Nichia is the world’s largest supplier of LEDs.   The defendant here also sells LEDs and was accused of infringing three Nichia patents. U.S. Patent Nos. 8,530,250, 7,432,589, and 7,462,870.

In a bench trial, the district court judge sided with the patentee – finding that it had proven infringement and the defendant had not proven the asserted claims invalid.  However, the district court refused to issue a permanent injunction – finding that the patentee had failed to show that it suffered irreparable harm due to the infringement or that the remedies available “at law” were inadequate.   On appeal, the Federal Circuit has affirmed — holding that the proof of irreparable harm is a necessary threshold test for permanent injunctive relief, regardless of whether the patentee is left with an adequate remedy at law.  The decision is important (and quite problematic) because it allows for the possibility of no remedy for the patentee.

The baseline comes from the Supreme Court’s decision in eBay v. Mercexchange that established a four-factor test for determining whether to grant permanant injunctive relief.  The patentee must prove: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, 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.

Prior to this decision, my conception of the four-factors were that the balance of the four must weigh in favor of injunctive relief and that the patentee must prove either (1) irreparable harm or (2) lack of remedy at law.  The decision here rejects both of my prior-conceptions.  Taking them in reverse order, the court holds that irreparable harm must be proven before relief can be granted.  In addition, the court wrote (likely dicta) that each factor must be individually proven for injunctive relief to issue.

The movant must prove that it meets all four equitable factors. i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 861 (Fed. Cir. 2010). And it must do so on the merits of its particular case. eBay. . . . Because Nichia failed to establish one of the four equitable factors, the court did not abuse its discretion in denying Nichia’s request for an injunction.

The court here appears to shift this from a four-factor test to a four-element test.  The result of this decision is that it becomes incrementally even more difficult for a patentee to obtain injunctive relief even after winning its infringement lawsuit and defending against validity challenges.   I also expect that any analysis of the historical equitable factors (the approach suggested by eBay) will recognize that this holding is incorrect.

Rembrandt Wireless v. Samsung

A jury found for Rembrandt and awarded $15.7 million in damages. On appeal, the Federal Circuit has affirmed on infringement and validity – but rejected the lower court’s finding that the patent had been properly marked.

Back-damages for patent infringement is a bit interesting. The marking statute creates a constructive notice regime for sales of ‘patented articles’ and then cuts-off damages for failure to mark those articles: 

In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.

35 U.S.C. § 287.  The marking requirement does not apply only to patentees, but also to “any persons” making or selling the invention “for or under” the patentee.  The courts have interpreted this requirement then as applying to a patent licensee — “thereby limiting the patentee’s damage recovery when the patented article is not marked” by the licensee.  Quoting Amsted Indus. Inc. v. Buckeye Steel Castings Co., 24 F.3d 178, 185 (Fed. Cir. 1994).

Here, Rembrandt had previously licensed the patent at-issue (U.S. Patent No. 8,023,580) to Zhone Tech who sold unmarked products allegedly embodying claim 40 of the patent.  (Zhone was not required to mark under the license agreement).

As soon as Samsung sought to limit its potential damages to the date of actual-notice, Rembrandt dropped its allegations that Samsung infringed claim 40 and also filed a statutory disclaimer with the USPTO disclaiming claim 40.  Samsung was later found to infringe other remaining claims of the patent – and the district court ruled that the disclaimer was sufficient to cure the marking problem.

On appeal, the Federal Circuit disagrees:

Rembrandt’s position, adopted by the district court, effectively provides an end-run around the marking statute and is irreconcilable with the statute’s purpose. Allowing Rembrandt to use disclaimer to avoid the consequence of its failure to mark undermines the marking statute’s public notice function. . . .

The marking statute protects the public’s ability to exploit an unmarked product’s features without liability for damages until a patentee provides either constructive notice through marking or actual notice.

Disclaiming a patent claim does not later erase the fact that the claim was previously in effect and had not been properly marked.

The Court suggested a potential question of whether the focus should be claim-by-claim rather than patent-by-patent, but declined to rule on that issue because it had not been properly raised on appeal.   On remand, the district court will be asked to look into that question and – if needed – recalculated the damage award.

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The case here offers an important distinction – in my mind – between a patent license and a covenant-not-to-sue. Any reasonable license that covers an ‘article’ would include the marking requirement.   In my mind (although perhaps not the court’s) a mere covenant-not-to-sue should not fall under the marking requirement.

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Typical Marking License Language: Licensee mark all Licensed Products made or sold in the United States with an appropriate patent marking. All Licensed Products shipped to or sold in other countries must be marked in such a manner as to provide notice to potential infringers pursuant to the patent laws and practice of the country of manufacture or sale.  Licensor shall have the right to inspect Licensee’s Licensed Products to determine if Licensee is marking in accordance with this paragraph.

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Guest Post by Professor Jorge L. Contreras

In the latest decision by the UK High Court of Justice (Patents) in Unwired Planet v. Huawei ([2017] EWHC 711 (Pat), 5 Apr. 2017], Mister Justice Colin Birss has issued a detailed and illuminating opinion regarding the assessment of royalties on standards-essential patents (SEPs) that are subject to FRAND (fair, reasonable and non-discriminatory) licensing commitments.  Among the important and potentially controversial rulings in the case are:

1. Single Royalty: there is but a single FRAND royalty rate applicable to any given set of SEPs and circumstances,
2. Significance of Overstep: neither a breach of contract nor a competition claim for abuse of dominance will succeed unless a SEP holder’s offer is significantly above the true FRAND rate,
3. Global License: FRAND licenses for global market players are necessarily global licenses and should not be limited to a single jurisdiction, and
4. Soft-Edge: the “non-discrimination” (ND) prong of the FRAND commitment does not imply a “hard-edged” test in which a licensee may challenge the FRAND license that it has been granted on the basis that another similarly situated licensee has been granted a lower rate, so long as the difference does not distort competition between the two licensees.

