Two Recent Articles on Injunctions

1.  Burton Ong and Marissa Chok have published Patent injunctions, standard essential patents and patents essential to de facto standards: European, German and Korean perspectives, 43 EIPR 417-31 (2021).  Here is the abstract:

Patent injunctions against unlicensed defendants who implement a patented technology standard may produce exclusionary effects that are anti-competitive. Should it make a difference whether the patent in question (1) involves a technology standard developed under the auspices of a standard-setting organisation (i.e. a standard essential patent or SEP); or (2) covers an invention that is incorporated into technology standard without going through this standard-setting process (i.e. a patent that is essential to a de facto standard or "de facto essential patent")? The potential anti-competitive effects are the same in both categories of patents, yet the legal frameworks of jurisdictions that have considered these legal issues appear to differentiate between them. This article examines the validity of distinguishing between these two groups of patented standards, using examples from various jurisdictions to illustrate the bifurcated approach that has been taken towards placing limitations on the patent holder’s freedom to seek injunctive relief. 

2.  Peicheng Wu and Charlie Xiao-chuan Weng have published Old wine in a new bottle? Assessing the injunction remedy for intellectual property disputes in China, 11 Queen Mary Intellectual Property Law Journal 295-313 (2021).  Here is the abstract:

The landmark eBay case in the US has noticeably influenced Chinese judicial practices concerning intellectual property injunctions. The injunctive relief in intellectual property infringement cases in China has witnessed a change from a traditional automatic-granting approach to a more equitable approach. However, there are still some issues, namely: the standards of awarding injunctive relief in intellectual property cases are unclear; the civil law tradition and procedure can create issues when applying for injunctions; and the scope of the injunction could be disproportionate in certain cases. In order to address these concerns, China needs to publish judicial interpretations to clarify that the eBay test can be applied to both preliminary injunctions and permanent injunctions. China should further polish up its civil procedure legislation to enable a permanent injunction to be effective immediately, even at the first instance, and to allow the parties to an intellectual property contract to have agreements on conditions of applying for injunctive relief. Additionally, Chinese courts should adopt a proportionate method in determining cases regarding intellectual property injunctions. 

FRAND Papers from the Berkeley Technology Law Journal

1.  Jorge Contreras, Fabian Gaessler, Christian Helmers, and Brian J. Love, have posed a paper on ssrn titled Litigation of Standards-Essential Patents in Europe:  A Comparative Analysis, which is forthcoming in the Berkeley Technology Law Journal.  Here is a link to the paper, and here is the abstract:

Despite the significance of patent litigation in the EU and the looming structural overhaul of the European patent litigation system, there has been comparatively little empirical or statistical analysis of European patent cases across member states. This absence has largely been due to the lack of harmonized case-level data across European jurisdictions. Over the past few years, however, researchers in Europe have developed patent litigation databases that have enabled robust quantitative analysis. As a result, comparative empirical studies have recently been published concerning European patent litigation overall, as well as litigation by so-called non-practicing entities (NPEs). The present study extends this work to the important area of litigation relating to standards-essential patents (SEPs) in the EU. We find that that the assertion of SEPs has occurring in Europe at significant levels, and that PAEs are playing a large role in this activity.  

2.  Richard Epstein and Kayvan B. Noroozi has posted a paper on ssrn titled Why Incentives for "Patent Holdout" Threaten to Dismantle FRAND, and Why It Matters, also forthcoming in the Berkeley Technology Law Journal.  Here is a link to the paper, and here is the abstract:

An increasing number of judges, legislators and scholars wrongly believe that the FRAND commitment was principally created to advance the interests of technology implementers, and should be interpreted by giving a presumptive preference toward those interests. That premise has led courts to take a categorically hostile view toward awarding injunctions against implementers under all circumstances. Some courts have even allowed implementers to sue innovators for making an opening licensing offer that is “too high,” without making any counteroffer. An implementer-centric view of FRAND has also caused courts to conclude that innovators are not entitled to any share of the commercial benefits arising from the standardization of their technologies.

We demonstrate that an implementer-centric view of FRAND’s origins and purposes is false. FRAND is a contractual agreement that reflects a voluntary reciprocal exchange of benefits and obligations driven by the need to solve significant coordination problems in the face of otherwise prohibitive transaction costs. As part of that bargain, innovators agree to disclose their latest, confidential discoveries to standard-development organizations, and to waive their injunction rights as to eventual patents on those discoveries, in exchange for contractual protection against patent holdout by implementers who in turn are permitted to use standard-essential patents only on their willingness to pay fair and adequate royalties for that use.

Accordingly, we stress that implementers owe a significant duty to negotiate FRAND licenses in good faith, which courts have largely overlooked and under-enforced. We demonstrate that implementers’ good faith obligations are a critical component of basic FRAND architecture that is strictly necessary to the development of innovation-driven standards. We further observe that the FRAND bargain gives implementers access to otherwise confidential discoveries — inventions too recent to be disclosed in patents or published applications. In this way, FRAND supplies a solution to an iteration of Kenneth Arrow’s paradox of information, enabling the standards development effort to yield commercial benefits that would not exist absent innovators’ voluntary participation. We show both theoretically and empirically that courts’ failure to appreciate these aspects of the FRAND bargain, combined with their over-reliance on liability rules, i.e., damages over injunctions, incentivizes the very patent holdout problem FRAND was intended to avoid. That outcome, in turn, has motivated innovators to reduce their participation in FRAND bargains, threatening to unravel a massive innovation-commercialization marketplace, and its innumerable positive externalities to all parties.

