Blogging Break

This week, I'm going to try to finish a draft of the manuscript for my book Wrongful Patent Assertion:  A Comparative Law and Economics Analysis.  I plan to return to blogging next week.

Munich Higher Regional Court Issues Oral Ruling on FRAND Defense

Discussion of today’s hearing in HMD Global Oy v. VoiceAge EVS GmbH & Co. KG can be found on JUVE Patent and on ip fray; a written decision is said to be forthcoming but not available yet.  Once the written decision becomes publicly available, I will read it and have something to say about it.

For now, as I understand it, the Higher Regional Court’s position is that an implementer can show its willingness to license by depositing security in the amount of the SEP owner’s offer.  At that point, the court should undertake a review of the offer to see if it is within the FRAND range.  In the case before the court, however, the amount of security offered by the implementer apparently wasn’t sufficient.  If I understand correctly, the court also rejects the EC amicus brief’s recommendation that the court follow the steps laid out in Huawei v. ZTE in a strictly sequential manner.

Next stop will be the BGH.  For previous discussion on this blog, see, e.g., here, here, and here.

Will the Federal Trade Commission Lose Its Independence?

I just saw the news that President Trump has fired the two Democratic Federal Trade Commissioners, Alvaro Bedoya and Rebecca Kelly Slaughter.  This may set up a test case to determine, ultimately, whether the Supreme Court will uphold Humphrey's Executor v. United States, 295 U.S. 602 (1935), which essentially held that Congress can create independent agencies such as the FTC (which deals with antitrust and unfair competition matters), and can restrict the president's ability to terminate commissioners without cause.  I am not an administrative law scholar, so I have little to offer concerning how the current Supreme Court might rule in this case when it reaches them.  (We can pretty sure of an ideological split, though, given the current justices' past writings.)  Nor have I always been in agreement with the views expressed by Commissioners Bedoya and Slaughter during their tenure.  But I do think the ongoing assault on independent agencies (this is not the only example) is a wrong-headed policy, and my hope is that this is one case in which the Court will respect stare decisis.  

In the interim, this is huge news because the Commission now has two Republican Commissioners and a third on the way.  By statute, it is supposed to have five commissioners, no more than three from one party.  Will the courts reinstate Commissioners Bedoya and Slaughter, while the matter is litigated?  If not, will Trump try to fill the two Democratic vacancies, or leave them open?   

Some further thoughts (3-20-2025): Regarding the second paragraph above, it's kind of difficult to imagine any two Democrats agreeing to fill the positions, but the statute (15 U.S.C. section 41) only says that no three members may be from any one party.  So what if the administration tries to fill the two positions with, say, two Independents, or two Libertarians--or maybe two Republicans who opportunistically switch parties?  And what happens (whether the positions are filled or not) if, as I hope, the Supreme Court reaffirms Humphrey's Executor?  Is every decision the FTC makes in the absence of Commissioners Slaughter and Bedoya thereby null and void?  What a mess.  

UPC Choice of Law Principles for Damages

Last week the Mannheim Division of the UPC published its decision in Hurom Co. v. NUC Electronics Europe GmbH, establishing some choice of law principles for patent infringement actions filed in the UPC.  There has already been some discussion of the case on JUVE Patent and on ip fray.  The principal question of interest is whether UPC law or national law applies with respect to damages, especially where the infringement is ongoing in the sense that it began prior to the UPC startup date of June 1, 2023 and continued thereafter.  The court’s summary of the decision states, in relevant part, the following:

3. . . . with regard to the determination whether substantive law as laid down in the UPCA or substantive national laws of the UPCA member states applies to acts allegedly infringing traditional European bundle patents, the following applies:

 

a) to acts committed after the entry into force of the UPCA, the substantive law as laid down in the UPCA applies;

 

b) to acts committed before the entry into force of the UPCA, the substantive national laws apply;

 

c) to ongoing acts started before the entry into force of the UPCA and continued after the entry into force on 1 June 2023, the substantive law as laid down in the UPCA applies.

 

4. When assessing whether infringing acts are in that sense “ongoing” and justify the application of the UPCA as a general rule, an overly formalistic approach which runs counter to the aims of the Agreement must not be applied. What is decisive is to categorize such acts not in a formalistic manner which only takes into account, if, when viewed from a pure natural perspective, such acts can be referred to as separable acts, but which looks at the scenario from a normative and therefore evaluative perspective. Before this backdrop it is justified to apply the UPCA as a harmonized set of national law of the contracting member states of the UPCA to ongoing acts, if the infringer continues its infringing behaviour although he could have stopped the infringement in the light of the entry into force of the new regime on 1 June 2023. In that case, however, each party reserves the right to rely on provisions of the national laws for acts before 1 June 2023 being favourable to its position compared to the provisions of the UPCA and the RoP. The party which advances the argument based on national law has to elaborate on such rules of national law and set out with a sufficient degree of substantiation why that rule of national law supports its argument.

 

5. With regard to a right to information, the question of intertemporal applicability and the question of the scope of the period, for which information has to be provided, have to be distinguished. The rights to information provided by the UPCA as laid down in particular in Art. 67 UPCA and Art. 68 (3) (a) (b) UPCA in conjunction with R. 191 sentence 1 alternative 2 RoP are to interpreted to encompass time periods which resided before the entry into force of the UPCA.

Here are a few things that I found interesting.

First, the court concludes that a permanent injunction is appropriate only in the UPC member states in which the patent in suit has been infringed, not the entire UPC (paras. 107-08).

