Authored by Doris Johnson Hines and J. Preston (J.P.) Long
In August 2013, the Office of the United States Trade Representative did something virtually unheard of: It decided that public interest considerations trumped a decision by the International Trade Commission to ban certain infringing products from entering the United States.1 This was the first time since 1984—and only the fourth time ever—that the USTR has taken such action.2
But what is unique about the USTR's recent decision is that, unlike the three previous decisions, the public interest was premised solely on legal policy considerations and not public necessity for the particular products.3 The specific policy considerations that seem to have piqued the USTR's interest so much relate to standard-essential patents (SEPs). And the USTR is not alone. The Federal Trade Commission,4 the United States Patent and Trademark Office,5 the Department of Justice,6 and the federal courts7 have echoed similar concerns about SEPs.
An SEP is a patent containing one or more claims that are necessarily practiced whenever someone implements part of a technological standard.8 Although standards can be set by government regulation9 or simply by overwhelming consumer adoption,10 many standards are set by private organizations. This process, called group standard-setting, is a formal process during which industry representatives propose alternative technologies to a standard-setting organization (SSO). After weighing the pros and cons of the proposed standards, the SSO publishes a final standard that its members and other manufacturers may or may not adopt.
Group standard-setting can cause significant problems when the standard incorporates patented technologies. For example, because a patent nominally grants the patent owner the right to exclude, i.e., injunctive relief,11 an SEP potentially gives its owner the ability to hold hostage an entire industry—a phenomenon referred to as patent "hold-up."12 Moreover, the threat of injunction can lead to royalty demands by an SEP owner in excess of the value of the patented technology itself. When several SEPs cover a standard, these excessive royalties can also "stack,"13 thereby reducing the manufacturer's profit margin, potentially to the point of unprofitability.14
Consequently, most SSOs have adopted specific policies to address how SEPs should be treated during standards development.15 For example, the Institute of Electrical and Electronics Engineers Standards Association (IEEE-SA) Board Bylaws impose on participants a duty to provide Letters of Assurance regarding their own patents that might become SEPs.16 Such a Letter of Assurance must consist of either (1) a general disclaimer that the submitter will not enforce any present or future SEP claims against anyone; or (2) a commitment to offer everyone a license to practice the submitter's SEPs on fair, reasonable, and non-discriminatory (RAND or FRAND) terms.17
But SSO policies often leave much to be desired, and they can vary significantly. For example, although most SSOs generally require the disclosure of SEPs, what disclosures they require can vary significantly.18 SSO policies may also leave certain issues unaddressed. For example, most SSOs do not specifically address whether participants must disclose (let alone make commitments involving) pending patent applications or continuation or divisional applications.19 Most also do not impose any duty on their members to search and determine if their patents cover the standard,20 meaning that the information provided to SSOs may be incomplete.
Thus, even if the participants disclose all of their known SEPs (assuming the SSO even requires that much), third-party-owned SEPs may be cause for concern. Third parties, which do not participate in the standard-setting process, typically do not make FRAND commitments, so nothing requires them to make their SEPs available at all, let alone available on FRAND terms.
Perhaps the most significant problem with SSO policies, however, concerns the actual FRAND commitments themselves. While most SSOs require some form of FRAND licensing commitment,21 what such commitments entail in practice is not exactly clear. And because most SSOs do not determine FRAND rates—or even define how to compute a FRAND rate22—the courts are left to determine how to treat FRAND-encumbered patents.23
This unique set of circumstances raises a host of legal issues and has led to vigorous debates. Two broad issues have been particularly salient in the patent community: (1) whether injunctive relief should be available to SEP owners and (2) how to determine FRAND rates.
