“Contrary to the CAFC’s views, the OUII’s cellular brief found that ‘there is nothing in the ETSI Policy that prohibits Ericsson from seeking injunctive relief in jurisdictions around the world’.”
Last fall, we wrote about the United States Court of Appeals for the Federal Circuit’s (CAFC) decision in the matter of Telefonaktiebolaget LM Ericsson, Ericsson AB, Ericsson, Incl. v. Lenovo (United States), Inc. et. al., focusing, in particular, on the CAFC’s findings regarding interpretation and performance of the contractual obligation associated with the licensing declaration utilized by the European Telecommunications Standards Institute (ETSI) as set forth in the ETSI IPR Policy.
Preceding the CAFC’s decision was an Initial Post-Hearing Brief submitted by the Office of Unfair Import Investigations (OUII) in the matter of Certain Mobile Phones, Components Thereof, and Products Containing Same. Like the CAFC case, this investigation before the United States International Trade Commission (ITC) was brought by Ericsson against Lenovo and involved cellular technology and licensing declarations submitted to ETSI. Despite the differing contexts (antisuit injunction vs. exclusion order), each broadly considers the appropriateness of injunctive relief in view of licensing declarations submitted to ETSI. As we explore below, there appears to be a considerable difference of opinion between the CAFC and ITC regarding interpretation and performance of such declarations.
The Existence of an Obligation
The OUII’s brief in the cellular matter (“the OUII cellular brief”) begins its FRAND analysis by noting that “[t]he first step… is to determine whether a FRAND obligation exists regarding the asserted patents”, and that “the accused infringers… should bear the burden of demonstrating the existence of a FRAND obligation”, for “[t]he alternative would be to assume in patent litigation that every potentially standard-essential claim is subject to [F]RAND until the patent owner demonstrates otherwise, a rule that would be overly burdensome for patent owners.” Having reference to the language of the ETSI licensing declaration, and the condition of essentiality therein, the brief goes on to state that “[i]f on close inspection, the IPR is not actually essential to the identified standard(s) then the Staff submits that no FRAND obligation exists.”
By way of comparison, the CAFC decision mentions the condition of essentiality only twice. Once to define standards-essential patents as “patents declared to be essential to complying with [the ETSI] standard” (emphasis added), and a second time in a footnote which provides as follows: “In referring to a party’s SEPs, we assume that they are subject to the FRAND commitment but express no opinion on whether they are, in fact, standard-essential.” As we have written before, a declaration made to ETSI does not involve a declaration of essentiality. How then can an obligation conditioned on essentiality exist if the court has no opinion on the issue?
Coming back to the OUII cellular brief, the Staff found at least one claim of each patent asserted infringed and not invalid and, as such, the corresponding patents essential. As discussed in more detail below we do not agree with the notion of a declarant’s obligation to be prepared to grant irrevocable licenses being invokable at any time, certainly not with respect to damages for past infringement occurring during periods of implementer non-cooperation. But the ITC primarily deals with forward-looking remedies, so this is not an unexpected result if Ericsson’s infringement assertions were based entirely on the standards. In the CAFC’s decision, however, there was no finding of infringement regarding any U.S. patents, nor any analysis of whether the Colombian or Brazilian patents at the heart of the anti-suit injunction were essential.
The Scope of the Obligation
According to the CAFC’s decision, the ETSI licensing declaration requires, as a matter of contract, an “obligation to negotiate in good faith over a license to its SEPs before it pursues injunctive relief based on those SEPs” (emphasis added). As explained in our previous article, however, neither the ETSI licensing declaration, nor the broader ETSI IPR Policy, mention injunctive relief and, heretofore, antitrust / competition law appeared to be the basis for limiting the availability of injunctive relief for standards essential patents.
