European Court of Justice Ruling Adds to Challenges that U.S. Standard-Essential Patent Holders Face on Enforcement

BartkowskiGuest Commentary

by Paul M. Bartkowski, a partner with Adduci, Mastriani & Schaumberg, LLP, with Mike Doman, an associate with the firm.

On July 16, 2015, the European Court of Justice (“ECJ”), in Huawei v. ZTE, clarified the circumstances under which an owner of a standard essential patent (SEP) that is required to license the SEP on fair, reasonable, and non-discriminatory terms (FRAND) can bring a claim for injunctive relief against an alleged infringer. The ruling was highly anticipated because the nature of a SEP holder’s right to enjoin alleged infringers has been a recent topic of debate in both the U.S. and in Europe. A review of the decision reveals that European and American courts analyze FRAND-related issues quite differently.

In Huawei, the ECJ found that in order for an SEP holder to bring an injunction against an alleged infringer and still comply with Article 102 of the Treaty on the Functioning of the European Union (TFEU), which generally prohibits abuses of a dominant position, the following conditions must be satisfied:

  1. the SEP holder must first alert the alleged infringer by designating the SEP and specifying the nature of the alleged infringement; and
  2. after the alleged infringer has expressed a willingness to enter a licensing agreement, the SEP holder must present a written offer for a license on FRAND terms that details the royalty calculations.1

The alleged infringer, while not required to accept the license offer, must “diligently” respond “in accordance with recognised commercial practices in the field and in good faith.” In determining whether an alleged infringer has acted in such manner, the following factors are considered:

  1. whether the alleged infringer used “delaying tactics;”
  2. if the alleged infringer disagrees with the SEP holder’s offer, the alleged infringer must “promptly” make a written counteroffer with FRAND terms; and
  3. if the SEP holder rejects the counter-offer and the alleged infringer continues to use the SEP, the alleged infringer must “provide appropriate security” by, for example, providing a bank guarantee.2

If no agreement is reached following the counter-offer by the alleged infringer, the parties can agree to have the royalty expeditiously determined by an independent third party.3 Lastly, the decision made clear that the alleged infringer “cannot be criticised” for challenging the validity, essentiality, or alleged infringement of the SEP.4

By setting forth this detailed framework, the ECJ has laid out numerous hurdles a plaintiff must overcome before a court will enter an injunction based on infringement of an SEP. The complications related to satisfying each step will likely reduce, if not eliminate, cases where patent holders seek an injunction on an SEP.

U.S. federal courts take a different approach in analyzing whether a patentee is entitled to injunctive relief on an SEP. U.S. courts apply the eBay5 test, which governs all requests for injunctive relief. SEP holders, however, have had difficulty satisfying the eBay test because courts have found that the inherent licensing arrangement that accompanies the SEP holder-SEP implementer relationship complicates the SEP holder’s ability to demonstrate irreparable harm and/or inadequate available remedies—two elements required by the eBay test. Some prominent examples include:

  • Microsoft Corp. v. Motorola, Inc. (W.D. Wash. Nov. 30, 2012; analyzing the eBay factors and finding that because Motorola has an obligation to license the patents on FRAND terms, Motorola was unable to show either irreparable harm or the inadequacy of remedies at law);
  • Apple, Inc. v. Motorola, Inc. (N.D. Ill. 2012; Judge Posner, of the 7th Circuit, sitting by designation, stating “[Regarding] Motorola’s injunctive claim, I don’t see how, given [Motorola’s] FRAND [commitments], I would be justified in enjoining Apple from infringing the ’898 [patent] unless Apple refuses to pay a royalty that meets the FRAND requirement. How could [Motorola] be permitted to enjoin Apple from using an invention that it contends Apple must use if it wants to make a cell phone with UMTS31 telecommunications capability—without which it would not be a cell phone.”);
  • Apple Inc. v. Motorola, Inc. (Fed. Cir. 2014; “we agree with the district court that Motorola is not entitled to an injunction for infringement of the ′898 patent. Motorola’s FRAND commitments, which have yielded many license agreements encompassing the ′898 patent, strongly suggest that money damages are adequate to fully compensate Motorola for any infringement. Similarly, Motorola has not demonstrated that Apple’s infringement has caused it irreparable harm.”).

Moreover, when faced with the choice between granting an injunction and setting a FRAND licensing rate, the majority of U.S. courts have chosen the latter.6