Background

This case began in 2014 when Unwired Planet, a U.S.-based patent assertion entity, sued Google, Samsung and Huawei for infringement under six UK patents (corresponding actions were filed in Germany).  Unwired Planet claimed that five of the asserted patents, which it acquired from Ericsson in 2013 as part of a portfolio comprising approximately 2000 patents, were essential to the 2G, 3G and 4G wireless telecommunications standards developed under the auspices of the European Telecommunications Standards Institute (ETSI).  Because Ericsson participated in development of the standards at ETSI, any patents shown to be SEPs would necessarily be encumbered by Ericsson’s FRAND commitment to ETSI.

The UK proceedings involved numerous stages, including five scheduled “technical trials” which would determine whether each of the asserted patents was valid, infringed and essential to the ETSI standards.  During these proceedings Google and Samsung settled with Unwired Planet and Ericsson (which receives a portion of the licensing and settlement revenue earned by Unwired Planet from the patents), leaving Huawei as the sole UK defendant.  By April 2016 three of the technical trials had been completed, resulting in findings that two of the asserted patents were invalid and that two were both valid and essential to the standards.  These findings are currently under appeal. The parties then agreed to suspend further technical trials.  In October 2016 a “non-technical” trial began regarding issues of competition law, FRAND, injunction and damages.  Hearings were concluded in December 2016, and the court’s opinion and judgment were issued on April 5, 2017.

A. The High Court’s Decision – Overview

The principal questions before the court were (1) the level of the FRAND royalty for Unwired Planet’s SEPs, (2) whether Unwired Planet abused a dominant position in violation of Section 102 of the Treaty for the Formation of the European Union (TFEU) by failing to adhere to the procedural requirements for FRAND negotiations outlined by the European Court of Justice (CJEU) in Huawei v. ZTE (2014), and (3) whether an injunction should issue in the case.  In the below discussion, Paragraph numbers (¶) correspond to the numbered paragraphs in the High Court’s April 2017 opinion.

B. FRAND Commitments – General Observations

Justice Birss begins his opinion with some general observations and background about the standard-setting process and FRAND commitments.  A few notable points emerge from this discussion.

B.1 ETSI and French law.  FRAND commitments in standard-setting arise from the voluntary commitments made by participants in the standards-development process.  These commitments are largely the result of written policies adopted by standards-development organizations (SDOs).  There is considerable academic debate regarding the legal treatment of these commitments, and whether they can and should be enforceable as contractual commitments: not by the SDO, but by third party implementers of the SDO’s standards (I discuss this question at some length here).  It is an inconvenient fact, at least to international commentators, that ETSI, one of the principal global SDOs, is chartered under French law, and that French legal principles govern its membership and policy documentation.  In recent cases involving ETSI standards, several non-French courts, particularly in the U.S., have studiously avoided any deep engagement with French law in considering these questions.  The most notable instance of such evasion occurred in Apple, Inc. v. Motorola Mobility, Inc., 886 F.Supp.2d 1061 (W.D. Wis. 2012), in which the trial judge concluded, on the basis of a single affidavit, that French law “requires the same general elements” as Wisconsin law, and made little effort to apply anything other than local law to the case (id. at 1083).

To his credit, Justice Birss undertakes a thorough analysis of French statutory law as applied to ETSI’s FRAND commitments, thoughtfully probing the arguments of both parties’ experts (¶¶ 103-146).  And while he concedes that, as a theoretical matter, “the enforceability of the FRAND undertaking in French law is not a clear cut question” (¶146), he adopts the pragmatic view that FRAND commitments should in any event be viewed as “public, irrevocable and enforceable” on grounds of public policy, if nothing else (id.).  (I discuss FRAND commitments as inherently public-facing obligations here and here.)

B.2 A Single FRAND Rate.  In the earlier case of Vringo v. ZTE ([2015] EWHC 214 (Pat.)), Justice Birss considered the possibility that a SEP holder and a standard implementer could each make the other a FRAND licensing offer, resulting in two competing FRAND offers or a range of possible royalty rates that could qualify as FRAND.  In Unwired Planet, Justice Birss reconsiders this possibility, reasoning that it is far better to maintain, as a matter of law, that there is but a single royalty rate that qualifies as FRAND for any given set of SEPs and products (¶804(4)).  From a practical standpoint, this approach solves several problems, including how to evaluate the conduct of the parties from a competition law standpoint.  In rejecting the parties’ objections to this approach, he makes two additional observations.  First, if there is but a single precise value for the FRAND royalty, it is likely that parties, in private bilateral negotiations over SEP licenses, will agree on some royalty rate that differs from this precise value.  This likelihood does not, however, open up every negotiated agreement to a FRAND-based challenge, as the parties are free to agree on any royalty they wish, absent competition law considerations (¶155) (see Part C below).

I am not wholly convinced by this reasoning.  In essence, the court holds that while the FRAND rate is precise, the conditions under which it may be enforced are fuzzy.  This conclusion results in a number of additional logical hurdles, discussed below, with respect to the SEP holder’s initial offer to the implementer and how to assess the SEP holder’s compliance with competition law. An alternative approach that avoids these problems is the one developed by Judge James Robart in Microsoft Corp. v. Motorola, Inc., 963 F. Supp. 2d 1176 (W.D. Wash. 2013). There, the court determined a FRAND range for the SEPs covering each standard at issue in order to assess the SEP holder’s compliance with its FRAND commitment.  Then, in setting a final royalty, the court picked a specific rate within the allowable range.  This approach seems more in keeping with the parties’ intent during standard-setting, and creates a more definite framework for assessing the parties’ compliance with their FRAND commitments.

B.3 FRAND means Worldwide. Unwired Planet offered Huawei a worldwide license under the asserted SEPs.  Huawei responded that it only wanted a license under Unwired Planet’s UK patents (¶524), and that Unwired Planet’s insistence on a worldwide license was unreasonable.  In evaluating the reasonableness of Unwired Planet’s worldwide license offer, Justice Birss first observed that “the vast majority” of SEP licenses in the industry, including all of the comparable licenses introduced at trial, were granted on a worldwide basis (¶534).  He then observed that Unwired Planet’s patents were issued in 42 countries, while Huawei’s operations extended to 51 countries  (¶538).  In effect, both are global companies.  Against this backdrop, he concluded that “a licensor and licensee acting reasonably and on a willing basis would agree on a worldwide licence” (¶543).  In contrast, he regards the possibility of country-by-country licensing as highly inefficient (¶544).   The prospect of two large multinational companies agreeing to country-by-country licensing, he concludes, would be “madness” (¶543), and that Huawei’s insistence on a UK-only license is not FRAND (¶572). He likewise dismisses Huawei’s arguments that including unwanted patents from certain countries in its portfolio amounts to illegal tying in violation of competition law (¶545-572).   Accordingly, he rules that, in this case, a FRAND license is necessarily a worldwide license.

