EWCA: Xiaomi Entitled to Interim FRAND License to Panasonic SEPs

This morning the Court of Appeal for England and Wales released its decision in Panasonic Holdings Corp. v. Xiaomi Technology UK Limited, [2024] EWCA Civ 1143, principal opinion by Lord Justice Arnold.  The appeal is from orders entered in the Patents Court in July, dismissing Xiaomi’s application for a declaration that a willing licensor in the position of Panasonic “would agree to, and would enter into, an interim license of” Panasonic’s portfolio of 3G and 4G SEPs, “pending the determination by the Patents Court of what terms for a final license” are FRAND.  The parties had agreed to an undertaking in November 2023 that they would abide the terms of a global FRAND license as determined by the Patents Court.  Panasonic then backed away from this agreement (para. 39), and at present has several hearings in patent infringement actions against Xiaomi scheduled to take place in Germany, beginning next week.  Meanwhile, the FRAND trial in the Patents Court also is scheduled to take place starting later this month, with a decision projected for the end of the year.  Xiaomi therefore applied to the Patents Court for a declaration that, under the circumstances, a willing licensor would agree to an interim license pending the Patents Court’s determination of a final license.  The Patents Court denied the application, but the EWCA grants the appeal.

Without going into great detail for now, I’ll note simply that the EWCA’s view is that Panasonic is not acting in good faith, as required by clause 6.1 of the ETSI IPR Policy, because the only point of proceeding with the German litigation and refusing an interim license (other than on terms which would greatly favor Panasonic, see paras. 59-60, 85) can only be seen as a means to negotiate a better deal than the one the Patents Court is likely to strike if the case proceeds to final judgment there.  See, e.g., para. 82: “Panasonic seeks to achieve better terms than those determined by the Patents Court.  Put bluntly, Panasonic wishes to use the exclusionary power of injunctions granted by the German courts and/or the UPC to try to force Xiaomi to pay more than the English courts would order.”  Further, Lord Justice Arnold writes, “In my judgment Panasonic’s conduct is indefensible. . .  Panasonic is not complying with its obligation to negotiate a licence with Xiaomi in good faith, and thereby avoid hold-up, but aiming to coerce Xiaomi into accepting terms more favourable to Panasonic than the Patents Court would determine to be FRAND. . . .  [T]he key point is that it is plain that Panasonic is attempting to coerce Xiaomi into paying more than the Patents Court determines to be FRAND, despite Panasonic having both invoked that jurisdiction and both parties having undertaken to enter a licence on those terms” (paras. 86, 87).   The Court takes pain to note that it is not criticizing the German approach to FRAND, and is not advising the German courts how to proceed—though “if the declarations do induce Panasonic to reconsider its position and to grant Xiaomi an interim licence, that would, as Xiaomi submit, promote comity because it would relieve the German courts and the IPC of a great deal of burdensome and wasteful litigation” (para. 96). Lord Justice Arnold writes that, in his view, the terms of the interim licence should be as follows:

It is probable, although not certain, that the terms determined by the Patents Court to be FRAND for the final licence will be somewhere between the terms offered by Xiaomi and those demanded by Panasonic. Accordingly, in my judgment the terms on which a willing licensor in the position of Panasonic would grant an interim licence to Xiaomi are those proposed by Panasonic for the final licence with two modifications. First, the period of the interim licence should be from 2011 until the licence determined by the Patents Court takes effect (rather than until 2029). For the convenience of calculating the royalty payable, it may be assumed that the latter date will be 31 December 2024. Secondly, the sum payable by way of royalty in respect of that period should be midway between (i) the sum offered by Xiaomi for that period and (ii) the proportion of the sum demanded by Panasonic on 13 September 2024 that is referrable, on a pro rata basis, to the period of the interim licence. This sum (and the accompanying licence terms) will be subject to adjustment up or down when the Patents Court determines the terms of the final licence (para. 100).

Lord Justice Moylan concurs.  Lord Justice Phillips would dismiss the appeal, and instead writes that this case is one in which an antisuit injunction (ASI), on the ground of vexatious and oppressive conduct on the part of Panasonic, might be appropriate.  

For further discussion, see this post by Florian Mueller on ip fray. 

EWCA Dismisses Lenovo's Appeal from Denial of an Interim Injunction Against Ericsson

In other news, on Monday the Court of Appeal for England and Wales issued its decision in Motorola Mobility LLC v. Ericsson Limited, [2024] EWCA Civ 1100.  The decision dismisses Lenovo's appeal from the denial of its request for an interim injunction against Ericsson’s use of a Lenovo SEP in the U.K., which the court stated would not have been “a conventional interim injunction, but an interim injunction to restrain Ericsson from carrying out acts alleged to infringe EP 649 qualified by a proviso that it will not apply if Ericsson either (i) undertake to enter into a cross-licence on terms to be determined by a court of competent jurisdiction, and not to seek or enforce any injunctive relief pending that determination, with the terms offered by Lenovo applying in the interim, or (ii) agree to enter into an interim cross-licence on the terms offered by Lenovo, or (iii) agree to some other mutually acceptable interim regime. Lenovo are candid that their preference is for Ericsson to take one of those courses rather than for the interim injunction to bite. Ericsson argue that the relief sought by Lenovo would be tantamount to anti-suit relief by the back door when Lenovo have not actually applied for an anti-suit injunction ("ASI")” (¶ 6).  My initial reaction is that the judgment is correct, for the reasons stated in Lord Justice Arnold’s opinion (for the most part, lack of a causal connection between the alleged infringement and the alleged harm), but I hope to have more to say about it soon.

