by Dennis Crouch

The level of estoppel was a sticking point a decade ago in the lead-up to the America Invents Act (AIA).  Patentee’s were concerned with repeat harassment by accused infringers; Accused infringers were concerned that IPRs would be ineffective and that they would then lose their right to challenge the patent in court. We now know that IPRs are very effective, but sometimes patent challengers would still like a second bite.  That is the situation in the pending petition for certiorari in Apple Inc. v. California Institute of Technology, 22-203 (U.S.).  Apple lost its IPRs against CalTech and now wants to bring additional invalidity challenges in court that it could have raised in its IPR petitions.

In the 2011 AIA legislation, Congress created two forms of petitioner estoppel, each of which attach only if the IPR petition is granted and the PTAB reaches a Final Written Decision, and only with respect the claims actually adjudged in the IPR final written decision.

315(e)(1) Estoppel of Further Proceedings Before the USPTO: The petitioner [or privy/RPI] may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review.

315(e)(2) Estoppel of Invalidity Arguments in Court: The petitioner [or privy/RPI] may not assert either … that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.

35 U.S.C. 315(e). As you can see, both provisions create estoppel barring a petitioner from later raising “any ground that the petitioner raised or reasonably could have raised during that inter partes review.”  The question in

Apple v. CalTech: CalTech sued Apple and Broadcom for infringing its patents covering wireless communication chip logic. Apple responded with several IPR petitions. The petitions were granted initiating the IPR, but the USPTO eventually sided with patentee in its final written description. Apple is thus prohibited from re-challenging the validity of the already challenged claims “any ground that the petitioner raised or reasonably could have raised during that inter partes review.”

Back in district court, Apple attempted to raise additional invalidity challenges, but the district court barred those defenses. The district court concluded that Apple could reasonably could have included those as grounds in its IPR petition and thus barred under 315(e)(2). CalTech eventually won a $1 billion jury verdict.  On appeal, the Federal Circuit vacated the verdict on other grounds, but affirmed on the issue of estoppel. The Federal Circuit particularly held that estoppel extends to “all grounds not stated in the petition but which reasonably could have been asserted against the claims included in the [IPR] petition.” California Inst. of Tech. v. Broadcom Ltd., 25 F.4th 976 (Fed. Cir. 2022), overruling Shaw Industries Group, Inc. v. Automated Creel Sys., Inc., 817 F.3d 1293 (Fed. Cir. 2016).

Apple’s new petition to the Supreme Court identifies what it sees as a fundamental flaw in the Federal Circuit’s textual analysis. The Federal Circuit concluded that Apple was estopped from later raising grounds that it reasonably could have raised in the inter partes review petition. But, the statute as written creates a slightly different test — asking what “reasonably could have raised during that inter partes review.” The following is Apple’s question presented to the Supreme Court:

Whether the Federal Circuit erroneously extended IPR estoppel under 35 U.S.C. § 315(e)(2) to all grounds that reasonably could have been raised in the petition filed before an inter partes review is instituted, even though the text of the statute applies estoppel only to grounds that “reasonably could have [been] raised during that inter partes review.”

Apple question presented.

The IPR process begins with an IPR petition. 35 U.S.C. § 311. The statute charges the USPTO Director the role of instituting the IPR, although that duty had been delegated tot he PTAB. 35 U.S.C. § 314.  After institution, the PTAB conducts a trial and issues its final written description.  Apple’s basic argument is that the statute’s use of “during” excludes potential actions that could have taken place prior to institution.  To wit, Apple recognizes that it reasonably could have made additional arguments in its IPR filings, but those took place prior to the IPR; And, once the IPR petition is granted, the challenger no longer has any opportunity to raise any other grounds to challenge the patents.  In this scenario, the statute is practically limited to cover only grounds actually raised.  Apple explains:

When “an inter partes review of a claim in a patent … results in a final written decision,” a petitioner is estopped from asserting in district court litigation only “any ground that the petitioner raised or reasonably could have raised during that inter partes review.” 35 U.S.C. § 315(e)(2) (emphasis added). By expanding statutory estoppel to cover any ground that could have been raised in a petition before an inter partes review even begins, the Federal Circuit effectively rewrote the statute. This Court’s review is urgently needed to restore Section 315(e) to its proper scope.

Apple Petition.