B.4 FRAND Requires Granting a License, not Merely Offering FRAND Terms.  It has long been a point of debate whether a FRAND commitment requires a SEP holder to offer FRAND terms to a potential licensee, or actually to enter into a license on FRAND terms. Justice Birss answers this question in a novel manner.  Bearing in mind his earlier conclusion that there is only one FRAND rate under a given set of circumstances, if the SEP holder’s obligation were merely to make an offer at the FRAND rate, then the normal process of negotiation “would condemn patentees to always end up with negotiated rates below a FRAND rate”(¶159).  Under this reasoning, it would seem that the SEP holder would be justified in making an initial offer above the FRAND rate, so that the final negotiated rate ended up being FRAND.  This approach seems a dangerous one, as SEP holders may not always negotiate a rate downward, particularly when they use a standard set of rates (which is advisable given the non-discrimination commitment that also makes up part of a FRAND commitment). Thus, this leniency seems to support higher (and supra-FRAND) offers by SEP holders.  More sensible, I believe, is Judge Robart’s approach in Microsoft v. Motorola, in which FRAND represents a range of reasonable royalties into which the SEP holder’s initial offer must fall.

C. The FRAND Negotiation Process and Competition Law

C.1 SEP Holder’s Offer.  In Huawei v. ZTE (2014), the CJEU established a set of procedures that a SEP holder must comply with when negotiating a FRAND license in order to avoid a finding that it abused its dominant position under TFEU Section 102.  To do so, based on the rulings of the CJEU and lower courts in Germany and other EU countries, practitioners and commentators have assumed that in order to avoid a finding of abuse of dominance, a SEP holder must make an initial FRAND offer to a potential licensee.  However, under Justice Birss’s reasoning that there is only a single FRAND rate in a given transaction, requiring the SEP holder to offer this rate at the outset would not be reasonable.  Thus, Justice Birss concludes that it would not be an abuse of dominance under TFEU 102 or the CJEU’s holding in Huawei v. ZTE for a SEP holder to offer a rate that is different from the precise FRAND rate, so long as it is not excessively so (¶153).  That is, an abuse of dominance will not be found unless an offer “is so far above FRAND as to act to disrupt or prejudice the negotiations themselves” (¶765).

C.2 Hold-out. Justice Birss also addresses the behavior of the potential licensee in these negotiations.  If the licensee engages in deliberate delay tactics or other unreasonable behavior to avoid entering into a license (and thus paying royalties), this is referred to as hold-out or reverse hold-up. Justice Birss views the behavior of the potential licensee as relevant in determining whether, from a competition law standpoint, the SEP holder possesses a dominant position (¶806(12)).  Interestingly, however, Justice Birss reasons that evidence of implementer holdout is really only relevant before pricing discussions began.   “Once prices are discussed a delay may just be due to a licensor asking for too much money” (¶667).

D. Non-Discrimination.

The non-discrimination (ND) prong of the FRAND commitment is important, but has received far less attention from courts than other issues. Justice Birss devotes substantial space to the non-discrimination arguments made by the parties, and develops some novel theories in doing so.

D.1 Similarly-Situated Licensees.  There is general consensus (including among the experts in this case) that in order to comply with the non-discrimination prong of the FRAND commitment, a SEP holder must treat “similarly situated” licensees in a similar manner (¶485).  Several commentators have understood this constraint to allow a SEP holder to charge different royalty rates to implementers based on their size or market share (often with the understanding that larger players are likely to sell more licensed products and thus pay higher levels of royalties) (Gilbert (2011), Carlton and Shampine (2013)). Justice Birss, however, reasons that a FRAND royalty rate should be set based on the value of the licensed patents, not on the size of other characteristics of the licensee (¶175).  Thus, “all licensees who need the same kind of licence will be charged the same kind of rate” (id.) and “[s]mall new entrants are entitled to pay a royalty based on the same benchmark as established large entities” (¶806(8)).  This attempt to level the playing field for new market entrants is a positive development, as this issue is currently being debated in other FRAND cases around the world.

D.2 Hard-Edged Non-Discrimination.  But despite bolstering the non-discrimination commitment by eliminating size-based discrimination, Justice Birss then weakens it by holding that a licensee cannot challenge a license allegedly granted on FRAND terms if it later discovers that a similarly-situated implementer received a lower royalty rate unless the difference would “distort competition” between the two licensees (¶501).  In reaching this conclusion, he rejects the notion that the ND prong of FRAND implies a “hard-edged” obligation that establishes a ceiling on the rate that a SEP holder may charge. Justice Birss justifies this conclusion under a competition law rationale, noting that a competition law violation would not occur without a competitive distortion.  This reasoning, however, seems to conflate two issues: the competition law effects of violating a FRAND commitment, and the private “contractual” meaning of the FRAND commitment itself.  I am uncertain whether the participants in an SDO would interpret the non-discrimination prong of FRAND to allow discrimination between similarly situated licensees.  While a competition law violation might not arise absent some distortion to competition, I believe that the underlying contractual meaning of FRAND must impose a stricter definition of non-discrimination that would prevent all but the most inconsequential differences between similarly situated licensees.

E. FRAND Royalty Calculation Methodology

Perhaps the most significant aspect of Justice Birss’s opinion in Unwired Planet is his careful calculation of the FRAND royalty applicable to the parties’ transaction.  He offers two possible methods of calculating the FRAND royalty, one based on an analysis of comparable license rates, the other based on a top-down analysis of the total aggregate royalty that should be attributable to the standards and SEPs at issue.  Both of these methods are discussed in greater detail below.  What is most refreshing about Justice Birss’s opinion, however, is the absence of any attempted application of the 15-factor Georgia-Pacific framework for “reasonable royalty” patent damages, which U.S. courts feel compelled to apply despite the fact that a FRAND royalty calculation is not a remedial damages calculation.  Without the baggage of Georgia-Pacific to clutter the analytical exercise, Justice Birss can focus on the actual task at hand: computing the value of the patented technology as compared to the standard and product at issue.

