5.1 Introduction
The rules and policies of many standards-development organizations (SDOs) require SDO participants to offer to license patents that are essential to the SDO’s standards (standards-essential patents or SEPs) on terms that are “fair, reasonable, and non-discriminatory” (FRAND). This requirement is generally viewed as creating a binding obligation on the patent holder to offer or grant such licenses, though the precise content of that obligation may not be consistent across jurisdictions or SDOs. It is sometimes the case, however, that despite the existence of a FRAND obligation, the holder of a SEP and the manufacturer, seller, or user of a standardized product (an “implementer”) do not enter into a license agreement, thereby causing the product to infringe the SEP. In such cases, if the parties cannot resolve their dispute privately, questions of legal liability and remedies arise.
The complex set of questions concerning the imposition of duties and liability for alleged breaches of FRAND commitments is beyond the scope of this chapter. We cover certain aspects, such as potential antitrust or competition law liability relating to such breaches, in Chapter 6. Here, we focus instead on the remedies that may be awarded once such liability is established. Such liability may be found either (or both) with respect to the SEP holder’s failure to offer or grant a license on FRAND terms to the implementer, and/or the implementer’s infringement of the SEPs prior to the SEP holder’s granting of a license.
Assuming that liability is established, potential remedies for FRAND violations or patent infringement include monetary damages, specific performance, and injunctive relief. Monetary damages typically take the form of compensatory damagesFootnote 1 paid by the implementer to the SEP holder for past infringement (i.e., the implementer’s use of the patented technology prior to the issuance of a license), as well as enhanced damages under certain circumstances.Footnote 2 In return, implementers may seek specific performance requiring the SEP holder to grant a license complying with the relevant FRAND conditions, as well as monetary damages to compensate for the SEP holder’s breach of its FRAND commitment.Footnote 3 In addition, a SEP holder may pursue injunctive relief of its own to prevent an implementer from continuing to infringe until a license is granted.
Because specific performance is contractual or pseudo-contractual in nature and thus focuses primarily on the terms of the SEP holder’s FRAND commitment, we consider it beyond the scope of this project. We ask instead what effect, if any, the existence of a prior FRAND commitment should have on the patent law remedies that a SEP holder might otherwise be able to obtain from an infringer.
5.2 FRAND Commitments and Monetary Patent Damages
In general, a patent holder is entitled to monetary compensation when its patent is infringed. As described in the preceding chapters, the measure of damages varies from country to country. In this section we first consider whether a FRAND commitment affects the level of monetary damages to which a SEP holder is entitled when an unlicensed implementer infringes the SEP, as compared with an award of damages assessed on general patent law principles. For example, is the “reasonable” in FRAND the same as the “reasonable” in reasonable royalty damages awarded by U.S. courts? A related question is whether the existence of a FRAND commitment precludes a monetary award based on lost profits, or a disgorgement of infringer profits, which might be available in the absence of a FRAND commitment, particularly in jurisdictions that do not base patent damages on the award of a reasonable royalty. We begin by surveying the applicable law in the United States and the European Union, and then make recommendations.
We do not address the question whether an award of “reasonable” royalties to the holder of an infringed SEP who has not made a FRAND commitment should equate to “reasonable” royalties awarded to a SEP holder that has made a FRAND commitment. The question of how to treat such SDO “outsiders” is beyond the scope of this chapter.Footnote 4
5.2.1 United States
1 Reasonable Royalty
As discussed in Chapter 1, in the United States the primary statutory measure of damages for patent infringement is a “reasonable royalty.”Footnote 5 As a result, several U.S. courts that have calculated FRAND royalty rates for SEPs have looked to traditional methodologies for determining reasonable royalty damages.
For the past several decades, the calculation of reasonable royalty damages in the United States has generally followed the fifteen-factor “bottom-up” methodologyFootnote 6 introduced in Georgia-Pacific Corp. v. U.S. Plywood Corp.Footnote 7 However, because this framework assumes that the patent holder and the infringer have no pre-existing relationship or duty toward one another, many of the assumptions underlying this analysis do not hold in cases involving FRAND-committed SEPs. This disconnect has been pointed out in several cases including Microsoft Corp. v. Motorola, Inc. and Ericsson, Inc. v. D-Link Sys. In Microsoft, the court expressly modified twelve of the fifteen factors as follows:
(i) The lack of comparability of negotiated royalty terms that fail to account for RAND obligations. (Factors 1 and 12);
(ii) The importance of the value of the patented technology apart from the value associated with incorporation of the patented technology into the standard. (Factors 6, 8, 10, 11, and 13);
(iii) The importance of alternatives that could have been written into the standard instead of the patented technology, with the focus on the period before the standard was adopted and implemented. (Factor 9);
(iv) The purpose of the RAND commitment to encourage widespread adoption of the standard through avoidance of holdup and stacking. (Factor 15);
(v) The irrelevance of some of the factors because they do not relate to the RAND context (e.g., whether patentee has a policy to license others, relationship of the licensor and licensee, and the patent term). (Factors 4, 5, and 7).Footnote 8
In Ericsson, the Federal Circuit noted several respects in which the Georgia-Pacific factors were both irrelevant and contrary to the RAND commitment under consideration.Footnote 9 Thus, as the lower court did in Microsoft, the Federal Circuit criticized the use of Georgia-Pacific Factors 4, 5, 8, 9, and 10 when considering royalties subject to a RAND commitment.Footnote 10 Though the court did not hold that a modified version of the Georgia-Pacific factors must always be used in cases involving SEPs, it found that the combination of errors in the lower court’s instructions to the jury was significant enough to warrant remand.Footnote 11
These changes suggest that the Georgia-Pacific framework, as originally conceived, is not well suited to the determination of FRAND royalty levels.Footnote 12 Moreover, there appears to be nothing in U.S. law that compels courts to utilize either the Georgia-Pacific framework, or patent damages law in general, to determine royalties complying with a SEP holder’s FRAND commitment. What’s more, the inconsistent and ad hoc application of the Georgia-Pacific factors to different FRAND royalty calculations has led to significantly different outcomes in different courts in the United States, even in cases concerning the same technical feature of a single standard.Footnote 13
2 Enhanced Damages
As discussed in Chapter 3, another important element of U.S. patent damages law is the availability of “enhanced” (i.e., up to treble) damages when infringement is found to have been willful. The standard for willfulness supporting an award of enhanced damages has recently been clarified, and somewhat liberalized, by the Supreme Court of the United States in Halo Elecs. v. Pulse Elecs.Footnote 14 It is currently debated whether a manufacturer’s implementation of a technical standard in a product without a license from the holder of a FRAND-committed SEP should be considered willful if the SEP is, indeed, infringed. On one hand, the manufacturer is clearly aware of the standard and, in many cases, the patents declared to be essential to the standard are listed in a public database. What’s more, the manufacturer may even have received a notification of the patent from the patent holder. These factors might weigh in favor of a finding that the manufacturer’s infringement was willful.Footnote 15 But on the other hand, independent analysts have determined that a large number of patents declared to be essential to various standards are not, in their view, actually essential,Footnote 16 and obtaining a reliable legal opinion (see Chapter 3) regarding which among hundreds or thousands of patents listed in a public database are essential to a standard is likely prohibitive in terms of cost and time. Moreover, even patents that are essential to a standard are sometimes found to be invalid or not infringed by a particular product implementing the standard.Footnote 17 These factors tend to weigh against a finding of willfulness with respect to the infringement of SEPs by standard implementers. However, even if weighing strongly against a finding of willfulness, it is not clear that such factors should amount to a categorical exclusion of enhanced damages in the case of SEP infringement.Footnote 18
To date, we are aware of only one U.S. district court decision enhancing damages for the infringement of SEPs.Footnote 19 However, at least one member of the Court of Appeals for the Federal Circuit has acknowledged their potential availability, at least when a potential licensee has negotiated in bad faith.Footnote 20
Beyond the threshold question whether enhanced damages may be available for the infringement of SEPs is a further question regarding the ways that the availability of enhanced damages may affect the conduct of parties in the standardization environment. As noted above, the standard measure of damages for patent infringement in the United States is a “reasonable royalty.” A “reasonable” royalty is also what is required to be paid under a FRAND commitment. Thus, an opportunistic manufacturer of standardized products could decide that the most efficient course of action is not to seek a FRAND license from a SEP holder at all, but instead to delay until it is sued for infringement, at which point its maximum liability (assuming that both patent validity and infringement are established) would only be the FRAND royalty it otherwise would have paid ex ante. As discussed elsewhere, this form of conduct by standards implementers has been termed “holdout.”Footnote 21
The availability of enhanced damages (in addition to awards of attorney’s fees and pre- and post-judgment interest) could change a standard implementer’s calculus somewhat. That is, if the implementer willfully infringes SEPs under the relevant legal standards and refuses to pay royalties under a FRAND license offered by the SEP holder, then enhanced damages may be awarded in an eventual infringement suit by the SEP holder. If so, the cost of holding out could far exceed the FRAND royalty that would originally have been payable. Accordingly, the availability of enhanced damages, at least in the United States, could reduce the risk that opportunistic standards implementers will hold out and refuse to pay FRAND royalties that are legitimately due.