Second, if I am reading this correctly the court implicitly characterizes the law of damages as “substantive” rather than “procedural.”  Under general principles of private international law, as I understand them, even when court concludes that it should apply another state’s substantive law to a particular issue, it usually applies its own procedural law.  But damages law sort of straddles the border between procedure and substance, and there are differing views of whether it should be classified as one or the other.  (See, e.g., the sources I cite in my article Extraterritorial Damages in Copyright Law, 74 Fla. L. Rev. 123, 163 n.204 (2022).)  My own view is that it makes more sense to classify them as substantive, so that if the court is adjudicating foreign patent rights—as courts within the E.U. may have to do now following the Court of Justice’s decision last month in BSH Hausgeräte GmbH v. Electrolux AB, Case C‑339/22—it would apply the foreign state’s damages law.  (That issue will be addressed in this case at a later proceeding, as it relates to damages for the infringement of non-UPC member state patents.  See decision para. 45.)  So I think the UPC is right to conclude that UPC damages law applies to infringement occurring after June 1, 2023, and national damages law to infringements occurring before.  For infringements that span that date, I’m inclined to think that it makes sense to apply UPC law as a default, though as the court indicates, subject to permitting the patent owner and the defendant to argue for more favorable treatment under domestic law.  On the other hand, the right of information is more clearly procedural, and therefore applies to UPC actions involving infringements occurring both before and after the UPC’s entry into force.  Interestingly, the court explicitly characterizes the right to recall and removal of infringing goods from the channels of commerce as substantive (para. 129).

Third, there are a variety of other remedial issues the court briefly addresses, among them (1) the court accepts that injunctive relief is not mandatory but rather may be limited by the principal of proportionality, but here there is no evidence of disproportionality (para. 113); (2) the possibility of damages for moral prejudice is not excluded by virtue of the plaintiff calculated the amount of interim damages it wanted as a reasonable royalty, but there is no evidence here of any such damages having been suffered (para. 119); (3) there is no basis here to award interim damages, to order publication of the decision, to exclude an interim award of costs because the plaintiff didn’t first send a warning letter, or to order security for enforcement pending appeal (paras. 120, 130-35); (4) the fact that the destruction of the infringing goods will have environmental effects is not, by itself, sufficient to reject an order for destruction (para. 126); and (5) damages for pre-grant use of the patent in suit may be available under German domestic law, para. 118 and operational portion B.1).     

Today's Oral Argument in EcoFactor v. Google

Here is a link to the recording.  It was a good argument, with many probing questions by the judges and a great deal of specific attention paid to the evidence in the record.  I thought Google's counsel Ginger Anders was particularly good, and that on balance the court might be leaning toward sending the matter back for a new trial--but it is hard to get a sense of how things will play out when there are ten judges participating, and some of course are more active questioners during oral argument than others.

EcoFactor Oral Argument Tomorrow

Oral arguments are scheduled for tomorrow morning at 10 a.m. Eastern Time in Courtroom 201.  I will be listening in.  For my previous posts on the case, see here, here, here, here, here, and here.  David Taylor has a preview on his Federal Circuit Blog here.  I may post something after the argument.

Update (March 13, 8:30 am Central Time):  Here is an article on Bloomberg Law that quotes, among others, me.

EWCA (2-1) Rejects Tesla’s Request for a Declaratory Judgment that Avanci Rate Is Not FRAND

Last Thursday the Court of Appeal for England and Wales released its approved judgment in (I’m going to give the full caption here) Tesla, Inc. and Tesla Motors Limited v. InterDigital Patent Holdings, Inc., InterDigital Holdings, Inc. and Avanci LLC, [2025] EWCA Civ 193.  Others have published more timely posts than mine (see, e.g., here and here); and I am not inclined to go into the 64-page decision in all its particulars, which involves many fine points on English civil procedure and declaratory judgment law.  Instead, I will give a brief summary, and then a bit of commentary.

In effect, the decision affirms (as we would put it in the U.S.) the decision of Mr. Justice Fancourt from last July (see my post here), but by a 2-1 margin.  Lord Justice Arnold would for the most part allow the appeal, while Lord Justice Phillips and Lady Justice Whipple would not.  So InterDigital and Avanci prevail, as they did before the Patents Court last summer.

Briefly, Tesla sought among other things a declaration “of what the FRAND terms would be a for licence between Tesla and Avanci covering the Avanci 5G pool,” including 3 U.K. patents owned by InterDigital.  Under English law, courts have broad discretionary authority to make declarations that would serve a useful and legitimate purpose; in addition, “for a legal issue to be properly justiciable, it is necessary for there to be an applicable legal rule or standard” (para. 83).  Further, “to serve a foreign defendant [such as Avanci] out of the jurisdiction, the claimant has to satisfy three requirements: (1) that in relation to the foreign defendant there is a serious issue to be tried on the merits i.e. a real prospect of success (the summary judgment standard); (2) a good arguable case that the claim falls within one of the gateways for service out specified in paragraph 3.1 of Practice Direction 6B; and (3) that England and Wales is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction” (para. 40). 

I’m not going to go into all of these issues, but most importantly here the judges differ over whether there is a “serious issue to be tried on Tesla’s claims against Avanci” (para. 85), which relate to Tesla’s allegation that the rate Avanci charges is non-FRAND.  The judicial disagreement stems from the fact that Avanci “acts as agent for all of the [66 SEP] licensors . . . offering a standard patent licence agreement . . .  subject to a modest set of pre-approved possible modifications” (para. 19), but it is not itself a SEP owner. Avanci itself, therefore, unlike the 66 SEP owners (including InterDigital), has never made a FRAND commitment to ETSI; and while it sets the rate it offers based on information provided by those licensors and by licensees, it determines those rates independently of the SEP owners.   Each owner, however, reserves the right to offer individual licenses, and at least one Avanci member (anonymized in the decision) has made its own bilateral deal with Tesla.  So in effect, as Lord Justice Arnold puts it, "Avanci operates in a similar manner to that of collective management organisations in the field of copyright” (para. 21). 

