Standard Essential Patent Update – November 2019 (English, 日本語, 한국어)

November 2019 update versions:

• 日本語 (Japanese language)
• 한국어 (Korean language)

Jump to a section of the update:

• Global News & Notes
• China Updates
• Germany Updates
• The Netherlands Updates
• United Kingdom Updates
• United States Updates

Global News and Notes

Sharp has announced that it has entered into a new license agreement, licensing its wireless communications standard essential patents (SEPs), including LTE SEPs, to Samsung Electronics.  This is reportedly the first major SEP licensing agreement announced by Sharp since Foxconn took over the company in 2016.  In its press release, Sharp claimed that it has licensed its LTE SEPs to many “leading vendors,” and will continue to expand the number of SEP licenses it grants.  Sharp claims that its SEP portfolio includes more than 6,000 patents covering the 3G, 4G (LTE), and 5G wireless standards.

Qualcomm recently announced a new, five-year SEP licensing agreement with a major consumer electronics company, which Qualcomm claims will allow for continued development of smartphones on the 3G, 4G, and 5G wireless standards.  The deal reportedly comes after several months of negotiations between Qualcomm and the licensee, after the parties’ previous agreement expired in December 2018.  John Han, Senior VP of Technology Licensing at Qualcomm, claimed that “[t]his agreement builds on our long-standing technology relationship and reaffirms the value of Qualcomm’s world-class patent portfolio.”

Contributors: Joe Raffetto, David Brzozowski

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China Updates

According to multiple reports (see here, here, and here), the Nanjing Intermediate People's Court recently determined FRAND rates in a SEP dispute between non-practicing entity Conversant and Huawei.  While a full written decision was not published, reports state that the Nanjing court set the FRAND rates of Conversant's Chinese SEPs based on the classification of mobile terminal products being infringed. In particular, the Nanjing court reportedly set rates for Conversant's Chinese SEPs payable by Huawei as follows: (a) 0% for "single-mode 2G or 3G mobile terminal products"; (b) 0.00225% for "single-mode 4G mobile terminal products"; and (c) 0.0018% for "multi-mode 2G/3G/4G mobile terminal products." 

The Nanjing court's decision comes after it held proceedings open to the public on 11 April 2019, in response to Huawei's request for a determination of non-infringement of Conversant's Chinese SEPs.  The Nanjing court did not support Huawei's assertion that Huawei's manufacture, sale, or offer of sale of its mobile terminal products in China did not infringe Conversant's Chinese patents, leading to the above-calculated FRAND rates.  Reports speculate that the court may have adopted a "top-down approach" to the FRAND calculation—i.e., the licensing rate equaling the aggregate total rate of the 2G, 3G, 4G standards in China multiplied by the proportion of contribution to that aggregate total by Conversant's patent portfolio in China. The Nanjing court's decision is not final and can be appealed to the IP Court of Appeals within the Supreme People's Court (SPC). 

Contributors: Katie Feng, Kevin Xu

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Germany Updates

In a recent decision (7 O 3890/19), the Regional Court of Munich addressed the question of an intervening party´s right for file inspection where there has been a claim of confidentiality. The court set high thresholds for a party to obtain secrecy protection for documents relating to FRAND licenses, meaning that file inspection will usually be granted without restrictions. In general, an intervening party has a comprehensive right to inspect a court file, even if the file contains trade secrets or confidential information of the plaintiff or another party. Exceptions to this apply only under strict conditions. The court here made clear that if, for example, the plaintiff’s statement concerns license agreements that are concluded on the basis of a FRAND licensing declaration and are relevant to, inter alia, whether the license offer in dispute is non-discriminatory, protection of secrecy generally requires very substantive reasoning and justification. The promise to license in a fair and non-discriminatory manner goes hand-in-hand with a transparency obligation regarding the terms and conditions of previous license agreements. Otherwise, the interested third party has no way of finding out about the conditions of the licenses already in place and to assess whether it is being discriminated against by the SEP owner.  This decision is in line with similar decisions from the courts in Dusseldorf and Mannheim, which also hold that SEP owners have to be transparent with regard to previous license agreements, and that alleged confidentiality interests can justify a refusal to disclose relevant documents only in exceptional circumstances.

In a recent decision (2 U 31/16 – Improving Handovers), the Higher Regional Court of Dusseldorf had to answer the question of whether non-compliance with FRAND obligations has any implications on damages calculations or the scope of a claim for rendering of information and accounts, following a finding of patent infringement. In the case at hand, the plaintiff SEP holder didn’t fulfill its obligation to offer the alleged infringer a FRAND license. However, merely because an implementer has a valid FRAND defense does not mean that the SEP owner cannot collect damages or assert claims for a rendering of information and account. Even with a valid FRAND defense, utilizing the patented technology without a valid license can be unlawful and infringe the patent.

