Judge Gilstrap recently ruled that  certain challenges to a damages expert’s testimony  went toward the weight a jury could give that testimony, rather than whether the testimony should be admitted.  Specific FRAND-related portions of the testimony that he would admit at trial include the following:

  • Expert could testify that the hypothetical FRAND royalty rate to be awarded for infringement damages (which presumes the patents are valid and infringed) would be higher than the royalty rate of a comparable FRAND license, which comparable license’s royalty rate may have been skewed low based on discounts made for litigation risks and costs.
  • Expert could testify about FRAND royalties that the accused infringer charges for its own SEPs.
  • Expert could testify about licenses negotiated in the context of German litigation and threat of injunction.

Judge Gilstrap indicated that the expert had sufficiently identified what he relied on and explained adjustments that he made to those proposed comparable licenses to account for differences from the hypothetical negotiated license.  The defendant’s challenges to that testimony goes to the weight the jury should give the testimony, not its admissibility.

Judge Gilstrap’s ruling is an interesting example of how FRAND litigation has matured since taking the main stage in Judge Robart’s first-of-its-kind FRAND royalty decision in Microsoft v. Motorola (see our May 1, 2013 post) and Judge Holderman’s following decision in In re Innovatio (see our Oct. 3, 2013 post).  Both of those 2013 decisions were based on, inter alia, a general failure of litigants to present sufficiently comparable licenses.  Since then, Federal Circuit decisions have leaned toward admitting comparable licenses where expert testimony sufficiently accounts for differences from the hypothetical negotiated license.

For example, the Federal Circuit’s 2014 Virnetx decision (a non-SEP case) counseled that, although “alleging loose or vague comparability … does not suffice,” a jury may consider comparable licenses where differences from the hypothetically negotiated license are explained to them (see our Sep. 17, 2014 post).  And the Federal Circuit’s 2015 Ericsson decision (an SEP FRAND case) stressed that, although real world licenses “are almost never perfectly analogous to the infringement action,” the jury may consider them if expert testimony accounts for “distinguishing facts when invoking them to value the patented invention.” (see our Dec. 5, 2015 post).  Litigants following the Federal Circuit’s guidance may find courts more willing to allow expert testimony on proposed comparable licenses despite their differences from the hypothetical negotiated license.

Continue Reading Judge Gilstrap permits damages expert testimony that litigated FRAND royalty should be higher than comparable license’s FRAND royalty that was skewed low by litigation risk discount (St Lawrence v. ZTE)

Today, a European Union high court issued a ruling that provides guidance on what steps the owner of a FRAND-encumbered patent that may be essential to a standard should take before seeking injunctive relief.  The court also ruled that a willing licensee should act without delay, provide a counter-offer, and actively pay royalties (in trust or otherwise) for past and on-going use of the patent while the parties negotiate toward a FRAND license.  The court further ruled that there was no specific pre-filing steps needed for the owner of a FRAND-encumbered patent to file suit seeking solely an accounting and monetary relief for past infringement (i.e., not injunctive).

Background

The case involves patent owner (“proprietor”) Huawei asserting a European patent alleged essential to the Long Term Evolution (LTE) standard against alleged infringer ZTE.  That patent was subject to a commitment to license the patent on fair, reasonable and non-discriminatory terms (FRAND) made to the European Telecommunications Standards Insitute (ETSI).

ETSI has intellectual property right (IPR) policies that concern patents that are essential to ETSI standards.  A patent is essential to the standard where it is not possible on technical grounds to make equipment that complies with the standard without infringing the patent.  ETSI’s IPR policy provides that patent owners should be adequeately and fairly rewarded for the use of their patented technology, but also seeks to guard against such patents making standardized technology unavailable.  Thus ETSI seeks a balance between the needs of standardization for public use and the rights of patent owners.