The key question therefore is whether, in the absence of any claim that Tesla is a third-party beneficiary of any commitment made by Avanci itself, there is a serious issue to be tried in the sense that Tesla has “a real prospect of successful claiming one or more of the declarations claimed . . . at trial” (para. 89).  Avanci argues that “it is a requirement for the grant of declaratory relief concerning a legal right that the defendant is either the owner of, or subject to, the legal right relied upon” (para. 90).  Therefore, “Avanci’s argument amounts to saying that the royalty rate of $32 per vehicle which it charges for licences under the Avanci 5G Platform does not have to be FRAND, because (i) Avanci does not itself owe any FRAND obligation and (ii) the FRAND obligations owed by the members are irrelevant because those obligations can only be enforced bilaterally against each SEP owner. It is implicit in this argument that the royalty rate can only be challenged, if at all, through the mechanism of competition law” (para. 94).  Tesla, on the other hand, argues

that the royalty rate charged by Avanci does have to be FRAND. Tesla accept that Avanci does not itself owe any FRAND obligation, but contend that that is not determinative. Tesla allege that, as a matter of commercial reality, the only licence of UK SEPs covered by the Avanci 5G Platform which can be FRAND is a global platform licence of the kind offered by Avanci as agent for the SEP owners because negotiating bilateral licences with more than 65 SEP owners is impracticable. Tesla also allege that, in reality even if not formally, most members of the Avanci 5G Platform rely upon the availability of a licence under that platform as fulfilling their FRAND obligations (para. 95).

Lord Justice Arnold concludes that Tesla has “a real prospect of establishing” its position, and that if it succeeded in doing so the sought-after declaration (that a FRAND rate would be below $32) would serve a useful purpose, insofar as this “would force Avanci to reconsider its position” and would make it clear that the Avanci licensors could not rely on the $32 rate “as discharging their FRAND obligation” (para. 97).   

By contrast, Lord Justice Phillips concludes that there is no serious issue to be tried, because “[t]he jurisdiction of the courts of England and Wales to determine a FRAND licence of a portfolio of SEPs which includes foreign patents is based entirely upon the contractual undertaking of the owner of those patents to grant such licences” (para. 222).  He continues:

What the owners have not agreed to do, on any sensible interpretation of the contractual arrangements with ETSI, is to license their SEPs on a collective basis with other SEP owners, whether on “FRAND terms” or on any terms. The undertaking clearly and distinctly creates an obligation on individual owners to license the Patent Family of their declared SEPs, but it cannot be interpreted as extending to include licensing a portfolio which includes many SEPs owned by other organisations altogether. . . .

 

Does the fact that the owners have voluntarily placed their SEPs on the Avanci 5G Platform change the contractual analysis? I cannot see how it does. The fact that the owners have given undertakings to ETSI, derogating from their rights under the general law to that extent, in no way limits their freedom to exploit their rights in any legitimate way, whether on their own or jointly with others. . . . In my judgment the owners who have joined the Platform have not somehow extended the scope of their undertaking to ETSI or entered any other binding agreement to license their SEPs on a collective basis. . . .

 

A further question is what is meant by a licence on FRAND terms of the SEPs on the Avanci 5G platform. . . . Tesla is plainly contending that the FRAND rate for a licence of all the SEPs on the Platform would be a single collective rate, heavily discounted for bulk and convenience. But the owners of the SEPs have simply not agreed to license their SEPs on discounted collective terms. They may offer to do so voluntarily (as they are in fact doing through the Platform), but they have not undertaken to do so and they cannot, in my judgment, be subjected to an English court’s examination and determination of the rate Avanci is offering (paras. 228-30).

Thus, “[i]n the absence of a contractual foundation for English jurisdiction,” there is no justification for “the English court engaging in the extensive exercise of determining FRAND terms in relation to foreign SEPs as against parties who have not given any relevant contractual undertaking”; “there is no such thing as a free-standing FRAND claim” (paras. 232, 236). 

Similarly, in the view of Lady Justice Whipple:

 

Before this Court, Tesla does not suggest that it has any legally enforceable right against Avanci . . . but still it submits that there is a serious issue to be tried between Tesla and Avanci. In oral submissions, Mr Segan returned to his unamended Particulars of Claim and focused on paragraph 40 where Tesla asserts a right to a licence on FRAND terms covering InterDigital’s SEPs (that is not, I think, of itself a controversial assertion), that it is a beneficiary of the FRAND commitments of all the Avanci 5G Platform members (again, that is probably not a controversial assertion) and then this: that Tesla is “accordingly, entitled to a licence on FRAND terms covering the Avanci 5G Pool” (my emphasis). The “accordingly” is not explained and I cannot see that it follows from the first two statements. Tesla goes on, at paragraph 42 of its Particulars, to assert that “it would be impractical and onerous” for Tesla to have to negotiate bilateral licences with the individual SEP owners, and at paragraph 58 repeats the assertion that Tesla is entitled to enforce the FRAND commitment of each Avanci 5G Pool member, “by seeking a licence from and/or through Avanci covering the entirety of the Avanci 5G Pool” but again without explaining the basis for that asserted entitlement. In short, I cannot identify any basis in Tesla’s pleaded case for suggesting that the SEP owners’ FRAND obligations are to be transposed to, or read into, a licence granted by Avanci over its 5G Platform (para. 245).   

There is much more to each of the three opinions, especially Lord Justice Arnold’s, but I think the above quotes provide an adequate distillation of the crucial portions.  Because Avanci itself has not made a FRAND commitment, it would not be appropriate, in the majority’s view, for a court in the U.K. to exercise jurisdiction to determine whether the terms offered by Avanci are FRAND.   

Here are some initial thoughts:

First, just to be clear, under Unwired Planet, Tesla can request that a U.K. court determine the terms of a global FRAND license in an action against InterDigital or any other SEP owner with relevant U.K. patents.  These would all be bilateral licenses, however, not licenses to the entire Avanci portfolio.