Apple’s petition relies heavily on the work of Cleveland-Marshall Prof. Christa Laser and her 2018 Florida Law Review article.  Christa Laser, The Scope of IPR Estoppel: A Statutory, Historical, and Normative Analysis, 70 Fla. L. Rev. 1127 (2018).  Laser suggested that the Supreme Court reinterpret the statute and “should hold that IPR estoppel applies narrowly only to grounds actually raised and instituted.” Id.  Baltimore Prof. Greg Dolin penned a responsive article concluding that Laser’s approach is too narrow. Gregory Dolin, Estopping Patent Harassment: A Response to Christa J. Laser, 70 Fla. L. Rev. F. 136 (2019). From my view, Dolin and the Federal Circuit have the better view on this one over Apple and Laser.  We’ll see this fall whether the Supreme Court agrees.

by Dennis Crouch

On Feb 4, the Federal Circuit issued an important decision in California Institute of Technology v. Broadcom Ltd. and Apple Inc. (Fed. Cir. 2022).   Four of the big issues are listed below:

• IPR Estoppel: The most important legal precedent in the case is a pro-patentee interpretation of the IPR estoppel provision found in 35 U.S.C. § 315(e)(2).  That prevision bars an IPR petitioner involved in patent litigation from asserting any invalidity grounds that the petitioner had “raised or reasonably could have raised during that inter partes review.” Id.  Here, the court makes clear that the scope estoppel is not tied to the grounds raised to in the IPR, but rather truly does extend to any ground “reasonably could have been included in the petition.”  Slip Op.  This decision expressly overrules Federal Circuit precedent to the contrary. Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., 817 F.3d 1293 (Fed. Cir. 2016).
• Big money: The jury had awarded a $1 billion+ damage award; the Federal Circuit vacated that award and ordered a new new trial on damages.  The court also vacated an infringement finding with regard to one of the patent claims because the district court did not instruct the jury on the construction of a particular term (“variable number of subsets”).
• Eligibility: The inventive feature here is use of bit repetition to better ensure wireless signal transmission.  On appeal, Broadcom argued that the claim lacked eligibility because it employs a mathematical formula.  The Federal Circuit dismissed that argument out-of-hand with a direct quote from the Supreme Court. Diamond v. Diehr, 450 U.S. 175, 187 (1981) (“[A] claim drawn to subject matter otherwise statutory does not become  nonstatutory simply because it uses a mathematical formula, computer program, or digital computer.”).
• Extraterritoriality: The infringing chips are made abroad and installed in Apple devices abroad.  U.S. patents only cover infringement within the  territorial bounds of the United States.  The jury found infringing sales in the U.S.  On appeal, the Federal Circuit found the jury instructions appropriate.  Notably, the court refused to require any jury instructions  on the presumption against extraterritorial application of U.S. patent laws.  Rather, the instructions properly walked through factors for determining whether a particular sale occurred in the United States.

= = = =

In this post, I am just going to focus on the estoppel issues: Argument estoppel is a big deal with inter partes review.  By design, patent challengers get one-bite at the Apple; one shot at invalidating the patent claims based upon obviousness or anticipation.  Of course, the devil is in the details with this sort of rule.

Rather than relying upon traditional judge-made principles of res judicata, Congress specified within the statute how estoppel works for IPR proceedings.  The basic rule is that, once a patent claim is subject to a final-written-decision in an IPR, the IPR petitioner is estopped from asserting “that claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” 35 U.S.C. 315(e)(2) (applies also to real-party-in-interest and privies).  Timing here is important, but favors estoppel.  Namely, once the IPR reaches Final Written Decision, the challenger is prohibited from continuing to assert invalidity, even if the litigation was already filed and had been pending prior to IPR institution.

The scope of estoppel provided by 315(e) has been subject to substantial litigation. One key decision is Shaw Industries Group, Inc. v. Automated Creel
Systems, Inc., 817 F.3d 1293 (Fed. Cir. 2016).  In Shaw, the Federal Circuit substantially limited the scope of estoppel. Shaw was a partial institution case — the PTAB had instituted IPR on only some grounds.  The court particularly held that 315(e) did not estopp the petitioner from later raising the non-instituted challenges in district court litigation.  The court reasoned that those could not  have reasonably been raised in the IPR since the petitioner’s attempt had been denied by the PTAB.   But Shaw raised further questions about where to draw the line, and district courts across the country came-up with a variety of conclusions about the scope of estoppel.  The most pro-challenger readings focused on grounds that could have been raised after institution, and thus concluded that estoppel was fairly strictly limited only to the grounds actually instituted.  See, e.g., Koninklijke Philips N.V. v. Wangs All. Corp., 2018 WL 283893, at *4 (D. Mass. Jan. 2, 2018).

