cases involving standard essential patents: u.s. & asia toshiko takenaka, ph.d. director, casrip...

Cases Involving Standard Essential Patents: U.S. & Asia

Toshiko Takenaka, Ph.D.Director, CASRIPUniversity of Washington School of Law

POLICIES

Necessity to Balance Competing Policies• Patent Policies• Promotion of progress of useful arts• Territoriality principle

• Competition Policies• Protection and promotion of fair competition • Territoriality Principle

• Contract Policies• Freedom of contract• Int’l Private Law (Conflict of law & Jurisdiction)

CHALLENGES

Multinational business activities v. Territoriality Principle of Patents• U.S.• Patent: Property Rights• Contract: Freedom of contract prevails without an anti-competitive

effect

• Europe• Patent: Monopoly• Contract: Competition policy and other public policies limit freedom

of contract

• Japan• Patent: Explicit exception from antitrust enforcement• Contract: Competition policy and other public policies limit freedom

of contract

MICROSOFT v. MOTOROLAU.S. District Court, West. Washington

• Motorola holds standard essential patents (SEPs) for systems and methods for encoding and decoding a bit-stream of digital video data. This technology relates to standards set by Int’l SSOs ( H264; IEEE802.11)• The SSOs require disclosures of SEPs and

agreeing to license those patents to all comers under RAND terms. Motorola submitted declarations to agree to license its patents under the RAND terms.


• 2010 October• Motorola offered a license at a royalty rate of 2.25% per

end product

• 2010 November• Microsoft sued Motorola for breach of contract in WA• Motorola sued Microsoft in Wisconsin, suit transferred to WA

• 2011 July• Motorola sued Microsoft for patent infringement in

Manheim, Germany

• 2012 February• West. WA Dist. Ct. Summary Judgment• Microsoft has a right as a third party beneficiary to a RAND

license


• 2012 May• Manheim Dist. Ct. Judgment• Microsoft has no third beneficiary right• Microsoft infringes Motorola’s patents• Grant of injunction (Orange Book Procedure)

• 2012 May• West. WA Dist. Ct. Preliminary Injunction• Foreign anti-suit injunction factors

• Issues-Parties are the same: Private disputes between U.S. parties• Motorola’s filing of the German action frustrates WA Ct’s ability to

adjudicate issues adequately

• Preliminary injunction factors• Irreparable harm from German injunction on Microsoft businesses


• 2012 September• 9th Circuit affirmed West. WA Dist. Ct.’s grant of injunction• A private dispute under Washington state contract law between two

U.S. firms

• 2012 October• West. WA Dist. Ct. • Ct will decide the RAND range to facilitate jury’s decision on

Microsoft’s breach of contract claim• RAND rates under German law through Orange Book Procedure is

different from RAND rates under U.S. Law

• 2012 November• West. WA Dist. Ct. denies Motorola’s request of injunction• eBay factors

• No irreparable harm• Adequate common law remedies


• 2013 March• West. WA Dist. Ct. Summary judgment• Some of claims asserted by Motorola are indefinite and

invalid

• 2013 April• West. WA Dist. Ct. Order• Range of RAND Royalty

• H.246 Patents: 0.555 – 16.389 cents• IEEE 802.1 Patents: 3.471 cents for X box; 0.8 cents for other

products• Total royalty per year: $1.8M• Comp: Motorola request: $4B (20 times more); Microsoft

request: $1.2M (1.5 times more)


Framework for Assessing RAND terms• Basic Principles• Consistent with SSOs’ Purpose: Promoting widespread

adoption of their standards• Mitigate patent hold-up and royalty stacking risks• Incentive to develop valuable standards

• Modification of Georgia Pacific Factors• Hypothetical Negotiation: Difference from calculation of

damages in the form of reasonable royalty• Licensor is under the obligation to give a license under RAND

terms• Hypothetical negotiation will not take place in a vacuum

GEORGIA PACIFIC FACTORS

1. Past royalty for asserted patents• Royalties under RAND obligation: Patent pools and licenses outside patent

pools for asserted patents

2. Past royalty for patents comparable to asserted patents3. Nature and scope of the license4. Licensor’s licensing policies5. Relationship between licensor & licensee