To reverse these harms, we recommend that courts automatically issue an injunction where an implementer is found to infringe FRAND-committed patents that it did not attempt to license in good faith. We also recommend that a proper FRAND licensing rate should include some portion of the benefits achieved through standardization of the innovation(s) in question.

More broadly, we suggest that courts, policymakers, and academic commentators have wrongly favored implementation over innovation — “things” over ideas — unwisely frustrating the emergence of an “ideas economy” that correctly assigns profits to upstream innovators, and not to the low-margin firms that specialize in developing their commercial embodiments.

3.  Benjamin C. Li has published a student note titled The Global Convergence of FRAND Licensing Practices:  Towards "Interoperable" Legal Standards, 31 Berkeley Tech. L.J. 429 (2016).  Here is a link to the paper, and here is a portion of the introduction:

This Note summarizes recent FRAND developments in the most important patent jurisdictions and explains how these developments address the three major issues discussed above. Part I provides a brief background on standard setting organizations (SSOs), SEPs, and FRAND licensing. Section II.A addresses the legal and policy bases for regulating FRAND licenses, using the Rambus case to highlight the importance of a functional FRAND licensing system. Section II.B explains the three key issues of patent hold-up, license hold-out, and royalty pricing in greater detail. Sections III.A and III.B provide analysis of international cases implicating FRAND using the hold-up/hold-out and royalty pricing frameworks. Section III.C discusses the nationalistic issue of governments favoring domestic companies in FRAND disputes. Section III.D discusses the Institute of Electrical and Electronic Engineers’ (IEEE’s) new FRAND policy. Part IV concludes with a summary of recent FRAND trends across international jurisdictions and predicts convergence in international FRAND licensing practices. 

Larouche & Zingales on Injunctive Relief in EU FRAND Disputes

Pierre Larouche and Nicolo Zingales have posted a paper on ssrn titled Injunctive Relief in FRAND Disputes in the EU--Intellectual Property and Competition Law at the Remedies Stage.  Here is a link to the paper, and here is the abstract:

In dealing with applications for injunctive relief by the holders of FRAND-encumbered SEPs in the course of protracted licensing negotiations, any legal system faces the challenge of reaching the proper balance between predictability for stakeholders and differentiation between possible scenarios (tough negotiations, holdup, holdout or exclusion). In the EU, that challenge fell to be addressed first under the various national laws concerning remedies for intellectual property violations, as partially harmonized by Directive 2004/48. The outcome was not optimal. After German courts introduced competition law in the equation in Orange Book, the European Commission felt compelled to intervene with a different approach in Motorola and Samsung, leading to a reference to the CJEU in Huawei v ZTE. That ruling sets out an elaborate choreography that SEP holder and implementer must respect, in order to avoid breaching Article 102 TFEU or avert injunctive relief, respectively. Huawei represents a satisfactory compromise in practice, but its theoretical foundation in competition law is not solid. Subsequent case-law has unmoored Huawei from competition law and is turning it into a stand-alone lex specialis for injunctions in FRAND cases. In the longer run, legislative intervention might be preferable to de facto harmonization via competition law. 

I thought this was a very thoughtful and informative paper.  Descriptively, the paper provides a good overview of the law of injunctions and its application to FRAND disputes in England, Italy, France,Germany, and the Netherlands.  Much of the authors' analysis turns on their classification of disputes between implementers and owners of FRAND-committed SEPs into four scenarios:  (1) "negotiation," where  "[t]he parties are locked in difficult negotiations to conclude a FRAND-compliant license," but "have no obvious interest to derail the negotiations by having recourse to outside options"; (2) "holdup," where the SEP owner exploits its market power to obtain exorbitant royalties, but normally isn't interested in excluding the implementer from the market; (3) "holdout," where the implementer wants to use the technology without a license or for an unreasonably low rate; and (4) "exclusion," where the SEP owner competes in a downstream market and wants to exclude the implementer from it (pp. 3-4).  The authors note that Huawei itself fell within the fourth category, and that as others have noted some of the CJEU's language in that decision supports the theory that the Huawei framework applies only in cases involving exclusion.  At the same time, however, other portions of the decision "seems to envisage that its reasoning applies more generally than as between competitiors," and that "a larger number of cases . . . apply Huawei to cases that do not fall within an exclusionary theory of harm. . . . [I]n most post-Huawei cases, the plaintiff is a patent assertion entity, which is by definition not competing with the defendant.  The theory of harm cannot then be exclusionary," but rather must be scenario 2 (holdup) (pp. 21-22).  The authors also argue that Huawei's imposition of certain obligations on implementers, which is part of what they refer to as the Huawei "choreography," cannot be justified under competition law; and they express concern that the limitation of Huawei to FRAND-committed SEPs (but not to de facto SEPs or FRAND-unencumbered SEPs) "risks introducing distortions into the standardization process" (p.29).  In addition, they express the view (which I've also tried to emphasize in recent work) that "On difficult issues such as these disputes, the key challenge for any legal system is to find the proper balance between accuracy (the ability to correctly identify which of the four scenarios is unfolding in a given case), consistency/predictability (the ability to treat like cases alike and enable firms to plan their actions accordingly) and efficiency (the minimum expense of resources in solving these cases)" (p.33); and, like the authors of the recent JRC report on SEPs, they argue that "FRAND is better seen as a guide for parties to deal with one another," rather than "to find a mystical 'right' FRAND set of terms and conditions" (p.36).  Finally, in a conclusion that calls to mind some thoughts I've expressed on these issues over the past few years, to the effect that competition law may be (for now) an adequate though imperfect source of legal norms for addressing FRAND/SEP disputes in Europe, the authors write:

