Sunday, June 29, 2014

More on the Japanese Samsung/Apple FRAND Dispute

As I reported a few weeks ago, in May a Grand Panel of Japan's IP High Court affirmed the trial court's decision that Samsung engaged in an abuse of right in its negotiations with Apple over the licensing of a FRAND-encumbered standard-essential patent and therefore was not entitled to a preliminary injunction.  The IP High Court reversed the lower court's decision that Samsung's abuse of right also deprived it of the ability to recover damages, however, and awarded Samsung ¥ 9,950,000 (about US $ 98,000). The IP High Court's webpage has links to the summary and decision in Japanese and promises an English translation soon.  While I await the translation, here's a little more about the case as gleaned from some recent reports.

First, though, a little background.  As I discussed on this blog last August:
Samsung had sought a preliminary injunction against the importation and sale of certain models of Apple devices that allegedly infringed a standard-essential patent, Japan Patent No. 4642898, that was subject to a FRAND obligation.  In response, Apple filed an action seeking a declaration that its devices did not infringe, and that Samsung did not have a right to claim damages.  With respect to Apple's claims, the court held, first, that two of the four devices infringed.  On the issue of remedies, however, the court invoked article 1 of the Civil Code of Japan, which states that:
(1) Private rights must conform to the public welfare.
(2) The exercise of rights and performance of duties must be done in good faith.
(3) No abuse of rights is permitted.
Thus (quoting here from Apple's translation), while "there are no express provisions regarding the duties of parties at the stage of preparation for contract execution . . . it is reasonable to understand that, in certain cases, parties that have entered into contract negotiations owe a duty to each other under the principle of good faith to provide the other party with important information and to negotiate in good faith.”  The court rejected Samsung’s argument that the duty to negotiate in good faith had not arisen because Apple’s offer reserved the right to contest validity, and concluded that Samsung had not acted in good faith because, inter alia, it had refused to disclose information Apple had requested to substantiate Samsung’s offer a 2.4% royalty for all patents essential to the UMTS standards, and had continued to seek a preliminary injunction in the Japanese proceedings.  The court therefore concluded that Samsung’s conduct constituted an abuse of rights precluding Samsung from the right to seek damages from Apple.
Second, as I noted here this past February, the IP High Court decided to convene a Grand Panel of five judges to hear the appeal, and solicited public comments on the question whether there should “be any restriction on the right to seek an injunction and damages based on a standard essential patent (SEP) in respect of which a FRAND declaration is made”. 

Third, we now have a few additional reports on the IP High Court’s decision besides those that appeared in the immediate aftermath:

1.  According to an article by Yuriko Nagano titled Experts Discuss Japan IP Court Ruling in FRAND Case Between Samsung and Apple and published in the May 29 issue of Bloomberg BNA’s Patent, Trademark & Copyright Law Daily (available here, behind a paywall), “the court received 58 letters of public comment from eight countries, namely the United States, United Kingdom, Belgium, Denmark, Spain, Netherlands, Finland, and Japan,” and the judgment described the commentary as “valuable and beneficial.”  The article also quotes one source as approving the decision to require Apple to pay damages, even if Samsung is not entitled to an injunction, and states that Samsung “has about a month and a half from the May 17 decision to appeal the case.”  (So far I’ve seen nothing published on whether Samsung has filed an appeal or whether its time to do so has expired.)  I agree that, even if Samsung and other owners of FRAND-encumbered SEPs are not entitled to an injunction, it would be a gross error to deprive them of the right to obtain an appropriate damages judgment.  To construe the abuse of right doctrine in this fashion, as the trial court did, makes that doctrine resemble the U.S. doctrine of patent misuse, under which a patent is rendered unenforceable in its entirety as a result of the patent owner's misuse of its rights (although the U.S. doctrine goes even further, because the patent is rendered unenforceable against the world, at least until the misuse is "purged").  I've been critical of the U.S. misuse doctrine (which, fortunately in my view, doesn't meet with success much these days other than in a subset of cases in which the patentee's conduct amounts to an antitrust violation), and I am happy to see the Japanese abuse of right doctrine reined in to some degree so as to make it less of a potential overdeterrent. 

2. On June 25, Miyamura Daisuke of the Ohtsuki Patent Law Firm published an article (available on both the EPLaw and Patentology blogs) that goes into greater detail about the IP High Court’s decision.  According to Mr. Daisuke, the court determined, first, that French law applied to the question of whether Samsung’s FRAND commitment itself constituted a license agreement; and that, under French law, the answer to this question was no because, among other things, the commitment did not specify the royalty rate, geographic scope, or duration of any such license.  Second, however, the court concluded that the owner of a FRAND-encumbered SEP does not have an unlimited right to seek injunctive relief or to demand a supra-FRAND royalty, because implementers have a reasonable belief they will be granted a license on FRAND terms; generally speaking, the owner does not expect to obtain an injunction; implementers have no option to work around the patent; due to the number of SEPs incorporated into the relevant standard, one cannot expect ex ante licensing; and, at the margin, a right to injunctive relief threatens the standard-setting process.  At the same time, the court suggested that where the implementer is not a willing licensee, an injunction or higher damages may be appropriate, although “it should be strictly determined that the adverse party doesn’t hope to be licensed according to the FRAND condition.”  Third, even where the patentee has engaged in an abuse of right, it still retains the right to adequate compensation.  Fourth, Apple failed to prove a violation of Japanese competition law based merely on Samsung’s abuse of right.  Fifth, upon reviewing the evidence, the court concluded that, contrary to Samsung’s assertions, Apple was willing to take a FRAND license.

As I've written before, while I generally support the principle that owners of FRAND-encumbered SEPs shouldn't be able to obtain injunctions, I'm a little concerned about doctrines like "abuse of right" potentially being overly subjective and standardless (though I admit that I need to get a firmer understanding of how the doctrine works in countries in which it is available).  Overall, though, it seems that (for now) a general presumption against injunctions in SEP cases may be emerging among courts in the U.S. and Japan and in the European Commission, although the applicable body of law that achieves this result may be the law of patent remedies (as in the U.S.), abuse of right (Japan), or competition law (Europe).  Of course, all of this could change too, particularly in Europe where (as I learned last week in Brussels) the CJEU is now set to hear the Huawei-ZTE case involving Germany's Orange-Book-Standard defense on September 11, 2014, and where there is quite a vociferous debate going on concerning the propriety of the Commission's article 9 commitment decision in Samsung and its article 7 prohibition decision in Motorola.  (The full text of the Commission's article 7 decision in Motorola is due to be publicly released soon.) 

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