There are two diametrically opposed views on injunctions for SEPs. One view is concerned with patent hold-up and royalty stacking and fears that no one will adopt a standard if patent owners can obtain injunctive relief for SEP infringement.24 Another view underscores the concern of reverse patent hold-up, or "hold-out," and fears that technology developers will refuse to participate in standard-setting because, without the availability of injunctive relief, would-be licensees would engage in serial infringement with little or no risk of consequences.25 In the middle, there is a third position—that patent hold-up and/or hold-out may or may not be present in any given case and that there is little evidence of either at a systemic level.26
Although district courts have also struggled with the issue of injunctive relief for SEPs,27 this debate has become especially acute at the ITC. Because the primary remedy available in the ITC is a restriction on importation28—in effect not much different from an injunction—some have questioned the propriety of permitting ITC investigations based on FRAND encumbered patents.29 Consequently, the ITC called for public comments in an investigation involving Apple Inc. (the accused infringer) and Samsung Electronics Co. (the patentee) in Investigation No. 337-TA-794, asking whether "the mere existence of a FRAND undertaking with respect to a particular patent preclude[s] issuance of an exclusion order based on infringement of that patent" and "what framework should be used for determining whether the offer complies with a FRAND undertaking."30 The commission further asked "[w]hich factors in Georgia-Pacific Corp. v. United Slates Plywood Corp., 318 F. Supp. 1116[166 U.S.P.Q.235] (S.D.N.Y. 1970) are most relevant to determining whether Samsung has offered to license the [SEP at issue] to Apple on [FRAND] terms"?31
The commission's opinion in the Apple/Samsung case did not address most of these issues directly. The commission did, however, confirm that a patent owner's failure to abide by a FRAND commitment can provide the basis for a valid defense in the ITC.32 But merely seeking to enforce a FRAND-encumbered patent is not, in and of itself, a valid defense.33 Similarly, the commission found no reason that FRAND encumbered patents should be enforced in the ITC only after a district court first rules that the would-be licensee failed to take a license on FRAND terms or when the district courts lack personal jurisdiction.34
Although the commission upheld its authority to hear FRAND-related patent cases, it did not clarify how a respondent should plead a FRAND defense or how to succeed at one. The opinion noted that the commission has authority over "all legal and equitable defenses"35 but did not identify the character of a proper FRAND defense. Instead, it observed that "[a]t least one district court has analyzed a FRAND obligation under contract theory" and that the respondent "has not argued the elements of any other recognized defenses, for example promissory estoppel, laches, or fraud."36 Also unclear is whether such a "defense" is a counterclaim, which would require removal of that claim to a district court.37 The commission merely noted that, in this case, the respondent "ha[d] not identified the basic elements necessary to prove a contract: the parties, the offer, the acceptance, the consideration, and definite terms."38
For now, respondents should simply be aware that a FRAND-based defense is possible, and plead it in several ways—e.g., unclean hands, breach of contract, equitable estoppel, promissory estoppel, laches, and/or patent misuse. In its decision in the Apple/Samsung case, the commission further noted that Apple failed to identify any specific obligations resulting from Samsung's FRAND declarations. The commission stated, "Before a party can prove a breach of an alleged FRAND obligation, it must prove what the obligation is. In this investigation, such proof would require an interpretation of Samsung's written FRAND declarations."39 The particular obligations at issue were governed by French law, but Apple did not provide evidence of how French law would view them. Thus, even if the commission decided to interpret Samsung's obligations sua sponte, it did not have the evidence necessary to do so.
Moreover, the commission noted that Samsung's only promised to make a FRAND offer to the extent that its patents were actually essential to the standard.40 Without resolving the issue (since neither party directly raised it), the commission merely noted that essentiality should be a condition precedent to any of Samsung's FRAND obligations under the relevant SSO's agreement.41
Because the commission did not resolve whether Samsung offers were on FRAND terms, it also did not determine how to evaluate FRAND compliance. Thus, in effect, the extensive public commentary on the applicability of the Georgia-Pacific factors was moot. The commission simply noted that its analysis was consistent with the Georgia-Pacific framework, thus suggesting that the Georgia-Pacific framework may be applicable when evaluating FRAND compliance.42
Ultimately, the commission characterized Samsung's FRAND obligations as an "agreement to agree." To comply with those obligations, Samsung therefore only needed to negotiate in good faith.43 The commission also noted that an initial offer for a license to a FRAND encumbered patent need not necessarily be on FRAND terms.44 Moreover, a FRAND offer often includes "terms and conditions," not just royalty rates. Such terms could involve, for example, cross-licensing arrangements.45 Based on the facts contained in the record (most of which were redacted from the public version of the order), the commission determined that Apple failed to prove the patent owner failed to negotiate in good faith. Thus, Apple failed to prove its FRAND defense, and the commission issued an exclusion order.
Interestingly, despite rejecting the commission's exclusion order, the USTR seemed to agree with the commission that the record lacked sufficient detail on Apple's FRAND-related defense. The commission's opinion appears to lay the blame with Apple, whose burden it was to prove a FRAND defense.46 And the USTR did not necessarily disagree, taking no position on the actual merits of the case.47 But even if a deficient record was Apple's own failure, the USTR determined that the commission was unable to assess public interest considerations properly without more information regarding the FRAND-related issues.