On balance, even if it cannot be justified in theory, the unmooring of Huawei from competition law provides clear practical benefits. Considering that it would have been impossible to provide a comparable approach to SEP-related disputes from within IP law in such a short time, maybe Huawei represents the optimal institutional response by the EU to the proliferation of these disputes. Nevertheless, many questions remain open, and there is a risk that, sooner or later, the theoretical shortcomings will catch up with the evolution of the case law spawned by Huawei. It might be advisable for the EU institutions to follow up on Huawei via a legislative instrument that would rest on a more solid and broader foundation and would carry more legitimacy (p.37).

Overall, the paper is definitely worth a read.

Some More Recent SEP/FRAND Papers

1. Janusz Ordover and Allan Shampine published a paper titled Implementing the FRAND Commitment in the October 2014 issue of The Antitrust Source, available here.  From the introduction:

For many years, standard-setting organizations (SSOs) have required members to commit to license standard-essential patents (SEPs) on Fair, Reasonable and Non-discriminatory (FRAND) terms. How FRAND terms can and should be interpreted has been the subject of extensive debate (as well as litigation in many jurisdictions). While we acknowledge other objectives behind these commitments, we focus here on their role as constraints on the ability of the holders of the SEPs to hold up implementers of such FRAND-encumbered patents, with potential anticompetitive effects.

In this article, we explain why, from a practitioner’s perspective and given the economic goals of FRAND terms, a mere commitment to license on FRAND terms does not ensure that the ex-post negotiations will invariably satisfy the FRAND principles. We then describe when and how we believe FRAND commitments should be enforced to achieve the economic goals of FRAND terms and avoid anticompetitive effects.

2.  The same issue of The Antitrust Source also features an article by Douglas H. Ginsburg, Taylor M. Owings, and Joshua D. Wright titled Enjoining Injunctions:  The Case Against Antitrust Liability for Standard Essential Patent Holders Who Seek Injunctions, available here.  From the introduction:

A standard essential patent (SEP) may give the patent holder market power in the market for an input that technology manufacturers need in order to make their products compatible with each other. Several commentators have argued that, when a patent becomes part of a standard pursuant to an agreement among competitors given in exchange for the patent holder’s promise to license the technology under fair, reasonable, and non-discriminatory (FRAND) terms, antitrust law should limit the holder’s right to seek an injunction to stop an infringing manufacturer from selling its standardized product. We disagree for two reasons: First, antitrust sanctions are not necessary, given the law of contracts and of injunctions, to avoid harm to consumers and, second, the application of antitrust law in this situation could, by undermining the ability of courts to tailor appropriate remedies, diminish the incentives for companies to innovate and for industries to adopt standards.

3.  Elaine Xu has published a student comment titled Brave New Frontier:  Antitrust Implications of Standard-Setting Patents in the Smartphone Market, 32 Wisconsin International Law Journal 384 (2014).  It doesn't appear to be available yet on the journal's website but can be accessed on Westlaw.  From the introduction:

This article discusses two topics. Part I discusses standardization and how antitrust issues can arise as a result of standard essential patents. It introduces the legal framework for antitrust analysis, and gives an  overview of important standard setting cases. Comparing how Europe and the United States have ruled on antitrust violations of standard essential patents provides the framework for analyzing whether Samsung committed antitrust violations in its interactions with standard essential patents.

Part II, using the antitrust analysis, defines how Samsung's patented technology and its substitutes form the relevant market. It discusses Samsung's monopoly power and analyses whether Samsung abused its standing by withholding information regarding its patents from the European Telecommunications Standards Institute during the development of the third generation universal mobile telecommunication system standard.

4.  Philip Maume has a paper on ssrn titled Compulsory Licensing in Germany, which is a chapter in a forthcoming book titled Compulsory Licensing (Reto Hilty and Kung-Chung Liu eds., MPI Studies on Intellectual Property and Competition Law, Vol. 22, Springer).  Here is a link, and here is the abstract:

In the last 20 years, German courts have developed a sophisticated approach to compulsory licensing of patents. Compulsory licences under competition law are of particularly high relevance. In short, German competition law obliges the holder of a patent, which is essential in a standard to grant a licence on terms that are fair, reasonable, and non-discriminatory (FRAND). Users of such patents can also raise a so-called competition law defence against imminent injunction orders. 

