Oral Argument in the appeal of Judge Koh’s FTC v. Qualcomm decision is schedule to take place February 13, 2020 before the 9th Circuit Court of Appeals in San Francisco to consider whether and to what extent competition law should apply to licensing standard essential patents (SEPs). This appears to be the most important and impactful U.S. case so far on the issue and could have far reaching impact on domestic and foreign SEP licensing.

The Court will hear from Qualcomm and the U.S. Federal Trade Commission (FTC) and has also allotted the U.S. Department of Justice (DOJ) five minutes to present as amicus curiae during the argument. In addition to the parties-at-interest and DOJ, twenty-two amicus briefs have been lodged in the case by other companies, licensors, industry groups, academics, and interested parties. In fact, due to public interest in the case, the Ninth Circuit has created a separate website dedicate to the appeal, “to notify the media and public of procedures and rules for admission to proceedings, as well as access to case information.” The FTC also maintains its own website on the litigation that includes all the FTC’s filings and public statements regarding the proceedings.

In anticipation of the upcoming hearing, we’re provide this summary of the appeal issues and topics raised by the amicus briefs. As usual, we provide links to the filings and encourage you to read through them yourself.
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Today, the Unites States Patent & Trademark Office (“USPTO”), the U.S. Department of Justice, Antitrust Division (“DOJ”) and the National Institute of Standards and Technology (“NIST”) issued a joint “Policy Statement on Remedies For Standards-Essential Patents Subject To Voluntary F/RAND Commitments.”  This policy statement supplants  the prior 2013 joint policy statement on remedies

Today the Federal Circuit vacated Judge Selna’s bench trial decision in the much-watched TCL v. Ericsson case, ruling that Ericsson has the right to a jury trial to  determine  compensation for past infringement of Ericsson’s standard essential patents (SEPs) under the Seventh Amendment of the U.S. Constitution.  So this case involving a FRAND computation method

Today, the Ninth Circuit issues an Order that stays Judge Koh’s injunction entered in the FTC v. Qualcomm case in order to maintain the status quo so that the Ninth Circuit can decide whether Judge Koh’s “order and injunction represent a trailblazing application of the antitrust laws, or instead an improper excursion beyond the outer limits of the Sherman Act”, which is not decided by this Order but “is a matter for another day.”

We provide a summary of the ruling below and, as always, recommend reading the 7-page Order for yourself (see link in first sentence above).   The Ninth Circuit has not decided the substantive issues–that will be done on “another day”–but did indicate that Qualcomm had raised meritorious arguments that (1) Qualcomm was not required to license its SEPs to rival chip suppliers and (2) Qualcomm could assess royalties on its SEPs on a per-handset basis (rather than based on modem chip component of the handset).

As far as next steps, the parties and interested amicus on all sides of the issue are preparing briefing on an expedited schedule in preparation for a hearing at the Ninth Circuit in January 2020.
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Last week, Judge Gilstrap ruled that Ericsson’s end-product-based “offers to HTC–$2.50 or 1% with a $1 floor and a $4 cap per 4G device–were fair, reasonable and non-discriminatory.”  Judge Gilstrap found that the comparable licenses presented by Ericsson to be “the best market-based evidence” of the value of Ericsson’s standard essential patents (SEPs) and that “the market evidence, in the form of comparable licenses, has failed to embrace HTC’s preferred SSPPU [smallest salable patent-practicing unit] methodology.”    He noted that there was no evidence that industry licenses are negotiated based on the cost of a baseband chip (the alleged smallest saleable patent practicing unit or SSPPU) and evidence showed that the value of SEPs can exceed the value of the chip, which price does not include the cost if that intellectual property.  This SEP cases is one of the closest to capturing what actually happens in the licensing market with FRAND-committed SEPS, rather than generating new litigation-based theories on valuing SEPs (e.g., top-down analysis).  This decision also is at odds in many respects with the decision by Judge Selna in the TCL v. Ericsson case that currently is on appeal at the Federal Circuit (see our Jan. 3, 2018 post summarizing that decision).
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A jury recently found that Huawei willfully infringed four patents owned by PanOptis alleged to be essential to mobile cellular standards and subject to a FRAND commitment as well as a fifth patent related to the H.264 video compression standard but was not subject to a FRAND commitment.   The jury awarded a reasonable royalty of $7.7 million for the single patent without a FRAND commitment, which was almost three times higher than the combined royalty awarded for the four FRAND-committed SEPs of $2.8 million.  But it is not clear at this point whether that difference is due to the FRAND-commitment or to the relative value of the patented technologies to the infringing products.