5.2.2 European Union – Applicability of Huawei v. ZTE to Monetary Remedies
As discussed in Chapter 6 and in Section 5.3 below, the Court of Justice of the European Union (CJEU) in Huawei Techs. Co. Ltd. v. ZTE Corp. lays out a procedure that a SEP holder must follow in order to avoid committing an abuse of its dominant position under Article 102 of the Treaty on the Functioning of the European Union (TFEU) when it seeks an injunction to prevent infringement of a SEP. The CJEU’s decision in Huawei, however, does not explicitly address the issue of monetary damages. In fact, the CJEU states in Huawei that Article 102 of the TFEU does not prohibit a SEP holder “from bringing an action for infringement against the alleged infringer of its SEP and seeking the rendering of accounts in relation to past acts of use of that SEP or an award of damages in respect of those acts of use.”Footnote 22 This suggestion has been followed in subsequent decisions rendered by German courts. In NTT DoCoMo v. HTC, for instance, the Mannheim District Court noted that a SEP holder that has made a FRAND commitment must follow the Huawei rules of conduct only with regard to an action for injunction or the recall of products. It is, however, free to bring an action seeking monetary remedies in relation to past acts of infringement.Footnote 23 Comparable statements regarding the rules of conduct derived from Huawei v. ZTE were made by the Mannheim District Court in Pioneer v. AcerFootnote 24 and Philips v. ArchosFootnote 25 and by the Düsseldorf District Court in Unwired Planet v. Samsung.Footnote 26 Accordingly, a SEP holder does not commit an abuse under Article 102 of the TFEU even if it brings an action for damages without having notified the implementer of an infringement and without having offered it a FRAND license.
This said, the obligations developed by the CJEU in Huawei v. ZTE do have an indirect impact on the extent to which damages and the rendering of accounts are due. Where the SEP holder fails to grant a FRAND license although it has made a FRAND commitment and the implementer has expressed its readiness to take a license, damages are limited to the FRAND royalty level (presumably excluding other forms of damages such as lost profits and disgorgement of infringer’s profits) but only for the period after the SEP holder’s abusive refusal to license.Footnote 27 Claims for information and the rendering of accounts must, in this event, be limited to what is necessary for determining these FRAND-based damages.Footnote 28
What’s more, implementers of standards who have been refused a license in violation of a SEP holder’s FRAND commitment may themselves be entitled to monetary damages under some interpretations of these cases.Footnote 29 Though this theory has not yet been tested in court, such claims could be similar to U.S. breach of contract claims that have been brought successfully against SEP holders in cases such as Microsoft Corp. v. Motorola, Inc. Moreover, it is possible that if a standards implementer fails to comply with the procedures outlined in Huawei v. ZTE, a SEP holder, without violating Article 102 of the TFEU, may be permitted to seek damages in excess of reasonable royalties, including lost profits or disgorgement of the infringer’s profits.Footnote 30
5.2.3 National Damages Laws
The courts of every country will, in general, evaluate claims for FRAND damages in view of its national rules and precedents regarding contractual interpretation and remedies. A full discussion of the rules of every country is beyond the scope of this chapter. However, in the Appendix we provide a discussion of several exemplary countries (Germany, Switzerland, Korea, Japan, and China) for illustrative purposes. It is important to note, however, that while we discuss the potential impact of FRAND commitments on monetary patent damages under a variety of national laws, we do not necessarily believe that FRAND royalties negotiated under global license agreements, which are increasingly viewed as the norm,Footnote 31 should specify royalties on a country-by-country basis, or that the interpretation of FRAND under the policy of a particular SDO should vary based on the patent damages laws of the country in which parties to a dispute may adjudicate the level of FRAND royalties.Footnote 32
5.2.4 Discussion and Analysis: Monetary Damages and FRAND
The fact that courts in the United States have chosen to determine FRAND royalty rates using the methodology of patent damages calculations (including the Georgia-Pacific framework) is, most likely, the result of the fact that the term “reasonable royalty” is used in both the U.S. Patent Act and the SDO policies establishing FRAND commitments. Yet these two concepts (patent damages and FRAND royalty rates) arose via different historical pathwaysFootnote 33 and are intended to achieve different goals. FRAND royalty rates are created through private agreements among SEP holders and SDOs, or public promises made by SEP holders in the marketplace. As pointed out in Chapter 1, in the vast number of license agreements made outside the shadow of litigation, royalty rates are not determined using the analytical framework that courts employ to calculate damages in litigation. No SDOs of which we are aware have pointed to the Georgia-Pacific framework, or patent damages analysis in general, as guideposts for determining FRAND rates.Footnote 34 To the extent that SDO participants have suggested FRAND rates for different standards, these rates have been developed based on industry norms and market factors,Footnote 35 rather than the hypothetical negotiation framework mandated under Georgia-Pacific.Footnote 36
But because the term “reasonable” is used in these two different contexts – patent damages and FRAND licenses – the temptation to recruit one (the extensive body of case precedent relating to patent damages) for use when addressing the other (the proper level of FRAND royalties) has proven too tempting to resist for U.S. courts. As a result, U.S. courts determining FRAND royalty rates regularly invoke the case law and methodologies of reasonable royalty damages, including the imperfect Georgia-Pacific framework and all of its baggage, when calculating a FRAND royalty or instructing the jury in doing so, leading to an apparent convergence of contractual FRAND damages and “reasonable royalty” patent infringement damages.Footnote 37
Outside of the United States, where patent damages are not so closely tied to a “reasonable royalty,” there is less temptation for courts to tie FRAND royalties to patent damages calculations, though this has on occasion occurred, for example, in Samsung v. Apple Japan.Footnote 38 In other jurisdictions such as Korea, however, patent damages are based on the disgorgement of profits of the infringer, which bear little relation to reasonable royalties.Footnote 39 To be sure, in the non-U.S. cases that have resulted in written decisions concerning FRAND royalty determinations to date, none have made reference to Georgia-Pacific or its fifteen-factor analytical framework.