Shaw was based upon a procedural posture that the Supreme Court eventually ruled improper.  Notably, Shaw presumed that partial IPR institution was proper. In SAS, the Supreme Court rejected that approach and instead held that IPR institution is an all-or-nothing decision by the USPTO. SAS Institute, Inc. v. Iancu, 138 S. Ct. 1348 (2018) (PTAB does not have partial institution authority; and that the IPR petition defines the scope of the IPR).

Ordinarily, each Federal Circuit panel is bound to follow precedent set-out by prior a Federal Circuit panel.  My colleague Tommy Bennett refers to this as the “Rule of Circuit Precedent.”  However, since Shaw‘s foundation had been undermined, the panel here in CalTech concluded that it was no longer binding precedent.

The panel here has the authority to overrule Shaw in light of SAS, without en banc action.

Although SAS did not expressly overrule Shaw, the court concluded that the Supreme Court had “undercut” Shaw‘s “theory [and] reasoning . . . in such a way that the cases are clearly irreconcilable.”  Quoting Henry J. Dickman, Conflicts of Precedent, 106 Va. L. Rev. 1345 (2020).

With this newfound freedom, the court rewrote the rule of estoppel — this time in a much broader sense:

Accordingly, we take this opportunity to overrule Shaw and clarify that estoppel applies not just to claims and grounds asserted in the petition and instituted for consideration by the Board, but to all claims and grounds not in the IPR but which reasonably could have been included in the petition.

Slip Op. In the litigation, Apple and Broadcom had hoped to rely upon several prior art references during litigation.  However, evidence showed that they were “aware” of those references by the time that they filed the IPR petition.  Even though they were not included within the IPR petition, they “reasonably could have” been used as the basis for an IPR challenge. Thus, the appellate panel affirmed the district court’s ruling barring the subsequent challenge in litigation.

The “aware of” requirement is quite broad, and the Federal Circuit did not delve further into defining the “reasonably could have” threshold. For its part, the district court in this case had gone a step further and expanded estoppel to also include any grounds relying upon prior art “a skilled searcher conducting a diligent search reasonably could have been expected to discover.” California Inst. of Tech. v. Broadcom Ltd., 2018 WL 7456042 (C.D. Cal. Dec. 28, 2018) (subsequent modifications omitted). This test is a based upon a statement made by Senator Kyl as the America Invents Act was being debated. 157 Cong. Rec. S1375 (daily ed. Mar. 8, 2011).  In his testimony, Sen. Kyl expressed that the estoppel provision had been “softened” by adding “reasonably.”  Without that term, the estoppel would have been

amenable to the interpretation that litigants are estopped from raising any issue that it would have been physically possible to raise in the inter partes reexamination, even if only a scorched-earth search around the world would have uncovered the prior art in question. Adding the modifier ‘‘reasonably’’ ensures that could-have-raised estoppel extends only to that prior art which a skilled searcher conducting a diligent search reasonably could have been expected to discover.

Statement of Sen. Kyl.

Although it is unclear how far reasonableness extends, it is clear that IPR estoppel is now based upon a use-it-or-lose-it principle.  Holding arguments back at the IPR petition stage is effectively a waiver of those arguments.

by Dennis Crouch

Olaf Sööt Design’s pending petition for certiorari centers on the age-old division between issues-of-fact and issues-of-law.  The U.S. Constitution generally requires due process, and particularly protects litigants’ rights to a jury trial in common law cases.  One quirk–the right to a trial by jury does not cover issues-of-law, and only extends to some issues-of-fact.

This bifurcated system results in an odd dynamic in patent law — regularly seen with regard to infringement and claim construction:

• Patent infringement is an issue-of-fact tried by a jury under the Seventh Amendment.  Typically, a jury is asked to decide whether the evidence shows that the defendant is performing the claimed invention.
• Claim construction is treated as a question of law (or mixed question of fact and law), decided by a judge.  In contemporary patent litigation, a judge will typically be asked to decide whether the legal scope of the claims extend to cover the defendant’s actions.

With this setup, the whole case can be decided at either stage, but claim construction typically comes first and so often steals-the-show.  One problem though, is the potential of unduly undermining the Constitutionally protected jury system.