Second, while I am by no means an expert on U.K. procedural law, I’m inclined to agree with Lord Justice Phillips and Lady Justice Whipple that, if Tesla is not a third-party beneficiary of a FRAND commitment made by Avanci itself, the declaration requested here would be going a step too far, by conferring authority on the U.K. courts to establish a pool rate for the whole world.  If, however, that is correct—and if no other forum would be both willing and appropriate for this task either—that may suggest a gap in the regulatory system.  The U.S. Department of Justice’s July 28, 2020 Business Review Letter concerning Avanci, which is cited in Lord Justice Arnold’s opinion (para. 25), noted that “Avanci represents that its current rates for the 4G Platform are FRAND . . . and that Avanci intends its 5G rates also to be FRAND” (p.20).  To the extent, however, that that was a relevant consideration in the DOJ’s conclusion that the Avanci platform was unlikely to harm competition, how exactly is it supposed to be enforced?  Moreover, what exactly does it mean for a pool to charge a FRAND rate?

Consider the following stylized example.  Assume that there are x owners of SEPs relevant to some standard, each of whom owns a portfolio of identical value, for which the FRAND licensing rate per owner would be r.  (I know, FRAND is a range, not a point, but this is a stylized example.)  Assume further that if each owner were to engage in bilateral negotiations with an implementer, it would incur identical transaction costs of c_O.  Therefore, if each owner complies with its FRAND commitment, it earns on net (r – c_O), per implementer.  Assume in addition that there are y implementers, and that if each implementer engages in bilateral negotiations with an owner it incurs transaction costs of c_I.  Each implementer therefore incurs on net (r + c_I) to obtain a bilateral license from any given owner.   Now assume that there is a patent pool that can license all of the SEPs in one package, and in doing so reduce everyone’s transaction costs to zero.  For each pool license, the implementer would pay r_px, and each owner would earn r_p per implementer.  From each owner’s standpoint, the pool offers a better deal as long as r_p > (r – c_O).  From each implementer’s perspective, the pool offers a better deal as long as the pool rate per owner is less than the amount the implementer would incur in connection with a bilateral license, that is, as long as (r + c_I) > r_p.  For the pool rate to be acceptable to both sides, then,

(r + c_I) > r_p > (r – c_O).

For purposes of illustration, let’s plug some (admittedly arbitrary) numbers in.  Suppose that r = 15, c_O = 5, and c_I = 6; and that there are ten owners (x = 10).  Under bilateral negotiations, each implementer pays each owner $15, for a total royalty burden of $150; but each implementer also incurs $6 of transaction costs for each negotiation, or aggregate transaction costs of $60, so it actually incurs $210 in total.  Each owner earns on net $10 per implementer after transaction costs.  With the pool, as long as 21 > r_p > 10, owners and implementers are both better off.  At one extreme, if the pool were to discount the per-owner FRAND rate by $5, owners would be no worse off (still realizing on net $10 each from each implementer), and implementers quite lot better off (incurring only $100 in total to obtain a license from all ten owners, instead of $150 + $60 = $210).  But at the other extreme, if the pool were to charge $21 per owner, implementers would be no worse off (still incurring on net $210 to obtain a license from everyone), and owners would be a lot better off (each earning $21 per implementer as opposed to $15).  If they split the difference in half, the pool rate per owner would be $15.50, and implementers would be somewhat better off (each incurring $155 instead of $210) and owners also would be somewhat better off (each earning on net $15.50 instead of $10, per implementer).  But anything within the range would be mutually acceptable to the parties.

So what would a FRAND pool rate be?  Would it be rx (that is, $150), the FRAND rate with bilateral negotiations multiplied by the number of owners?  Or would it be (r – c_O)x (that is, $100, passing along all of the owners’ avoided transaction costs to implementers)?  Or anything in between those two?  Or could it be anything just shy of (r + c_I)x (that is, anything under $210, passing along the implementers’ avoided transaction costs to owners, but still on net benefiting implementers)?  Note that even if this last option is not FRAND, it nevertheless would be mutually acceptable to the parties.  But if it isn't FRAND, and if its non-FRANDness were effectively unreviewable, because the pool was not a party to a FRAND commitment, that seems like a problem.  Owners might be able to effectively evade their FRAND commitments by setting up pools, on the (perhaps tacit) understanding that the pool would charge an above-FRAND rate.  If this were to happen, antitrust intervention might be an option, but it may be very difficult to prove a violation.  

Halo v. Pulse Part V

As noted last Friday, the Federal Circuit released a nonprecedential decision in Halo Electronics, Inc. v. Pulse Electronics, Inc., opinion by Judge Bryson joined by Judges Prost and Reyna.  This case, which originated in 2007 and has been before the Federal Circuit now five times, is as readers will recall also the subject of the Supreme Court’s 2016 decision, holding that awards of enhanced damages under 35 U.S.C. § 284 are discretionary, and stating that “[t]he sort of conduct warranting enhanced damages has been variously described in our cases as willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.”  I won’t go into all the detail about why the case has been pending so long, but the story does make for mildly interesting reading and can be found at pp. 2-6 of the opinion.  Anyway, the issue on appeal this time around was whether the district court abused its discretion in not awarding enhanced damages and fees, despite the jury’s determination that Pulse’s infringement was willful, and whether the lower court correctly calculated the prejudgment interest Pulse owed Halo.