The Georgia-Pacific framework supports what has been termed a “bottom-up” approach to calculating patent royalties. Under a bottom-up approach, royalties are determined case by case depending on the determined value of the patents in suit, without significant regard for the value of other patents that may cover the same technology or standard. Such approaches are discussed in Chapter 1, both with and without application of the Georgia-Pacific framework.
One promising alternative to a bottom-up approach in the area of standards-essential patents is what has been termed a “top-down” approach to determining FRAND royalties. Such top-down mechanisms begin by determining the aggregate royalty burden associated with a standard when considering the royalties owed to any particular patent holder.Footnote 40 As the U.S. District Court for the Northern District of Illinois noted in In re Innovatio IP Ventures, LLC Patent Litigation, “the determination of a [F]RAND royalty must address the risk of royalty stacking by considering the aggregate royalties that would apply if other [SEP] holders made royalty demands of the implementer.”Footnote 41 Top-down approaches recognize that when multiple patents cover a single standard, the rate charged by one SEP holder will necessarily affect the rates that the other SEP holders are able to obtain from a single manufacturer.Footnote 42 Once an aggregate royalty is determined, various methodologies can then be used to allocate that total among individual SEP holders.Footnote 43 As explained by the European Commission in a recent communication, “an individual SEP cannot be considered in isolation. Parties need to take into account a reasonable aggregate rate for the standard, assessing the overall added value of the technology.”Footnote 44
Such a top-down approach was used by the Japanese IP High Court in Samsung v. Apple Japan, which held that the aggregate royalty burden for the 3G UMTS standard should not exceed 5 percent, based on four public statements and informal agreements among industry participants relating to the standard.Footnote 45 The court then allocated a portion of this total royalty to Samsung’s asserted UMTS-essential patent based on the total number of SEPs likely to be essential to the standard.Footnote 46
The English Patents Court used two methods to calculate a FRAND royalty in Unwired Planet v. Huawei:Footnote 47 one based on comparable licenses and one (used to check the former result) based on a top-down methodology similar to that of the Japanese IP High Court in Samsung v. Apple Japan. In Unwired Planet, the court determined the aggregate royalty attributable to a standard under all applicable SEPs and then allocated an appropriate amount to the SEP holder asserting the patents-in-suit. Under the court’s top-down methodology, the FRAND royalty was calculated as the aggregate SEP royalty burden of a particular standard on a product (e.g., the portion of a smartphone’s price that is attributable to the 4G standard) multiplied by the percentage of 4G SEPs held by the plaintiff.Footnote 48 To calculate the aggregate royalty burden attributable to the various standards in suit, the court considered public statements made by other holders of SEPs with respect to royalties on those standards.Footnote 49 It then calculated the plaintiff’s share of the total SEP pool, using a variety of counting and filtering methodologies, including a filter for the likely essentiality of the patents in the asserted portfolio.Footnote 50 The result calculated by the court was consistent with the result that it obtained using a methodology based on comparable licenses.
Top-down approaches can avoid both the potential inconsistencies associated with ad hoc adaptations of damages frameworks such as Georgia-Pacific and contrast with other “bottom-up” royalty approaches, in which royalties due to individual patent holders are determined independently of one another, whereby the total royalty burden emerges only as the sum of its individual components.Footnote 51 Courts applying bottom-up approaches have used different royalty calculation criteria and factors on a case-by-case basis, even when patents covering the same features of the same standard have been involved, thus yielding inconsistent and potentially excessive results.Footnote 52 For example, in 2013 and 2014, five different U.S. district courts, either in bench trials or through a jury, calculated royalties for a total of thirty-five SEPs covering Wi-Fi standards. The aggregate royalty for these thirty-five patents amounted to approximately 4.5 percent of the total sale price of a typical $50 Wi-Fi router.Footnote 53 Yet it has been estimated that there are approximately 3,000 patents covering the Wi-Fi standard,Footnote 54 nearly one hundred times the number subject to adjudication thus far. Were the royalty for each of these patents to be calculated in a similarly uncoordinated, bottom-up manner, the aggregate patent royalty on a Wi-Fi router could easily surpass the product’s total selling price by an order of magnitude or more.
This being said, implementing top-down approaches is not without its challenges and practical difficulties. Most notably, there is not yet a uniformly accepted methodology for determining the aggregate royalty level for all patents covering a particular standard. In the Apple Japan and Unwired Planet cases discussed above, the courts relied on public statements made by SEP holders, statements that at least one court acknowledged to be of limited reliability and manifestly “self-serving.”Footnote 55 What’s more, even once an aggregate royalty for all patents covering a standard is determined, a methodology must be developed to allocate that aggregate royalty among the many different holders of SEPs covering that standard. In most cases to date, courts using top-down methodologies have simply allocated the aggregate royalty among SEP holders on a simple “numerical proportionality” or one-patent-one-share basis.Footnote 56 While this methodology is easily applied, it overlooks inherent value differences among patents such as those identified in Microsoft Corp. v. Motorola, Inc.
More broadly, while in principle a top-down methodology has several attractive features as compared with a bottom-up approach, its application to a given case is only as good as the available evidence. Because the top-down and bottom-up approaches rely on different types of evidence, one or the other might be preferable in a particular case, given the evidence at hand.
For the foregoing reasons, we recommend that (1) consistent with the recommendations in Chapter 1, courts assessing FRAND royalty rates, particularly outside the United States, reject strict application of the Georgia-Pacific fifteen-factor hypothetical negotiation framework when making that assessment, and (2) courts assessing FRAND royalty rates select a methodology for calculating these rates that is best supported by the available evidence, whether such evidence be sufficiently comparable license agreements covering the same patents, or general consensus on aggregate royalty rates for an overall standard or technology, and, if the evidence would support using multiple approaches, consider utilizing both bottom-up and top-down royalty calculation methodologies and comparing the results. We also propose that further research be conducted regarding suitable methodologies for determining the aggregate top-down royalty burden for particular standards and for allocating aggregate royalties among individual holders of SEPs, with the understanding that if a reliable method for determining such an aggregate royalty burden can be developed, it would result in a desirable methodology for calculating FRAND royalty rates.
Finally, we recognize that there may be a potential role for enhanced damages in deterring intentional “holdout” conduct of a potential licensee, and thus propose that further research be conducted regarding the potential deterrent effect of such damages on holdout behavior in the SEP context. We take no position regarding the potential availability of patent damages in excess of FRAND levels under German or EU case law.
5.3 FRAND Commitments and Injunctive Relief
5.3.1 United States
The judicial framework for injunctive relief in patent cases in the United States is set forth in the Supreme Court of the United States’s 2006 decision in eBay v. MercExchange, which is discussed at length in Chapter 4. Under eBay, a court considering whether to grant an injunction to a SEP holder must balance four equitable factors: whether the SEP holder would suffer irreparable harm absent issuance of the injunction, whether the SEP holder would adequately be compensated by monetary damages, whether a balancing of interests of the parties favors granting the injunction, and the effect of the injunction on the public interest.
In Microsoft Corp. v. Motorola, Inc., Motorola sought an injunction to prevent Microsoft’s continued infringement of Motorola’s patents covering two standards (IEEE’s 802.11 and ITU’s H.264). The court found that Motorola made FRAND commitments with respect to these patents, and that Microsoft agreed to accept a license on reasonable terms. The court evaluated these facts in view of the four eBay factors and determined that Motorola did not suffer an irreparable injury or show that monetary damages would be inadequate to compensate it for the infringement. Accordingly, the court denied Motorola’s request for an injunction. In Realtek Semiconductor Corp. v. LSI Corp.,Footnote 57 the U.S. District Court for the Northern District of California held that a SEP holder breached its FRAND commitment by seeking injunctive relief against an implementer of a standard before the patent holder offered a license to the implementer. Again, the injunction was denied.