Prior to trial, the court also showed judicial restraint by limiting the case to determination of FRAND commitments on U.S. patents as a matter of U.S. law and not opining on FRAND commitments for foreign patents under foreign law.  For example, the court refused to enjoin a Chinese antitrust action based on alleged FRAND violations for related Chinese SEPs.  And the court refused to include in this case a determination of whether there was infringement of related foreign SEPs and whether licensing offers on those foreign SEPs complied with the FRAND commitment under foreign law.

The next steps in this case involves the court holding a bench trial (i.e., trial before the judge, not a jury) on whether PanOptis licensing offers complied with its FRAND commitments.  Further, the parties will file the usual post-trial motions that may challenge the jury verdict and ultimate bench trial ruling.  Those further filings may provide more insight into the case.  So stay tuned.
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Magistrate Judge K. Nicole Mitchell of the Eastern District of Texas recently denied patent owner Cellular Communications Equipment LLC (“Cellular” or “CCE”) motion for summary judgment that its asserted patents were not essential to a cellular standard, ruling that there was a factual dispute based on statements made by patent owner Cellular during the litigation.  This case illustrates problems in loosely referring to standard essential patents generically as patents relevant to a standard or erroneously stating that a patent was “declared essential.”  Declarations that patent owners submit to standard setting bodies typically do not declare that patents are essential to the standard, but identify patents that may be essential to the standard and what licensing terms, if any, they would offer if the patent actually is essential.  A patent is not actually a “standard essential patent” or “SEP” unless it is “essential” to the standard under the standard setting body’s intellectual property rights (IPR) policy.

Further, this case illustrates that,  just because a patent is infringed by one way of implementing the standard does not mean that the patent covers every way to implement the standard and, thus, may be “essential” and subject to a standard-setting licensing commitment.

In sum, for convenience, speakers, writers and parties may loosely talk about a patent or patent portfolio as being SEP(s) as a short-hand for patents that were declared potentially an SEP.  But, when making statements on which a court, agency or other decisions may rely, it may be helpful to be more precise or provide a caveat that the term SEP is being used as a short-hand and does not mean that a patent actually is essential to the standard.
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Judge Gilstrap recently issued an Order rejecting the equitable defense of patent misuse in a case involving standard essential patents (SEPs) subject to a commitment to license them on fair, reasonable and non-discriminatory (FRAND) terms.  Motorola Mobility LLC (Motorola) alleged that Saint Lawrence Communications LLC (St. Lawrence or SLC) was guilty of patent misuse by, among other things, requiring Motorola to take a worldwide license to FRAND-committed SEPs, using the threat of injunctive relief in Germany to coerce licensing of those SEPs, entering different license terms with different licensees and not disclosing effective royalties from licensing the SEPs under a patent pool when negotiating individual licenses.  This decision is another indication that competition law claims asserted against SEPs may not prevail when patent owners have followed traditional patent enforcement and licensing strategies or even if they breach of a FRAND commitment.  Rather, there must be something more egregious or deceptive with the particular patent owner’s conduct at issue to give rise to competition law claims that are required to address harm to competition beyond harm that can be addressed by more traditional patent or contract law remedies — e.g., a contract remedy for breach of a FRAND commitment or limits on patent remedies based on a FRAND commitment.
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Today, Judge Selna issued on Order ruling on Ericsson’s motion to alter or amend his FRAND ruling. (See our Jan. 3, 2018 post summarizing FRAND royalty ruling).  Under the procedural posture of the Rule 52(b) motion for seeking modification of a judge’s bench trial findings of fact and law, Ericsson had to show that its proposed changes to that ruling were needed “to correct manifest errors of law or fact or to address newly discovered evidence or controlling law” or were not changes that “would not affect the outcome of the case or are immaterial to the court’s conclusions.” (Order at 2).  Given this difficult standard, Judge Selna only agreed to make minor word changes to his decision, which he will soon reissue with other clerical corrections and some corrections to be made based on TCL’s Rule 52(b) motions (which were also apparently minor changes).  To be clear: by “minor changes” we mean as far as significance in applying the decision to other cases between other parties; we could be mistaken and, moreover, have no comment on how significant the changes may be to the instant parties in this particular case.  The next substantive step in this case will be the Federal Circuit appeal that Ericsson already filed, but that has been stayed pending the outcome of the parties’ Rule 52(b) motions.
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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 …
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