On enhanced damages, the court reaffirms prior case law holding that “willfulness requires ‘no more than deliberate or intentional infringement,’” and that it “does not require ‘wanton, malicious, and bad faith’ conduct, of the sort that may warrant enhanced damages” (p.8, citations omitted).  In other words, “once there is a finding of willfulness, enhancement requires the district court to answer a further question about the egregiousness of the defendant’s misconduct under the totality of the circumstances” (p.9).  Further, “[i]n a jury trial, willfulness is for the jury, while enhancement is for the court once an affirmative finding of willfulness has been made by the jury” (p.8).  Applying those standards here, the court rejects Halo’s argument that the district judge’s “decision is irreconcilable with the jury’s verdict on willfulness” (p.10), stating:

the district court correctly noted that the jury’s finding was “but one factor” in determining whether “this is a ‘rare’ case warranting extraordinary punishment for a defendant.” App. 19. Nor did the court reject the jury’s willfulness verdict by considering “evidence that [Pulse] had a basis to believe that it was not infringing Halo’s patent or that the patent was invalid during the relevant time periods when it was infringing.” App. 21. Consideration of such evidence suggests that the court regarded the issue of Pulse’s reckless disregard as a close question that did not warrant enhanced damages. . . .

 

According to the district court, there was “significant evidence suggesting that at the relevant times when it infringed, Pulse believed that Halo’s patents were invalid or not infringed (id.).

As Dennis Crouch notes on Patently-O, however, there is reason to question whether the district and appellate courts are giving adequate deference to the jury determination.  As Professor Crouch notes, “the underlying jury verdict required clear and convincing evidence [under the pre-2016 standard that was then in place] that Pulse acted with reckless disregard with knowledge that its actions constituted infringement of a valid patent (or that it was so obvious that Pulse should have known it was infringing a valid patent). The jury was presented with evidence Pulse’s actions as well as Pulse’s invalidity excuses and other justifications and still found willfulness.  The district court second guessed this determination by finding that Pulse’s actions were not too egregious and that the adjudged infringer had raised a reasonable defense.  But, these aspects were an inherent part of the jury’s verdict decided according to the heightened clear and convincing evidence standard.”  I will say that, in my view, as a matter of policy enhanced damages should be awarded only when there is reason to believe that actual damages will provide an inadequate deterrent, such as when there is evidence that the defendant concealed the infringement; and that, unpopular though this opinion may be among the U.S. patent litigation bar, I really don’t think it makes a lot of sense in 2025 to have juries determining patent infringement cases at all, just because common law courts in England in 1789 permitted it.  (The English courts stopped doing so long ago, and to my knowledge no other country follows this practice anymore either.)  But, the law is the law, and I am inclined to agree that on the facts presented here, the judges may be engaging in impermissible second-guessing.  The Federal Circuit does state, after all, in footnote 2, that

The jury found that it was “highly probable that Pulse’s infringement was willful.” App. 539. That finding reflected the instruction that to prove willful infringement, Halo had to prove that “prior to the filing date of the complaint, Pulse acted with reckless disregard of the claims of Halo’s patents.” Dkt. No. 470 at 18. The jury was further instructed that to demonstrate “reckless disregard,” Halo had to prove that “Pulse actually knew, or it was so obvious that Pulse should have known, that Pulse’s actions constituted infringement of a valid patent.”

It is hard to square the jury’s finding, by clear and convincing evidence, that “Pulse actually knew, or it was so obvious that Pulse should have known, that Pulse’s actions constituted infringement of a valid patent” with the Court of Appeals’ statement that the district court may have regarded “Pulse’s disregard as a close question that did not warrant enhanced damages.”  Going forward, of course, since the Supreme Court’s 2016 decision in this case, a jury’s determination of willfulness would be made under the normal preponderance of the evidence standard, whereby it is may be more reasonable to assume that willfulness despite having been found by the jury could be a close question.

On the prejudgment interest issue, the district court in 2016 “awarded prejudgment interest to Halo without determining the amount,” and that when the court “closed the case a year later . . . it still had not issued a written order on the calculation of prejudgment interest” (pp. 14-15).  Because Halo “did not file anything regarding the prejudgment interest issue until July 30, 2020, nearly three years later,” the Federal Circuit concludes that “Halo unreasonably delayed filing its motion” (p.17).  (Similarly, Halo waited too long to request a new trial on damages following the Supreme Court’s 2018 decision in WesternGeco v. ION that extraterritorial damages caused by domestic infringement may be recoverable (pp. 17-19).)  Nevertheless, the district court, having found that “Halo unreasonably delayed its renewed request for prejudgment interest,” held that Halo was “entitled to prejudgment interest at the rate set forth in Nev. Stat. Stat. § 17.130, compounded annually, from the time of service of the summons and complaint through September 6, 2017” (p.19).  The Federal Circuit holds that the “court did not abuse its discretion in ruling that it should decide the prejudgment interest issue despite Halo’s delay in raising it” (id.), or in choosing the Nevada statutory rate compounded annually (p.20).  But the district court did err in “allowing prejudgment interest to accrue until September 6, 2017,” because under Ninth Circuit law in case like this one “involving more than one judgment, the relevant date of judgment is the date of the judgment that ‘sufficiently ascertained’ the damages at issue,” and here that date is May 2013 (pp. 22-24).  So the case will be remanded for the district court to award the correct amount of prejudgment interest, and for an award of postjudgment interest at the (unfortunately for Halo, lower T-bill) rate specified in the applicable federal statute for postjudgment interest, 28 U.S.C. § 1961 (though there will be some further complications, see pp. 24-25 & n.8,  that I need not get into here lest I lose the few readers who have made it this far without falling asleep).  There are two final matters I will note, however.  The first is that although prejudgment interest here may well be undercompensatory, given the 2013 end date for the prejudgment interest and the lower rate accorded for postjudgment interest, the Supreme Court's decision in Halo v. Pulse makes it clear that one thing enhanced damages are not supposed to do (even assuming they were available here) is to compensate for otherwise uncompensable losses the plaintiff has suffered.  Second, although the final award remains to be seen, it stands to reason it may be less than the $3,182,049.62 award by the district court in March 2023.  And this case has been going for 18 years, with multiple trips to the Federal Circuit and one to the Supreme Court.  Can it possibly have been worth it?

