages beyond typical contract damages is when the alleged breach also amounts to an independent tort.”  Further, “[t]o justify damages other than contract damages (i.e., punitive damages) there must be allegations of malice, wantonness, or oppression.”  Fujitsu argues that “[i]n the case of RAND obligations, a non-breaching party implementing the patent can easily be compensated for the breach by limiting the patent-holder’s potential damages.”

Tellabs’ opposition to the motion was filed under seal, but Fujitsu’s public reply argues that Tellabs failed to identify any authority showing that a willful breach of contract is recognized under Illinois law.  Rather, Tellabs allegedly contends that Fujitsu’s willful breach “warrants equitable relief,” but, according to Fujitsu, such equitable relief is not available because Tellabs has an adequate remedy at law.  Citing Judge Holderman’s decision in the Innovatio case, Fujitsu argues further that “[a] RAND obligation is a contractual commitment:  the defendant, as the accused infringer, bears the burden of demonstrating the existence of a RAND obligation that limits the defendant’s damages if it is found to infringe.”  Again citing Innovatio, Fujitsu contends there are no “‘cases suggesting that the existence of a RAND commitment provides a complete defense against an infringement lawsuit.  Instead, most cases merely limit a patent holder’s remedy to collecting a RAND royalty, thus precluding injunctive relief.'”  According to Fujitsu, should Tellabs prove that Fujitsu breached its alleged RAND obligation to offer Tellabs a license on RAND terms, Tellabs’ remedy will be a license on RAND terms, an adequate remedy at law.  In a one sentence order, the Court denied Fujitsu’s motion to exclude evidence of willful breach.

Exclude Evidence SSO-Obligation Not Conditioned On Patent Covering Standard (Denied). Fujitsu also moved to preclude Tellabs from introducing evidence or argument that Fujitsu’s 1996 patent disclosure to the International Telecommunication Union (ITU), a standard-setting organization (SSO), was an unconditional offer to license the ‘737 patent on RAND terms, regardless of whether the ‘737 became standard essential.  “Tellabs’ RAND defense is based on a May 1996 Patent Statement (‘1996 Patent Statement’) that Fujitsu submitted to the [ITU] Telecommunication Standardization Sector (‘ITU-T’).”  “Fujitsu’s 1996 Patent Statement provided that Fujitsu was willing to grant a license to the ‘737 patent under [RAND terms] for the purposes of implementing five ITU-T Recommendations that were, at the time of the 1996 Patent Statement, in draft or ‘provisional’ form.”  Tellabs argues that the 1996 Patent Statement was an unconditional offer to license the ‘737 patent on RAND terms, regardless of whether it was later determined to be standard essential.  However, according to Fujitsu, “[a] promise to license a standard essential patent is a promise to license only the standard essential claims.”  Fujitsu argues that Tellabs’ argument is contrary to the court’s decision in Innovatio which, according to Fujitsu, held “that each asserted patent claim must be individually determined to be essential to a standard before a RAND obligation applies.”  Fujitsu argues further that “[t]he 1996 Patent Disclosure must be understood in the context of the ITU policies pursuant to which it was tendered.”  According to Fujitsu, its offer to license the ‘737 patent in the 1996 Patent Disclosure Statement was conditioned on the patent being essential to the adopted standard, and it is Tellabs burden to demonstrate essentiality in order to trigger a RAND obligation.  Tellabs’ opposition and Fujitsu’s reply were filed under seal.  The court denied the motion in a brief order.

Exclude Commercial Essentiality Evidence (Taken Under Advisement).  Fujitsu also moved to preclude Tellabs from introducing evidence or argument regarding “commercial essentiality” with respect “to the definition of standard essential under the patent policies of the” ITU.  “As a matter of law, ‘commercial essentiality’ is not a term or condition found in the ITU-T Patent Policy and, as such, commercial essentiality should not be read into the ITU-T’s policies.”  According to Fujitsu, “[t]he ITU Patent Policy only permits consideration of technically essential patents in determining whether a patent is standard-essential.”  Fujitsu contends that the ITU Patent Policies in effect at the time of the 1996 Patent Declaration “required that a patent be ’embodied fully or partly’ in” the standard in order to be considered standard essential.  “As the plain language of the ITU Patent Policy does not reference or include commercial essentiality, a standard essential patent to an ITU Recommendation is limited to one which is technically essential to practicing a particular recommendation.”  Fujitsu argues further that “[g]enerally, SSOs have not expanded the definition of essentiality to include commercially essential patents; rather, the vast majority of SSOs limit that definition to technically essential patents.”  Finally, Fujitsu urged the court not to permit Tellabs to add commercial essentiality to the ITU’s Patent Policy for policy reasons.  “The determination of commercial essentiality is a subjective determination that requires consideration of a variety of factors and balancing of competing interests.”  “If a RAND obligation were to apply to any patent which eventually becomes commercially essential, regardless of how much time has passed, the incentive to compete, develop and refine that technology would be drastically reduced.”  Here again, Tellabs’ opposition and Fujitsu’s reply were filed under the seal.  After briefing was closed, the court issued an order taking Fujitsu’ motion under advisement, and instructing the parties that commercial essentiality “should not be referred to without specific permission of the court on the record.”

