In Law360 earlier this week, Dani Kass published an article titled Samsung DodgesWillfulness Claims Despite FRAND Setback, discussing a January 8, 2024 opinion by Judge Rodney Gilstrap (E.D. Tex.). The opinion in interesting insofar as it sheds light on what would appear to be a privateering agreement between ZTE, the original owner of the patents in suit (all of which are declared SEPs that are subject, under the ETSI IPR Policy, to a FRAND commitment), and G+, its assignee. As Erik Hovenkamp and I have previously noted, “’[p]rivateering’ is the term used when a practicing entity assigns patents to a nonpracticing third party who then seeks to enforce the patents. The third-party ‘privateer’ then distributes a portion of the resulting proceeds back to the assignor, in accordance with the terms of the assignment. . . . The term ‘patent privateering’ was coined by Tom Ewing, who first drew an analogy between the practice described . . . above and the practice (long since abolished) under which sovereign states would authorize merchant vessels to plunder enemy vessels during time of war.” According to the opinion, “[b]y its own admission, G+ was created in coordination with ZTE to license and enforce ZTE’s patents,” and “ZTE retains a 20% net royalty on all proceeds generated from G+’s licensing of the Asserted Patents” (pp. 2-3). In 2019, ZTE and Samsung began negotiating a patent license, but the agreement was not completed until 2021. Meanwhile, in October 2020 ZTE had transferred the patents in suit in this action to G+. (According to an earlier opinion in this case, available on Westlaw, there are five patents in suit.) Apparently Samsung thought that these patents were among the patents ZTE had licensed to Samsung, but they weren’t, and ZTE didn’t expressly inform Samsung of the transfer to G+ (though as the court states, "as a party to the ultimate ZTE-Samsung license, Samsung is assumed to have known the full scope and content of that license" (p.3). G+ is now suing for, inter alia, patent infringement, and Samsung has counterclaimed for breach of contract (the FRAND commitment).
The upshot of the decision is that ZTE's alleged breach of its FRAND commitment is not attributable to G+, but that ZTE's alleged conduct may be relevant to defeating G+ claim of willful infringement. From the opinion:
“In its briefing, Samsung argues that ZTE’s conduct runs with the Patents-in-Suit and is imputable to G+ because patents are property, and encumbrances run with the property. . . .
“None of [the] cases [cited by Samsung] establish why ZTE’s actions rise to the level of and constitute an encumbrance that burdens the Patents-in-Suit for purposes of a breach of FRAND. These cases, at most, establish that a predecessor’s actions may, in equity, prevent enforcement of the patents. They say nothing about why a predecessor’s actions would burden patents for all purposes, including for holding a successor-in-interest liable for a breach of contract. Neither party disputes and the Court finds that the FRAND commitment sounds in contract and is a legal obligation, not equitable in nature. . . .
“For all of the foregoing reasons, ZTE’s conduct may not be attributed to G+ for breach of FRAND purposes. . . .
“However, this holding does not mean that the facts identified by Samsung are irrelevant and may not be presented to the jury in support of other issues the jury will be asked to decide. . . .
“Indeed, the Court finds the facts identified by Samsung are relevant and probative as part of Samsung’s defense to G+’s charge of willful infringement. If Samsung reasonably believed that it was receiving a license to the Patents-in-Suit as part of the July 9, 2021 license from ZTE, only to later be surprised that G+ is asking for a license to the same patents, such could counter, to some degree, G+’s charge of willfulness. . . . These facts may also be relevant to Samsung’s general narrative of the case. . . .”
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