6. Injunctive Relief for SEPs Subject to FRAND

6.1 Introduction

Court-ordered injunctions, which remove infringing products from a market, typically for a period of time, are a principal remedy for patent infringement. Indeed, injunctions are intended to deter or stop such infringement. Patent holders are typically granted the right to petition for injunctive relief. Injunctive relief includes exclusion orders awarded by the U.S. International Trade Commission (ITC) as well as court-awarded injunctions. An exclusion order directs U.S. customs authorities to stop the importation of infringing products, thereby barring their entry into the domestic market.

Pursuing, or threatening to pursue, injunctive relief for patent infringement becomes a contentious issue when it involves a standard-essential patent encumbered by a FRAND licensing commitment. When a patent holder makes such a commitment to an SSO pursuant to its IPR policy, it typically provides an assurance that it is prepared to make its SEPs available on FRAND licensing terms and conditions to anyone implementing the standard. FRAND commitments provide assurances to standards implementers, who must unavoidably use technology claimed in SEPs, that reasonable licenses to those rights will be made available. The question then arises as to whether a SEP owner that has stated its willingness to license should be permitted to petition for injunctions or exclusion orders against implementers.

This chapter considers the current debate as to how a FRAND commitment should affect a SEP owner’s ability to seek, or threaten to seek, injunctive relief. How does the FRAND commitment operate in conjunction with the statutes and case law relating to injunctive relief generally? And how does competition law affect the analysis?

6.2 Views of Competition Authorities

The Justice Department’s Antitrust Division, the U.S. Federal Trade Commission (FTC), and the Competition Directorate General of the European Commission have not only taken a strong interest in this issue but also articulat-



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 95
6. Injunctive Relief for SEPs Subject to FRAND 6.1 Introduction Court-ordered injunctions, which remove infringing products from a mar- ket, typically for a period of time, are a principal remedy for patent infringe- ment. Indeed, injunctions are intended to deter or stop such infringement. Patent holders are typically granted the right to petition for injunctive relief. Injunctive relief includes exclusion orders awarded by the U.S. International Trade Com- mission (ITC) as well as court-awarded injunctions. An exclusion order directs U.S. customs authorities to stop the importation of infringing products, thereby barring their entry into the domestic market. Pursuing, or threatening to pursue, injunctive relief for patent infringement becomes a contentious issue when it involves a standard-essential patent encum- bered by a FRAND licensing commitment. When a patent holder makes such a commitment to an SSO pursuant to its IPR policy, it typically provides an assur- ance that it is prepared to make its SEPs available on FRAND licensing terms and conditions to anyone implementing the standard. FRAND commitments provide assurances to standards implementers, who must unavoidably use tech- nology claimed in SEPs, that reasonable licenses to those rights will be made available. The question then arises as to whether a SEP owner that has stated its willingness to license should be permitted to petition for injunctions or exclu- sion orders against implementers. This chapter considers the current debate as to how a FRAND commit- ment should affect a SEP owner’s ability to seek, or threaten to seek, injunctive relief. How does the FRAND commitment operate in conjunction with the stat- utes and case law relating to injunctive relief generally? And how does competi- tion law affect the analysis? 6.2 Views of Competition Authorities The Justice Department’s Antitrust Division, the U.S. Federal Trade Commission (FTC), and the Competition Directorate General of the European Commission have not only taken a strong interest in this issue but also articulat- 95

OCR for page 95
96 Patent Challenges for Standard-Setting in the Global Economy ed a common position.1 Their views result in part from the market power con- siderations associated with SEPs and the use of injunctive relief by SEP holders, especially when the implementer in question is willing to enter into a FRAND license. Patent hold-up is more likely where a company uses its SEPs to exclude competitors from the market.2 As FTC Commissioner Ramirez testified before Congress in 2012, “[a] royalty negotiation that occurs under threat of an injunc- tion or an exclusion order may be weighted heavily in favor of the patent holder in a way that is in tension with the RAND commitment.” As the court in Apple v. Motorola observed, “…once a patent becomes essential to a standard, the pa- tentee’s bargaining power surges because a prospective licensee has no alterna- tive to licensing the patent; he is at the patentee’s mercy.”3 Consumers may be harmed by this practice, whether through higher royalty payments passed on to them in the form of higher prices or fewer products on the market as a result of injunctive relief. The Commissioner for Competition of the European Commission has expressed similar concerns (Alumnia, 2012): To build a smartphone one needs thousands of standard-essential patents. The holders of these patents have considerable market power and can ef- fectively hold-up the entire industry with the threat of banning competi- tors’ products from the market through injunctions for patent infringe- ments. By threatening to use injunctions, these companies can also make de- mands that their commercial partners would not accept under normal cir- cumstances. For example, fearing exclusion from the market, companies might be forced to share valuable patented inventions with a competitor or pay ex- cessive royalties which are then passed on to consumers. There is a consensus among competition authorities that injunctive relief in con- nection with a FRAND-encumbered SEP should be a remedy of last resort.4 They have uniformly taken the position that potential licensees who are willing to enter into a license agreement on FRAND terms must have the opportunity to 1 It should be noted that the associated position statements are somewhat case-specific and the policies are works in progress. 2 The general analysis of hold-up is in Chapter 3 of this report. 3 Opinion and Order of Judge Richard Posner in Apple Inc. v. Motorola, Inc., June 22, 2012 in the District Court for the Northern District of Illinois, Case No. 1:11-cv-08540. 4 See FTC Senate Testimony, 2012; DOJ Senate Testimony, 2012; DG Competition Press Release, 2012.