The resonance of the German debate in international scholarly literature has remained relatively low, probably because of the language barrier. Most works merely scratch the surface of the particularly complex issues. This paper provides an in-depth analysis of the German legal background and the consequences in practice. It suggests a streamlined, simplified approach to competition-law-based defences.

5.  Gunther Friedl and Christoph Ann have published a paper in the October issue of GRUR titled Entgeltberechnung fur FRAND-Lizenzen an standardessenziellen Patenten ("Calculating FRAND License Fees with respect to Standard Essential Patents").  Here is the abstract (my translation from the German).  I haven't read the paper yet and may have more to say about after I have:

If SEP owners are obligated by competition law to license their patents on FRAND terms, questions remain concerning the terms of such licenses.  Above all is the question of how to calculate the amount of a FRAND-conforming license fee.  Fundamentally, valuation approaches are conceivable that are based on patent usage, but problems present themselves here with respect to complex products such as FRAND-notorious smartphones.  A cost-based assessment for FRAND license fees, such as is common in regulated industries, presents itself as suitable.  Such an approach, based on the total costs of a patent, is sketched in the present essay.   On the one hand, this approach ensures to the patent owner a reasonable rate of return, and on the other preserves the FRAND conformity of the so-determined license fee.

More Papers from the Texas Intellectual Property Law Journal's February 2014 FRAND Conference

Volume 22, No. 3 of the Texas Intellectual Property Law Journal is now out, and it contains three more papers from the February 2014 FRAND conference, including mine.  It appears that the editors made some changes to my paper without consulting me--in fact, I never received an edit, despite the fact that I submitted the paper over a year ago--and while it doesn't appear from a cursory analysis that any of the changes go to the substance of the paper, they certainly do change the writing style in places, beginning with the title (the first of word of which in the authorized version is "The").  I also was hoping to make a few changes of my own before publication, including the one I noted on this blog in November 2013 (see here).  On the plus side for me, at least I never signed a copyright agreement with the journal either.  Caveat auctor, I guess--but it will be a long time before I consider publishing with this particular journal ever again.  Anyway, if you want to read an authorized version of my paper, here's a link to the November 2013 version on ssrn, which I may update in the coming weeks.

In any event, listed below are the three FRAND papers in the most recent TIPLJ issue.  The presentations that were based on the Carlton & Shampine and Allensworth papers were both very good, so I certainly recommend reading the papers, notwithstanding my irritation with the journal's editors.

Dennis W. Carlton & Allen L. Shampine, Patent Litigation, Standard-Setting Organizations, Antitrust, and FRAND, 22 TIPLJ 223 (2014).

Rebecca Haw Allensworth, Casting a FRAND Shadow:  The Importance of Legally Defining "Fair and Reasonable" and How Microsoft v. Motorola Missed the Mark, 22 TIPLJ 235 (2014).

Thomas F. Cotter, [The] Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties, 22 TIPLJ 311 (2014).

The journal also contains an article by Apostolos Christopoulos, whom I met a few years ago while doing research at the Max Planck Institute in Munich, titled Goodwill Appropriation as a Distinct Theory of Trademark Liability:  A Study on the Misappropriation Rationale in U.S. Trademark and Unfair Competition Law, 22 TIPLJ 253 (2014).  Apostolos also has a paper in the current issue of the Queen Mary Journal of Intellectual Property, titled Legal and Economic Arguments for the Protection of Advertising Value Through Trademark Law.  Glad to see that Apostolos, who is now a research and teaching associate at Queen Mary University in London, is doing well.

Some comments on the Contreras and Gilbert paper

A couple of weeks ago I mentioned a paper that Jorge Contreras and Richard Gilbert had recently posted on ssrn, titled A Unified Framework for RAND and Other Reasonable Royalties.  I stated that I agreed with the authors' thesis that "the reasonable royalty analysis should be conducted in essentially the same manner for all patents, whether or not they are encumbered by RAND commitments," but that I might have more to say about the paper after I had had a chance to read through all of it.  Having now read the paper and given it some thought, I can say that I recommend the paper quite highly, and I look forward to talking it over with the authors at an upcoming conference in D.C.  For what it's worth, here are a few more brief comments.

First, for reasons I have stated at length elsewhere (see, for example, here), I agree with the authors' statement that courts generally should deny injunctive relief for the infringement of SEPs, whether or not those SEPs are encumbered by a RAND commitment.  If anything, the authors make more of the RAND commitment than they really need to, for example when they state at p.7 that "courts informed by the patent owner's RAND commitment, can . . . apply the eBay factors to determine when an injunction is warranted" (emphasis in original; see also p.31).  But they rectify matters in part when they state at p.8 that, even in the absence of RAND commitment, "if the failure to license a patent that is essential to a standard would allow its owner to hold up firms and consumers that are locked in to the standard with serious negative consequences for economic welfare, it would not require a delicate balancing of equities for a court to conclude that injunctive relief should not be available, regardless of whether the patent is subject to a RAND licensing commitment."  Perhaps also, in countries that generally view injunctive relief not as a discretionary matter, but rather as a right accruing to the victorious patent owner, perhaps a RAND commitment would be necessary for a court to find a reason (grounded in competition law or the abuse of right doctrine) to deny an injunction--though maybe not, since even the German Orange-Book-Standard framework does not require that the SEP be subject to such a commitment.  And in any event, the authors are clear that as far as injunctive relief is concerned their analysis focuses only on U.S. courts (p.9).  