The USTR cautioned the commission going forward:
(1) to examine thoroughly and carefully on its own initiative the public interest issues presented both at the outset of its proceeding and when determining whether a particular remedy is in the public interest and (2) seek proactively to have the parties develop a comprehensive 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 patent 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 elements in any future decisions involving FRAND-encumbered SEPs that are presented for policy review. The Commission is well-positioned to consider these issues in its public interest determinations.48
Thus, despite a respondent's burden of proving its FRAND-based defenses, a patentee must ensure that the record sufficiently supports any determinations that the requested remedy will not significantly affect the public interest.
Following the USTR's decision in the Apple/Samsung case, Ericsson Inc., the patentee in Investigation No. 337-TA-862, a case against Samsung, requested that the commission make explicit findings of "(1) whether [its] licensing offers to Samsung comply with its FRAND commitments, and (2) if the ALJ determines that they did not, then the ALJ should make a determination of what terms would comply with FRAND."49 In response, Samsung argued that "[w]here, as here, the parties' only real dispute is one over how much a licensee should pay as a FRAND royalty—not whether it will pay—and other remedies exist, the USTR Letter recognizes the licensor's proper recourse is in the courts (or private adjudication, such as arbitration, as Samsung repeatedly has offered to Ericsson)."50
The commission, therefore, may have to address some of the concerns raised by the USTR's action in the 337-TA-794 Investigation. For example, the commission may have to examine its own authority to determine FRAND rates. The commission may also need to address certain other aspects of FRAND defenses, such as how to determine the presence of hold-up or hold-out and how to determine the presence of good faith negotiations and FRAND compliance. A final initial determination in the Ericsson/Samsung is scheduled for January 2014.51
Another case involving SEPs, with LSI Corp. as the complainant-patentee and Realtek Semiconductor Corp. and Funai Electric Co. as the respondents, Investigation No. 337-TA-837, may provide additional insight into the commission's emerging approach to FRAND-encumbered patents. At the time of the USTR's decision in the Apple/Samsung investigation, the ALJ had already issued an initial determination in the LSI/Realtek investigation finding no infringement but otherwise rejecting the FRAND-based defenses. The respondents had argued that the FRAND-encumbered patents were unenforceable because LSI failed to satisfy its FRAND obligations, because of contractual or equitable estoppel in general, or because LSI breached its obligations to the SSO.52 The ALJ's decision essentially tracked the rationale established by the commission's opinion in the Apple/Samsung investigation.
And as in that case, the ALJ had concerns about the adequacy of the factual record on the FRAND issues53 which the ALJ attributed to the respondents. In light of the USTR's comments following the Apple/Samsung investigation, however, the commission may now be more reluctant to issue an exclusion order without having a more robust record on the FRAND issues. For example, the commission requested supplemental briefing, asking, inter alia, for comments on:
This request by the commission seems to have been inspired directly by the USTR's comments rejecting the exclusion order in the Apple/Samsung case.55
While it is still too early to tell how the commission may be modifying its approach to FRAND-encumbered patents, the investigations involving Ericsson and LSI SEPs may provide valuable insight on the related issues.
Although much of the controversy surrounding SEPs has focused on the availability of injunctive relief, a related issue is of vital importance: How should a court determine a FRAND rate or range of rates? Not only does this issue affect the determination of any monetary remedies that might be available to the parties, it must be resolved simply to determine the patent owner's liability. In other words, a court cannot determine whether a patent owner breached its alleged FRAND obligations unless it determines whether the patent owner offered a license on FRAND terms.
Judge James L. Robart's opinion in Microsoft Corp. v. Motorola, Inc.56 is currently the leading case on this issue. Part III of Robart's opinion, titled "Economic Guideposts for Assessing RAND Terms," sets out the methodology in detail. First, Robart established a set of foundational principles, noting that a proper methodology for determining FRAND rates should:
Robart then derived and adopted a modified Georgia-Pacific analysis, based on 13 factors to be applied just before the patented technology was adopted into the relevant standard.62 In adopting this approach, Robart noted that "[s]upport for a hypothetical bilateral negotiation . . . is found in real-world negotiations"63 and "is also found in the experience of the courts."64 Nevertheless, Robart cautioned that "the hypothetical negotiation under a RAND obligation must be different" because "the owner of an SEP is under the obligation to license its patent on RAND terms," and "the implementer of a standard will understand that it must take a license from many SEP owners, not just one, before it will be . . . able to fully implement the standard."65 With these basic tenets in mind, all that remained was to determine which Georgia-Pacific factors to apply and in what ways to modify them. The result was 13 modified Georgia-Pacific factors.