E.1 No ex ante valuation.  In addition to disregarding the U.S. Georgia-Pacific framework, which clearly has no place in a UK decision, Justice Birss rejects another touchstone of U.S. FRAND analysis: the notion that a FRAND royalty should reflect the ex ante value of the patented technology, without considering any value attributable to the adoption of the technology in a standard. This theoretical construct, which has a solid basis in economic analysis, has been adopted by both scholars (see, e.g., Lemley and Shapiro (2007) and Farrell et al (2007)) and courts in the U.S. (Ericsson v. D-Link, 773 F.3d at 1232). It has, however, come under increasing criticism by commentators who advocate ceding at least part of the value of standardization to the SEP holder (see, e.g., Siebrasse and Cotter (2017) and Sidak (2016)). In rejecting the ex ante valuation approach Justice Birss acknowledges that he is departing from the decisions of U.S. courts in cases such as Innovatio and Ericsson v. D-Link (¶97).  In the end, however, he notes that the point is moot, as neither party pressed to use this approach.

E.2 Comparables Method.  Like many U.S. judges, Justice Birss relies heavily on comparable license agreements to determine a FRAND royalty.  While the use of comparable licenses has been criticized on the basis that most licenses are not really comparable to the desired FRAND license (see, e.g., Masur (2015)), the fact that Unwired Planet obtained each of the asserted patents from Ericsson was convincing proof that at least Ericsson’s licenses were comparable to whatever Unwired Planet would have negotiated with Huawei (¶180).  Indeed, Justice Birss found that most other licenses (i.e., not involving Ericsson) proffered by the parties were not suitable comparables.

After identifying a suitable set of comparable Ericsson licenses, Justice Birss reasoned that the appropriate FRAND royalty rate for Unwired Planet’s 2G/3G/4G SEP portfolio should be the rate charged by Ericsson for its 2G/3G/4G SEP portfolio, multiplied by a factor representing the relative strength of Unwired Planet’s portfolio to Ericsson’s (¶807(4), (7)).  Using these inputs, he calculates the FRAND rates for Unwired Planet’s portfolio as follows (¶807(8)):

a) 4G/LTE: 0.062% for handsets, and 0.072% for infrastructure;
b) 3G/UMTS: 0.032% for handsets, and 0.016% for infrastructure; and
c) 2G/GSM: 0.064% for handsets, and 0.064% for infrastructure.

While this calculation results (as shown below) in a FRAND rate that is validated through other methods, it is questionable whether this methodology (which is dependent on having a comparable license under which the asserted SEPs were previously licensed) has significant applicability to other cases.  That is, FRAND rates in cases such as Microsoft v. Motorola and Ericsson v. D-Link could not have been calculated as simply or reliably as the rate in Unwired Planet because there did not exist an original SEP owner that sold a subset of its SEPs to the licensor in the case.  Thus, the straightforward apportionment of a fraction of the overall Ericsson portfolio to Unwired Planet would not have worked when Motorola or Ericsson itself was the licensor.  As such, the court in Unwired Planet may simply have been the beneficiary of good luck in having at hand such a clear set of comparable licenses.  This being said, the individual circumstances of a case are always key to resolving it, and I have previously observed that similar good fortune (in the availability of patent pools covering the standards at issue) played a significant role in establishing patent pool values as comparables in Microsoft v. Motorola, another well-reasoned decision.

E.3 Top-Down Methodology.

In addition to the comparables method described above, Justice Birss uses a second FRAND calculation methodology as a “cross-check” of the result obtained using the comparables methodology (¶476).  This is a “top down” or “aggregate royalty burden” approach, in which the aggregate royalty attributable to a standard under all SEPs is computed and then allocated to the SEP holder in suit. This approach has been advocated by commentators (Bartlett and Contreras, 2017) and has been attempted in cases including Innovatio (2012), as well as the Japanese IP High Court’s decision in Samsung v Apple Japan.

Under the top down method defined by Justice Birss, the FRAND royalty equals T x S, where T is the total aggregate SEP royalty burden of a particular standard on a product (i.e., the percentage of a smartphone’s price that should be charged for all patents covering 4G), and S is the share of that aggregate royalty that is allocable to the SEP holder (Unwired Planet) (¶178).  To calculate “T”, Justice Birss considered public statements made by Ericsson and other holders of SEPs covering the relevant standards (¶¶264-272) (for a discussion of the usefulness and enforcement of such public patent “pledges”, see Contreras (2015)).  He then calculated “S”, Unwired Planet’s share of the relevant SEPs, using a variety of counting and filtering methodologies proposed by the parties’ experts, including a filter for the likely essentiality of the patents in the asserted portfolio (¶325 et seq.).  The resulting FRAND rates served as validating cross-checks for the rates obtained using the Comparables methodology.

F. Injunctive Relief

The court concludes with a brief discussion of the injunctive relief requested by Unwired Planet: “Since Unwired Planet have established that Huawei have infringed valid patents … and since Huawei have not been prepared to take a licence on the terms I have found to be FRAND, and since Unwired Planet are not in breach of competition law, a final injunction to restrain infringement of these two patents by Huawei should be granted” (¶807(18)).  Accordingly, Justice Birss ordered a hearing in “a few weeks’ time” to determine whether, by then, Huawei had entered into a license agreement with Unwired Planet at the rates he specified and, if not, to consider, and likely issue, the injunction.