One case pending before the Supreme Court focuses-in on these issues: Olaf Sööt Design, LLC v. Daktronics, Inc., et al., No. 21-438 (Petition).  Sööt asks the following question:

In Markman v. Westview Instruments, Inc., 517 US 370 (1996), this Court held that the meaning of terms in a patent “claim” stands as a question of law and must be construed by the court. Under the Seventh Amendment, if requested by the patent owner, the jury must make the factual determination as to whether the defendant infringed the patent in light of the court’s claim construction. Consistent with the Seventh Amendment, the Markman decision leaves to the jury all factual determinations beyond the court’s construction of the claim. The question presented by this petition for writ of
certiorari is:

Whether the Seventh Amendment allows the Federal Circuit to reverse a jury verdict based on a sua sponte new claim construction of a term the district court concluded was not a term of art and construed to have its plain and ordinary meaning; where the Federal Circuit’s sua sponte claim construction essentially recasts a specific infringement factual question,  previously decided by the jury, as a claim construction issue, to be decided de novo by the appellate court.

The Supreme Court will consider the petition next week.

Patent Law at the Supreme Court December 2021

by Dennis Crouch

Traxcell Technologies, LLC v. Sprint Communications Company, No. 20-1440 (Fed. Cir. 2021); Traxcell Technologies, LLC v. Nokia Solutions and Networks, No 20-1440 (Fed. Cir. 2021)

The patentee primarily these cases on claim construction on two simple terms — based largely on statements made during prosecution to skirt the prior art. 

“Location” – some of the asserted claims take various actions related to the “location of [a] mobile wireless device.”  During prosecution the patentee had argued that its location ability was not limited to “a position in a grid pattern” and did not require a grid pattern overlay.  Rather its location sense was more “adaptable” and “refined.”  The courts found this clear prosecution history disclaimer and so the location term is properly construed to require “not merely a position in a grid pattern.”  This construction excused Nokia from infringement, since the accused Nokia system is arranged in a grid of 50-meter-by-50-meter bins.

“A Computer” – the claims all required “a computer” or “first computer.” The problem was that the accused devices performed the various functions across a set of computers. The district court construed “first computer” and “computer” to mean a single computer that can perform each and every function.  That construction was affirmed on appeal after the Federal Circuit reviewed the claims and specification for supporting evidence.

[I]t would defy the concept of antecedent basis—for the claims to recite “the computer” or “said first computer” being “further” programmed to do a second set of tasks if a different computer were to do those tasks instead.

Slip Op.  This interpretation was also confirmed by the prosecution history statement including a responsive argument submitted to the PTO titled ““Single computer needed in Reed v. additional software needed in Andersson.”  Reed is the Traxcell patent; Andersson was the prior art.  One computer requirement meant no infringement. 

Means For: The case against Sprint partially turned on a means-plus-function limitation: “means for receiving said performance data and corresponding locations from said radio tower and correcting radio frequency signals of said radio tower.”  The patentee pointed to an algorithm disclosed in the specification as the corresponding structural disclosure.  Under Section 112(f), a means-plus-function claim “shall be construed to cover the corresponding structure … in the specification and equivalents thereof.”  It was clear that Sprint did not use the identical algorithm, but the question was whether the “equivalent” penumbra of the claim was broad enough.  In order to determine equivalents under Section 112, the district court applied the function-way-result test generally used in DOE cases.  See Applied Med. Res. Corp. v. U.S. Surgical Corp., 448 F.3d 1324 (Fed. Cir. 2006).  Generally, the function-way-result test ends up with a quite narrow band of equivalents.  Here, the court found that the accused activity not proven to be done “substantially the same way” as that claimed and so was not an equivalent. An aspect of this doctrine that continues to create confusion is whether this “equivalent” evidence is an element of claim construction as suggested by the statute or instead post-construction infringement analysis.

Indefiniteness: Some of the claims were also invalidated as indefinite, even after a certificate of correction. In particular, the those claims required a “means for … suggesting corrective actions . . based upon . . . location” but the specification did not disclose how that might take place. On appeal, the Federal Circuit affirmed. “Although Traxcell demonstrated that the structure makes corrections based on other performance data, it hasn’t shown that any corrections are made using location.”

The Federal Circuit uses a simple if-then shortcut for its indefiniteness analysis of claims that include means-plus-function language. If the specification lacks sufficient structure to support the claimed means; Then the claim is invalid as indefinite.  This approach is probably too rule based. Rather, each time the Federal Circuit should use its lack-of-structure analysis to ask does the claim at issue “particularly point[] out and distinctly claim[] the subject matter which the inventor or a joint inventor regards as the invention.” 35 U.S.C. 112(b).

The four asserted patents U.S. Patent Nos. 8,977,284 (“the ’284 patent”), 9,510,320 (“the ’320 patent”), 9,642,024 (“the ’024 patent”), and 9,549,388. 