6. Effect of patented products on licensee’s non-patented products• Distinguish the value of patent technologies from the value associated with

incorporation of the patented technologies into the standards (factors 8 and 10)

• Contribution of asserted patents to the technical capability of the standard (factor 8)

7. Duration of asserted patents8. Profitability of patented products

GEORGIA PACIFIC FACTORS

9. Utility & advantages of asserted patents• Comparison with alternatives that could have been written into the

standard during the period before the standard was adopted and implemented

10. Nature of patented invention11. Extent of infringing use; probative evidence of such use12. Portion of profits or selling price customarily allowed for the

use of the invention• Customary practices of businesses licensing RAND committed patents

13. Apportionment of profits between patented and unpatented portions of product

14. Expert testimony15. Amount resulting from a hypothetical negotiation between

willing licensor and licensee• Basic principles incorporated


• RAND Royalties under Hypothetical Negotiation• Contribution to the standard: Low• Narrow claim scopes: means-plus-function claims with

limited disclosures• Minimal technical advances• Availability of alternative technologies

• Value of the invention: Low• Patents related almost entirely to interlaced video• Alternative: Progressive video• Interlaced video is becoming less prevalent in the market but

still important to Microsoft


• H264• Hypothetical negotiation: Analogous to a negotiation through a

patent pool in which all patent SEP holders were added – Desired RAND licensing situation • 0.185 cents: Royalties Microsoft would have paid under the above

hypo• Low end: 0.185 + 2 x 0.185 (Value of Motorola SEPs) = 0.555 cents• High end: 1.50 (Highest royalty considered during formation of the

patent pool) x 3.632% (pro rata share of Motorola SEP portfolio = $0.05463

• IEEE 802.11• Hypothetical negotiation: Negotiations to form patent pools• Low end: Lowest royalty considered among three patent pools = 0.8

cents• High end: Royalty range Microsoft offered = 6.5 cents

APPLE v. SAMSUNGCAFC- DIST. CT. NORTH. CA

Availability of Preliminary Injunction in non-SEP cases• Winter v. Natural Res. Factors(eBay doctrine)

1. Irreparable Harma) Irreparable harm without an injunctionb) Sufficiently strong causal nexus between the harm and the

alleged infringement Adequate common law remedies – license practice (willingness to

license)

2. Likelihood of Success3. Balance of Hardships4. Public interests

Consumers’ interests in getting access to the patented product when the patent feature is a minor portion of the entire product

JAPAN: APPLE v. SAMSUNGTOKYO DIST. CT.

• Samsung holds a Japanese patent for systems and methods for transmitting and receiving packet data. Samsung is a member of ETSI, which formed an SSO (3GPP) and disclosed the application of the patent as being related to a standard. Samsung made a FRAND declaration according to ETSI IPR policy.

• ETSI IPR policy requires disclosures of SEPs, agreeing to license those patents to all comers under FRAND terms, and certain rights to third parties.

• Samsung’s patent was adopted


• 2011 April• Samsung sued Apple for patent infringement and requested

a preliminary injunction (a separate case)• Apple-Samsung executed an NDA for license negotiation

• 2011 July• Samsung offered a license with X% royalty rate

• 2011 August• Apple requested information supporting that X% royalty rate

is in accordance with the FRAND commitment and asserted that X% is unreasonably high

• 2011September• Apple sued Samsung for judgment declaring Samsung has

no claim of damages against Apple


• 2012 March• Apple offered to accept a license with Y% rate• Samsung asserted that Y% is unreasonably low

• 2012 September• Apple offered a cross-license and proposed a basic

principle for calculating royalty rates for mobile and smart phone related SEPs


Issues• Applicable Law: Japanese Law• Patent infringement-tort: The law of the country where a harm

resulted from a tortious act

• Infringement and Validity• Court found infringement• Apple raised invalidity issues but the court did not address the

issues

• No Damage Award Available: Unenforceable• Court found abuse of rights under Civil Code• Denied injunction in a separate case

• Apple raised anti-monopoly issues as a ground for supporting its abuse of rights defense but the court did not address the issues


• No Injunction - Abuse of Right under Civil Code• Violation of duty to negotiate a FRAND license in good

faith after an offer of license from Apple (2012 March)• Apple’s offer is valid even if the offer made it clear that Apple

retains its right to challenge the validity of Samsung SEPs• Samsung’s failure to provide a specific counter proposal and

information necessary to negotiate a FRAND royalty rate gives rise to a violation of the duty

• Delay in disclosing the patent• Maintaining a case requesting preliminary injunction• Other circumstances in negotiation


Japanese Civil Code Article 1(1) Private rights must conform to the public welfare.(2) The exercise of rights and performance of duties must be

done in good faith.(3) No abuse of rights is permitted.