Conclusions

In Unwired Planet v. Huawei, Justice Birss adopts a balanced and well-reasoned approach to determining FRAND royalties and assessing the parties’ contractual and competition law obligations in the face of FRAND commitments.  In doing so, he takes several important theoretical stands, which could have significant implications for the manner in which such cases are decided and how parties interact during FRAND negotiations.  Specifically, Justice Birss holds that there is but a single FRAND royalty rate applicable to any given set of SEPs and circumstances, but does not fault the parties for failing to pinpoint that rate in their initial offers or negotiations.  Abuse of dominance under Section 102 TFEU, he reasons, does not occur under Huawei v. ZTE unless a SEP holder’s offer is significantly above the true FRAND rate.  Likewise, he rejects the idea of “hard-edged” non-discrimination, concluding that even if a SEP holder has granted another licensee a lower royalty rate, an implementer may not challenge its own FRAND license so long as the difference does not distort competition between the two licensees. While I do not necessarily agree with all of his conclusions, I applaud Justice Birss’s careful and balanced reasoning in Unwired Planet v. Huawei.  I expect that it will become an important touchstone for courts around the world as they wrestle with the complex issues that arise in FRAND royalty cases.

The Federal Circuit has updated its original decision in Asetek, with Judge Prost deleting her dissent and her points being incorporated into the majority opinion.  The change here relates to the injunction pending remand.

Asetek sued CMI/Cooler-Master for infringing its computer fan patents. U.S. Patent Nos. 8,240,362 and 8,245,764 (“cooling systems”).  A jury sided with Asetek and the patentee was awarded damages as well as an injunction against specific Cooler Master products.  The problem – is that the injunction was awarded against CMI USA as well as “Cooler Master Co., Ltd.”, a Taiwanese company who was no longer a party to the lawsuit.   On appeal, the Federal Circuit substantially affirmed but remanded on the injunction since it applied to a non-party and went beyond that non-party’s ‘abetting a new violation’ by the adjudged infringer.

The oddity of the original Judge Taranto opinion was that it did not actually vacate the injunction but kept it in-force until modified by the lower court. “We do not think it appropriate to vacate the injunction at present.”  Writing in dissent, Chief Judge Prost argued that “The correct course of action would be to vacate the portions of the injunction that improperly reach Cooler Master.”

Following the original opinion, CMI filed for rehearing and that has been partially granted today with a new opinion from the original panel.  The new opinion here adopts Chief Judge Prost’s position and her partial dissent is deleted as is the panel’s non-vacatur.  The new opinion now partially vacates the injunction so that it no longer applies to the non-party (except for aiding and abetting).  The new paragraph:

Two final, related points. First, the need for further proceedings to determine the proper reach of the injunction in this case leads us to vacate the injunction, effective upon issuance of our mandate, insofar as the injunction reaches conduct by Cooler Master that does not abet new violations by CMI. The district court is to conduct those proceedings in as reasonably prompt a fashion as possible. Our partial vacatur of the injunction does not foreclose Asetek from pursuing reinstatement of the vacated portion of the injunction should there be unjustifiable delay by Cooler Master in completing the proceedings, or from pursuing any other remedies against Cooler Master, if otherwise authorized by law.

The en banc court simultaneously released its denial of rehearing after noting that the panel had revised its opinion.  CMI’s en banc petition began as follows:

The Panel Majority’s precedential opinion has promulgated a new rule that a pre-liability permanent injunction against a non-party is permissible pending a determination of liability under the “legally identified with” theory. There are three issues with this opinion. First, it violates the rule that everyone has a right to his day in court. Second, it violates the rule that actual success on the merits must precede entry of a permanent injunction. Third, its remand of further proceedings to determine the “legal identity” issue is an impermissible advisory opinion.

I believe that the revised decision here is legally correct, but it always gives me pause to watch companies and owners divide-up the structure of their firms without substantially dividing management and control — and then use that division to partially avoid legal liability.  The end result is that the potential corporate complexity can substantially raise the costs of enforcement without providing any social benefit.  In this case, Asetek writes that “the precise historical and corporate relationship between CMI and Cooler Master is murky; not even their counsel is sure of it.”  The parties always had the same attorneys, and CMI distributes all of Cooler Master’s products in the US, and assists with US marketing.

• Original opinion (AsetekOriginalOpinion)
• Partial grant of panel rehearing with explanation of changes (AsetekPanelGrant)
• Modified opinion (AsetekModifiedOpinion)
• Denial of rehearing en banc (AsetekEnBancDenial)

In a 7-1 decision delivered by Justice Alito, the Supreme Court has expanded its recent copyright decision in Petrella to now hold that laches cannot be invoked as a defense in patent cases to prevent legal damages within the statutory 6-year limitations period of 35 U.S.C. § 286.

The basic idea is that Laches is a judge-made remedy created by the court of equity in the absence of any statute of limitations.  However, when Congress acts to create a statute of limitations – as it did with §286 – the judge-made law no longer has a role to play.

Again playing on a decade-long-theme of no-patent-exceptionalism, the court wrote:

Indeed, it would be exceedingly unusual, if not unprecedented, if Congress chose to include in the Patent Act both a statute of limitations for damages and a laches provision applicable to a damages claim. Neither the Federal Circuit, nor First Quality, nor any of First Quality’s amici has identified a single federal statute that provides such dual protection against untimely claims.

https://www.supremecourt.gov/opinions/16pdf/15-927_6j37.pdf

Justice Breyer dissented – arguing that “for more than a century courts with virtual unanimity have applied laches in patent damages cases” in order to fill an important gap in the statutory regime.

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Supreme Court to Review (and likely Reject) Laches as a Defense in Patent Infringement Cases

SCA Hygiene Laches Oral Arguments: How Do we Interpret Congressional Silence?

Court Maintains Laches Defense for Back Damages in Patent Cases

The appeal here is somewhat complicated – as reflected by the Federal Circuit’s 42-page opinion.  The complications begin with the founding of EVE, and emulation software company founded by folks who invented emulation software at Mentor. Synopsys then acquired EVE.   EVE had previously licensed some of Mentor’s patents, but Mentor claims the license was terminated by the Synopsys acquisition.