To this end, ETSI participants are required to timely disclose their patents that are essential to an ETSI standard.  In response to such disclosure, ETSI will ask the patent owner to give an irrevocable FRAND commitment.  ETSI is supposed to determine whether to suspend work on adopting the standard until such a commitment is received.  ETSI does not check whether the patent actually is essential or valid.  Further, ETSI does not define what would be a “license on FRAND terms.”

In April 2011, patent owner Huawei brought an action in German court against ZTE for infringing the LTE patent following failed negotiations.  The parties had been in negotiations from November 2010 until end of March 2011.  Huawei offered what it considered a FRAND royalty and ZTE responded with a cross-license offer.  No agreement was reached, though ZTE continued to sell LTE devices.  In its lawsuit, Huawei sought both injunctive and monetary relief.

The German court stayed its proceedings and referred specific issues to this European Union high court dealing with competition issues, based on the following questions:

(1) Does the proprietor of [an SEP] which informs a standardisation body that it is willing to grant any third party a license on [FRAND] terms abuse its dominant market position if it brings an action for an injunction against a patent infringer even though the infringer has declared that it is willing to negotiate concerning such a license? or

Is an abuse of the dominant market position to be presumed only where the infringer has submitted to the proprietor of the [SEP] an acceptable, unconditional offer to conclude a licensing agreement which the patentee cannot refuse without unfairly impeding the infringer or breaching the prohibition of discrimination, and the infringer fulfils its contractual obligations for acts of use already performed in anticipation of the license to be granted?

(2) If abuse of a dominant market position is already to be presumed as a consequence of the infringer’s willingness to negotiate:

Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to the willingness to negotiate?  In particular, can willingness to negotiate be presumed where the patent infringer has merely stated (orally) in a general way that it is prepared to enter into negotiations, or must the infringer already have entered into negotiations by, for example, submitting specific conditions upon which it is prepared to conclude a licensing agreement?

(3) If the submission  of an acceptable, unconditional offer to conclude a licensing agreement is a prerequisite for abuse of a dominant market position:

Does Article 102 TFEU lay down particular qualitative and/or time requirements in relation to that offer?  Must the offer contain all the provisions which are normally included in licensing agreements in the field of technology in question?  In particular, may the offer be made subject to the condition that the [SEP] is actually used and/or is shown to be valid?

(4) If the fulfilment of the infringer’s obligations arising from the licence that is to be granted is a prerequisite for the abuse of a dominant market position:

Does Article 102 TFEU lay down particular requirements with regard to those acts of fulfilment?  Is the infringer particularly required to render an account for past acts of use and/or to pay royalties?  May an obligation to pay royalties be dischared, if necessary, by depositing a security?

(5) Do the conditions under which the abuse of a dominant positoin by the proprietor of a[n SEP] is to be presumed apply also to an action on the ground of other claims (for rendering of accounts, recall of products, damages) arising from a patent infringement?

Article 102 of the Treaty on the Functioning of the European Union (TFEU), referenced above, states as follows:

Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

 Decision

The European high court answered the questions above as follows:

1.  Article 102 TFEU must be interpreted as meaning that the proprietor of a patent essential to a standard established by a standardisation body, which has given an irrevocable undertaking to that body to grant a licence to third parties on fair, reasonable and non-discriminatory (‘FRAND’) terms, does not abuse its dominant position, within the meaning of that article, by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture of which that patent has been used, as long as:

prior to bringing an action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and

where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

2.  Article 102 TFEU must be interpreted as not prohibiting, in circumstances such as those in the main proceedings [i.e., the stayed German action], an undertaking in a dominant position and holding a patent essential to a standard established by a standardisation body, which has given an undertaking to the standardisation body to grant licenses for that patent on FRAND terms, from bringing an action for infringement against the alleged infringer of its patent and seeking the rendering of accounts in relation to past acts of use of that patent or an award of damages in respect of those acts of use.