Guest Post by Prof. Jorge Contreras of the University of Utah S.J. Quinney School of Law.  Disclosure statement: in 2019, the author served as an expert for HTC in an unrelated, non-U.S. case.

In August 31, 2021, the Court of Appeals for the Fifth Circuit ruled in HTC Corp. v. Telefonaktiebolaget LM Ericsson, 2021 U.S. App. LEXIS 26250, __ F.4^th __ (Fed. Cir. 2021), affirming the judgment of the District Court for the Eastern District of Texas, 2019 U.S. Dist. LEXIS 170087 (E.D. Tex. 2019).  The decision is significant as it is the first by the Fifth Circuit to address the licensing of standards-essential patents and the meaning of “fair, reasonable and nondiscriminatory” (FRAND) licensing terms, adding to the growing body of jurisprudence already issued by the Third, Ninth and Federal Circuits in this area.  It is also significant because the court addresses several issues that have become increasingly important in standards-related litigation including (1) the apportionment of value among components of a multi-component product, (2) the proper choice of law for FRAND disputes, and (3) the interpretation of the “nondiscrimination” prong of the FRAND commitment.  These issues all arose in connection with HTC’s challenge to District Judge Rodney Gilstrap’s jury instructions regarding FRAND. His vague charge appears to reflect the general uncertainty in this area, not only of the Texas district court, but of the entire judicial system. One can almost hear the weariness permeating the final sentence of Judge Gilstrap’s charge to an admittedly perplexed jury: “Ladies and gentlemen, there is no fixed or required methodology for setting or calculating the terms of a FRAND license rate.”

Background

Though it was never a household name in the U.S., HTC — founded in Taiwan in 1997 — was an early smartphone pioneer.  In 2005 HTC released the world’s first Windows 3G smartphone (the clamshell HTC Universal) and followed in 2008 with the first smartphone running Google’s Android operating system (branded as the T-Mobile G1).  Most significantly, HTC was the developer and manufacturer of Google’s Nexus One Android phone, which was released in 2010.

The 2/3/4/5G wireless communication standards published by the European Telecommunications Standards Institute (ETSI) are incorporated into almost all smartphones (and many other devices) that have been sold over the past two decades.  These standards are covered by tens of thousands of patents around the world (standards-essential patents or SEPs), a respectable number of which are held by Swedish equipment manufacturer Ericsson.  Most standards-development organizations (SDOs) today recognize the potential leverage that the holders of SEPs may hold over manufacturers of standardized products. FRAND licensing commitments are designed to alleviate the risk that SEP holders will prevent broad adoption of a standard by asserting their patents against manufacturers of standardized products. As explained by the Fifth Circuit, “To combat the potential for anticompetitive behavior, standard setting organizations require standard-essential patent holders to commit to licensing their patents on … FRAND terms” (slip op. p. 4). Thus, under ETSI’s intellectual property policy, which dates back to 1993, Ericsson and other holders of patents that cover ETSI’s standards agree to grant manufacturers licenses on FRAND terms.

Ericsson and HTC entered into three such licensing agreements in 2003, 2008 and 2014. Under the 2014 agreement, HTC paid Ericsson a lump sum of $75 million for a 2-year license to use Ericsson’s 2/3/4G SEPs. In 2016, HTC and Ericsson began negotiations to renew the license. Ericsson proposed a rate of $2.50 per 4G device, which was based on the lump sum paid by HTC in 2014 divided by the number of phones sold by HTC over the license period. HTC did not accept this offer and instead conducted an assessment of the value of Ericsson’s SEPs. It made a counteroffer of $0.10 per device in March 2017.  Negotiations stalled, and in April, HTC brought an action in the Eastern District of Texas seeking a declaration that Ericsson had breached its obligation to offer HTC a license on FRAND terms.

The trial focused largely on the proper method for determining a FRAND royalty for Ericsson’s SEPs.  Because the actual FRAND royalty or royalty range in a given case is generally viewed as a question of fact, the case was tried a jury, and each party submitted a set of draft jury instructions to the court. As summarized by the Fifth Circuit, “HTC proposed highly detailed instructions to help the jury interpret FRAND, but Ericsson objected to most of these instructions and proposed a more general FRAND instruction. The district court considered the two proposals, but ultimately gave the following instruction to the jury: ‘Whether or not a license is FRAND will depend upon the totality of the particular facts and circumstances existing during the negotiations and leading up to the license. Ladies and gentlemen, there is no fixed or required methodology for setting or calculating the terms of a FRAND license rate.’ (slip op. at 6). The jury returned a verdict “finding that HTC had not proven that Ericsson had breached its FRAND duties and that both parties had breached their obligations to negotiate in good faith.” (slip op. at 9]. On the basis of the jury verdict, Ericsson moved for declaratory judgment that, in its dealings with HTC, it complied with its FRAND obligations.  The court granted Ericsson’s motion.