Following Robart's methodology, Chief Judge James F. Holderman of the Northern District of Illinois recently addressed FRAND issues in In re Innovatio IP Ventures, LLC Patent Litigation.66 To date, the opinions by Robart and Holderman are the only two instances in which a court has specifically determined a patent owner's FRAND compliance.67
Like Robart, Holderman took a holistic, "top-down" approach to this issue, accounting for potential patent hold-up and royalty stacking.68 But Holderman also made several minor modifications to Robart's flexible methodology based on the circumstances of the case. For example, the purpose of Robart's FRAND determination was to provide a range of possible FRAND royalty rates so that a jury could determine the patent owner's FRAND compliance. Holderman's task, however, was to determine a particular FRAND rate for the purpose of setting a damages award.69 In addition, while Robart adjusted the FRAND rate to account for pre-suit uncertainty over the alleged essentiality of the patent, Holderman did not.70 Thus, in a hypothetical negotiation, a putative licensee in Innovatio would not have been as skeptical as in Microsoft.
With these modifications in mind, Holderman first determined the average price of the base unit during the relevant time period71 and the average profit margin of base unit manufacturers during the relevant time period.72 Holderman also determined the approximate number of SEPs covering the base unit and the relative importance of the patent owner's SEPs to the standard.73 Based on this information, the court determined a specific FRAND royalty rate.74
As the only available opinions to date that determine actual FRAND royalty rates, Microsoft and Innovatio are likely to prove very influential to arbitrators, other courts and the ITC. Parties seeking to offer or take a license to an SEP should therefore be aware of the methodologies endorsed in these court opinions.
Although the present legal landscape is in flux when it comes to FRAND-encumbered patents, preferred methodologies and trends are emerging. Parties with a stake in SEPs should therefore take notice of them. In fact, the parties that should perhaps pay the most attention are those directly involved in licensing negotiations involving SEPs.
For example, patent owners should recognize that SEPs are not like other patents. Although a variety of circumstances may justify a suit involving SEPs, patent owners should ensure that their pre-suit activities were thorough and in good faith. Courts view patent owners with heightened scrutiny when they seek to enforce SEPs. Thus, monetization efforts should emphasize proper licensing strategies.
Patent owners, especially, should therefore make sure their actions cannot be construed as "unwillingness" to offer a license. For example, despite indications that "initial offers do not have to be on RAND terms so long as a RAND license eventually issues,"75 a patent owner should proceed with caution before discussing specific terms. One option may be to engage IP valuation experts early in the process and to conduct detailed due diligence. If a patent owner comes to the negotiating table with royalty rates substantiated by the methodologies endorsed by Judges Robart and Holderman, that party's offers are far less likely to be controversial during any future litigations.
Given the prevailing sentiments in the courts and ITC, another option to consider is arbitration. The parties could, for example, enter into an arbitration agreement up front, before entering into substantive negotiations over royalty rates and other licensing terms. If negotiations break down, the parties then have a mutually agreeable recourse that may be less expensive and more likely to be resolved by fact-finders with greater knowledge and experience. Further, the parties can tailor the arbitration to their particular circumstances and needs.
If a patent owner seeks relief in a district court or the ITC, parties on both sides of the controversy should be prepared to have FRAND compliance determined under Judge Robart's and Judge Holderman's methodologies. This seems to apply equally in the district courts and in the ITC.
In the ITC, in particular, patent owners should be proactive in developing a record that they sought to license their SEPs in good faith. Even though the respondent must affirmatively prove any FRAND-based defense, the USTR seems very concerned that exclusion orders directed to products covered by SEPs may be detrimental to competitive conditions in the United- States. Accordingly, the USTR has suggested any such exclusion orders must be thoroughly substantiated on the factual record. A patent owner may therefore win on the merits of the case but still be denied a remedy on public interest grounds if the record does not fully reflect the patent owner's good-faith licensing efforts. This may in effect place the burden on the patent owner to prove its own good faith.
For the same reasons, a respondent who fails to make out a successful FRAND-based defense should consider attacking the sufficiency of the record as it relates to the public interest factors. In this way, even a losing respondent may avoid the imposition of an exclusion order.
The bottom line is that the courts and the ITC are becoming far more sophisticated when it comes to SEPs. If a patent owner seeks to exploit the court system for leverage in negotiations involving FRAND-encumbered patents, the outcome is unlikely to be favorable to the patent owner. If a putative licensee simply refuses to take a license, however, it may hope to paint the patent owner as an unwilling licensor engaging in patent hold-up to extort inflated royalties. In principle, the courts—and especially the ITC—are aware that this type of patent hold-out may be present.