OCR for page 95
Injunctive Relief for SEPs Subject to FRAND 97 have disputes between the parties resolved before any injunctive relief can be pursued against them.5 On the other hand, competition authorities have not taken the position that injunctions on SEPs should be barred in all circumstances. Barring injunctions outright could incentivize some implementers of an industry standard to forgo negotiating a license “…if its worse-case outcome after litigation is to pay the same amount it would have paid earlier for a license.” (Department of Justice, 2013; U.S. Patent and Trademark Office, 2013). Some argue that an implement- er who is offered a truly FRAND license has incentives to enter into the license instead of incurring litigation and other costs. Others claim that such an imple- menter may also have interests in delaying negotiation and licensing costs and in having the SEP owner incur expenses in commencing an infringement action. The competition agencies’ position that a FRAND commitment limits, but does not ban, injunctive relief has led to a debate over when injunctions for a FRAND-encumbered patent may be sought. In this debate, implementers gener- ally argue that the costs and uncertainties of litigation provide a strong incentive to accept a license on reasonable terms and conditions instead of filing lawsuits and incurring related costs contesting those terms, especially when the SEP holder always can bring an action based on infringement and asking for mone- tary relief. SEP holders counter that the benefits of delaying negotiation and licensing costs will often outweigh the expected costs of litigation for a prospec- tive licensee, making the threat of injunctive relief a necessary tool to bring “unwilling” licensees to the bargaining table. By the end of 2012 there were at least four companies under investigation by one or more of these competition agencies regarding their efforts to seek in- junctive relief based on a FRAND-encumbered SEP. The FTC has finalized one consent decree—the FTC-Bosch Consent Decree—on April 24, 2013 and pro- posed another one in FTC-Google Consent Decree, 2013.6 These consent de- crees will restrict the SEP owner’s ability to seek injunctive relief except for certain specific scenarios where it can be demonstrated that the implementer is not a “willing licensee.” The FTC describes the proposed consent decree in Bosch as follows: The FTC alleged that, as a member of SAE International, SPX agreed to abide by SAE rules that require companies to license their SEPs on FRAND terms. However, SPX allegedly reneged on these commit- ments and pursued injunctions blocking competitors from using the standardized technologies, even though the competitors were willing to 5 See DOJ and PTO, 2013; FTC Apple Brief, 2012; DG Competition Press Release, 2012. 6 Consent decrees represent a settlement agreement between the FTC and a targeted company.

OCR for page 95
98 Patent Challenges for Standard-Setting in the Global Economy license the technology on FRAND terms. The FTC charged that this practice had the tendency of harming competition and undermining the standard setting process… To address the FTC’s concerns about SPX’s conduct relating to its ex- isting portfolio of SEPs, the proposed order requires Bosch not to pur- sue any actions for injunctive relief on these patents and to make them available on a royalty free basis to implementers of the relevant SAE standards in the ACRRR market…. Bosch also has agreed not to seek an injunction against such third parties, unless the third party refuses in writing to license the patent consistent with the letter of assurance, or the third party refuses to abide by FRAND terms as determined by a court or other process agreed to by the parties.7 In November 2011, Directorate-General for Competition issued a public state- ment confirming that it was investigating whether Samsung’s enforcement of SEPs violated EU competition laws (Robinson and Torello, 2011). In December 2012, the agency sent a formal complaint to Samsung, stating that Samsung’s claims for injunctive relief against a willing licensee on the basis of its SEPs “amounts to an abuse of a dominant position prohibited by EU antitrust rules” (European Commission, 2012): Today’s Statement of Objections sets out the Commission’s preliminary view that under the specific circumstances of this case, where a commit- ment to license SEPs on FRAND terms has been given by Samsung, and where a potential licensee, in this case Apple, has shown itself to be will- ing to negotiate a FRAND license for the SEPs, then recourse to injunc- tions harms competition. Since injunctions generally involve a prohibition of the product infringing the patent being sold, such recourse risks exclud- ing products from the market without justification and may distort licens- ing negotiations unduly in the SEP-holder’s favour. The preliminary view expressed in today’s Statement of Objections does not question the availa- bility of injunctive relief for SEP holders outside the specific circumstanc- es present in this case, for example in the case of unwilling licensees. In addition, on May 6, 2013, DG Competition sent a formal complaint to Motorola Mobility. The complaint argues that the company’s attempt to seek and enforce an injunction against Apple in Germany on the basis of its mobile- phone SEPs constitutes an abuse of a dominant position. While noting that re- course to injunctions is a possible remedy for patent infringements, such conduct may be abusive where it involves SEPs and the potential licensee is willing to 7 In the Matter of Robert Bosch GmbH, No. C-4377 (Nov. 26, 2012). It is noted that the Bosch matter arises in the context of a specific merger transaction. See http://www. ftc.gov/opa/2012/11/bosch.shtm.