Contrary to the CAFC’s views, the OUII’s cellular brief found that “there is nothing in the ETSI Policy that prohibits Ericsson from seeking injunctive relief in jurisdictions around the world”, noting that “[p]rohibiting exclusion orders or injunctions was specifically considered by [ETSI], and rejected in the final agreement.” To further support its position, the Staff refers to the ETSI IPR Guide, which states that “once an IPR (patent) has been granted, in the absence of an agreement between the parties involved, the national courts of law have the sole authority to resolve IPR disputes” (emphasis added by the OUII). Signaling a potential difference of opinion from antitrust / competition law regulators, however, the OUII cellular brief provides as follows (emphasis added):
“‘FRAND’ is not rooted in statutory or case law, or even in U.S. competition policy. Rather, FRAND obligations are created by a contractual agreement among private parties. And as discussed above, there is nothing in the ETSI Policy that prohibits Ericsson from seeking injunctive relief in jurisdictions around the world.”
Curiously, the OUII does not mention European competition laws, which have been used to limit the availability of injunctive relief for standards essential patents in European courts.
Despite this disagreement, the CAFC and Staff broadly agree that the ETSI licensing declaration creates an obligation to negotiate in good faith. Regarding what negotiating in good faith entails, however, they appear to diverge once again. For example, according to the CAFC, “…one way an SEP holder can satisfy this good-faith-negotiating obligation is by making an offer at a rate that is actually FRAND.” In contrast, the OUII cellular brief states that “[r]ather than evaluating the specific terms of a license offer, a ‘good faith’ determination must consider the overall course of negotiations, including all of the offers and counter-offers made.” As we previously wrote here and here, the problem with both such approaches is that a patent owner cannot know if they have met their obligation without the involvement of a court. Accordingly, we posited that allowing the obligation to be unilaterally satisfied by providing notice and offering arbitration on reasonable terms and conditions is preferable from the perspective of not being at the mercy of an uncooperative licensee and avoiding extensive litigation to assess performance. While the OUII cellular brief notes that Ericsson offered arbitration, the Staff did not make clear how significant that, or any other factors, were to satisfying Ericsson’s obligation.
Subsequent to the CAFC’s ruling, an Initial Post-Hearing Brief was submitted by the OUII in another ITC investigation involving Ericsson and Lenovo (the matter of Certain Electronic Computing Devices, and Components and Modules Thereof) this one involving licensing declarations submitted to the International Telecommunication Union (ITU) and High Efficiency Video Coding (HEVC) technology. Like the OUII cellular brief, the OUII HEVC brief refers to Lenovo’s burden of showing a RAND obligation existed in view of a condition of essentiality. The OUII HEVC brief goes on to state, however, that even if an obligation was shown to exist, the Staff is of the view that Ericsson had negotiated in good faith, with Ericsson’s willingness to arbitrate being mentioned once again. But like the OUII cellular brief the Staff does not indicate how significant this, or other factors, were to satisfying Ericsson’s obligation. With respect to the CAFC’s decision involving the ETSI licensing declaration, the OUII HEVC brief distinguishes the ruling by noting a different contract is at issue (emphasis in original):
“While the Ericson [sic] ETSI Opinion interprets the contractual obligations to which members of the ETSIstandard setting organization are subject for licensing ETSI standard essential patents, the contractual obligations in this investigation are limited to those set by the ITUregarding HEVC technology. … Thus, in the Staff’s view, the Federal Circuit’s Ericsson ETSI Opinion does not fill the evidentiary gaps in this investigation… .
Even with the Federal Circuit’s Ericsson ETSI Opinion, there is no blanket rule that an exclusion order may not issue where the Complainant is alleged to violate a RAND obligation under the ITU patent policy. Instead, the record evidence shows that the committee drafting the ITU patent policy considered and rejected proposals that would limit the right to seek injunctive relief for standard essential patents. … Accordingly, a showing that the Asserted Patent may be subject to a RAND obligation under the ITU Patent policy alone is not sufficient to deny relief under Section 337.”
Discharge of the Obligation
As we have written before (here and here), not allowing the obligation to negotiate in good faith to be unilaterally discharged vis a vis a non-cooperative implementer upsets the innovator / implementer balance underlying ETSI’s IPR Policy and encourages hold-out.
