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. Continue Reading Jury awards running royalty for willfully infringed SEPs subject to FRAND commitment (Optis v. Huawei)

Judge Andrews has entered an order allowing InterDigital and ZTE to proceed with FRAND and damages discovery, following last week’s jury verdict finding that ZTE’s accused handset devices infringe the patents asserted by InterDigital. As we previously mentioned, ZTE asserted a number of FRAND-related affirmative defenses and counterclaims in the litigation, all of which were bifurcated from the infringement liability issues on trial last week. With respect to the SSO-related portion of the case, the order instructs the parties to proceed with FRAND and damages discovery under the assumption that the infringement verdict will stand and without the need to coordinate with discovery in InterDigital’s co-pending case against Nokia, scheduled for trial March 2015:

FRAND/damages discovery may begin immediately. It is going to have to be done, and the parties should do it (as they normally would) on the assumption that ZTE will be found to have infringed the ‘151 patent. It does not need to be coordinated with any similar discovery in the Nokia case. The parties should include the scheduling for this discovery in the written proposed scheduling order submitted before the above-mentioned scheduling conference. The schedule should culminate in a trial disposing of the FRAND/damages issues.

The order also denies the pending JMOL motions — after trial, ZTE filed for JMOL of noninfringement and InterDigital sought JMOL declaring each of the asserted patents were not invalid — sets a briefing schedule for ZTE’s renewed JMOL or motion for new trial, invites the parties to submit an agreed-upon revised judgment form, and indicates the Court will “issue an order in the Nokia case to learn Nokia’s position on further claim construction in relation to the ‘151 patent” which was presented at trial but ultimately not decided by the jury. During the trial, the Court suggested and the parties stipulated to a mistrial with respect to the ‘151 patent after certain claim construction evidence was presented by InterDitigal. The parties afterwards agreed to hold separate claim construction proceedings on the ‘151 patent and, in accord with yesterday’s order, will proceed with a two-day trial on infringement issues related to this patent alone at a later date.

A California federal jury handed Apple a substantial victory over patent-plaintiff GPNE yesterday afternoon, finding Apple’s iPhone and iPad products do not infringe three GPNE patents alleged to be essential to GPRS and LTE standards. After less than one day of deliberations following a two-week trial, the jury issued a verdict form finding that none of Apple’s products infringed the asserted patents and awarding no amount of the $94 million in damages sought by GPNE. The jury did not deliver a complete landslide victory to Apple, finding the tech-giant failed to prove the asserted patent claims to be invalid.

This case first appeared on our radar after GPNE submitted an expert report on damages opining that the asserted patents should be afforded a royalty rate greater than what was warranted by the technical value of the patent based on the “hold-up” value the patent. Based on the opinion of GPNE’s technical expert that the asserted patents were essential to the GPRS and LTE communication standards, GPNE’s damages expert argued that because the patents are not subject to any RAND-obligation, the alleged standard-essential patents demand a higher royalty rate higher than the particular patented technology itself warranted. As discussed in our April 23, 2014 post, Judge Koh excluded the expert’s testimony without prejudice, allowing GPNE to submit an amended expert report on damages. GPNE’s damages expert submitted a subsequent report providing additional support for the royalty calculation and was permitted to present testimony on both reports at trial.

 

Judge Richard Andrews of the District Court of Delaware dismissed Nokia and ZTE’s amended FRAND counterclaims against InterDigital on Wednesday, ruling that the amended declaratory judgment actions would not serve a useful purpose in the context of the parties’ ongoing litigation. Nokia and ZTE’s FRAND counterclaims involve around 500 patents identified to ETSI as possibly reading on the UMTS 3G and/or LTE 4G standards and an additional set of patents related to the ITU’s CDMA2000 3G standard. The counterclaims further allege that, pursuant to the ETSI, ITU, and TIA IPR Policies, InterDigital has declared a large portion its patent portfolio as essential or potentially essential to these cellular telecommunications standards and has voluntarily entered into binding and enforceable FRAND-licensing commitments for these patents. Wednesday’s decision marks the second time that the Court has dismissed a set of FRAND-related counterclaims in these actions, having previously dismissed Nokia and ZTE’s FRAND counterclaims against InterDigital last July.