The court started by noting the balance it must strike between “maintaining free competition” based on “Article 102 TFEU prohibit[ing] abuses of a dominate position” and “the requirement to safeguard th[e] proprietor’s intellectual-property rights and its right to judicial protection.”  The court further noted the limits of its ruling, stating that, in this case, “the existence of a dominant position has not been contested” and the questions to be addressed “relate only to the existence of an abuse”, thus “the analysis must be confined to the latter criterion.”

FRAND-Encumber SEPs Differ From Other Patents.  The court stated that filing a lawsuit for patent infringement “forms part of the rights of the proprietor of an intellectual-property right” and normally is not an abuse of a dominant position.  But there are “exceptional circumstances” when it may be an abuse.  This case presents two distinguishing features from most patents.  First, it involves a standard essential patent (SEP) that, unlike other patents, can preclude competitors from making standard compliant products.  Second, the patent “obtained SEP status only in return for the proprietor’s irrevocable undertaking … that it is prepared to grant licences on FRAND terms.”  Thus, a refusal to grant such a license “may, in principle, constitute an abuse within the meaning of Article 102 TFEU.”

Balance High Level of Protection Given Patent Rights.  The court noted that applicable law “provides for a range of legal remedies aimed at ensuring a high level of protection for intellectual-property rights in the internal market, and the right to effective judicial protection.”  This counsels not hindering a patent owner’s right to seek judicial relief and requiring a user to obtain a license before using the patented technology:

This need for a high level of protection for intellectual-property rights means that, in principle, the proprietor may not be deprived of the right to have recourse to legal proceedings to ensure effective enforcement of his exclusive rights, and that, in principle, the user of those rights, if he is not the proprietor, is required to obtain a licence prior to any use.

This is balanced with considerations for FRAND-encumbered SEPs, which “justif[ies] the imposition … of an obligation to comply with specific requirements when bringing actions against alleged infringers for a prohibitory injunction.”

First Step – Prior Notice to Infringer.  The court thus ruled that, before bringing suit for injunctive relief, an SEP owner must “first … alert the alleged infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed.”  One reason for this is that, because there are a large number of patents that may be essential to a standard, the accused infringer may not “necessarily be aware that it is using the teaching of an SEP that is both valid and essential to a standard.”

Second Step – Written FRAND Terms.  If, after notice, the alleged infringer “expressed its willingness to conclude” a FRAND license, the SEP owner must then provide “a specific, written offer for a licence on FRAND terms … specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated.”  The court explained it was proper to have the SEP owner make such an offer, who may have nonpublic agreements with other licensees, since the patent owner “is better placed to check whether its offer complies with the condition of non-discrimination than is the alleged infringer.”

Accused Infringer’s Obligation.  An accused infringer has its own obligations before it can take advantage of a FRAND defense.

First, if an accused infringer objects to the proferred license offer, it must submit, “promptly and in writing, a specific counter-offer that corresponds to FRAND terms.”  This response must be in “good faith” with “no delaying tactics”:

[I]t is for the alleged infringer diligently to respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

Second, if its counter-offer is rejected, an accused infringer who already has been selling or otherwise using the technology before a license is entered must provide “appropriate security” for the past use of the technology and render an account of same:

The calculation of that security must include, inter alia, the number of the past acts of use of the SEP, and the alleged infringer must be able to render an account in respect of those acts of use.

Third-Party Royalty Determination.  If the parties do not reach agreement, they can seek a “royalty determined by an independent third party, by decision without delay.”

Can Challenge Patent.  The court ruled that, because the standard setting body did not determine essentiality or validity, the accused infringer should be allowed to challenge whether the patent is infringed, essential or valid during the negotiations or to reserve the right to do so in the future.

No Abuse If Seeking Past Money Damages.  The court ruled that “seeking the rendering of accounts in relation to past acts of use of [an] SEP or an award of damages in respect of those acts” are not an abuse of dominance, because such actions “do not have a direct impact on products complying with the standard … appearing or remaining on the market.”