Lenovo v. Ericsson: EWCA Declares that Lenovo Is Entitled to an Interim License

I have now had a chance to read Lenovo Group Ltd. v. Telefonaktiebolaget LM Ericsson (Publ), [2025] EWCA Civ 182, opinion by Lord Justice Arnold joined by Lady Justice Falk and Lord Justice Newey, concluding that a willing licensor in the position of Ericsson would enter into an interim license with Lenovo, on terms halfway between the parties’ last offers, pending a judicially-determined global FRAND license.  Below is a short summary of the decision, and then my initial thoughts.

The facts, in brief, are as follows.  Both Ericsson and Lenovo own portfolios of FRAND-committed SEPs, and have spent many years negotiating a cross-license, without success.  (There is a 2014 license in place, however, between Motorola, which in 2014 became a Lenovo subsidiary, and Ericsson.  That license covers “certain Ericsson SEPs declared essential to the 4G standard and certain Motorola devices” (para. 49), and will remain in effect until all of the relevant patents expire.  It also states that disputes “related to the construction and interpretation of” the license shall be settled in London (para. 51).  Lenovo’s own SEPs, of course, are distinct from the Motorola ones, but the existence of the Motorola license will affect the eventual terms of any cross-license.)  In 2023, Ericsson filed an action against Lenovo in the United States District Court of the Eastern District of North Carolina, alleging the infringement of four SEPs declared essential to the ETSI 5G standard, and requesting a declaration that Ericsson had complied with its FRAND obligation or, if not, that the court “determine a FRAND rate for a global cross-license between Ericsson and Lenovo” (para. 58).  Note, however, that “because of the way in which Ericsson had framed their claim for relief, there was a possibility that the EDNC would not ultimately determine a FRAND rate for a global cross-licence between Ericsson and Lenovo. . . . [T]his possibility could be avoided if Ericsson were to amend their claim to seek a determination of what rate is FRAND, but Ericsson declined to make the necessary amendment. That remains Ericsson’s position” (para. 60).  Ericsson also filed an action relating to five non-SEPs, and later an action relating to certain SEPs declared essential to the ITU’s HEVC/H.265 standard (id.).  Those cases remain pending.  Also in in 2023, Ericsson initiated three ITC investigations alleging the infringement of the patents at issue in the EDNC proceedings.  In September 2024, the U.S. Office for Unfair Import Investigations (OUII) filed a brief in the first of the ITC investigations, stating its conclusion that an exclusion order would not raise public interest concerns or have adverse effects on competitive conditions in the U.S., and that “Ericsson has and is engaged in negotiations in good faith” (para. 66).  In December 2024, the ALJ issued an Initial Final Determination in Ericsson’s favor, but the ALJ’s decision whether to enter an exclusion order remains pending until April.  Ericsson also has filed actions in Brazil and Colombia, obtaining a preliminary injunction in Brazil (now stayed pending appeal, see para. 75), and some in Colombia as well, though some of these have been lifted (para. 76).  For its part, Lenovo has initiated two proceedings in the ITC targeting Ericsson, but these remain pending are “are less far advanced than the proceedings commenced by Ericsson” (para. 68).  Lenovo has counterclaimed in the EDNC “for a determination of FRAND terms” and requested an ASI relating to the Brazilian and Colombian actions.  The district court denied the ASI, but the Federal Circuit remanded for further consideration in October 2024 (para. 77; see also the relevant post on this blog).  Also, Lenovo in 2023 and 2024 filed actions against Ericsson in the Patents Court for England and Wales, alleging inter alia the infringement of some of its patents and requesting the court to establish the terms of a global FRAND license (para. 69).  Most relevant here, Lenovo also requested “a declaration that willing parties in the position of Lenovo and Ericsson would agree to a short-term licensing regime pending the determination of FRAND terms for a final cross-license, and a declaration as to the terms of” such a license (para. 70).  (Lenovo’s subsidiary Motorola also has commenced two actions before the UPC, see this article on JUVE Patent.)  Meanwhile, in October 2024 the EWCA held in Panasonic v. Xiaomi that Xiaomi was entitled to a similar declaration, though the facts of that case were somewhat different in that both parties had agreed to abide by the English court’s determination of a global FRAND license, but SEP owner Panasonic appeared to renege on the agreement by pursuing injunctive relief in Germany.  (See here.)  In any event, the Patents Court in the present case denied Lenovo’s request for a declaration in January 2025, but last Friday the EWCA allowed the appeal.

Key to the EWCA’s decision is the following, regarding why it believes Ericsson wants to obtain an exclusion order from the ITC and does not want to accede to an interim FRAND license pending a global determination in the U.K.:

. . . Ericsson want to achieve a better outcome than a determination by the English courts would provide . . . . To put it at its lowest, Ericsson must perceive that there is at least a material risk that the English courts will determine that Ericsson’s October 2023 Offer was not FRAND, whether on its own terms or with reference to the correct interpretation of the [Motorola] Licence, and that FRAND terms for the cross-licence are closer to those offered by Lenovo, and Ericsson must be determined to avoid that risk. In my judgment this is indeed the true explanation for Ericsson’s conduct (para. 124).