The court here re-affirmed previous decisions from courts in Dusseldorf that a valid FRAND defense may, nevertheless, have an effect on the amount, as well as the scope, of the claim for rendering of information and account. For periods of time where the SEP owner hasn’t complied with FRAND requirements, while the alleged infringer did, the SEP owner can only request damages in the amount of a FRAND royalty. That is, during non-FRAND compliant periods, the SEP owner may calculate damages based only on reasonable (FRAND) royalties, but not based on the infringer’s profit, if the latter is higher. Consequently, for the non-FRAND-compliant periods, the SEP owner also cannot request rendering of information to the extent it is relevant only for the calculation of the infringer’s profit. It should be noted that the courts in Mannheim and Karlsruhe treat this situation differently, and are of the opinion that the SEP owner is entitled to complete a rendering of information and account, even for those periods where the SEP owner did not behave on FRAND terms. There are no decisions on this issue from the courts in Munich yet.

Judge Dr. Matthias Zigann, the presiding judge of one of the two divisions of the Regional Court of Munich I (7th chamber), gave a presentation outlining some general principles on how the court intends to handle FRAND cases in the future. According to Dr. Zigann, these principles—which are still “work[s] in progress”—have been discussed and agreed on with the other patent division of the Regional Court Munich I (the 21st chamber) so that they should apply to all FRAND cases in Munich. Because there is little to no FRAND case law from the court in Munich, it was very interesting to hear the ideas of Judge Zigann. The main take-away from the presentation is that the court in Munich appears inclined to apply a more SEP owner-friendly approach than recently seen from the courts in Dusseldorf, Mannheim, and Karlsruhe.

This can be illustrated by way of two examples.  First, the court is apparently willing to allow the parties to catch-up with certain steps of the Huawei/ZTE “ping-pong game” or to amend them during litigation and up to the trial hearing, which usually is the second hearing in Munich. That is, the SEP owner apparently may be allowed to provide a new or amended license offer at a relatively late stage of the proceedings. Also, the SEP owner will not be required to request a stay of the proceedings, in order to allow the parties to negotiate without the imminent threat of an injunction (which is the approach of the courts in Mannheim and Karlsruhe). This approach would be more liberal and SEP owner-friendly than the case law of the courts in Dusseldorf, Mannheim, and Karlsruhe, which have developed relatively strict rules regarding the admissibility of, in particular, late FRAND license offers. For context, the ECJ’s determination in Huawei/ZTE is that the license offer has to be made prior to the filing of a lawsuit.

Second, the court in Munich is apparently of the opinion that the alleged infringer is obliged to always respond with a FRAND counter-offer if it does not accept the license offer of the SEP owner. That is, the alleged infringer’s obligation to come back with a counter-offer should generally be independent from the question of whether the SEP owner’s offer is FRAND. Consequently, even if the SEP owner’s offer was not FRAND, the alleged infringer cannot rely on a FRAND defense if it did not respond with a FRAND counter-offer. Only in cases where the SEP owner’s offer is obviously not FRAND-compliant will the alleged infringer not be required to provide a counter-offer. This was the subject of various decisions from the courts in Dusseldorf, Mannheim, and Karlsruhe. The respective appeals courts (Higher Regional Courts in Dusseldorf and Karlsruhe) ultimately decided that the alleged infringer only has to respond with a counter-offer if the SEP owner’s offer was FRAND in the first place. This aspect is another example where the Munich court would apply a different, more SEP owner-friendly approach than the other relevant German courts. It would allow SEP owners to change the dynamics of a case by providing a strongly-amended FRAND license offer only relatively shortly before the trial hearing, giving the alleged infringer little time to react and adapt its strategy.

As mentioned above, the “FRAND policy” presented by Judge Dr. Zigann is still a work in progress. Therefore, it remains to be seen whether the opinion of the court may develop over time.

Contributors: Benjamin Schroeer, Philipp Simon

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The Netherlands Updates

A Provisions Judge in the Netherlands has refused to grant a preliminary injunction against the Chinese mobile phone manufacturer Xiaomi based on two alleged SEPs of the licensing administrator Sisvel. The Judgment in Dutch can be found here. The Judge ruled that Sisvel's claims lacked sufficient urgency for such a preliminary injunction. The Judge also took into account, among other things, the pending proceedings on the merits between the parties in the UK on a global FRAND royalty rate and the complexity of the underlying issues relating to FRAND license negotiations. The decision appears to make it more difficult for SEP holders to obtain a preliminary injunction in the Netherlands. The decision has been appealed. Our full, detailed article on this decision can be found here.