Federal Circuit Reverses Damages Award on Food Processing Machines

The case is Provisur Technologies, Inc. v. Weber, Inc., precedential opinion by Chief Judge Moore, joined by Judge Taranto and by District Judge Claire Cecchi, sitting by designation.  There were three patents in suit, all relating to food processing machinery.  The jury returned a verdict in favor of the patentee on all three and awarded damages for each, separately, in the $3-$4 million range.  The Court of Appeals holds that one of the three patents (’936) was noninfringed as a matter of law, so I will skip over that one and focus on the other two, ’436 and ’812.  The jury returned a verdict of willful infringement as to four claims of ’436 and three claims of ’812.  It awarded $3,747,046.50 for each of these, which the district court doubled.  The Court of Appeals reverses, finding that the evidence was insufficient to support the finding of willfulness, and that the damages award violated the entire market value rule (EMVR).  In regard to the latter, the court doubles down on the smallest-salable patent-practicing unit (SSPPU) rule.

            On willfulness, the court holds that the plaintiff introduced testimony in violation of 35 U.S.C. § 298, on the defendant’s failure to obtain an opinion of counsel:

Section 298 states:

 

The failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent.

 

Patentees are prohibited from using the accused infringer’s failure to obtain the advice of counsel as an element of proof that the accused infringer willfully infringed. Prior to trial, Weber moved to exclude testimony from Provisur’s expert, Mr. John White, that Provisur asserted willful infringement based in part on Weber’s failure to present evidence of advice of counsel. J.A. 6. The district court granted Weber’s motion to exclude Mr. White’s testimony on Weber’s alleged failure to obtain advice of counsel. J.A. 8.

 

During trial, however, Mr. White testified about Weber’s failure to consult a third party to evaluate the allegedly infringed patents. . . . Specifically, Mr. White testified that Weber did not provide any evidence that it performed a number of evaluation steps, such as a freedom to operate analysis. In his expert report, Mr. White explained a freedom to operate analysis is “typically reviewed by a qualified patent attorney” which may include “‘opinions’ as to which patents may be problematic.” J.A. 9040–41 ¶ 57. Mr. White’s testimony referenced other potentially legal services that Weber allegedly failed to seek.

 

Mr. White’s testimony violated 35 U.S.C. § 298. Provisur argues Mr. White’s testimony is about industry standards for intellectual property management. . . . But Mr. White, an attorney, did not distinguish between legal and non-legal services when testifying about consulting a third party. Provisur cannot circumvent § 298 by substituting advice from a third party for advice of counsel. The district court thus erred in admitting the portion of Mr. White’s testimony related to seeking advice from a third party.

 

The remainder of Mr. White’s testimony is admissible, but insufficient as a matter of law to establish willfulness. Mr. White testified about Weber’s patent matrix that tracked patents in related food processing technologies, including the asserted patents. . . . He explained software and Weber personnel provided a rating out of 3 for each patent in the matrix. . . . These ratings were described as indicating whether the patent was relevant for purposes of further evaluation. . . . For the asserted patents, Mr. White testified each one was provided a high score of 3. . . .

 

At most, the patent matrix demonstrates Weber’s knowledge of the asserted patents and their relevance to Weber’s business in general. The patent matrix and corresponding testimony do not provide any level of specificity as to the relevance of the tracked patents for any of Weber’s products. There is no dispute Weber knew of the asserted patents. . . . The issue here is whether Weber knew of its alleged infringement and had a specific intent to infringe. . . . There is no evidence Weber knew of its alleged infringement. We have held “knowledge of the asserted patent and evidence of infringement is necessary, but not sufficient, for a finding of willfulness.” Bayer Healthcare LLC v. Baxalta Inc., 989 F.3d 964, 988 (Fed. Cir. 2021). Provisur’s evidence as a matter of law is not enough to establish deliberate or intentional infringement. Id. The district court should have granted Weber’s motion for judgment as a matter of law. . . (pp. 11-13).

On the EMVR issue, the court notes that the patented features of the defendant’s machines “are parts of a larger component, either the slicer or automatic component, which themselves are each just one component of an entire multicomponent slicing line . . .” (p.13).  The court concludes that the district court should have granted a new trial on damages:

“A patentee is only entitled to a reasonable royalty attributable to the infringing features.” Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 904 F.3d 965, 977 (Fed. Cir. 2018). We have required any royalties be apportioned between infringing and noninfringing features of the accused product. Id. An apportionment analysis generally requires determining a royalty base to which a royalty rate will be applied. Id. For elements of multicomponent products accused of infringement, the royalty base should be based on the smallest salable patent-practicing unit. LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d 51, 67 (Fed. Cir. 2012). A necessary condition for using “an entire multi-component product” as the base is that the patentee proves the patented feature is the basis for customer demand. Id.; see also Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1336 (Fed. Cir. 2009).

 

Provisur’s use of the entire market value rule was impermissible because it failed to present sufficient evidence demonstrating the patented features drove the demand for the entire slicing line. Provisur’s damages expert, Ms. Julie Davis, used the value of the entire slicing line as the royalty base and applied a royalty rate to calculate the reasonable royalty damages. . . . Ms. Davis relied on Dr. Vorst’s testimony to support using the entire market value as the royalty base. . . . Dr. Vorst testified that the patented features drive the demand or substantially create the value of Weber’s accused products. . . . But Dr. Vorst’s testimony was conclusory and did not provide any evidence, e.g., evidence from customers, to show the patented features drove the demand for the entire slicing line. . . (pp. 14-15).

In short, “[t]he district court should have granted a new trial on damages because there is no evidence, apart from conclusory expert testimony, that supports invoking the entire market value rule” (p.16).

Postscript:  for further commentary, see posts on Patently-O, IPWatchdog, Law360, and Bloomberg.