Judge Kaplan of S.D. New York recently issued a preliminary injunction to enjoin ZTE from further disclosing information subject to a non-disclosure agreement (NDA) that ZTE had entered with Vringo to potentially settle worldwide patent litigation between them that concern FRAND-obligated standard essential patents that Vringo had purchased from Nokia.  This is an interesting case to read when considering NDAs for purposes of settlement discussions in general, as well as when they involve SEPs.

Background

In 2013, Vringo and ZTE agreed to meet to discuss settlement, and they entered an NDA for those discussions “to create an environment for productive discussions with good faith settlement offers.”  During their December 10, 2013 meeting, patent owner Vringo made a 40-page presentation marked confidential under the NDA that, among other things, included Vringo’s settlement proposal.  No settlement was reached.  Soon thereafter, on February 21, 2014, ZTE started an antitrust lawsuit in China claiming that Vringo abused its market position by refusing to license its essential patents on FRAND terms.  ZTE’s complaint relied on confidential information under the NDA and attached Vringo’s confidential 40-page presentation from their settlement discussions.  Vringo did not find out about this until four months later when it received a copy of the complaint from the Chinese court.

In April 2014, ZTE also filed a complaint against Vringo with the European Commision (“EC”).  Vringo had an opportunity to respond to the EC complaint.  So Vringo reached-out to ZTE about getting a waiver under the NDA to allow Vringo to disclose information to the EC in response to the Complaint.  ZTE did not reply before Vringo’s response time, so Vringo filed redacted materials with the EC.  A week after that, ZTE responded it would agree to such a waiver for information directly relevant to the EC complaint and only if ZTE also was permitted to do so.

Later, in June 2014, Vringo learned for the first time about ZTE’s Chinese complaint and disclosure of confidential information subject to the NDA.  Vringo then filed this suit for breach of the NDA.

Decision

At the outset of the case, Judge Kaplan had ruled that “the pleadings establish the existence and terms of the NDA and defendants breach thereof.”  The instant decision ruled on Vringo’s motion for a preliminary injunction that would enjoin ZTE from further breaching the NDA as well as seeking to enjoin ZTE from further pursuing the Chinese action.  Judge Kaplan applied the four typical factors used to determine whether a preliminary injunction is warranted:

  1. Vringo is likely to ultimately succeed on the merits of its breach of contract claim;
  2. Vringo is likely to suffer irreparable harm if preliminary injunctive relief is not granted;
  3. The balance of the equities tip in Vringo’s favor over ZTE; and
  4. Entering an injunction is in the public interest.

Vringo Likely To Succeed.  Judge Kaplan ruled that Vringo is likely to succeed in proving that ZTE breached the NDA, especially given that he already ruled as such on the pleadings.

ZTE argued that Chinese law should govern here and, under Chinese law, ZTE was required to provide the information as part of its complaint to the Chinese court.  Judge Kaplan disagreed.  No law required ZTE to bring the complaint in the first instance.  Further, the Chinese procedural rule requiring a complaint to specy “the claim and its supporting facts and grounds” and “evidence and the source thereof” did not require ZTE to submit the confidential information and ZTE’s assertion otherwise “is nothing more than gamesmanship.”  Further, the NDA expressly states that it should be govern by the laws of New York and there was sufficient contacts with New York to enforce that provision:

Vringo maintains its principal place of business in New York and sought protection under its laws when entering into the NDA.  ZTE knew this, executed the NDA, and then sent it back to Vringo in New York.  The parties, in agreeing to have the law of New York govern their contract, selected the laws of a State that has a reasonable relationship and significant contacts to the contract and that choice must be enforced by this Court.