Similarly, U.S. agencies such as the Federal Trade Commission (FTC), the Department of Justice (DOJ), and the United States Patent & Trademark Office (USPTO) have been wary of permitting SEP holders to seek or obtain injunctive relief. In particular, in two International Trade Commission (ITC) Investigations involving a SEP holder and FRAND-based defenses, the FTC submitted a statement arguing that the “issuance of an exclusion or cease and desist order [i.e., injunctive relief] in matters involving RAND-encumbered SEPs, where infringement is based on implementation of standardized technology, has the potential to cause substantial harm to U.S. competition, consumers, and innovation.”7 Furthermore, FTC Chairwoman Edith Ramirez recently issued a statement disagreeing with the ITC’s approach to the burden of proof relating to FRAND-based defenses, essentially arguing that the SEP holder should bear the burden of rebutting the defense that SEPs are not entitled to exclusionary relief.8 The Chairwoman also suggested that remedial orders in ITC Investigations involving SEP holders be delayed in order to allow the parties to execute a FRAND license.9 Similarly, both the DOJ and the USPTO have recently issued statements urging the ITC to consider the public interest before providing injunctive relief and identifying the few circumstances when such relief would be appropriate in an investigation involving a SEP and FRAND obligations.10

The ITC, however, in considering cases presented to it, has yet to conclude that a SEP holder’s FRAND obligations prevent relief via the two statutory remedies it is authorized to impose—exclusion orders and/or cease-and-desist orders. Because relief at the ITC is statutory, the ITC does not apply the eBay test applicable to injunctions. In a recent case in which FRAND-related defenses were asserted, the presiding ALJ concluded that the alleged infringer bears the burden to prove that a patent is standard essential, that a FRAND commitment exists, and that that commitment has been violated.11 The ITC’s current analytical framework, therefore, stands in stark contrast to the ECJ by allowing owners of SEPs (or patents that are arguably SEPs) to request injunctive-type relief and by mandating that the alleged infringer prove all elements of a FRAND-related defense.

Notably, however, the United States Trade Representative (USTR) has authority to disapprove any remedial order based on an alleged SEP issued by the ITC, and has done so once before, in Certain Electronic Devices, Inv. No. 337-TA-794.12 The USTR, therefore, presents a unique obstacle to obtaining injunctive-type relief from the ITC.

In sum, entities that own patents that are, or are arguably, SEPs subject to FRAND commitments should be aware of the enforcement hurdles that exist in the U.S. and abroad. Enforcing such patents in Europe has become much more difficult in light of Huawei v. ZTE. Similarly, U.S. district courts and the ITC present unique challenges to obtaining equitable relief. SEP holders should be aware of these hurdles in crafting enforcement strategies, negotiating licenses, and determining whether and where to seek relief for alleged infringement thereof.

Notes

  1. Huawei v. ZTE C 170/130, ¶ ¶ 61 and 63.
  1. Id. at ¶ ¶ 65 – 67.
  1. Id. at ¶ 68.
  1. Id. at ¶ 69.
  1. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (upholding the traditional injunction standard, which requires the plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction).
  1. Innovation IP Ventures L.L.C. Patent Litigation, MDL 2303 (N.D. Ill. July, Sept. 2013) (no injunction, court set FRAND rate); Hynix v. Rambus, No. C ‐00 ‐20905 RMW (N.D. Cal. May 8, 2013) (same); Microsoft v. Motorola, No. C10 ‐1823 ‐JLR (W.D. Wa. Apr. 25, 2013) (same); Ericsson v. D ‐Link Systems, Inc., 6:10 ‐CV ‐473 (E.D. Tex. Aug. 6, 2013) (no injunction, court declined to set FRAND rate because defendant would not agree to be bound, therefore, jury set FRAND rate); Realtek Semiconduction v. LSI Corp and Agere, No. C ‐12 ‐03451 ‐ RMW (N.D. Cal. May 20, 2013) (no injunction to Realtek, the accused infringer, but injunction to SEP holders).
  1. Inv. No. 337-TA-745, Third Party United States Federal Trade Commission’s Statement on the Public Interest, June 6, 2012.
  1. Inv. No. 337-TA-613, The Written Submission on the Public Interest of Federal Trade Commission Chairwoman Edith Ramirez, p. 2, July 13, 2015 (stating, inter alia, “as part of its public interest analysis before issuing an exclusion order, the ITC [should] require a SEP holder to prove that the implementer is unwilling or unable to take a FRAND license”).
  1. Id. at 7 (“if, during the course of the Section 337 investigation, a FRAND range is determined, I recommend that the ITC delay the effective date of Section 337 remedies and provide parties an opportunity to execute a FRAND license.”).
  1. USDOJ and USPTO, Policy Statement on Remedies for Standards – Essential Patents Subject to Voluntary F/RAND Commitments, p. 7, Jan. 8, 2013 (arguing an exclusion order may be appropriate where a “putative licensee” either refuses to take a license or is “not subject to the jurisdiction of a court that could award damages.”).
  1. Certain 3G Mobile Handsets and Components Thereof, Inv. No. 337-TA-613, Initial Determination on Remand, (Apr. 27, 2015) (holding, inter alia, that (1) the party asserting a FRAND-based defense must first prove that the asserted patent is, in fact, standard-essential, (2) the party asserting the FRAND-based defense must also establish that the patents are actually FRAND-encumbered, and (3) the party asserting the defense must then prove that the patent holder violated its FRAND obligations and engaged in patent hold-up).
  1. Executive Office of the President, The United States Trade Representative, Letter to the Honorable Irving A. Williamson.

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