Second, the authors are right in stating that courts setting RAND royalties should apply an ex ante bargaining framework, where "ex ante" means "before the standard has issued and firms and consumers make irreversible commitments" (p.11; see also the discussion at pp. 26-27, 30-31).  As I mentioned last week, Norman Siebrasse and I are working on a paper that recommends the same result, though with the caveat that courts should assume the parties to the ex ante negotiation have access to all relevant ex post information as well.  But I'll hold off on elaborating on that point for the time being, since we're still working on the paper.

Third, I also agree with the authors' statement that "[t]he fact that there is no single best way to apportion the value of a technology to individual patents does not undermine the utility of the incremental value method to assess the total royalty for the technology at issue" (p.13).  It's important to know what the ideal is before you can determine what evidence can serve as an acceptable proxy for that ideal.  That said, and as the authors recognize, it can be fiendishly difficult to figure out how best to apportion value among patents (whether SEPs or not); this may be the single most important topic for which, if some aspiring economists is looking to make his or her mark on the profession, we really could use a breakthrough.

Fourth, on the issue of whether RAND is still relevant if courts are going to calculate reasonable royalties in the same manner regardless of the existence of a RAND commitment, the authors are probably right in noting that a RAND commitment may have other consequences, including other possible claims for relief (e.g., breach of contract); and that "even if the royalty that a patent holder may charge to a licensee under a RAND commitment is the same as the royalty it would have received as damages in an infringement suit absent the RAND commitment, it is more efficient to operate under a system in which there is a presumption that licenses will be granted on reasonable terms compared to a less certain environment in which disputes are more likely to be pursued in litigation" (pp. 31-32).

Fifth, one matter that I think needs to be corrected is the authors' characterization at p. 34 of the holding in the Grain Processing case (185 F.3d 1341 (Fed. Cir. 1999)).  As I recall it, the Federal Circuit on the second appeal affirmed Judge Easterbrook's determination that the plaintiff had not suffered any lost profits.  Maybe I'm misreading what the authors mean to say about this case, however.

Overall, this is a very good paper that deserves to be widely read.

Today's Hearing Before the CJEU in Huawei v. ZTE

As I reported yesterday, today is the day the Court of Justice for the European Union (CJEU) had scheduled for its long-awaited hearing in Huawei Technologies Co. Ltd v ZTE Corp., Case C-170/13, on the issue of whether or under what conditions a court may order injunctive relief for the infringement of a FRAND-encumbered standard essential patent (SEP).  So far the only write-up on today's hearing that I've been able to find online is this one in the German-language online publication JUVE.  According to the article, the Court didn't give a clear inclination of its views during today's hearing, though following the hearing several observers suggested that the Court could concretely define the conditions for an abuse of market position and that the conditions for obtaining an injunction in SEP cases could be made more onerous than under the 2008 German Orange-Book-Standard framework. (For more on the Orange-Book-Standard, see my book pp. 245-48 and my blog post from August 5, 2013.)  Both the Orange-Book-Standard framework and the European Commission's more recent pronouncements in the Samsung and Motorola cases are under scrutiny in the present case.  However, today's proceedings did not touch very deeply on the subject of when an implementer should be considered a willing licensee. The Advocate General's opinion is scheduled to be presented on November 20.  

Müller and Henke on the European Commission's Decisions in Samsung and Motorola

As most readers probably are aware by now, in April the European Commission published a press release accepting Samsung’s commitment not to seek injunctions within the European Economic Area for a period of five years for the unauthorized use of its SEPs relating to smartphones or tablets “against any company that agrees to a particular framework for licensing the relevant SEPs.”  According to the Commission, “[t]he licensing framework provides for a negotiation period of up to 12 months; and if no agreement is reached, a third party determination of FRAND terms by a court if either party chooses, or by an arbitrator if both parties agree on this.  An independent monitoring trustee will advise the Commission in overseeing the proper implementation of the commitments.”  The Commission also published a press release announcing its finding that Motorola Mobility had abused its dominant position by seeking and enforcing an injunction for the infringement of an SEP.  In this press release, the Commission stated:

Seeking injunctions before courts is generally a legitimate remedy for patent holders in case of patent infringements. However, the seeking of an injunction based on SEPs may constitute an abuse of a dominant position if a SEP holder has given a voluntary commitment to license its SEPs on FRAND terms and where the company against which an injunction is sought is willing to enter into a licence agreement on such FRAND terms. Since injunctions generally involve a prohibition of the product infringing the patent being sold, seeking SEP-based injunctions against a willing licensee could risk excluding products from the market. Such a threat can therefore distort licensing negotiations and lead to anticompetitive licensing terms that the licensee of the SEP would not have accepted absent the seeking of the injunction. Such an anticompetitive outcome would be detrimental to innovation and could harm consumers. . . .