OCR for page 95
Injunctive Relief for SEPs Subject to FRAND 99 take a FRAND license. The complaint states that “…the Commission considers at this stage that dominant SEP holders should not have recourse to injunctions, which generally involve a prohibition to sell the product infringing the patent, in order to distort licensing negotiations and impose unjustified licensing terms on patent licensees. Such misuse of SEPs could ultimately harm consumers.”8 These and similar actions remain pending. The committee notes that, to date, there have been few factual showings of prices harming consumers in the smartphone industry or of the actions of SEP owners impacting competition or entry into the market. Although competition authorities in the United States and Europe have expressed concerns over seeking injunctions for SEPs implemented by willing licensees, their ability to address such problems is often limited to ex post ac- tions addressing specific instances of prior conduct. For this and other reasons, the agencies have expressed a preference for SSOs to provide more information ex ante as to the effect of a FRAND commitment in order to prevent disputes from arising later. As DOJ representative, Fiona Scott Morton observed in 2012: One question that I have been asked is, ‘What’s so special about standard- essential patents versus other patents?’ Standard-essential patents achieve their status through the collective action at the SSOs. Harm can occur when companies come together and bestow market power on each other by agreeing on a common technology. FRAND commitments are designed to reduce occurrences of opportunistic or exploitative conduct in the im- plementation of standards... If the FRAND commitments are so vague and ill-defined as to have little meaning, then consumers may not realize all the benefits of the standard… As suggested by the statements quoted above, an important issue in these cases is who is a willing licensee and how that may be determined, an inquiry revolv- ing around different facts patterns. As noted above, some regulatory agencies have taken the position that the prospective licensee has to state that it is willing to enter into a truly FRAND license and that the SEP holder must refrain from seeking injunctive relief, if there are any related disputes between the parties, until such disputes have been fully adjudicated by a court of competent jurisdic- tion. 8 See the DG Competition press release at http://europa.eu/rapid/press-release_IP-13- 406_en.htm. It should be noted that Google offered licenses on terms (including a 2.25% royalty) to which DG Competition did not object during the merger of Motorola Mobility (MM) into Google, because they were the same terms offered previously by MM and therefore “…would not substantially alter current market dynamics” (http://www.justice. gov/opa/pr/2012/February/12-at-210.html). Further, Microsoft did not respond to this offer, instead filing a complaint in a U.S. District Court, which prompted the MM filing in Germany on which an injunction was granted. A U.S. District Court later issued an order preventing MM from enforcing that injunction.

OCR for page 95
100 Patent Challenges for Standard-Setting in the Global Economy Competition agencies are looking to SSOs as a first line of defense in pre- venting FRAND abuse. “SSOs that set forth well-defined patent policy rules that minimize ambiguity can effectively promote competition.” The DOJ has sug- gested that “…Standard bodies might want to explore setting guidelines for what constitutes a FRAND rate.” In short, “… standards bodies whose members choose to take steps such as these will help the market for the standardized product to work efficiently by lowering costs, increasing transparency and re- ducing uncertainty—all of which benefit innovation and competition” (Scott- Morton, 2012; Hesse, 2012).9 Former chief economists of the DOJ’s Antitrust Division and the FTC, to- gether with a DG Competition spokesperson (Kühn, et al., 2013), have suggested that SSOs clarify that The FRAND commitment should include a process that SEP owners must follow before they can seek an injunction or exclusion order by the licensor. This process would include specifying what steps must be taken by parties to resolve disputes over a FRAND’s rate, validity, essentiality, or infringe- ment before an injunction or an exclusion order may be sought against the licensee. Reducing the ability of licensors to threaten to exclude a product from the market will reduce the ability of the licensor to extract royalties above the FRAND rate and other significant licensing conditions from will- ing licensees. The essence of the FRAND commitment is that the firm has voluntarily chosen to accept royalties rather than pursue a business model based on exclusion. This suggests that there can be no irreparable harm from the use of the SEP. Limits on the use of injunctions or exclusion orders are therefore appropriate. 6.3 U.S. and European Case Law Although the committee has not found any statistical data on the frequen- cy of companies seeking injunctions on SEPs, the issue has been highly publi- cized in the past few years, primarily in the context of smartphones and other electronic devices. As mobile phones evolved from being a device for making telephone calls into what are actually powerful, miniature computers, the num- ber of patented features included in smartphones increased substantially (Scott- Morton, 2012; Yeh, 2012). At the same time, new competitors have entered the smartphones market, each with a different level of R&D investment directed at hardware and software improvements (Chia, 2012). Patenting, competition, and standards activity and related litigation have all increased in recent years, with cases in both federal district courts and the U.S. International Trade Commission. SEPs have been the subject of some of that litigation, either as the basis of an infringement claim, or as a countersuit or 9 It must be noted that the Hesse and Scott-Morton statements are ideas in progress and were not intended to state formal DOJ positions.

OCR for page 95
Injunctive Relief for SEPs Subject to FRAND 101 counterclaim. To some degree, infringement complaints based on SEPs may be easier to prove simply because companies build their products to comply with the relevant interoperability standards. In some instances, companies asserting FRAND-encumbered SEPs have sought injunctive relief as part of those claims (Federal Trade Commission, 2011). In this context, SEP owner plaintiffs gener- ally allege that defendants resist accepting FRAND terms or refuse to enter into negotiations for licenses. Companies defending against infringement actions based on SEPs have ar- gued that seeking such relief violated the SEP owner’s earlier assurance to license implementers on FRAND terms. These cases have highlighted that the SEP hold- ers were seeking injunctive relief at the same time that disputes regarding FRAND terms and conditions were being litigated in a different venue. In some cases, fur- thermore, infringement is being litigated in the International Trade Commission where the only outcome offering relief is an exclusion order, not an award of monetary damages. The Commission is expected to assess FRAND commitments when SEPs are involved, as happened in the recent Samsung v. Apple case.10 The issue of whether the owner of a SEP can seek injunctive relief has aris- en in a number of different venues, as explained below. United States District Courts In district court, both injunctions and monetary damages are possible rem- edies for patent infringement (35 U.S.C. § 283, 35 U.S.C § 284). At one time, district courts generally granted permanent injunctions to patent owners whose patents were found to be valid and infringed. However, following the Supreme Court’s decision in eBay v. MercExchange, injunctions for patent infringement are no longer virtually automatic, and district courts must apply a test based on four traditional criteria. A plaintiff seeking an injunction is required to show proof of irreparable harm, the inadequacy of money damages, that the remedy is warranted after considering the balance of hardships between the parties, and that the public interest would not be disserved by an injunction.11 Following the eBay decision, defendants in infringement claims involving SEPs have argued that permanent injunctions should not be available for FRAND-encumbered SEPs. SEP owners already have voluntarily committed to license their SEPs on FRAND terms as a quid pro quo for having their patented technology included in the standard. Further, they argue that monetary damages 10 To clarify, the ITC has not evaluated FRAND in the sense of taking a position on what the term means, or whether proposed terms in a negotiation are FRAND. Instead, it argued in this case that FRAND is not a per se ban on exclusion orders, and that Apple failed to provide an affirmative defense in the form of a evidence that Samsung violated the commitment. More commentary is provided in a sub-section below. See also Disap- proval of the ITC’s Ruling in Investigation Number 337-TA-794 (Samsung v. Apple) http://www.ustr.gov/sites/default/files/08032013%20Letter_1.pdf. 11 eBay v. MercExchange, L.L.C., 547 U.S. 388 (2006).