These district court decisions laid the groundwork for the Federal Circuit to consider the issue of permanent injunctive relief in FRAND-related cases. In Apple, Inc. v. Motorola, Inc., the Federal Circuit analyzed Motorola’s request for an injunction against the sale of Apple products allegedly infringing Motorola’s FRAND-committed SEPs.Footnote 58 The trial judge denied Motorola’s request, reasoning that a patent holder making a FRAND commitment, by definition, has acknowledged that a monetary royalty would be adequate compensation for a license under the patent, thereby eliminating any argument that the infringement would cause the patent holder irreparable harm under eBay.Footnote 59
Though the Federal Circuit panel was divided on some issues, all three members of the panel concurred that “[t]o the extent that the district court applied a per se rule that injunctions are unavailable for SEPs, it erred.”Footnote 60 The court reasoned that the eBay framework “provides ample strength and flexibility for analyzing FRAND-committed patents and industry standards in general,” and found no reason to create “a separate rule or analytical framework for addressing injunctions for FRAND-committed patents.”Footnote 61 The court acknowledged that under the eBay framework, “a patentee subject to FRAND commitments may have difficulty establishing irreparable harm.”Footnote 62 Nevertheless, “an injunction may be justified where an infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect.”Footnote 63 With this in mind, the Federal Circuit affirmed the district court’s rejection of Motorola’s request for an injunction.Footnote 64
Chief Judge Rader, dissenting-in-part, argued that a genuine issue of material fact existed regarding Apple’s conduct with respect to the acceptance of a FRAND license from Motorola (i.e., potential holdout) and that the case should have been remanded for further fact finding on this issue.Footnote 65 In sharp contrast, Judge Prost, concurring-in-part and dissenting-in-part, disagreed with the majority’s suggestion that an alleged infringer’s refusal to negotiate a license could ever serve as a basis for issuing an injunction on a FRAND-committed patent.Footnote 66 She reasoned that while a potential licensee’s bad faith negotiation might justify an award of enhanced damages (see discussion above), the eBay “irreparable harm” test would nevertheless militate against granting an injunction on a FRAND-committed patent.Footnote 67 However, Judge Prost conceded that an injunction might be appropriate if the patentee were unable to collect the damages to which it was entitled, for example, if the infringer refused to pay an adjudicated damage award or was beyond the jurisdiction of the court.Footnote 68
The U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) have also taken an interest in the propriety of parties bound by FRAND commitments seeking injunctive relief. In 2011, the FTC issued guidelines specifying that under eBay, injunctive relief might not always be justified in the FRAND context, writing that “[a] prior [F]RAND commitment can provide strong evidence that denial of the injunction and ongoing royalties will not irreparably harm the patentee.”Footnote 69 And in 2012, the DOJ approved three large patent acquisition transactions only after the involved parties (Apple, Google, and Microsoft) committed not to seek injunctions preventing the use of FRAND-committed SEPs.Footnote 70
In late 2012 and 2013, the FTC brought two actions under Section 5 of the FTC Act to address suspected violations of FRAND commitments.Footnote 71 In the first such action, the FTC investigated Robert Bosch GmbH in connection with its proposed acquisition of a firm called SPX.Footnote 72 According to the complaint, SPX participated in an SDO developing standards for automotive cooling systems.Footnote 73 Despite having made a FRAND commitment to the SDO, SPX asserted two patents covering the SDO’s standards against suspected infringers and then sought injunctive relief to prevent future sales of infringing products.Footnote 74 The FTC argued that SPX’s attempt to obtain injunctive relief in the face of its FRAND commitment was inherently coercive and oppressive, and thereby constituted an unfair method of competition in violation of Section 5. Bosch settled the action by committing that SPX would no longer seek injunctive relief in this context.
The FTC again took action to address a patent holder’s attempt to obtain injunctive relief in the face of a prior FRAND commitment in Motorola Mobility LLC and Google, Inc.Footnote 75 In that case, Motorola (later acquired by Google) held patents essential to practice standards promulgated by IEEE, ITU, and ETSI. Motorola participated in, and made FRAND commitments to, each of these SDOs. Nevertheless, in separate suits asserting these patents against Apple and Microsoft, Motorola sought exclusion orders at the ITC and injunctions in federal court to prevent future sales of standards-compliant products, even though both defendant implementers were allegedly willing to acquire licenses to Motorola’s patents. The FTC asserted that Motorola’s attempt to enjoin sales of Apple and Microsoft products using its standards-essential patents constituted an unfair method of competition in violation of Section 5.Footnote 76 The dispute was settled after Google agreed not to seek injunctive relief against an infringer of certain FRAND-committed patents unless the infringer was beyond the jurisdiction of the U.S. courts, stated in writing that it would not accept a license of the patent, refused to enter into a license agreement determined to meet the FRAND requirement by a court or arbitrator, or failed to provide written confirmation of an offer of a FRAND license.Footnote 77
As discussed in Chapter 4, U.S. courts considering the issuance of an injunction must also consider the potential effect of the injunction on the public interest. While public interest considerations have not yet played a major role in the injunction analysis undertaken by courts adjudicating FRAND disputes, the public interest has played a large role in certain SEP-related proceedings before the U.S. International Trade Commission (ITC), an independent federal agency. Similar to a court’s power to issue an injunction to prevent future infringement of a patent within the United States, the ITC has the authority to issue exclusion orders to prevent the importation of infringing products into the United States.Footnote 78 In considering whether to grant such an exclusion order, the ITC is required, among other things, to consider “the effect of such exclusion upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers.”Footnote 79 This requirement has generally been referred to as the ITC’s “public interest” requirement.
In several recent cases, the ITC has considered requests for exclusion orders against products infringing one or more FRAND-committed SEPs. In 2013, the ITC issued an exclusion order prohibiting Apple from importing devices allegedly infringing certain Samsung FRAND-committed SEPs into the United States.Footnote 80 But in a surprising reversal, the U.S. Trade Representative (USTR) disapproved (vetoed) the ITC’s exclusion order citing, among other things, the importance of standardized products to the U.S. economy.Footnote 81
In 2013, the DOJ and the U.S. Patent and Trademark Office (PTO) issued a joint Policy Statement relating to the consideration of the public interest with respect to ITC exclusion orders. They state that “the remedy of an injunction or exclusion order may be inconsistent with the public interest … where an exclusion order based on a F/RAND-encumbered patent appears to be incompatible with the terms of a patent holder’s existing F/RAND licensing commitment.”Footnote 82 In this Policy Statement, the DOJ and PTO consider circumstances in which an injunction or exclusion order may be an appropriate remedy, including cases in which an implementer refuses to accept the FRAND license being offered, refuses to pay a reasonable royalty, refuses to engage in negotiation, or is not subject to the jurisdiction of a court that could award damages.
The FTC has reached similar conclusions regarding circumstances under which the public interest would, and would not, be served by the issuance of an ITC exclusion order against a product infringing a FRAND-committed SEP. In a written Statement to the ITC, the FTC reasoned that the ITC’s public interest considerations “support denial of an exclusion order unless the holder of the RAND-encumbered SEP has made a reasonable royalty offer” that has not been accepted by the implementer.Footnote 83 The FTC has also suggested that the ITC consider ways to lessen the harmful impact of exclusion orders, for example, by delaying their effectiveness to give the infringer time to design around the asserted patent, and circumscribing the scope of exclusion orders to cover only infringing articles.