But for now, it seems as though the onus is on patent owners to prove that their licensing efforts are in good faith and FRAND-compliant. The silver lining for patent owners is that Judges Robart and Holderman have at least provided them with a roadmap for FRAND compliance—something that neither the SSOs nor the courts had done before.
1 See Letter from Michael B. G. Froman, Ambassador, U.S. Trade Rep., to Irving A. Williamson, Chairman, U.S. Int'l Trade Comm'n (Aug. 3, 2013) (86 PTCJ 741, 8/9/13) [hereinafter Froman Letter] (filed in Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, Inv. No. 337-TA- 794 (I.T.C. Aug. 5, 2013)).
2 See Colleen V. Chien & Mark A. Lemley, Patent Holdup, the ITC, and the Public Interest, 98 CORNELL L. REV. 1, 19–20 (2012) ("Nonetheless, in the vast majority of section 337 cases, the ITC finds that excluding goods does not threaten the public interest. The ITC has found that the public interest trumped exclusion in only three cases: car parts necessary for improved fuel efficiency, scientific equipment for nuclear physics research, and hospital burn recovery beds. The unifying theme in these cases is that the products were necessary for something socially important (human health or some other nationally recognized policy goal), and no other supplier could meet demand in a commercially reasonable time period. The ITC also decided these cases more than twenty-five years ago. More recently, the ITC has indicated that, unless the contested product is a drug or medical device, it is unlikely to meet the public interest exception." (footnotes omitted)).
3 See Froman Letter at 3 ("This 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."). Also consider that the products at issue in the most recent decision were Apple iPhones and iPads; whereas, the products at issue in the three previous decisions were car parts necessary for improved fuel efficiency, scientific equipment for nuclear physics research and hospital burn recovery beds.
4 See Third Party U.S. Fed. Trade Comm'n's Statement on the Public Interest, Inv. No. 337-TA-745 (I.T.C. June 6, 2012); Brief of Amicus Curiae Fed. Trade Comm'n Supporting Neither Party, Apple, Inc. v. Motorola, Inc., Nos. 2012-1548, -1549 (Fed. Cir. Dec. 14, 2012).
5 See U.S. Dep't of Justice and U.S. Patent & Trademark Office, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments, U.S. DEP'T OF JUSTICE (Jan. 8, 2013), http://www.justice.gov/atr/public/guidelines/290994.pdf.
6 See id.
7 See, e.g., RealTek Semiconductor Corp. v. LSI Corp., No. C-12-03451-RMW, slip op. at 15 (N.D. Cal. May 20, 2013) (granting the plaintiff's request for a preliminary injunction barring defendants from enforcing any exclusion order or injunctive relief by the ITC until the court determines that the defendants complied with their RAND obligations); Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901, 913–14, 2012 BL 157789, 104 U.S.P.Q.2d 1611 (N.D. Ill. 2012) (Posner, J.) (84 PTCJ 349, 6/29/12) ("I don't see how, given FRAND, I would be justified in enjoining Apple from infringing the [SEP at issue] unless Apple refuses to pay a royalty that meets the FRAND requirement.").
8 Note that this also includes optional parts of a standard.
9 Consider, for instance, electrical outlets. The National Fire Protection Association developed the National Electric Code, which most states and municipalities have adopted in lieu of independently creating local wiring standards. See, e.g., NEMA, NEC Adoption by State, http://www.nema.org/Technical/FieldReps/Documents/NEC-Adoption-Map-PDF.pdf (last visited Oct. 24, 2013).
10 One popular example is the "QWERTY" keyboard configuration. The QWERTY keyboard became a de facto standard following its popularity with consumers near the time the typewriter was invented. See Stan J. Liebowitz & Stephen E. Margolis, The Fable of the Keys, 33 J.L. & ECON. 1, 6–7 (1990).
11 35 U.S.C. § 154(a)(1) (2006) ("Every patent shall contain. . . a grant to the patentee, his heirs or assigns, of the right to exclude others . . . .").
12 Mark. A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 TEX. L. REV. 1991, 1991–92 (2007) ("Injunction threats often involve a strong element of holdup [when] . . . the defendant has already invested heavily to design, manufacture, market, and sell the product with the allegedly infringing feature.").
13 Id. at 1992 ("Royalty stacking refers to situations in which a single product potentially infringes on many patents, and thus may bear multiple royalty burdens.").