OCR for page 95
102 Patent Challenges for Standard-Setting in the Global Economy always are adequate to address any resulting harm and therefore the eBay stand- ard of irreparable harm cannot be satisfied. Judge Richard Posner, in a recent patent infringement case between Motorola and Apple,12 agreed with these arguments. Posner wrote: To begin with Motorola’s injunctive claim, I don’t see how, given FRAND, I would be justified in enjoining Apple from infringing the ‘898 unless Ap- ple refuses to pay a royalty that meets the FRAND requirement. By commit- ting to license its patents on FRAND terms, Motorola committed to license the ‘898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation for a license to use that patent. How could it do otherwise? How could it be permitted to enjoin Apple from using an invention that it contends Apple must use if it wants to make a cell phone with UMTS telecommunications capability—without which it would not be a cell phone.”13 Moreover, the court denied Motorola’s argument that because Apple refused to accept its initial royalty offer it was entitled to seek an injunction. This refusal did not excuse Motorola from meeting its FRAND obligation. Similarly, Judge James Robart, in the case between Motorola and Microsoft echoed these sentiments.14 Judge Robart wrote: The court is unconvinced by Motorola’s argument that it has or will suffer irreparable harm to its goodwill and reputation because a compulsory li- cense agreement would encourage others to infringe Motorola’s standard es- sential patents. This is not the case. The court’s prior rulings have made clear that Microsoft, as an implementer of the H.264 Standard, must accept a RAND license to Motorola’s standard essential patents. Indeed, Microsoft, or any other implementer, is not free to infringe Motorola’s standard essen- tial patents, and were that to occur, this court’s ruling with respect to injunc- tive relief may be different. The nature of Motorola’s RAND commitments, however, obligates Motorola to grant RAND licenses to any and all imple- menters of the H.264 Standard. As the court has explained, in the situation where a standard essential patent holder and an implementer reach an im- passe during negotiations of a RAND license, the courthouse may be the on- ly forum to adjudicate the rights of the patentee and the third-party benefi- ciary of the RAND commitment. Certainly, easily measurable litigation costs to enforce one’s rights cannot constitute irreparable harm. 12 Opinion and Order of Judge Richard Posner in Apple Inc. v. Motorola, Inc., June 22, 2012 in the District Court for the Northern District of Illinois, Case No. 1:11-cv-08540. 13 The court also held that the implementer had no duty to negotiate if the offer was viewed as “not FRAND.” 14 Microsoft Corp. v. Motorola, Inc., (LEXIS 170587, W.D. Wash, Nov. 29, 2012).

OCR for page 95
Injunctive Relief for SEPs Subject to FRAND 103 Judge Robart’s decision barred the SEP owner from seeking an injunction on FRAND-encumbered SEPs in other jurisdictions, pending the court’s deter- mination of an appropriate FRAND royalty.15 On May 20, 2013, District Judge Whyte issued a similar decision, finding that the defendants breached their FRAND licensing obligations in connection with the IEEE 802.11 standard by failing to offer a license to Realtek, or to ne- gotiate one, before seeking an exclusion order and injunctive relief at the ITC.16 According to Judge Whyte’s decision, “This conduct is a clear attempt to gain leverage in future licensing negotiations and is improper.” The court also issued a preliminary injunction against the defendants preventing them from enforcing any such exclusion order or injunction until the court determines FRAND terms and Realtek refuses to accept such terms. Realtek can preserve its right to appeal and maintain any arguments it may have relating to infringement, validity, and the like. Judge Posner’s ruling has been appealed and a number of amicus briefs have been filed in support of each party, including an FTC brief in support of the decision. Critics of the ruling argue that Judge Posner improperly creates a cate- gorical rule prohibiting injunctive relief in the FRAND context.17 These critics argue that existing law, including the eBay decision and Section 337 of the 1930 Tariff Act, provides a framework for determining facts and weighing equities in order to assess whether injunctive relief is appropriate. Within this framework, a FRAND commitment is one fact that may weigh against a finding of “irrepara- ble harm” or “inadequacy of damages as a remedy” and, hence, an eBay review would operate against an injunction. However, in other instances, these factors may be weighed differently.18 Further complex issues arise in judicial deliberations over the appropriate- ness of injunctions when FRAND commitments have been made. One is the 15 Similarly, as Judge Posner stated in Apple Inc. v. Motorola, Inc., 2012: “To begin with Motorola’s injunctive claim, I don’t see how, given FRAND, I would be justified in enjoining Apple from infringing the ‘898 unless Apple refuses to pay a royalty that meets the FRAND requirement. By committing to license its patents on FRAND terms, Motorola committed to license the ‘898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation for a license to use that patent. How could it do otherwise? How could it be permitted to enjoin Apple from using an invention that it contends Apple must use if it wants to make a cell phone with UMTS telecommunications capability—without which it would not be a cell phone.” 16 Realtek Semiconductor Corp. v. LSI Corp. and Agere Systems LLC, Case No. C-12- 03451-RMW (N.D. CA May 20, 2013). 17 See “Brief of Amicus Curiae Qualcomm Incorporated in Support of Reversal” in Apple Inc. v. Motorola, 2012. 18 An earlier example was CSIRO v. Buffalo, 492 F. Supp. 2d 600, 2007 U.S. Dist. LEXIS 43832 (ED Texas 2007). In this case, a non-practicing SEP holder (an Australian government scientific research organization) was awarded an injunction by demonstrat- ing that an existing infringement precluded its ability to license its patent because other implementers could thereby be encouraged to infringe.