Exclude Specific RAND Rate (Denied).  Fujitsu next moved to preclude Tellabs from introducing evidence of specific royalty rates that may constitute a RAND rate.  “The threshold issue in this trial is whether Fujitsu is obligated to offer Tellabs a RAND license on the ‘737 patent because Fujitsu submitted this patent during the ITU-T Recommendation” process.  “Assuming there is such an obligation, the next issue is whether the obligation was breached, and if so, whether it was willful.”  “Tellabs has further stipulated that a specific damages amount is not an issue for the trial.”  “Therefore, evidence regarding a possible specific RAND rate is not an issue or relevant.”  Tellabs’ opposition and Fujitsu’s reply were filed under seal.  The court issued an order denying the motion.

Exclude Competing Contract Bids As Motivation To Breach RAND Obligation (Denied).  Fujitsu also moved to preclude Tellabs from introducing evidence or argument regarding a 2005 request for proposal from Verizon to both Tellabs and Fujitsu.  According to Fujitsu, both it and Tellabs “bid to provide products and services to Verizon.”  “Fujitsu offered to sell its Flashware 7500 and Tellabs offered to sell its 7100 Optical Transport System.”  “Verizon awarded the bid to Tellabs…because Verizon believed the 7100 system was more advanced [than] the Flashware 7500.”  According to Fujitsu, the “details of the 2005 Verizon bid” and “Fujitsu’s internal communications following the same” are irrelevant to the issues to be tried.  Specifically, Fujitsu contends that “[t]he RAND issue to be determined at trial has to do with whether Fujitsu was contractually obligated to offer the ‘737 patent on RAND terms, and whether Fujitsu breached that obligation.”  “The market competition between the parties, including the Verizon bid competition, is entirely irrelevant to whether or not Fujitsu had a contractual RAND obligation to Tellabs and breached the same.”

Tellabs’ opposition was filed under seal.  According to Fujitsu’s reply, Tellabs “admits that it plans to use internal Fujitsu communications at trial, which supposedly demonstrate Fujitsu’s motivation to breach an alleged RAND obligation.”  “However, even if the question of whether Fujitsu’s alleged RAND breach was willful is presented to the jury, Fujitsu’s internal communications and business motivations are irrelevant to willfulness and should be excluded” as irrelevant and prejudicial.  The court denied the motion.

Exclude Specific Infringement Damages Amount Sought (Denied).  Fujitsu next moved to preclude Tellabs from introducing evidence or argument regarding the specific damage amounts claimed by Fujitsu in its infringement claim against Tellabs.  Here again, Fujitsu argued that “[t]he threshold issue in this trial is whether Fujitsu is obligated to offer Tellabs a RAND license on the ‘737 patent.”  “Tellabs has stipulated that a specific damages amount is not an issue for the trial.”  “Therefore, evidence regarding any specific damages amounts claimed by Fujitsu are not at issue or relevant.”  The remainder of the briefing on this motion was filed under seal.  The court denied the motion.