Following the Court’s July 2013 dismissal, ZTE filed amended counterclaims seeking a declaration that InterDigital had failed to provide offers to ZTE on FRAND terms and requesting that the court determine an appropriate FRAND rate. Nokia similarly amended its counterclaims, requesting that the court declare that InterDigital did not offer a FRAND rate and determine what the terms of a FRAND license would be. InterDigital then moved to dismiss on the grounds that, even if the Court were able to determine a FRAND rate, the determination would be of no practical help or utility because of the remaining disputes regarding whether the various patents-at-issue are essential to the underlying standards.

Considering InterDigital’s Motion to Dismiss, Judge Andrews reviewed the extensive litigation and negotiation histories between InterDigital and ZTE and Nokia, providing a high-level overview of the offers, counteroffers, and resulting lawsuits between the companies and InterDigital.  Judge Andrews considered the Third Circuit’s analysis of whether declaratory judgment subject matter jurisdiction exists based on three basic principles: “(1) ‘adversity of the interest of the parties,’ (2) ‘conclusiveness of the judicial judgment,’ and (3) ‘the practical help, or utility, of that judgment.'”  Judge Andrews assumed that the first two princples were met — that there is adversity of interest and that “the Court could conclusively decide a FRAND rate.”  Thus Judge Andrews focused the subject matter jurisdiction analysis on the third principle of whether the declaratory judgment would provide “practical help, or utility” so as to provide the Court with subject matter jurisdiction over the counterclaims.

Assuming, arguendo, that the Court could conclusively determine a FRAND rate in an efficient manner — an assumption that the Court found “highly dubious considering that there are 500 or so possibly relevant patents” — Judge Andrews wrote that he was “far from convinced that the trial that would be necessitated by the declaratory judgment would serve any useful purpose.” The Court reasoned that, even if a FRAND rate were determined, it is not clear as to how such a ruling could be enforced, finding that neither Nokia nor ZTE had obliged themselves to be bound by the Court’s potential determination and expressing concern for how declaratory relief would be utilized by the parties:

While both Nokia, and to a greater extent ZTE, have indicated their “willingness” to accept a license, there has been no sworn affidavit by either company that they would sign a license. Companies can change or sell their product lines. They can enter and withdraw from markets. They can appeal district court decisions, and initiate other litigation, which would either delay or derail a final judgment. All the Court’s determination of a FRAND rate would accomplish would be to give a data point from which the parties could continue negotiations.

Judge Andrews further reasoned that determining a FRAND rate would not lead directly to a patent license because of the plethora of other licensing issues, including warranties, indemnification, cross-licensing, trademarks and attribution, insurance, and so on, that would need to be negotiated between the parties, noting that on multiple occasions he has seen agreed upon term sheets fail to turn into a final agreement.

The Court also found that the declaratory judgment actions seeking a determination of whether InterDigital had in fact offered a FRAND rate would serve little to no useful purpose as such an undertaking would only serve “to alter the current negotiating power between the parties” and “any impact that this determination would have on the patents-in-suit is encompassed within the multitude of affirmative defenses that both Nokia and ZTE assert”, noting that FRAND issues are captured by ZTE’s affirmative defenses for patent misuse, breach of contract, unclean hands, and existence of an express or implied license.

Judge Andrews also indicated that any agreement between the parties would involve business considerations not suitable to litigation, and suggested arbitration might be a better route to resolution:

It seems to me likely that the parties do in fact want to reach an agreement.  Negotiating such an agreement involves mostly business considerations.  It does not seem to me that litigation by itself is a very effective means to make an agreement between willing parties.  I understand that the parties cannot agree on the scope of arbitration.  If they could, or they could decide to have the arbitrator decide the scope, that would appear to be a possible way to proceed.

With standard-essential-patent (SEP) damages discussions frequently focused on how to calculate a RAND rate, one can sometimes forget that not all SEPs are subject to [F]RAND obligations, which raises the issue whether and to what extent a reasonable royalty rate would be different between RAND and non-RAND encumbered patents. Last week, N.D. Cal. Judge Lucy Koh issued a Daubert ruling in an interesting case where the damages model from a non-practicing patent monetization entity attempted to affirmatively factor-in a higher royalty rate beyond the technical value of the patent based on the “hold-up” value the patent obtained by allegedly covering a cellular standard without the patent being subject to any standard setting RAND or other licensing obligation. The court, however, excluded such testimony from plaintiff’s damages expert.