OCR for page 95
104 Patent Challenges for Standard-Setting in the Global Economy question of what defenses should be available to an implementer when facing a potential injunction. Some argue that the implementation should be limited to asserting the existence of a FRAND commitment where an injunction is pend- ing, while others argue that the implementer should be able to raise any related claims and defenses (such as validity, enforceability and non-infringement). According to the later view, these defenses may have a direct impact on the FRAND determination, including what would constitute a reasonable royalty rate (as prospective licensees are not required to compensate the patent holder for invalid, non-infringed and non-enforceable patents). Having all of the issues resolved in the same adjudication arguably is the most efficient way to resolve the entire dispute between the parties, as opposed to focusing solely on whether the SEP holder breached its commitment. Others, more sympathetic to SEP owners, contend that, whether in arbitra- tion or litigation, permitting an open-ended presentation of all factors risks inju- rious delay. Moreover, there may be concerns about the costs and prejudice to the SEP owner if every issue must be resolved before a determination can be made as to whether it has complied with its FRAND commitment. International Trade Commission The issue of the availability of injunctive relief for SEPs also has arisen at the ITC, an independent federal agency. The ITC conducts investigations into allegations of unfair practices in connection with imports in violation of Section 337 of the Tariff Act of 1930, including infringement of intellectual property rights. Under Section 337, the U.S. Customs and Border Protection Agency stops the importation of products that infringe IPR into the United States where the “…effect is (i) to destroy or substantially injure an industry in the United States; (ii) to prevent the establishment of such an industry; or (iii) to restrain or monopolize trade and commerce in the United States…”19 Thus, a basic criteri- on is the effect on domestic industry. An order is granted “…unless, after con- sidering the effect of such exclusion upon the public health and welfare, compet- itive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers, it finds that such articles should not be excluded from entry.”20 A SEP owner must satisfy Section 337’s “domestic industry” requirement in order for the ITC to adjudicate the dispute. This requirement is fulfilled if a patent holder can show significant investment in plant and equipment, signifi- cant employment of labor or capital, or substantial investment in the patent’s exploitation, including engineering, research and development, or licensing.21 19 19 U.S.C. § 337(a)(1)(A). 20 19 U.S.C. § 337(a)(3)(A)-(C). 21 Note also that in the ITC context, the identity of a party may affect remedies in transfer cases. The transfer of a SEP from a non-U.S. company to a U.S. company could influence whether the domestic industry requirement to achieve relief is satisfied. Also,

OCR for page 95
Injunctive Relief for SEPs Subject to FRAND 105 After the ITC makes a finding of patent infringement following an expe- dited administrative hearing process, potential remedies include a cease-and- desist order and an exclusion order. Unlike in U.S. district court, monetary dam- ages are not available in the ITC for patent infringement. This suggests that the holders of a FRAND-encumbered SEP seek relief at the ITC for purposes other than to seek such monetary compensation from an implementer of a standard. The cease-and-desist order prohibits the defendant from selling or distributing infringing articles from existing inventory inside the United States. The exclu- sion order bars infringing articles from entering the United States. Plaintiffs in several Section 337 actions have argued that they are entitled to seek an exclu- sion order because the defendant is infringing their patent(s) and the plaintiff’s case otherwise meets all of the ITC’s stated requirements. The defendants have responded with arguments that an exclusion order based on a FRAND- encumbered SEP is inconsistent with the public interest. Section 337 allows the ITC to consider a number of “public interest factors” when determining whether to grant an exclusion order or a cease-and-desist order, such as the public health and welfare, competitive conditions in the United States economy, and United States consumers.22 Similar to the cases in district court, defendants have argued that a SEP owner’s FRAND promise forecloses its ability to seek injunctive relief.23 The FTC has encouraged the ITC to adopt such a rule, but the ITC has so far not done so. The FTC has urged RAND-encumbered SEPs present considerably different issues. A RAND commitment provides evidence that the SEP owner planned to monetize its IP though broad licensing on reasonable terms rather than through exclusive use. Consistent with the proper role of the patent system, remedies that re- duce the chance of patent hold-up associated with RAND-encumbered SEPs can encourage innovation by increasing certainty for firms investing in standards-compliant products and complementary technologies. Such reme- dies may also prevent the price increases associated with patent hold-up without necessarily reducing incentives to innovate.24 This issue of injunction orders under infringed FRAND-encumbered patents also is on appeal to the Court of Appeals for the Federal Circuit, an appellate whether a transferee is or should be bound by a FRAND licensing commitment may be a significant factor that the ITC will need to consider under its statutory framework. 22 19 U.S.C. §§ 337(d)(1) & (f)(1). 23 Gaming & Entertainment Consoles Recommended Determination, 2012; Wireless Communication Devices Initial Determination, 2012. 24 FTC Wireless Communication Devices Brief, 2012.