Tellabs’ Motions To Exclude Evidence

Exclude Argument ITU Distinguishes Between Commercially and Technically Necessary (Granted).  Tellabs cross-moved to prevent Fujitsu from arguing “that the ITU Patent Policy distinguishes between commercially essential and technically essential patents.”  According to Tellabs, “this issue has already been decided as a matter of law.”  Specifically, “in Qualcomm v. Broadcom, the Federal Circuit analyzed various sections of the ITU Patent Policy and specifically rejected the argument that Qualcomm was not subject to a duty of disclosure if the relevant standard could be practiced without infringing Qualcomm’s patents.”  “Instead, the Federal Circuit ruled that, according to the ITU Patent Policy, the disclosure duty applies to all patents that ‘reasonably might be necessary’ to practice the standard, not only patents that must ‘actually be necessary.'”  According to Tellabs, “[i]n attempting to distinguish between commercially essential and technically essential, Fujitsu is simply rehashing Qualcomm’s rejected argument — that the duty applies only to patents that must ‘actually be necessary’ to practice the standard.”  “Regardless of whether the ‘737 patent is commercially essential or technically essential, it ‘reasonably might be necessary’ to practice the standard.”

Fujitsu opposed the motion, arguing that “[t]he Qualcomm Court did not address technical or commercial essentiality.”  “The tenuous nature of [Tellabs’] argument is highlighted when one considers that Fujitsu intends to call Gregory Ratta, a long-time former ITU-T employee who has offered testimony that the ITU-T definition of a standard essential patent does not include commercial essentiality.”

Tellabs’ reply was filed under seal.  The Court granted Tellabs’ motion.

Exclude Argument That RAND Commitment Was Conditional (Denied).  Tellabs also moved to prevent Fujitsu from presenting testimony, evidence or argument that Fujitsu’s declaration to the ITU and commitment to license the ‘737 patent on RAND terms is subject to any conditions, “including the ‘737 patent being essential,” other than those conditions set out in a declaration submitted by Fujitsu.  All briefing on this motion was filed under seal.  In a one paragraph order, the Court denied the motion.

Exclude Argument RAND License Offered To Tellabs (Granted).  Tellabs next moved to preclude Fujitsu from introducing evidence or argument that Fujitsu offered Tellabs a RAND license for the ‘737 patent.  The briefing on this motion was filed under seal.  However, the court granted the motion because “Fujitsu admits that it never offered Tellabs ‘any royalty rate, RAND or otherwise.'”  Therefore, “[n]o evidence suggesting the contrary will be allowed.”

Preliminary Jury Instructions and Preliminary Verdict Form

As noted above, Judge Holderman also issued preliminary jury instructions as well as a preliminary verdict form, the latter of which was subsequently revised for a second time.  The preliminary instructions were read to the jury at the outset of the trial to give them a brief overview of the dispute.  The preliminary verdict form was also provided to the jury as a guide for the questions that they will have to unanimously answer at the conclusion of the trial.  While the purpose of these documents was to brief the jury on the issues they will decide, the final jury instructions and verdict form, which will be read to the jury at the conclusion of the case, will control the jury’s determination.

The preliminary instrucitons as well as the verdict form tell the jury that Tellabs has the burden of proving the following elements by a preponderance of the evidence (i.e., tipping the scales in its favor):

  1. Fujitsu agreed that it was willing to grant a license of its ‘737 patent’s technology on RAND terms in compliance with the ITU’s Patent Policies;
  2. Fujitsu’s ‘737 patent’s technology was included in — meaning “may be required to implement” — one or more of the necessary specifications of the standardized technology recommended in ITU-T Recommendation G.692;
  3. Fujitsu breached its agreement that it was willing to grant a license of its ‘737 patent’s technology on RAND terms by, among things, not offering Tellabs a license and filing suit seeking injunctive relief for infringement; and
  4. Tellabs would have been willing to negotiate a license of Fujitsu’s ‘737 patent’s technology from Fujitsu on RAND terms in compliance with the ITU’s patent policies, if Fujitsu had offered Tellabs RAND terms for such a license;

Finally, Tellabs must show, by clear and convincing evidence, that Fujitsu was willful in its alleged breach of its agreement that it was willing to grant a license on RAND terms for its ‘737 patent’s technology, in that Fujitsu’s breach was intentional, knowing and with conscious disregard for Tellabs’ rights, or alternatively, was done with reckless disregard for Tellabs’ obvious or known rights.

SanDisk brought suit against Round Rock Research in the District of Delaware last week, alleging that the patent assertion entity’s acquisition and enforcement of standard essential patents previously held by Micron Technology has violated federal and state antitrust laws and breached contractual commitments to license the patents on RAND terms. The action, Sandisk Corporation v. Round Rock Research LLC, Case No. 1:14-cv-00352, comes in the midst of two ongoing patent cases between the companies — one declaratory judgment action filed by SanDisk in the Northern District of California and the other an infringement action filed by Round Rock in Delaware.