Judge Kaplan also rejected ZTE’s argument that the NDA is unenforceable under New York law as “an agreement to suppress evidence.”  The NDA was a permissible agreement between private parties about use of information in private litigation.  New York has a strong public policy encouraging settlement and “[t]here can be no doubt that the NDA was entered into for the explicit purpose of facilitating candid settlement discussions.”  Further, the NDA permits disclosure of confidential information “upon a request from a governmental entity or third party whether by a discovery request or a subpoena.”  Thus, “it was entirely lawful for Vringo and ZTE to agree that they would not use information exchanged in settlement discussions in any judicial proceedings.”

Vringo Threatened With Immediate Irreaparable Harm.  Judge Kaplan found that the irreparable harm requirement was met because “Vringo, in the absence of a preliminary injunction, probably would suffer injury in the future that could not be undone even if it prevails in this action.”  Harm from disclosure is imminent absent an injunction, because ZTE continues to believe that an NDA cannot prohibit submitting evidence of an antitrust violation.  ZTE did not start complying with”the clear and unequivocal terms of the NDA “until after the court entered a TRO.

Judge Kaplan found that continued disclosure by ZTE of confidential information would cause irreparable harm to Vringo’s business by impacting licensing negotiations with other parties, stating:

Vringo’s business depends substantially on the value of its patent portfolio, which it licenses to third parties.  The disclosure of Vringo’s Confidential Information, including its proposal to settle years of ZTE’s alleged patent infringement, would impact the prices others would pay to obtain licenses as well as the prices its competitors would offer for their licenses.  Indeed, once such commercially-sensitive information becomes public knowledge, it can “not be made secret again.”  In short, the disclosure of that information would have a lasting and immeasurable harm to Vringo’s business.

Balance of the Equities Favor Vringo.  Judge Kaplan found that Vringo would be irreparably harmed absent an injunction by ZTE continuing to disclose Vringo’s confidential information.  In contrast, entering an injunction would prevent ZTE from not disclosing information that ZTE had agreed in the NDA that it would not to disclose.

Public Interest Favors Injunction.  Judge Kaplan found that the public interest favors the preliminary injunctive relief he would give, which would enjoin ZTE from further disclosing confidential information but would not enjoin the Chinese proceedings themselves.  Thus, international comity concerns are addressed, because the injunction would not prevent the Chinese court from evaluating its antitrust action.

Scope of Preliminary Injunction.  Judge Kaplan would not enjoin ZTE from continuing with its Chinese antitrust action.  A key reason was that a determination that ZTE breached the NDA in this case would not resolve the Chinese action, a key factor when a U.S. court determines whether to enjoin a foreign action.

Judge Kaplan also would not order ZTE to withdraw the information it submitted in the Chinese action, finding that Vringo — while close — had not met its burden to obtain such affirmative or “mandatory” injunctive relief at this early stage in the case.  But he remained open to a mandatory injunction at the end or later stages of the case.

Judge Kaplan ultimately entered a preliminary injunction that prohibits ZTE from further disclosing any more confidential information.

We previously reported on a scheduling order governing FRAND and damages-related discovery in InterDigital’s two patent infringement lawsuits pending in Delaware against ZTE and Nokia Inc., Nokia Corp. and Microsoft Mobile Oy (MMO), respectively.  On Friday, the court entered a modified, agreed-to scheduling order that extends the time to complete such discovery by approximately seven (7) months.

As background, trials on liability were bifurcated from trials on damages and the defendants’ FRAND-related affirmative defenses.  ZTE’s liability trial on three (3) of InterDigital’s asserted patents occured first and, last Fall, a Delaware jury found that ZTE’s accused 4G mobile devices infringed those patents.  ZTE asserts a number of FRAND-related affirmative defenses to this finding of infringement.  A second Delaware jury later found that ZTE’s accused 4G mobile devices did not infringe a fourth patent asserted by InterDigital.

In January of this year, the court entered a scheduling order setting December 4, 2015 as the deadline for completing FRAND and damages-related discovery in both the ZTE and Nokia/MMO cases, with the trial on these issues tentatively scheduled to take place in the Spring of 2016.