OCR for page 95
106 Patent Challenges for Standard-Setting in the Global Economy court that hears appeals from ITC actions.25 Under Section 337, the question may be if or how and when noncompliance with a FRAND commitment creates a public-interest exception, based on adverse effects on competitive conditions or U.S. consumer interests, that can prevail over ITC relief available when there is harm to a domestic industry caused by a patent infringement. The extent to which such issues are in flux is illustrated by the recent case InterDigital Communications, Inc., et al v. Huawei Technologies Co., Ltd., et al, with relevance to both the courts and the ITC.26 Here, a court did not accelerate a FRAND determination when the ITC was considering an exclusion order. In a proceeding involving InterDigital patents, Huawei unsuccessfully asked the ITC to stay its exclusion order proceeding until the district court determined FRAND (Rizzolo, 2013). The Delaware district court was asked to expedite discovery on the FRAND issue, but refused. In the order, the court denied defendant’s mo- tions for expedited discovery and trial on their counterclaims to determine a FRAND royalty for three patents. The court concluded that “The gist of the re- quest is that each Defendant will be harmed if its products are excluded from the U.S. by the lTC, that the ITC cannot set a FRAND rate, and that the Plaintiff will not offer it a FRAND rate although it has an obligation to do so….” The court did not consider it “practicable” to “…race to a partial judgment here so that each defendant will be in a better position in the ITC litigation.” The judge denied the motion for expedited discovery and trial. In another case, Samsung sought an exclusion order in the ITC against Apple based on FRAND-encumbered SEPs relating to the Universal Mobile Telecommunications Standard (UMTS) for 3G mobile cellular systems for net- works. The ITC ultimately issued an exclusion order that would prevent Apple from importing certain iPhone and iPad models into the United States, with one Commissioner dissenting on the ground that the infringed patent was subject to a FRAND licensing commitment and public interest considerations weighed against the exclusion of the Apple products. The Commission, among other grounds, found that Apple did not show that a FRAND commitment precludes exclusion orders under Section 337; that Apple failed to “provide a proper legal interpretation of the FRAND declarations at issue”; and that Apple did not show that the claims at issue were SEPs and that a FRAND commitment was warrant- ed and, if it was, that Samsung had failed to comply with the commitment. On August 3, 2013, the Obama Administration through a letter from the U.S. Trade Representative Michael Froman, disapproved the exclusion order stating that “[t] his decision is based on my review of the various policy considerations discussed above as they relate to the effect on competitive conditions in the U.S. economy and the effect on U.S. consumers.” This is the first time an 25 Opinion and Order of Judge Richard Posner in Apple Inc. v. Motorola, Inc., June 22, 2012 in the District Court for the Northern District of Illinois, Case No. 1:11-cv-08540. 26 InterDigital Communications Inc., et. al. v. Huawei Technologies Co., Ltd., et. al., 1-13-cv-00008 (D Del March 14, 2013).

OCR for page 95
Injunctive Relief for SEPs Subject to FRAND 107 Administration has veto an ITC exclusion order during the past 26 years.27 The veto letter elaborated, I would like to underscore that in any future cases involving SEPs that are subject to voluntary FRAND commitments, the Commission should be certain to (1) to examine thoroughly and carefully on its own initia- tive the public interest issues presented both at the outset of its proceed- ing and when determining whether a particular remedy is in the public interest and (2) seek proactively to have the parties develop a compre- hensive factual record related to these issues in the proceedings before the Administrative Law Judge and during the formal remedy phase of the investigation before the Commission, including information on the standards essential nature of the patent at issue if contested by the pa- tent holder and the presence or absence of patent hold-up or reverse hold-up. In addition, the Commission should make explicit findings on these issues to the maximum extent possible. I will look for these ele- ments in any future decisions involving FRAND-encumbered SEPs that are presented for policy review.28 In short, jurisprudence is developing in this area, as more cases addressing the intersection of FRAND and injunctive relief arise. European Courts Similar to the United States, SEP owners have filed lawsuits seeking in- junctions for patent infringement in various national courts in EU member states. As in the United States, European court outcomes have not established clear, uniform jurisprudence. Some courts have been reluctant to grant injunctive relief in connection with FRAND-encumbered SEPs. For example, a 2012 judgment of the Higher Regional Court of Karlsruhe in Germany overturned a ruling of a lower court that had granted an injunction for a SEP on the basis that a request to restrict sales would infringe EU competition law.29 Similar rulings involving other com- panies were issued by courts in the United Kingdom and the Netherlands.30 In 27 The ITC awarded Apple an exclusion order against Samsung for certain of its prod- ucts, based on non-SEP patents, shortly after the President disapproved the ITC order for Samsung against certain Apple products. 28 See http://www.ustr.gov/sites/default/files/08032013%20Letter_1.pdf. 29 Motorola v. Apple, 2012, Higher Regional Court of Karlsruhe, Federal Republic of Germany, Case No. 6 U 136/11. 30 (IPCom v Nokia and HTC [2012] EWCA Civ 567); Samsung v. Apple District Court of The Hague, 20 June 2012, case numbers/docket numbers 400367/HA ZA 11-2212, 400376/HA ZA 11-2213 and 400385/HA ZA 11-2215.