SanDisk’s March 20, 2014 complaint alleges that Round Rock Research conspired with flash memory device manufacturer Micron Technology to acquire and subsequently monetize patents that Micron could not enforce itself due to SSO commitments.  Specifically, SanDisk alleges Micron’s participation in the JEDEC Solid State Technology Association obligated Micron to disclose patents that might be relevant to JEDEC’s work, even after the adoption of a given standard and to offer participants licenses on RAND terms.  SanDisk alleges that Micron failed to disclose the patents-at-issue despite their relevance to JEDEC eMMC standards and that Round Rock acquired the patents in attempt to monetize them free of Micron’s SSO obligations:

After acquiring patents from Micron, Round Rock sought from SanDisk supracompetitive, hold-up royalties for patents that Micron had never disclosed to JEDEC and that Round Rock claimed SanDisk infringed by practicing a JEDEC standard (“the eMMC standard”). When SanDisk did not capitulate to its demands, Round Rock sued seeking above-RAND royalties and treble damages based on undisclosed alleged standard-essential patents.

SanDisk further alleges that Round Rock has admitted to targeting SanDisk’s current eMMC-compliant products by acquiring patents it believed covered those devices.

By way of background as set forth in the complaint, Round Rock acquired a group of patents from Micron in 2009. Round Rock later approached SanDisk regarding these patents and made a presentation to SanDisk in October 2011, during which Round Rock claimed to have acquired patents reading on products compliant with JEDEC eMMC standard JESD84-A441.   Round Rock sought “supracompetitive” royalty fees on SanDisk’s embedded flash drive products. SanDisk filed for declaratory judgment that the patents presented by Round Rock were invalid and not infringed by SanDisk. Case No. 3:11-cv-05243 (N.D. Cal.). Round Rock then acquired new patents from Micron in 2012 and filed a separate patent infringement action against SanDisk in Delaware. Case No. 1:12-cv-00569.

Since 2011, Round Rock has filed approximately 20 patent infringement actions against a variety of companies, including Acer, Amazon.com, American Apparel, ASUSTeK, Dell, Dole Foods, Fruit of the Loom, Gap, Hanes, HTC, JC Penny, Lenovo, Macy’s, Oracle, Pepsi, V F, and Wal-Mart, almost all of which were also filed in the District of Delaware.

gavel

This afternoon the RAND breach of contract case between Microsoft and Motorola went to the jury, and this evening — after just a few short hours of deliberation — the jury came back with its verdict.  According to Curtis Cartier (@curtis_cartier on Twitter), a freelance journalist who attended the trial, the jury found for Microsoft “on every question asked of them” and awarded $14.5M in damages to Microsoft.  (Note that this is approximately half of the total damages that Microsoft was seeking as compensation for Motorola’s alleged RAND breach of contract).

We can expect Motorola to try to get Judge Robart to set aside all or part of the verdict on post-trial motions, and probably appeal if that does not work (but to which court?).  In the meantime, we now have seen what appears to be the first jury verdict finding a breach of contractual RAND obligations…

  • Here’s some initial coverage on the verdict from Janet Tu at the Seattle Times, including an initial reaction from Microsoft.
  • This article from Susan Decker at Bloomberg features quotes from both Microsoft and Motorola representatives:
    • Microsoft: “This is a landmark win for all who want products that are affordable and work well together.  The jury’s verdict is the latest in a growing list of decisions by regulators and courts telling Google to stop abusing patents.”
    • Motorola: “We’re disappointed in this outcome, but look forward to an appeal of the new legal issues raised in this case.”

Also yesterday, both Microsoft and Motorola each filed motions for judgment as a matter of law (commonly known as JMOL motions), asserting that because no reasonable jury could find otherwise, Judge Robart should find in their (respective) favor on various issues.  The court has taken these motions under advisement — if you’d like to check out the motions, we’ve linked to them below.

[UPDATE]  The jury verdict form has now been made available [LINK].  The jury did in fact find for Microsoft on all counts, and did not unanimously — 8-0.  [/UPDATE]

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)

A couple months ago, Microsoft asked Judge James L. Robart to confirm that the second phase of the Microsoft-Motorola RAND breach of contract trial — in which the actual breach and damages issues will be addressed — would be tried to Judge Robart himself, and not a jury (a motion that Motorola opposed).  Microsoft claimed that Motorola had waived its right to a jury trial.  But yesterday, Judge Robart issued an order denying Microsoft’s motion, setting a jury trial to begin on August 26, 2013 on the breach of contract issues.

