ITC Administrative Law Judge Finds that Participating in a Standard Setting Organization and Assuming RAND Obligations Does Not Create an Implied License

Authored by Amanda Joy Dittmar, D. Brian Kacedon, and John C. Paul

Traditionally, Standard Setting Organizations (SSOs) require their members to (1) agree to license patents related to technology incorporated in standards and (2) license on reasonable and nondiscriminatory (RAND) terms. There has been much discussion of late as to whether exclusion orders or injunctions should be available at all when a patent owner has made such commitments. In a recent decision, an administrative law judge at the ITC found that such SSO commitments did not preclude relief at the ITC.

Initial Determination By the ITC in the case of Gaming and Entertainment Consoles

In Gaming and Entertainment Consoles, Related Software, and Components Thereof,¹ Motorola brought an infringement action in the ITC seeking an exclusion order on Microsoft's Xbox by asserting the infringement of five patents. Several of the patents asserted by Motorola were allegedly essential to certain standards set by SSOs to which Motorola had made RAND commitments. Microsoft asserted an equitable defense based on these RAND commitments, arguing that:

As a results of its commitments to license patents on RAND terms whether viewed under principles of contract, implied license or waiver, Motorola cannot seek relief, either by injunction in the courts or an exclusion order in the Commission, that would exclude other companies from using the patents to practice the standards. Its remedy for use of these patents in implementation of the standards, if any, is limited to a reasonable royalty.

Microsoft did not offer evidence of specific conduct on the part of Motorola but instead presented three legal theories under which Motorola's entrance into RAND agreements with SSOs bar it from obtaining an exclusion order. Namely, Microsoft argued that (1) SSO membership precluded injunctive relief; (2) Motorola had granted an implied license through its conduct in the SSO; and (3) Motorola should be foreclosed from an injunction because Microsoft reasonably relied on the availability of a license from Motorola's misleading communications to the SSO. Motorola disagreed, arguing that its licensing obligations as a member of the SSO were only that the parties engage in good-faith negotiations to determine RAND terms, not that a license was required or that an implied license existed. In this regard, Motorola pointed to two "offer" letters it had sent to Microsoft, offering Motorola's "standard" terms for its essential patents to demonstrate that it had attempted to engage in such negotiations. According to Motorola, Microsoft's refusal to negotiate—indeed, its battle in the courtroom—constituted a forfeiture of the right to RAND licenses and, therefore, RAND defenses.

In the Initial Determination, the Administrative Law Judge Shaw rejected Microsoft's argument that Motorola's RAND licensing obligations necessarily foreclosed an exclusion order or injunction, noting that "with all the patents subject to RAND licensing obligations that may have ever come before the Commission, Microsoft was not able to cite one case in which a section 337 remedy was foreclosed due to the existence of RAND obligations." ALJ Shaw further emphasized that Motorola had sent documents to the SSO explicitly stating that no license should be implied and that in Motorola's past SSO dealings, licenses were granted to licensees only after negotiations, not as a result of RAND obligations. According to the ALJ, Microsoft had not identified any of Motorola's actions that would undermine its statements to the SSO that no license should be implied. Finally, the ALJ pointed out that although Motorola's offers to Microsoft may have showed that it did not intend to negotiate in good faith, Microsoft had not relied on any statement by Motorola to embark on, or continue in, any course of conduct. As a result of these factors in favor of Motorola, the ALJ rejected Microsoft's implied license defense. It should be noted, however, that the full commission has recently remanded this investigation to the ALJ for consideration of a recent Commission opinion. This investigation therefore stands on uncertain ground.

Strategy and Conclusion

This case provides insight into the repercussions of SSO membership and resultant RAND obligations at the ITC. In this Initial Determination, at least one ALJ has made it clear that without further evidence of owner consent, agreeing to SSO RAND obligations does not result in an implied license. It should be noted, however, that the FTC expressed concern in this very case about the grant of exclusion orders by the ITC based on standard essential patents subject to RAND commitments. Moreover, one federal judge has recently held that injunctions should not be available for standard essential patents subject to a RAND commitment. Thus, the implications of participating in SSOs on actions at the ITC are still a matter of much debate and should be followed closely by anyone participating in such bodies. 

Endnotes

¹ The relevant section of Certain Gaming and Entertainment Consoles, Related Software and Components Thereof (In. No. 337-TA-752) Initial Determination: http://www.itcblog.com/wp-content/uploads/2012/05/752-ID-Part-6.pdf.

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