The draft policy lists examples of good-faith conduct by both parties during FRAND negotiations, which is like the practice in some European jurisdictions. Under the draft policy, however, a SEP holder is expected to do more work to demonstrate good faith and to move the negotiation forward.
For example, before reaching out to a potential licensee, the SEP holder is expected to have conducted more in-depth infringement analysis and FRAND rate calculation to “make a good-faith F/RAND offer”. A good-faith response from the implementer, on the other hand, could be “raising specific concerns about the offer’s terms”, or “requesting that the SEP holder provide more specific information”.
At that time, the SEP holder can respond by “addressing specific concerns about the original offer’s terms and making a new good-faith F/RAND offer”, or “responding to a request for information”. These again may require additional resource- and time-intensive analysis. Under the draft policy, a SEP implementer may feel more confident, or more comfortable, in demanding more from the SEP holder before making a move. For example, the implementer may request more information on the SEPs at issue and more specific infringement analysis, such as claim charts. The implementer may also demand detailed calculations and support for the proposed FRAND rates, both for the initial offer and any new offers made in response to counteroffers.
While the SEP holder faces a higher bar of demonstrating good faith in negotiations, the implementer has more leeway to push back before providing a meaningful response, all with less concern of risking an injunction.
Injunctive Relief – Less Favourable Than 2019 Trump Administration Policy
On injunctive relief, the draft policy differs from the approach taken by the Trump administration’s December 2019 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/Rand Commitments.
Both the 2019 policy and the new draft policy recognise that the eBay framework applies in analysing the availability of injunctive relief in SEP cases, like in any other patent case. Both policies also recognise the uncontroversial articulation in Apple v Motorola that FRAND commitments are relevant to addressing injunctions in SEP cases. The two policies, however, support their respective policy approaches with different interpretations of the same US Court of Appeals for the Federal Circuit cases.
For example, the 2019 policy, citing Apple, explicitly endorsed all remedies, including injunctive relief, as equally available for SEP infringement. The draft policy, while also citing Apple, emphasises that, in SEP cases, monetary damages are adequate “as a general matter”, and that FRAND commitments and the public interest both counsel against injunctions. The draft policy also cites Apple to support the statement that injunctions for SEP infringement have “rarely been granted”.
In Apple, the Federal Circuit stated that an injunction may be justified where an implementer “unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect”. That invites the consideration of how an implementer acts during the negotiations. While citing Apple, the draft policy’s interpretation of scenarios justifying an injunction appears to be much narrower. The only example provided in the draft policy is if an implementer “refuses to pay what has been determined by a court or another neutral decision maker to be a F/RAND royalty”. Such a determination, however, may occur only far along in or even after the negotiations.
By seeming to abandon the approach in the 2019 policy, the draft policy shifts back to and indeed may go further than the January 2013 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/Rand Commitments issued under the Obama administration.
Compared to the 2013 policy, the draft policy makes clear that the parties’ negotiation conduct would also affect the remedies available to a SEP holder, as well as the existence of FRAND commitments.
Further, compared to the 2013 policy, the draft policy provides a stronger statement against seeking or awarding injunctive relief. For example, while acknowledging an injunction may be justified if a potential licensee is “unwilling” to take a licence, the draft policy then discusses several scenarios where a potential licensee should not be deemed “unwilling”. On the other hand, the draft policy, unlike the 2013 policy, provides little discussion of scenarios where an injunction would be justified.
The possibility of obtaining an injunction is a powerful ‘weapon’ for a SEP holder in licensing negotiations, often much more powerful than monetary damages. The fear of an injunction, especially for a big or significant market, provides a strong incentive for an implementer to take a licence and significant leverage for the SEP holder.
Under the draft policy, that ‘weapon’ now seems more like a paper tiger. SEP holders seeking to maintain the leverage in negotiation or litigation may instead look at those jurisdictions where injunctions present a more practical threat.
Guidance Lacks Weight of Foreign Court Decisions
The draft policy would also affect how SEP stakeholders select SEP forums, particularly in disputes involving multiple jurisdictions.
Similar to recent developments in the United Kingdom and Germany, the draft policy makes clear that the parties’ conduct during negotiations should affect the relief available to a SEP holder, and also provides several examples of good-faith conduct. In that regard, it provides helpful and long-awaited clarity.
However, unlike guidance from the European jurisdictions, the draft policy may not yet carry as much force in practice. For SEP stakeholders facing global SEP disputes, relative certainty on what the courts ultimately consider to be good-faith conduct (and the consequences) would provide valuable practical direction. Administration policy, however, has limited influence on the courts in the United States.
In a September 2021 decision, the Fifth Circuit affirmed the district court’s declaratory judgment in HTC v Ericsson that the SEP holder, Ericsson, complied with its FRAND obligations. Although not addressed in the appeal decision, the district court held that a lack of good faith in negotiations did not preclude a finding that a SEP holder complied with its FRAND obligations under the ETSI’s IPR policy. However, according to the court, failure to exercise good faith deprives the SEP holder’s entitlement to injunctive relief. It remains to seen whether other courts would follow suit in interpreting the same ETSI policy; and how the draft policy, if it is adopted as administration policy, would affect courts’ analysis under the ETSI or other SDO policies.
The Big Picture
SEP holders likely will not find the draft policy’s approach appealing, in view of the increased burden on SEP holders during negotiations and discouragement of injunctive relief. If followed by courts, many SEP holders may look elsewhere when choosing their SEP battlefield, especially considering the landmark SEP/FRAND decisions that have emerged from the UK and German high courts in the past two years, which appear favourable to SEP holders. Plaintiffs dealing with global SEP disputes may find those jurisdictions yet more attractive if the latest US draft policy is adopted.
Meanwhile, when it comes to SEP implementers and their preferred venues, China is historically more favourable. With several recent decisions asserting Chinese courts’ jurisdiction over global SEP disputes and unprecedented anti-anti-suit injunctions, China has emerged as an important forum. Compared to US courts, Chinese courts also provide the potential advantage of more implementer-friendly FRAND rates. So from implementers’ perspective, while the draft document shifts policy in a friendlier direction, it might not carry enough force to make US courts stand out in the forum competition.