The Commission also found it anticompetitive that Motorola insisted, under the threat of the enforcement of an injunction, that Apple give up its rights to challenge the validity or infringement by Apple's mobile devices of Motorola SEPs. Implementers of standards and ultimately consumers should not have to pay for invalid or non-infringed patents. Implementers should therefore be able to ascertain the validity of patents and contest alleged infringements.

Finally, in a separate document titled “Frequently Asked Questions,” the Commission also wrote that

Whether a company can be considered a "willing licensee" needs to be determined on a case by case basis taking into account the specific facts. Today's decisions provide a "safe harbour" for willing licensees who want to avoid the risk of being the subject of an injunction on the basis of SEPs, i.e. companies which, in case of dispute, are willing to have FRAND terms determined by a court or arbitrators (if agreed between the parties) and to be bound by such a determination. The decisions do not make findings on the willingness of licensees outside this "safe harbour".

We’re still waiting for the Commission to release its detailed findings in these two cases, but in the meanwhile Tilman Müller and Volkmar Henke have just published an article titled Patentdurchsetzung als Kartellrechtsvertoß.  Die Entscheidungen der EU-Kommission in Sachen Samsung und Motorola (“Patent Enforcement as Competition Law Offense:  The European Commission’s Decisions in the Samsung and Motorola Cases”) at pages 662-65 of the July 2014 issue of GRUR Int.  Here is the abstract (my translation from the German):

On April 29, 2014, the European Commission announced in two press releases that the competition law investigations against Samsung and Motorola had ended.  The specifics of the Commission decisions are not yet fully known, but the releases provide some principles for the enforcement of SEPs in Europe that may prove to be significant.

Drs. Müller and Henke argue, among other things, that for the time being litigants and courts in the E.U. are in an awkward position, insofar as the Commission's decisions in these two cases are not technically binding in other cases; the issue of whether the owner of a FRAND-encumbered SEP may seek injunctive relief is currently pending before the CJEU in the Huawei-ZTE case; and, at least in Germany, the Orange-Book-Standard procedure is still in place.  They also argue that the Commission's decision betrays a favoritism for infringers.  According to the authors, an infringer can, with minimal risk, make use of the procedure the Commission has spelled out and thereby figure that even in an unfavorable case it will be no worse off than if it had directly concluded a license ("Ein Verletzer kann beinahe risikolos die von der Kommission geforderte Verplichtungserklärung abgeben und damit rechnen, dass er selbst im ungünstigen Fall nicht schlechter steht als wenn er sich unmittelbar auf seinen Vergleichsabschluss eingelassen hätte.").  They also question how patent owners will in the future be fairly compensated for their contribution to the art, if their right to exclude others is taken away; and they wonder how the procedure the Commission envisions will play out if the compensation for single patents must be determined country-by-country, if there are hundreds of SEPs in a given portfolio, and if patent owners have to wait until the conclusion of lengthy proceedings to be compensated.

These are all fair questions; and as I've stated before, I'm not altogether convinced that addressing these types of issues through the lens of competition law, as opposed to the law of patent remedies, is ideal.  Nevetheless, as I've also stated before, I don't think it's quite right to state that allowing courts to award FRAND royalties and to dispense with injunctions in certain classes of cases is unduly favorable to infringers.  One could argue just as well, as indeed the Commission has, that an automatic entitlement to injunctive relief puts undue pressure on defendants to settle on terms that reflect the difficulty of designing around the SEP ex post (and therefore are not related to the inventor's contribution to the art).  Moreover, not every defendant necessarily is an infringer, given the high percentages of litigated patents that are either not infringed or invalid.  And if the defendant is an infringer and ultimately has to pay a FRAND royalty, it will also have to pay interest (albeit in some countries, including Germany, the interest is not compounded even though from an economic perspective it probably should be), its own attorneys' fees, and at least some portion of the patentee's attorneys' fees.  Finally, while it certainly is possible that the costs of litigating hundreds of patent royalties in dozens of countries could be enormous, one would expect that in most instances the parties will, at the end of the day, settle, as they do in most cases most of the time.

I do think it is fair to say, though, that the law in Europe will remain in a state of confusion until the CJEU renders its decision in Huawei v. ZTE.  And if that court mostly agrees with the Commission's perspective, perhaps the next major topic the European tribunals will need to take up will be how courts should calculate FRAND royalties.