OCR for page 95
108 Patent Challenges for Standard-Setting in the Global Economy December 2012, a SEP owner withdrew applications for injunctions before the national courts in five EU national jurisdictions.31 Nevertheless, injunctions have been granted in some SEP cases, particu- larly by the national courts in Germany. For example, in May 2012 the Regional Court of Mannheim granted a SEP owner an injunction, concluding that such action did not violate EU antitrust law.32 In doing so, the Mannheim court con- sidered the application of the “Orange Book” defense and determined it did not apply. The Orange Book defense is established by a ruling of the German Su- preme Court which found that an owner of a FRAND-encumbered SEP abuses its dominant position if it refuses to grant a license or seeks injunctive relief when certain conditions are satisfied, including inter alia that a potential licen- see has made an irrevocable, unconditional and binding royalty offer to the SEP owner to conclude a license agreement and the potential licensee pays this amount to the SEP owner or into escrow. The Mannheim court’s interpretation of the Orange Book test does not re- quire that a potential licensee’s monetary offer be based on FRAND. Instead, the Mannheim court has taken the position that a potential licensee must offer a roy- alty that is just short of being “clearly excessive” before a SEP owner’s refusal of the offer becomes abusive. Because there likely is a difference between a “reasonable” royalty and a “clearly excessive” royalty, the Mannheim court’s decision arguably raises the bar for potential licensees to successfully challenge a SEP injunction by invoking the Orange Book defense in the German courts. Reflecting the developing law across different EU Member States, a Dutch case took issue with the criteria for the assessment of the defense established in the German Orange Book decision. In Philips v. Kassetten (Hague), 2010, a FRAND commitment by a patent holder was found not to be a defense to patent enforcement, including injunction. In that case, involving CD and DVD tech- nology, the Dutch court found that the German “Orange Book” decision is con- trary to Dutch patent law, creates legal uncertainty, and is unnecessary to protect the interests of the defendant. Instead, the court ruled that an implementer should seek a license and, if it is not granted, go to court to seek an interim in- junction to preclude suit against it, or a temporary license to the SEP, or damag- es if the licensee’s proposed offer is found to be reasonable.33 The inconsistency of the law across the European Union is further under- scored by the Motorola v. Microsoft case. While the German court issued an injunction, a U.S. District Court in Washington barred Motorola from enforcing 31 “Samsung Drops Injunctions Applications Against Apple,” by Vanessa Mock, The Wall Street Journal, December 18, 2012. (http://online.wsj.com/article/SB10001424127887 324407504578187043081010804.html. 32 Motorola v. Microsoft, 2012, Regional Court of Mannheim, Federal Republic of Germany, Case No. 2 O 240/11. 33 Koninklijke Philips Electronics N.V. v. SK Kassetten GmbH & Co. District Court The Hague, The Netherlands, 17 March 2010, Joint Cases No. 316533/HA ZA 08-2522 and 316535/HA ZA 08-2524.

OCR for page 95
Injunctive Relief for SEPs Subject to FRAND 109 that injunction pending the court’s determination of an appropriate FRAND roy- alty.34 The U.S. Court of Appeals for the Ninth Circuit found that the district court did not abuse its discretion and upheld its ruling.35 In considering this his- tory it is worth noting that in most countries, as in the United States prior to the eBay case, injunctions are granted almost automatically when a valid patent is found to be infringed. Thus, regulatory agencies and implementers are seeking legal means by which the FRAND commitment limits that premise. Because this case involves one jurisdiction and one set of specific facts, it is unclear what practical effects this decision will have on European injunctions where the SEP owner has a FRAND licensing commitment or, more generally, on how injunctions in one country may be viewed by courts in other countries.36 It is worth noting in this context that similar ambiguity exists regarding whether courts of various nations feel bound by particular IPR policies of SSOs. A potentially more definitive case in Europe emerges from the March 2013 order by the Dusseldorf Regional Court referring to the Court of Justice of the European Union (CJEU) five fundamental questions about remedies availa- ble to SEP holders where infringement has been found. The case, Huawei v. ZTE (no. 4b O 104/12) involves two Chinese electronics companies. The court found that ZTE had infringed patents Huawei had declared essential to the 4G/LTE cellular telecommunications standard. However, in light of the December 2012 European Commission (DG-Competition) Statements of Objection (SO) to Sam- sung over its attempt to get SEP-based injunctions against Apple, the court de- cided to ask the CJEU for its determination of appropriate remedies. The case is noteworthy in showing that European courts may differ in their views from the EC. In essence, the CJEU is asked to rule whether the EC’s position in its SO or the German view in the Orange Book case is more consistent with European Law. The opinion of the CJEU, when it is issued, will be binding on DG- Competition and the courts and competition agencies of all EU member states.37 6.4 Industry Views There are divergent views among firms in the industry on the issue of in- junctive relief in connection with FRAND-encumbered SEPs. Some companies have expressed the view that a FRAND licensing commitment precludes the SEP holder from ever seeking injunctive relief. They argue that the commitment reflects an agreement by the SEP holder that reasonable compensation will al- ways suffice and the SEP holder has other remedies to address recalcitrant licen- sees, for example, by seeking monetary relief and/or similar remedies through 34 Microsoft Corp. v. Motorola, Inc., 2012 U.S. Dist. LEXIS 170587. 35 Microsoft v. Motorola, Inc., 696 F.3d 872 at 879 (9th Cir. 2012). 36 A recent court decision in China bears on this issue, as discussed in Chapter 8 of this report. 37 Huawei v. ZTE, 2013, Regional Court of Düsseldorf, Federal Republic of Germany, Case No. 4b O 104/12.