14 "Royalty stacking" means that, "from the perspective of the firm making the product in question, all of the different claims for royalties must be added or 'stacked' together to determine the total royalty burden borne by the product if the firm is to sell that product free of patent litigation." Lemley & Shapiro, supra note 12, at 1993. Because courts "sometimes award royalties in amounts that far exceed the value of the patent's contribution," in the aggregate, the cost of practicing an invention may exceed the available profits. Thomas F. Cotter, Patent Holdup, Patent Remedies, and Antitrust Responses, 34 J. CORP. L. 1151, 1185 (2009).
15 See, e.g., Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 CAL. L. REV. 1889, 1973–80 (2002) (charting the basic policies of various SSOs).
16 IEEE-SA, STANDARDS BOARD BYLAWS § 6.2 ("If the IEEE receives notice that a [Proposed] IEEE Standard may require the use of a potential Essential Patent Claim, the IEEE shall request licensing assurance, on the IEEE Standards Board approved Letter of Assurance form, from the patent holder or patent applicant." (alteration in original)).
17 Id. ("A Letter of Assurance shall be either: a) A general disclaimer to the effect that the Submitter . . . will not enforce any present or future [SEPs] . . . ; or b) A statement that a license. . . will be made available to an unrestricted number of applicants on a worldwide basis without compensation or under reasonable rates, with reasonable terms and conditions that are demonstrably free of any unfair discrimination.").
18 See Lemley, supra note 12, at 1904 ("There was great variation . . . with respect to what must be disclosed.").
19 See id. ("[M]ost SSOs considered only issued patents.").
20 Id. at 1905 ("Very few of the SSO rules . . . required a member to search either its own files or the broader literature to identify relevant IP rights.").
21 Id. at 1906 ("The most common condition was that IP rights be licensed on 'reasonable and nondiscriminatory terms.' ").
22 See, e.g., IEEE-SA, STANDARDS BOARD BYLAWS § 6.2 ("The IEEE is not responsible for identifying Essential Patent Claims. . . , or for determining whether any licensing terms [are FRAND-compliant]."); IEC, ISO & ITU, GUIDELINES FOR IMPLEMENTATION OF THE COMMON PATENT POLICY FOR ITU-T/ITU-R/ISO/IEC at Annex 1 ("The detailed arrangements arising from patents (licensing, royalties, etc.) are left to the parties concerned."); IETF, INTELLECTUAL PROPERTY RIGHTS IN IETF TECHNOLOGY § 4.1 ("[We] will not make any explicit determination that the assurance of [FRAND] terms . . . has been fulfilled.").
23 See, e.g., Brief of Amicus Curiae Intel Corp. in Support of Apple, Inc. and NeXT Software, Inc. at 3, Apple, Inc. v. Motorola, Inc., Nos. 2012-1548, -1549 (Fed. Cir. Mar. 20, 2013) ("Because the SSOs are not enforcement bodies, it falls to courts to enforce compliance with FRAND commitments."); Brief of Amicus Curiae Inst. of Electrical and Electronics Eng'rs, Inc. in Support of Neither Party at 22–23, Apple, Inc. v. Motorola, Inc., Nos. 2012-1548, -1549 (Fed. Cir. Dec. 19, 2012) ("This Court should not assume that [SSOs] will necessarily take a direct role in enforcing patent commitments.").
24 See The Business Software Alliance's Submission in Response to the Commission's Request for Submissions on the Public Interest at 4, Inv. No. 337-TA-794 (I.T.C. Dec. 3, 2012) ("If holders of standards-essential patents are able to seek exclusion orders (despite promises to the contrary), then companies likely will respond by forgoing the development or adoption of new standards.").
25 See Motorola Mobility LLC's Submission in Response to the Commission's Request for Submissions on the Public Interest at 15, Inv. No. 337-TA-794 (I.T.C. Dec. 3, 2012) ("Depriving innovators of an established remedy against an unwilling licensee who may engage in a successful 'hold out' creates a disincentive to participate and contribute in the future.")
26 See, e.g., Brief of Amicus Curiae Qualcomm Inc. in Support of Reversal at 13–14, Apple, Inc. v. Motorola, Inc., Nos. 2012-1548, -1549 (Fed. Cir. Mar. 20, 2013) ("[T]here is a decided lack of evidence that any 'hold up' problem actually exists . . . Indeed, no one has identified a single instance in which the adoption or implementation of a standard has been defeated or delayed as a result of a patent reading on the standard. Moreover, SSOs have on many occasions told the FTC that there is no "hold up" problem." (citations omitted)); Complainant Samsung's Initial Submission in Response to Commission Notice of Review at 15, Inv. No. 337-TA-794 (I.T.C. Dec. 13, 2012) ("[D]espite a number of recent litigations involving FRAND-committed patents, there has never been any evidence of 'patent hold-up' inhibiting the implementation of standards as far as Samsung is aware.").