Japanese Anti-Monopoly Law Article 21The provisions of this Law shall not apply to such acts recognizable as the exercise of rights under the Copyright Law, the Patent Law, the Utility Model Law, the Design Law or the Trademark Law.

KOREA: SAMSUNG v. APPLE SEOUL DIST. CT.

Issues• Applicable Law• License/Estoppel: French Law• Other issues: Korean Law

• Infringement and Validity• Some of asserted claims lacks novelty and thus their patents are

not enforceable –abuse of patent rights

• Exhaustion• No exhaustion

• Injunction and Damage Award Available• No violation of FRAND declaration• No violation of Fair Trade Act• Apple (Infringer)’s operating profits are awarded as damages

KOREA: SAMSUNG v. APPLESEOUL DIST. CT.

• No Violation of FRAND Declaration by Seeking Injunction• No license or estoppel by unilateral act of FRAND

declaration without a specific royalty rate• No abuse of right under Civil Code• Samsung’s offered rate was not excessive • Both Samsung and Apple violated their duties to negotiate

FRAND license in good faith. • Samsung’s request of an injunction does not aim only to

inflict harm and damages to Apple• No interference of fair competition


Abuse of Rights under Civil Code Subjective element: The purpose of the exercise of

right is only to inflict pain or harm to the other party; and

Objective elements: a) There is no benefit to the person exercising the right; and b)The exercise of right can be seen objectively as violating the social order

Abuse of Patent Rights Enforcement of patent rights interferes with fair

competition and transaction


• No Violation of Fair Trade Act• Seeking injunction is not an abuse of market dominant

position or refusal• Samsung has a dominant position in the mobile devices and

tablet computers supporting 3GPP communications • Samsung’s asserted patents constitute essential facilities• No unfair refusal to deal: Samsung did not refuse to license

its patents permanently – Its act does not give rise to a refusal of access to essential facilities (No anti-competitive effect)

• No unfair price discrimination or practice• No abuse of market dominant position to hampers

competitors business activities: No delay in disclosing patents• No interference with competitors’ relationship with customers

CHINA: JIQIANG, LIUHUI v. XINGNUOLIAONING HIGH COURT

• Jiqiang holds SEP related to a standard issued by China’s Ministry of Construction and sued a competitor who raised an SEP defense.

• The Liaoning High Ct. referred the question of SEP defense to the Supreme People’s Court (SPCC).

• SPCC Response• In view of the lack of regulations regarding disclosure and enforcement

of patents covering standards, if patents are incorporated into national, industrial, or provincial standards by the patentees participating in the standard-setting process or with the patentees’ consent, it shall be deemed that the patentees grant others licenses to exploit the patents while implementing the standards and that others’ exploitation of the patents does not constitute patent infringement. The patentees may demand implementers to pay certain royalties but at a price significantly lower than the normal royalties; the patentees may also give up royalties.

CONCLUSION

• Availability of InjunctionCase-by-case analysis• U.S.: eBay doctrine• Japan & Korea: Abuse of right under Civil Code• Korea: Fair Trade Act violation – Rule of Reason approachNo injunction• China: Implied license

• Availability of Damages• U.S.: Reference to comparable licenses (patent pool license

rates)• Korea: Lost Profits• China: Lower than comparable license rates• Are damages more than FRAND rates available?

FINAL REMARKS

Roles of courts in FRAND license disputes• Duty to Negotiate in Good Faith• Korea and Japan: Passive• Depending on a filing of a violation

• Implied License or Obligation to Give License• U.S. and China: Active (early involvement)

Thank you very much!

If you have any questions,Email me at [email protected]

cases involving standard essential patents: u.s. & asia toshiko takenaka, ph.d. director, casrip...

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