Friday, August 9, 2013

Friday round-up: Apple v. Samsung in the Federal Circuit and Before the ITC; Ericsson, Microsoft, and FRAND-Encumbered SEPs

1.  The recording of today's oral argument in Apple v. Samsung (appeal from Judge Koh's order denying Apple a permanent injunction) can be downloaded from the Federal Circuit's website, here.  The Wall Street Journal's write-up is here, FOSS Patents here.  The panel consisted of Judges O'Malley, Moore, and Senior Judge Bryson.  

For the most part, the argument centered on whether there was, or needed to be, a sufficient "causal nexus" between the infringement and the irreparable harm.  I have mixed feelings.  On the one hand, if irreparable harm is a necessary element to obtain a permanent injunction, it seems to me that some sort of causal nexus is implicitly required.  On the other, I'm not sure that the focus always ought to be on irreparable harm to the patentee.  eBay mentions this (and the related factor of adequacy of the remedy at law) as relevant factors (along with the balance of conveniences and the public interest), and a literal reading of the eBay opinion would require proof of both elements (indeed, of all four elements) before a permanent injunction may issue.  But a more traditional equitable approach would require a balancing of factors, not necessarily proof of all four.  In this particular case, a permanent injunction may or may not be appropriate, but I can imagine cases in which it would be hard to prove irreparable harm to the patentee and yet a permanent injunction would make sense.  I've argued before that courts should not award permanent injunctions when there is a substantial risk of patent holdup (as in cases involving SEPs), but otherwise permanent injunctions generally should be the default remedy for patent infringement because this rule conserves on information and error costs.  I'd worry that a stringent causal nexus requirement as applied to permanent injunctions could lead to the result that you never get a permanent injunction if your damages for past infringement take the form of reasonable royalties as opposed to lost profits (a point suggested by Apple's counsel at argument), because that shows that the infringement doesn't cost you sales but only lost licensing revenue (though perhaps irreparable harm/causal nexus sometimes could be found in your loss of choice as to who will be your licensing partner).  But all this goes to show is that the eBay decision, while an improvement over what preceded it, doesn't necessarily focus the analysis on the economically relevant factors that should guide whether an injunction is desirable or not.   

2.  As of 4 p.m. Eastern time, still no ruling in the expected ITC case Electronic Digital Media Devices and Components Thereof, Inv. # 337-TA-796, yet another dispute commenced by Apple against Samsung (but not involving SEPs).

Update:  The decision is now out--affirming in part and reversing in part the ALJ's initial determinations.  The Commission orders an exclusion order against certain Samsung devices to take effect within 60 days.. 

3.  Over at the Essential Patents Blog, Matt Rizzolo has an interesting discussion of Judge Leonard Davis's post-trial opinion in Ericsson Inc. v. D-Link Sys., Case No. 6:10-CV-473 (E.D. Tex. Aug. 6, 2013), available here.  The opinion denies a defense motion to vacate the jury's damages award against the defendants (among other matters in dispute).  Much of the analysis is very fact-specific (e.g., was there sufficient evidence to support the jury verdict?) and thus centers on the expert testimony on comparable licenses, the appropriate royalty rate and base, etc.  Matt suggests a couple of ways in which Judge Davis's analysis of FRAND/SEP issues may be viewed as different from Judge Robart's in Microsoft v. Motorola (opinion available here).  Specifically, Matt writes:
As to non-comparable licenses, Judge Davis found that Ericsson’s expert had properly apportioned the value of the asserted patents out of these broader agreements, giving the jury sufficient evidence on which to base its verdict.  Although the defendants argued that these were not negotiated with a RAND obligation in mind, Judge Davis noted that Ericsson’s RAND obligations are public knowledge, and the sophisticated counterparties (such as RIM and HP) would have been well aware of these RAND obligations — seemingly placing the burden on the defendants to show affirmatively that prior licenses were not negotiated under the RAND framework.  By contrast, in the Microsoft-Motorola case, Judge Robart seemed to place the burden on Motorola — the SEP holder — to show that its prior comparable licenses were negotiated under the RAND framework. . . .
In another apparent disagreement with Judge Robart’s methodology, Judge Davis found that pointing to theoretical royalty-stacking issues was not sufficient to reduce the damages award.  Notably, Judge Davis found that the defendants “failed to present any evidence of actual hold-up or royalty stacking” — he noted that the defendants’ expert “never even attempted to determine the actual amount of royalties Defendants currently pay for 802.11 patents.”  In fact, he went so far as to state that the “best word to describe Defendants’ royalty stacking argument is theoretical.”  Without evidence of actual royalty stacking, Judge Davis did not find any reason to limit Ericsson’s 802.11-related royalties beyond what was determined by the jury.