HTC appealed the district court’s ruling on three grounds:  it failed to adopt three of HTC’s proposed jury instructions, it incorrectly concluded that Ericsson’s licensing offer complied with its FRAND commitment, and it improperly excluded expert testimony as hearsay.  The Fifth Circuit, in an opinion authored by Judge Jennifer Walker Elrod, affirmed the lower court’s ruling on all three grounds.  Judge Stephen A. Higginson entered a separate concurring opinion, arguing that the district court erred by omitting HTC’s apportionment jury instruction, but this omission did not rise to the level of reversible error.

Apportionment

In patent infringement cases, it is well-established that a patentee’s damages should reflect only the value of the patented features of an infringing product. Thus, in assessing damages, courts routinely “apportion” the infringer’s profits between the infringing and noninfringing features of its product. See Garretson v. Clark, 111 U.S. 120, 121 (1884).  Accordingly, HTC argued that the district court erred by failing to give the jury specific instructions on apportionment.

However, this case did not sound in patent infringement, but in breach of contract.  As my co-authors and I have previously observed (see p. 162), it is a peculiar coincidence of U.S. law that both the statutory measure for patent damages under 35 USC § 284 and the FRAND commitment call for the imposition of a “reasonable” royalty.  For this reason, several U.S. courts that have calculated FRAND royalty rates (see, e.g., Ericsson v. D-Link (Fed. Cir. 2014), Microsoft v. Motorola (9th Cir. 2015); and Commonwealth Sci. & Indus. Research Org. (CSIRO) v. Cisco (Fed. Cir. 2015)) have looked to traditional methodologies for determining reasonable royalty patent damages, including the 15-factor Georgia-Pacific framework.  But while this methodology may be useful by analogy, it is not strictly required, as the damages flowing from a breach of the contractual FRAND commitment must, by their nature, be determined under applicable principles of contract law.  As the Fifth Circuit explains, “while the Federal Circuit’s patent law methodology can serve as guidance in contract cases on questions of patent valuation … it does not explicitly govern the interpretation of contractual terms, even terms that are intertwined with patent law” (slip op. at *15).  As such, the Fifth Circuit in this case held that the district court’s omission of a specific jury instruction on apportionment – a patent law doctrine – was not error.

Judge Higginson disagreed.  Citing D-Link and CSIRO, he observed the Federal Circuit’s “unmistakable command that a jury assessing patent value must be instructed on apportionment” and that “the failure to instruct a jury on proper apportionment is error when the jury is asked to assess patent value” (slip op. at *29-30, Higginson, J., concurring). And while he acknowledges that the instant case concerns breach of contract rather than patent infringement, he argues that the Federal Circuit’s precedent regarding apportionment is instructive “because a jury assessing patent infringement damages undertakes the same task of assessing whether an offered rate is FRAND” (citing Realtek Semiconductor, Corp. v. LSI Corp. (N.D. Cal., 2014) (slip op. at *30).  Moreover, Judge Higginson points out that both HTC and Ericsson, as well as the United States as amicus curiae, requested jury instructions on apportionment.  For all of these reasons, he concludes that the district court erred by omitting an instruction on apportionment.

Whether or not the district court erred, none of the Fifth Circuit judges felt that the omission of a specific apportionment instruction constituted reversible error because HTC had the opportunity to, and did, discuss apportionment during its closing argument before the jury.  This observation raises interesting questions regarding the basis on which juries are expected to make decisions in complex cases.  During trials that often last for weeks, the members of the jury hear hours upon hours of conflicting expert testimony and argumentation.  Under Rule 51 of the Federal Rules of Civil Procedure, a trial judge must instruct the jury regarding the substantive law governing the verdict. Its instructions are intended to distill the legal standards that the jury must apply during its deliberations.  Given that members of the jury are not permitted to take notes or make recordings during trial, they must rely heavily on these court-sanctioned instructions.  And contrary to the Fifth Circuit’s holding, it does seem problematic for a court to omit instructions that are germane to the jury’s deliberations concerning an area of law as complex as FRAND royalty determinations.  In such cases, irrespective of what courts and commentators believe the law to be, the results of cases on the ground depend heavily on the instructions given to the jury (we discuss the importance of jury instructions, especially model jury instructions, in FRAND cases in Jorge L. Contreras & Michael A. Eixenberger, Model Jury Instructions for Reasonable Royalty Patent Damages, 57 Jurimetrics J. 1 (2016) (“if … increasingly complex damages calculations are to remain in the hands of the jury, it is now more essential than ever that the instructions given to jurors be as clear, accurate, and understandable as possible.”)