The liability trial against Nokia/MMO was scheduled to occur in April of this year.  However, that trial was postponed until November.  As a result of this change in Nokia/MMO’s liability trial date, the parties proposed, and, on Friday, the court entered, a scheduling order modifying the FRAND and damages-related discovery period and target trial dates as follows:

  • Completion of fact discovery related to FRAND/damages:  Deadline moved from August 21, 2015 to March 4, 2016;
  • Disclosure of expert testimony for party with burden of proof:  Deadline moved from September 18, 2015  to April 15, 2016;
  • Supplemental/rebuttal expert disclosure:  Deadline moved from October 16, 2015 to May 13, 2016;
  • Reply expert reports from party with burden of proof:  Deadline moved from November 9, 2015 to June 9, 2016;
  • Completion of expert discovery:  Deadline moved from December 4, 2015 to July 13, 2016;
  • Joint letter outlining any issues the parties believe must be addressed at the status conference:  Deadline moved from December 8, 2015 to July 20, 2016;
  • Status conference:  Moved from December 15, 2015 to August 22, 2016;
  • Dispositive motions and deadline to object to expert testimony:  Moved from December 29, 2015 to August 5, 2016;
  • ZTE target trial date:  Moved from March 21, 2016 to October 17, 2016; and
  • MMO/Nokia target trial date:  Moved from April 11, 2016 to November 14, 2016.

 

 

 

Yesterday, a federal jury in Delaware concluded that ZTE’s accused 4G mobile devices did not infringe InterDigital’s U.S. Patent No. 7,941,151 (“the ‘151 Patent”).  This jury verdict comes a little less than six months after a different jury concluded that ZTE’s accused 4G mobile devices infringe three separate patents asserted by InterDigital in the case.

Background.  In its Amended Complaint, InterDigital alleged that ZTE was infringing four of its patents.  With respect to the ‘151 Patent, InterDigital alleged that ZTE was infringing it by “manufacturing, using, importing, offering for sale, and/or selling wireless devices with 4G capabilities.” More specifically, InterDigital alleged that

The accused ZTE products are specifically designed to be used in at least 4G wireless communication systems.  Specifically, the accused ZTE products identified by InterDigital to date that are designed to be used in a 4G wireless communications system are configured to comply with [3gPP’s] LTE (Long Term Evolution) standard.  Because the accused products are specifically designed to so operate, they have no substantial non-infringing uses.

ZTE asserted a number of FRAND-related affirmative defenses and counterclaims in the litigation.  The court subsequently dismissed the FRAND-related counterclaims and bifurcated the infringement liability issues from the FRAND-related affirmative defenses.

In late October, a jury found that ZTE infringed the three other patents asserted by InterDigital and also rejected ZTE’s invalidity defenses.  Thereafter, and as we previously reported, Judge Andrews entered an order allowing InterDigital and ZTE to proceed with FRAND and damages discovery under the assumption that ZTE would be found to infringe InterDigital’s ‘151 Patent.  Specifically, the order provided as follows:

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 infringement trial for the ‘151 Patent occured on Monday and Tuesday of this week.  Yesterday, the jury found that ZTE did not infringe the ‘151 Patent.

Next Steps.  According to the agreed-to Scheduling Order entered by the court, the parties will now complete FRAND and damages-related discovery and prepare for a damages trial with respect to the three InterDigital patents the first jury found ZTE to infringe last Fall.  The following schedule will apply:

August 21, 2015:  Completion of fact discovery related to FRAND/damages;

September 18, 2015:  Disclosure of expert testimony for party with burden of proof;

October 16, 2015:  Supplemental/rebuttal expert disclosure;

November 9, 2015:  Reply expert reports from party with burden of proof;

December 4, 2015:  Completion of expert discovery;

December 8, 2015:  Joint letter outlining any issues the parties believe must be addressed at the status conference;