Another View of FRAND: ALJ Essex's Initial Determination in InterDigital

As reported last week on the Essential Patents Blog, Administrative Law Judge (ALJ) Theodore Essex recently released the June 26, 2014 public version of his initial determination in In the Matter of Certain Wireless Devices with 3G and/or 4G Capabilities and Components Thereof,  United States International Trade Commission Investigation No. 337-TA-868.  InterDigital accused Nokia and ZTE of importing wireless devices that infringed certain U.S. patents.  The ALJ concluded that the accused products did not infringe (and that one asserted claim of one patent was invalid for indefiniteness).  Nevertheless, beginning at page 108 (Part VII) of the initial determination, the ALJ addressed the respondents' arguments that InterDigital violated its obligations to license the patents in suit under FRAND terms, in accordance with ETSI policy.  (The ALJ reasoned that he should address this issue, even though his finding of no infringement meant that the patents were not essential, and therefore not subject to InterDigital's FRAND commitment, in view of the possibility that the Commission would reverse on some or all of the infringement findings.)  Here are some highlights of ALJ Essex's analysis:

1.  The ETSI Rule of Procedure that obligates members to license SEPs on FRAND terms is not a contract.  Moreover, the patent owner "does not agree to license the intellectual property owned under FRAND terms, but only agrees to do so under certain conditions," in this case subject to a reciprocity condition (pp. 110-11).  Readers may recall that in the Microsoft, Innovatio, and Apple v. Motorola district court cases (the one before Judge Crabb), the courts concluded that the relevant FRAND commitments did create binding agreements.  As I have discussed previously (see this paper at pp.5-8, 37-38 and this blog post), courts in other countries have tended to disagree, and commentators have expressed a range of views.

2.  The ALJ also noted that parties or third parties have the option of complaining to ETSI if they believe an SEP owner "is refusing to grant a license on FRAND terms," and that the respondents here did not take advantage of this option (pp. 112-13).  Here then is the most significant part of the ALJ's FRAND analysis (pp. 113-14, 117-18):

These Respondents chose take the actions that led to the allegation of infringement rather than follow ETSI policy for obtaining a license. (They only potentially infringe, because while so called “Standard essential patients” must be declared to the organization in a timely fashion (CX-2555C, paragraph 4.1), there is no check by ETSI or any organization that the patents actually do read on the standard.) The Respondents create, outside of the framework of the ETSI agreement a situation where they use the technology that may be covered by the patent, without having licensed it. This puts pressure on the IPR owner to settle, as the owner is not compensated during a period of exploitation of the IP by the unlicensed parties. The ETSI IPR Policy requires companies that wish to use the IPR covered by the agreements to contact the owner of the IP, and take a license. (CX-3860C.) By skipping this step, the companies that use the IPR in violation of the policy are able to exert a pressure on the negotiations with the IPR holder to try to make the agreement in the lower range of FRAND, or perhaps even lower than a reasonable FRAND rate. They also are able to shift the risk involved in patent negotiation to the patent holder. By not paying for a FRAND license and negotiating in advance of the use of the IPR, they force the patent holder to take legal action. In this action, the patent owner can lose the IPR they believe they have, but if the patent holder wins they gets no more than a FRAND solution, that is, what they should have gotten under the agreement in the first place. There is no risk to the exploiter of the technology in not taking a license before they exhaust their litigation options if the only risk to them for violating the agreement is to pay a FRAND based royalty or fee. This puts the risks of loss entirely on the side of the patent holder, and encourages patent hold-out, which is as unsettling to a fair solution as any patent hold up might be. This has happened with patents from one of the patent families in this case, in 337-TA-800, where the patents that were declared SEP were found not to be essential.

Using the “patented” technology prior to negotiating with InterDigital for a license is a violation of the ETSI Rules of Procedure as well. (CX-2555C; CX-3860C.) While this section of the ETSI rules requires the IPR holder to be prepared to offer a license, it also requires the companies that would use the technology to seek a license as well (The above undertaking may be made subject to the condition that those who seek licenses agree to reciprocate) (CX-2555C.) Within the four corners of the agreement, there appears to be no provision made for companies that simply choose to infringe, and then demand FRAND status when caught. The requirement to negotiate a license rests not just on the IPR owner, but on those companies that would use technology prior to engaging in the [potentially] infringing activities. . . .

While the respondents followed none of the provisions of the ETSI policy that would give them standing to complain about the behavior of complainant, their arguments that complainant refused to negotiate in good faith is baseless. First, it is reasonable to note that InterDigital is not engaged in manufacturing handsets or any cell phone equipment. Their business model requires them to license their portfolio to generate revenue. If they should refuse to license their portfolio, or license it at a rate that put their licensee(s) at a competitive disadvantage, the threat to their business would be both immediate and real. In as much as a FRAND license is one that allows for a profit for InterDigital, and allows the licensee to compete and thrive in the market, InterDigital must attempt to make certain all of its licenses are granted on FRAND terms. Respondents, however, have no such need to see to the health of InterDigital. If InterDigital failed and was no longer in business, each respondent would be able to continue at least as profitably as before, and perhaps more so. Thus, in looking to the interests of the parties, holding out meets the interest of the respondents, but if the complainant should “hold up” the respondents, they will suffer losses along with the licensee. The negotiations of the license agreements are complex business dealings, and, in this case, they are being conducted with the backdrop that each day they are not concluded, the Respondents have not had to pay anything for a license they were by ETSI policy to obtain prior to adopting the potentially infringing technology. (CX-3860C.) While the possibility or existence of an exclusion order may benefit InterDigital in negotiating a license, and move the license fee in the upper direction on the FRAND scale, there are hundreds of other economic factors that go into the parties finding a royalty or flat amount both can agree on.