 The French Connection

In considering HTC’s proposed jury instruction on apportionment, Judge Elrod also concluded that the proposed instruction was inaccurate because it summarized U.S. patent law with no reference to French contract law.  ETSI was formed in France in 1988 and approved its first patent policy in 1993.  That policy, and all subsequent ETSI policies, state that they are governed by the laws of France.  Judge Elrod observed that “HTC’s proposed jury instructions are based on United States patent law. HTC did not even attempt to justify its proposed instructions under French contract law or to argue that French contract law and United States patent law are equivalent” (slip op. *14).

This last point is particularly interesting.  In chastising HTC for failing to argue the equivalency of U.S. and French law, Judge Elrod refers to Apple v. Motorola, 886 F. Supp. 2d 1061, 1081 (W.D. Wis. 2012), in which a U.S. district court seemingly concluded, without any specific references, that there are no material differences between the laws of France and Wisconsin when it comes to interpreting a company’s FRAND commitment (discussed here at p.8).  In my experience that conclusion is widely ridiculed by European lawyers, and rightly so.  Yet Judge Elrod seems to imply that merely making a conclusory statement about the equivalency of French and U.S. law ought to suffice, or at least overcome one hurdle to the acceptance of a jury instruction grounded in principles of U.S. law.

Nondiscrimination

HTC also argued that the district court should have instructed the jury with respect to the nondiscrimination prong of Ericsson’s FRAND commitment.  HTC’s proposed jury instruction reads as follows (Appellant’s Opening Brief, p. 40):

The non-discrimination requirement of FRAND requires an SEP holder to provide similar licensing terms to licensees that are similarly situated. The financial terms do not have to be precisely identical, because the difference might be explained by other offsetting adjustments in other terms in the license. But, at a minimum, if the difference in terms creates a competitive disadvantage for a prospective licensee, then the offered royalty terms are discriminatory. Discrimination may exist even if preferential treatment is accorded to only one or a few companies.

The non-discrimination prong of FRAND serves to level the playing field among competitors, and to foster entry and innovation from new market participants, by prohibiting preferential treatment that imposes different costs to different competitors. Thus, for purposes of the non-discrimination prong of FRAND, licensees are “similarly situated” if they compete for the purchase or sale of a product or service. It would defeat the purpose of FRAND if a licensor could draw a distinction between entrenched and emerging firms.

To my eye, this is an accurate statement of the law and the general understanding of the nondiscrimination requirement under FRAND (see Jorge L. Contreras & Anne Layne-Farrar, Non-Discrimination and FRAND Commitments in Cambridge Handbook of Technical Standardization Law: Competition, Antitrust, and Patents, Ch. 12 (Jorge L. Contreras, ed., 2017)).  This formulation is also consistent with the most extensive analysis to-date of FRAND nondiscrimination by a U.S. district court (TCL v. Ericsson, 2017 U.S. Dist. LEXIS 214003 (C.D. Cal. 2017), rev’d on other grounds, 943 F.3d 1360 (Fed. Cir. 2019)).

Yet Judge Elrod writes that “HTC’s proposed instruction would transform the non-discrimination element of FRAND into a most-favored-licensee approach, which would require Ericsson to provide identical licensing terms to all prospective licensees” (slip op. *16). This statement is plainly incorrect.  The first sentence of HTC’s proposed jury instruction, which mirrors the model instruction published by the Federal Circuit Bar Association in 2020 and cited by the court (slip op. *17 n.3), refers to “similar licensing terms [for] licensees that are similarly situated”, not identical licensing terms for all prospective licensees.  HTC further clarifies that “The financial terms do not have to be precisely identical.” In explaining the meaning of “similarly situated”, HTC follows the reasoning of the district court in TCL, stating that a distinction should not be drawn between “entrenched and emerging firms”.  None of this suggests that all licensees should pay identical royalties.

Moreover, the parties clearly disputed at trial whether various “comparable” licensees identified by Ericsson were “similarly situated” to HTC (“HTC further argued that Ericsson’s licenses with companies like Apple, Samsung, and Huawei were much more favorable, but Ericsson presented additional evidence indicating that those companies were not similarly situated to HTC due to a variety of factors” (slip op. *22)). Thus, both parties appear to acknowledge the relevance of the “similarly situated” test for nondiscrimination, making it all the more puzzling why the district court and the Fifth Circuit found HTC’s proposed jury instruction on this point to be inaccurate.