December 15, 2015:  Status conference;

December 29, 2015:  Dispositive motions and deadline to object to expert testimony;

March 21, 2016:  ZTE target trial date; and

April 11, 2016:  Microsoft Mobile Oy (MMO) (another defendant in the case) target trial date

 

Yesterday, the Federal Circuit affirmed the U.S. International Trade Commission’s (“ITC”) determination that certain Interdigital patents related to 3G CDMA technology were not infringed by Nokia and ZTE.  Recall that the ITC had reserved ruling on any RAND obligation defenses given its non-infringement finding (see our Feb. 24, 2014 post). ALJ Shaw’s Initial Determination had ruled on those defenses, finding that, among other things, InterDigital’s obligations arising from the ETSI IPR policy was to negotiate in good faith toward a license agreement and that InterDigital had negotiated in good faith notwithstanding Respondents arguments of bad faith based on InterDigital seeking an injunction, seeking to negotiate a worldwide license rather than a single country license and allegedly offering unfairly discriminatory rates given different effective royalties offered to ZTE and Nokia (see our July 30, 2013 post).

Yesterday, InterDigital prevailed in its Delaware jury trial against ZTE where the jury found that ZTE’s accused phones infringe each asserted claims of InterDigital’s U.S. Patent Nos. 7,190,966, 7,286,847, and 8,380,244. The verdict form also shows that the jury found none of the asserted claims to be invalid as obvious. The jury was not asked to make any finding on issues related to damages, ZTE’s FRAND-related affirmative defenses, and ZTE’s FRAND-related counterclaims, all of which were bifurcated from patent liability issues by the parties’ joint stipulation and will be tried at a later date. As you may recall from our May 30, 2014 post, Judge Andrews previously dismissed ZTE’s amended FRAND counterclaims against InterDigital, ruling that the declaratory judgment actions would not serve a useful purpose in the context of the parties’ ongoing litigation and that ZTE’s affirmative defenses adequately encompassed the FRAND-related issues. In accord with the jury’s verdict, the Court entered judgment in favor of InterDitigal on plaintiff’s infringement counts and ZTE’s invalidity counterclaim as to the patents-at-issue. We note that the judgment does not extend to ZTE’s FRAND-related counterclaims or defenses that have yet to be litigated.

The jury verdict stands in contrast to ALJ Essex’s June 2014 Initial Determination in Inv. No. 337-TA-868 — InterDigital’s ITC case against ZTE — finding that ZTE and Nokia had not infringed the same  ‘966 and ‘847 patents that were at issue in the Delaware case. As discussed in our July 2, 2014 post, ALJ Essex’s Initial Determination, which was affirmed by the Commission on review, provided a sharp critique of respondents that assert FRAND defenses without having first availed themselves of SSO procedures for resolving situations where licenses are not available. The ITC decision is currently up on appeal to the Federal Circuit, with oral arguments to take place next month.

The International Trade Commission issued the public version of its opinion in Inv. No. 337-868, finding no violation by either Nokia or ZTE and terminating the investigation in its entirety. On review, the Commission neither affirmed nor rejected ALJ Essex’s FRAND analysis, which criticized respondents who had not actively sought a license from InterDigitial yet raised SSO-related affirmative defenses.

As you may recall from our July 2, 2014 post, ALJ Essex issued a Final Initial Determination following a February 2014 evidentiary hearing, finding the accused products did not infringe InterDigital’s asserted patents, the domestic industry requirement had not been met, only one claim (claim 16 of U.S. Patent No. 7,941,151) was invalid as indefinite, and that respondents did not demonstrate InterDigital had violated any FRAND obligation. The Final Initial Determination also included a lengthy FRAND analysis, which was highly critical of respondents that assert FRAND defenses without having first availed themselves of SSO procedures for resolving situations where licenses are not available.