Other SEP cases have theorized that patent hold-up may occur with an SEP, but there was no evidence that patent hold-up actually occurred.  This case, GPNE Corp. v. Apple, Inc. (Case No. 12-CV-02885-LHK), serves as the only litigated instance we are aware of in which actual hold-up was shown to occur based on the SEP patent owner affirmatively trying to use the value of patented technology being in a standard to demand a rate higher than the particular patented technology itself warranted.  As this is only a single data point, we cannot extrapolate too far, but the case indicates that, in a rare instance so far where actual SEP hold-up is shown to occur, a court may reject an attempt to seek a royalty beyond the value of the patented invention itself based on a patent covering a standard regardless whether that patent is or is not subject to RAND or other standard setting obligation.

Here is how the ruling came about. GPNE filed an infringement suit against Apple on May 10, 2012, asserting three patents that are alleged to be essential to 3G and 4G cellular standards. Both parties submitted expert reports and testimony on damages, each of which performed a reasonable royalty damages analysis using the Georgia Pacific factors. After expert discovery closed, both parties sought to exclude one another’s damages expert testimony from trial.  In a hypothetical negotiation for a reasonable royalty, GPNE’s damages expert relied upon a number of qualitative factors indicating the importance of 3G and 4G cellular technology as a whole to the accused infringing devices–rather than just the importance of the patented technology to those devices– to arrive at a royalty rate of $1 per device.

GPNE’s expert assumed that the patents covered cellular connectivity standards such that Apple could not design around the patents and still sell products that could work on GPRS, EDGE, and LTE networks without a license to GPNE’s patents. In other words, GPNE’s expert asserted that the hypothetical negotiation could factor-in patent “hold-up” value in which the patent owner would capture the value of the patent covering a standard–and hence the value of complying with the standard– regardless of the patent’s particular technical contribution/value to the standard or the accused product:

GPNE had the power to “hold up” Apple, giving it considerable negotiating leverage based on the scope of its intellectual property rights. GPNE had no obligations to use an ex ante framework to license its [standard-essential patents] – the ex ante evaluation would be irrelevant as would be the consideration of rates for patent pools in determining an appropriate royalty rate in this matter.

The expert apparently based the $1/unit figure on the value of cellular technology in general to the Apple products, rather than the value of the specific patents themselves. The damages expert further indicated that the $1/unit royalty amount was determined generally based on his “30 years of experience in the licensing world” and that “there is no mathematical calculation… to derive the one dollar”.

Reviewing GPNE’s proffered expert opinions, the Court granted Apple’s motion to exclude the damages testimony on the grounds that GPNE’s expert provided no methodology to derive the $1/unit royalty from the average net incremental profit ($86), performed no analysis to apportion value to the specific patent’s technological contribution, and cited various licenses that did not support the $1/unit rate. The court reasoned that GPNE’s expert analysis “is a black box that provides no basis for the $1 per unit royalty figure, cloaking this arbitrary choice in broad statements about the general value of cellular connectivity.”

The court further criticized the lack of apportionment analysis in GPNE’s expert opinion on damages, indicating GPNE’s expert presented no evidence of the value of the specific patented technologies. Citing Georgia Pacific factor  13, “[t]he portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer”, the court found that no such apportionment was taken into consideration. The court stated that, while the expert report relies on generic statements regarding the importance of 3G and 4G LTE connectivity technology to Apple generally, the report made no attempt to distinguish technologies covered by the patents-at-issue, which the court’s claim construction found are related primarily to pager technology, from the non-infringing features of 3G and 4G LTE technology standards. The failure to distinguish between the two proved fatal to the damages opinion, with the court ruling “GPNE must make some attempt to distinguish the allegedly infringing features of 3G and 4G LTE from the non-infringing features, so that [GPNE’s expert] may apportion value between them.”

This case indicates that a proper analysis for determining either a reasonable royalty or RAND-encumbered royalty for a patent that covers an industry standard may account for patent hold-up concerns by providing a reasoned apportionment between the value of the patented features and the unpatented technical value of other features including the affected standard.  That rationale is supported by Factor 13 of a typical Georgia-Pacific analysis that seeks to apportion value to the specific patented technology apart from other non-patented features.