5.3.2 European Union
Much of the European Union’s law regarding injunctions and SEPs stems from the CJEU’s 2015 decision in Huawei v. ZTE.Footnote 84 Huawei establishes that in order to comply with EU competition law, a SEP holder that wishes to seek an injunction against an unlicensed implementer without committing an abuse of dominance under Article 102 of the TFEU must engage in a series of procedural steps including (i) alerting the unlicensed implementer of the infringement; and (ii) issuing an initial FRAND offer if the implementer manifests interest in the conclusion of a licensing agreement (these steps are described in greater detail below).
There is some disagreement among commentators regarding the circumstances under which Huawei applies. Huawei involved alleged conduct that is termed an “exclusionary” abuse under Article 102 of the TFEU. That is, the holder of a FRAND-pledged SEP seeks to “prevent products manufactured by competitors from appearing or remaining on the market and thereby reserve to itself the manufacture of the product in question.”Footnote 85 In the view of some commentators who rely on the literal wording of the opinion, Huawei can only be read to encompass such exclusionary conduct,Footnote 86 and does not contemplate antitrust liability for so-called exploitative abuses (i.e., against firms that use injunctions on FRAND-pledged SEPs to extract unfair licensing terms, a problem often described as “patent holdup,” as described in Chapter 7). Others, however, take the position that, because Article 102 of the TFEU deals with both exclusionary and exploitative abuses, there is no reason to assume that the CJEU in Huawei intended to limit its ruling to exclusionary abuses, a point that is important in the ongoing discussion of conduct by patent assertion entities (PAEs) that largely seek monetary remedies.Footnote 87
There is also disagreement over the effect that Huawei seeks to achieve. Some argue that under Huawei the nature of a pledge to grant a license on FRAND terms is purely procedural. Under this interpretation, FRAND may be understood as a “comity device” that generates bilateral fair play obligations on patent holders and prospective licensees.Footnote 88 This understanding differs from the alternative interpretation of FRAND as imposing substantive limits on the royalty that may be charged.
1 Huawei v. ZTE – Procedure
The question whether and to what extent a FRAND undertaking given by a dominant SEP holder to an SDO limits its right to bring an action for prohibitory injunction (or for the recall of products) is clarified in Huawei v. ZTE. According to the CJEU the SEP holder is still able to seek an injunction, but “in order to prevent an action for a prohibitory injunction … from being regarded as abusive [under EU competition law], the [SEP holder] must comply with conditions which seek to ensure a fair balance between the interests concerned.”Footnote 89 These conditions include the following:
i. The SEP holder is not allowed to bring such action against the implementer without prior notice to or prior consultation with the implementer, even if the SEP has already been used by the implementer.Footnote 90 The SEP holder’s notification should alert the implementer of the infringement by designating the SEP and specifying the way in which it has been infringed. This is because, owing to the large number of SEPs incorporated in some standards, it is not certain that an implementer will necessarily be aware that it is using a patent that is both valid and essential to the standard.Footnote 91
ii. After the implementer has expressed its willingness to conclude a licensing agreement, it is for the SEP holder to present a specific, written offer for a license on FRAND terms, in accordance with the undertaking given to the SDO, specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated.Footnote 92
iii. The implementer, in turn, must diligently respond to that offer, in accordance with recognized commercial practices in the field and in good faith. The required conduct must be established on the basis of objective factors and implies, in particular, that there are no delaying tactics. Should the implementer not accept the offer, it may rely on the abusive nature of an action for prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP in question, promptly and in writing, a specific counteroffer that corresponds to FRAND terms.Footnote 93 Furthermore, where the implementer is using the teachings of the SEP before a licensing agreement has been concluded, it must, from the point at which its counteroffer is rejected, provide appropriate security, for instance by providing a bank guarantee or by placing the amount necessary on deposit. The calculation of the security must include, inter alia, the number of the past acts of use of the SEP, and the alleged infringer must be able to render an account in respect of those acts of use.Footnote 94
iv. Where no agreement is reached on the details of the FRAND terms following the counteroffer of the implementer, the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party, by decision without delay.Footnote 95
2 Cases Interpreting Huawei v. ZTE
The rules of conduct developed by the CJEU in Huawei v. ZTE were a response to the restrictive framework developed under the German Orange-Book-StandardFootnote 96 and Standard-SpundfassFootnote 97 cases. The Huawei framework, which offers an approach that better balances the interests of SEP holders and standards implementers, serves as general guidance for FRAND licensing negotiations. While the framework under Huawei appears procedural in nature, it also embodies important substantive concerns of EU competition law. The steps required by the parties under Huawei, as well as certain issues that require further clarification and that national courts (principally, but not exclusively, in Germany) are in the process of working out, are discussed below.
a) Response by Implementer
As regards the SEP holder’s infringement notification, there are two issues of particular interest. First, German courts have considered the time limits within which the alleged infringer has to express its willingness to conclude a licensing agreement on FRAND terms.Footnote 98 The Düsseldorf District Court found in Saint Lawrence v. VodafoneFootnote 99 that the more details the infringement notification contains, the less time remains for the implementer to examine the patent(s) at issue and to express its willingness to conclude such an agreement. The findings of the lower court were confirmed by the Düsseldorf Higher Regional Court because the implementer, by waiting more than five months after the infringement notification was given, reacted belatedly and in an evasive manner.Footnote 100 In the case of Saint Lawrence v. Deutsche Telekom the Mannheim District Court held that there was no sufficient expression of willingness to conclude a licensing agreement on FRAND terms because the supplier of an implementer, acting as intervenor in the proceedings, needed more than three months to submit a license request after it became aware of the action for prohibitory injunction.Footnote 101 As the Düsseldorf District Court found in Saint Lawrence v. Vodafone, an infringement notification can be omitted if the implementer already disposes of all necessary information and lacks willingness to license.Footnote 102
b) Content of Infringement Notification
As to the minimum content of the infringement notification, the Düsseldorf District Court found in the case of Saint Lawrence v. VodafoneFootnote 103 that the notification has to indicate at least the number of the patent, the contested embodiments, and the alleged acts of use performed by the implementer.Footnote 104 There is, however, no obligation to provide additional information, in particular regarding the interpretation of the patent claims or on which part of the standard the patent reads.Footnote 105 Whether the infringement notification must indicate only the patent for which an injunction is sought or whether it must include reference to other IP rights with respect to which a license is offered was left undecided by the Düsseldorf District Court in Sisvel v. Haier.Footnote 106 The Mannheim District Court determined in NTT DoCoMo v. HTC,Footnote 107 as well as in Philips v. Archos,Footnote 108 that the SEP holder has to identify the (allegedly) infringed patent by reference to its patent number and by indicating that the patent-in-suit has been declared standard essential. Furthermore, the SEP holder is not only obliged to clarify the relevant standard but also to specify the pertinent part of the standard and the infringing element of the implementer’s products in a way that enables the implementer to assess whether its use of the standard infringes on the patent-in-suit.Footnote 109 In this respect, the Mannheim District Court found in both NTT DoCoMo v. HTC and Philips v. Archos that presenting claim charts corresponding to recognized commercial practice for licensing negotiations is, in principle, an acceptable way to give notice of the alleged infringement.Footnote 110 On the other hand, a mere statement that the implementer infringed the patent-in-suit by producing or marketing products implementing the standard is not adequate.Footnote 111
c) Licensing Offer
The third step under Huawei v. ZTE involves the SEP holder’s making an offer that is FRAND.Footnote 112 In order to understand the relationship between the steps described by Huawei, reference can be made to the findings of the Düsseldorf Higher Regional Court in Saint Lawrence v. Vodafone.Footnote 113 According to this decision, the conduct of the parties required by the CJEU constitutes a mechanism of alternating, consecutive steps in which no subsequent conduct requirement is triggered unless the other party performed the previous “step.” As a consequence, the SEP holder was, in that case, not obliged to submit a FRAND licensing offer at all since the implementer failed to signal its willingness to license.Footnote 114
Some decisions rendered by German courts subsequent to Huawei v. ZTE elaborate on the conditions under which the level of royalties, which must be set forth in the SEP holder’s licensing offer, can be considered “reasonable.” In this respect, two alternative approaches should be distinguished (see, generally, discussion of monetary remedies under FRAND obligations in Section 5.2.4, above). Under the first approach, it is for the courts to determine whether the royalties offered by the SEP holder qualify as FRAND. For instance, the Düsseldorf District Court found in Saint Lawrence v. Vodafone that a worldwide licensing offer covering a whole SEP pool, at a rate of $0.26 per infringing device, and that was otherwise consistent with the SEP holder’s existing licensing practices, to be FRAND under Huawei v. ZTE.Footnote 115 The findings of the court of first instance were confirmed in the subsequent judgment of the Düsseldorf Higher Regional Court.Footnote 116
Under the second approach, it is not the court’s task to determine whether the licensing conditions and royalties are FRAND. On the contrary, the judges should only assess, based on a summary assessment, whether the SEP holder’s licensing offer and royalties evidently violate the FRAND concept (i.e., the offer is not obviously not FRAND). In this case, the Mannheim District Court held that the licensing offer complied with the procedures outlined in Huawei v. ZTE,Footnote 117 in particular because the SEP holder had explained its calculation of the licensing fee based on the percentage of patents in the WCMA/SIPRO and VIA patent pools held by the SEP holder. Comparable findings were made by the Mannheim District Court in Pioneer v. Acer.Footnote 118 The standard of review applied by the Mannheim court was criticized in subsequent proceedings before the Karlsruhe Higher Regional Court, which held that courts must determine whether licensing offers are FRAND and cannot limit their scrutiny to a summary assessment of whether such offers are obviously not FRAND.Footnote 119 Taking into account the opinion of the court of second instance, the Mannheim District Court did not resolve in Philips v. ArchosFootnote 120 whether it is obliged to reconsider its standard of review. Nevertheless, it found that the SEP proprietor did not sufficiently substantiate why royalties of $1.00 per unit should be FRAND according to Huawei.