Ending Assignor Estoppel: The jury found that Synopsys infringed Mentor’s U.S. Patent No. 6,240,376 and awarded $36 million in lost profits damages.  The district court had refused to allow Synopsys to challenge the patent’s validity based upon the doctrine of assignor estoppel.  The judge-made doctrine prohibits a patent’s seller/assignor (such as an inventor who assigned rights to his employer) from later challenging the validity of a patent in patent infringement litigation.   Here, Synopsys agreed that the doctrine applied since the inventors of the ‘376 patent had founded and continued to operate EVE that was the source of the infringement.   However, the adjudged infringer boldly asked the Federal Circuit to eliminate the doctrine (as the PTAB has done) since Supreme Court “demolished the doctrinal underpinnings of assignor estoppel in the decision that abolished the comparable licensee estoppel in Lear, Inc. v. Adkins, 395 U.S. 653 (1969).” On appeal, the Federal Circuit panel disagreed – as it must – following its own precedent such as Diamond Sci. Co. v. Ambico, Inc., 848 F.2d 1220, 1222–26 (Fed. Cir. 1988) and MAG Aerospace Indus., Inc. v. B/E Aerospace, Inc., 816 F.3d 1374, 1380–81 (Fed. Cir. 2016).  The setup here is proper for en banc or Supreme Court petition.  On Point is Mark A. Lemley, Rethinking Assignor Estoppel, 54 Hous. L. Rev. 513 (2016) (arguing that the doctrine “interferes with both the invalidation of bad patents and the goal of employee mobility”).

Indefinite: The district court held on summary judgment that Synopsis’ cross-asserted U.S. Patent No. 6,132,109 is indefinite. On appeal, the Federal Circuit reversed.  The asserted claims require a “circuit analysis visually near the
HDL source specification that generated the circuit.”  And, the district court found that the undefined term-of-degree “near” rendered the claim indefinite.

Patent law requires that the claims “inform, with reasonable certainty, those
skilled in the art about the scope of the invention.” Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014).  Terms of degree are certainly permissible, but the patent document must include “some standard” used to measure the term of degree.

Here, the court walked through terms of degree that have been accepted post Nautilus: “spaced relationship”,  “visually negligible”, and “look and feel” based upon the intrinsic evidence or established meaning in the art.

Here, the specification indicates that the nearness of the circuit analysis display is to allow “a designer to make more effective use of logic synthesis and reduce the complexity of the circuit debugging process.”  In addition, the specification provides several diagrams showing the analysis next to the appropriate line of code (below). These descriptions provided enough of a standard for the court to find a reasonable certainty as to the scope of the term and the claim as a whole. “[W]e hold a skilled artisan would understand “near” requires the HDL code and its corresponding circuit analysis to be displayed in a manner that physically associates the two.”  On remand, Synopsys will get a shot at proving infringement of this patent.

Eligibility: A separate Synopsys patent was found ineligible. U.S. Patent No. 7,069,526 (asserted claims 19, 24, 28, 30, and 33). The claims are directed to “A machine-readable medium containing instructions …”  The problem is that the patent expressly defines “machine-readable medium” to include “carrier waves” and therefore is invalid under In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007).  In Nuijten, the court held that transitory signals are not eligible for patenting because they do not fit any of the statutory classes of “process, machine, manufacture, or composition of matter.” The here court writes: “Because the challenged ’526 claims are expressly defined by the specification to cover carrier waves, they are similar to the ineligible Nuijten claims.”

Claim Preclusion: Finally, the Mentor has successfully appealed the district court claim preclusion holding as to Mentor’s U.S. Patent Nos. 6,009,531 and 5,649,176.  Back in 2006, Mentor had sued EVE for infringing the patents.  That litigation settled with Eve’s license and a dismissal with prejudice.

Here, the Federal Circuit held that claim preclusion cannot apply because the current litigation is based upon acts that occurred subsequent to the prior settlement.

Mentor’s infringement allegations are based on alleged acts of infringement that occurred after the Mentor/EVE license terminated and were not part of the previous lawsuit. Claim preclusion does not bar these allegations because Mentor could not have previously brought them.

What is a bit unclear here is how the license plays in.  The court noted that the current infringement claims are “based on post-license [termination] conduct, so the alleged infringement did not exist during the previous action.”  It is unclear how the court would deal with pre-termination conduct.

Note: The case also includes an important holdings on lost profits damages, willfulness, and written description that we’ll save for a later post.

by Paul M. Janicke┼

When the Supreme Court reverses the Federal Circuit’s venue ruling in the TC Heartland case, a reversal widely expected, it will return patent venue to the time prior to 1988, when the residence of a corporation for patent venue purpose was limited to (i) a district within the state of incorporation, or (ii) a district where the corporation has a regular and established place of business and has allegedly committed an act of infringement. Presently pending in the Eastern District of Texas are 1,000+ patent cases. The number may go up or down a little before the Court’s ruling, but it’s not likely to change much in that short time.[1] My inquiry is: What will happen to those cases?  My analysis on this subject can be found at Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1..

The new venue statute upon which the Court will base its ruling became effective in January 2012. That means it applies to nearly all the cases now on the Eastern District’s docket, and the venue for hundreds of those cases was likely improper. Those defendants who are not Texas corporations and who lacked any regular and established place of business in Eastern Texas when suit was filed will be entitled to dismissal or transfer to a district that would have been proper under the new law, unless they have waived the improper venue defense. Let’s take a look at the groups of possibly affected defendants.

Local Merchants

Some defendants are local merchants in the Eastern District, accused of infringement only because they sell products made by others. Venue as to these merchants will be proper under either the old or new venue rules, so they are entitled to neither dismissal nor transfer. If the case against a merchant’s vendor is transferred, the merchant’s best bet is to seek a stay of the case against it. While stays are not particularly favored in the Eastern District, a situation like the present one has not likely been encountered before. It may work.

Active Players As Defendants

These are typically manufacturers of high-tech products or vendors of software. Computer-related technology is said to be the subject of over 90% of patent case filings in the district. Most of them lack any regular place of business in Eastern Texas, although we have found some 70 companies who employ 100 or more persons in the district and are defendants in pending patent cases there. Most of these businesses are in Plano, with a few in Beaumont. They too will have to stay put. It isn’t required that the place of business be related to the accused infringing activity.