OCR for page 95
110 Patent Challenges for Standard-Setting in the Global Economy litigation. Companies taking this position observe that an implementer would only resort to litigation, and the related expenses that the implementer would incur, if the SEP holder’s offer were not reasonably consistent with FRAND. They also argue that implementers would otherwise be unfairly pressured to accept non-FRAND terms to avoid the threat of injunctive relief or an exclusion order, particularly those authorized by tribunals that arguably cannot fully adju- dicate disputes as to whether the SEP holder breached its FRAND commitment and set a FRAND royalty rate. Other companies have taken the somewhat weaker position that, while in- junctive relief should never be sought against a willing licensee, it may be need- ed in situations involving recalcitrant behavior by licensees. They have argued that any disputes as to whether the SEP holder has offered terms that are con- sistent with the FRAND obligation, as well as any open issues as to validity, infringement, etc., should be first and fully adjudicated by a court or through an agreed-upon arbitration process. Injunctive relief should only be available if the implementer refuses to comply with any such final decision or otherwise may not be able to be compelled to pay an adjudicated amount, for example, because of bankruptcy, lack of jurisdiction, and the like. These companies also challenge the notion that injunctive relief may be necessary for effective negotiations to occur because the SEP holder can sue for reasonable damages. Thus, injunctive relief should only be available if the licensee refuses to accept the court’s deter- mination. And they further argue that the licensor has no reason to accept FRAND terms if the threat of injunctions allows them arguably to seek compen- sation in excess of that. Consistent with the views of competition regulators not- ed above, even the threat that injunctive relief may be sought makes it difficult to engage in licensing negotiations on a level playing field. Still other companies argue that injunctions are necessary to bring the li- censee to the table and to incentivize a reasonable royalty for the SEP owner, especially where the willingness of the licensee is at issue. The FRAND com- mitment may limit the availability of an injunction, so that the force of possible injunctive relief may be lessened in a SEP license negotiation. However, the possibility of injunctive relief if a licensee refuses to negotiate at all, or towards reasonable terms, is necessary for effective negotiation to occur. If the licensee is comfortable that the SEP owner is only entitled to FRAND royalties and no injunctive relief, the licensee may have no reason to discuss terms. All a lawsuit will produce is additional expense for the SEP owner and perhaps the same roy- alty the infringer would otherwise negotiate. Moreover, if competition authori- ties may readily impose sanctions on the licensor SEP owner if its opening offer departs from what the FRAND model suggests, licensees may be incentivized not to negotiate and SEP owners will be pressured toward artificially depressed royalty terms and other conditions. There is also a debate as to when a SEP-holder should be permitted to seek an injunction. Some view any petition for that remedy prior to a full adjudication of FRAND as problematic for two reasons. First, seeking an injunction may distort any bargaining process ongoing between the licensor and licensee. This

OCR for page 95
Injunctive Relief for SEPs Subject to FRAND 111 may happen in part because some tribunals could issue such relief on an expe- dited basis without fully adjudicating any related FRAND licensing disputes. Second, seeking such relief is not necessary, even in jurisdictions where plead- ings for injunctive relief must be made up-front in connection with a FRAND licensing dispute. This is because the court has its own enforcement powers should it grant the SEP holder monetary relief and the implementer fails to abide by that outcome. On the other hand, some firms argue that access to injunctive relief might be waived if it is not pleaded in FRAND proceedings. This could prohibit SEP owners from even seeking an injunction or an exclusion order and seriously prejudice their economic interests. In this vein, it is also argued that overly constraining SEP owners may result in fewer innovators participating in a standard’s development. They may opt in- stead to seek higher returns on their R&D investment in other non-standard tech- nologies or avoid participation in the standard development process, which could adversely impact the benefits of standards to the industry and the consumer. 6.5 Recommendations to SSOs, Courts, and Government Agencies The committee believes that a FRAND commitment limits a licensor’s abil- ity to seek injunctive relief, including exclusion orders, and recommends the fol- lowing steps to help avoid or resolve disputes, prevent anti-competitive conduct, and ensure reasonable compensation to SEP holders whose patents are infringed. Recommendation 6:1 SSOs active in
industries where patent holdup is a concern should clarify their policies regarding the availability of injunctions for FRAND-encumbered SEPs to reflect the following principles:  Injunctive relief conflicts with a commitment to license SEPs on FRAND terms and conditions should be rare in these cases;  Injunctive relief may be appropriate when a prospective licensee refus- es to participate in or comply with the outcome of an independent adju- dication of FRAND licensing terms and conditions; and  Injunctive relief may be appropriate when a SEP holder has no other recourse to obtain compensation. The committee could not reach unanimous agreement on appropriate venues for adjudicating FRAND disputes. However, a majority of the committee members endorse the following:

OCR for page 95
112 Patent Challenges for Standard-Setting in the Global Economy Majority Recommendation 6:2 SSOs should clarify that disputes over proposed FRAND terms and condi- tions should be adjudicated at a court, agency, arbitration or other tribunal that can assess the economic value of SEPs and award monetary compensation.38 The committee also could not reach unanimous agreement on the scope of any limitations that a FRAND commitment might place on SEP holders’ rights to seek injunctive relief. However, a majority of the committee members en- dorse the following recommendation in that regard: Majority Recommendation 6:3 SSOs should clarify that, before a SEP holder can seek injunctive relief, dis- putes over proposed FRAND terms and conditions should be adjudicated at a court, agency, arbitration, or other tribunal that allows either party to raise any related claims and defenses (such as validity, enforceability and non-infringement).39 38 A minority of committee members endorse this alternative recommendation: Courts, agencies, arbitration bodies or other tribunals (including the USITC) that consider patent essentiality, FRAND determination, or public interest factors should be presented with the facts and render injunctive relief decisions based on existing law, such as the eBay decision and/or ITC Section 337. 39 A minority of committee members endorse this alternative recommendation: SSOs should clarify that a SEP owner that has made an offer and offered to negotiate, with a pro- spective licensee, a license that will embody FRAND terms should be allowed to include injunctive relief in its pleadings when a FRAND dispute is brought to a court, agency, arbi- tration, or other tribunal that can consider equities, party conduct, reciprocity, and FRAND factors (including FRAND rates and terms).