The ALJ then proceeded to analyze the course of the parties' negotiations, most of which is redacted, before concluding (p.123):

The obligation that InterDigital has taken has been fulfilled, and the ETSI agreement anticipates that the parties if necessary will fall back on the national law involved. The Respondents have not taken the steps provided by ETSI to address a failure to license, and so have not done what they ought to if they believe InterDigital has failed to negotiate in good faith. Finally, they have not followed the ETSI process for procuring a license, and have engaged in holdup by making the products that are alleged to infringe before taking a license. Under these facts there is no FRAND duty.

Finally, on the issue of patent holdup, the ALJ asserts (pp. 123, 126):

The essence of the arguments made by the FTC and PTO/DOJ against the availability of exclusion orders is that by having an exclusion order hanging over the negotiations, there is a risk of “Patent holdup”: that is the owner of the IPR may obtain remuneration beyond the value of the IP, because it is a standard. There is no evidence that is the case here. . . .

. . . While there may be a hypothetical case of holdup, we have evidence that it is not a threat in this case, or in this industry. . . .

For the Commission to adopt a policy that would favor a speculative and unproven position held by other government agencies, without proof that the harm they considered exists or that the risk of such harm was so great that the Commission should violate its statutory duty would damage the Commission's reputation for integrity, and violate its duties under the law. We should and must determine the public interest, and the correct outcome of each matter based on the facts presented, and by applying the law to those facts. To take a pre-set position, without hearing evidence, would violate every concept of justice we are tasked to enforce. Within the facts of this case, the Letters of the DOJ/USPTO and FTC do not assist or enlighten. 

3.  The ALJ also considered the "public interest" factors, and concluded that "the public interest does not support using 'FRAND' to deny an exclusion order" (pp. 173-80).

I appreciate the difficulties faced by the Commission in such cases, given that the only remedy it can offer is injunctive relief, not damages--a matter that, in my opinion, should be legislatively changed, however.  (For that matter, I'm on record suggesting the abolition of the ITC, which provides an unnecessary parallel patent litigation forum of a type that, to my knowledge, is found in no other country save South Korea.)  Nevertheless, I don't find the ALJ's positions on "holdup" and "reverse holdup" persuasive.  To state that an implementer must conclude an agreement before launching a potentially infringing product, or else face the risk of injunctive relief, seems to me (in the SEP context) to provide patent owners with far too much leverage to demand terms that will reflect not only the value of the patented technology but also the implementers' cost of switching (which is the definition of patent holdup as I understand it).  Put another way, if I am reading the opinion correctly, the ALJ's view means that, if an implementer believes in good faith that a patent is not infringed or invalid and therefore goes ahead and engages in allegedly infringing behavior, the patent owner (if it winds up prevailing on infringement and validity) can get an injunction, which seems to me to create a serious risk of holdup.  To be sure, it's not holdup in the stronger sense of keeping new technology off the market--but as I have argued before the argument that that is the only kind of holdup that matters is a little like the argument that the Sherman Antitrust Act of 1890 was an ill-advised innovation because the price of kerosene offered by Standard Oil back then was falling, not rising.  (See my posts of June 11 and June 13.)   Moreover, I'm not convinced by arguments that patent owners will be over a barrel because implementers can use their technology for a time without compensating them.  That's often true in patent litigation generally, and the response is that if the implementer loses it has to pay compensatory damages, plus (in most of the world's major patent systems, see my book pp. 147, 209, 276-77, 328, 370) prejudgment interest, and its own attorneys' fees; plus (potentially, depending on the jurisdiction and the underlying facts) the other side's attorneys' fees and enhanced damages.

The case does raise an interesting question, though, about what it means for an implementer to be a willing licensee.  Even I agree that if an implementer utterly refuses to pay a license for a clearly valid and infringed patent, injunctive relief may be warranted.  The question of when injunctive relief may be appropriate due to the implementer's intransigence is one that has been addressed, in accordance with somewhat varying viewpoints, by agencies in the U.S. (see USDOJ and USPTO, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (Jan. 8, 2013), available at www.justice.gov/atr/public/guidelines/290994.pdf; Decision and Order, In the Matter of Motorola Mobility LLC and Google Inc. (FTC Jan. 3, 2013), available at www.ftc.gov/os/caselist/1210120/130103googlemotorolado.pdf; Decision and Order, In the Matter of Robert Bosch GmbH (FTC Nov. 26, 2012), available at www.ftc.gov/os/caselist/1210081/121126boschdo.pdf; see also Florian Mueller's posts on these matters of Jan. 4, 2013 and Jan. 8, 2013) and in Europe (see European Commission, MEMO/14/322, Antitrust decisions on standard essential patents (SEPs)-Motorola Mobility and Samsung Electronics-Frequently asked questions (Apr. 29, 2014), available at http://europa.eu/rapid/press-release_MEMO-14-322_en.htm; LG Düsseldorf, Mar. 21, 2013, 4 b O 104/12, GRUR-RR 2013, 196 (referring the German Orange-Book-Standard procedure to the CJEU; see sources cited at my paper pp. 29-30 n.141).