Contributors: Joost Duijm, Ruud van der Velden

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United Kingdom Updates

On 21 October 2019, the UK Supreme Court began hearing appeals of the Court of Appeal's Unwired Planet v. Huawei ([2018] EWCA Civ. 2344) and Huawei v. Conversant ([2019] EWCA Civ. 38) decisions on FRAND issues.  The Supreme Court will decide several key issues including: i) whether, without the parties' consent, UK courts have the power or jurisdiction to determine FRAND license terms or to grant injunctions restraining infringement of UK SEPs unless the defendant agrees to take a global portfolio license and ii) the meaning of "non-discriminatory" in the FRAND context.  The judgment is likely to have far reaching consequences for the enforcement of SEPs in the UK and SEP holders' strategic decisions on where to litigate.  The importance of the issues at stake has also drawn in other major telecommunications industry players, with companies like Qualcomm and Ericsson (and others) known to have made submissions to the Supreme Court as intervenors.  Given the importance and difficulty of the issues at stake for the telecommunications industry, and the on-going context of Brexit, policy may play an important role in the Court's ultimate decision.

Contributors: Paul Brown, Ian Moss

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United States Updates

The Federal Circuit recently heard oral arguments in the appeal of the TCL v. Ericsson FRAND appeal—i.e., the appeal from the landmark FRAND ruling issued by Judge Selna of the Central District of California.  We previously reported on district court Judge Selna’s decision here.  The Federal Circuit appeal is being heard by Judge Chen, Judge Newman, and Judge Hughes. Ericsson has claimed, on appeal, that the case should have gone to a jury trial, and that the approach Judge Selna used in determining FRAND rates was inappropriate.  During oral arguments, the Federal Circuit reportedly struggled with how to value the SEPs in question, including the appropriateness of using percentage-based royalties in the scenario at-issue here. Judge Chen, for example, questioned whether “if you had some patented technology” on a particular component, and that component was being used across the same product type (e.g., telephones, cars), then why should the price for the patented technology fluctuate depending on the licensee?  Judge Hughes raised similar questions.  The Federal Circuit’s ultimate ruling on the issues in this appeal may provide insignificant insights into how U.S. courts should conduct FRAND cases and determine FRAND rates.  The Federal Circuit could issue its decision at any time.

The Ninth Circuit has stayed the injunction issued by the Northern District of California (Judge Koh) in the FTC v. Qualcomm case.  Previous reports from our team on Judge Koh’s decisions can be found here. The Ninth Circuit stated that Judge Koh’s injunction “represent[s] [either] a trailblazing application of the antitrust laws, or instead an improper excursion beyond the outer limits of the Sherman Act.”  The court said it would therefore stay the injunction to maintain the status quo, pending its review of the issues raised on appeal.  Specifically, the Ninth Circuit stayed the portions of Judge Koh’s injunction order that “Qualcomm must not condition the supply of modem chips on a customer’s patent license status and must negotiate or renegotiate license terms with its customers in that respect.” While the ultimate determination of the issues on appeal by the Ninth Circuit are “a matter for another day,” the Ninth Circuit said that, for the purposes of receiving a stay of an injunction, “Qualcomm has shown, at a minimum, the presence of serious questions on the merits of the district court’s determination that Qualcomm has an antitrust duty to license its SEPs to rival chip suppliers.”

The Director of the U.S. Patent and Trademark Office (USPTO), Andrei Iancu, recently stated in a speech that the USPTO was still considering whether to uphold the 2013 “Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments” (the SEP Policy Statement).  The SEP Policy Statement, which the Antitrust Division of the U.S. Department of Justice (DOJ) withdrew from in December, 2018, generally discourages SEP holders from using injunctions as leverage to gain favorable, yet unfair, licensing terms from others.  The DOJ said that the SEP Policy Statement unfairly prevented SEP owners from receiving fair compensation for their SEPs.  Since the DOJ’s withdrawal from the SEP Policy Statement, many have questioned whether the USPTO would also withdraw its support.  In his speech, Director Iancu stated that “if we [the USPTO] are to state a new policy, it should be balanced and structured to incentivize technological development and growth of the standards-based industries.”  Director Iancu further noted that “any policy statement should incentivize good faith negotiations and dis-incentivize threats of either patent hold-up or patent hold-out.”  While it remains to be seen whether the USPTO will withdraw its support for the SEP Policy Statement, many businesses and advocacy groups have urged the USPTO to maintain the SEP Policy Statement, arguing that they “deserve to compete and innovate on a level playing field.”

Contributors: Joe Raffetto, David Brzozowski

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Authored by Paul Brown, David Brzozowski, Joost Duijm, Katie Feng, Ian Moss, Joe Raffetto, Benjamin Schroeer, Philipp Simon, Ruud van der Velden and Kevin Xu