27 Perhaps most notably, Judge Richard A. Posner raised this issue. Sitting by designation, he dismissed a case with prejudice before determining a FRAND royalty. In doing so, Posner suggested that injunctive relief should be completely unavailable to the owner of a FRAND-encumbered SEP unless the alleged infringer clearly refuses to pay a FRAND royalty. See Apple v. Motorola, 869 F. Supp. 2d at 913–14 ("I don't see how, given FRAND, I would be justified in enjoining Apple from infringing the [SEP at issue] unless Apple refuses to pay a royalty that meets the FRAND requirement."). In other words, "a patentee can't obtain an injunction . . . if either damages or an equitable substitute such as a running royalty would provide complete relief"—a point Posner considered "too obvious to require citation." Id. at 922.
28 The relevant statute only authorizes the ITC to award injunctive-type relief in the form of exclusion orders and cease-and-desist orders. See generally 19 U.S.C. § 1337 (2006).
29 See, e.g., Corrected Statement Regarding the Public Interest By Non-Party Intel Corp. at 1, Inv. No. 337-TA-794 (I.T.C. Dec. 3, 2012) ("Intel submits that the public interest should generally preclude an Exclusion Order on SEPs that are subject to a FRAND commitment, except in limited circumstances. Such exceptions include when: (i) a U.S. court with competent jurisdiction or a binding arbitrator previously determined (prior to institution of the ITC investigation) in a final, non-appealable judgment that the complainant has made an offer to the respondent that satisfied its FRAND obligations and the respondent rejected the offer; or (ii) the respondent and its affiliates are not subject to the jurisdiction of U.S. courts and the ITC's in rem authority is the only recourse.").
30 Notice of Commission Determination to Review the Final Initial Determination, Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, Inv. No. 337-TA- 794, 77 Fed. Reg. 70,464 (I.T.C. Nov. 26, 2012).
31 Notice of Commission Requesting Additional Written Submissions on Remedy and the Public Interest, Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, Inv. No. 337-TA-794 78 Fed. Reg. 16,865 (I.T.C. Mar. 19, 2013).
32 See Commission Opinion (public version) at 45, Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, Inv. No. 337-TA-794 (I.T.C. July 5, 2013) ("It is [the respondent's] burden to show by a preponderance of the evidence that its FRAND defense precludes the Commission from finding a violation of section 337."). Dissenting Commissioner Pinkert concurred. See id. at n.9 ("Commissioner Pinkert concurs in the Commission's determination that an affirmative defense based on FRAND principles has not been established by [the respondent].")
33 Id. at 46 ("The Commission and its ALJs have never adopted [the respondent's] theory that a FRAND undertaking per se precludes a determination of violation."); id. at 47 ("[W]hile FRAND issues have been raised in numerous investigations (e.g., Inv. Nos. 577, 578, 601, 613, 669, 745, and 752), not one investigation has resulted in a determination that the Commission lacks jurisdiction to conduct an investigation or find a violation of section 337 merely because the asserted patent is allegedly subject to FRAND obligations.").
34 Id. at 51.
35 19 U.S.C. § 1337(c) (2006).
36 Commission Opinion (public version) at 48, Inv. No. 337-TA-794 (I.T.C. July 5, 2013).
37 19 C.F.R. § 210.14(e).
38 Commission Opinion (public version) at 48, Inv. No. 337-TA-794 (I.T.C. July 5, 2013).
39 Commission Opinion (public version) at 48, Inv. No. 337-TA-794 (I.T.C. July 5, 2013).
40 Id. at 50.
42 Id. at 63.
43 Id. at 52.
44 Id. at 60 ("There is no legal authority for Apple's argument [that Samsung's initial offer must be on FRAND terms]. Indeed, the limited precedent on the issue appears to indicate that an initial offer need not be the terms of a final FRAND license because the SSO intends the final license to be accomplished through negotiation." (citing Microsoft Corp. v. Motorola, Inc., 864 F. Supp. 2d 1023, 1038, 2012 BL 140575 (W.D. Wash. 2012))).
45 Id. at 61 ("A reasonable cross-license with one competitor may involve a balancing payment to [the patent owner] while a reasonable cross-license with another competitor may involve [that patent owner] making a balancing payment. Both types of agreements may be reasonable, depending on the two portfolios at issue and each party's respective volume of sales."). Note, however, that the commission seemed to overlook potential issues of tying and patent misuse under these circumstances.
46 See id. at 49–50.
47 Froman Letter at 3 ("[I]t is beyond the scope of this policy review to revisit the Commission's legal analysis or its findings based on its record.").