[2013.05.20 Order Denying Motion Confirming Bench Trial]

As support for the ruling, the court explained that Microsoft itself demanded a jury trial on the very same causes of action (breach of contract/promissory estoppel) that were asserted as counterclaims in a Motorola patent infringement action that was later consolidated with the RAND breach of contract case.  The court noted that since the actions were consolidated, “Motorola may reasonably rely on Microsoft’s demand for a jury trial on all issues, including the breach of contract issues.”  (As we have previously discussed, consolidation of the cases may also ultimately affect appellate jurisdiction in the case, too).  While Judge Robart acknowledged that “Motorola could have been more clear in its jury demand,” he explained that given the complicated mix of issues in the case, he came to the conclusion that he must give Motorola all reasonable presumptions against waiver.

So it’s up to several good citizens of the Seattle, WA area to decide whether Motorola breached its RAND obligations — this ought to be interesting.  Mark down August 26, 2013 in your calendars, folks.

The district court in the Microsoft-Motorola RAND breach of contract case has already decided some unique issues of first impression, and will take on some more in the next phase of the case.  And if the parties don’t settle, an appeal is likely to follow.  This raises an interesting question, one that doesn’t necessarily have a clear answer — which appellate court would have jurisdiction over an appeal of Judge Robart’s RAND-related rulings?

The Western District of Washington sits within the 9th Circuit Court of Appeals (which, as noted below, has already heard an interlocutory appeal in this case).  But as you may know, in order to preserve uniformity in patent law, the U.S. Court of Appeals for Federal Circuit in Washington, DC is the court designated by Congress as the appeals court with exclusive jurisdiction for nearly all patent cases.  The Microsoft-Motorola case (at least the part which has garnered the most attention) involves a breach of contract issue relating to patents, standard-setting, and patent licensing issues.  So, which is it — the 9th Circuit or the Fed Circuit?

Brace yourselves – this will take a couple thousand words.

Continue Reading Which appeals court has appellate jurisdiction over the Microsoft-Motorola RAND case?

In the aftermath of last week’s Microsoft-Motorola RAND-setting opinion, the case will now to proceed toward an August trial date.  At this trial — if it gets that far — either Judge Robart or a jury (this issue is still up in the air) will determine (1) whether Motorola breach its RAND obligations to the IEEE and ITU; (2) if a breach has occurred, whether Microsoft is entitled to damages as a result; and (3) the amount of any damages owed.  As we’ve noted before, Microsoft will likely seek summary judgment prior to trial, given the difference between Motorola’s opening 2.25% offer and the final RAND royalty rate set by Judge Robart.  But either way, the issues of breach of contract and potential damages remain in the case, and the parties are currently taking some limited discovery on these issues.

Yesterday, Motorola filed a letter motion with the court [LINK], asking it to limit the theories on which Microsoft may base its damages claims.  Motorola asserts that in recent weeks, Microsoft has significantly (and improperly) expanded its damages contentions in violation of the Federal Rules of Civil Procedure, prejudicing Motorola’s ability to prepare its own case.

Continue Reading Motorola asks Washington court to limit Microsoft’s theories of damages for potential RAND breach

The standard-essential patent battle between InterDigital and Chinese handset makers Huawei and ZTE rages on in the U.S. District Court for the District of Delaware.  Recall that the parties are awaiting an Initial Determination in ITC Inv. No. 337-TA-800, and are also involved in Inv. No. 337-TA-868.  In the companion district court cases to the -868 investigation, Huawei and ZTE attempted to have the Delaware court expedite a determination of FRAND terms for InterDigital’s portfolio, an attempt that was rebuffed by the court.  But now, in motion filed yesterday, InterDigital seeks to have Huawei and ZTE’s FRAND-related claims dismissed altogether.  InterDigital argues that the FRAND counterclaims should have been asserted in an earlier litigation, are not ripe, and merely seek an advisory opinion.  InterDigital also claims that Huawei and ZTE have failed to allege the existence of an enforceable contractual commitment under the applicable law. Continue Reading InterDigital asks Delaware court to dismiss Huawei, ZTE’s FRAND counterclaims