Conclusion

Regrettably, the Fifth Circuit’s decision in HTC v. Ericsson does little to clarify the scope or nature of FRAND commitments for standards-essential patents.  Rather, by diverging from the guidance of the Federal Circuit in terms of the apportionment of value among patented and unpatented products, and misinterpreting the scope of the nondiscrimination prong of the FRAND commitment, the Fifth Circuit has substantially muddied the already turgid waters of this increasingly important area of law.  Unfortunately, Judge Gilstrap was right when he told the jury in Texas, “Ladies and gentlemen, there is no fixed or required methodology for setting or calculating the terms of a FRAND license rate.”  It might be helpful to the industry, however, if there were.

In re TracFone Wireless, Inc. (Fed. Cir. 2021)

In its second go-round in the case, the Federal Circuit has ordered District Court Judge Albright to grant TracFone’s motion to transfer its case to the S.D.Fla. on convenience grounds under 28 U.S.C. § 1404(a).  “We conclude that the district court clearly abused its discretion in denying transfer under § 1404(a).”  Generally, Section 1404(a) provides substantial discretion to the district court to determine whether or not to transfer a case to a different venue.  The statutory guidelines focus on “the convenience of parties and witnesses [and] the interest of justice”

In its opinion, the appellate panel walked through the parties/witnesses:

• Patentee Precis is a Delaware company with “no disclosed place of business.”
• The key inventor likely to testify (Karvenon) lives in Mankato.
• The attorney involved in patent prosecution likely to testify lives in Arizona.
• Defendant TracFone is also a Delaware company, its principal place of business is in Miami Florida. TracFone has identified for Florida-Based witnesses likely to testify.

Effectively, there is no reason for this case to be in Waco, Texas.  Still, the district court explained that the convenience here, in his discretion, did not rise to being “clearly more convenient” so as to demand transfer.   On appeal, the Federal Circuit disagreed — finding the district court’s conclusion “clearly flawed.”

The court did not reach the issue of improper venue that was also raised.

Read it here: TracFone Decision April 2021

TracFone: Mandamus All Over Again

Timing the Venue Inquiry in W.D. Texas

Egregious Delay and Blatant Disregard for Precedent

In re TracFone (Fed. Cir. 2021)

Here is a recap of where we are with this W.D. Tex. venue case before Judge Albright:

• Precis Group sued TracFone in W.D.Tex. (Waco) for patent infringement, alleging that venue is proper because TracFone has a San Antonio Total Wireless store.
• TracFone moved to transfer venue on improper venue (saying that the store was not TracFone’s store, and besides, the store was closed already) and also inconvenient venue.
• Judge Albright did not decide the venue motion for several months, but kept the case rolling forward toward trial.  After eight months, TracFone petitioned the Federal Circuit for a writ of mandamus.
• On mandamus, the Federal Circuit ordered Judge Albright to immediately consider the venue motion. The next day following mandamus, Judge Albright denied the motion to transfer venue — holding that venue was proper and convenient.

NOW: TracFone has filed a new petition for writ of mandamus seeking an order compelling Judge Albright to transfer the case to the Southern District of Florida, TracFone’s home court.  The Federal Circuit immediately ordered Precis to respond within 7 days.  Although not clear from the docket, I suspect that this petition will be passed to the same trio judges who handled the last one – Judges Reyna, Chen, and Hughes.

In my post on the case, I noted troubles with Judge Albright’s venue decision, and the mandamus petition picks up on those — arguing that “the district court here abused its discretion by accepting as true the venue allegations in the complaint where those allegations were directly contradicted by TracFone’s declarations, declarations not rebutted by any declarations of plaintiff.” [TracFone Second Mandamus Petition].

In his opinion, the district court accepted the complaint’s allegations as true and concluded that the plaintiff “has plead sufficient venue facts to establish venue in WDTX.”  The district court did not appear consider TracFone’s evidence that it submitted via declaration — that it did not own the store and that the store was closed “well before” the action was filed.   Typically, in this situation, courts consider affidavit evidence presented by defendants, and that was not done here.

In my mind, the only question here is whether the Federal Circuit will vacate the decision or instead simply order the transfer.

Timing the Venue Inquiry in W.D. Texas

Egregious Delay and Blatant Disregard for Precedent