The Many Other Defendants, And the Problem of Waiver

Those companies lacking a regular business location in the Eastern District will, for the most part, want to exit that district. Some may choose to stay there in order to effect a quick settlement or to show support for their beleaguered customers who have been sued in the district, but I estimate at least 800 will consider seeking a transfer. These break down into two roughly equal groups, those who have waived improper venue and those who have not. Waiver of this defense most typically occurs by failure to plead it in the answer or in an early motion under Rule 12. A sampling of pleadings in pending Eastern District patent cases reveals that in roughly 400 cases the main defendant did not plead improper venue or make a Rule 12 motion. (Note that this is a different subject from inconvenient venue, which is handled under a different statutory section and was sometimes pleaded in the answers.) It is understandable why the improper venue pleading was missing in so many cases: No one knew or even suspected until very recently that the venue rules had been changed by Congress in 2011, effective for all cases filed after January 2012. Good ethical lawyers know they shouldn’t plead a matter for which they have no legal or factual basis, and so they didn’t, and therein lies the waiver. Unfortunately, they cannot undo it by arguing “change in the law.” The change occurred in 2012.

The other group of defendants may have been insightful, but more likely were just following a form-book shotgun answer, and so they did plead improper venue in their answers. Answering this way is usually enough to preserve this defense, but not always. It has been held that taking discovery does not trigger a waiver, nor does proceeding to trial. It is thought that the corporate defendant who has pleaded the defense unsuccessfully has been forced to remain in the improper forum, so these litigation activities are not held against it. However, some courts have held that moving for summary judgment (unsuccessfully of course) is a different matter and does cause a waiver. You are not obliged to seek summary judgment, and you are invoking the court’s power. So some in the second group may find they too have waived.

For Those Exiting, Where Will They Be Sent?

This leaves about 400 non-waived cases. The case law on improper venue cases shows a distinct judicial preference for transfers rather than dismissals. To what districts will these non-waived defendants be transferred? Whatever districts are chosen, we should bear in mind that some of the NPE plaintiffs may not wish to follow, due to the expense involved, so those cases may effectively end. For more serious plaintiffs, we do not know where the cases will go. It depends on subjective factors applicable to each case, but here are some possible options: (1) Choose a district that one or both parties ask for. (2) Select a proper district that has a number of patent pilot judges, the three largest being Northern Illinois, Southern New York, and Central California. (3)  Use history as a guide: In 1997, one year before the large influx to Eastern Texas began, the busiest patent districts were Northern California (172 filings), Central California (162 filings), and Northern Illinois (116 filings). In that year the number of patent cases filed in the Eastern District of Texas was: 10. We shall soon see.

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┼ Professor of Law, University of Houston Law Center

[1] The case is set for argument March 27, with a decision very likely before the end of the Court’s term in June.

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Read the Article: Janicke.2017.Venue

Prior Patently-O Patent L.J. Articles:

• Mark A. Lemley, Erik Oliver, Kent Richardson, James Yoon, & Michael Costa, Patent Purchases and Litigation Outcomes, 2016 Patently-O Patent Law Journal 15 (Lemley.2016.PatentMarket)
• Bernard Chao and Amy Mapes, An Early Look at Mayo’s Impact on Personalized Medicine, 2016 Patently-O Patent Law Journal 10 (Chao.2016.PersonalizedMedicine)
• James E. Daily, An Empirical Analysis of Some Proponents and Opponents of Patent Reform, 2016 Patently-O Patent Law Journal 1. (Daily.2016.Professors)
• Tristan Gray–Le Coz and Charles Duan, Apply It to the USPTO: Review of the Implementation of Alice v. CLS Bank in Patent Examination, 2014 Patently-O Patent Law Journal 1. (GrayLeCozDuan)
• Robert L. Stoll, Maintaining Post-Grant Review Estoppel in the America Invents Act: A Call for Legislative Restraint, 2012 Patently-O Patent Law Journal 1 (Stoll.2012.estoppel.pdf)
• Paul Morgan, The Ambiguity in Section 102(a)(1) of the Leahy-Smith America Invents Act, 2011 Patently-O Patent Law Journal 29.  (Morgan.2011.AIAAmbiguities)
• Joshua D. Sarnoff, Derivation and Prior Art Problems with the New Patent Act, 2011 Patently-O Patent Law Journal 12 (sarnoff.2011.derivation.pdf)
• Bernard Chao, Not So Confidential: A Call for Restraint in Sealing Court Records, 2011 Patently-O Patent Patent Law Journal 6 (chao.sealedrecords.pdf)
• Benjamin Levi and Rodney R. Sweetland, The Federal Trade Commission’s (FTC) Recommendations to the International Trade Commission (ITC):  Unsound, Unmeasured, and Unauthoritative, 2011 Patently-O Patent Law Journal 1 (levi.ftcunsound.pdf)
• Kevin Emerson Collins, An Initial Comment on King Pharmaceuticals: The Printed Matter Doctrine as a Structural Doctrine and Its Implications for Prometheus Laboratories, 2010 Patently-O Patent Law Journal 111 (Collins.KingPharma.pdf)
• Robert A. Matthews, Jr., When Multiple Plaintiffs/Relators Sue for the Same Act of Patent False Marking, 2010 Patently-O Patent Law Journal 95 (matthews.falsemarking.pdf)
• Kristen Osenga, The Patent Office’s Fast Track Will Not Take Us in the Right Direction, 2010 Patently-O Patent L.J. 89 (Osenga.pdf)
• Peter S. Menell,  The International Trade Commission’s Section 337 Authority, 2010 Patently-O Patent L.J. 79
• Donald S. Chisum, Written Description of the Invention: Ariad (2010) and the Overlooked Invention Priority Principle, 2010 Patently‐O Patent L.J. 72
• Kevin Collins, An Initial Comment on Ariad: Written Description and the Baseline of Patent Protection for After-Arising Technology, 2010 Patently-O Patent L.J. 24
• Etan Chatlynne, Investigating Patent Law’s Presumption of Validity—An Empirical Analysis, 2010 Patently-O Patent L.J. 37
• Michael Kasdan and Joseph Casino, Federal Courts Closely Scrutinizing and Slashing Patent Damage Awards, 2010 Patently-O Patent L.J. 24 (Kasdan.Casino.Damages)
• Dennis Crouch, Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent L.J. 19 (2010)
• Edward Reines and Nathan Greenblatt, Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II, 2010 Patently‐O Patent L.J. 7  (2010) (Reines.2010)
• Gregory P. Landis & Loria B. Yeadon, Selecting the Next Nominee for the Federal Circuit: Patently Obvious to Consider Diversity, 2010 Patently-O Patent L.J. 1 (2010) (Nominee Diversity)
• Paul Cole, Patentability of Computer Software As Such, 2008 Patently-O Patent L.J. 1. (Cole.pdf)
• John F. Duffy, The Death of Google’s Patents, 2008 Patently O-Pat. L.J. ___ (googlepatents101.pdf)
• Mark R. Patterson, Reestablishing the Doctrine of Patent Exhaustion, 2007 Patently-O Patent L.J. 38
• Arti K. Rai, The GSK Case: An Administrative Perspective, 2007 Patently-O Patent L.J. 36
• Joshua D. Sarnoff, BIO v. DC and the New Need to Eliminate Federal Patent Law Preemption of State and Local Price and Product Regulation, 2007 Patently-O Patent L.J. 30 (Download Sarnoff.BIO.pdf)
• John F. Duffy, Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Patent L.J. 21. (Duffy.BPAI.pdf)
• Joseph Casino and Michael Kasdan, In re Seagate Technology: Willfulness and Waiver, a Summary and a Proposal, 2007 Patently-O Patent L.J. 1 (Casino-Seagate)

