Monday, February 2, 2015

IEEE Considering No-Injunction Policy for SEPs

Some readers may be aware that the Institute of Electrical and Electronics Engineers (IEEE) is considering certain amendments to Section 6 of the IEEE-SA Bylaws, relating to FRAND-encumbered SEPs.  Section 6.2 of the bylaws already states that "If the IEEE receives notice that a [Proposed] IEEE Standard may require the use of a potential Essential Patent Claim, the IEEE shall request licensing assurance" from the patent holder either to disclaim any interest in enforcing the patent, or to license the patent on FRAND terms.  Under the proposed amended bylaws, a FRAND commitment would signify "that reasonable terms and conditions, including without compensation or under Reasonable Rates, are sufficient compensation for a license to use those Essential Patent Claims and precludes seeking, or seeking to enforce, a Prohibitive Order [defined to include injunctions and exclusion orders] except as provided in this policy."  The amended bylaws would define "Reasonable Rates" as follows:
“Reasonable Rate” shall mean appropriate compensation to the patent holder for the practice of an Essential Patent Claim excluding the value, if any, resulting from the inclusion of that Essential Patent Claim’s technology in the IEEE Standard. In addition, determination of such Reasonable Rates should include, but need not be limited to, the consideration of: 
* The value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of the relevant functionality of the smallest saleable Compliant Implementation that practices the Essential Patent Claim.
* The value that the Essential Patent Claim contributes to the smallest saleable Compliant Implementation that practices that claim, in light of the value contributed by all Essential Patent Claims for the same IEEE Standard practiced in that Compliant Implementation.
* Existing licenses covering use of the Essential Patent Claim, where such licenses were not obtained under the explicit or implicit threat of a Prohibitive Order, and where the circumstances and resulting licenses are otherwise sufficiently comparable to the circumstances of the contemplated license.
The amended bylaws also would provide that the parties
should engage in good faith negotiations (if sought by either party) without unreasonable delay or may litigate or, with the parties’ mutual agreement, arbitrate: over patent validity, enforceability, essentiality, or infringement; Reasonable Rates or other reasonable licensing terms and conditions; compensation for unpaid past royalties or a future royalty rate; any defenses or counterclaims; or any other related issues. 
Finally, the Submitter of a Letter of Assurance could seek a Prohibitive Order only if 
the implementer fails to participate in, or to comply with the outcome of, an adjudication, including an affirming first-level appellate review, if sought by any party within applicable deadlines . . . by one or more courts that have the authority to: determine Reasonable Rates and other reasonable terms and conditions; adjudicate patent validity, enforceability, essentiality, and infringement; award monetary damages; and resolve any defenses and  counterclaims.
A letter taking issue with the amendments, authored by J. Gregory Sidak of Criterion Economics and addressed to the U.S. DOJ's Renata Hesse in connection with the IEEE's request for a business review letter from the Antitrust Division, is available here.  One of the points Mr. Sidak makes is that
The IEEE’s proposed amendments would allow an SEP holder to seek an injunction only after it had successfully litigated claims against the unlicensed implementer to conclusion in a court of appeals—a process that could take years. The IEEE’s proposed bylaws would thus reduce the value of SEPs to below their current market-disciplined level and ultimately harm investment in R&D and contributions to the IEEE.
This is an interesting point.  In theory, of course, delay is, ultimately, compensable.  But if, for example, prejudgment interest is not awarded at market rates (and compounded), or more generally does not reflect the return the patent owner could have earned had it received the royalty in a timely fashion; if fees and costs not reimbursed; and if other opportunity costs are not taken into account (and generally they're not), delay could cause patent owners to suffer noncompensable losses (though with respect to some of these items, such as fees and costs, implementers would suffer corresponding losses too the longer things drag on).  On balance, I still believe that injunctions generally should not be awarded for the use of FRAND-encumbered SEPs, but the issue of delay nevertheless is hardly a trivial one.

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