Respondents petitioned the ITC to review, inter alia, ALJ Essex’s FRAND analysis. Respondents argued that under a proper FRAND analysis, the asserted patents should have been found unenforceable under the doctrines of equitable estoppel, unclean hands, and patent misuse. As previewed in the ITC’s August 14 notice, the Commission took no position on the FRAND issues raised by the respondents, finding it more efficient to decide those issues, if at all, following an appeal of a related decision:

Decision as to those issues would require further proceedings, and potentially additional factfinding. The Commission has decided that, on balance, the added delay, burdens, and expenses that would be incurred by the parties and the Commission in resolving these issues are unjustified here given their non-dispositive nature, especially in view of the existence of other pending proceedings regarding the asserted patents and patents closely related to them.  In addition, the Commission finds that it is in the interest of the efficient use of administrative, judicial, and private resources for the domestic industry and FRAND issues to be decided, if at  all, subsequent to final disposition of the pending appeal in InterDigital Communications LLC v. ITC, No. 2014-1176 (Fed. Cir.), which involves many of the same parties and issues with regard to related patents.

Yesterday, the ITC filed a confidential version its opinion in the InterDigital investigation, Inv. No. 337-TA-868, involving Nokia and ZTE. According to a notice issued in the case last week, the Commission has reviewed ALJ Essex’s Final Initial Determination and terminated the investigation with a finding of no violation by either Nokia or ZTE. As discussed in our August 15, 2014 post, the notice indicates that the Commission has taken no position with respect to the FRAND issues raised, instead finding efficiency favors addressing any FRAND issues after final disposition of InterDigital’s co-pending Federal Circuit appeal, which involves several of the patents-at-issue in the 868 investigation. 

We expect a public version of the Commission’s opinion will be available in the coming weeks.

The ITC has issued a notice in the InterDigital investigation (No. 337-TA-868), indicating that the Commission has reviewed ALJ Essex’s Final Initial Determination reversed certain findings, taken no position on others, and ultimately terminated the investigation with a finding of no violation. ALJ Essex issued his initial ruling on June 13, 2014, finding that neither ZTE nor Nokia infringed InterDigital’s patents, which were alleged to be essential to 3G/4G standards, and that InterDigital had committed no FRAND violation (see our June 19 and July 2 posts for additional background).

According to the notice, the Commission has taken no position with respect to FRAND issues raised by respondents’ affirmative defenses:

The Commission finds that it is in the interest of the efficient use of administrative, judicial, and private resources for the domestic industry and FRAND issues to be decided, if at all, subsequent to final disposition of the pending appeal in InterDigital Communications LLC v. ITC, No. 2014-1176 (Fed. Cir.), which involves many of the same parties and issues with regard to related patents.

In the pending appeal, InterDigital is challenging the ALJ’s claim construction ruling in ITC Inv. No. 337-TA-800 (see our February 24, 2014 post for more information), which involves the two Power Ramp-up Patents (Nos. 7,706,830 and 8,009,636) also at issue in the 868 investigation. On appeal, InterDigital is arguing the ITC’s finding of no violation is based on erroneous claim constructions and should be reversed.

With respect to the present investigation (337-TA-868), you may recall from our July 2, 2014 post that ALJ Essex’s Final Initial Determination included a lengthy FRAND analysis, which was highly critical of respondents that assert FRAND defenses without having first availed themselves of SSO procedures for resolving situations where licenses are not available. After a solicitation for comments on the public interest, the ITC received a number of letters from Ericsson, the Innovation Alliance, Microsoft, Senator Robert P. Casey, Jr. (D-PA), and Senator Patrick J. Toomey (R-PA), generally directed to ALJ Essex’s FRAND analysis and whether SEP owners should be entitled to exclusion orders on FRAND-encumbered patents (see our July 9, 2014 post for a summary of the third party comments).

The notice further indicates that “[t]he reasoning in support of the Commission’s decision will be set forth in fuller detail in a forthcoming opinion.”