d) Calculation of Royalties
Furthermore, the German decisions elucidate the extent to which a SEP holder must specify the calculation of royalties in its licensing offer under Huawei. In general, the offer must specify the relevant conditions in a way that, in order to conclude a licensing agreement, the implementer has merely to state its acceptance.Footnote 121 Accordingly, the Mannheim District Court ruled in both NTT DoCoMo v. HTCFootnote 122 and Philips v. ArchosFootnote 123 that the calculation of the license fee must be explained in a manner that enables the implementer to understand, on the basis of objective criteria, why the SEP holder considers its licensing offer to be FRAND. In the case of a quota license agreement, it is not sufficient merely to indicate the royalties per unit. The respective amount must be made sufficiently “transparent,” e.g., by reference to an established standard licensing program or by indicating other reference values, such as a pool license fee.Footnote 124 In contrast, the court deemed a licensing offer sufficient if the calculation of royalties is explained based on the percentage of patents in the WCMA/SIPRO and VIA patent pools held by the SEP holder.Footnote 125 The Düsseldorf District Court stated in Saint Lawrence v. Vodafone that the SEP holder has to provide the information necessary to determine the amount of royalties to be paid, e.g., the royalty per unit and the products covered by the license. While the court left undecided whether additional indications, e.g., concerning the FRAND character of the licensing offer, are necessary to comply with Huawei, it found that the SEP holder’s duty to inform should not be interpreted too strictly as FRAND does regularly encompass a range of terms and conditions.Footnote 126
e) Portfolio Licenses
Several decisions discuss whether a (worldwide) portfolio license offered by the SEP holder is FRAND according to Huawei v. ZTE. The Mannheim District Court seems to favor the FRAND compatibility of such licenses in Saint Lawrence v. Deutsche Telekom,Footnote 127 but at first it did not come to a clear conclusion. In its subsequent decision in Pioneer v. Acer,Footnote 128 however, an offer of the SEP holder was considered sufficient,Footnote 129 in particular because a worldwide license granted to the parent of a group corresponded to recognized commercial practice in the field. Correspondingly, the Düsseldorf District Court said in Saint Lawrence v. VodafoneFootnote 130 that the more licensing agreements implementing comparable terms the SEP holder has already concluded, the stronger the presumption that these conditions are FRAND, unless factual reasons – which must be demonstrated by the implementer – justify modified terms. Recognized commercial practice in the relevant sector has to be considered when defining the admissible scope of the licensing agreement. The UK court in Unwired Planet v. Huawei also held that a license among global industry players should be worldwide, and that it was unreasonable for the potential licensee to insist on a United Kingdom-only license in this context.Footnote 131 Based on these cases, it appears that if patent portfolios are usually covered by group or worldwide licenses in the relevant market, a (worldwide) portfolio license will be FRAND for purposes of EU competition law unless the circumstances of the specific case, e.g., the SEP holders’ or the implementer’s market activity being limited to one geographic market, require a modification.
f) Response by Implementer – Timing and Content
The German courts have also shed some light on the way an implementer ought to react to the SEP holder’s licensing offer. In particular, the courts discuss whether there is an obligation of the implementer to respond to a licensing offer that is not FRAND. While the Düsseldorf District Court confirmed such an obligation at first in Sisvel v. HaierFootnote 132 and left this issue undecided in Saint Lawrence v. Vodafone,Footnote 133 the Düsseldorf Higher Regional Court explicitly denied in NTT DoCoMo v. HTCFootnote 134 that there is an obligation to respond if the SEP holder refrained from submitting a FRAND licensing offer. The question of whether the implementer may respond to a non-FRAND offer in a different manner than by submitting a specific counteroffer, in particular by merely demonstrating that the SEP holder’s offer was not FRAND, remained unanswered.Footnote 135 In contrast, the Mannheim District Court found, in NTT DoCoMo v. HTC,Footnote 136 as well as Saint Lawrence v. Deutsche Telekom,Footnote 137 that even if the preceding licensing offer is not (fully) in compliance with FRAND, the implementer would still be under a duty to react diligently and to submit a corresponding FRAND counteroffer. In order to trigger the counteroffer obligation it is sufficient that the licensing offer contains all information, in particular regarding royalty calculation, which is necessary for the implementer to submit a counteroffer corresponding to FRAND terms.Footnote 138 Even though the Mannheim District Court recently reaffirmed, in Philips v. Archos,Footnote 139 the general findings of its previous decisions, it specified that an exception applies where it is established in the course of a summary examination that the licensing offer is evidently not FRAND and therefore constitutes an abuse of dominance.
As to the time limits for an adequate reaction of the implementer: In a more general manner, the Mannheim District Court held in Philips v. ArchosFootnote 140 that the period of time in which the implementer has to react depends on the facts of the case as well as on the principles of good faith and recognized commercial practice.Footnote 141 More specifically, the same court found in NTT DoCoMo v. HTCFootnote 142 that the behavior of the implementer is considered insufficient if the counteroffer is made only one and a half years after receiving the licensing offer and half a year after the SEP holder filed suit.