The court then concludes that Ericsson’s conduct, while “not as egregious as that of Panasonic in Panasonic v. Xiaomi,” is “to coerce Lenovo into accepting terms more favourable to Ericsson than the English courts would determine to be FRAND, or at the very least to avoid the risk that the English courts would determine that FRAND terms are less advantageous to Ericsson than those sought by Ericsson” (para. 128).  Thus, while Ericsson may simply be “exercising the legal rights which are available to them in another jurisdiction,” it does not follow that such conduct “cannot be contrary to their obligation of good faith.”  Specifically:

. . .  the whole point of a SEP owner’s obligation to ETSI is that it is a derogation from the patentee’s normal entitlement to enforce its patent by means of an injunction . . . . Secondly, the purpose and effect of an obligation of good faith is to act as a constraint upon a party’s ability to enforce its strict legal rights solely with regard to its own interests. Ironically, this is the very reason that English contract law, unlike French contract law, has historically been reluctant to embrace obligations of good faith save in limited circumstances. To put it bluntly, Ericsson’s position amounts to saying that they are entitled to use their raw legal power to compel Lenovo to submit. That might well have been a legitimate response to a long period of hold out by Lenovo, but as explained above Lenovo are no longer holding out even if they were previously. On the contrary, Lenovo have now accepted that they must pay Ericsson whatever an independent and impartial court determines to be FRAND plus interest. In those circumstances coercion by Ericsson is no longer justified. Accordingly, Ericsson are in breach of their obligation of good faith (para. 129).

The EWCA therefore rejects the Patents Court’s conclusion that, in view of the OUII brief’s statement that Ericsson’s October 2023 Offer “was comfortably within the FRAND range,” the judge could not be “satisfied to a high degree of assurance that, in exerting pressure on Lenovo to accept Ericsson’s October 2023 Offer, Ericsson were necessarily seeking supra-FRAND rates” (para. 130).  In addition, the EWCA concludes that an interim license (payments under which can “be adjusted to the extent necessary in consequence of the determination of the terms of the final licence,” (para. 136)) “would serve a useful purpose in forcing Ericsson to reconsider its position,” to “see the error of their ways” (para.142).  Finally, in addressing comity, the EWCA agrees with Lenovo that “[i]f the declaration does induce Ericsson to reconsider their position and to grant Lenovo an interim licence, that would promote comity because it would relieve the courts and tribunals of the USA, Brazil and Colombia of a great deal of burdensome and wasteful litigation. If, on the other hand, Ericsson decide to ignore the declaration and to pursue the proceedings in the USA, Brazil and Colombia, it will be entirely for those courts and tribunals to make their own assessment of the parties’ conduct, including their conduct in the English proceedings, and to decide what, if any, relief to grant Ericsson for any infringements they may find established in the absence of a licence.  Thus, a declaration would not be contrary to comity” (para. 149).  The court also states that, although the fact that “the courts and tribunals of the USA . . . were first seised of the dispute between the parties” “is an important consideration,” the English court also is “properly seised of the FRAND dispute,” and has “exclusive jurisdiction to determine the issues concerning the [Motorola] Licence, which have a significant impact on what terms for the cross-licence are FRAND. In those circumstances, the legal centre of gravity, although not the commercial centre of gravity, of the overall dispute is in England” (para. 152).  Moreover:

In the absence of a global dispute mechanism for determining FRAND disputes, or an ad hoc agreement to arbitration, the possibility of jurisdictional conflict is inescapable. Leaving aside Lenovo’s point about the exclusive jurisdiction clause in the [Motorola] Licence, the principled answer to this might be that the court first seised should determine what terms are FRAND. In the present case, however, it is plain that Ericsson do not want the EDNC to determine FRAND terms for the cross-licence any more than they want the English courts to do so. If Ericsson wanted the EDNC to determine FRAND terms in preference to the English courts, they would have made the simple amendment to their claim in the EDNC I Proceedings which Richards J identified as being appropriate in his judgment on the Jurisdiction Application as long ago as 18 April 2024 and would have undertaken to accept the EDNC’s determination as to FRAND terms. Ericsson have not done so. By contrast, Lenovo have offered to accept the EDNC’s determination as to FRAND terms if Ericsson drop their campaign to obtain injunctions and equivalent relief, but Ericsson have not agreed to this. On the contrary, Ericsson have vigorously pursued such relief, in particular in the ITC. This demonstrates that Ericsson’s stance is not driven by jurisdictional preference with respect to FRAND determination. It is driven by a preference for the exclusionary power of a national injunction (or equivalent relief) over FRAND determination by any court. This is hold up.

 

The second argument is that making the declaration sought by Lenovo would promote forum shopping. . . . . [F]orum shopping by both SEP owners and implementers is equally to be deprecated. Regrettably, however, the potential for forum shopping is an inevitable feature of the present ETSI IPR Policy. . . .

 

In conclusion, I entirely accept that, as counsel for Ericsson submitted, jurisdictional imperialism is to be eschewed. As I have explained, however, it is common ground in this case that a FRAND cross-licence would be global. [Unwired Planet] establishes that, in such a case, the English courts have jurisdiction to determine what terms are FRAND on a global basis. A critic might argue that, to that extent, a degree of jurisdictional imperialism is already hard-wired into the English courts’ approach to these issues. The declaration sought by Lenovo is less intrusive into the jurisdictions of foreign courts and tribunals than a global FRAND determination (paras. 153-55).

The court concludes:

For the reasons given above I conclude that: (1) Ericsson are in breach of their obligation of good faith under clause 6.1 of the ETSI IPR Policy by pursuing claims for injunctions and equivalent remedies in foreign courts and tribunals despite Lenovo having undertaken to enter into a licence on the terms determined by the Patents Court to be FRAND (subject to adjustment on any appeal) and having offered to submit to determination of FRAND terms by the EDNC; (2) a willing licensor in the position of Ericsson would enter into an interim licence with Lenovo pending that determination, and FRAND terms for that licence would be those set out in the preceding paragraph; (3) making the declaration sought by Lenovo would serve a useful purpose; and (4) the declaration should not be refused on the grounds of comity. I would therefore allow the appeal (para. 157).