As an aside to our article from the fall, we noted that the CAFC’s decision did not mention Judge Gilstrap’s ruling in G+ Communications, LLC v. Samsung Electronics Co., Samsung Electronics America, Inc., Case No: 2:22-CV-00078-JRG (E.D. Texas), which found, as a matter of French law, a patent owner’s obligation to negotiate in good faith could be temporarily suspended when the other party fails to meet its corresponding obligation to negotiate in good faith. Without explicitly saying so, our point was that the CAFC did not clarify Lenovo’s role in the FRAND licensing process. The OUII cellular brief, by comparison, notes that potential licensees can breach their respective obligation to negotiate in good faith, thereby rendering them an “unwilling licensee” but, in view of Judge Gilstrap’s decision, “Ericsson’s FRAND obligation would only [be] suspended when Lenovo fails to act in good faith.” Like Judge Gilstrap’s ruling, however, the Staff does not elaborate on the consequences of the obligation being suspended. But, as noted above, the ITC’s primary remedy is forward looking and, as such, any suspension of Ericsson’s obligation would not impact issues of damages for infringement and/or breach of contract. Notably, the Staff considers the issue of suspension from the perspective of assessing the scope of Ericsson’s obligation to negotiate in good faith as reflected in the Staff’s conclusion that “a review of Ericsson’s conduct prior to any alleged breach by Lenovo still is necessary.” That said, the issue of suspension of Ericsson’s obligation may also have factored in the OUII’s assessment of the release component of Ericsson’s offers, but this is not clear from the brief. Similar to what we previously wrote regarding Judge Gilstrap’s decision, if the ITC interprets the commitment to ETSI to include an obligation to release past infringement, without regard for the prior bad faith of an implementer, suspending the obligation will not only fail to discourage hold-out but encourage it. A simpler approach, in our view, is to note that the obligation set forth in the ETSI licensing declaration is to be “prepared to grant irrevocable licenses” (i.e. permission to do something in the future) which, should have no bearing on releases for past infringement, at least in so far as the patent owner acted in good faith.
Further related to the issue of discharge, Lenovo argued that that “Ericsson wants to exploit the Commission to attempt to obtain supra-FRAND royalty payments from Respondents before any court or other neutral forum can adjudicate the actual FRAND value of Ericsson’s declared SEPs” (emphasis added). Seemingly accepting the notion that an implementer who negotiates in good faith is entitled to FRAND treatment, even after a period of not doing so, the OUII cellular brief states that the “chance of Ericsson engaging in hold up in the future is slim” given “Ericsson has already agreed to be bound by a FRAND determination by the EDNC.” To the extent the Staff is interpreting “supra-FRAND royalty payments” as including payments for past infringement during periods of non-cooperation, we would have preferred the Staff recognize that suspension of Ericsson’s obligation during the period in which Lenovo did not negotiate in good faith precludes Lenovo’s right to FRAND terms and conditions, for at least those periods. Even with respect to going forward, a full analysis of discharge issues would have been preferable to simply assuming Lenovo can re-ignite Ericsson’s obligation at any time.
Also related to the issue of discharge, the Staff states that if Ericsson is subject to a FRAND obligation, and has breached its obligation, “then (and only then) would it be necessary to consider whether Lenovo has made it impossible for Ericsson to license the asserted patents on FRAND terms by acting as ‘unwilling licensees’” (emphasis added). Quoting the U.S. Trade Representative, the Staff notes that “[s]uch a refusal could take the form of a constructive refusal to negotiate, such as by insisting on terms clearly outside the bounds of what could reasonably be considered to be FRAND terms in an attempt to evade the putative licensee’s obligation to fairly compensate the patent holder.” Although recognizing Lenovo sought to delay negotiations the OUII Staff ultimately concluded that Lenovo “technically is not an unwilling licensee…”. Accordingly, the OUII Staff did not need to consider the consequences of Lenovo being an unwilling licensee.