In the midst of ongoing litigation against Nokia and HTC abroad, German patent monetization firm IPCom’s claim of patent infringement against Apple will be heard before Germany’s Mannheim Regional Court next Tuesday, February 11 (see our Januray 2013 post for some additional information on how patent litigation and RAND issues are handled in Germany).  IPCom is seeking upwards of $2 billion in damages.

The litigation involves a standard-essential wireless patent covering a technology that prioritizes emergency calls placed on overloaded wireless communication networks.  Interestingly, the claimed technology is not only deemed essential to UMTS and LTE wireless standards, but implementation of the technology is required by law.  Despite a joint effort by Apple, Nokia, HTC, and Vodafone to have the patent declared invalid, the European Patent Office issued a decision last month upholding the validity of the patent, albeit narrowed in scope.  The $2 billion sought by IPCom allegedly covers only German sales and the company has yet to indicate whether additional suits would be filed in other jurisdictions.

IPCom GmbH is a German patent holding company founded in 2007 by Bernhard Fohwitter, a former patent attorney for Robert Bosch GmbH.  IPCom apparently purchased the asserted patent from Bosch in 2007 and is reported to own close to 1,200 patents developed by  Bosch and Hitachi Ltd.  Over the past several years, IPCom has successfully litigated a number of patent cases before the Mannheim Regional Court, which has heard more wireless patent cases than any jurisdiction worldwide.

IPCom spokesman Alistair Hammond has said that the company has existing licensing agreements in place with a number of unidentified smartphone manufacturers, asserting that last year carrier Deutsche Telekom AG paid IPCom a three-digit million euro sum as part of such an agreement.

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

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

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

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

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

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

The Court presiding over Wi-LAN’s patent infringement litigation against HTC and Exedea recently entered an order memorializing the court’s oral rulings on various pre-trial motions and disputes during a September 26, 2013 pre-trial hearing, including whether Wi-LAN’s alleged failure to offer a license on FRAND terms remained an issue in the case after defendants voluntarily withdrew their FRAND-related affirmative defense and counterclaim. 

Wi-LAN’s Amended Complaint alleges that HTC is infringing Wi-LAN’s U.S. Patent No. RE37,802 by selling mobile handsets and other products compliant with the CDMA2000 standard and/or the IEEE 802.11 standards.  Wi-LAN further alleges that HTC is infringing its U.S. Patent No. 5,282,222 by selling mobile handsets and other products compliant with the IEEE 802.11, IEEE 802.16, LTE and/or Bluetooth 3.0 standards. 

In their Answer to the Amended Complaint, defendants asserted an affirmative defense that Wi-LAN breached its FRAND obligations by not offering defendants a license to Wi-LAN’s patents on fair, reasonable and non-discriminatory (FRAND) terms.  Specifically, defendants asserted that “Wi-LAN has not…offered to HTC reasonable and nondiscriminatory royalty terms and rates that are proportionate to royalty terms and rates offered to similarly situated companies.”  Defendants also asserted a counterclaim for a declaratory judgment that they were entitled to license Wi-LAN’s patents on FRAND terms.

But defendants later “voluntarily elected to drop their counterclaim[] and affirmative defense[] as to the issue of FRAND.”  However, “the parties continue[d] to dispute the impact of such, namely whether Defendants may continue to assert FRAND as a non-affirmative defense in their reasonable royalty analysis or as a ‘business’ defense in the hypothetical negotiation scenario in response to Plaintiffs’ evidence on damages.”  During the September 26, 2013 hearing and again in its written order, the court held that FRAND was no longer an issue in the case by virtue of defendants’ voluntary election: 

“As announced on the record, the Court finds that Defendants have the affirmative burden of proof [to show breach of FRAND obligations and entitlement to a license on FRAND terms] and FRAND is not a purely defensive response to Plaintiff’s damages case.  Accordingly, the Court finds that the issue of FRAND is an affirmative defense which, in light of Defendants having voluntarily dropped their counterclaims and affirmative defenses as to FRAND, is now out of this case for all purposes.  Defendants may not raise the issue of FRAND in response to Wi-LAN’s damages case or for any other purpose in this trial.” [emphasis in original]

 We will continue to track this case and provide any interesting updates, such as the September 26, 2013 transcript when it becomes available.

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).