Prism Tech v. Sprint Spectrum (Fed. Cir. 2017) [prismtech]

The Nebraska jury found Sprint liable for infringing Prism’s patents and awarded $30 million in reasonable-royalty damages. U.S. Patent Nos. 8,127,345 and 8,387,155. [verdict]

AT&T was also sued under the patents but ended up settling the case for [REDACTED LARGE SUM OF MONEY].  On appeal, Sprint argued (unsuccessfully) that the settlement should not have been shown to the jury under Federal Rule of Evidence 403.

FRE 403 permits exclusion of “relevant evidence” when its “probative value is substantially outweighed by a danger of one … unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.”

Prior settlement agreements are obviously probative since they help to establish value of the patented technology in the industry.   Traditionally, the settlement value is modeled as less than the value of the patent once its validity and infringement are established.  However, the mixture of risk aversion and litigation costs lead to some settlements that appear greater than the expected value of patent rights.

Here, the Federal Circuit found found “adequate basis for admitting the AT&T Settlement Agreement.” The agreement covered the same patents and – at trial – Prism’s expert explained differences between usage of AT&T and Sprint to help the jury use the prior agreement as comparable.

That Agreement covered the patents at issue here, though not only the patents at issue here. In that common situation, evidence was needed that reasonably addressed what bearing the amounts in that Agreement had on the value of the particular patents at issue here.

For me, the larger potential issue is that the jury is more likely to find the patent valid and infringed if it know that AT&T already paid a [REDACTED LARGE SUM OF MONEY] to settle the case.  This would suggest at least a bifurcated trial.  However, Sprint did not appear to make that argument on appeal.

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A very interesting argument raised by Sprint on appeal was based upon Rude v. Wescott, 130 U.S. 152 (1889).  In particular, Sprint argued that prior licenses can be used to prove an “established royalty” but not to prove a “reasonable royalty.”  Of course, a single license would not be sufficient to prove the established royalty. See also Cornely v. Marckwald, 131 U.S. 159 (1889).

The Court held in Rude that there was insufficient evidence to prove what has been called an “established royalty” as a measure of damages at law for patent infringement—i.e., “such a number of sales by a patentee of licenses to make, use and sell his patents, as to establish a regular price for a license.”  On appeal, the Federal Circuit rejected the argument as too-old: “The Court in Rude used both the language of patent damages law and the language of evidence law, and both have changed significantly since Rude.”  In addition, the court likely cut-short certiorari on the issue by finding that Sprint had failed to properly preserve the arguments for appeal.

The case here involves a set of genetically modified crops containing the pat gene, which confers resistance to the herbicide glufosinate.  Some of the crops include additional genetically modified resistance n a “molecular stack” with additional herbicide resistant genes such as aad-12 ( 2,4-D herbicide tolerance) and dmmg.

The parties here have a long history of licenses and cross-licenses. However, after an accusation of IP theft,  in 2012 Bayer sued Dow for infringing its U.S. Patent Nos. 5,561,236, 5,646,024, 5,648,477, 7,112,665, and RE44,962.  In response, Dow filed a set of for inter partes reexam requests (still pending)

That litigation was dismissed because of an arbitration agreement – that resulted in a $455 million arbitration award for Bayer for lost profits and reasonable royalty and also an arbitration judgment that the patents were not invalid.

In a non-precedential opinion, the Federal Circuit has affirmed the district court’s confirmation of the arbitration award with the minor exception of interest calculation.  Here, the arbitrator awards are powerful becaues they can only be overturned based upon quite “demanding standards” involving “manifestly disregard the law.”  A portion of the award included what appears to be post-expiration royalties. However, the Federal Circuit held that the manifest-disregard standard is so high that even those damages cannot be vacated (one of the five patents has not yet expired).

• Decision: bayercropsciencesopinion
• Arbitration Award: bayercropsciencesarbaward

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This case is actually the first time that I have seen the arbitration award submitted to the USPTO as required by 35 U.S.C. § 294(d).

(a) A contract involving a patent or any right under a patent may contain a provision requiring arbitration of any dispute relating to patent validity or infringement arising under the contract. . . .

(d) When an award is made by an arbitrator, the patentee, his assignee or licensee shall give notice thereof in writing to the Director. . . . The Director shall, upon receipt of either notice, enter the same in the record of the prosecution of such patent. If the required notice is not filed with the Director, any party to the proceeding may provide such notice to the Director.

(e) The award shall be unenforceable until the notice required by subsection (d) is received by the Director.

However, anyone inspecting the award will notice substantial redacted portions (including portions relating directly to the validity and infringement issues).  I would suggest that submission does not fully comply with the requirements of Section 294.