Furthermore, the courts analyzed under which conditions a counteroffer meets the requirements of Huawei in terms of content. In the case of Saint Lawrence v. Deutsche Telekom the Mannheim District Court denied the existence of a specific counteroffer because the royalty was not specified in the document itself but was intended to be determined by an independent third party. Whether the limitation of the counteroffer to Germany was in compliance with FRAND terms remained undecided.Footnote 143 However, in Saint Lawrence v. Vodafone the Düsseldorf District Court decided that none of the counteroffers of the intervenor were FRAND in terms of content. They were either inadmissibly limited to Germany, contained no precise royalty, were not submitted “promptly” because the standard user had waited until the oral pleadings in the parallel procedure, or they proposed royalties per device that the court considered as too low.Footnote 144 Correspondingly, the Mannheim District Court denied in Pioneer v. Acer the FRAND conformity of an implementer’s offer because the intended limitation of the license to Germany would have been inappropriate given the facts of the case and recognized commercial practice in the respective market.Footnote 145
3 Other European Law Principles
In addition to the EU procedural requirements under Huawei that are described above, national law may be implicated when a SEP holder seeks an injunction for a FRAND-committed SEP. For example, Polish law would analyze the seeking of injunctive relief by patentees who made prior FRAND commitments under an abuse of rights doctrine independent of EU competition law. This doctrine provides a general defense based on the provisions of the Polish Civil Code,Footnote 146 which can be applied to abuses of all types of private rights,Footnote 147 including patents. This analysis would likely look to arguments such as reliance on FRAND promises made by SEP holders during the standard-setting process, an obligation to act in good faith toward other parties operating in the market.Footnote 148 Polish law would rather approach all types of FRAND pledges in a similar manner, whether they are made within or outside the standard-setting context. Implementers would base their defenses against injunctions on breaches of reliance, loyalty, or good faith.
The reasoning behind denying injunctions on the basis of the abuse of rights doctrine is supported by equitable arguments rather than economic factors or patent law – particularly the ability of the patent system to stimulate investment in innovation. The abuse defense would likely be effective only if raised by an implementer acting in good faith – a willing implementer.
4 Injunctions and Alternative Dispute Resolution in Europe
Despite its potential benefits, the procedural framework introduced by Huawei has not solved all the practical challenges and difficulties that can arise in FRAND disputes. For example, Huawei fails to offer a solution to the territorial fragmentation of FRAND disputes or to the proliferation of parallel local court proceedings. The continuing conduct of multiple parallel proceedings is not cost efficient or time efficient, in spite of the fact that many if not all FRAND disputes are global (and would ideally materialize in global FRAND licensing transactions as noted above).Footnote 149 Numerous complex jurisdictional issues arise in this context, including the risk that courts will engage in a “race to the bottom” in order to present an attractive venue for FRAND litigation, and parties will engage in a “race to the courthouse” to ensure that their case is heard in the most favorable jurisdiction.Footnote 150 As a result, it is important to (continue to) explore means for rationalizing remedies offered both by courts and alternative dispute resolution (ADR) mechanisms in this area.Footnote 151
5.3.3 Korea
Unlike the United States, in which injunctions are granted under principles of equity, patentees in Korea are entitled to an injunction automatically in case of patent infringement.Footnote 152 Only in exceptional cases where patentees are regarded as having abused their rights, courts will deny an injunction.Footnote 153 Thus, the question is whether such abuse is likely to be found when a SEP holder has violated its FRAND commitment.
In Samsung Electronics Co. Ltd. v. Apple Korea Ltd., the Seoul Central District Court held that it is an abuse of patent rights for a SEP holder to seek an injunction under a FRAND-committed patent if the SEP holder has violated its duty to negotiate in good faith with the implementer and tries to maintain its dominance over the market contrary to the policy goals of the patent law.Footnote 154 This duty to negotiate in good faith includes a duty to offer any potential licensees a FRAND license with FRAND terms. Korean courts have held, however, that a SEP holder does not have a duty to disclose detailed information about comparable licenses with third parties.
SEP holders in Korea have a duty to negotiate in good faith with a party willing to obtain a license under FRAND terms.Footnote 155 Yet, as discussed above in the context of “holdout,” a good faith negotiation is impossible when a potential licensee has no intention of obtaining a FRAND license at all. It is reasonable to consider a willing licensee to be a potential licensee that engages in licensing negotiations and proposes a specific royalty rate with a reasonable calculation basis. In Samsung Electronics Co. Ltd. v. Apple Korea Ltd., the Seoul Central District Court held that the potential licensee does not have to deposit royalties in advance to be qualified as a willing licensee.Footnote 156 Moreover, the court found that there was a large gap between royalty rate proposals made by Samsung and Apple and, also, that there were no serious and intensive licensing negotiations in good faith between them.Footnote 157 When both parties were to blame for the lack of a good faith negotiation, the court concluded that it was difficult to see any abuse of patent rights on the part of the SEP holder in seeking an injunction.Footnote 158 This shows the difficulty of proving abuse of a patent right in Korea.
5.3.4 Japan
Article 100(1) of the Japanese Patent Act states: “A patentee or exclusive licensee may demand a person who infringes or is likely to infringe the patent right or exclusive license to stop or prevent such infringement.”Footnote 159 Under this Article, Japanese courts award injunctions almost automatically when they find a likelihood of patent infringement. The abuse of rights doctrine, which is stipulated in Article 1(3) of the Civil Code of Japan,Footnote 160 is theoretically applicable to the exercise of patent rights. But in patent infringement cases, courts have rarely applied this doctrine. The IP High Court reversed this trend in Samsung v. Apple Japan.Footnote 161
In Samsung v. Apple Japan, Samsung accused Apple of infringing Samsung’s SEPs in the ETSI UMTS standard.Footnote 162 According to the IP High Court, implementers wishing to manufacture a product compliant with the UMTS standard have no choice but to practice the SEPs, as “it is impossible for them to adopt alternative technology or to change the product design.”Footnote 163 “Therefore, if the patentee is unconditionally allowed to exercise the right to seek an injunction based on the [SEPs, the implementers] may be put into a situation where they are forced to pay a high royalty or agree to extremely unfavorable license conditions that are not FRAND Terms, or to abandon the business project itself, so as to avoid the damage that may arise from such injunction.”Footnote 164 The court also observed that “the UMTS standard contains a large number of patents owned by different owners (1800 or more patent families declared essential by 50 or more patentees).”Footnote 165 It is difficult for an implementer to obtain licenses to such a large number of patents in advance, after confirming whether each of such patents is essential or not.Footnote 166 As the court explained:
[I]f the patentee is unconditionally allowed to seek an injunction based on the [SEPs], the use of the UMTS standard would become practically impossible. [This] situation would have a negative impact on the dissemination of the UMTS standard and run counter to the purpose of the ETSI IPR Policy … Further, if such situation arises, the general public would be unable to enjoy a variety of benefits that would be available if the harmonization and dissemination of communication standards was achieved.Footnote 167
Therefore, the court reasoned that in relation to a SEP, it is not appropriate to allow a party that made a FRAND declaration to seek an injunction based on the SEP against an implementer willing to obtain a license on FRAND Terms.Footnote 168
The court went on to reason that an injunction “should be allowed against an implementer engaged in manufacturing, sales, etc. of a … standard-compliant product without any intention of obtaining a FRAND license,”Footnote 169 as such implementer cannot be considered to be complying with its own end of the FRAND bargain, and the patentee would not be adequately protected if its ability to seek an injunction even against such parties is restricted.Footnote 170 Nevertheless, because allowing a SEP holder to seek an injunction involves potential adverse effects, the court must carefully consider whether the prospective licensee had no intention of entering into a FRAND license.Footnote 171
On this basis, the court concluded that the exercise of the right to seek an injunction based on a SEP by a SEP holder who made a FRAND commitment would constitute abuse of right (Article 1(3) of the Civil Code) and therefore is not allowed, if the implementer successfully alleges and proves that the SEP holder made the FRAND commitment and the implementer intended to receive it.Footnote 172 As to the specific case at hand, the court found that Apple intended to receive a FRAND license, and denied Samsung’s claim for injunction.Footnote 173
5.3.5 China
Courts in China have recently considered injunctions in two cases involving FRAND-committed SEPs. In Iwncomm v. Sony,Footnote 174 the Beijing IP court issued an injunction against the implementer Sony for the infringement of a FRAND-committed SEP covering the Chinese WAPI wireless networking standard; and the Shenzhen Intermediate People’s Court issued an injunction for the infringement of two FRAND-committed patents essential to the 4G standard in Huawei v. Samsung.Footnote 175 In both cases, the courts concluded that the patentee had been a willing licensor and the infringer an unwilling licensee.
