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
Magistrate Judge Fallon recently Recommended Dismissing competition law counterclaims brought by TCT Mobile (TCT) against Godo Kaisha IP Bridge 1 (IP Bridge) and Panasonic and Judge Bataillon has now Adopted that ruling. Those counterclaims were based on alleged improper conduct relating to standard essential patents (SEPs) on European Telecommunications Standards Institute (ETSI) 2G, 3G and 4G wireless standards that IP Bridge acquired from Panasonic after those standards were adopted. While the standards were under development, Panasonic had committed to license the SEPs on fair, reasonable and non-discriminatory (FRAND) terms. TCT’s competition law counterclaims generally concerned allegations that:
- Panasonic made FRAND commitments it did not intend to keep in order to induce the standards body to keep Panasonic’s technology in the standards;
- After the standards were adopted, Panasonic transferred the patents to IP Bridge which offered to license the patents on terms that were not FRAND and
- There was some type of improper concerted action between Panasonic and IP Bridge (this aspect is fairly redacted and unclear).
This case presents an interesting nuance of competition claims against a party (IP Bridge) that acquired SEPs from an original owner (Panasonic) who made a FRAND commitment. In this case, TCT alleged that something about the transfer of the patents to IP Bridge was meant to circumvent Panasonic’s FRAND commitment (but the details of those allegations are redacted in the public court documents).
This case also indicates that an antitrust injury-in-fact cannot arise solely from a patent owner filing an infringement lawsuit on FRAND-committed SEPs. That’s because a successful FRAND defense by the accused infringer will lead to remedies consistent with the FRAND commitment and, in any event, any relief ultimately granted by the court would be lawful.
The decision also has a unique procedural posture. This is a decision by a magistrate judge that recommends to the presiding district court judge how to rule on the issue. Such magistrate judge recommendations are common in patent cases. The presiding district court judge usually adopts a magistrate judge’s recommendation, but is not required to do so. So we will await the district court judge’s decision whether to adopt Judge Fallon’s recommendation here.
Further, this decision concerns a Rule 12(b)(6) motion to dismiss causes of action based on the initial pleadings. Such motions are difficult to win because of the tremendous deference the court must give to the challenged pleading — e.g., the court considers whether TCT states a “plausible” claim if the court assumes (without deciding) that all factual allegations TCT raises are true and draws all reasonable inferences in TCT’s favor. And courts are even more reluctant to grant a Rule 12(b)(6) motion against competition law claims, which may be factually complex and require information in the hands of the alleged wrong-doer that can be obtained only in discovery. In this case, however, TCT apparently had almost a year of discovery and two attempts to plead its competition law claims, which may have provided the court more comfort in its dispositive ruling here.…
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.…
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
|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 ……