Note that this at least arguably contrasts with the approach taken in Microsoft-Motorola, where Judge Robart concluded that because the RAND commitment exists to mitigate hold-up concerns, the appropriate RAND royalty for Motorola’s patents must take into account the royalty rates that could be demanded by other SEP holders.  (And where Judge Robart also did not require Microsoft to show what royalties it was currently paying for its 802.11-compliant products).   
I'm not sure if I perceive as much of a contrast, though I could be wrong.  On the first point, Judge Davis specifically says that:

Defendants also argue the licenses are incomparable because “there is no evidence that the licenses were negotiated with Ericsson’s RAND obligations in mind.” See Docket No. 529 at 9. However, they cite no binding authority that a prior license is incomparable as a matter of law if it was not negotiated within the RAND framework. See id. at 8–13; Docket No. 593 at 4. Even if there were binding authority on the issue, Mr. Bone testified that the prior licenses were all negotiated within the framework of Ericsson’s RAND obligations. 6/6/13 a.m. Tr. at 13:4–8. Ericsson also presented evidence that it considered its RAND obligations when establishing a $0.50 per unit royalty. 6/4/13 a.m. Sealed Tr. at 15:22–16:17 (Petersson); 6/4/13 p.m. Tr. at 14:11–25, 53:13–54:6 (Petersson). 

Additionally, Ericsson’s RAND obligations are public knowledge. Ericsson’s letters of assurance to the IEEE are publically available, so any potential licensee would be able to determine whether Ericsson had RAND obligations. The previous licensees were sophisticated parties, making it likely they would have been aware of Ericsson’s RAND obligations during the negotiations. Taken together, there was substantial evidence that the prior licenses were negotiated within the framework of Ericsson’s RAND obligations.
 On the second, again it may be that it's more of an evidentiary issue:
Ericsson counters that Defendants’ royalty stacking arguments are purely hypothetical. Docket No. 584 at 14. Ericsson argues Mr. Bone considered the possibility of royalty stacking, but he could not find any evidence that a rate of $0.50 per unit would create royalty stacking problems. Id. Additionally, Ericsson asserts that Defendants failed to present any evidence of actual royalty stacking on 802.11n-compliant products. Id. at 15. 
The best word to describe Defendants’ royalty stacking argument is theoretical. At trial, Defendants extensively cross-examined Mr. Bone regarding the impact of royalty stacking on standard-essential patents.13 See 6/6/13 a.m. Tr. at 22:15–29:21 (Bone). At one point, Defendants’ counsel even suggested a theoretical stack could be $23.30 on a $2.50 standard-essential chip. See id. at 29:12–21. However, given the opportunity to present evidence of an actual stack on 802.11n essential products, Defendants came up empty.
A possibly significant difference between the two cases nevertheless might be the following.  As I pointed out in my previous post on Judge Robart's opinion, that the procedural posture of that case was unusual:   because the matter is a breach of contract dispute, the royalty was being determined prior to their being any judgment on patent validity, and therefore (appropriately) took into account the possibility that the patent was invalid.  Not so in the Ericsson case, which is a patent infringement suit in which the relevant patents were found to be valid and in which damages are (appropriately) premised on patent validity.

I would also note that Judge Davis states (at pp. 50-51) the following:
If two parties negotiating a RAND license are unable to agree to the financial terms of an agreement, it is entirely appropriate to resolve their dispute in court. See Microsoft Corp. v. Motorola, Inc., 854 F. Supp. 2d 993, 1001–02 (W.D. Wash. 2012) (“Because the policies leave it to the parties to determine what constitutes a RAND license, when such a genuine disagreement arises, it appears to the court that the only recourse for the parties is to file a lawsuit in the appropriate court of law.”). . . .

RAND licensing also includes an obligation to negotiate in good faith.
Implicitly, at least, I think he's saying (like Judge Robart) that the RAND commitment creates some sort of binding contract, which as I understand the matter is different from the view that some of the German courts have expressed that a FRAND commitment is merely an invitation for third parties to make offers ("invitatio ad offerendum").  See LG Düsseldorf, Aug. 4, 2011, 4 b O 54/10, Mitt. Heft. 5/2012, 238, 241-42.

4.  Essential Patents and FOSS Patents also have interesting write-ups on Ericsson's suggestion that in cases involving SEPs the ITC should enter conditional exclusion orders (conditional on the defendant accepting a FRAND royalty as adjudicated by the ITC).  Florian Mueller makes a good point that calculating damages is something the ITC has never done before and it may not be advisable to have them start doing so now, given the federal court option.

5. Both Essential Patents and FOSS Patents also report that Microsoft has asked Judge Robart for permission to file a motion to enjoin Motorola from proceeding with a claim for damages against Microsoft in a lawsuit in Germany involving two of the same patents at issue in the Washington case.  In April 2012, Judge Robart enjoined Motorola from enforcing an injunction against Microsoft (see my book, p.6 n.19), but whether that was warranted or not it seems to me that enjoining a claim for damages may be taking things too far--though I understand Microsoft's argument that there is a risk of inconsistent judgments relating to the amount of worldwide royalties. 

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