In addition to these cases, two Chinese courts have recently released guidance regarding disputes relating to SEPs disclosed in recommended national, industrial, or local standards. In the Interpretations (II) of the Supreme People’s Court on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases art. 24 (effective as of April 1, 2016), the Supreme People’s Court of the People’s Republic of China states that courts should not award injunctive relief when a SEP owner deliberately fails to comply with its obligation to grant a FRAND license to a manufacturer, and the manufacturer is not clearly at fault. Chinese courts recently have begun to address how fault on the part of either the patentee or the prospective licensee impacts the availability of injunctive relief in FRAND cases.Footnote 176
5.3.6 Discussion and Analysis: FRAND and Injunctions
U.S. courts have analyzed the question whether the holder of a FRAND-committed SEP may seek to enjoin unlicensed implementers from practicing the SEP under the eBay framework, focusing primarily on whether the FRAND commitment implies that the SEP holder has conceded that it will accept monetary damages in lieu of the exclusionary remedy of an injunction and thereby suffer no “irreparable harm” if an injunction is not issued. In addition, appeals to the fourth eBay prong have caused some to consider the public interest associated with the exclusion of standardized products from the market, as the USTR did in rejecting the ITC’s exclusion order against Apple in 2013 (see Section 5.3.1 above). The U.S. FTC has also asserted that SEP holders’ attempts to enjoin “willing” licensees (as variously defined) may violate the FTC Act and antitrust laws. In the FTC’s settlement with Google and Motorola, a detailed procedure involving several negotiation stages was established before Google/Motorola was permitted to seek an injunction against a SEP implementer.
In jurisdictions, such as Germany and Korea, in which injunctions issue more or less automatically, recourse is more likely to be made to competition law.Footnote 177 Additionally in the European Union, the EU competition law, which benefits from the principles of direct effect and supremacy over EU member states’ laws, is also perhaps more attractive as a tool for patent litigants than the national patent laws of the EU member states (though this distinction may be lessened in view of the EU Enforcement Directive).Footnote 178 Rather than focusing primarily on the content of a FRAND commitment, the CJEU’s decision in Huawei Techs. Co. Ltd. v. ZTE Corp. established detailed procedural requirements for both SEP holders and implementers when a SEP holder seeks an injunction. When the procedure is not followed by the SEP holder, it is vulnerable to claims of abuse of dominance under Article 102 of the TFEU. When the Huawei procedure is followed by both parties, the result is either an agreement between the parties or an adjudicated or arbitrated FRAND royalty determination that the implementer must honor, lest an injunction be issued. And if the Huawei procedure is followed by the SEP holder but not by the implementer, the SEP holder may seek and obtain an injunction without violating Article 102 of the TFEU. The Huawei procedure is apparently not simple for implementers to follow, as several post-Huawei cases have resulted in injunctions after an implementer failed to comply with some element of the procedure such as making a valid counteroffer or posting bond in the amount of the estimated royalty. As such, it is possible that the procedure in Huawei is over-specified and perhaps rewards litigation experience and procedural savvy rather than a genuine desire to enter into license transactions. On the other hand, the post-Huawei cases may reveal the occurrence of intentional holdout at higher rates than expected.
As noted by Advocate General Wathelet in his opinion in Huawei,Footnote 179 the matters in dispute “could adequately – if not better – be resolved in the context of other branches of law or by mechanisms other than the rules of competition law.” What the Advocate General means by other branches of law is unclear. But one might assume that he has in mind general defenses – such as abuse of rights – and possibly the application of patent remedies itself. If the disputes over injunctions for FRAND-pledged patents could be resolved within the law on patent remedies then Directive 2004/48/EC on IPR enforcement would provide arguments against granting injunctions to holders of FRAND-pledged patents, on the general principles discussed in Chapter 4. First, proportionality as a general principle governing remedies could be used. Proportionality – as the directive provides (and as discussed in Chapter 4) – requires that remedies be applied in a fair and equitable manner and that there are safeguards against abuse in place. Second, the directive also explains that in the application of remedies circumstances of the case need to be considered and the nature of an IP right should be taken into account.
The standard for proving abusive conduct in Japan, as described in Samsung v. Apple Japan, appears to be much more straightforward, involving only the stated (or proven) willingness of the implementer to accept a license of the asserted SEPs. The courts in Korea may have split the difference between the formalistic EU approach and the relatively unspecified Japanese approach, holding in Samsung Electronics Co. Ltd. v. Apple Korea Ltd. that abusive conduct will not be found if the parties engage in good faith negotiation of a FRAND license. In order to be found to have acted in good faith, an implementer need only show that it engaged in licensing negotiations and proposed a specific royalty rate with a reasonable calculation basis. But if a failure of negotiation is attributable to the action or inaction of both parties, an abuse by the SEP holder will not be found when it obtains an injunction against the implementer.
In our view, each of these approaches can profitably be informed by the other. To observers from the United States and other common law jurisdictions, the fact that in the European Union and other civil law jurisdictions injunctions typically issue automatically in patent cases, subject only to the violation of competition law, seems unusual. Patent law has developed independently of competition law and the abuse of rights doctrine, and it seems reasonable for patent remedies to be governed by an internally consistent and cohesive framework independent of other external legal regimes (particularly regimes that are imposed by extra-national authority such as the European Union). As such, we recommend that courts consider imposing reasonable conditions on the issuance of injunctive relief, such as are discussed in Chapter 4, even absent a violation of competition law. Because the issuance of injunctive relief is typically a binary decision (either an injunction is issued or not),Footnote 180 the types of moderation and proportionality that are available to adjust monetary damages for the parties’ behavior is typically not available in the injunctive arena. Instead, some measure of judicial discretion in the granting of injunctive relief could more accurately fit this remedy to the actions and behavior of the parties. This is not to say that civil law jurisdictions should adopt an eBay-style equitable analysis for the assessment of injunctive remedies, or refuse injunctions at the rates seen in U.S. courts, but only that some measure of judicial discretion be exercised.Footnote 181 Our discussion as to how that discretion should be exercised is found in Chapter 4.
On the other hand, the equitable analysis of party behavior in the context of SEPs and FRAND under U.S. law still suffers from a lack of precision and definition. The Federal Circuit in Apple, Inc. v. Samsung Elecs. Co., Ltd. offers a three-way split opinion regarding the presumptions and conduct that should inform the decision to grant injunctive relief. Parties thus lack clear guidance in this critical area. U.S. courts analyzing injunction availability in SEP cases have focused largely on the prongs of the eBay test pertaining to irreparable harm and adequacy of monetary damages. We recommend that when balancing equities between the parties, courts start with the procedures modeling well-functioning party behavior as laid out by the CJEU in Huawei Techs. Co. Ltd. v. ZTE Corp. or under the law of Japan or Korea. While each of these procedural analyses was developed with potential violations of competition law or obligations of parties entering into a contract to negotiate in good faith in mind, at their root they are each intended to model a well-functioning bilateral relationship within the standard-setting context. As such, a full and fair assessment of the appropriateness of equitable relief would do well to consider such factors.
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