49 Ericsson's Notice of New Authority at 1–2, Certain Elec. Devices Including Wireless Commc'ns Devices, Tablet Computers, Media Players, and Televisions, and Components Thereof, Inv. No. 337-TA-862 (UCITC Aug. 14, 2013).
50 Samsung Respondents' Responde to Ericsson's Notice of New Authority at 2, Certain Elec. Devices Including Wireless Commc'ns Devices, Tablet Computers, Media Players, and Televisions, and Components Thereof, Inv. No. 337-TA-862 (UCITC Aug. 26, 2013).
51 Order No. 68: Amended Procedural Schedule at 1, Certain Elec. Devices Including Wireless Commc'ns Devices, Tablet Computers, Media Players, and Televisions, and Components Thereof, Inv. No. 337-TA-862 (I.T.C. Aug. 26, 2013).
52 Initial Determination at 332–33, Certain Audiovisual Components and Products Containing the Same, Inv. No. 337-TA-837 (I.T.C. Aug. 14, 2013).
53 See id. at 352 ("[A]lthough their defenses are based on an argument that Complainants demanded an unreasonable and discriminatory royalty rate, and despite having discovery related to existing . . . licenses, Respondent did not introduce any evidence as to what would constitute a RAND license or RAND royalty rates with respect to the . . . patents.").
54 Notice of Commission Determination to Review a Final Initial Determination Finding a Violation of Section 337 in Its Entirety; Schedule for Filing Written Submissions on Certain Issues Under Review and on Remedy, Bonding, and the Public Interest at 4–5, Certain Audiovisual Components and Products Containing the Same, Inv. No. 337-TA-837 (I.T.C. Oct. 17, 2013).
55 Another issue is a district court's preliminary injunction precluding the patent owner from enforcing any exclusion order that might issue from the ITC in the 337-TA-837 Investigation until the court determines that the patent owner complied with its FRAND obligations. See RealTek Semiconductor Corp. v. LSI Corp., No. C-12-03451-RMW, slip op. at 15 (N.D. Cal. May 20, 2013).
56 Microsoft Corp. v. Motorola, Inc., No. C10-1823JLR, 2013 BL 113102 (W.D. Wash. Apr. 25, 2013) (86 PTCJ 19, 5/3/13).
57 Id., slip op. at ¶ 70.
58 Id. at ¶ 71.
59 Id. at ¶ 72.
60 Id. at ¶ 73.
61 Id. at ¶ 74.
62 See id., slip op. at ¶ 95–110. The 13 modified Georgia-Pacific factors are as follows:
63 Id. at ¶ 84.
64 Id. at ¶ 87.
65 Microsoft, slip op. at ¶ 92.
66 In re Innovatio IP Ventures, LLC Patent Litig., No. 11 C 9308, MDL Docket No. 2303 (N.D. Ill. Sept. 27, 2013) (86 PTCJ 1185, 10/11/13).
67 See id. at 7 ("To the best of the court's knowledge and that of the parties, only one other court has previously undertaken a judicial determination of a RAND licensing rate for standard-essential patents: Microsoft Corp. v. Motorola, Inc., No. C10-1823, . . . (W.D. Wash. Apr. 25, 2013) (Robart, J.).").
68 See id. at 72–77 ("Dr. Leonard's approach has several significant advantages. First, by taking the profit margin on the sale of a chip for a chip manufacturer as the maximum potential royalty, it accounts for both the principle of nondiscrimination and royalty stacking concerns in RAND licensing. . . A second advantage of Dr. Leonard's Top Down approach is that it apportions to the value of Innovatio's patented features without relying on information about other licenses that may or may not be comparable to accomplish the apportionment. . . Third, Dr. Leonard's method provides some quantitative and analytical rigor to the RAND analysis. . . Fourth, and finally, Dr. Leonard's proposal does not apportion to the value of lnnovatio's patented features based solely on the numerical proportionality of Innovatio's patents to all 802.11 standard-essential patents.").
69 See id. at 11.
70 Id. at 11–12 ("[T]he court will not adjust the RAND rate in light of pre-litigation uncertainty about the essentiality of a given patent.").
71 Id. at 77–82.
72 Id. at 82, 85.
73 Id. at 84–85.
74 Id. at 85–86.
75 Microsoft v. Motorola, No. C10-1823JLR, slip op. at 5.
Reproduced with permission from BNA's Patent, Trademark & Copyright Journal, Vol. 87, No. 572, 01/17/2014. Copyright © 2013 The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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