So what are the implications of the decision?  I’m not altogether sure, but am trying to think it through, so here are my initial thoughts.

First, if Ericsson does not reconsider its position, and agree to an interim licence on the terms stated in the decision pending the Patents Court’s determination of a global FRAND cross-license, what happens?  I think that would mean that Lenovo could argue to the Patents Court that Ericsson is an unwilling licensee of Lenovo’s SEPs, and therefore can be enjoined from practicing those patents in the U.K.  That would give Lenovo some leverage to compel a global settlement.  As for whether it would affect any of the litigation occurring anywhere else, I don’t know.  If courts in other jurisdictions recognize the EWCA judgment, and consider themselves bound by its finding that Ericsson is an unwilling licensee, again that would increase Lenovo’s leverage to enjoin Ericsson and thus compel a settlement.  But will other countries recognize the judgment, or consider it to be against public policy insofar as it is intended to prevent Ericsson from pursuing the litigation it is otherwise permitted to pursue under the laws of the U.S., Colombia, Brazil, and the UPC?

Second, if Ericsson does reconsider and agrees to an interim licence, then Lenovo (and Ericsson) are both licensed on an interim basis, and there are no longer any grounds for injunctive relief or exclusion orders anywhere else; the cases elsewhere would be moot (though perhaps the parties could agree to let the EDNC decide the terms of the global FRAND license, as opposed to the Patents Court—assuming that a U.S. court has jurisdiction to do that with consent of the parties, an issue I’m not 100% sure about myself, however, after TCL v. Ericsson, as I indicated in my article Is Global FRAND Litigation Spinning Out of Control, 2021 Patently-O L.J. 1, at footnote 10).

Third, I agree for the most part with Lord Justice Arnold’s statement in Panasonic v. Xiaomi, quoted in para. 106 of the present decision, that

SEPs differ in a key respect from other patents. Normal patents are monopoly rights, and the primary remedy for infringement is an exclusionary injunction so as to preserve the monopoly. This is not true of SEPs, because they are subject to the SEP holder’s obligation to grant licences to any implementer who desires a licence on FRAND terms. An implementer is entitled to such a licence as of right. Thus SEPs are not property rights of the same status as other patents. In effect, the SEP regime is a liability regime in which the SEP holder’s remedy is a financial one. The only role for an injunction in this regime is to enforce the SEP holder’s entitlement to that financial remedy.

See also id. para. 21 (stating that “any SEP owner is a willing licensor at a high royalty rate and any implementer is a willing licensee at a low royalty rate, but the real question is whether the parties are willing to license at a royalty rate which is in fact FRAND. Thus to decide willingness one first has to determine what rate is FRAND, and then find out who is willing or unwilling to license at the FRAND rate”).  This is very different, however, from the current German and UPC approaches, see, e.g., my post on the UPC decision in Panasonic v. OPPO here.

Fourth, I am concerned about the “jurisdictional imperialism” point.  To be sure, it may be reasonable to infer, as the court does, that the only reason Ericsson doesn’t want the Patents Court or the EDNC to determine a global FRAND license, and instead is pursuing injunctive relief and exclusion orders in other forums, is to force Lenovo to capitulate into agreeing to above-FRAND terms.  It also may be reasonable to assume that a global FRAND cross-license determined by either the Patents Court or the EDNC would, in fact, be FRAND.  Nevertheless, we also should consider two other logical possibilities: (1) that Ericsson and/or Lenovo expect that a global FRAND cross-license to be determined by either the Patents Court or the EDNC would be below-FRAND, and (2) that Ericsson would not use the leverage an injunction or exclusion order would provide to extract above-FRAND terms (that is, to practice holdup). I’m not sure it is fair to assume these two possibilities away, notwithstanding my own “priors” that the English and U.S. courts generally can be expected to do a reasonable job in determining appropriate royalties, and that corporations tend to be rational profit-maximizers.  Others, such as Judge Peter Meier-Beck are more skeptical than I about the courts’ ability to determine FRAND royalties accurately (see here), after all; and how do I know that my priors are right?  On what basis can I be sufficiently confident that I would be willing to penalize a litigant for enforcing its rights as permitted in another jurisdiction? In more extreme cases, such as Microsoft v. Motorola and Panasonic v. Xiaomi, where a litigant is alleged to have reneged on a commitment to have a court establish a global license by pursuing litigation elsewhere in the hope that this will compel the counterparty to give in, I think antisuit injunctions or interim licenses probably make sense; but is this such an extreme case?

Fifth, and related to the preceding point, if the U.K. approach is right, then what is to stop other countries from pursuing the same practice?  There is a lot of grumbling right now about the Chinese courts’ royalty rates being too low, as for example in the 2023 SEP decision in Nokia v. OPPO.  Assuming for the sake of argument that such complaints are justified (I take no position on the matter here), then should we be pleased nonetheless if a court in China were to enter a declaration like the one in Lenovo, intended to nudge a SEP owner to abandon litigation elsewhere in deference to the Chinese court’s rate-setting?  If not, then are we saying that we trust the U.K. courts to do the right thing, so that they can make declarations about interim licenses, but others cannot?  That seems . . . uncomfortable.  Maybe it’s best if nobody does this, except in extreme cases.

Sixth, perhaps the Lenovo decision, assuming it stands, will be limited to its facts.  By that I mean, maybe it will be seen as appropriate for a U.K. court to enter an interim license declaration in a case like the present one in which the SEP owner resists having any court establish the term of a global (cross-)license, but not where it is willing to let another court do so (though what if the parties disagree about which other court is appropriate?).  On that reading, there would be no grounds for an English court to declare an interim license if a SEP owner like Ericsson consented to having, say, the EDNC establish a global royalty (and perhaps enter an interim license during the pendency of proceedings), assuming that court has jurisdiction to undertake the task.